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Operator: Welcome to CellaVision Q3 Report 2025. [Operator Instructions] Now I will hand the conference over to CEO, Simon Ostergaard. Simon Østergaard: Thank you very much, and thanks to everyone taking the time to listen in to our quarterly report that we've launched this morning for our third quarter. I'm happy to say that I also have our Interim CFO, Monica Jonsson, with me, and we'll be happy to also answer any questions you may have when we get to that part of the session. So, the quarter in brief. So, we have named our quarterly report softer quarter with mixed regional performance, and this is also related to currency effects. We saw Americas and EMEA had some quarterly variations resulting in modest growth, which we are highlighting here. We are coming out with a quarter here where we are reporting net sales decreased by 1.7 percentage points to SEK 176 million. However, due to the FX headwind of minus 4.3%, then sales increased organically by 2.6% during this quarter versus the comparable quarter last year. On the EBITDA side, we increased our EBITDA to SEK 50 million. So, we increased by SEK 1 million, and this relates to -- or corresponds to an EBITDA margin of 28%, also a small increase. In terms of what we want to highlight with regards to our strategic direction and our progress, we actually see a lot of progress. It's a very exciting time for the company and our partner. We're highlighting the fact that we've completed our clinical trial. We've submitted our documentation to receive the CE Marking for our bone marrow application. So, we do expect this one to be done according to plan and obtain the CE mark by here we say, early 2026. I think we've said Q1, so that's still in line. But we are positively optimistic around it, even though there are, of course, always risks with anything, but this is an exciting time. So now we are really looking into training and the commercial launch activities for 2026. Another big chunk of our investment has gone into an upgraded software for our platforms where we've done the verification that has been completed and now being installed at customer sites for final validation before we roll it out, which is planned for next quarter, which is this quarter here in November. All right, here we go. And then a slide around the financial development. So, it's a busy slide, but what you have here is our Q3 numbers reported fresh at the very left-hand side, the comparable quarter and then the year-to-date numbers for 2025 in the middle, followed by the compare last year and then the full year 2024 on the very right-hand side. So, I talked about the organic growth and the revenue of SEK 176 million. If we sort of peel the onion and then work our way through the P&L, that translates into a gross margin of 69%. So, we increased the gross margin by 1 percentage point. We had full impact from our price increases during Q3, and we had a little bit of a product mix. So that was a positive contribution. On the operating expense side of things, we invested SEK 82 million, went down with -- as compared to last year, a little bit on sales, a little bit on admin and according to plan, invested a little bit more on the R&D side. So that actually translated into a growth of EBITDA of around 2 percentage points. So, from SEK 49 million to SEK 50 million despite the negative decline in revenue. On the R&D side, as you can see, 24% so we have -- of sales is what we have invested into R&D, of course, slightly affected by sales. However, really, the investments are following our plan, and we've capitalized a little bit less than normal, only SEK 14 million this quarter, which is primarily due to the vacation piece and partly also completion of the software upgrade, which also had a little bit of an impact on how much we capitalized. On the cash flow side of things, we had a cash flow before the working capital items of SEK 52 million. And then the working capital adjustments or impact was actually minus SEK 22 million, and the majority of that was from accounts receivable since we had quite a number of orders being placed in September. So, this is why our accounts receivable increased. So, we had an operating cash flow of SEK 29.6 million, SEK 30 million. And on the investment side, we invested SEK 22 million, both on the capitalized R&D activities, as I said, but also investments into data storage was a significant chunk this year to serve our capacity for some of our new technologies. And then after subtracting our SEK 4 million of finance activities, the cash flow that were related with that, we ended up with a total cash flow of SEK 4 million. So that's really the story around our P&L. Let's take a look at the regional highlights. So, in Americas, we had 68 million on the top line coming from the Americas region, South and Northern America, which is equivalent to an organic growth of 4%. So, we also had currency effect there, of course. I'd say, in general, it was carried by -- it came from really good traction on the large instrument platforms and less from the smaller instruments, where we saw a modest decrease. However, we also saw good traction in Latin America. So that is also positive for future growth. In general, I'd say our sort of also when we look at our leading indicator in collaboration with our strategic partner. We believe that we have an increasing potential in the U.S., which was also confirmed in the half year report of Sysmex launched yesterday. In EMEA, likewise, sales amounted to SEK 96 million versus the SEK 98 million last year. That is an organic growth of 1%. I think this was actually acceptable also in the light that we were up against a pretty tough compare since we had inventory buildup in the comparable quarter last year. So, a decent single-digit growth in reality. We had reagents growth as well, quite a bit from EMEA. However, on the hematology side, it was modest -- very modest with only 1%. So, there is some phasing of orders on the hematology side there. But generally, a good 14% growth on the reagent business. For APAC, I'd highlight that it was a soft quarter, SEK 13 million, so 10% growth, but of course, on a very low base. This was also what we hinted in our previous quarterly report where we had some inventory shipping since we are entering our program where we are manufacturing out of China. So, we ship quite a number of parts and instrument modules to China, which impacted sales, but this was the main contributor to a soft sales across APAC. We sold also outside of China. So, we do see momentum in pockets across Southeast Asia and Australia. So that is a positive outlook there. And then I also want to emphasize that we are seeing a good traction, 5x improvement of revenue sales from our reagent in APAC. Of course, it's small numbers in APAC, but it gives us the confidence that we -- that our penetration and expansion in APAC on the reagent side is on the right track. If we cut the numbers in terms of sales per product group. So same numbers but sliced per product category. We have SEK 93 million versus SEK 102 million on the instrument category. And again, contribution from the large instruments was important. And then as I just alluded to on the Made in China initiative, it is very important for us to be able to participate in the market in China by manufacturing our instrument in China. So that is a project that is also coming to the end as part of our strategy. On the reagent side, I mentioned the growth of SEK 40 million in revenue versus the SEK 35 million. So that's the 14% growth. So good to see also that our -- what we define as non-hematology is actually contributing with a decent sort of single-digit healthy growth this quarter here. So that is really good. And then finally, on the software side, SEK 43 million. So -- and that is also a correlation up against how we're doing on the instrument side, but it is actually a decent software revenue we accomplished. And also, we had a contribution coming from spare parts and consumables worth SEK 23 million. So, the key takeaways is that, as we say, yes, we've had somewhat softer quarter with some different variation across the regions. But the underlying is a healthy business, which is supported by the gradually expanding strategic partnership, which is advancing across multiple dimensions on internal processes, on the -- now the focus also on launching the products. This is another thing that the power of focus strategy that we launched in June 2022, it is starting to provide the output, both from what you see when we decided to enter the specialty arena or specialty analysis with the bone marrow that is expected to come out. So, our focus and activities are really on training and commercial launch activities, and so they will be here as we start the new calendar year. I also emphasized the software upgrade without going into details prior to launch, then I would say that it is delivering a faster, smarter workflow, and it does have a new cutting-edge user experience. In terms of our fifth pillar in our strategic direction or strategy, the power of focus, we also have these new areas where we expand beyond hematology, which is really the focus of deploying our full Ptychographic Microscopy technology, the FPM technology. And we have reported that we are lifting this into our next-generation hematology analyzer. And that is really proceeding according to plan. And based on this development, we are now also able to really scan different sample formats in the context of cytology and pathology as an example. And that is also an exciting area where we are having discussions with partners -- potential partners playing in those field. So taken together, a solid quarter. We worked hard, but also on the R&D and now on the marketing side is ramping up. So, it's a pleasure to present the results today. And with that, I think we should open the floor for questions. Any questions are, of course, welcome. Thanks. Operator: [Operator instructions] The next question comes from Simon Larsson from Danske Bank. Simon Larsson: I'd like to maybe kick off with a question on the software upgrade you announced here it's rolling out. Should we expect any financial impact from the rollout here already in Q4? And will this be sold as an option to the customers? Will it be mandatory? How will you charge for it? Just any more color on the software upgrade would be helpful. Simon Østergaard: Sure. The software upgrade is seen as an upgrade on our instruments, both on the usability and the performance to improve the workflow. We have decided to -- that this will be part of the package when you purchase the blood line, [indiscernible] as an example, then this will not come with an additional fee for the end user. So, this is really a means of differentiation. So, you should see this as a growth contributor by keep on being relevant in the labs and demonstrating our innovation muscle prior to our next-generation system. That's how you should look at it. Simon Larsson: Okay. That's very clear. And also, on the R&D CapEx here going forward, I think roughly the levels now, I'd say, like SEK 70 million per year capitalized. Should we expect this to decline here going forward as the software product is now rolling out, bone marrow is coming out. Of course, we're still investing in the next-generation instruments, I suppose. But how should -- how do you believe we should look at the capitalized R&D here in the coming, let's say, 1 or 2 years? Should it decline more to a historic level, or should it be kept roughly at the same level? Simon Østergaard: Yes, see, our aspiration is really to maintain focus on us being an innovator -- innovation company. I think we are at a pretty decent level here. On the capitalization, we have a portfolio of projects we want to start -- so this is also a bandwidth question for us. I think we're at a reasonable level. But as we see more of our projects being terminated, it is a balance as to how mature are new projects? Are we capitalizing or are they more immature than that. So, you may see some changes in our capitalization, but our intention is actually to keep on investing in the R&D phase. We expect that as we see more changes also throughout next year, we'll probably give more sort of guidance or update on how we see it as we've come to the end of the power of focus. So, we will certainly be more specific around this particular question as we enter 2026. Simon Larsson: I think that would be a good idea. I think just as you're now sort of finishing up a few of these bigger projects, it would be good to help us understand how we should look at this going forward. Maybe the final one from my end. You mentioned, I think, that the cash flow was a bit held back by an increased amount of orders placed during the end of the Q3 quarter. Could we expect that sort of this dynamic to sort of has continued into Q4, i.e., that sort of how you enter Q4 is looking sort of good on that same trajectory? Or was it just a matter of timing that it sort of ended up in the late Q3 here order intake and delivery? Simon Østergaard: That is simply just the nature of the payment terms when we receive the orders throughout September, then that's why you see this fluctuation on accounts receivable this time around. It's not a systemic thing per se. It's really a timing thing. Operator: The next question comes from Ulrik Trattner from DNB Carnegie. Ulrik Trattner: A few questions on my end. Starting off with the product mix and the gross margin, and you say you've had a favorable product mix here in the quarter, improving margins. But regardless of the mix, some portions here in your profile are increasing its gross margin sequentially, systems software or reagents. And because the margins are a bit higher than it's been before, and you're still sort of affected by negative FX in the quarter. So, can you help us decipher what segment is improving its margins? Simon Østergaard: I think -- so pricing was one element. In terms of mix thing, we still have -- we have 14% growth on the reagent side. That actually pulls down the margin. We have a little bit lower margin on the reagent side versus instruments and software. But that was still -- despite that, we had sort of solid growth on the large instruments, which kind of contributed to the 1% increase versus the last year. Ulrik Trattner: Still sort of when I sort of -- any way you look at it, if you split it up into 2 segments, like cell morphology systems or morphology systems and reagents, some of these segments have improved its gross margin sequentially and year-over-year. Simon Østergaard: Yes. So, help me out here. What are you looking for specifically which product group is it that you're... Ulrik Trattner: I'm just trying to figure out sort of what in the product mix have increased the margin. Regardless of the mix, some of your system or reagents have increased its margins sequentially. And I'm just trying to figure out whether sort of which part of it is moving the needle. Simon Østergaard: I think maybe this time around, I think we had probably more contribution from large systems versus the small. So that has been a contributor -- positively contributing to the overall gross margin. I'd say that's probably the driver you're looking for. Ulrik Trattner: Yes, That’s great. And the software upgrades live here in November enables you to commercialize wider sort of the MCDh reagents. Have you received any feedback from customers? And can you just give us sort of the highlights here of how you intend to commercialize it sort of near term? Will it be initial sort of customer feedback then gradual ramp-up? Or how should we view this? Simon Østergaard: Yes. That’s a great question. No, you're absolutely right that the software upgrade also comes with the opportunity, you can say, changes on the steering and staining device by Sysmex, which is called SP-50. So that has also been upgraded so they can host our methanol-free stain. That's an important part of this integrated software upgrade. So that allows us now to actually start positioning methanol-free stains or Sysmex to position the methanol-free stains to be used on the SP-50, which is a major milestone. So, we're in the phase of evaluating the stain with customers. I believe that Europe will be first. This is where we have the majority of our business on the [indiscernible], the classic stains. So, there will -- there can be some conversion, but obviously, the value proposition of methanol-free is strong. So, we can -- that can still contribute in Europe. And then it's also an enabler for the U.S. And we expect the launch in 2026 for the U.S. Here, there's both customer assessments and a little bit of, you can say, regional preferences that we are working on finalizing, but we expect the launch to be happening next year. That's kind of where we are for the U.S. Ulrik Trattner: And if we were to look at sort of China, and you've been working here and we can read in the reports on sort of transferring systems. And I guess it's Sysmex that is trying to build up manufacturing in China in order to participate in local tenders. So where are they in terms of operations in China? Simon Østergaard: They have a fixed site in China where we work together. So, we are doing our manufacturing of our Chinese devices within China, in their plant as part of that. And they also have cell counters manufactured out of China. And as you say, rightfully, that allows us to actually participate in hospital tenders or deals where it's a prerequisite that you have Chinese manufactured instruments. So, this is why this strategic initiative has been an important enabler for us to continue to compete in a more competitive market as opposed to other elsewhere. Ulrik Trattner: And are we to expect any effects from that initiative or... Simon Østergaard: Sorry, can you repeat that, Ulrik? Ulrik Trattner: Are we supposed to expect any acceleration in China sales from this initiative in the near term? Simon Østergaard: I think it's fair to be mindful also, if you read the report that came out yesterday from Sysmex, it is obvious that China is a fierce competitive market to be in. However, this gives us the opportunity to actually compete in collaboration with China in that market. So, protecting the market share that they report they have, and of course, aiming for growth via differentiation, is our game plan. But it is fierce that we all know that both on the pricing side and on the competitive side with local players, it is a difficult market, but it is relatively sizable out of our APAC numbers, which is also why we have invested in this program to protect our position. Ulrik Trattner: Okay. Great. And last question on my building a little bit more on the capitalized R&D. It's down quite a lot sequentially. And as you highlighted sort of summer months and reported R&D is up. To what degree is this sort of just summer months in prioritization? And how much of this is pipeline maturing? The bone marrow application has now been submitted. What is left in terms of R&D spend for bone marrow application and as well sort of the software upgrade, is also now a commercial product. So, I guess that will not run you that much R&D. Simon Østergaard: No, that's true. I think after Q2, we also released some consultant costs or some consultants, which is also reflected in the less capitalization. And as you say, of course, also the amount capitalized is equal to what we did last year, but coming from a higher base. So that is really because we are also releasing some consultants. Having said that, we are an innovation company. And I think that's super important, which is also what I tried to elaborate to Simon in the previous questions that were posed there. So, we are seeking for opportunities to invest and maintain our strategic focus of differentiating. We cannot disclose what are those programs. That would be unwise from a competitive position. But our intention is to really pursue our direction. And back to -- part of your question was also related to bone marrow. We are confident, as report, of course, there are risks, but we are confident that we are getting the CE mark for Europe. We still have investments to do to complete our trials and the work that we do to also enter the U.S., So we're not fully at harbor, so to speak, with the investments related to bone marrow. Operator: The next question comes from Christian Lee from Pareto Securities. Christian Lee: The first one is regarding the instrument sales that declined year-on-year, but your tone remains optimistic and especially for the larger systems. So, should we view this as an indication that demand strength will translate into stronger instrument sales in Q4 already? Simon Østergaard: I probably defer to sort of be super specific on what happens in Q4. However, I do note that our leading indicators are positive. I do note that Sysmex for the past 2 quarters, so including the quarter they completed, or they reported yesterday, so their Q1 and Q2 equivalent to calendar year Q2, Q3. I do note that they are signaling, or they are reporting instrument growth of 10% in the U.S. and 4% in Europe. And I think there is a healthy environment. This is also what we see. So, we're positively optimistic. So, you read my tone correctly, but I will defer for being super specific until we've seen what orders we get in and so forth. Christian Lee: Okay. Perfect. And demand for smaller instruments appears a bit softer than for the larger ones. Do you view this as a temporary situation? And what factors do you believe could drive a recovery in the near term? Simon Østergaard: Yes. No, I think it's temporarily. I think we, together with our partner, has pushed a concept which included both -- for the small labs, which included both the smearing and staining, and our DC-1 instruments. Prior to this, we had very healthy double-digit growth on the DC-1 instrument sold by itself. And then we positioned this instrument package called the DIFF-Line. And it is no secret that we had some operational performance issues with the SmearBox. So, I truly believe that part of the issue is not the market demand. It's our product issue that we had. And now we do have another simple solution that can substitute. So, it's a matter of getting aligned and getting back and really working with the opportunities as opposed to -- because we have seen a glitch in the pipeline that we built up due to this. But I really trust that it's a temporary thing. The demand is there. And also, if I look at it, especially in the U.S. All the IHNs are set up for our solution. And I do believe we're the only company who can actually serve that segment in a networked manner, from small labs integrated with the connectivity and our software solution to cater and be managed and decided upon from a diagnostic perspective at the large labs. So, it's temporary, Christian. Christian Lee: Okay. Great. My final question, Reagents performed really well with strong momentum in APAC. Do you see any risk of inventory buildup in the reagents that could dampen sales in the fourth quarter? Simon Østergaard: No, you're right. I'd say inventory buildup, then I'm thinking specifically around China. And the challenge there when you build up an own manufacturing is that, first of all, the line, we are selling a lot into China, that is then sitting in the manufacturing line. And then after that, you have a layer of 60 to 70 distributors below. So, there is a very little transparency to the end user in China. So, from that perspective, I would probably answer that, yes, there is a risk of some inventory buildup for the time being because it's very hard to translate how much is actually entering the end users for the time being. So, there's a little bit of risk for that, specifically related to target. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: So I wanted to continue a bit on this last question with APAC instrument sales. So of course, it was lower in Q3 with some inventory destocking following the large Q2 order. But given that you now have local assembly in China, as I understand it, like will this lead to APAC instruments even more lumpy ahead? It has been lumpy historically as well, but could it be even further enhanced now? Simon Østergaard: I think the lumpiness is primarily driven for China and not APAC as a whole. So that's for China specifically, I would say. But temporarily, I can certainly not guarantee that there will not be some lumpiness. China -- sorry, APAC has always been quite lumpy and also because China is the biggest market that we serve. However, I do see opportunities both when we look at Japan and when we look at Southeast Asia, not the least in Australia and New Zealand. So, some lumpiness can occur. And that cannot be sort of neglected, so to speak. But still, I think it's positive that we're actually seeing opportunities both on the instrument side and then also on the reagent side, where we believe there is a good opportunity to actually bundle our offerings because we are the only provider who can actually provide both instrument software and reagents. Ludvig Lundgren: Okay. Great. So yes, just a follow-up to that. So, you saw this SEK 3 million reagent sales in APAC in Q3. Like we have seen some spikes in reagent sales historic as well. Like is this to be considered somewhat of a one-off, this level? Or does it rather reflect that you are seeing a significant increase in reagent customers in the region? Simon Østergaard: No, you're right. It's not a continuous sort of flow. There is lumpiness if you look at the revenue for APAC reagents per se. However, we do believe that the shipments that we send, they go to multiple markets. So, you should see it as a sign of us starting to actually grow the base of RAL reagents being consumed across multiple markets in APAC. I think that's the positive thing. And then also, we're also working on our logistics setup to serve the reagent market in APAC, which is another driver that can also help us facilitate and provide the reagents. So, you should expect growth, but I cannot guarantee that there will not be this lumpiness because it is a matter of -- it's large shipments that goes when they go and sometimes, they don't go. So that's how you should look at it. Ludvig Lundgren: Okay. I understand. Very clear. And then another follow-up. Just like looking at the instrument sales in APAC. So, on a rolling 12-month basis, I guess it has stabilized now around SEK 25 million, SEK 27 million, something like that. Like is this a fair level to extrapolate ahead? Or do you expect this to grow example, looking into '26? Simon Østergaard: For example, the last part, I didn't hear that. Ludvig Lundgren: Yes, for 2026, like do you expect to have a similar type of -- or similar amount of quarterly deliveries on an average level? Simon Østergaard: Yes. It's always tricky with the average question. I think it's a decent level. Having said that, there are specific opportunities, I'd say that when we look into and we discuss with our partner, there are specific opportunities sitting in APAC that are significant. And if they don't come, then you end up with this relatively flat look. However, the spikes can certainly come because we have some good opportunities across network hospitals, both in Australia, New Zealand, but also in Japan. And if they materialize, then I think we should certainly expect growth when you do your math over the 2026. Ludvig Lundgren: Okay. Great. And like -- because I think last year, we saw quite a significant spike in APAC instrument deliveries in Q4. Like is there any seasonal component to that, that customers trying to fill their budgets? Or was that more of a one-off so to say? Simon Østergaard: We compare that with last year, what I recall was that we had to serve -- we were obligated to serve a specific tender that was 5 years old type of thing. So that happens in the comparable quarter, Q4 last year. I don't expect there to be much -- you can call it seasonality per se. It's more a function of where the specific opportunities materialize rather than seasonality. Ludvig Lundgren: Okay. And then final question, like you have talked a bit before about reagent sales in the U.S. and the potential there. Like any updates on that? And if we could start to see this starting to ramp into '26? Or yes, just how to think about that? Simon Østergaard: Yes. No, I think about it in a way where we've been also at our Capital Market Day when we launched the Power of Focus, we were really emphasizing that MCDh, the methanol-free stain is the enabler to go and penetrate the reagent market in the U.S. That assumption has not changed. But now we've progressed much further. So we're actually able to bring MCDh onto the Sysmex smearing and staining device that is consuming our methanol-free stain. So, I think we've come a long way on the development side. So now it's about getting some customer feedback on the stain, whether there are any last tweaks for U.S., I do expect it to materialize, let's say, mid-2026, which, of course, means that the contribution from the reagent in 2026 U.S. is not enormously, but milestone-wise and the fact that we start launching this has enormous impact also on how we work with the team over there to actually position our total solution now also including instruments. So, by the end of the day, very exciting times for us. Operator: [Operator Instructions] There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments. Simon Østergaard: Thank you very much. And first of all, thanks to all of you taking the time to listen in and staying with us throughout the Q&A. In my closure comment, I want to thank especially our strategic partners, the partner organizations all across the regions and the different functions. I really see gradual constant progress here 1.5 year after we especially launched the strategic alliance agreement with the Sysmex Corporation team. I also, in particular, I want to thank our own team, our staff. It's been extremely probably more than usual a tough quarter, and I think they know what I referred to on the internal lines. However, the dedication and the focus seems to take no ends all across our functions. So really a heartfelt piece of appreciation here. And then finally, I want to emphasize that on February 5, 2026, this is when we announce and present our year-end bulletin for 2025. So that will be published, and we are looking very much forward to present the results. And with that, I thank you for your attention and your interest in CellaVision. Thank you.
Operator: Thank you for standing by. Welcome to the Xperi Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Sam Levenson from Arbor Advisory Group. Sam, please go ahead. Samuel Levenson: Good afternoon, and thank you for joining us as Xperi reports its third quarter 2025 financial results. With me on today's call are Jon Kirchner, our Chief Executive Officer; and Robert Andersen, Chief Financial Officer. In addition to today's earnings release, there is an earnings presentation on our Investor Relations website at investor.xperi.com. We encourage you to download the presentation and follow along with today's commentary. Before we begin, I would like to provide a few reminders. First, I would like to note that unless otherwise stated, all comparisons are to the same period in the prior year. Second, today's discussion contains forward-looking statements about our anticipated business and financial performance that are predictions, projections or other statements about future events, which are based on management's current expectations and beliefs and therefore, subject to risks, uncertainties and changes in circumstances. For more information on the risks and uncertainties that could cause our actual results to differ materially from what we discuss today, please refer to the Risk Factors and MD&A sections in our SEC filings, including our most recent Form 10-K for the year ended December 31, 2024, and our Form 10-Q for the quarter ended September 30, 2025, to be filed with the SEC. Please note that the company does not intend to update or alter these forward-looking statements to reflect events or circumstances arising after this call. Third, we refer to certain non-GAAP financial measures, which are detailed in the earnings release and accompanied by reconciliations to their most directly comparable GAAP measures, which can be found in the Investor Relations section of our website. And last, a replay of this conference call will be available on our website shortly after the conclusion of this call. Now I'll turn the call over to Xperi's CEO, Jon Kirchner. Jon Kirchner: Thank you, Sam, and thank you, everyone, for joining us on our third quarter 2025 earnings call. For those new to our story, we're still learning about our business, I'll start this call with a brief overview of the company and our long-term goals. Xperi is a global software and services company that delivers products through our well-known brands, including TiVo, DTS and HD Radio. Our established and profitable core businesses, which include HD Radio, the digital radio standard in the United States, Pay TV program guides and audio licensing solutions in home and automotive have enabled us to build a strategic, connected and synergistic platform for media monetization. We believe media monetization represents a large and attractive market opportunity. And after investment over the past several years, our growth strategies as an independent media platform are reaching an inflection point. To put that in perspective, it's important to recognize the progress we've made against the ambitious strategic goals we outlined a few years ago. Today, we have either accomplished or are on a path to realize each of our strategic goals, which collectively represent a pivot for our business and creates a platform that has significant potential to grow and create long-term value. Now let me provide an overview of the progress we made during the quarter against this year's goals, progress that continues to give us confidence that we are reaching a key inflection point as a business. For media platform footprint, our most critical growth area, we are extremely pleased with the ongoing partner rollout of our TiVo One CTV advertising platform into the U.S. and European markets. We achieved 30% sequential growth to finish with 4.8 million monthly active users at quarter end. The continued growth of our footprint is instrumental for us to reach larger scale in the U.S. and the larger European countries as we work to expand monetization of the installed base. We also continue to engage new industry partners to help monetize our growing TiVo One user base. In the connected car market, our platform footprint also continued to grow, reaching over 13 million vehicles installed with AutoStage at quarter end. Importantly, as we have now built meaningful scale, we have initiated collaboration with leading audio media companies to monetize this unique and highly valuable footprint. In our Pay TV business, our video over broadband subscriber count grew 32% year-over-year to reach 3.2 million subscriber households. We signed important renewals with customers during the quarter that validate the market commitment to our video over broadband technologies and services. Turning to our summary financial results for the quarter. We recorded consolidated revenue of $112 million. As expected, revenue was lower than the prior year period, which had included a large minimum guarantee arrangement with Panasonic in our Pay TV business. In the consumer electronics and connected car markets, we achieved year-over-year growth as planned. Our non-GAAP adjusted operating expenses decreased approximately 20% as compared to the prior year. The decrease was due primarily to our continued focus on cost transformation and from the divestiture of the Perceive business in October of last year. Our focus on cost transformation, investment alignment and improving profitability and cash flow generation has been an ongoing effort at the company. Concurrently with today's earnings release, we announced a workforce reduction of 250 employees spanning the entire business. For the third quarter, we posted $0.28 of non-GAAP earnings per share, achieved positive operating cash flow of $8 million and recorded our second consecutive quarter of positive free cash flow at $2 million. Turning now to the Media Platform business. I noted earlier that we have reached 4.8 million monthly active users on the TiVo One platform, a key indicator for our business performance and one that continued to increase over the first month of the fourth quarter. Notably, more than 75% of this footprint is located in the U.S. and the 5 largest countries in Europe. Consumer and retailer feedback on TVs with the TiVo OS operating system continues to be very positive, and TiVo's powered by TiVo are available at a range of sizes and price points. For example, a number of recent retailer promotions in the U.K. have highlighted aggressive low pricing for TVs that feature TiVo OS, which we expect will further expand our footprint in that market. Also, in addition to Sharp, a second brand partner is in production and expected to deliver TVs powered by TiVo to certain U.S. retailers before year-end. We expect U.S. distribution of smart TVs powered by TiVo to scale next year and represent national coverage by the second half of 2026. We are also pleased to announce our 10th TiVo OS TV partnership with the signing of a European brand for a leading Asia-based original device manufacturer. This further validates the strong OEM interest in our cost-effective built-for TV independent platform across a range of partners. We believe large OEMs without their own operating system, leading retail house brands and ODM producers all see unique value in being able to brand the experience, retain their first-party engagement data and participate in long-term monetization. Given the significant progress we've made in establishing footprint for our TiVo One advertising platform across many brands, we believe now would be an appropriate time to start reporting another key performance indicator, average revenue per user for TiVo One or ARPU. Our definition for ARPU is consistent with industry practice, and we calculate it by dividing the trailing 4 quarters of monetization revenue within the Media Platform business by the average number of TiVo One monthly active users during that same period. Our monetization revenue includes all advertising and data monetization revenue from the TiVo One platform and from other parts of our media platform business. Our calculated ARPU for TiVo One at the end of the quarter was $8.75, which is approaching the $10 goal we are working toward as we exit 2025 and a metric that over time, we expect to continue to grow to north of $20. ARPU growth is not expected to be linear as it is impacted by not only monetization revenue, but changes in our underlying footprint and in what quarters more unit growth comes online. To help further our goal of growing ARPU for TiVo One in the periods ahead, we recently signed multiple monetization partnerships, including agreements with Titan ads, a CTV industry leader across key EU markets; Kargo, a leading CTV ad reseller in the United States; and comScore, a U.S.-based media measurement leader. Moving to Connected Car. We continue to grow our footprint for DTS AutoStage and had more than 13 million vehicles using this unique platform at quarter end, the vast majority of which are in North America. While this initial footprint is focused primarily on audio and data solutions, we also secured 2 new video-based AutoStage OEM programs in the quarter, one in Europe and one in Asia. Over the past 2 weeks, we announced and launched an updated version of the DTS AutoStage broadcaster portal, the world's first global in-car radio audience measurement platform. This gives radio broadcasters insights into listening patterns, allows stations to fine-tune programming in near real time and delivers advertisers accurate measurement of the audience engagement across 250 designated market areas. This level of measurement has traditionally only been available on digital streaming platforms and enables radio stations to deliver higher value to advertisers. The technology and scale of the platform has been years in development. We have now initiated commercial discussions around measurement and data licensing with leading broadcasters and media companies to very strong interest across the industry. Separately, as AutoStage has reached significant scale, we also initiated collaboration with leading audio media companies in the U.S. and U.K. to launch targeted advertising trials on the platform. We expect these ultimate partnerships will form the basis of additional revenue streams for advertising and data. In terms of HD Radio expansion, several new radio stations went on the air with HD Radio digital broadcasting. New vehicle models were launched by companies such as Audi, Hyundai, Tesla, Mercedes-Benz and Lexus during the quarter. Notably, we also signed a significant multiyear HD Radio contract with a large Asia-based Tier 1 supplier, which is expected to help HD Radio continue to grow with Japanese car brands. Moving to our Pay TV business. In the third quarter, IPTV subscribers increased 32% year-over-year, reaching 3.2 million households. Revenue was up 18% year-over-year from a mix of subscriber growth in the U.S. and Latin America. We renewed the agreement with NCTC, the National Content and Technology Cooperative, covering over 70 operators in the U.S. This agreement guarantees IPTV subscriber commitments for 4 more years and encourages operators to launch and scale broadband TV. During the quarter, we continued to see strong interest from video over broadband operators to extend their video offerings with new, more cost-effective OTT video service bundles. As a result, by quarter end, over 40 operators had committed to our TiVo broadband product and over 100,000 households had activated. We secured a multiyear renewal with Mitchell Seaforth Cable TV, or MSC, a key partnership that impacts multiple operators in Canada and which is expected to drive our continued subscriber growth there. Lastly, at the beginning of October, we exited the DVR hardware business under the TiVo brand, closing one innovative and industry-changing chapter in the company's history. The TiVo brand will continue to empower consumers to find, watch and enjoy the content they love on innovative video over broadband and smart TV solutions. Let me next cover highlights in our consumer electronics business. During the quarter, we renewed a multiyear contract with Vestel to deploy DTS audio solutions across its TV brands. Vestel is the largest television manufacturer in Europe and an important customer and partner to Xperi given their volumes across many brands. In our IMAX Enhanced initiative, a partnership with IMAX that brings the signature IMAX experience into the living room, we expanded our contract with Sony Pictures to release hundreds of additional titles in the IMAX Enhanced format, coupled with DTS:X immersive audio. These titles will be available for direct distribution through free ad-supporting streaming television. We believe providing free access to the IMAX Enhanced experience offers unique value for consumers and will help our program licensing partners further differentiate their IMAX Enhanced products. We also expanded the IMAX Enhanced program in the home projector category through new agreements with Optoma and Epson. To wrap up what we've discussed today, our strategic progress is evident against the growth goals we set for the year. Within Media platform, we expect to finish the year above 5 million monthly active users on our TiVo One platform. Further, we've achieved our goal of signing 2 additional partners to reach a total of 10 TiVo OS partners. The ARPU that we announced today of $8.75 brings us closer to our year-end goal of $10. And importantly, we've made progress in securing advertising partnerships that we expect will enable us to monetize our expanding and valuable footprint. For Pay TV, we've had considerable success in activating TiVo One through updates in North America on video over broadband devices. This effort helps us build scale in the U.S. market to further our monetization efforts. We also achieved our goal of over 3 million subscriber households in our IPTV footprint. Within Connected Car, we've surpassed 13 million vehicles with AutoStage and expect this large and unique footprint to continue growing as new cars enter the market. Also, we've started collaborations with leading audio media companies in the U.S. and the U.K. to launch targeted advertising trials on the AutoStage platform. In summary, we're confident this strategic progress sets us up for long-term growth, improved profitability and increased cash flow. Let me now turn the call over to Robert to discuss our financial results. Robert? Robert Andersen: Thanks, Jon. I will start by reviewing the revenue results for the quarter. When excluding the impact of the Perceive divestiture, overall revenue was lower by $20 million compared to last year as expected due to a large multiyear minimum guarantee agreement with Panasonic recorded in the prior year period. Looking at each of our primary markets, Pay TV was lower than last year by $32 million or 39% due primarily to last year's Panasonic agreement. Excluding all minimum guarantee agreements from the prior year period, Pay TV would have decreased on a percentage basis in the high single digits, consistent with the overall market. For IPTV, revenue grew approximately $4 million or 18% as subscribers continue to grow at a brisk pace, particularly in Latin America. For the consumer electronics market, excluding the impact of the Perceive divestiture, revenue grew by $3 million or 20% due to a higher level of new agreements this year, along with higher revenue on a per unit basis from audio technologies and game consoles. In Connected Car, revenue was up by $9 million or 36% due to a higher level of long-term arrangements in this year's number, including the significant Asia-based program that Jon mentioned earlier. Revenue in media platform was approximately flat on a year-over-year basis. Turning to the income statement. Our year-over-year revenue increased by approximately $2 million, driven by higher costs related to long-term arrangements recorded in the quarter. Non-GAAP adjusted operating expense decreased by $16 million or approximately 20% primarily due to reduced personnel expense as a result of our ongoing business transformation efforts and also from last year's divestiture of Perceive at the beginning of the fourth quarter. Our adjusted EBITDA was $23 million, a 21% adjusted EBITDA margin, down from last year's $31 million as our expense decrease was more than offset by the lower revenue year-over-year. Our non-GAAP earnings per share was $0.28 compared to the $0.51 we posted in the third quarter last year. From a balance sheet perspective, we finished the quarter with $97 million of cash and cash equivalents, up $2 million from last quarter due to the positive free cash flow of $2 million generated in the quarter. Notably, operating cash flow was approximately $8 million in the quarter, an increase of over $12 million from the same quarter last year due primarily to the absence this year of transaction costs related to the Perceive divestiture and other restructuring costs that occurred last year. Turning now to our financial outlook. I'd like to cover 2 topics that are related to our outlook. First, minimum guarantee arrangements with customers; and second, the workforce reduction that we announced today. Beginning with minimum guarantee arrangements, which, for simplicity, I'll refer to as MGs. We enter into MGs with our customers to lock in certainty of value, ensure usage of the technology over multiple years and product cycles and to lower the company's service costs. As discussed on previous calls, the accounting standard for MGs creates difficult revenue comparisons on a quarterly basis since revenue is required to be recognized when the agreement is signed. The amount of revenue is generally recorded as an unbilled receivable on the balance sheet and cash is collected over the term of the agreement. Arrangements average 3 years in length and cash is received when customers are billed quarterly over the duration. We have entered into MGs over many years for our audio technologies within consumer electronics and have more recently seen customer interest in MGs in Pay TV and Connected Car as they offer customers benefits in product planning, supply chain management and pricing. As a percentage of revenue, MGs comprised just over 20% of total revenue in 2024 and are expected to be in the low 20% range for 2025. Importantly, these MGs are term-based arrangements that are typically renewed when the contract expires. For example, over the past 2 years, approximately 90% of the annualized dollar value of expiring contracts has been a -- MG contracts has been renewed. As such, we consider MG contracts to be ordinary course of business and reoccurring revenue. While MGs may cause comparability issues from one quarter to the next, we believe the locking in of key customers, revenue and predictable cash flows, all with a high probability of renewal has significant strategic value for our business. Over the next 2 years, as our business continues to move toward greater monetization and advertising revenue, we expect MGs to decrease as a percentage of overall revenue. On the second topic, we announced concurrently with today's release that we are reducing our workforce by approximately 250 people across the company. This action will impact all business and functional areas and represents approximately 15% of our workforce. We view this as an important step to improve profitability and cash flow generation while enabling continued investment in our primary growth areas. We expect to incur a onetime expense of between $16 million to $18 million of restructuring and related charges, primarily for employee severance and related costs and substantially all of which will be completed by the end of the first half of 2026. We expect that these reductions once completed, will generate savings of $30 million to $35 million on an annualized basis. These expense reductions are intended to help offset an expected revenue mix shift as our media platform expands in 2026, which we expect will initially have higher cost of sales than other parts of our business. Turning now to our outlook for 2025. We are reiterating our annual revenue guidance range of $440 million to $460 million and our adjusted EBITDA margin of 15% to 17%. While we expect to incur certain cash charges associated with the restructuring of our workforce, we also expect some cash savings in the quarter as employees depart. As such, we are not changing our outlook for operating cash flow, which is still expected to be neutral, plus or minus $10 million. Looking ahead, while we are not providing 2026 guidance at this point, our preliminary view is broadly consistent with consensus estimates for next year. We plan to share a more formal outlook for 2026 when we report our fourth quarter results. That concludes our prepared remarks. Let's now open up the call for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Matthew Galinko with Maxim Group. Matthew Galinko: Can you maybe touch on the pieces that drive the initially lower gross margin in the media platform business that scales. And sort of how long do you expect to kind of operate at a lower margin before you reach kind of your terminal or a mature margin? Jon Kirchner: Well, I think there's a couple of things going on. There is a semi-fixed cost of operating a platform as you start to grow that business. And so that will hit things harder initially. But as you build scale, your marginal advertising dollars will obviously come through at higher margin. There are also various deals that we have done pretty customarily that help us ensure there's plenty of content on the platform and whatnot and other market, what I'll call market incentives that as revenue starts to emerge within that business, some of those costs will be recognized. So I think it's elements like that, but we have a very strong belief that over time, as you certainly build significantly more revenue scale that you should -- you will see margin acceleration in that business. Matthew Galinko: Got it. And I guess as a follow-up, as you begin to deliver targeted ads to automotive, do you expect a similar kind of individual fixed cost basis that you need to clear before contributing at a higher margin level? Or is that kind of all amortized through the same fixed costs as you do kind of on the traditional side? Jon Kirchner: I mean some of -- I would say it's more of the latter. It's kind of part and parcel to the platform we've been working on for some time. And I think the way to think about the opportunity there is that we are unlocking a level of measurement that currently does not exist in radio broadcast. And the interest around being able to run targeting and measurement in that space is very high. It's obviously a sizable business and has been for a long time. But what we've been able to do now is we've finished some of the platform development work, and we've also seen the scale get to the point where we can offer, I think, a very compelling solution to various partners, whether it be for data or for advertising, I think we are -- and this was part of the -- I think we're turning the corner into a really interesting next chapter as we look ahead over the next 12 to 24 months. And this is something that we've been working towards for some time, part of the broader vision, but it is great to see it coming together. Operator: And the next question comes from the line of Steve Frankel with Rosenblatt. Steven Frankel: Jon, congratulations on the progress and starting to scale the business. And maybe help me with a couple of numbers for starters, I appreciate the TiVo MAU progress, but maybe tell us where that was last year in the third and fourth quarters so we can gauge it going forward. Jon Kirchner: That's a good question. I don't have that exact number off the top of my head. Is your question from a geographic standpoint, Steve, or total MAUs. Steven Frankel: Total MAUs. Jon Kirchner: Much, much smaller. It has grown significantly. So in the low millions. Robert Andersen: Very low millions. Steven Frankel: And what was -- you know what ARPU was last quarter. So the $875 million compares to what was the most recent data point that you gave out on that. Robert Andersen: It's not one we have at our fingertips here, but I think it's fair to say that it would be probably pretty similar number. It just -- this happens when you do a 12-month look back when you're calculating the average revenue per user and your denominator actually ends up being pretty small. So we're looking at all of our monetization revenue as a business from both TiVo One and from other parts of our business. Jon Kirchner: And I think the expectation, Steve, is that as you start to see more monetization happening, particularly as you look into '26 and beyond, you'll start to see that number move northward. Although, as we said, it won't necessarily be linear because there's 2 things going on in that calculation, the speed or the speed at which stuff is coming online in any given quarter relative to various monetization-related deals you may be doing in any particular given quarter. Steven Frankel: Okay. Let me take a different tack then. TiVo One is scaling up nicely. What is the critical mass you need to have meaningful ad revenue generated on that platform? Are we halfway there? Jon Kirchner: Let me kind of answer, I think, the bigger question, and then I'll maybe come back to another one. The answer is we expect to see material progress on the platform we have and based on the visibility that we have into '26 footprint growth, we expect that to occur in '26. So we feel very good about that. The question of how much do you need to have, generally speaking, scale is important to advertisers and the scale number is kind of different based on markets. So it's different for the U.K. than it is for Germany or the U.S. for that matter. But that -- but one of the things that we are doing very proactively to address the fact that in places where scale may not fully exist immediately or even in the near term where people, let's call it, some advertisers might ideally want it, that is pursuing partnerships where people can bring other footprint in conjunction with our inventory and successfully sell it. And I think, as we've said, we've announced a number of partnerships that I think do 2 things. It helps provide some of that scale, obviously, helps get our inventory into various selling pipelines without having to take lots of extra time to build out those pipelines as well from an ad sales perspective. But I think more than anything, it speaks to the fact that there is real interest in the industry in our inventory and footprint. And as these partners who obviously deal in this space and have for some time are keen to engage with us to enter those partnerships and take it forward in conjunction with us. So we're not outsourcing everything we're doing on the platform. It's we're finding strategic partners in different ways and places so that we can augment and accelerate the revenue growth efforts. Steven Frankel: Okay. And then it seems very exciting that you're making progress with AutoStage and early discussions around monetizing that. Do you think that revenue becomes material kind of exiting 2026? Or we ought to think about 2027 when that platform is a monetization machine. Jon Kirchner: I think the trial, Steve, will play out through '26, and I certainly expect to see revenue off the platform in '26, but I think it's going to be more material in '27. Operator: And the next question comes from the line of Hamed Khorsand with BWS Financial. Hamed Khorsand: Could you just talk a little bit more about these minimum guarantees and how it's becoming -- you're saying it's going to be more than 20% of 2025 revenue. Is that because of the competitive necessity that you have to provide such deals? Jon Kirchner: I think there's multiple things going on, Hamed, and I think Robert touched on some of them in the script. You've got partners, in many cases, interested in trying to have very clear kind of windows on how they think about what their -- what technology they're including in their platforms. They obviously manage their supply chains also, in some cases, looking for greater certainty and not having to deal with potential renegotiations. And on the flip side, we are in a similar place where we look out, and there's certainly some uncertainty in the market in these spaces. And to the extent that we can lock in our technology into various platforms for longer periods of time, lowers our service cost, gives us greater predictability. And I think the key point about them is that they're not one and done. They're just -- it's kind of -- it's a slightly different, more committed structure to our technology and our solutions -- the only thing that's different about it is the accounting standards require you to recognize the revenue a little bit differently than you would on a pure as-you-go type licensing reporting basis. So I think there's clear benefits on both sides and obviously, visibility on both sides being one of the key ones. Hamed Khorsand: Was minimum guarantee a reason why the Connected Car revenue jumped this quarter? Robert Andersen: Yes. We had a higher level of minimum guarantees this quarter than we had last year. Hamed Khorsand: Okay. And my last question is, when would you see platform revenue stabilize? It seems like it's quite volatile quarter-over-quarter. Robert Andersen: Can you define what you mean by platform? Hamed Khorsand: Well, the media platform, sorry. The media revenue, yes. Jon Kirchner: Yes, I think as you start to see meaningful growth in '26, you'll see less volatility, which has to do with some of the existing, what I'll call, underlying parts of that number. So it will take on more stability over time as the number grows. Robert Andersen: I think if I can add on there, given that we recognize our advertising and as we synonymously call it, monetization in media platform for the TiVo One growth that -- we expect that to be a grower next year and going forward. Operator: And we have no further questions at this time. I would like to turn it back to Jon Kirchner for closing remarks. Jon Kirchner: Thanks, operator. We're pleased with the meaningful progress we've made in achieving nearly all of our 2025 strategic goals ahead of schedule. I want to thank the entire Xperi team for their continued focus and execution as we work to deliver long-term value for our shareholders. We look forward to sharing further updates on our year-end call. Thanks, everyone, for joining us today. Operator: Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Hello, ladies and gentlemen, and thank you for standing by. Welcome to RD Saude's Third Quarter of 2025 Earnings Call. The slide deck can be found at the company's Investor Relations website at ri.rdsaude.com.br. This conference replay will also be made available later at the website. [Operator Instructions] Before we begin, we would like to inform you that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the company's management's beliefs and assumptions as well as on information currently available to the company. Forward-looking statements do not guarantee performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that overall economic conditions, the industry's conditions and other operating factors may affect the company's future results and lead to results that differ materially from those expressed in such forward-looking statements. Today with us are Mr. Renato Raduan, CEO; and Flavio Correa, Head of Investor Relations and Corporate Affairs. I'd like to turn the conference over to Mr. Raduan. You may proceed. Renato Raduan: Good morning, everybody, and welcome to our third quarter 2025 earnings call. It is an honor to join you this morning to give you more details of our numbers and help you interpret them. And Flavio, first of all, good morning to you. Flavio de Correia: Hello. Good morning, Renato. Renato Raduan: Flavio will be here to address your questions and give you more details as well. Well, first of all, I'd like to apologize because our release was published a little bit later than expected. So sorry for that. And now let's talk about the third quarter's results. Before talking about the highlights, I need to tell you that we are very happy about this quarter. I remember that in the fourth quarter last year and the first quarter this year, I was transparent and humble and said to you that the results were lower than our expectations. And I told you that we are going to turn the key in the second quarter. And now I have to tell you that we have solid results and we are very proud of that. There are 3 factors that led us to solid results in the third quarter. First of all, we went back to the sales top line level. We were at a 12% growth and we told you at the time that we needed to go back to 14%. Right, Flavio? And now we are at 15.5% in the core business, the retail business. So that is the first factor that we are very happy about in the third quarter. And the second factor is the management of expenses. I believe that the market was positively surprised when we adjusted the costs in the second quarter, but people were afraid that the costs would go up again in the third quarter, but we managed to keep the same levels as the second quarter. We have a very healthy level of expenses in the third quarter and we need to be proud of that as well. And the third factor, the most impressive one is a 7.5% EBITDA margin in the consolidated results. If you look at the track record for a third quarter, it should be about 6.9% to 7%. Last year, it had been 7.5% exceptionally due to nonrecurring one-off events. And if you were to exclude them, it would have been 6.9% to 7%. So the top line grew, costs were under control and the structural EBITDA margin came to 7.5%, which is very solid, very consistent. And now I'd like to delve deeper into the results. First, operational results. We finished the quarter with 3,453 units, 88 openings and 6 closures. Over the past 12 months, the expansion is at about 330 openings. But more important than that is quality. Our IRR is very healthy in the new stores. So this is one of the drivers that is keeping us moving ahead. And now we are almost at the level of 3,500 units in operation. We reached 51 million active customers, 25% of the Brazilian population in the last 12 months. And we had 111 million tickets in the quarter. And again, we're not proud of the number of tickets itself, but rather the quality of the service according to the customers themselves. You can see that the NPS is 91 and that's the customer saying that we are providing a great service quality. And we had gross revenue of BRL 12 billion this quarter, a consolidated growth rate of 12.7%. And I'm going to give you more details about that on another slide. We shouldn't just look at the weighted average of retail and non-retail businesses. The 2 stories are different. And I think that the main story behind this is the 15.5% growth in retail, very solid result with almost a 5 percentage point real gain in mature same-store sales. We had a record-breaking market share with 16.8%, almost 17%. Over the last 12 months, it was one of the biggest number that we had with almost 80 bps in only 12 months. And as for digital, we got a BRL 3 billion revenue. If you annualize that, it would be BRL 12 billion in digital revenue with a 62% increase in the digital business with a penetration of 27%. I'm going to give you more details about that later. Our EBITDA was BRL 909 million, almost BRL 1 billion, in line with the growth in sales of 12.5%. The EBITDA was stable. The EBITDA margin was stable at 7.5%. But we should remember that last year, we had one-off events. And in retail alone, it was 7.9%. Our adjusted net income came to BRL 402 million with a 3.3% margin, 2 percentage points -- 0.2 percentage points higher than last quarter and a free cash flow of BRL 648 million. Now let me give you more details about our revenue. The consolidated number shouldn't be interpreted on its own. We need to break it down into the 2 stories here. First, retail with a growth of 15.5% and a drop in revenue of 17% in 4Bio. And what explains this drop is the fact that we had a pendulum effect. We wanted to grow at any cost in the beginning, but then we told you that we wanted to balance things out. And now I think that we got a little too conservative in terms of growing sales to protect profitability. But half of that drop is not even related to that. It is related to the laboratory that we used in the state of Sao Paulo for distribution through the distribution center in Sao Paulo. And the lab decided to supply products to the state of Sao Paulo through the state of Espirito Santo. And we don't have a distribution center there and that accounts for half this drop. And that happened in the middle of the second quarter. We had that effect in the second quarter, but now it hit us fully in the third quarter. And now we are signing a contract with a distribution center in the state of Espirito Santo to keep the supply coming to Sao Paulo, but also to use it for the other lines of 4Bio. We already have an action plan in course to address that, signing a contract this week with a new distribution center and also because we need to balance things out. And another factor here is the growth of 15.5%. I believe that we had some important wins here. If we look at last year, we had an increase year-on-year, but also quarter-on-quarter from the first quarter to the second and to the second to the third. We were stable for 3 consecutive quarters with BRL 10 billion. And of course, in the first quarter, we have a negative calendar effect. And revenue had become stagnant for 3 quarters. But now we can see that there was an increase since the first quarter of this year. And when we look at where this growth came for, of course, GLP-1 drugs factored in here, but not only that, we grew in HPC at 10.9%, which is a normal level. We did not need to invest more than we were already investing in the second quarter. For HPC, we continued the same level of investment and the results are now better, almost at 11%. And last year, it had been 6% and 8%. We wanted to go back to double digit numbers. And now here it is. And generics. Generics are not related to GLP-1. It grew by almost 20%, thanks to competitiveness and prices, but also it is related to the loss of a few patents. And when a patent expires, it benefits the generics, but it has a negative impact on the brand name medications. And our own brand products grew by 21%, which is very solid. And GLP-1, to be very transparent, is beneficial to us. It helps us. But again, we earned it. Throughout our history, we positioned ourselves as the best store to serve the high-income segment because we always invested in a good experience inside our stores. Some years ago, I remember that people asked us about the fact that we were so high income that we wouldn't be able to cater to the lower income segments as if it were a bad thing. But I believe that we found our way of catering to the lower income communities as well without losing that differentiating factor that puts us in a good position in the high-income segment. And now we are reaping the benefits of that. We are going to see a very high market share in GLP-1 drugs. And we earned it, thanks to everything that we did in the past. So this is a very solid sales level, much higher than the past. And that took us to an increase of 7.8% in mature stores. There's a calendar effect here. This is a record-breaking growth in mature stores. You can see here that we grew by 7.8%, almost 5% above inflation, much more solid than the growth posted in the previous quarters. It's a very solid growth. And that takes us to an impressive level of BRL 1.2 million per mature store. And we have just about 1,700 mature stores that are selling more than BRL 1 million. So this is a very solid growth trend. And the last month in the quarter was better than the first, which points to growth as well. When we go into the digital channel, we see 42% growth in our digital channels, getting to a penetration of 26.7%. There is also a point here with the penetration and sales of GLP-1, which is offering more attractive prices in digital channel. But even without this effect, all categories have grown at least 30% in digital channels and have got improved penetration. GLP-1 analogs has improved our penetration numbers, but all categories have grown at least 30% in digital channels, extremely robust. Of the BRL 3 billion, 80% of it was from the app, which is a major strength of us and 97% of our deliveries are provided within 60 minutes. So convenience to our customers, which is really a landmark. Customers are happier with our experience with an [ NPS ] in the app and also delivery, but we have 6 million digital customers. Of the 50 million customers, 30 million bought in the quarter, 6 million bought through digital channels and they represent 41% of our sales. Online sales, 26.7%, but digital customers who buy online, they amount to 41% of our sales. This is a very important strength. When you have nearly 40% of your sales of customers who are used to our app, who are operating in the digital channels, they really benefit from that 60-minute delivery period, while having customers migrating to other competitors would be hard because they would have to have an excellent offer, really value proposition to make them migrate. So these are digital customers who are very well served by us. Another important achievement in the quarter was the share, 16.8% with 18 bps of growth and we have gained share in all regions. Highlighted Sao Paulo here, it stands out. We've got 120 bps, highest rate of growth. Southeast 70, Center West Midwest, 140 in the South, 20 in the Northeast and in the North, 60. Consolidated North, Northeast about 30 bps. In Sao Paulo, there has been an increased growth because we expanded the opening of pharmacies in Sao Paulo. In the Northeast, let me find it here, it used to be 22 and then it went down. So this is part of our expansion strategy, but we have gained share in all regions. Another point that I would like to make out of the chart is the 30% sell-in, sell-out share. We have 30% of share in Sao Paulo with Droga Raia and Drogasil. The second most relevant network in Sao Paulo would have 16%, 18% share. So there are 2 networks in Sao Paulo getting to 50% of market share. In addition to that, there are some small players in different areas, but this is a highly consolidated market. It's quite hard for new incumbents, even for those that are already in the market with a relevant share with this kind of level of consolidation and strong brands, I would say that I don't believe competitors can benefit from any expansion of growth. State of Sao Paulo amounts to 30% of the medication market. And the market is quite hostile to small players or new incumbents. And this is the kind of consolidation that we see in this region, but not in others yet. Said that, I would like to hand it over to Flavio, who is going to talk about profitability and then I'll be back. Flavio de Correia: Thank you, Raduan. Now going into details about the financial results, let's go into gross profit. It was BRL 3.3 billion, 27.4% margin. Year-over-year, we are talking about margin dilution of 20 bps. But last year, 27.6% included the benefits of CMS of tax of 20 bps. If we exclude that tax benefit, we are talking about stable margins year-over-year. And this is absolutely important. In 2025, we've had some tailwinds and headwinds concerning dilution because of GLP-1 analogs, which were more prevalent in the market and because of competition in HPC, which was really offset by other efforts and other initiatives so much so that we got to the gross profit in the half year, similar to that of the third quarter, which is something offline because of the effect before the CMED price adjustment. So we really should celebrate getting to such high gross profit. Now talking about expenses. Selling expenses was 17.3% in the quarter. Year-over-year, we are talking about worsening of 20 bps year-over-year. But last year, we had also emphasized in our meeting that our headcount was higher and we hadn't really captured the expenses with the new headcount because they had joined the team later in the year. We are talking about expenses normalized by the team that we had at that time in terms of personnel would be 17.5%. Comparing 17.5% with this year, we are talking about a normalized dilution of 20 bps, which is really important. The expansion of headcount, we are talking about 16.5 people per store as of 15.9. It was 0.6 headcount per store, which really provides better quality of service and also work and engagement of our teams in the stores. This is really important. Now analyzing G&A and this is the main achievement we have to celebrate, something that we have started capturing the second quarter and coming stronger in the third quarter. There was no rebound effect here. The SG&A in the quarter was BRL 310 million, which is less than the number that we had last year, which was BRL 323 million. There was a significant dilution here of 40 bps year-over-year, going from 3% to 2.6%. There is a stability of this level quarter-over-quarter because of some specific pressures related with tax provisions and other things which are expected in the operation. Our expectation is to keep on improving our performance in this indicator. Now going into EBITDA, which is a sum up of all the other elements. In a [ plan ] comparison year-over-year, we are talking about stability of EBITDA margin of 7.5% in this quarter, getting to BRL 909 million. But if we exclude offset elements, 20 bps of ICMS tax and the 40 bps of personnel expenses, it would take us to a 7.5% performance as opposed to normalized values of 6.9% last year. Major achievement. This specific quarter is the best third quarter we've reached in terms of percentage EBITDA in our track record since the COVID time. Major achievement. Operationally speaking, in our cash cycle, there was a decrease in our inventory levels and an improvement in cash cycle of 3 days. Now below the P&L, we have financial expenses, which was 1.6% in the quarter over last year, which was 1.3%. This increase is due to the increase in interest rate comparing those 2 periods. So this is the best explanation for this number. It gets us to effective tax rate of 0.4% and this is a result of what we observed here at 4Bio. This rate, if we normalize it by the default number, we would get to 18%, which is exactly what we would expect as recurrent tax rate for the future, at least for the short and mid-term. And it takes us to BRL 402 million in adjusted net income or 20 bps increase year-over-year. Once again, we are not considering normalization of the basis comparing last year in terms of headcount and tax, but still very good result. And finally, this is free cash flow of BRL 558 million, very much aligned with what we expected, similar to what we used to have last year. Our net debt went down from 3.9 in the second quarter to 3.4 in the third quarter with an improvement in leverage levels getting to 1.1x EBITDA over our debt. And back to you, Raduan. Renato Raduan: Well, we've decided to have more time for your questions during this call. But here, let me just emphasize our confidence in the quarter. In the first quarter of my management trying to explain what had happened, I had never thought that we would get to such a strong quarter. I knew that we had strategy to improve. I believe that the results would be better because I know of the strength and the quality of our management team. But in the first quarter this year, I wouldn't anticipate such fast recovery and I'm so glad to celebrate that. It reinforces a number of our strengths. Yes, there had been a few financial and nonoperational deviations for 2 consecutive quarters, but we have really resumed our operational and financial strategy as a whole and performance. We have now the mature pharmacies performing quite well, we are going to have an over share in GLP-1 agonist. It's here to stay. That's going to be part of our structure. But it also evolves HPC, something that we were all concerned about, also acceleration of generic medication. So I believe we've really resumed our operations to very good levels. At the same time, despite that, we've been strengthening other elements of our operations. We've seen the amazing numbers of our omnichannel, which we've grown 62%. And in addition, we offer a very good digital journey, 97% of deliveries made within 1 year. It's difficult to come up with a value proposition better than that if you don't have a good distribution and solid operations such as we do. We have also shown that we can have an efficient management. We've managed cost without impacting deliveries, without impacting services or the corporate deliveries to pharmacies and the distribution center. We've proved that we can have very good operational management. Losses are starting to decrease and we can see a downward trend, which is something that has impacted our gross profit. And while we were fast tracking and adjusting our operations, we have reached over 25% IRR, over 25% in all regions of the country. And we're still working on this wide distribution and logistics of our operations. It's important to have presence and also to be located at the right spots or the right cities. It's not only improving operations and believe that's going to optimize sales forever. You have to be placed at the right spots to sell more. Otherwise, you are just going to be limited to the potential of that specific venue. If you combine efficient operation and the best points of sale, then we can improve our operation. Our company has very robust financial health. We have very robust results. We are improving our inventory levels, cash cycle, controlled leverage, which gives us the possibility of keep on investing where we believe we are going to make a difference. And on top of that, we try to be as transparent as possible with all of you. We are not here to sugar coat things and sell a scenario that is more favorable than it actually is. And when things are not so good, it is also our role to help people see what we see and that is added to all of the differentiating factors that we built over the course of decades with the right team and our execution capacity. And that is part of a perennial company, a company that is here to stay and all of that is built over decades and decades of hard work. It is also impressive to see our ability to adapt fast. Maybe this year was the first year where we had to adjust things so quickly. And we managed to do it and the results of the third quarter bear witness to that. And the market is going to continue to grow because the population is aging and also GLP-1 drugs and other medications that will come make the landscape for us very optimistic. We believe that there is a good trend that is leading us to the end of the year. And with that, we would like to start the Q&A session. We'll try to address as many questions as possible. Thank you very much. Just before we move to the Q&A session, there is one thing I always tell investors about. We were talking about how the entry point in 2025 was so tough with a lot of pressure on HPC and some other lines that were pulling our results down. And our ability to react, as you said, was so important for us to go back to a stable level. And that is going to be our proxy for 2026, '27 and from then onwards. This is a very important position in the retail pharmaceutical market in Brazil. It is a very solid thesis as well when we think about how the population is aging. Now let's start the Q&A session. Operator: The first question comes from Luiz Guanais with BTG Pactual. Luiz Guanais: I have 2 questions on my side, both about GLP-1 drugs. Raduan, if you could give us more color about the weight of GLP-1 drugs in your sales in comparison with the previous quarters? We can see that the number is increasing. It is getting to a high single digit or a low double digit. So that's the first question. And the second question about GLP-1. I'd like to know the effect of them on your working capital. Are you planning an aggressive policy to installment payments -- related to installment payment on those drugs? Renato Raduan: Please, Guanais, go ahead. Luiz Guanais: The second question is about working capital. If you can give us more color about the effect of the growth of GLP-1 drugs on your working capital? And if you plan to offer installment payment in this category since starting next year, we are going to see generics coming in this segment as well? Renato Raduan: Well, the first question about penetration of GLP-1 drugs, your numbers seem correct to me. In the third quarter, we stood at a high single digit, not a low double digit. And in the past, it was 5%. Now we are higher than that. And if you think about the potential of this molecule when we have a limited inventory, which didn't happen yet, I believe that we are going to move to double digit results. But in the third quarter, we were not there yet. But there's a huge potential. And obviously, when we see the generic GLP-1 drugs coming, the average price will go down, but access will increase. I think this will eventually become a category on its own. Just like OTC, HPC, we are also going to have the GLP-1 category. That's how big the potential is. And about your second question, we offer different payment methods for these drugs. In some cases, we offer a 6-installment payment method for customers. And by doing that, we can improve access. Part of the population cannot pay all of that upfront in 1 single installment. But of course, we need to be responsible. We shouldn't just generate that demand and have problems in the future because of that. But good news is part of the industry is helping us fund that payment installments because they want to increase access as well. And also, that puts pressure on receivables. But on the other hand, we are managing the inventory very well. We decreased our inventory significantly. We have been doing that throughout the year. And we see more room to do that, to continue doing that. It was a technical movement, a scientific movement even integrating departments and the impact on the cash cycle as a whole should not be that great because we have been decreasing the inventory coverage at the same time. Flavio de Correia: Just to add another point to this answer about the potential, the growth potential of this category, we're talking about 1 million consumers of GLP-1 drugs in Brazil per month. Out of the 215 million in our population, 1 million people are the target audience for that product. And as the access increases, I'm sure that we'll be able to capture more of that. And we should remember that we have a very high market share in this category of about 1/3, which is very positive. Operator: Now the second question comes from Joseph Giordano with JPMorgan. Joseph Giordano: I'd like to talk more about working capital. Over the past 2 or 3 quarters, we have seen an increase, an improvement and Raduan talked about the coverage of inventory. But I'd like to know more about the logistics. What have you been doing in terms of allocating inventory in the different stores in the different neighborhoods? I'd like to know if there is more room to improve that side of the business. And also about 4Bio, we saw a 17% decrease in your revenue in that segment. And you said that part of that is related to one specific contract. My question is, when you open the distribution center in the state of Espirito Santo, should we expect 4Bio to go back to its previous sales levels? So after the contract is signed, the financial loss would be lower. Is that correct? Renato Raduan: About the first question about cash cycle, well, last year, considering the operating challenges that we had, they included logistics issues in some specific distribution centers, which led us to take a closer look at what was happening and also to improve our policies and inventory allocation. And we realized that part of the problem with the DCs was an excess inventory, a buildup at some point in time for specific reasons. And again, we had to be very humble to understand exactly what we needed to do to improve inventory management as a whole in procurement and also regular supply to distribution centers or the pharmacies themselves. And we started that very strong movement led by Marcello, our COO, and he started to take care of the supply procurement and operation departments, bringing everybody together on the same commitment of reducing that inventory. Now we have an inventory coverage that is 6 to 7 days lower than in the past with the same disruption level that we had. It's actually lower than the past 4 to 5 years. So we are actually improving the service to our customers with available inventory, but a lower inventory as a whole, which makes our operations easier. We are not going to have so many problems with expiration of medications and losses entailed by that. So I think that our management did a great job and I'd like to take this opportunity to thank them for that. And there's still more to be done. I believe that there are other levers that are very clear for us to improve the cash cycle, which is very important when the interest rate is at 15%. So we are going to see the benefits of that on our financial expenses, too. Now 4Bio, indeed, the DC in Espirito Santo is going to help us. We are signing the contract and we are going to resume supply to the lab in the state of Sao Paulo and that is going to decrease the drop in sales and that should take place relatively fast. 4Bio is a solid business. It continues to make money and the projection for revenue is more than BRL 3 billion per year. Now that we are adjusting things, now that we are not so conservative in terms of protecting our profitability at all costs and after the operation resumes from the state of Espirito Santo, I feel certain that we are going to exceed BRL 3 billion in annual revenues. Even without that DC, the third quarter had a better performance than the second quarter because of that balance movement. And 4Bio continues to be a good business with an annual revenue in excess of BRL 3 billion. We restructured our operations, we divested in some other businesses and it was not the case with 4Bio. We decided to continue with it. And we just need to adjust things to go back to the levels that we expect to have. Flavio de Correia: And, Raduan, if we look at the gross margin in the company that is fed by 4Bio, of course, but other categories as well, I think the market gets a bit anxious about our gross margin throughout the year. If we look at the potential dilution of our gross margin due to GLP-1 drugs and due to 4Bio as well, if you do the math, you are going to see that the sales are growing at about 12.5% and the gross profit is increasing by the same rate, 12.5%. So despite the headwinds, we are still growing. Despite the potential dilutions, we are still growing. And if we have any additional performance that we can capture, we are going to distribute even more value. So I think the results are very positive across the board when it comes to profitability. Operator: And now the next question comes from Mauricio Cepeda with Morgan Stanley. Mauricio Cepeda: I have 2 questions too. First, about GLP-1 and the expiration of patents. Raduan said a few things that are in line with our thoughts about the competitive landscape after the expiration of the patents. You said that there is low availability right now, but we also know that the national laboratories are going to start producing those drugs under licenses. So in your perspective, do you think that with the low availability, the semaglutide price will continue to be high, at least in the beginning or maybe that won't be the case? Maybe the competition will be very aggressive. And the players for similars and the pure generics, do you think that they are going to offer you more discounts than other players than what we see in the small molecule market? And the second question is, you mentioned in your release that the market is going generic because it took advantage of the recent patent expirations and that helped you grow, especially in the prescription lines. But now looking forward, we can see that there's less opportunity in the generic space with the exception of semaglutide, but we can see less opportunities of losses of patents. But do you continue to be confident in the contribution of generics and how much can it exceed the contribution of brand name medications? Because we can see that there are molecules that are very competitive. Some manufacturers have a huge capacity. So do you think that the unit contribution from generics will still be significant in comparison with the brand name medications? Renato Raduan: I'm going to go with the first one. But I don't know the answer for sure. I know what everybody knows about theory. The more competitors you have in the market, the more the prices get readjusted and then price setters have to get readjusted. Mounjaro in the market, for example, has taken to readjustment of the other molecules in the market so that they wouldn't lose their share. The more players in the market, as generics or as brand names, the tendency is to have readjustment of the reference brands. But that repositioning of prices, which brings down the average ticket of the molecule because of generics or licensed products, in our opinion, it will be compensated by the increased access. Another important thing is that there seems to be semaglutide as is and liraglutide and then there would be generics coming in, that will be it. No, the industry is still investing in innovation. So Mounjaro and all the product brands, the pharma industry is developing new products, reducing side effects, et cetera. So much more than having one single product with a reference product, generic and similar product, there are going to be other molecules coming into the market with different price points and those who can afford will end up buying the most advanced drugs and the others will keep on buying the already existing ones. We've already had 2 experience. There was the MS generic. We bought it. It's sold. MS could not replace the levels and now there is a licensed product by Europharma, which is available in the pharmacies. But it all depends on medical prescriptions. Those products are not interchangeable. It's not simple, simply to replace the prescription. We have to work -- the doctors have to prescribe it. In the short term, I don't think the average prices will go down. But eventually, as there are more products, more generic and licensed products, the prices will come down. But as a market, I believe there is still room for growth because of access. Flavio de Correia: And I think the most challenging one is the word that you are using for having the market go all generic, right? The Brazilian population consumes about -- 1 million Brazilians buy GLP analogs every month. But we talk about 30% of the population having obesity. It would mean 30 million people who would fancy using the product in addition to the cosmetic aspects of the use of the drug. I would say the market still has a huge possibility of growth. If the prices come down, we would have an increased demand. And generic medications, whenever a product expires its patent, there is an increase in gross margin when we start selling the generic. We have to find the balance point. But in terms of cash, we are going to be able to generate more gross profit when the patent is expired and when we start offering new launches. For other molecules and generics, we still have very healthy gross margin, similarly to our expected levels by having the highest market share. We are the main client of the generic manufacturers. We have a very transparent open process. It's an auction of molecules as we call it. We have it every year, once a year or more frequently to know who are the ones interested in having a higher presence in our stores. And the pharma industries offer the best conditions for these molecules so that they can be more represented on our shelves. Very well transparent process. The pharma industry is aware of that. And we have maintained very healthy, safe margins because of our network of over 3,500 stores. So very healthy margins. Mauricio Cepeda: That's great. I just have a quick complementation. What about the unit prices? The prices are lower. So is it still significant? Unknown Executive: I think it's very solid and significant. This is not something that we see as a concern for our profitability for the future. In our round of discussions, we have had quite many to identify challenges and emphasize our strategies. This has never been considered a topic of relevance. Operator: Let me now invite Irma Sgarz with Goldman Sachs. Irma Sgarz: I would like to go back to gross margin. Could you please tell us more about what you've seen in terms of gross margin, excluding GLP-1 effects and 4Bio? I would like to understand really the need to keep on investing in prices and the progress that you have had in the loss of products. I would also like to know more about how we can understand the behavior of gross margin, discounting mix effects and what we can anticipate for 2026 for the fourth quarter and also Black Friday? It's a kind of promotional campaign that you haven't joined previously. And what about this year? Have you had anything in mind? Do you have anything in mind I mean? Renato Raduan: First question, the most difficult one, right, this equation and this fine-tuning. If we exclude 4Bio, I think we have good news, as we pointed out. From the second to the third quarter, we've maintained our stable gross margin at corporate sales despite GLP-1 pressures. The second quarter has higher gross margin because of the pre-price increase. The third quarter, despite that, we navigated quite well and we had almost 40 bps of negative pressure because of GLP-1. But there were some other effects that contributed to our improvement. They had had a difference over last year, our distribution center in [ Goias ], where we are consolidating the loads to improve the service in our regional operations. It also impacts our gross margin and tax effects, price management. We are still very competitive in HPC with the same level of competitiveness. But in other categories, online and offline, we've been very carefully adjusting prices product by product to have pricing efficiency gains. We haven't invested more in the third quarter than the second quarter because of competitiveness. And still, we had better performance. I haven't told you, but the performance of HPC was nearly 11% over the basis of last year that had increased 10%. We still haven't come across the low basis of HPC, which starts in the fourth quarter. The third quarter last year, HPC growth was 10%. This year is 10.9%. As of the next quarter, we probably are going to find lower levels. Yes, there are pressures on our margins. HPC, we are operating at a stable margin, but offering more promotions than we used to and we probably will maintain it. But I believe our team is finding offsets to really maintain healthy margins. Concerning Black Friday, we have told you very candidly that we were not as aggressive as we should have. And that was part of why HPC didn't grow last year. Of course, we are much better prepared for this year's Black Friday campaign. Our team has been working with it since August with the industry, with suppliers. So we are highly optimistic and confident that the Black Friday this year is going to be much better than last year. We are very optimistic for the fourth quarter, not because of the upward trend of the third quarter, but because we know the Black Friday is going to be much better than last year. Operator: Let's go now into our next question. We have now Vinicius Strano with UBS. Vinicius Strano: One about selling expenses. How can we understand the future of selling expenses? What about personnel in your stores? And something else about hiring, do you still think there are investments to be made to work on selling expenses? And in terms of inventory levels, what results from the higher turnover of sales of GLP-1? And how much of the inventory optimization has resulted from other strategies so that we can get to a normalized cash cycle? Renato Raduan: Going to your first question. Selling expenses, as Flavio pointed out, we had a lot of suppression in the third quarter last year. We were understaffed as we stated and we have come up with an appropriate headcount, 16.5, to reduce the work overload of our own staff and to improve the quality of services. And it was an investment that made sense. Part of the recovery of sales, self-service and recovery of losses resulted from the fact that we have larger teams in our pharmacies. What hasn't been reflected yet, but it's going into the fourth quarter, is the fact that we are going to have that package of benefits for distribution center personnel and pharmacist personnel so that we can improve our employee value proposition so that we can have them more engaged, happier, reducing staff turnover. We are launching a benefit, a package of benefit. We have heard our own people, managers, pharmacists, service operators, distribution center operators to know what would be the most relevant things for them so that they would be more satisfied and engaged. We wouldn't invest in something that would make no sense to them. So we listened to their request and the packet of benefit is going into effect as of October 1. I cannot tell you exactly how much was invested, but we believe it's something that's going to be diluted within our financial results. I still believe in the fourth quarter, we will have lower selling expenses than the quarter last year, of course, this is not guidance, despite all the improvements and also the improvement on our package of benefits. Once again, this is all going to be part of financial performances, which are equally good. In terms of inventories, your question is quite good. Part of the reduction of cycle, say nearly 40% of the cycle reduction resulted from GLP-1, which has very high turnover. The sales turnover is quite high, but there is 60% of the inventory reduction which has nothing to do with GLP-1. It's related to our structural work that had been done by the team, which is really improving our structure as a whole. And we believe there is more to come. These are the 2 points. GLP-1, 40% of inventory improvement. The other non-GLP-1, 60% reduction. Operator: The next question comes from Danniela Eiger with XP. Danniela Eiger: I have a few follow-up questions. The first one is about HPC. You were talking about competitiveness and I think that we can see that in our track record, you are more and more competitive and you're getting closer to the marketplaces, but the price comes at a premium still. I'd like to know what your end game is when it comes to competitiveness. Do you believe you will have to stabilize the prices for some products? We can see that you are very aggressive in some categories. So I'd like to know more about your perspective about the HPC pricing dynamic and also if you believe that you are at a sustainable or maybe comfortable level. And still about HPC, I have a question about Black Friday. You said that the performance will be better, but how much better? At the same time, we can see a very intense competition among the marketplaces. So I think that marketing will be more expensive. So is your strategy focusing on the same customers with your own data pushes? If you could give us more color on your strategy, that would be great. And a question about GLP-1. You said that you have not reached double digit numbers in that category. And you also said that the limited supply is a constraint, but we can already see a higher availability in the fourth quarter with higher doses, which also have higher tickets. So maybe in the fourth quarter, we are going to get there in the double digit numbers. I believe that there will be an improvement. And in the previous call, you talked about the higher doses that you would receive. So I'd like to know more about that as well. And very briefly, I'd just like to know more about the DC for 4Bio. When do you expect it to open in the state of Espirito Santo? Renato Raduan: Well, first, about the relative price. We know that we don't have the same prices as the horizontal marketplaces and we don't think we have to. Many customers, many surveys have told us that we have strengths that the marketplaces don't have. They have the price, but we have guarantee when it comes to the origin of the products. And customers know that in some products, that's very important. The customers, when they don't know the origin of certain products in marketplaces, they buy from us and they are willing to pay more for that. And also, we have 60-minute shipping times, which no marketplace can offer. So we have other advantages, which allow us to have a premium price. But of course, it shouldn't be that much higher. As you said, we are getting closer to their prices. And from the second to the third quarter, we saw performance going back to double digits. And we believe that that is sufficient to sustain a healthy performance. If we put together the lower price, a price that is closer to the marketplaces prices and our benefits, the benefits that we offer that they can't, we believe that that is sufficient to sustain the performance. And of course, if we feel that we need to invest more on that at some point, we are. You asked a very good question about the bloody war that will probably happen between the marketplaces during Black Friday. In the past, we had some similar wars, for example, free shipping. But what we can tell you is that we have an ambition to grow in sales. We are going to do more things than we did last year. We have a target with some industries that we want to reach and those targets are much higher than last year with a negotiated margin. So we are going to do our bit better than we did last year, but competition will tell what the end of the story will be. But we are confident that Black Friday will be better for us despite the red ocean in Black Friday. And the next question was about GLP-1, about the doses, right? Yes. In the third quarter, as I said, we did not reach double digit numbers in that category. I think that will happen, but I can't tell you if it's going to happen in the fourth quarter. I think it's going to happen even before the generics come or the licensed medications come. Once we have a full month with availability for all doses and all products, I believe that we are going to exceed double digits. But I don't know when it's going to happen because it depends on the industry, but I am optimistic about the increase in penetration in this category. And the 4Bio DCs, well, they are smaller. They have 1,000 square meters in area and they require little automation. This week, we are going to sign the contract. It has been negotiated already. We already know the location. And I was talking to the 4Bio CEO this morning because I knew you were going to ask that question. And he told me that we are going to sign the contract this week. And after it is signed, it is very easy to get it running because there's little automation. We just need to have the inventory there. And another point that I would like to add about HPC. I believe last year, the competition against the marketplaces, it was stabilized because now we can show that we have benefits to offer. I believe that we, in 6 months, were able to digest a headwind of 5 points in the speed of growth of this category. And we also are supported by the industry so that we can have a stronger footprint in this category. Our growth thesis for HPC is very much based on that partnership. A partnership brings benefits and exclusive assortment that customers can't find anywhere else. And we are omnichannel, which is critical for us. We have the beauty consultants inside the pharmacies. So all of those attributes are extremely important in this competition against the digital marketplaces. We don't think we are lagging behind at all. Operator: Next question comes from Leandro Bastos with Citi. Leandro Bastos: I have 2 questions. The first one is about expenses. You said that you are going to offer more benefits to the employees. And I'd like to know more about your 5.2 journey. Are you going to implement it? We can see some competitors in the state of Sao Paulo running on this new mode of operation. So if you can talk more about that, that would be great. And the second question is about the tax benefits. I believe that you had it in 3 states. So I'd like to know more about that. And what is the potential that you see in this arena? Renato Raduan: Can you just please repeat the second question because the audio was a bit choppy? Leandro Bastos: Sure. Is it better now? It's about the investment tax benefit. You recognized the benefits in 3 states and I'd like to know a little bit more about that. Renato Raduan: I'm going to answer the first question and Flavio is going to answer the second question. Yes, we are going to convert the pharmacies to the 5.2 mode of operation. And there is one thing related to this is the working hours. The working hours add up to 44 hours per week. When people started working from home during the pandemic, the working hours remained the same. And the 5.2 is the same with 44 hours per week, but the employee has 2 options. They can either come 6 days a week and rest for 1 day only with little time for personal -- their personal lives or they will come for 5 days, working a little bit longer each day. And the benefit on that daily effort is resting for 2 days instead of 1. And again, we decided to listen to our people to understand if that's what they wanted. In some states, we have 30% to 40% of our pharmacists working according to that model. And last year, we converted all of our pharmacists to that model. And still this year, we converted the supervisors as well. And we are in a transition phase right now. We had to listen to our employees to understand what was relevant to them. And on average, they decided to have the 5 days per week and to rest. And we actually had a vote to understand the collective preference and 75% of the employees preferred that model of working 5 days a week. So we are already converting the working hours to that model and we had to adapt and understand what time they should get there and what time they should leave so as to not impact customer service. And things are going well. I think our employees are happier because of that. And that's why we are doing it. We're doing it for them. For us, it doesn't make that much of a difference because the 44 hours won't change, but we are doing what our employees want to be happier to have more free time to spend with their families. And of course, it doesn't apply to everybody. Managers work in a different way. There are many particulars involved, but we are moving forward on this. About the tax benefits, nothing changed when it comes to taxes. This quarter, we are using the same interpretation that we had in the previous quarters when it comes to tax subsidies and the differential tax in BRL 70 million affecting our results positively is a specific case from 2022. We had some court decisions favorable to us being passed in the previous weeks. We were able to revert those numbers. Eugenio used to say that we are one of the very few companies that actually report on a lower revenue than it is in reality. We usually don't report those numbers that come from subsidies. We are considering that these numbers came from the past and we are not including them in our numbers for this quarter. But yes, we had BRL 70 million coming from the subsidies. Operator: Now next question, Robert Ford with Bank of America. Robert Ford: Congratulations on your excellent results. What's the impact of Ultra Farma issues in your market share? And how can we understand Ultra Farma from now on? In addition to working with 4Bio suppliers, are there any other benefits that we have to consider about the distribution center in Espirito Santo? Renato Raduan: Well, thank you. Thank you for your comments and for celebrating our results. We haven't really measured the Ultra Farma effect and all the events that they've been involved in. But our market share in the state of Sao Paulo had been in place even before Ultra Farma issues. We've been growing very positively in the state of Sao Paulo much before the problems they have had. The expansion of our new stores with very high IRR, mature stores. So we don't account for any growth resulting from Ultra Farma's issues because we've been growing like that very steadily for a while. Espirito Santo's distribution center, we are going with a team there tomorrow to officially open our own distribution center of RD, fully automated and we would like to show you in future interactions, highly automated, very modern with robots, with less manual intervention in one single box, there might be a much higher productivity and lower operational cost. If it opens, of course, it's going to enable also a revisitation of current -- current DC and future ones. 4Bio distribution center is different. It's going to serve the pharmacies in Espirito Santo, part of the state of Rio de Janeiro, especially closer to the frontier of the state. So the distribution center is really important there. We open about 330 to 350 pharmacies every year. We inevitably have to build one new distribution center every year so that we can keep up with our expansion. This is in Espirito Santos and there are others that are going to be opened in upcoming periods in different states so that we can keep up with our logistic challenges. Operator: Now Rodrigo Gastim with Itau BBA. Rodrigo Gastim: I have 2 questions. First, going back to GLP. You've mentioned the expectations of market expansion once patents expire. But what about the economics aspect after GLP expiration? I know it's hard to draw any conclusions yet. But what would you have in terms of gains? We know, yes, the generics bring different margins. But in terms of economics, what would be your best guess about future margins? A second topic, in the opening remarks, you said in the first quarter, you didn't expect to be so well positioned now in the second half of the year. And my question is, what has happened that surprised you? Could you please share with us the 2, 3 points that have positively surprised you in the past 6 months for taking us to that better position today? These are my 2 questions. Renato Raduan: I'm going to give you my suggestion, but I don't think it's going to be any better than yours or anyone else's. We've been trying to analyze all data. We have a Board member who is a physician and we ask about perspective. Today, we are reading a McKenzie study to get more references. But there is a consensus that once there is an increased access through generic, the demand will at least have a three or fourfold increase over the current demand of not 2024, but there should be a threefold increase over the references this year with an average price that would be cut by half. It doesn't mean that our profitability is going to cut by half because they're going to sell more generic and so on. But all in all, we believe that the gross margin in cash generated by it in the total balance will be positive and better because of the multiplication of access. We don't have the precise number, but we understand that total cash generated from GLP-1 will be higher despite lower prices, despite lower margins because of the expansion of access. Once again, this is my best guess, but the time will tell. This is what we've been learning and we talk a lot with the pharma industry to hear from them their perspective, but this is my best guess. Now your second point, we have to be extra careful because very few people trust the company so much as I do. I've been in the company for 13 years. I know it quite well because of all the positions that I have taken. I know the strengths, culture, the stores, logistics, expansion, qualification of the team, which has been really improved in the past 5 years, digital transformation. So all the things I've seen in the past 13 years have really assured me of the potential the company has for the future. So when I say that in the first quarter and second quarter, I did not expect that much of results, not because I didn't trust the company or the team. No, I strongly believe in all of us. But it was a great increase, BRL 10 billion to BRL 12.2 billion to structured EBITDA of 7.5% when the structured EBITDA for the quarter was 7%. You used to say we are priced to perfection. When we had a price to perfection, our EBITDA in the third quarter was 7%. Now it's 7.5% EBITDA with 50 bps over the previous situation of priced to perfection. So I think the intensity and the speed of growth have been marked. And I think that despite our strengths, the pride of our history, our company has very candidly understand that sometimes for 2 or 3 quarters, we can get off track. Maybe we haven't operated as much as we could. But we've recognized our mistake, humbly decided to make quick adjustments in cost structure, corporate structure, making the right investment allocations. And we've had made wrong investments, we wouldn't have had returns. It was a joint work of leadership, the support of the Board, our head office team and operations team really also by our site. And this is why we've reached so good results in the third quarter. I think it's a result of our management capabilities and our assets. 2 or 3 deviated quarters are not going to really derail us. They do not ensure permanently good results and the numbers of the fourth quarter and first quarter of the year did show that. But we had assets. We focused our energy, our best efforts, reinvested in value proposition, reinvested in propositions to our own staff. And as a consequence, we've reached good results. Operator: Tales Granello with Safra. Tales Granello: I have a question concerning SG&A and your growth on the online channel, especially because of GLP-1 sales. In the quarter, it was 2.6 and that level of expenses will keep on be at this level. But don't you expect to reinvest in digital as you did last year? Concerning the losses over income, the 10 bps that you had year-over-year and quarter-over-quarter, is it resulting from a reduction of staff? Or do you have better inventory management and right assortment? What has impacted that? Renato Raduan: Excellent questions. The first one is really important. I would like to make a clarification. Reduction and restructuring of the company to operate lightly and more efficiently has not reduced our capacity to deliver. In the past 6 months, we have had the highest level of deliveries and releases in the digital channel despite the restructure. And why? For a number of reasons. First, the team has become more mature, more seasoned, therefore, can work better. We've been working with generative AI to generate code and that has meant improved productivity and efficiency. As a team, we've brought together digital operations and direct business areas, developing things that can really make a difference to our customers. This is an important question because we can make it clear that our corporate improvement had nothing to do or was not at the cost of impacting deliverables and also customer deliveries. Our NPS in the app is better than we used to have. Our NPS of delivery is better than we used to have. And we have a recurrence level, 66% of our customers. So 2/3 of the customers are recurring clients. They like the journey, so they come back. We keep on investing in building our future, our ambidexterity. We have to be efficient in both channels and it requires investing in the future and we are being extra careful. We are going to keep on investing in digital channel, supporting the operation, but it doesn't mean that we have to go to a G&A of 2.8 or 2.9 or go back to the 3 point level. Concerning losses, I think we have to combine a number of things. Some reductions of tests in stores, some specific actions to avoid shoplifting, also the products that got expired and we then have to get rid of and we've reduced that number of expirations. There is no silver bullet, I have to say. This is the combination of a number of small actions. And when built together, they produce better results. And we are very confident that we can keep on reducing that. It was not just one action. It's a combination of a number of small actions. Operator: We now are going to hear from Ruben Couto with Santander for the last question of our Q&A. Ruben Couto: I've just -- you have online, you have Black Friday. I would like to hear your expectation, not for the fourth quarter, but for 2026. Do you think that's going to be additional investment source? Please tell us more about that. Renato Raduan: Well, I'll start and Flavio can complement. I believe it's going well. It's growing more than we expected. It's growing more than the core revenues as expected. And the growth will be double digit for a long, long time and [ Fabi ] and her team have been doing a great job and they have been making progress according to expectations. We do have a good problem, though. If you look at our first slide, our EBITDA in the quarter was BRL 909 million, almost BRL 1 billion. In order for you to do something that is going to move the needle in a mass of BRL 1 billion in revenue, it has to be something extremely significant. But it is a good problem to have. But we should remember that the business has always almost BRL 3.5 billion or BRL 4 billion per year. Any additional revenue stream will help us. We continue to be very optimistic about this business. And any additional penny will help both on the revenue side and on the cost reduction side. And Black Friday is going to be a good opportunity for us to leverage the push. It is a very good moment for us to get to a new level there. We have a different experience with some ads and we now have different interpretations on the impact of those ads and they are going to help us capture that share. Just to wrap up, I believe that we are using AI more and more in our activities and that is helping us gain scale and depth in our deliveries. Fabi is leading that initiative together with a number of other departments in our company. The ads are dealt with the entire business side of the company, bringing more value proposition than just ads alone. And with that, we are capturing an ROI much above the average in other companies or other service providers. So I believe we are going to have some tailwinds that will help us grow in this activity even further. Operator: That concludes the Q&A session for today. And now I'd like to turn the conference over to the executives for his -- for their closing remarks. Renato Raduan: Well, let me check if I have a slide about that here. I'd like to invite you to the RD Saude Day. It is going to take place on December 1. It is going to take place here in the headquarters from 2:30 to 6:00 p.m. You will have the chance to meet all the executives, not just me and Flavio. So you're all invited. It will be a pleasure to have you here and talk to you some more about our strategies and everything we have been doing to build an even brighter future. So save the date and we hope to see you all here. Some closing remarks. First, I'll repeat the obvious. Thank you. Thank you to everybody in our company. This result was extremely solid, as we said. And I am not the one responsible for that. Everybody, the 70,000 people working in this company are responsible for that. 70,000 people working according to our culture, providing the best service to our customers in the pharmacies, in the head office, in our distribution centers, they are the ones that worked hard to deliver such great results in the third quarter, exceeding our expectations. I think it exceeded your expectations as well. If you expected such a strong result in the third quarter, maybe that's because you regained the trust that you had in us. And we continue to be extremely confident and optimistic about the results in the fourth quarter and 2026 and from then on. And again, I'll keep my commitment of being as transparent as possible in hardship and also in happy moments. I will always be here talking candidly to you without sugar coating the results, but rather speaking my mind. And I continue to believe that the best is still to come. This company has been around for over 100 years. We have a lot to be proud of, but I am certain that what future holds for us is even better. We had strengths, we have strengths that are difficult to replicate, a brand that was built over the course of 120 years with credibility, trust and a culture that is easily recognized by customers that cannot be built overnight. And we are in the best locations in every neighborhood and that it cannot be replicated overnight. Not everybody can do that. The digital capability that we invested so much in, many players don't have the financial capacity to do the same. The 70,000 people that work with us already have our culture and they are growing in their careers. The managers used to work as pharmacists, the regional directors, the operation directors, they all started their careers here and that is very difficult to replicate too. International companies try to do that here in Brazil. They were not successful. Other pharmacy chains tried to do the same. They were not successful. So the marketplaces won't easily succeed either. There are players that indeed have very strong assets. And if we keep working on our strengths and if we continue to have a sharp focus on doing what's relevant for customers and our employees, protecting the execution in the present and also looking at the future with the right speed, if we put all of that together, our assets and the capacity that our team has makes me truly believe that the best is yet to come and that we are going to celebrate many happy moments in our earnings calls and we will be able to make our society even healthier. So thank you very much for your trust in us, for your interest in our results and see you in the RD Saude Day or the next earnings calls. Thank you. Operator: Thank you very much for joining us this morning. This concludes RD Saude's earnings call for today. Have a good one. [Statements in English on this transcript were spoken by an interpreter present on the live call]
Operator: Good afternoon, and welcome to SiTime's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, November 5, 2025. I would now like to turn the call over to Brett Perry of Shelton Group Investor Relations. Brett, please go ahead. Brett Perry: Thank you, Ari. Good afternoon, and welcome to SiTime's Third Quarter 2025 Financial Results Conference Call. Joining us on today's call from SiTime are Rajesh Vashist, Chief Executive Officer, and Beth Howe, Chief Financial Officer. Before we begin, I'd like to point out that during the course of this call, the company may make forward-looking statements regarding expected future results, including financial position, strategy and plans, future operations, the timing market and other areas of discussion. It's not possible for the company's management to predict all risks nor can the company assess the impact of all factors on its business or the extent to which any factors or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. In light of these risks, uncertainties and assumptions, the forward-looking events discussed during this call may not occur, and actual results could differ materially and adversely from those anticipated or implied. Neither the company nor any person assumes responsibility for the accuracy and completeness of the forward-looking statements. The company undertakes no obligation to publicly update forward-looking statements for any reason after the date of today's conference call to conform statements to actual results or to changes in the company's expectations. For more detailed information on risks associated with the business, we refer you to the risk factors described in the 10-K filed on February 14, 2025, as well as the company's subsequent filings with the Securities and Exchange Commission. During the call, management will refer to non-GAAP financial measures, which are considered to be an important measure of company performance. These non-GAAP financial measures are provided in addition to and not as a substitute for nor superior to measures of financial performance prepared in accordance with U.S. GAAP. This GAAP to non-GAAP reconciliation includes stock-based compensation expense, amortization of acquired intangibles and acquisition-related expenses, which include transaction and certain other costs -- cash costs associated with business acquisition as well as changes in the estimated fair value of contingent consideration and earn-out liabilities. We refer you to the company's press release issued earlier today for a detailed reconciliation between GAAP and non-GAAP financial results. With that, it's now my pleasure to turn the call over to SiTime's CEO, Rajesh. Please go ahead. Rajesh Vashist: Thank you, Brett. Good afternoon, everyone. It's a pleasure to connect with you all again. We value the trust of our long-standing shareholders and extend a warm welcome to those joining the SiTime journey. As AI becomes more prevalent, it drives the need for better timing and synchronization, which in turn propels faster growth for precision timing. Our key applications are centered around AI, including networking and computing hardware in clusters, XPUs, GPUs, CPUs, et cetera, for inference, personal AI computers and AI-based next-generation communications equipment. Here, as well as in all our other end markets, SiTime provides differentiation with resilient performance and reliability. Q3 2025 was a milestone quarter in SiTime's history with revenue of $83.6 million, up 45% year-over-year, an increase in gross margins to 58.8% and EPS more than doubling to $0.87. Exceptionally strong bookings reinforce our outlook for continued growth momentum. Our growth is playing out geographically as well. In Q3, we saw double-digit percentage growth in every region. We continue with design win momentum across all our end customer segments, highlighting the broad demand for our products. In Q3, demand from CED, communications, enterprise and datacenter customers surged with segment revenue up 115% year-over-year. This marks the sixth consecutive quarter of triple-digit growth in CED and represents 51% of our revenue in Q3. We expect our growth to continue at a fast pace driven by 3 trends. First, we will generate more revenue with our oscillators and clock generators in existing design as their shipments increase. Examples include Elite and Elite RF oscillators, which enable better synchronization for lower latency and higher GPU efficiency. Second, we continue to win new designs, which will generate new revenue. For example, optical module bandwidth is doubling to the 1.6 terabit level, and these new modules are beginning to ramp now. Demand for the 1.6 terabit modules has recently doubled, indicating a sharp transition to 1.6 terabit technology in first half 2026. Additionally, SiTime's oscillator ASPs in this application are higher because of the higher frequency and performance requirements. The third reason is that CED orders are coming in with shorter lead times. With the supply chain preparedness and product architecture, SiTime has better availability and is doing a great job in fulfilling this demand. Our funnel is growing rapidly as well, particularly in clocks, where it has quadrupled to $300 million in the past year. All of these trends are giving us higher confidence for 2026. Moving to aerospace defense, precise timing is critical. For example, our Endura oscillators enable synchronized movement and robust communications. With GPS becoming increasingly compromised, localized signing with our highest performance oscillators provides essential holdover capability for continued operations. In automotive, our recently launched Chorus clock generator is ramping at top ADAS car companies and is integrating into leading L4 and Robotaxi designs. Our product road map features failsafe technology, which advances safety-first design with high stability timing and predictable failover for L4 autonomy. And finally, in mobile IoT consumer, we expect strong growth from our Symphonic clock generator in mobile applications in the coming year. We are very excited to introduce the Titan Platform, a breakthrough that marks SiTime entry into the $4 billion stand-alone resonator market. Titan opens an incremental $400 million SAM or serviceable market today, which we expect to grow to $1 billion by 2028. This platform is the result of more than 2 decades of innovation, hundreds of millions of dollars in investment and 6 generations of MEMS technology. Over that time, we've improved resonator performance by 100x, and we see another 10 to 20x improvement within reach as we continue to innovate. Titan fundamentally transforms the resonator market. First, it eliminates the need for stand-alone board-level resonators, which is a persistent challenge for customers by enabling semiconductor level packaging and integration. Second, it creates long-lived revenue streams for these semiconductor companies that integrate Titan and deliver more value to their customers. We believe Titan and our resonated road map puts SiTime years ahead of the industry. Our leadership will enable a new class of electronics that are smaller, lower power and higher performance, setting the stage for the next wave of innovation. Across the business, robust demand and a healthy funnel position, it positions us well for continued strong growth. We remain committed to further investing in R&D, deepening customer engagement and strengthening operating leverage. SiTime is well positioned for enduring success. I look forward to the opportunities ahead and to sharing our continued progress. I'll now turn the call over to Beth to discuss our financial results in more detail. Beth? Beth Howe: Thanks, Rajesh, and good afternoon, everyone. Today, I'll walk through our third quarter fiscal 2025 results and then provide our outlook for the fourth quarter. As a reminder, I'll focus on non-GAAP financials, which are reconciled to GAAP in our press release. Q3 reflects the continued execution of our strategic priorities. Our performance demonstrates the strength of our diversified products and applications, the scalability of our operating model and the growing demand for our differentiated solutions. In the third quarter, revenue increased 45% year-on-year to $83.6 million, driven by revenue in communications enterprise datacenter, which grew 115% year-over-year to $42.1 million. Sales into the automotive, industrial and defense market totaled $20.2 million, up 14% year-on-year. And sales into the mobile IoT and consumer market increased 4% year-on-year to $21.3 million, of which our large consumer end customer represented $15.3 million. In terms of the mix of revenue, the communication enterprise datacenter market represented 51% of revenue, while the mobile IoT consumer market represented 25% of revenue and the automotive industrial defense market represented 24% of revenue. Q3 non-GAAP gross margin was 58.8%, up 70 basis points year-on-year due to improving product mix and favorable product cost. Total non-GAAP operating expenses increased 14% year-on-year to $33.7 million. For the quarter, R&D expense was $18.5 million and SG&A expense was $15.2 million as we invested in both sales and marketing. We continue to be disciplined while investing for future growth. Q3 non-GAAP operating income was $15.4 million, an improvement of $11.4 million or 12 percentage points versus the same quarter a year ago. Q3 non-GAAP net income was $23.4 million or 28% of revenue, and non-GAAP earnings per share more than doubled year-over-year to $0.87. Turning to the balance sheet. Accounts receivable were $22.5 million, with DSO improving to 24 days versus 35 days in Q2 due to better revenue linearity. Inventory at the end of the quarter was $86.7 million compared to $84.1 million in Q2 as we continue to maintain strong inventory for assurance of supply. During the quarter, cash from operations more than doubled sequentially to $31.4 million. As expected, capital expenditures stepped down in Q3 to $5.1 million. We ended the quarter with $810 million in cash and short-term investments. Now I'd like to provide our outlook for the December quarter. For Q4, we expect revenue of $100 million to $103 million, gross margins of 60% to 60.5%, operating expenses of $35 million to $36 million, interest income of $7 million to $7.5 million and diluted share count of approximately 27 million shares. As a result, we expect fourth quarter non-GAAP EPS to be in the range of $1.16 to $1.21 per share. In closing, our third quarter performance and outlook for Q4 reflect the strong top line momentum and the meaningful operating leverage in our model as we scale. We are executing on our strategy to lead in high-growth, high-value markets. Our diversified portfolio continues to gain traction across AI, automotive, industrial, defense and consumer sectors, reinforcing the strength of our multi-market approach. Operational discipline remains a cornerstone as evidenced by the expanding gross margins and significant increase in operating income. With a robust product pipeline and deepening customer engagement, we are well-positioned to drive sustained growth, operating leverage and long-term shareholder value. With that, I'll open it up for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Tore Svanberg of Stifel. Tore Svanberg: Congrats on the record revenue and the very strong outlook. Could you give us a sense for what's driving the strength in Q4? I mean I assume CED is going to continue to be a strong growth driver. But yes, on a relative basis, could you talk about the 3 segments into Q4, please? Beth Howe: Sure. I'll start there, Tore. So, we do see a kind of continuation of trends and sequential growth in each of our segments. for Q4. No surprise, the AI and datacenter business continues to lead the growth in terms of the strength of the markets. But we are continuing to see adoption of our new mobile Symphonic product as well as performance in aerospace and defense as we look into Q4. Tore Svanberg: And as my follow-up, a question for you, Rajesh. So now that you've got clocks getting design win, you got the resonator product line. I'm just wondering how that serves to pull in more oscillator opportunities for you as well. Because my understanding is sometimes you get drawn in with more components, especially as you get design wins for clocks and resonators. So, any color you could add there, please? Rajesh Vashist: Yes. Thanks for that, Tore. The clocks definitely do bring the oscillators or oscillators bring in more clocks. But in spite of the very, very robust funnel that we have in clocks, we're still a relatively small player in the clock cycle. So, I think it will probably be for it to be able to pull in our oscillators to significant levels. That's probably out for about 1 year, 1.5 years at least. As far as Titan, the resonator pulling us in, I think that's definitely not going to have any meaningful revenue until late '26 or '27 even going out in the future. I think the main reason for talking about these is to indicate that SiTime has really established its position as a broad-based timing supplier, which makes us completely unique. There is nobody else that has oscillators as strongly as we do have, blocks rising and resonators coming in for the future and bringing in a lot of strategic value to the customers. So, we just wanted to expose that to investors to get them to understand how far we have come in the last couple of years in building ourselves out. Operator: [Operator Instructions] Our next question comes from the line of Quinn Bolton of Needham & Company. Quinn Bolton: Congratulations on the results and outlook. I guess I just wanted to come back for just I might have missed some of your initial comments on the Titan resonator market. But obviously, I think historically, resonators have kind of sold at lower price points than clocks and oscillators. And so, I'm just wondering, as that business ramps, I think you said late '26 into 2027. Can you give us a sense what's the margin profile of the Titan family? And is that sort of aligned with your kind of roughly 60% gross margin that you guided to for the fourth quarter? Rajesh Vashist: You're exactly right, Quinn. The ASPs are definitely lower. They're lower than oscillators typically, and they're lower than clocks typically. But as I say, it really shows up in volume because that $4 billion resonator market is a 40-billion-unit market or more. So, the ASPs are low. We're talking $0.20 or below, but the gross margins are definitely in the 60% regime and in fact, probably higher. And yes, so the design wins are typically would be in tens of millions of units level design wins. Quinn Bolton: And then you've kind of filled out the timing portfolio, and I realize you may have additional product lines you can add to oscillators or clocks. But I guess I just wanted to think about you guys raised roughly $400 million sort of in the third quarter, looking to M&A. Can you just give us any updated thoughts on M&A? I think there have been some assets that have been rumored for sale, divisions of larger analog companies. Any thoughts on like atomic clocks, there's been some acquisitions of atomic clock companies announced over the past couple of months. And so just any updated thoughts on what you might be thinking on further enhancing the product portfolio through M&A? Rajesh Vashist: Yes. We certainly are interested in M&A. And I think we're looking to get scale. Unfortunately, the atomic clock business, particularly the ones you may be referring to are quite far out in revenue terms. So, while very interesting technologically and certainly something which is a gleam in our eye, I think we would be looking more near-term for M&A that actually has some impact. Operator: Our next question comes from the line of Tore Svanberg of Stifel. Tore Svanberg: Just a few follow-ups. First of all, Beth, the gross margin is pretty strong, 60%, 60.5%. I assume that is, again, mix driven. But is there also sort of a scale element here? So, as you get over $100 million a quarter revenue, just naturally the gross margin higher? And where could we eventually go here? Beth Howe: Thanks for the question, Tore. So, as we've talked about, our target is to have 60-plus percent gross margins, and we're getting there in Q4. Product mix and ASP definitely plays a part as CED has grown, those have very attractive ASPs and margins for us. So as that business has become 50%, 51% of the mix, that is positive for us as well. And then we will always continue to work on our cost, and that is also benefited by the scale. So, I think if I look at it, product mix is definitely helping us as we mix to more and more CED and then the scale and cost components also play a role. Tore Svanberg: And then my last question is for -- back to you, Rajesh. Could you just give us an update on where you stand with your go-to-market strategy? I think in the past, you've put together some efforts to work a little bit closer with the hyperscalers, maybe even closer to some of the bigger chip players that sell to those hyperscalers. So, any update there would be helpful. Rajesh Vashist: Yes. I think we're continuing to make significant progress, particularly in the semiconductor area. I think we also see the entry of new people in the market. who are not your typical players, I mean, notably Oracle and of course, OpenAI and so on. So, I think we are looking at the whole ecosystem. And as the timing company that is focused on high-end timing, differentiated timing, those are clearly customers that we're looking at moving into. And what we find ourselves is that we -- as there's more performance, less latency, smaller size, lower power, there's a greater need for SiTime products. And I think the 1.6 terabit per second is a great example of that. In the last couple of calls when we've talked, we've seen that further out in time, but we see an acceleration among many of these technologies. So, it looks really good. Operator: Our next question comes from the line of Chris Caso of Wolfe Research. Christopher Caso: I guess the first question is with regard to the customer base, can you give us some sense right now of, obviously, AI datacenter is what's driving a lot of this right now. How much of that market are you able to address with the reach that you have now with the sales and the engineering and the customer relationships right now? And what can you do to expand that into the areas where you just don't have penetration right now as a smaller player in what's a very big market? Rajesh Vashist: Yes. I think just to be very clear, Chris, we are in the early innings of all of this. If you look at the ecosystem that we are selling to, we're selling to semiconductor companies, as noted. We're selling to the hyperscalers. We're selling to the OEMs that are working on it. We're selling to the ODMs. We're selling to the module makers. We're selling to the active cable makers. So SiTime has almost an embarrassment of riches, and we are building ourselves up and hence, the comment on both making significant efforts in R&D as we see the need for greater and greater product needs that are 1, 2 years out even, and then, of course, into the channel strategy, not only directly addressing the OEMs, but also the hyperscalers, as we mentioned, and increasing significantly our geographic footprint, both in -- in all geographies, actually, in the United States, in Asia and as well as in Europe. So, I think it's -- we are actually on a very fast growth curve in adding resources in R&D and development as well as in marketing and sales to address all these markets. But it's early innings. Christopher Caso: For my follow-up, could you talk a bit about content? And you mentioned earlier on the call, the 1.6T transition. What does that transition do to timing content -- to your content on the board? And what else should we be watching as potential content drivers within that CED segment? Rajesh Vashist: Yes. So that's probably one of the easiest ones to talk about because it's one where we see higher volumes, and we see the significant increase in ASPs and average selling prices. So that's relatively an easy one. But also in the switches, also in the accelerator cards, the connectivity cards, whether they're PCIe or the UCX or any of the other technology, I think it really comes into full force. We also think that there is a future road map where timing, the whole conversation around chiplets is starting to get very interesting. As we look forward out into the future, it's not happening now, but it's happening out in the future. I think that gets very interesting, significantly increasing content as we go forward. Operator: [Operator Instructions] Our next question comes from the line of Quinn Bolton of Needham & Company. Quinn Bolton: A couple of follow-ups. I guess the first one, the CED business, up well over 100% with the fourth quarter guidance. I guess I'm just wondering, can you talk anything about visibility, lead times in that business? Are you starting to see any shortages of other components that could constrain that business or maybe on the flip, if things are tight, do you think there may be any hoarding or inventory stocking starting to take place in the CED business? And then I've got a quick follow-up. Rajesh Vashist: Yes. I mean we're -- in our business, we certainly don't think there's hoarding. In our business, we certainly don't think that there's any shortages in the sense that SiTime, back to my prepared comments, we have built up a robust value chain, a robust supply chain, and we were able to move because of our programmability and our focus on this market. So, we were good in getting to that. We do hear rumors of some of the optical components that are in shortage. But I don't think that anybody is holding back because we see quite a significant increase in volumes. But so far, that's about it. We've also, of course, heard of substrate shortages, but I think that's sort of fairly common knowledge. Nothing that's very particular to timing. Quinn Bolton: And then I guess kind of just wondering if you had any updated thoughts sort of on just what you would now maybe call typical seasonal trends as we start thinking about modeling 2026. When you were less driven by CED and maybe a little bit more mobile IoT focused, you saw pretty strong seasonality in the March quarter. Wondering if you think that seasonal pattern starts to mitigate a little bit with the business mixing to CED? Or would you still think the March quarter is down kind of 10%, 15%, maybe more just due to seasonal factors. Just any sort of thoughts on what seasonality may now be? Beth Howe: Quinn, this is Beth. Maybe I'll start there. So, as I think about seasonality, we do still see some seasonality in our business. So, I still do expect that we'll see that pattern from Q4 to Q1. That being said, overall, our business is being driven by kind of the strong demand we're seeing across our portfolio. I think we've talked a lot about CEB and AI and the ongoing demand there as well as demand in the other segments. So again, there will -- I would expect there's still kind of seasonality as you were describing. But I also, there's a number of things that are going on that can mitigate that. I think I'd also keep in mind, as we've talked about before, that in any given quarter, we service some very, very big customers. And so, you also can sometimes, from time to time see a little bit of shifting between quarters just depending on where that demand falls and when they make the orders that is just -- there's nothing to be read into that other than just when the orders shipped. So hopefully, that gives you some insights about seasonality. But I do continue to expect that we'll see that seasonal Q4 to Q1 that we've seen in the past. Operator: This concludes our question-and-answer session. I would now like to turn it back to management for closing remarks. Rajesh Vashist: Well, thank you all very much. We are really, really pleased to be able to put out these stellar results. I think we see significant growth coming, and we are very, very happy to have you guys along for the ride. So, thank you very much. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Rosa Stensen: Hello, and welcome to Huddly's Q3 Presentation. My name is Rosa Stensen, and with me is Abhi Banik, our CFO. We report a revenue of NOK 45 million for the quarter, NOK 147 million year-to-date. This is reflecting a 50% growth year-on-year. The gross margin in the quarter is 45%. In the quarter, we continued to deliver on our key strategic goal, increasing the strategic partner revenue stream, and we proudly announced a new partnership with our Danish friends, Jabra. Huddly C1, our next-gen AI-driven videobar, started to ship to end customers this quarter. When it comes to the market outlook, despite the strong growth year-to-date, we do see increased market uncertainty, mainly in North America, and this is impacting our channel business. In the quarter, we continued to deliver on our business plan. On the strategic partner side, we both increased revenue and signed Jabra as new strategic partner. On the product side, we started shipping Huddly C1, our next-gen AI-driven videobar. And we continue as well to work with strict cost controls. As we mentioned in our Q2 presentation, we are actively working to increase the strategic partner revenue for Huddly. As part of that, we are very proud of the new partnership with Jabra. Jabra is part of GN Store Nord, a listed company on the Danish Stock Exchange and has a strong global presence. The partnership will have a key focus on enabling the strength of both companies. Whilst Huddly has very strong technical capabilities in large rooms, Jabra enables Huddly products on the Android ecosystem. Further, with Jabra's strong global presence, Jabra is well positioned to support Huddly to expand its footprint, particularly in the APAC region. Our current growth rate is driven by our strategic partner revenue. With our new partners coming on stream as well as more new partnerships in the pipeline, we expect the growth momentum to continue. As part of our second priority in our business plan, we continue to deliver on our product road map, latest with the shipment of our Huddly C1 videobar as well as this week's announcement of the spatial awareness for Crew. We continuously improve our products with software updates. We do this by utilizing the same hardware. For C1, in addition to the improvements already received. This means that as of early 2026, it will become part of the Huddly Crew platform, allowing our customers to extend the videobar with additional Crew multi-camera functionality. In the quarter, we continued the Huddly C1 and Huddly Crew go-to-market roadshow, this, together with Lenovo and Microsoft. In the quarter, we went to multiple locations in the U.S. And in Q4, we will continue the efforts. Here, demonstrated with some of the planned cities in Europe. And nothing makes me more happy than our happy customers. And one of those are British Telecom. British Telecom is a company with 85,000 employees worldwide. They have been part of our customer early field trials and have ordered and installed a large amount of Huddly C1 and Huddly Crew. If you want to see the full user story, go to our web page at huddly.com. Asia Pacific represents approximately 30% of the worldwide market in video conferencing, and Huddly has started to gradually increase its market presence in that region. In Q3 and early Q4, we signed two new distribution agreements for our channel business. We were also present with Barco, both at InfoComm, India and GITEX in Dubai. And we also believe that together with Shure and Jabra, we will increase further our presence in that market. Whereas Huddly in Q3 continues to deliver on its business plan and showing significant growth, there are uncertainties in the market that are out of our control. Year-to-date, 57% of our revenue comes from North America, which faces a general uncertainty that is impacting our channel business. This is partly a result of negatively affected investment sentiment in certain sectors. This is amplified by the government shutdown. This results in delays, for example, in federal purchasing. Similar situation is seen in Canada, a market Huddly has had a good presence in. Canada as well as the U.S. have not approved the federal budgets. And when it comes to the U.S. tariff, specifically, Huddly continues to manage these, and the risk profile remains the same as outlined in the Q2 presentation. North America has historically been a very important market for Huddly, and we are well positioned to continue our expansion there when the market stabilizes. And with that, I will give the word over to Abhi, who will take you through the financial part of this presentation. Abhijit Banik: Thank you very much, Rosa. So I will now, in this part of the presentation, go further down into the financial details of the Q3 '25 presentation. Let me first start off with revenue. Revenue in Q3 was NOK 45 million, which is a 75% increase versus the same quarter last year. This is mainly driven by strong growth in strategic partner sales, as has been already explained in this presentation. We expect that to continue to grow in the coming quarters as we expect gradual ramp-up of revenue and volumes from both new and existing partners, and we have additional partners in the pipeline. Sales to channel in Q3 '25 increased by 8% compared to Q3 '24, while year-to-date growth showed a strong 40% year-on-year increase. If you look at the graph, you can see that there is a decline between Q2 and Q3 2025. And the main reason for that is, number one, due to increased uncertainty in the U.S. market. Number two, we did a stock up of goods to U.S. distributors worth approximately NOK 8 million in Q2. And finally, there is a general seasonality in our business, where typically the third quarter of the year generally has a relative softness during the year. Let me move on to gross margin. Gross margin for the third quarter was 45%, which is up from 43% from previous quarter. On a year-to-date basis, the gross margin was 47%. This is within the business plan range of 45% to 50%, and we expect that to continue going forward in the next few quarters. Looking at the summarized P&L, I already discussed the revenue, which then translates into increased gross profit as well. Gross profit on a year-to-date basis increased by 65% in '25 versus same period 2024. And if you look at the operating expenses, you can see that this is as per our business priorities in the business to have a strict cost control. We have reduced OpEx in Q3. You can see that in this table, there is a slight increase on a year-to-date basis. However, that is related to noncash items, which were affected in the first quarter of the year. So if you take out those effects, it was also a reduction on a year-to-date basis. So this is as a result of the cost saving program that we implemented in the first half of 2025, and we are seeing the results from that. Consequently, both in Q3 and on a year-to-date basis, there is a significant reduction in losses, and we are improving our results. Capitalized R&D in 2025 Q3 was approximately NOK 20 million, which is consistent with historical levels. So we are really investing for the future in this company and our road map, which we are investing in, is what is going to support future revenue growth. We have 56 engineers in the company, approximately 45 of them work with AI, machine learning and software, and this is a very important part of our differentiation strategy. Previous investments in the company have enabled tangible results such as the shipment of the C1 videobar in August in addition to the software upgrades and updates that we were made to the existing product range. We expect investments to continue going forward as we are investing into defending our leading technological position in the market. I'd like now to wrap up this part of the presentation with the cash flow statement. Cash end of September 2025 was approximately NOK 85 million, which is an increase from NOK 52 million at the start of the quarter. Operational cash flow was positive, which is a significant improvement from previous quarters. That is mainly due to increased gross profit, but also change in working capital, which you can see more in details in the cash flow statement in the report. Investments, that was -- what we discussed in the previous slide, was approximately NOK 20 million in the quarter. And if we move into the financing part, we did an equity raise in Q3. We raised NOK 61 million in gross proceeds through a private placement. And we did an additional subsequent offering after Q3, which will then be recognized in the Q4 cash flow statement, and that is representing approximately NOK 7.7 million in additional cash. And that wraps up the financial part of the presentation and the overall presentation for this Q3 '25 quarter announcement, and we will now open up for questions from the audience. Rosa Stensen: Hello, and welcome to the Q&A session. So now together with us is Jon Øyvind. Thank you for joining us. I see we have already received some questions. So we will just dive right into it. First question, so how does your alliance with Jabra contribute to sales? That's a good question. So first of all, Jabra is a Danish company. And with kind of the combined Nordic heritage, we feel like Jabra is more than a sales machine for Huddly. It's a partnership with a very strong roots in kind of the Nordic heritage, both when it comes to the culture, but also the design language of our products and et cetera. So Jabra's relationship with Huddly is a direct distribution. So Huddly will supply Jabra directly with the products that Jabra will take to the market through their go-to-market channels. And we couldn't be more happy than having Jabra as one of our partners as they are very strong globally and are leading in our industry. And there is a question, your cash burn is still high. Do you expect another capital raise going forward? I think this one is, Jon Øyvind, then aimed to you. Jon Øyvind Eriksen: Yes. We see that both the revenue and profitability of the company is improving quarter-on-quarter. And the Board doesn't plan for any new capital raise. Rosa Stensen: And then there is another question that basically asks the same. I will read the question. You can either complement or stay with the same answer. So it is, given the year-to-date burn of approximately -- the cash burn of NOK 91 million, excluding financing and free cash balance of NOK 70.3 million. Is it likely the company will require additional financing before reaching a projected cash flow positive position in '26, especially in light of the 20% -- 21% revenue decline versus last quarter and ongoing market uncertainty in North American market? Jon Øyvind Eriksen: It is true that we see fluctuating revenue from quarter-to-quarter. And there are also reasons for that. Some of them are part of the natural cycle. Some is related to government shutdown in -- and not having the budget approved in Canada. But we still maintain the target that we have set out in the business plan, and the Board doesn't plan for a new capital raise. Rosa Stensen: Then there is a question based on the shutdown in the U.S. How will this affect the Q4 expectations? So this is back to Jon Øyvind a bit the same as you answered just now with regards to -- we see there is a market uncertainty in the U.S. However, as Jon Øyvind said, the Board maintains its previous communication with regards to those expectations. Anything to add to that? Jon Øyvind Eriksen: No, it's -- except from that, it is very difficult to predict how the political solution is going to be in the U.S. market, but we are certain that at some stage, the government situation in U.S. will normalize. Rosa Stensen: And then there's a question about, can you explain how you plan to increase market share in the Asia Pacific region? So I will take this one. So if we go to the second last page of the presentation in the operational part of the presentation, we explained that we have in the quarter, Q3, but also early Q4, signed two new distribution agreements in the region, one particularly in India, where Huddly has not had a direct distribution to before, and the other one in Australia where Huddly had some presence. In addition to that, we are going together with our partners such as Shure, Barco and Jabra who have a strong presence in that market. So we believe that going together with our partners, but also strengthening our channel in that region will start to gradually increase our market presence there. Then there's a question, good to see your increase in sales strategic channel. However, NOK 90 million is small, and progress is slow. Please expand on how you will reach a number that is meaningful for the company. So this goes back to the kind of the main pillars of our business plan as outlined in Page 2 in the presentation. So the key strategic priority for Huddly on increasing the revenue is to attract and sign and activate new strategic partners. And as you see also in the presentation, we have now signed, in a 12-month period, Shure for direct distribution, Barco with a go-to-market agreement and then Jabra, latest in September, for direct distribution. We believe, also with historical numbers from Huddly, that going together with these partners will allow us to increase the revenue and accelerate that increase compared to what we will see normally in the channel business. And then, is Google and Crestron still strategic partners? And that, I can happily say, yes, we still work with Google and Crestron. Which products are gaining traction? How is Huddly Crew sales going? This is this, actually, I'm very happy to say that Huddly Crew has become our flagship product, not only when it comes to, it's unique in the market and latest now, bringing the spatial awareness. Usually, most people don't know exactly what that means, but that means that our cameras now can understand the relation to each other, but also can map the room in 3D, which gives us a lot of information to expand its functionality, but also accuracy in how it works. This is something that the market also has understood, and Huddly Crew is now representing a very meaningful portion of our total balance and absolutely can say is our definite flagship product. Why is the ramp so slow? Any visibility on how to accelerate before you run out of cash again? So as presented previously, we are working actively to increase our strategic partner revenue for Huddly. And throughout the year, that has been ramping up gradually, and we do expect that ramp-up to -- and momentum to continue. Then there is a question about what are your technological competitive advantage compared to other players such as Cisco. Not to kind of go into any other specific competitors, but Huddly Crew has a unique position in the market based on the fact that it's built -- the architecture of Huddly Crew is built from the scratch with AI in mind. So it's an AI-enabled architecture and the same goes with C1. That means that we can provide experiences and solutions on a completely different price point because we utilize way less hardware, for example. And this also gives a lot of flexibility in the installation and makes the installation much quicker and therefore, more affordable, allowing the multi-camera to grow into a mainstream market and not being only reserved for the specific few boardrooms. So we do believe that we have quite a technological competitive advantage still with Crew, and the market is giving us that feedback as well. Then there is a question about, what do you expect from the sales in strategic channel in 6 to 12 months per quarter? Abhi, this is -- one for you. Abhijit Banik: Yes. So we have already communicated our business plan with expectations in this year and next year. And we don't provide a specific number and breakdown, but we can say that we are keeping that communication as we have communicated before. Rosa Stensen: And then I think -- let's see if there are coming any more questions. Yes. Then there is one last question here. Can you explain your product road map from 2026 and onwards? So in 2024, we entered the market with Huddly Crew. And now in 2025, we have started shipping Huddly's first audio-video combined product. Further, we have been enhancing Huddly Crew. As of last -- this week, we announced the spatial awareness of Huddly Crew. Those two products together will, as of start of '26, become part of the same platform. So you can mix and match Huddly Crew and C1, and they will work together seamlessly, allowing people to having a full audio/video multi-camera solution from Huddly. Going forward, we will work towards enabling then the audio and video experience into more scenarios and more rooms. Obviously, everything done on AI and with the new technology of machine learning and how we do that. Okay. Then I thank you guys for all joining us today. And if you have any further questions, you can always reach us at ir@huddly.com. Thank you.
Operator: Good day, and welcome to the Sezzle Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Charlie Youakim, Executive Chairman and CEO. Please go ahead. Charles Youakim: Thank you. Good afternoon, everyone, and welcome to Sezzle's Third Quarter Earnings Call. I'm Charlie Youakim, CEO and Executive Chairman of Sezzle. I'm joined today by our Chief Financial Officer, Karen Hartje; and our Head of Corporate Development and IR, Lee Brading. In conjunction with this call, we filed our earnings announcement with the SEC and posted it along with our earnings presentation on our investor website at sezzle.com. To retrieve the documents, please go to the Investor Relations section of our website. Please be advised of the cautionary note and forward-looking statements and reconciliation of GAAP to non-GAAP measures included in the presentation, which also covers our statements on today's call. If you're a long-term investor of Sezzle, you're already well aware of how good this team is at navigating and adapting our business model and our product solutions. I continue to be impressed by our team and our ability to adjust and adapt. We're always looking for ways to create win-wins with our stakeholders and also balance profitability, growth and customer satisfaction. 2025 has been more of the same on that front. We've been testing our launches of on-demand and our shopping solutions and making incremental improvements and adjustments along the way with a strong weighting towards making our customers' lives better while also continuing to grow with strong profitability metrics. We still believe that BNPL is in its early days and that we are likely to have years upon years of industry growth ahead of us. And we also believe that we're bringing to market a product that is fundamentally a better and more user-friendly credit product than a credit card. Our company and our BNPL industry in general, is 100% aligned with responsible repayment of short duration loans that really lean into the concept of budgeting versus outspending your income, like a credit card product can tend to do. Our company and our products are winning and our industry is winning, too. If you take a look at Slide 3, you'll understand a bit of the excitement. We just posted revenue growth of 67% year-on-year in Q3. Our net income margin for the quarter was over 22%. Our return on equity for the last 12 months exceeded 100%, and our consumer metric measured by MODS rose almost 50% year-on-year. Further, we are raising our EPS and EBITDA guidance for 2025 and have received awards from some of the most respected media outlets, Time, U.S. News, Newsweek and CNBC. What's our secret sauce? I believe it's our constant drive. We are never satisfied and are always pushing forward. Do we have a chip on our shoulder? Yes, maybe a little bit. Slide 4 provides some insight into our restless energy. The consumer is always wanting more, and we aim to fulfill their needs. We have launched several features in our app, most recently the Earn tab, which allows consumers to earn Sezzle spend. Consumers can find and activate offers for things like gas, groceries and dining. We have a variety of ways for them to engage and win such as Sezzle Arcade and our educational tool, MoneyIQ. Last quarter, our Earn tab had over 13 million visits, and we just launched it at the end of Q2. I'm crazy proud of our team and how they continue to find new and innovative ways to provide value to the consumer. We continue to evaluate and push forward on additional products. Many of these are being run in parallel, and you've heard me discuss them before. Launch dates are still TBD, but they are all being worked on in various degrees. In June, we brought back one of our former heads of technology, Killian Bracky, to centralize our AI efforts. It's exciting to see the progress they are making across Sezzle. We called out a couple of example projects that the team is working on, a support chatbot and an AI shopping assistant. Both are great examples of how we're able to pull AI into our Sezzle ecosystem. The chatbot is already making a difference for our customer support team, saving them a significant amount of time, enabling our team to become more efficient. Let me take a step back and tell you a bit about our approach to AI. We aren't looking for ways to use AI to cut our team. Why would we? We have incredible growth and cutting people is not something we need to do other than for performance. We view AI as a tool to enhance our team's productivity, allowing us to further leverage our infrastructure and scale the company faster with more efficient product launches and expansions. So in the case of customer service, it's likely that we'll scale incredibly well here over the next couple of years as the AI tooling continues to evolve and expand its ability to serve end customers. But the way we operate, you'll likely to see that the support team size doesn't grow and may even shrink over the next few years as our efficiency with technology replaces the need to backfill members of the team. Our existing members will take on more complex cases and help train the AI systems in place to do more and more. Our marketing efforts are focused on the consumer with the primary goal of acquiring new users, but also reducing churn. The combination of new feature launches and our marketing efforts are reflected in our strong engagement metrics. On Slide 5, you can see the step-up in our quarterly marketing and advertising spend. While we love all consumers that use Sezzle, the ones with the greatest lifetime values are those that engage Sezzle as either an on-demand user or as a subscriber. As most of you are aware, we created the definition of Monthly On-demand & Subscribers also called MODS in the fourth quarter of 2024 when we launched Sezzle On-Demand. We anticipated on-demand would allow us to reach more consumers that might be averse to joining a monthly subscription product. However, we also expected it to cannibalize our subscription product. We just didn't know to what extent. Initially, we put most of our marketing dollars towards on-demand because there's less friction to join relative to subscription. And you can see from the results that we quickly grew that product to 264,000 monthly users at the end of the second quarter. However, you can also see that our subscriber count shrank from 529,000 users at the end of the third quarter 2024 to 484,000 users at the end of the second quarter 2025. By the end of the second quarter, we had enough information to evaluate the effectiveness of on-demand. The engagement on the front end was good, but the follow-through on conversion was not as good as we would like. What do I mean by follow-through on conversion? When we launched on-demand, there were 3 key tenets: number one, drive enterprise opportunities; number two, increase conversion activity at the point of sale; and number three, convert a customer over to subscription eventually. On-demand has clearly positioned us to be more aggressive with enterprise merchants, and I'm happy to note a few wins on Slide 5 as a result. However, it didn't deliver like we hoped on conversions at the point of sale or over to subscription. Further, the profit profile for on-demand is less than our premium and anywhere subscription products. We still believe on-demand is a great tool, and it's a great tool to have in our tool belt, but we have adjusted how we go to market with it. We're going to continue to lean into it for winning over merchants. But on the consumer side, we're going to lean back into subscription with on-demand only being used as an alternative tool when its parent subscription can't do the job or is meeting some resistance with an individual consumer. As you can see from the results, we pivoted our marketing and advertising spend towards subscription products in Q3 with subscribers rising to 568,000 at the end of the third quarter. We remain disciplined in our costs with a payback on marketing for consumer acquisition at 6 months or less. Across the board, our engagement metrics on Slide 6 reflect the strong momentum we have in our business. Terrific year-on-year and quarter-on-quarter performance. My 2 favorite metrics on this slide are MODS and purchase frequency. MODS is a good indicator of consumer activity within Sezzle over the last 30 days and seeing such strong growth in our highest LTV products is fantastic. While the rise in purchase frequency suggests we are moving to the top of the consumers' wallets. You can see the same sequential dynamics on Slide 7. Before turning the call over to Karen, I would like to give more details on our corporate strategic project costs that were called out in our earnings release and later in the presentation. During the quarter, these items added up to about $1.3 million in costs. While these costs are relatively minor, they potentially have some pretty big outcomes. We decided to break these out because they aren't part of our core activities. While they aren't material, we wanted to make investors aware of them. First, our antitrust suit. For obvious reasons, we can't discuss the case. But if you'd like to learn more, you can go to our investor site where we have posted the suit there. We will find out in December if the case will continue forward as the defendant has petitioned the court to dismiss the case. Second is our capital markets exploration. We have talked in the past about our desire to refinance the credit facility given the size of only $150 million and price of SOFR plus 675 bps. We have decided to exercise the $75 million accordion with our current lenders as we head into the holidays, and this will give us more time to evaluate our options. You will see in our 10-Q that will be filed tomorrow morning, the amendment to our current facility, which increases the size of the facility from $150 million to $225 million. Lastly, our banking charter discovery process. We have hired consultants and attorneys to assist us. Yes, we have an ILC bank partner in WebBank and they are fantastic. We believe that holding an ILC, which is an acronym for industrial loan company is the right long-term path for us as it doesn't subject us to becoming a bank holding company, which has all sorts of implications about capital, capital allocations, et cetera. We believe it will be accretive and add greater efficiency to our business. This is a long process and not a guarantee process. If we apply, we anticipate submitting an application in the first half of 2026. If we don't get it, it doesn't change what we're doing, and it would not affect the outlook we have. With that, I'd like to turn the call over to Karen to review in further detail our Q3 results. But before I turn it over to Karen, I wanted to let investors know that Karen is retiring and that we're going to miss her dearly. Karen and Amin Sabzivand, our Chief Operating Officer, both joined the company on the same day, and I always say that day was one of the best days Sezzle has ever had. We're going to miss her infectious positivity and her total perfection in completing every task given to her and her team. But I also wanted to tell her how much I've appreciated her support and help along the way. We're definitely going to miss you, Karen. The plan is for Karen to stick around with us for the next 12 months as we transition. And we really feel great about that plan, and I'm also really happy Karen gets to step away in such a great way. Karen, take it away. Karen Hartje: Thank you, Charlie, and good evening to all those joining us. The enhancement of our product experience and deeper consumer engagement drove remarkable results for the quarter, as seen on Slide 8. Total revenue continues to grow at an exceptional pace, increasing 67% year-over-year to $116.8 million. Our profitability followed a similar growth trend with GAAP net income and adjusted net income growing over 50% to $26.7 million and $25.4 million, respectively. Our margins held steady year-over-year with an adjusted EBITDA margin of 33.9% and total revenue less transaction-related costs of 54.2%. Most importantly, alongside our growth is our ability to scale efficiently, evidenced by our non-transaction-related operating expenses decreasing 2.9 percentage points year-over-year to 27.1%. Now turning to Slide 9, which highlights our top line growth. GMV increased 58.7% year-over-year, making our first $1 billion quarter. As Charlie discussed earlier on Slides 6 and 7, growth in active consumers and higher transaction frequency drove this milestone. Our take rate, defined as total revenue as a percentage of GMV rose 60 basis points, both sequentially and year-over-year to 11.2%. The focus on high LTV products that Charlie outlined on Slide 5 is a key driver of take rate strength, and we believe that focus positions us well to sustain this rate going forward. On Slide 10, we note our transaction-related costs with detailed components outlined on Slide 11. Overall, transaction-related costs as a percentage of total revenue and GMV increased year-over-year due to our strategic decision to expand our underwriting aperture and drive top line growth. Specifically, third quarter provision for credit losses as a percentage of GMV increased 70 basis points year-over-year to 3.1% and is trending toward the lower half of our stated 2025 provision target likely between 2.5% and 2.75%. Despite the slightly higher transaction-related costs, total revenue less transaction-related costs, as seen on Slide 12, continues to grow robustly, increasing 64.5% year-over-year to $63.3 million and representing 54.2% of total revenue. I know we touched on this during our prior 2 earnings calls of 2025, but we think it's important to continue emphasizing that the expansion of our underwriting isn't without carefully balancing the profitability of the growth we're experiencing. Recent headlines on a few lending companies have also called into question the sustainability of certain sectors of the consumer credit market, but we haven't seen any deterioration as consumer activity continues to perform in line with our expectations, but that is not the nature of our product or our business model as we outlined on Slide 13. Not only do our strong gross margins provide us with great flexibility and room to maneuver, but the short duration of our lending product allows us to pivot quickly and adjust our strategy upon seeing any early sign of deterioration in our portfolio performance. On Slide 14, you'll see that despite the incremental costs we've incurred in long-term corporate strategic projects that Charlie previously covered, we continue to maintain cost discipline and leverage our fixed cost structure. Non-transaction-related costs increased 50.9% year-over-year to $31.6 million, but decreased 290 basis points as a percentage of total revenue. In the third quarter, we incurred $1.3 million in costs related to these projects with the largest being the exploration of potential financing avenues, an effort that will continue in a more streamlined manner in fourth quarter. The remaining expenses that make up the core of this bucket, personnel, third-party technology, marketing and G&A increased sequentially, largely driven by the timing of equity and incentive compensation and our personnel costs. Bringing the full picture together on Slides 15 and 16, GAAP net income grew 72.7% year-over-year to $26.7 million and adjusted net income increased 52.6% year-over-year to $25.4 million. GAAP profit margin expanded 70 basis points year-over-year to 22.8%, while our adjusted profit margin decreased 2 percentage points to 21.8%. Despite this decrease, our margin still remains above our internal goal of operating the business to an adjusted profit margin of at least 20%. Lastly, adjusted EBITDA grew nearly 74.6% year-over-year to $39.6 million, representing a 33.9% adjusted EBITDA margin. Turning to our balance sheet on Slide 17. Total cash grew $14.7 million in the quarter to $134.7 million, even with paying down our line of credit by $13.3 million. Cash flow from operations for the quarter was $33.1 million, bringing year-to-date cash flow from operations to $55.6 million. These results demonstrate the strength of our balance sheet and our ability to self-fund growth while maintaining flexibility in our capital structure. Finally, turning to our outlook on Slide 18. We're reaffirming our guidance for top line growth and adjusted net income with modest adjustments to our GAAP net income to reflect the impact of our year-to-date discrete tax benefit to our EPS to reflect adjustments related to our estimated diluted share count and to adjusted EBITDA. The discrete tax benefit raises our GAAP net income guidance to $125 million, while the updated diluted share count increases our GAAP EPS to $3.52 and adjusted EPS to $3.38. As for our adjusted EBITDA, we're raising our range from $170 million to $175 million to $175 million to $180 million. Lastly, we are also providing adjusted EPS guidance for 2026 of $4.35, reflecting 29% growth over our 2025 adjusted EPS. While this guidance does not reflect any of the future potential products outlined at the beginning of our presentation, we wanted to give investors a view into the strong fundamentals of our business and our confidence in sustained growth moving forward. Thank you. I will now turn it over to the operator for Q&A. Operator: [Operator Instructions] The first question comes from Mike Grondahl with Northland. Mike Grondahl: Maybe the first one for Charlie. Charlie, can you talk a little bit about when you deemphasized on-demand in Q3? And how you think that's going to affect sort of growth going forward, if at all? Charles Youakim: Yes, it was probably right around the middle of the quarter. At that point, we felt like we had enough data based on what we had been seeing on conversion at point of sale, conversion into subscription. And the bridge just wasn't as strong as we were originally envisioning, I guess, is the main point. Conversions, I think, were slightly better into on-demand at point of sale than they are into subscription, but just not enough to make the payout worthwhile. And so when we started to analyze the lifetime values of the customers, the conversion rates, we really started to realize that on-demand is probably just a better tool around the fringes and at least in the direct-to-consumer portion of our business. It's still part of the mix, but it's really the tool that we're going to lean into more on the merchant side to win over more enterprise merchants that are sensitive to margin pressures, et cetera. And then on the consumer side, we really just want to lean back into subscription and maybe use on-demand as a fallback if some consumers are resistant to subscription or whatever it might be. And then in terms of your second part of your question, Mike? Mike Grondahl: Yes. Just how do you see that maybe affecting growth? And as a follow-up to that, is your customer who maybe was going to pick an on-demand product, can you direct them into subscriptions? How does that work? How will you be successful there? Charles Youakim: Yes. We basically pick and choose what we want to present to each individual consumer. And then in terms of growth, I think GMV growth is lower if you go to the subscription route. But if you think about pushing more into stronger lifetime values, maybe not upcoming -- it's hard to say about the next quarter, but the next quarters, we should see better growth on revenue and income. That's the main point of that decision is because the lifetime value differences multiplied by the conversion differences tell us the better story is to go into subscription. Mike Grondahl: Got it. Then maybe just one more. Can you talk a little bit about take rate trends? And then the 3.1% credit losses was maybe a little bit higher by deemphasizing on demand, will that naturally drop a little bit more? Charles Youakim: Well, the take rate trends, I think we really shoot for like the 60% gross margin that we talked about in the past. And so when we think about the take rate, it's take rate minus our COGS getting us to 60%. And that's also how we sort of do the planning around our PLR plans for the year. And so the 3.1% PLR for the third quarter, basically right in line with what we're expecting. If some of the people on the call remember, people have followed us for a while, back in May, we talked about rest of the year, think about a 2.5% to 3% PLR for the entire year. And we already posted some lower PLRs lower than that range, which means, of course, we expect some of the third quarter, fourth quarter to be above that range because then you blend out to within the range. We did just update the guidance to tighten it a bit, so investors would know that we're looking -- it looks like it's being more in the bottom end of the range, the 2.5% to 2.75% for the overall year. So the 3.1%, I'd say, basically fits right into what we were expecting. And then on-demand, you do bring in more because the conversion is slightly better into on-demand, and I say slightly, but it does mean you bring in more new consumers into those products. And then more new consumers tends to lead to a higher PLR, less new consumers leads to generally a lower PLR because new consumers have higher PLRs in general. So I'd say that would be the only thing to call out there, Mike. Operator: Our next question comes from Hal Goetsch with B. Riley Securities. Harold Goetsch: Charlie, great detail. I just wanted to ask a big picture strategy on what you're seeing, what your thoughts are on BNPL broadly in the United States. I mean PayPal talked about it quite a bit and -- on the last call more than ever. And I was struck to see how actually small it is, how fast growing it is for all the different players in the space. And they called out as a replacement for -- they're seen as a major trend in the replacement of credit cards. It's more user-friendly. Could you tell us how big you think the market is for pure-play BNPL is right now in the United States? How fast do you think it's growing and why you think it has many, many years to go? Charles Youakim: Yes. I don't have an exact number for you, Hal, but I just go by -- I think the trend is going to be here for years upon years. If you look at credit cards, they were launched in the 1950s and how long does that trend last? People are writing the credit card trend for some time. I'm not going to say that we're going to have a 75-year BNPL trend. But I think that it's pretty obvious that a lot of consumers out there prefer to use BNPL over a credit card. And in some places, it also takes a little bit away from debit card. It doesn't really take away from debit card, I guess, in the end because people are paying us back with debit in the vast majority of cases, but it replaces like the full purchase of a debit card user as well. But what I think -- I think customers aren't stupid. They look at the total cost of ownership of a product. And I think they also look at BNPL as a safer product for them. I almost feel like some of these customers view us as like -- they really do view us as a budgeting tool, but almost like we're their nanny, like watching over them, not allowing them to overspend where credit cards allow people to overspend. No one in a credit card company would ever say it probably, but that's the win when someone overspend because now you've got a revolver. For us, when people overspend a lot, we're worried. We're worried that we allowed them to overextend and now they're not going to be able to catch up, we might lose the customer. So we're always trying to allocate spend to the customer in a way that is in total alignment with responsible spending. And then I think that overall lowers the cost of ownership of that credit product for the customer. It also dramatically reduces the risk of a bank personal bankruptcy, which is how do you even put a price on that. So I think a lot of the customers are probably shying away over time from migrating into a credit card because they just feel a lot safer and more comfortable with our credit product. Harold Goetsch: Can I ask one follow-up? Toward the end of your press release on initiatives update, you talked about some of the products you've been building for shoppers to increase engagement and monthly active users grew 38% year-over-year, revenue-generating users rose 120% year-over-year and monthly sessions climbed 78% year-over-year. I think it's the new KPIs. I mean, what you could comment on that? And what -- tell us what you built and why it's contributing to some of those growth figures that you demonstrated in the press release? Charles Youakim: Yes. So we talked about the shopping as being a big initiative for us for 2025 and 2026. It will be probably a 2-year initiative to keep on rolling out these shopping features and these initiatives. I said the earn tab is kind of in that mix, although maybe not directly a shopping feature. What we're trying to do is trying to keep -- drive and create value for our customers. I think middle of America, mid- to low income, younger consumers, maybe new families. We want to drive value through giving them couponing, giving them discounting, price comparison, the ability to earn almost like gig economy type earnings. Not massive type job numbers, but on the fringe helps. And what we're -- the reason -- what we're seeing from doing all of that, which you pointed out, Hal, is we're seeing increased activity in the apps. And our view is that's just a big win. So we're monitoring those KPIs closely because the viewpoint is if you get the customer coming back in the app and returning and returning and returning over and over again, you're also going to increase retention and also give yourself a chance to introduce that customer to a subscription product. At some point, maybe they're here in early November, they're not interested. They open the app back up later in November. Okay, let me sign up for anywhere and now they're in. And that's really done by creating value, adding value, presenting that value in the app and getting that customer to keep on coming back. Operator: The next question comes from Rayna Kumar with Oppenheimer. Rayna Kumar: It was really helpful to get the preliminary '26 EPS guidance. Could you just talk about some of the underlying drivers of that target, maybe revenue growth, GMV growth and your expectations for provisioning? Charles Youakim: Yes. We don't have the callouts for the underlying numbers on it. But I'll tell you the overall theme is we do believe that we're going to continue to see continued growth in our subscription and our MODS, but probably leaning more towards subscription into 2026. We're going to be cost conscious as always. And if people have followed us for some time, you know that we really think quite a bit about growing gross margin dollars at a much faster pace than growing our operational expenses. So that's a part of that. The guidance we gave for the entire year 2025, the 2.5% to 3%, we're basically kind of thinking in the same ballpark there. Like we like that ballpark because of our top line. The top line numbers that were our take rate kind of really sits along the lines of maintaining the PLR kind of thoughts that we've had from 2025. And then if there's any maybe conservatism in there at all, it's just the economy. We're not seeing anything with our consumer, but we're watching it closely. Obviously, we have the government shutdown. I don't think it's going to continue into 2026. But I think if there's a bit of conservatism, it's based on the economy and what might happen. Rayna Kumar: Understood. And then just as a follow-up, can you comment on just what you're seeing out there in terms of competition? Are you seeing any changes in pricing or strategy from your competitors? Charles Youakim: Not really. I haven't noticed anything major. I think we saw Klarna launch a subscription product as well, but it's like a much higher dollar subscription product. So that was like one of the companies kind of leaning our direction in terms of product offerings. But other than that, it seems like more of the same. Operator: The next question comes from Hoang Nguyen with TD Cowen. Hoang Nguyen: Maybe a quick one for Charlie. So since you are pivoting back to subscriptions now, maybe can you talk about maybe the difference this time in terms of marketing posture versus, I guess, the last time before you launched on-demand? How is this time different from the last? And I think last time, I think you were tracking a net adds on subscription, maybe you made 60,000 to 70,000 a quarter. I mean, should we expect you guys to get back to that level going forward? And maybe in terms of pricing, I noticed that you recently took pricing actions on new subscribers. So I mean, can you talk a little bit about that as a lever in terms of top line going forward? Charles Youakim: Yes. I'll probably avoid the guidance on how many adds to subscription quarter-by-quarter, but we did increase pricing on both the subscription products just by $1 or $2 per month, really viewed as just an inflationary type increase. If you launch the products 3 years ago or so and there's been some inflation in the United States. So that's the main reason for those changes. And then I guess the start of your question, can you repeat it again, just to make sure I got it nailed. Hoang Nguyen: In terms of marketing for the subscription. Charles Youakim: Marketing. Hoang Nguyen: Yes. Is it different this time versus last time, maybe a year ago before you launched on-demand? Charles Youakim: Yes. To give investors a view of like how we market the product. So when we are leaning into on-demand, it is a more seamless like first step into a purchase because basically, let's say, you want to check out at Lowe's or somewhere -- one of the apps or one of the merchants in our app or you're shopping out there. We would not bring up a subscription in most cases, like the option to sign up for a subscription right away to the consumer. We would basically just bring up a purchase request like in the lending lingo, TILA , Truth in Lending Approval or purchase request is what we call it internally. We bring up a purchase request, which it would show the on-demand fee. The customer would just accept it, they get the on-demand fee and then they make the purchase. Now basically the difference in the marketing. And then the landing page, a lot of the landing pages, a lot of things we're doing towards advertising. It's all about bringing that funnel. But once they get into the funnel into the app, that's what the customer would see is basically they go right into a purchase request. Now what the most customers are seeing is if you want to go and use our product at point of sale or if you want to shop at one of the many merchants in our app, what we're bringing up now is the option to join our subscription. And so that's basically the biggest difference. So marketing-wise, it's just the funnel is driving them into a different choice. And like I mentioned, there is a slighter decrease in conversion into subscription. But based on what we've seen from conversion at point of sale into subscription and then conversion from on-demand users into subscription, we viewed it as a much better decision from a lifetime value standpoint to just go straight to offering subscription to many of these customers. Hoang Nguyen: Got it. And I didn't see the chart on approval rates on the presentation this quarter. Maybe can you talk a little bit about that, whether you have -- there has been any change in terms of your underwriting this quarter? Charles Youakim: No. I mean, we've always been -- we are launching new models. So we did launch new models this quarter. And those -- the point of those models, what we like to do is we like to keep approval rates at the same level and reduce PLR. That's usually what our goals are with our new models. So I think approval rates are probably around the same levels as we've presented in the past. But with the new models in place, we believe we should have lower PLRs for those new customers coming in. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Charlie Youakim for any closing remarks. Please go ahead. Charles Youakim: Thank you. And as people know, I like to usually give a Buffett or a Munger quote or story, but I've got one here from Buffett. It starts when he was just 10 years old. He scraped together $114.75, all the money he had and he bought 3 shares of Citi's Surface preferred at $38 a share. At first, the stock dropped to $27. And like a nervous young investor, he starts sweating. Then it crawls back up to $40, so he sells. He's relieved, he even makes a few bucks. But here's the kicker. A little later, that same stock shoots up past $200. Buffett said, if I just held on, I would have made a lot more money. That he says was his first real lesson in patience. Here's another data point from the Buffett -- from Buffett that also speaks to the power of patience. I think this crazy stat speaks for itself. Over 99% of Buffett's wealth came after his 50th birthday. That's the quiet miracle of compounding. It's not flashy, it's not fast, but it's relentless if you let it do the work. Buffett always says, my life has been a product of compound interest. And also, the stock market is a device for transferring money from the inpatient to the patient. So the real trick, start early, stay patient and let time, not emotion do the heavy lifting. Because in the end, wealth doesn't come from timing the market. It comes from time in the market. That's the $114 lesson. I'd like to thank everyone for joining the call today and also thank the Sezzle team for continuing to create wins for our consumers and for our investors. Thank you all. Have a good night. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon. My name is Michael, and I will be your conference call operator today. At this time, I would like to welcome everyone to the Warrior Third Quarter 2025 Financial Results Conference Call. [Operator Instructions]. This call is being recorded and will be available for replay on the company's website. I would now like to turn the conference over to Brian Chien, Chief Accounting Officer and Controller. Please go ahead. Brian Chien: Good afternoon, and welcome, everyone, to Warrior's Third Quarter 2025 Earnings Conference Call. Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance, may be considered forward-looking statements according to the Private Securities Litigation Reform Act. Forward-looking statements, by their nature, address matters that are, to different degrees, uncertain. These uncertainties, which are described in more detail in the company's annual and quarterly reports filed with the SEC, may cause our actual future results to be materially different from those expected in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. For more information regarding forward-looking statements, please refer to the company's press releases and SEC filings. We will also be discussing certain non-GAAP financial measures, which are defined and reconciled to comparable GAAP financial measures in our third quarter press release furnished to the SEC on Form 8-K, which is also posted on our website. Additionally, we will be filing our Form 10-Q for the third quarter ended September 30, 2025, with the SEC this afternoon. You can find additional information regarding the company on our website at www.warriormetcoal.com, which also includes a third quarter supplemental slide deck that was posted this afternoon. Today on the call with me are Mr. Walter Scheller, Chief Executive Officer; and Mr. Dale Boyles, Chief Financial Officer. After our formal remarks, we will be happy to answer any questions. With that, I will now turn the call over to Walt. Walter Scheller: Thanks, Brian. Hello, everyone, and thanks for taking the time to join us today to discuss our third quarter 2025 results. I'll start by providing an overview of the quarter before Dale reviews our results in additional detail. We're extremely excited to share that our third quarter presented an opportunity for Warrior to showcase its strength in a number of ways. From a strong financial performance to significant operational achievements, we've been driving success in the near term while continuing to improve our long-term position and prospects. We have an exciting future ahead of us, and this is a direct result of our unwavering commitment to operational excellence and the exceptional teamwork and dedication of our employees. First, from an operational achievement perspective, I'm thrilled to announce that in October, we started the Longwall operations at Blue Creek, which are approximately 8 months ahead of schedule. This remarkable accomplishment underscores our team's exceptional execution and reflects our commitment to driving shareholder value with high-value strategic investments. Second, factoring in the earlier startup of Blue Creek longwall, we now expect to produce approximately 1.8 million short tons of high-vol steelmaking coal from the Blue Creek mine, representing an additional 800,000 short tons this year or an 80% increase over our initial 2025 guidance. As a result, we've raised our full year 2025 production volume guidance by approximately 10%. Third, earlier this month, Warrior won the bidding in the federal coal lease sale of 58 million short tons of high-quality steelmaking coal reserves contiguous to our current operations. Subject to the finalization of a binding lease agreement with the Bureau of Land Management, this strategic opportunity is expected to enhance our long-term value proposition by bolstering our reserve base and extending the life of our core mining operations. I'll provide further details on these accomplishments in a few moments. From a financial performance perspective, we delivered a strong performance in the third quarter despite ongoing weak steelmaking coal market conditions. The combination of our high-quality products and strong customer relationships, supported by our variable cost model, generated impressive net income and adjusted EBITDA. We have confidence that our operational successes will continue to drive strong financial performance over the coming quarters. Turning back to Blue Creek. Let me provide you some additional details on this transformational growth project. Achieving a start-up for Blue Creek's longwall operations 8 months earlier than our original time line is almost unheard of in this industry; where projects are usually delayed for years and many millions of dollars over budget, particularly in an inflationary environment. The success of our Blue Creek development was cumulative over the project time line and a testament to our incredibly talented employees and partners. They provided an opportunity for us to demonstrate the strength of our talented workforce and the performance-driven culture of our organization. I want to extend my sincere thanks to all the employees and our partners for their hard work, dedication and resilience to bring this project to fruition, approximately 8 months ahead of schedule while staying on budget. These accomplishments are a direct result of their efforts and continue to drive our success as we execute our long-term growth strategy. The Blue Creek mine features world-class assets, which incorporate the most modern and latest technology available in the mining industry. It was built with the scope and scale to accommodate more than 6 million short tons of annual production of high-quality steelmaking coal and the potential to be the lowest cost mine in the world. In addition, these assets enable Warrior to scale up and expand in the future to a second longwall operation if market requirements dictate such an increase in production. Our team's sense of urgency and high performance enabled us to accelerate the start-up of Blue Creek longwall for a second time. In October, we completed key infrastructure, including the installation of the overland and clean coal belt, along with the remaining modules of the preparation plant and made significant progress on the barge loadout and other key infrastructure components. Financially, we dedicated another $64 million of capital expenditures in the third quarter and $171 million year-to-date on the Blue Creek project. That brings the total project to date capital expenditures to $888 million, which remains on budget. Our total project estimate remains unchanged, ranging from $995 million to $1.075 billion. Looking ahead, we will be laser-focused in the fourth quarter on ramping up longwall production and optimizing the performance of the underground surface infrastructure. While the underground longwall operations have recently commenced, a significant amount of work remains to complete the project, which we expect will occur by the end of the first quarter in 2026. The remaining work includes completing the barge loadout, paving roads, completing storage and shop buildings, additional storage silos and final electrical installations, along with the usual assortment of final project details. The accelerated Blue Creek longwall start-up enables us to increase our guidance for total company production and sales volumes for 2025, as you will have seen in our earnings release. We've raised our Blue Creek production volume by 80% from 1 million short tons to 1.8 million tons. We expect to sell approximately 2/3 of the Blue Creek coal production or approximately 1.2 million tons in 2025. This increase in production from Blue Creek raises our full year outlook for production volume by approximately 10% at the midpoint of the range. This start-up marks another critical inflection point in the development of this world-class asset, representing the start of transition from capital investment to free cash flow generation. Turning to another growth opportunity. We learned in September that we were a successful bidder in the federal coal lease sale administered by the Bureau of Land Management. Once we enter into this lease, the acquisition will expand our footprint strategically with the addition of an estimated 58 million short tons of high-quality steelmaking coal reserves. These reserves are adjacent to existing infrastructure, which will allow for efficient integration into our current operations and capital planning. Also, this acquisition will allow for access to additional reserves that can further the life of both Mine 4 and Blue Creek. The total bid for the leases is approximately $47 million, which will be paid over 5 years. We appreciate the Bureau of Land Management's efficient review that supported the Alabama federal delegation and our local and state government officials in advancing this process. We also appreciate the Department of Interior Secretary, Doug Burgum, and the entire Trump administration for the support of mining on federal lands. While there are several regulatory and administrative steps that remain before Warrior finalizes the lease agreements with the Bureau of Land Management, we are actively engaged with the relevant agencies to ensure timely progress and compliance with all requirements. We expect this process will be completed shortly after the end of the government shutdown. Now let's turn to the steel and steelmaking coal markets during the third quarter, which provides the backdrop for our strong operational and financial results. Our markets faced headwinds from increased Chinese steel exports, subdued global demand and oversupplied seaborne steelmaking coal markets. Nevertheless, our team's focus and resilience enabled us to achieve record quarterly sales volume. The drivers underlying the weakness are the same as they have been for some time. First, exports of low-priced Chinese steel are up over 10% for the first 9 months of the year compared to 2024, which was already a record year for Chinese steel exports. Second, with the exception of India, lackluster global steel demand continued because of trade uncertainty and tepid global economic activity. And third, the seaborne steelmaking coal markets remain under pressure due to strong supply as demonstrated by strong Chinese domestic steelmaking coal production and a slowdown in Chinese imports. While there have been discussions in China of anti-involution and coal production controls combined with mine safety checks and shutdowns, those actions have fallen short in reality, while trade tensions continue to weigh heavily on global market sentiment. In addition, the European Union recently announced plans to protect the EU steel sector from the unfair impact of global steel overcapacity by limiting import volumes and doubling the level of tariffs to 50%. These actions could lead to a recovery of steelmaking coal demand from Europe in the long term, but we do not anticipate a recovery anytime soon. Likewise, the steelmaking coal market remains oversupplied as demonstrated by the prolonged period of weak pricing. According to the World Steel Association monthly report, global pig iron production decreased by 1.5% for the first 9 months of 2025 as compared to the prior year period. Pig iron production in China, which is the world's largest production region decreased by 1.1% for the same period. The rest of the world's pig iron production experienced a decline of 2.5% for the first 9 months of 2025. India remains a bright spot with a growth rate of 7% and is expected to continue growing with new blast furnace capacity expected to come online in the next year. Our strong sales volume was primarily driven by high contractual demand from our customers, combined with the strong performance of our existing mines and the additional commercial sales from our Blue Creek mine. This combination enabled Warrior to achieve a record high quarterly sales volume in the third quarter of 2.4 million short tons compared to 1.9 million in last year's same quarter, representing a 27% increase. We sold 378,000 tons of Blue Creek development steelmaking coal during the third quarter, which were contractual volumes sold primarily into Asia. Our sales by geography for the third quarter break down as follows: 43% into Europe, 38% into Asia and 18% in South America. The spot volume was 11% for the third quarter of 2025, which is primarily sold into Europe. For the full year, our spot volume is expected to be approximately 10% to 15% of total sales volume. Production volume in the third quarter of 2025 was 2.2 million short tons compared to 1.9 million in the same quarter of last year, representing a 17% increase. Our existing mines continue to perform well and the continuous mining units at our Blue Creek mine produced 175,000 short tons during the third quarter, adding to the overall increase in production volume. Blue Creek production was lower than the second quarter as more time was spent on construction and development work for the longevity of the mine and the start-up of the longwall. Our coal inventory levels decreased slightly to 1.1 million tons at the end of September compared to the end of June this year. I'll now ask Dale to address our third quarter results in greater detail. Dale Boyles: Thanks, Walt. Warrior was built to excel in all market conditions with high-quality steelmaking coal assets, a low-cost position globally, possessing a strong balance sheet with ample liquidity and a relentless focus on operational excellence. Each of these attributes were clearly demonstrated in our third quarter results and recent accomplishments. From my vantage point, I believe few companies are able to embark on, and make continued strategic investments of over $1 billion in an organic growth project like Blue Creek without diluting shareholders with equity offerings or additional leverage. For Warrior, our ability to accomplish this is due to our incredibly talented workforce, which enables us to continuously focus on resource development and operational excellence. Turning to market conditions we experienced this past quarter. Our primary index, the (PLV) FOB Australia was relatively stable, averaging $166 per short ton. This average pricing has remained relatively consistent through the first and second quarters of this year. However, during the third quarter, the (PLV) CFR China index price recovered from its low points earlier in the year and averaged $162 per short ton. This average was over $11 per ton higher than the second quarter of this year. Although the arbitrage narrowed by the end of the third quarter, it remained closed most of the third quarter. As for the main second-tier indices, the Australian Low Volatile Hard Coking Coal (LVHCC) index price recovered from its low point in the second quarter and averaged $137 per short ton, while the U.S. East Coast High Volatile A (HVA) index price established a low for the year and averaged $141 per short ton. As a result, we saw the relativity of the LVHCC index price compared to the PLV index price improved from 78% in the second quarter to an average 82% for the third quarter. This narrowing of the spread primarily drove our higher average net selling price in the third quarter compared to the second quarter this year. On the contrary, the U.S. East Coast High-Vol A price Index recorded a decrease in relativity from 92% to 85% during the same period. We achieved a gross price realization of 83% for the third quarter compared to 93% in last year's same quarter, which was a function of relative index pricing, product mix, geography, tariffs and freight rates. The 83% achievement was 3% better than the second quarter of this year. This result was lower than our annual targeted range of 85% to 90%, primarily due to 3 things: First, the LVHCC index price relative to the PLV index price has widened compared to the historical relationship between these indices. Second, we sold a higher mix of High-Vol A product versus premium low-vol product. And third, the higher High-Vol A volume has been sold primarily into the Pacific Basin on a CFR basis, which is net of freight cost. As Walt noted earlier, the steelmaking coal markets continue to be pressured in the third quarter by the same factors. Let me first highlight our third quarter financial achievements compared to the second quarter of 2025. Our third quarter adjusted EBITDA of $71 million was 32% higher than the second quarter this year, primarily due for 2 reasons. First, our sales volumes were 6% higher, including an increase of 139,000 tons of Blue Creek coal with its inherently lower cost structure. And second, our average net selling prices were $6 per ton higher, primarily as a result of the higher High-Vol A pricing relative to PLV pricing of 82% versus 78% in the second quarter. The higher sales volumes, higher average net selling prices and incremental Blue Creek sales volumes contributed to the higher operating cash flows of $67 million or $37 million of higher free cash flow than the second quarter of this year. Our spending for capital expenditures and mine development were a combined $30 million higher in the third quarter compared to the second quarter of this year, primarily related to the investment in Blue Creek. Excluding the Blue Creek capital expenditures and mine development investments in the third quarter, free cash flows were a positive $86 million. Now let us compare the third quarter of the current year to the prior year third quarter results. Warrior recorded net income of $37 million or $0.70 per diluted share compared to net income of $42 million or $0.80 per diluted share in the same quarter of 2024. We reported adjusted EBITDA of $71 million in the third quarter of this year compared to $78 million in the same quarter of last year. Our adjusted EBITDA margin was 22% in the third quarter this year compared to 24% in the same quarter of last year. On a per ton basis, our adjusted EBITDA margin was $30 per short ton for the third quarter this year compared to $42 in last year's third quarter. The decrease in the quarterly results was primarily driven by 21% lower average net selling prices and a 13% higher sales mix of High-Vol A product versus Premium Low-Vol product. These decreases were partially offset by 27% higher sales volume, including lower cost Blue Creek volumes and lower variable costs for transportation and royalties, plus controlling and managing our production costs. Total revenues were $329 million in the third quarter of this year compared to $328 million in the same quarter of last year. The total increase of $1 million was primarily due to the 27% higher sales volume impact of $85 million, offset by the impact of a decrease in average gross selling prices of $81 million and a higher mix of High-Vol A volumes sold of $11 million. In addition, demurrage and other charges were $6 million lower compared to last year's third quarter. This resulted in an average net selling price of $136 per short ton in the third quarter compared to $172 per short ton in the third quarter of last year. Cash cost of sales was $237 million or 74% of mining revenues in the third quarter this year compared to $230 million or 72% of mining revenues in the third quarter of last year. Of the $7 million net increase in cash cost of sales, there was a $61 million increase in costs, which were attributed to the 27% increase in sales volumes, which includes the leverage of low-cost Blue Creek tons. These higher costs were offset partially by $54 million of lower costs that were driven by the lower variable transportation and royalty costs on 13% lower average steelmaking coal price indices. In addition, we rationalized and tightly managed our spending on supplies, repairs, maintenance expenses throughout the operations. Cash cost of sales per short ton, FOB port, was approximately $101 in the third quarter of this year compared to $123 in the same quarter last year. The decrease was primarily related to overall spending at the legacy mines of $11 per ton due to tightly managing our overall spending, lower variable transportation and royalty costs of $8 per ton on lower steelmaking coal prices and $4 per ton from the incremental sales of low-cost Blue Creek tons. While we were able to manage our spending tightly during the third quarter, some cash costs such as repairs and maintenance may be higher in future quarters due to potential unexpected breakdowns that would require investment to restore the equipment to a normal operating status. Our cash cost of production for the third quarter this year was 67% of our total cash cost per short ton compared to 66% in the same quarter last year. Overall, transportation and royalty costs were 33% of our cash cost of sales per short ton in the third quarter this year on lower average net selling prices compared to 34% in the same quarter last year. As a result of the lower average net selling price, our cash margin per short ton was $35 in the third quarter this year compared to $48 in the same quarter last year. SG&A expenses were $17 million and were about $6 million higher than the third quarter of last year, primarily due to higher employee-related expenses. Depreciation and depletion expenses were $44 million, which was higher than the third quarter last year, primarily due to the additional assets placed into service at Blue Creek and the higher sales volume. Our net interest income earned from cash investments was lower due to lower average cash balances and lower rates of return, combined with higher interest expense on newly leased equipment. We recorded an income tax benefit of approximately $14 million on pretax income of $23 million in the third quarter. Our year-to-date effective income tax rate varied from the statutory federal income tax rate of 21%, primarily due to tax benefits recognized for depletion expense, marginal gas well credits, and a foreign derived intangible income deduction, which exceeded forecasted pretax book income. Turning to cash flow. Free cash flow was a negative $20 million due to $105 million in operating cash flows less cash used for capital expenditures and mine development of $125 million. Capital spending totaled $83 million, which included $64 million spent on the Blue Creek project, as previously noted. Mine development costs for the Blue Creek project in the third quarter were $42 million and continue to be below budget as we continue to focus on cost control. Working capital decreased by $31 million during the third quarter, primarily due to lower accounts receivable and higher accrued expenses. Our investment into Blue Creek is generating revenue and contributing positive operating and free cash flow to the overall company. We amended and extended our ABL facility, which increased the commitments available to be borrowed by $27 million to $143 million and extended the maturity date, giving us further financial flexibility and higher liquidity. Our total available liquidity at the end of the third quarter this year was $525 million and consisted of cash and cash equivalents of $336 million, short- and long-term investments of $48 million and $141 million available under our ABL facility. Let me turn to our revised outlook and guidance for the full year 2025. As Walt previously noted and outlined in our earnings release, we have updated and increased our production sales volume guidance for the full year 2025 as a direct result of the early start-up of the longwall operations at Blue Creek. In addition, we lowered our guidance for cash cost of sales per ton, reflecting more recent actual results. While weak steelmaking coal market conditions are expected to persist for the remainder of the year, we remain optimistic about our long-term growth trajectory. I'll now turn it back to Walt for his final comments. Walter Scheller: Thanks, Dale. Looking ahead, we recognize persistent challenges in our customers' markets will continue to be driven by ongoing surplus in Chinese steel exports, heightened global trade tensions and subdued economic activity worldwide. However, we're hopeful that new trade agreements with key global partners will be supportive for our market and will materialize in the near term. Similarly, we expect the steelmaking coal markets to be pressured by additional supply, which is expected to come online over the next few quarters due to a combination of new capacity and the return of certain idle mines. We believe the pricing will remain weak and range-bound and supply rationalization will be necessary to balance market dynamics. While the steelmaking coal markets are expected to continue to be weak in the upcoming quarters, we're excited about the positive accomplishments in our business and with some of our key partners. For example, on October 13, the Alabama State Dock had its official ribbon-cutting ceremony to celebrate the completion of a multiyear project of deepening the draft and widening of the channel at the port. This project is expected to benefit both Warrior and our customers by allowing them to load heavier and larger vessels in the future. In addition, several important machinery and equipment upgrades are being completed at the port over the next few quarters. These upgrades at the port are anticipated to enhance our operations and position the company for long-term success. We appreciate our long-standing partnership with the state. In conclusion, the combination of accelerated Blue Creek production and strategic reserve acquisitions significantly enhance our long-term growth strategy and provide Warrior a strong platform to meet long-term sustained global demand for premium steelmaking coal. Our world-class assets, low-cost position and disciplined capital deployment are a foundational strength. We remain focused on delivering long-term shareholder value through strategic resource development and operational excellence. With that, we'd like to open the call for questions. Operator? Operator: [Operator Instructions] Your first question comes from Katja Jancic with BMO Capital Markets. Katja Jancic: First, congratulations on the early Blue Creek start-up and the quarter. And maybe starting on the Blue Creek, with the early start-up, how should we think about production next year? Walter Scheller: Well, we're still, we're working through our budget right now. But as you know, our plan was not to have started that until midyear. So naturally, that number is going to be enhanced greatly. But we're still working on that. I'm hesitant to give you an exact number on where we'll be. I think it's going to be, a lot of it is going to be market-driven as we get into next year as opposed to operationally driven. But we're working on that right now. Katja Jancic: And then maybe secondly, the CapEx is coming down on the Blue Creek project. Can you remind us how you're thinking about capital allocation? Dale Boyles: Yes, thanks for the question. Well, I think it would be similar to what we've done in the past when we generate the excess free cash flow above the needs of the business, and we will return cash via different methods, which will be the fixed quarterly dividend, which I expect would be higher in the future, supplement that with some cash special dividends and possibly some stock buybacks along the way, selected. Operator: And your next question comes from Nick Giles with B. Riley Securities. Nick Giles: Guys, I really want to commend you on this incredible achievement. I know Tuscaloosa breeds champions; but it's clearly not just football. So, my question was, what does this mean from a hiring perspective? Do you still need incremental workers to ramp up here? And if sales are expected to be market-driven, would you plan to build inventory? Or would you really toggle production just on market conditions? Walter Scheller: Well, I think the first part of your question on how many people do we still need more people. We're okay running at the pace we are right now, and, but we'll continue to hire over the next year easily and probably continuing beyond that. I think next year; we'll be looking at a balance. We'll look at, as I've said before, we really wanted to make sure that we had a certain percentage of the tons tied up before we ramped up. I'm not going to say 4.5 is the number for next year, but I think you're probably going to be closer to that type of a number for Blue Creek. And so, we'll be looking at cash flow. We'll be looking at what's happening in the market. We don't want to build a bunch of inventory, and we don't want to flood the market either. So we're going to be balancing all those factors to make sure we maximize the value for the company. Nick Giles: I appreciate that. And then maybe just looking to the fourth quarter here. I mean, I think if I do the math right, your guidance could imply a 20% increase in sales. Can you just walk us through what, maybe on a mine-by-mine basis, how sales could shift quarter-over-quarter? Dale Boyles: Well, I don't have that breakout by mine. But with what we said is 2/3 of that volume of Blue Creek for the year should be sold this year, 1.2 million tons. And we've sold about half of that so far through the end of the third quarter. So you're going to see a big jump just because of the Blue Creek tons there, Nick. So that's the biggest driver in the fourth quarter. Nick Giles: Got it. Maybe one last one, if I could. It's good to see you were able to tuck in such a significant amount of reserves at a reasonable cost. I think you mentioned this is relevant to Mine 4 and Blue Creek. But my question is, how much does this acquisition influence any potential decision to add another longwall to your operating footprint? How much capital could be required later down the road? I appreciate any color there. Walter Scheller: What I've said in the past is an additional longwall, you're probably looking at incremental capital probably $300 million or so because you're going to have to add 3 CM units, you're going to have to add another longwall. You're going to have to add modules to the preparation plant. So there's a lot of infrastructure and just a lot of build-out that would have to happen. In terms of making that decision, we had enough reserves without the BLM to add a second longwall if we thought the market justified it. This just makes us even more efficient because some of the places where we were going to have to skip around some coal, now we have control of it. So this is going to make us a lower cost, more efficient operation at both Mine 4 and Blue Creek as we roll forward. Operator: And your next question comes from George Eadie with UBS. George Eadie: Really impressive performance here, good set of numbers well done. Can I just follow up on that question before? So another longwall, is it a price decision? Like if you were guaranteed, say, 200 metric benchmark PLV, would you do it like the spreadsheet math, it clearly works when we get to sort of mid-'26 as the first longwall at Blue Creek is ramped up. How would we go about thinking about the decision for another one? Walter Scheller: I think the real, what we need to do is we need to stretch this first longwall as tight as we can and see just what it's capable of. What we said is $6 million I don't know where the top end is for that one longwall and how many CMs it takes you to support that one longwall if you're running it flat out throughout the year. So, the real question is going to be where is that limit? And then beyond that, what's that next longwall get you. So, I think we're years away from making that decision because I think there's still so much headroom on the first longwall. George Eadie: Yes. And then maybe to Dale, you just sort of call out those 3 factors, discounts, more High-Vol A, more Asia sales. How do I triangulate that with the low-vol hard coking index flat quarter-on-quarter? Your realized price was up quarter-on-quarter, like that caught me. Like how do I triangulate that going forward as well, like more Blue Creek sales, more Asia sales? Is it likely that this was just a one-off really strong realized pricing quarter? Or how do I sort of triangulate those factors? Dale Boyles: Well, I don't think it's a one-off quarter. I think if you go back to my remarks, I said is, look, the increase from the second quarter to the third quarter was 2 things: 6% higher sales volume and a net realized price of $6 a ton higher. Well, that $6 a ton came primarily from the increase in the LVHCC during the third quarter. So that relativity rose from 78% in the second quarter to 82%. So that spread narrowed right? So that drove that $6 a ton, which just flowed to the bottom line. Walter Scheller: So, think of it that way, pick your PLV price and then pick your relativity, okay? So just for example, $200 PLV, 80% relativity and you're going to be pretty close. George Eadie: So that relativity, that 82%, that 4% quarter-on-quarter jump is what I was talking about there, sorry, Dale, that caught me off guard, like more high-vol sales more into Asia, like how do we think about that going forward in Q4, I guess, as well? Walter Scheller: Well, we don't break it out by geography on a forward-looking basis, but we do think that in the long term, more volume will go into Asia long term as we ramp up Blue Creek. So that will be a gradual climb over the next year or 2. George Eadie: Yes. And just last one on pricing. Walter Scheller: Yes, I was just going to say one more thing, George, to think about there is customers have their different time schedules throughout the year. So that's why we might sell more into Europe in one quarter versus another quarter. So, it's hard for us to forecast that into the future as to what geography it's going to go into. So, we don't have that preciseness very far out. We know about a quarter ahead, but not too much further out than that. George Eadie: Yes. Okay. And then just what was sort of saying quite bearish sort of met coal prices at the start, that benchmark prices up at $197 and flat starting to now talk quite optimistic the demand outlook ex China. Any sort of color you can give? Walter Scheller: Well, I think I always try to be conservative in my expectations. And that's the way we run our company. And we make sure that we're able to respond to any positive market news, but we make sure we're prepared in the case of any negative market news. I don't, it's hard for me to see a reason why prices will go up or at best, they'll maintain the level they're at now, I think. But it takes one event to cause this price to shift dramatically. But I don't know what that one event is right now. Dale Boyles: Yes. It's hard to see on the demand side, what the catalyst is. So, then you're thinking about the supply side. And as we said in our remarks, earlier, look, there's the Blue Creek coming online next year. There are other mines that are restarting next year. So, you're going to have additional supply coming on that's going to keep that pretty balanced, we think, going forward. So, it's hard to be too optimistic right now about what the next year or 2 looks like. Other than we should perform well because of Blue Creek coming online and it's such a much low-cost structure, we're going to benefit from that. Operator: [Operator Instructions] Your next question comes from Nathan Martin with The Benchmark Company. Nathan Martin: Congratulations on the early longwall startup. I just want to come back to the pricing question quickly. I think maybe what we're trying is how should we think about realizations versus the benchmark kind of going forward as you bring on these additional Blue Creek tons? Do you think you can get back to kind of your targeted 85% to 90% range of the benchmark? Dale Boyles: Well, that's what our target is. So yes, I think we can get there. It just depends on what the markets do. I mean we can't control that. So, my crystal ball says maybe Prices change all the time for different reasons. And it's just, I mean, if you can't predict it, I can't predict it, right, what prices will be tomorrow. So just the realizations are what they are. We're 83%. Our targeted range is 85% to 90%. We're creeping up. It depends on what continues to happen with LVHCC pricing in the Pacific Basin. That will be a big determinant of where we get to. Walter Scheller: I think said another way, we definitely think that we will get back to that 85% to 90%. The question is just when. We can't tell you if that's going to be 2 quarters from now or 1.5 years from now. We don't know when that will occur. Nathan Martin: Makes sense. That's fair. And then as far as Blue Creek sales are concerned, Dale, I think you said that you guys were maybe initially targeting those tons towards Asia. Is that correct? And then how many Blue Creek tons have you guys been able to contract at this point with starting up the longwall early? Dale Boyles: Well, the majority of the sales volume so far, yes, has gone into Asia. And right now, these tons are being shipped to really trials, right, to get confirmation of contracts. So, I don't, it's a little early with the volume that we sold to give a percentage of how much we've contracted because of these trials. So, I don't want to get into that yet. If we have better, and hopefully, we will have better information during our fourth quarter earnings call about that. But right now, it's a little bit too early because we only have about $1.2 million for this year. Nathan Martin: I appreciate that. And then maybe just one final one on the cost side of the equation. Good to see cash cost guidance for this year down again another $5. Just want to make sure, is there any change in your price assumption there that would have impacted that update? And then last quarter, Dale, I think you mentioned you built in some maintenance and repair costs. I think you touched on that briefly in your prepared remarks as well. Is that still the case in that range? Dale Boyles: Yes. That's kind of baked into that range. And really, the price assumption hasn't changed because the PLV has averaged virtually the same amount each and every quarter this year. Operator: And your next question is a follow-up from Nick Giles with B. Riley Securities. Nick Giles: I just wanted to follow up on that last question on the cost side. I think guidance does still imply a slight tick up in the fourth quarter. So I wanted to see if there's anything specific that could drive that or if that's maybe just an added level of conservatism. Dale Boyles: Yes, it's just baking in what if, right? As I said in my prepared remarks, we've been pretty tight on repairs and maintenance all year. Something can break, and we've got to fix it in the fourth quarter, and that's covering those kind of things. And we have a little tick up and we have recently in the last couple of weeks on the prices to $196. So there could be some change there a little bit on the cost. So that's all baked into that range. And we're averaging at, for the year-to-date, we're averaging at the bottom of the range. So a slight tick up would be very, very minor. Operator: At this time, there are no further questions. I will now turn the call over back to Mr. Scheller for any closing comments. Walter Scheller: That concludes our call this afternoon. Thank you again for joining us today. We appreciate your interest in Warrior.
Operator: Good afternoon. My name is Makaya, and I will be your conference operator today. At this time, I would like to welcome everyone to Pursuit's 2025 Third Quarter Earnings Conference Call. [Operator Instructions] Thank you. Carrie Long, you may begin today's conference. Carrie Long: Good afternoon, and thank you for joining us for Pursuit's 2025 Third Quarter Earnings Conference Call. Our earnings presentation, which we will reference during this call, is available on the Investors section of our website. We encourage investors to monitor the Investors section of our website in addition to our press releases, filings submitted with the SEC and any public conference calls or webcast. During the call, you will hear from David Barry, our President and CEO; and Bo Heitz, our Chief Financial Officer. Today's call will contain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Please refer to the disclaimer on Page 2 of our presentation for identification of forward-looking statements and for a discussion of risks and other important factors that could cause results to differ from those expressed in such statements. During the call, we will also discuss non-GAAP financial measures. Definitions of these non-GAAP financial measures are provided on Page 3, and reconciliations to the most directly comparable GAAP financial measures are provided in the appendix of the presentation as well as in our earnings release. And now I'd like to turn the call over to David, who will start on Page 4 of our presentation. David Barry: Thanks, Carrie, and thank you all for joining us as we review our very strong 2025 third quarter results. Let us start by highlighting 4 key achievements that really speak to the strength and momentum of our business. First, we delivered a record-breaking third quarter with significant year-over-year growth that exceeded expectations, all while continuing to deliver incredible experiences for our guests. Second, based on that exceptional performance, we're raising our full year 2025 growth guidance, a reflection of both our year-to-date results and our confidence in what's ahead. Third, we're well positioned to benefit from global consumer demand trends for experiential travel to iconic destinations. That gives us a solid foundation for continued growth in 2026. And fourth, our Refresh, Build, Buy strategy continues to deliver. It's fueling growth and enhancing our collection of irreplaceable assets, backed by a meaningful pipeline of investment opportunities and a strong balance sheet that gives us flexibility to accelerate. So let's review our record third quarter results and improved full year 2025 outlook on Page 6. During the quarter, our dedicated team delivered extraordinary experiences to approximately 2 million attraction visitors and welcome lodging guests across nearly 200,000 room nights. We delivered revenue growth across all geographies, including a strong recovery in Jasper following last year's wildfires. Total revenue for the quarter reached $241 million, which is up 32% year-over-year. Our adjusted EBITDA margin expanded to 49%, reflecting the scalable nature of our business with strong demand for our incredible attractions and unique lodging properties and our diligent ongoing management of costs. Our strong team member engagement, our relentless focus on elevating the guest journey and the perennial demand for our iconic experiences and destinations continue to differentiate Pursuit, and that's driving sustained momentum and reinforcing our long-term growth. With our exceptional third quarter results, we're raising our full year 2025 adjusted EBITDA guidance by $6 million at the midpoint as opposed to our prior guidance range. We now expect full year 2025 adjusted EBITDA to be in the range of $116 million to $122 million. Now let's dive in on Page 7 with a reminder of what makes Pursuit a powerful and differentiated growth engine. Pursuit's success is anchored in a guest-obsessed experience-driven hospitality-focused culture, that's paired with authentic one-of-a-kind experiences. Our unique offering of must-do sightseeing attractions for all ages and skill levels and our distinctive lodging and iconic destinations with limited supply and high barriers to entry gives us a strong foundation for enduring success. Guided by our proven Refresh, Build, Buy strategy, we continue to scale our collections of irreplaceable experiences with growth and the guest experience in mind, anchored by focused capital allocation and discipline. Since 2015, we've nearly quadrupled revenue expanding across 4 countries. We've grown from 4 world-class attractions to 17 and from 12 lodges to 29. This is a testament to the power of our strategy and the timeless allure of experiential travel, which we believe will continue benefiting us long into the future. As shown on Page 8, our Refresh, Build, Buy growth strategy is anchored in 2 important growth levers that drive long-term value creation. Our first growth lever is delivering organic growth through refresh and build investments; and the second is to buy one-of-a-kind forever businesses that fit our strategy. We actively maintain a robust pipeline of opportunities across both levers, backed by our strong financial and operational capacity. With ample liquidity and low leverage, we're able to invest across a spectrum of high-return opportunities. On the organic growth front, we've identified over $250 million in refresh and build opportunities over the next 6 years, including an expected $38 million to $43 million in 2025. These targeted investments elevate the quality of our existing assets, they enhance the guest and team member experience and they unlock new revenue streams in our iconic destinations. We view these investments as among our most efficient uses of capital by raising asset quality, elevating the guest experience and improving financial performance, we deliver high returns, and we drive long-term value. Our buy acquisition strategy complements this by targeting irreplaceable attraction and hospitality businesses in both existing markets and new markets that have perennial demand, limited supply and high barriers to entry. We focus on businesses that deliver attractive EBITDA margins, operate in countries with strong ease of doing business and exceed the 15% IRR hurdle rate that our growth investments need to deliver. This disciplined approach ensures that we continue to scale with purpose by investing in unforgettable experiences that inspire our guests and deliver sustainable returns. Page 9 provides some visibility into our significant refresh and build pipeline, which represents a compelling set of organic growth opportunities through 2030. In 2025 and '26, we're advancing 2 large-scale multiyear lodging refresh projects. At our Forest Park Hotel in Jasper National Park, we are in our second phase of a full refresh of the Woodland Wing with upgrades to guest rooms, corridors, the exterior facade, lobby and atrium, conference spaces, food and beverage areas. And this first phase of room renovations was complete for the 2025 peak third quarter and the elevated guest experience captured a 22% increase in ADR compared to the non-renovated rooms. At our Grouse Mountain Lodge in Whitefish, Montana, near Glacier National Park, we're underway with the first phase of a full refresh of that property. Ahead of the 2026 peak summer season, we plan to have renovated the South Wing guestrooms and pool area. We're also building a new 8,250 square foot wedding and event pavilion to support the group and leisure demand, which will open later in 2026. These projects will transform and reposition these year-round lodges to better meet the expectations of mass affluent leisure travelers as well as support higher ADRs and attraction visitation. And our phased approach to renovation with construction taking place primarily during the seasonally slower fourth and first quarters allows us to minimize disruption during our busy summer months. So as we look further ahead, we have a robust pipeline of potential refresh and build projects presently in the planning stage to drive incremental capacity and yield opportunities in high-demand markets. And key examples include Jasper SkyTram investments to introduce a new lift and reimagine terminal buildings to deliver a more elevated guest experience; a refresh of the Banff Gondola and Banff National Park with a new lift and experiential enhancements to further differentiate this iconic attraction, investments at Apgar Village in Glacier National Park aimed at improving and maximizing lodging capacity to meet growing demand for this very special place. And then finally, investments in the Denali Backcountry Adventure focused on elevating and reimagining the guided journey deep into Denali National Park when the Denali Park Road reopens in 2027 and a series of additional lodge refreshes focused on transforming and repositioning properties to align with market demand. These investments reflect our commitment to enhancing the quality and appeal of our experiences, while positioning our portfolio for sustained growth and profitability. We plan to provide more details on our 2026 capital plans in February '26 and expect growth capital investments over the next 2 years at increased levels relative to 2025, primarily driven by planned large-scale refresh and build investments in the new Jasper SkyTram attraction, Forest Park Hotel Woodland Wing and Grouse Mountain Lodge subject to approvals. And while these investments take multiple years to complete, they will help propel our growth beyond 2026. Now on Page 10, let's revisit our recent acquisition of Tabacon completed at the beginning of the third quarter. which exemplifies the kind of high-quality buy opportunities we're pursuing to drive long-term growth. Tabacon is a world-class destination resort and attraction in one of Costa Rica's most iconic travel regions. Nestled at the base of the Arenal volcano and adjacent to protected rainforest, Tabacon offers exclusive access to the country's largest network of naturally flowing hot springs. It is truly unique with 2 distinct thermal river attractions paired with a luxury 105-room resort, renowned spa, signature culinary experiences and 570 acres of beautiful terrain. Tabacon is profitable 10 months of the year with full year hotel occupancy exceeding 80% and provides a positive EBITDA contribution during periods that are seasonally slower for our Canadian and U.S. businesses. The renowned Tabacon Thermal River attraction offers a premium experience for both hotel guests and day visitors. And in March of '24, Tabacon opened a second Thermal River attraction, Hot Springs Pura Vida, designed to serve more budget-conscious guests. Both attractions are open to day use guests, serving a broad range of visitors and driving incremental revenue. Through its inclusion in the Small Luxury Hotels of the World portfolio, Tabacon is accessible to Hilton Honors members, which expands its global reach and visibility among high-value travelers. This strategic affiliation enhances the resort's positioning in the luxury market, drives incremental demand from a loyal and affluent customer base and strengthens its competitive advantage within the premium hospitality segment. Tabacon is led by an exceptional local leadership team with deep roots in Costa Rica and a proven track record, this team has built a reputation for delivering best-in-class hospitality and driving sustained growth. Culturally, Tabacon is a perfect fit with Pursuit in all aspects, including the team's growth mindset and restless focus on making experiences better. As one small tangible example, the team is underway with rebranding the new Thermal River experience from its initial [ brand ] Choyin to the more compelling brand of Hot Springs Pura Vida based on learnings and feedback across key stakeholders. And we're actively collaborating on exciting future growth opportunities. We see a clear path to near-term upside through targeted operational enhancements and the full ramp-up of Hot Springs Pura Vida. And also, with strong demand and ample Hot Springs capacity, we expect to drive Tabacon's adjusted EBITDA multiple below 9x by year 3. Beyond these operational gains, we're actively exploring refresh and build opportunities across the 570 acres of acquired terrain as well as buy opportunities to expand our presence in Costa Rica with additional high-quality attractions and hospitality assets at attractive valuations. We see the potential to build a world-class collection of nature-based experiences in Costa Rica. Across Pursuit, we're not just focused on the next quarter. We're focused on the next decade, and we're confident that the choices we're making today will drive long-term value for our guests, our teams and our shareholders. Next, on Page 11, we provide some initial insights into our indicators for next year. We believe we're well positioned for continued growth in 2026, supported by favorable secular trends, sustained demand for our destinations and solid business fundamentals. Across generations, we continue to see a shift toward experience-driven travel with increasing demand for adventure, wellness and immersive exploration, all areas where we're strongly positioned to capture growth with our differentiated and authentic guest experiences in iconic locations. Our travel destinations from Banff and Jasper to Costa Rica have perennial demand and continue to attract strong visitation. In Canada, we expect another standout year for travel in 2026, supported by favorable foreign exchange rates, unique geopolitical trends and the recently renewed free admission to Canadian national parks in 2026. Our global network of tour and travel partners spanning over 80 countries are signaling strong demand for the 2026 itineraries. This early indicator reflects the appeal of our offerings and the strength of our diversified market reach. And at the heart of our success is a relentless focus on growth and elevating the guest and team member experience. And it's with this mindset that we're confident in our ability to harness these tailwinds and deliver exceptional performance in the years to come. And now I'll turn it over to Bo to review our 2025 financial results and outlook in more detail. Michael Heitz: Thanks, David. I'll start on Page 13 with our third quarter financial highlights. As David mentioned, this was a phenomenal quarter with record results that exceeded our expectations, particularly in August through the remainder of the core summer season as visitation to our markets accelerated. The team managed extremely well to harness this demand, drive the power of flow-through and deliver outsized results. We delivered revenue of $241 million in the third quarter, which was up approximately $59 million or 32% year-over-year. This growth was primarily driven by a strong recovery across our Jasper properties that were temporarily closed during the 2024 third quarter due to wildfire activity as well as by incremental growth from our new experiences and continued momentum in overall guest demand for our distinctive existing experiences in iconic places. Excluding our Jasper properties and new experiences that were not operated by Pursuit for the entirety of 2025 and 2024, our third quarter revenue increased $17.7 million or 12% from strong yield optimization and visitation across our geographies. We delivered revenue growth across all geographies, with particular strength across our Canadian operations and at Sky Lagoon, supported by continued global secular trends, our differentiated businesses and our passion for delivering incredible experiences for our guests. In addition to broad demand, Mother Nature was also on our side this season with minimal impacts to our operations from inclement weather and smoke as compared to typical years. Net income attributable to Pursuit, which is inclusive of discontinued operations, was $73.9 million as compared to $48.6 million in the prior year. Our income from continuing operations attributable to Pursuit was $76.7 million, up $33.4 million compared to the prior year. During the 2025 third quarter, we reported a pretax gain of $4.2 million from business interruption insurance proceeds received related to lost profits in 2024 from the Jasper wildfire. This brings our total insurance proceeds received since the 2024 wildfire to $23.7 million. We continue to work with our insurance carriers on additional potential recoveries. Our adjusted net income, which excludes results of discontinued operations and other nonrecurring income or expenses, including the business interruption insurance proceeds gain was $75.3 million as compared to $50.7 million in the prior year. The year-over-year growth of $24.6 million primarily reflects higher adjusted EBITDA, partially offset by increases in income tax expense and income attributable to noncontrolling interest. Adjusted EBITDA increased by $34.4 million or 41.5% year-over-year to $117.4 million, primarily driven by significant revenue growth with strong margin flow-through, supported by operating leverage in the business and continued cost discipline. Turning to our strong balance sheet highlights on Page 14. Pursuit continues to have ample liquidity and low net leverage to support accelerated growth. As of September 30th, 2025, we had total liquidity of $274.4 million, including $33.8 million in cash and cash equivalents and $240.6 million of available capacity on our revolving credit facility. In September, we expanded our revolver by $100 million to a total of $300 million. We also added Tabacon as a co-borrower and extended its maturity to September 2030, enhancing our financial flexibility to capitalize on strategic growth opportunities. Also in September, we acquired the remaining 20% minority interest in Glacier Park, Inc. for $13 million, securing full ownership of this high-performing subsidiary. This move simplified our capital structure, eliminated a $22 million noncontrolling interest liability and reinforces our commitment to growing iconic experiences-driven assets with long-term potential. At the end of the quarter, our total debt was $129.8 million, and our net leverage ratio stood at 0.7x, comfortably below our target range of 2.5x to 3.5x. Now let's look at our third quarter attractions performance on Page 15. Attraction ticket revenue reached $100.4 million, reflecting a 33% year-over-year increase driven by substantially higher visitors and effective ticket prices. Visitors increased 22% year-over-year due to a strong Jasper recovery, new attractions and overall robust demand for our one-of-a-kind sightseeing attractions with a 4% increase in same-store visitors. Same-store constant currency effective ticket pricing, which excludes our Jasper properties temporarily closed in the prior year and new attractions, grew by 9% compared to '24. This improvement was enabled by our focus on guest experience with particularly strong performance from Sky Lagoon and our Canadian attractions in Banff and Golden. Sky Lagoon continues to deliver strong growth in effective ticket price, primarily fueled by the expansion of the premium ritual experience, which was completed in August 2024. Next, let's turn to our third quarter hospitality performance on Page 16. Lodging room revenue totaled $59.7 million, reflecting a 42% year-over-year increase driven by a strong Jasper recovery, new lodging and improvement in same-store ADR and occupancy. All of our collections delivered growth in room revenue during the quarter. Same-store constant currency RevPAR, which excludes our Jasper properties temporarily closed in the prior year and new lodging, grew 6% as compared to 2024. Our lodging properties are located in iconic, high-demand experiential travel destinations, offering guests direct access to some of the most breathtaking natural settings, including at nearby Pursuit sightseeing attractions. These markets benefit from strong compression dynamics supporting both premium pricing and high occupancy. Let's turn to our 2025 outlook on Page 17. As David mentioned earlier, based on continued demand for our authentic experiences and stronger-than-expected results for the third quarter of 2025, we are raising our full year 2025 guidance. We now expect full year adjusted EBITDA of $116 million to $122 million, which is an increase of $6 million at the midpoint relative to our prior guidance range of $108 million to $118 million. This new guidance range represents substantial adjusted EBITDA growth of $39 million to $45 million relative to 2024. This significant year-over-year growth reflects our strength of execution, continued strong demand and the recovery of leisure travel to Jasper, in addition to contributions from our recent acquisitions. With the strong rebound in Jasper, our continued relentless focus on delivering exceptional guest experiences and the strength of our balance sheet, we are well positioned to drive sustained growth and strategically invest in high-return refresh, build, buy opportunities. And with that, I'll turn it back to David. David Barry: Thank you, Bo. So just in closing, I'd like to express my sincere appreciation to our team members for their passion, their dedication and their growth mindset. Their restless positive energy and commitment to excellence continue to drive exceptional guest experiences and our overall success. To our shareholders, thank you for your ongoing support of Pursuit. We're energized by the opportunities ahead, and we remain focused on executing our growth strategy to create long-term value. Let's open up the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Tyler Batory with Oppenheimer. Tyler Batory: Congrats on the strong results here. First one for me, maybe more housekeeping on results and guidance. Can you talk about the insurance proceeds in the quarter? Were those contemplated when you provided the original EBITDA guide, that $4.2 million that you cited in the investor presentation? And then can you also talk about FX, please, too? I'm not sure if that was a tailwind or a headwind in the quarter? And just how is foreign exchange movements impacting guidance for the full year? David Barry: Yes. Sure, Tyler. Happy to take those. So on the insurance proceeds, just to reiterate, we've now received $24 million in insurance proceeds in totality, $13 million of that was last year and about little under $11 million of that was in 2025. As you noted, for Q3, there was about $4.2 million of that in the business interruption recoveries bucket of that. Importantly, we're treating that outside of adjusted EBITDA given the nonrecurring nature of it. So it was never in our adjusted EBITDA guidance, and it's not in there today either. On the FX side of it, it wasn't a big driver for the quarter. And frankly, for the whole year, relative to last year is not a major driver. We did have some movements from where we started the year from an FX perspective, but that really reversed itself heading into Q2 results. So pretty neutral on the whole year. And with only a couple of months to go of not really peak operating period, it's not a huge sensitivity to that for the remainder of the year here. Tyler Batory: Okay. I appreciate the clarification on that. And then I wanted to double-click on something that we talked about last quarter in terms of ETP. And I mean, look, the same-store visitation in the mid-single digits has been very strong, but the ETP has been even stronger. And I'm curious if you can just unpack that a little bit more. How much is mix? How much is outright price increases? And when you think about the strong ETP growth you've seen this year, does that create a situation perhaps where there's some difficult comps for you in 2026? David Barry: Yes. I think first, I would say, Tyler, that one of the important factors is that any growth in ETP is a combination of several things. Yes, you've got some price increases. You've also got the tenant itself, the impact of the type of visitor, filling white space. There's a whole variety of different factors that help drive the effective ticket price. And we do have a view to the future in '26, and we have a sense of confidence, meaning that the trends are on our side. We see continued energy around the growth in experiential travel that connects in with iconic locations. We think that Canada and its position is going to continue to be strong as we look at growth coming. We have the strength of the business that prepared itself and adapted quickly. And just being, I think, alert and anticipating is part of how we were able to drive such a strong increase in effective ticket price. And Bo, jump in if I missed anything there. Michael Heitz: Yes. I think that's all true holistically. If I were to point to any particular outliers of strength this quarter, I'd probably put top of list, Sky Lagoon and Golden Skybridge as well as the Banff Gondola. Some of those are areas, where we've had recent investment that helps support the incremental yield and some of that is the continued efforts that David alluded to, all of which I think sets us up as the right baseline to build off of for next year. David Barry: Yes. Great example with Sky Lagoon. Remember, one of the choke points at Sky was the way that the ritual experience worked was that originally, we had undersized that when we had created Sky. So the investment that we made in '24 set us up really well for '25. And so we were able to, just as a reminder, take some of the lower-tier products and basically, they disappeared off the price list and everyone is just entering and visiting for the first time, purchasing the full ritual, the skill experience and really enjoying it. And that led to a couple of things: one, growth in ETP, but also growth in guest satisfaction, which is what we're looking for. Tyler Batory: Okay. Last one for me, just a couple on the Tabacon acquisition. What was the EBITDA and revenue contribution from that in Q3? And just remind us again in terms of seasonality, how that flows throughout the year? And can you also just touch on integration, bringing that under the fold here and just kind of how that's gone? David Barry: I'll take the integration part, then we could talk about some of the other things. So I have a good story for you, Tyler. The team, Andrey Gomez and the team, they are obviously in the geothermal attraction -- water attraction business with 2 geothermal attractions at Tabacon. They recently visited Sky Lagoon. And so you would think where are the parallels there? Why would a team from Costa Rica go to Iceland to visit another geothermal attraction. We think there's a lot of learning in between those 2 locations. So from an integration standpoint, that was one of the first things we wanted to do. And just on a personal level, I'll share that Andrey Gomez saw snow fall for the very first time in his life and a few snowflakes. On the first day he was visiting, everybody went to sleep, a little jet lag. They woke up the next morning to 30 centimeters. So for those of you that don't speak metric, that's well over a foot of snow. And they had a fantastic day in Iceland benchmarking Sky Lagoon and having some learning going mutually back and forth between the Sky team and the team at [indiscernible ]. And then at night, the Northern Lights came out. So a pretty fantastic experience. And so integration is going well. They have lots of really interesting growth ideas into the future. There's a high level of occupancy in that property. And so we're working on the planning of some concepts. We have 570 acres of terrain that we can expand upon. One of the prototypes we're working on is more of a luxury villa product that maybe 2 couples or a larger family would use. And so we're going to be testing those. We're modeling them out in terms of how we might construct them, but those are some of the growth opportunities we're excited for. Integration is going really well. Team is fantastic, a ton of great energy. Bo, over to you. Michael Heitz: Yes. And going back to part of your question on the financial component of this, Tabacon benefits from being much more of a year-round operation for us. It's profitable 10 months out of the year. From a seasonality perspective, I'd say the biggest quarter for them would be in Q1. Q4 is also a pretty strong quarter, but broadly, the rest really spreads out across the year. What we noted at the -- when we first closed on the acquisition was an expectation for about $3 million of EBITDA impact in the second half of 2025 and about a 10-year full year -- or sorry, $10 million of EBITDA full year impact. So another $7 million coming when you annualize that into next year. Generally, that's all performing really well for the first couple of months here. We do disclose from a revenue perspective, it's about $6.3 million of revenue in Q3, and we'll continue to break that out as we get into future quarters here. Operator: The next question comes from the line of Alex Fuhrman with Lucid Capital Markets. Alex Fuhrman: Congratulations on a really nice summer season. David, it sounds like you're targeting increased growth CapEx levels for the next couple of years. You mentioned a couple of specific hotel projects. Is it really just those couple of refreshes that are driving it? Would you say there's anything you're seeing that's maybe driving you to see maybe perhaps more than the $200 million of CapEx projects than you've talked about a little while ago? David Barry: Yes. You'll noticed in the investor presentation, firstly, as we think of organic and build within our existing businesses, we've increased that amount with our view over the next 6 years that, that amount is closer to $250 million, which are all terrific opportunities within the 4 walls of our existing businesses. So well-established businesses with really great operating teams, places that we know and we have great confidence. So those investments are among some of our most powerful, and we're able to accelerate those or control those depending on what's happening on the pipeline side. For 2025, we're investing between $38 million and $43 million into those projects. Our opportunities into the future, we'll be talking about in February of '26. But the ones that we mentioned are all ones that are heavily into planning. Jasper SkyTram is in a public commentary period now. We're working on the Banff Gondola, Apgar Village. And also, for those that have been around Pursuit over the last decade, you may recall a terrific business called the Denali Backcountry Adventure, which was a wildlife safari that took guests into Denali National Park. And for those unfamiliar with Denali, it's not a park you can drive into. You have to travel with an outfitter. So that's a terrific business that as the National Park Road comes back online, which they're targeting '26 for the trade and then '27 for the public, that's an example of the kind of investment that we'll be looking at. But we have plans that, again, reflect opportunity across a broad swath of the business, and we're prepared to certainly work hard to take advantage of those. Alex Fuhrman: And then that 9% increase in ticket prices on a same-store basis, that's obviously a really big number. Were there any particular attractions or collections that were driving it? And just ballpark big picture, can you give us a sense of to what extent that's on par with just how much attraction prices were going up with your competitors in your markets? David Barry: I'll start first with the team. I think the team globally across Pursuit was well positioned to be anticipatory to -- as demand increased to be ready to adjust to the demand. So that might be managing inventory in terms of providing availability. It might be adjusting a price. or simply adjusting the scale of an operation from, say, a labor standpoint or extending hours or any of those things that help drive overall performance. I would say everyone across all of the businesses performed really well. Obviously, there are some strong -- really strong performance across the Canadian Rockies, strong performance at Sky Lagoon, good performance in Alaska. And so just overall, everybody performed really well. As to our competitors, I think that with increased demand comes increased participation from guests from all over the world. And I think everyone benefits. So we tend not to look so much at what our competitors are doing, but we're more focused on what we're doing and how do we make experiences better and then charge more for them. Operator: [Operator Instructions] The next question is from the line of Eric Des Lauriers with Craig-Hallum Capital Group. Eric Des Lauriers: Congrats on a very strong Q3 here. Most of my questions here are going to focus around timing. I just kind of want to [Technical Difficulty] expectations and understand how you guys are thinking about it. So [Technical Difficulty] first with Forest Park Hotel and then -- Grouse Mountain Lodge. You called out second phase of Forest Park to be completed in '26, first phase of [ Green] (sic) [ Grouse ] Mountain completed in '26 as well. How many phases are currently anticipated for each of these? And how should we think about potential timing of future phases? And ultimately, when should these 2 projects be completed? David Barry: Yes. Great question. So I'll jump in. On -- if you think of Forest Park and the Woodland Wing, remember, we built the Alpine Wing in 2022. We renovated half of the Woodland Wing in 2025. And then we're underway on the renovation of the existing section of the hotel. So those things are happening now. And the goal is obviously to get things completed and ready as soon as we can into '26. And so that will take several months and through the beginning of the year and then with a plan, obviously, to be ready to reopen as soon as we can as close to the summer season. The same thing applies in terms of Grouse Mountain Lodge, the hotel for those that have been there, it's a beautiful property, really beautiful location. There's 2 sections with front desk and food and beverage facilities in the middle. So we're working on one wing, while we operate one wing and then we'll switch out. And so the benefit there is that we're able to keep the property open and keep hosting guests through this period and just manage these selective closures to be the most efficient with the business. Eric Des Lauriers: Okay. So it sounds like at least at Forest Park, excluding the Alpine Wing, just 2 phases. The second one is already underway. And then Grouse Mountain, it sounds like first phase is underway and should just be 2 phases potentially completed in '26. Do I have that roughly correct here? David Barry: The Grouse Mountain Lodge, the second phase will start after the summer season, and it will roll into '27. And one of the things I would be remiss in not mentioning is that we're also building a really beautiful event and attraction pavilion. We think we've got a real opportunity that the competition in the wedding space in Northern Montana, we think we've got an opportunity to really differentiate ourselves there for special events and weddings and occasions, and that drives hotel occupancy. It drives attraction visitation and the location in Whitefish is ideal. So we're building, I think, a really beautiful venue that will be very connected and I think just the best of what's available in Northern Montana. So we're excited about that. Michael Heitz: And then maybe just to make sure we're thinking about from a capital outlay perspective, there's also Jasper SkyTram that we've been talking about that is another meaningful multiyear project that we're underway on. Eric Des Lauriers: Yes. That was actually my follow-up here was just any commentary. understood this is -- Jasper SkyTram is a multiyear project. Just any sense, could this be completed like this is '27, '28, '29, '30? Just can you just kind of help level set it for everyone on the line here just in terms of timing for Jasper SkyTram? And understood that there's a lot of moving parts here and things can move one way or the other. But at least from my perspective, I'm not sure if this is like '27 or '29. So if you could just help us out with that, I'm sure that would be helpful. David Barry: Yes. I appreciate the moving parts comment you made because that's exactly how it feels. We're in a public commentary process now with Parks Canada. Everything is going well. We're working on the planning. So again, we'll be in a better position in February to give you a sense of timing. And so just at this point, we're still working our way through the preliminary part of the process, but definitely it's something that we're targeting to begin in '26 and go from there. So as to exact timing, stay tuned for February, and we'll be able to fill you in. Eric Des Lauriers: Great. I look forward to that. Just last question for me here, kind of high level. So obviously, you have a lot of very significant investment opportunities before you, both organically and M&A. You've cited the financial flexibility you have. You just completed a transformational acquisition with Tabacon. Just wondering if you could comment on capacity to take on more transformational investments or acquisitions from a management bandwidth perspective. Just wondering how full your plate is right now with integrating Tabacon and what kind of internal bandwidth you potentially have to take on another transformational opportunity here? David Barry: You bet. Thanks, Eric. I think there's 2 things to consider, and I'll ask Bo to speak to the financial capacity, but I'll start with our own internal capacity from a leadership standpoint. This is a great team. This is a great team with capacity. It's a strong team. It has the ability, the wherewithal and the energy to do more than one thing at the same time. And also, what's important to know is that our financial systems are already primarily fully integrated with Tabacon. And we're not trying to control and dominate in each location. We're really trying to build with the team that's in place keen to deliver really authentic hospitality, while being part of something that is a powerful network of great hospitality leaders so they can deliver authentic hospitality. So the team in Costa Rica is going to be leading and helping us grow the collection within the whole Costa Rican environment. The team in Western Canada who -- when you meet them, one of the things you realize right away is there's a tremendous capacity for growth. And I would say the same in Montana, the same in Alaska and across all of Pursuit. So there's a lot of bandwidth internally. We've got the runway for it from an expertise and time and energy, and I'll let Bo speak to our capacity financially. Michael Heitz: Yes. And fortunately, we're in a spot from a financial capacity as well with that to be opportunistic here. I mean, our current net leverage is around 0.7x. What we've talked about is we have a target longer-term range of 2.5x to 3.5x on that. Within that today, we have almost $275 million of liquidity available. So the flexibility is there from a financial perspective and from an operating perspective, and now it's about being opportunistic with the pipeline as we work through that. Operator: Our next question comes from the line of Jeff Stantial with Stifel. Jeffrey Stantial: Congrats on a strong quarter. Maybe starting off, David, apologies if I missed this earlier. Can you just remind us at this point in the year, typically, how far booked you are for 2026? And then as a corollary to that, are you seeing any interesting or discernible trends year-on-year, specifically, we obviously continue to see a bit more delayed behavior elsewhere in leisure. Are you seeing any evidence of that this far out or anything else that's worth calling out? David Barry: Yes. What I see, Jeff, and thank you for the question. What I see is positivity and -- but important to remember, it's early days. And so, we have quite strong tour and travel demand coming from our tour and travel partners all over the world. So those indicators show strong demand for 2026 and those itineraries. Our early booking pace for 2026 is ahead of prior years. We are experiencing what we would describe as this continued tailwind and the drive into adventure, experiential, wellness, leisure travel in our types of activities and destinations. You can see through the national park visitation over this summer that there was strong growth. It came in an interesting wave. And in July, we were running pretty even to the first expectation and then there was an acceleration through August and September, just in overall demand. Also a reminder, we work and live in powerful, big, beautiful places, where weather can be a factor. So when we think about '26, one of the things to just remind ourselves of is that in 2025, we had very minimal disruptions with weather or -- and you can have a forest fire that's 2,000 miles away, but it blows smoke into a particular geography for a couple of days, and that can affect visitation. So in '25, it was pretty smooth sailing. We always plan though, for disruption and then manage around that. And then we know that we're going to have some impact from some of the closures on our capital projects, certain wings of hotel shutdown, while we're opening things and rebuilding things. But those are temporal. They go quickly and then we're back in operation. So positivity for '26, we're still working on our plan. We'll be coming out with guidance in February and be able to articulate, I think, a more clear picture of exactly where we're headed. But yes, we're looking at positivity from this standpoint. And Bo, jump in if I missed anything. Michael Heitz: No, I think that's all the highlights, Jeff. I mean, on your specific question, it's pretty early days on the actual booking pacing. It's certainly relevant enough that we're speaking to it, but there's a lot of time left to go, and we'll have better color on that in February as well as it starts to evolve. The tour and travel partners piece is always a helpful indicator in the meantime where it's demand for taking allocations of rooms that they're then working to sell from there. But you can get a good sense for how much demand there is in that market from what they're seeing from their extended market. Jeffrey Stantial: That's great. And then maybe hanging on one thing you said there with regards to weather. David, could you just update us on some of the progress that's gone on in terms of reopening some of the hotel inventory in Jasper that was unfortunately impacted by the wildfire. And then just as more and more of these rooms come back online, whether that's next year or the following, is your current expectation that this will be net dilutive to your business in the market given the additional competitive supply or actually potentially net accretive just given rising tide, more foot traffic benefiting the broader market, those kind of things? David Barry: Yes, the latter. I really do believe that as our friends and neighbors rebuild their businesses and Jasper overall quality of lodging improves, that, that will have a rising tide effect on everything at Jasper. Interesting, Jasper this summer got to the same levels as 2023. And so overall visitation to Jasper National Park quickly recovered, and it happened a little bit later than we originally anticipated, but came on strong in August and September. In Jasper itself, it's very heartening to see that some of our neighbors have got foundations in the ground. They're beginning the reconstruction of their facilities. I don't expect anything will open in '26. It's more of a late '27 as these are complete rebuilds from the ground up, but encouraged by what's happening. And I think just all of us should be impressed with the spirit and energy in the community of Jasper, the Mayor and Parks Canada, they've done a terrific job. Jeffrey Stantial: That's really great to hear. And then one more question, just -- and apologies for this, it's going to be a really high-level one. But sort of circling back around to the effective ticket price performance this quarter, last quarter and for many years now, maybe we talked a lot about the pricing power. Obviously, a lot of pricing growth is driven more by improvements to the actual experience and guest satisfaction, whether that's from actual CapEx dollars or just more kind of iterative adjustments, more hours, different aspects of the experience, things of that nature. But I'm curious, strategically, how much do you think about maybe the flip side of this, which is more of that notion of sort of affordability for the guest and the importance of keeping the value proposition for a park visit compelling versus other vacation alternatives maybe it's another way to look at this, like if you look at really the comparable set here, how is that value proposition, how do you see peers, comps, et cetera, pricing relative to your pricing? And how much does that factor into your decision-making? And I realize that was kind of long-winded and maybe a little meandering, but let me know if that makes sense the way I framed it. David Barry: No. No, it's a great question. So where we start is we start with experience. And I get asked, I think, every earnings call, are you going to continue to take price and where does that lead? I think the stronger question is, are you going to continue to improve experiences? And the answer is yes. And so, an example at the Banff Gondola, where you might have argued, well, we're already at capacity and things are going well. One of the things the team did this summer was they revived a sunset program. And if you're familiar with the Bow Valley, if you're in the valley floor, you can't really see the sunset. So there's a great experience that you travel at the gondola and all of a sudden, the hours of the gondola's vitality are extended because there's programming that encourages you to come and see a sunset. And the views of that sunset from altitude are incredible. And so, there's an example of you really work on a product, you really work on an experience, you deliver it really well to guests and then that drives a business outcome. And so everywhere we look, we look for opportunities in a time of day, and we price dynamically so that if you are a more budget-conscious traveler, you've got windows in a week that are very transparent that you can pick a more affordable product at a time of day, where we know we have capacity, what we call white space that we're looking to fill and do it that way. So you try to have a range of product and what you're looking for is a strong Net Promoter Score, strong guest reviews, strong referral from guests that visit us, telling their friends what a great experience that they had. And that to us is a very important part, and it's just as important as price. Operator: There are no further questions at this time. [Operator Instructions]. David Barry: All right. Well, thank you, operator. This concludes our 2025 third quarter earnings call. Thanks to everyone who joined today. Please feel free to reach out should you have any further questions, and have a great rest of the afternoon. Operator: This concludes today's conference call. You may now disconnect.
Remon Vos: And good morning, and thanks for joining on this Q3 call, talk about the results and the things we have been busy with over the past couple of months and maybe start with talking about CTP, a growth company. We enjoy growth. We like growth, and we see growth opportunities to continue to develop, build for our clients and secure new business. So, growth comes from supply chain professionalization, if you like. So, we have seen obviously many events over the past decade and you could maybe conclude or say that this whole supply chain becomes more professional. So, companies adapt or adjust to different market circumstances or different events, which we have seen over the past years. We benefit from that in different ways. That's one, supply chain. Second is Nearshoring. We continue to see manufacturing coming to Central Europe for the region, for Western European countries as well. But we also see growth in the markets of Central Europe. So, the consumer spending, maybe when I came here first in '95, 30 years ago, Central Europe was about low-cost manufacturing. In the meantime, of course, with all the GDP growth, which we have seen over the past decades, the local population have money to spend and they do spend. And obviously, that results in demand for property warehouse, for example, e-commerce, et cetera. We see also growth coming from defense industry. There's a lot of talk about it. But in the meantime, we've also seen some concrete demands in our German portfolio. For instance, there is multiple companies who are involved in the defense industry, and they ask for more space. So, that's good. So, we continue to see mostly from existing clients, strong demand from a diverse tenant base, it's including retailers, pet food manufacturers, semiconductor business, but also demand from automotive-related industry, maybe moving from West Europe to Central Europe to Eastern Europe or Asian companies coming in and set up business in Europe for the European market. In numbers, we signed 1.6 million square meter over the past 9 months in '25. This is 6% up compared to what it was in 2024, 6% plus. And we have done that at 6% more rent. So, our rent average per square meter per month has grown with 6%. Again, we look also forward to continue this trend. And typically, we close a lot during the last part of the fourth quarter of the year as we've done last year and the years before. So, we're on schedule to close more leases by the end of the year. Stable, consistent growth, 2/3 of our business comes from existing clients, our partners, long-term clients, loyal clients. It's also them who help us grow in new markets. We get 99.8% of all the rent which we charge is being paid, retention rate, 85% and 80% of all the new construction happens in existing business parks. Our integrated business model combines the operator. So, I'll talk about how we break down our different business lines. The operator is the income-producing part of the business. Those are all the properties which we have built over the past years is good for EUR 780 million of rental income around that number. The second activity, the developer with 2 million square meters of properties under construction with a land bank of 26 million square meter. Those are the people who are busy with building property, constantly improving the quality of the property, come up with different property concepts and innovations, make the properties consume less energy, less maintenance cost. You want generic design buildings because the building will last beyond the lease term of the first tenant, et cetera, especially nowadays with so many changes going on, it's very important that you get the property right, the location right, and to make sure that you have amenity services, utilities, electricity on site in those business parks to make sure that your clients grow. And that's what happens. The last, if you break it down and say, okay, we have this operator income-producing developer construction. The last bit, maybe most exciting part is the growth engine. We have been growing beyond the markets where we are active. Remember, the IPO we did also to raise capital to get access to capital, affordable, cheap capital to grow our business beyond, and that's what we continue to do. This year, we delivered 500,000 square meters, a bit more 0.5 million square meter. Mostly pre-leased. We do 10.3% yield on cost. And who are those tenants? It's LPP for Bucharest, Hitachi for Brno, Japanese client, long-term client, but also Zoomlion in Tatabánya in Hungary. This is one of our Chinese clients. Thank you very much to the clients for the continuous support, commitment and loyalty and thanks for working with us. We've been able to complete these projects on time and in budget. Again, end of the year normally is a lot of projects come to the market. We have 2 million square meters under construction, 2 million. Not all of that will be complete by year-end, but many will and the rest will go to 2026. When all of the stuff which we build and complete this year comes to the market and is leased, and we are another EUR 165 million of rental income at 10% yield on cost, we are well underway to hit the EUR 1 billion of annual rent by 2027. That is our target, and we are on schedule to hit that target. A couple of highlights maybe on different markets. What we see good is Czech, stable. We've been here for a long time. It's our home market, good occupancy, good returns. Poland, relatively new for us, largest economy, of course, in Central Europe, quite important to be there. We've done well, more than we planned. So, quite happy with that. Germany, as well, we see more demand over the past couple of months also turn into deals. We signed the lease contracts, which is good and also makes us positive for the future. Some of you had the opportunity to visit us at our Capital Markets Day in Wuppertal in September. So, you have also seen our projects in Mülheim, Aachen and of course, a couple of other places. So, it looks like over the past years, we have been able to put a team together. We have secured land and permits that we now can go ahead and build those properties and lease them, which we look forward to doing. Yes. So, we actually think it's just the beginning of CTP. I think it's more complicated probably to come from 0 to build 10 million or 15 million square meter portfolio than it is to double from 15 million to 30 million square meter. Let's see, we have systems in place. We have a fantastic team of people, great relationships with clients, but also with the local authority. So actually, we look forward to hit that 30 million square meter one day. We target for 2030. Let's see how far we get. So far, it looks good. Maybe a couple of things about the new markets. I wanted to talk about Italy, which is another European market, Northern Italy, where we have many clients coming from that part of Italy. We now have an opportunity to get started with some projects, which we look forward to doing, and we hope some of them will already be complete next year in 2026. So that will happen. We think it's a next logical step in the region. We obviously already active in Germany and Austria and yes, in Italy, Northern Italy, we see some good opportunities to introduce our full-service business park concept. We'll start with some smaller projects maybe, but there's also an opportunity to accelerate and to come up with a different entry strategy similar to what we have done in other countries, Germany and Poland over the past years. And then Asia, we definitely like to have a closer look at the opportunities in Asia as we think our company and our clients don't stop in Europe. They go beyond. They are often global players, and they have asked us whether we would be willing to support them in Asia and Vietnam to be exact, and we have been spending the past 12 months looking at opportunities. And we became more positive and enthusiastic about the idea of doing a project in Vietnam. So, we expect more to come from that. Don't expect huge things. We will start with one project and maybe do a second. We learn by doing with existing clients, with pre-leases, but definitely it's an opportunity, it's 100 million population, early 30s average age, so young, very productive with huge FDIs, not only from the consumer electronics industry, but also LEGO and Volkswagen Skoda have just opened up a plant or building a plant. So, many opportunities we see there, which we want to have a close look at. Happy to answer any questions. I think, I'll hand over to Maarten for now with some more details on the financials, and then I'm here later. Thank you very much for your attention. Maarten Otte: Moving on to the financial highlights. The like-for-like rental growth came to 4.5% in Q3 '25, while occupancy remained stable at 93%. The net rental income increased 15.4% to EUR 549 million as we continue to reduce our service charge leakage. The NRI to GRI ratio, therefore, improved to 97.7%, while we also continue to improve our EBITDA margin. Annualized rental income increased to EUR 778 million, illustrating the strong cash flow generation of our portfolio. The company-specific adjusted EPRA earnings increased by 13.1% year-on-year to EUR 305.2 million. While the group's EPS amounted to EUR 0.64, an increase of 7.2%. Thanks to the deliveries and net development income being backloaded to the fourth quarter, the group is on track to reach it's guidance for the year. Now looking at the valuation results. For the Q1 and Q3 results, only the investment properties under development are revalued. Valuation results in the first 9 months of the year came to EUR 802 million. Of this, EUR 385 million was driven by the construction and leasing progress on our developments, but EUR 373 million came from the revaluation of outstanding portfolio and EUR 43 million from our land bank. The total gross assets value now stands at EUR 17.7 billion, up 10.6% from full year '24 and 16% year-on-year. CTP's reversionary yield stands at a conservative 7% and we expect further yield compression and positive ERV growth in line with inflation or slightly ahead of inflation for the rest of '25. This is also illustrated by the new leases signed in the first 9 months of '25, where rents are 6% higher than the new leases signed in the first 9 months of '24, which is supported by the undersupplied nature of the CE markets and industrial and logistics space per capita is only half compared to the U.K. or other Western European markets. The transaction markets continue to recover across Europe as there's more clarity around funding costs. We expect an increase of transactions into next year, especially on the private equity side, where funds are coming to maturity. We expect to see more turnover. This will offer opportunities for us. We also remain active in the market for land acquisitions, plenishing the land bank in our existing markets, growing the land bank in countries that we entered recently like Poland, which we plan to enter like Italy and Vietnam, while maintaining our disciplined capital allocation. Our EPRA net tangible asset per share increased from EUR 18.08 at year-end '24 to EUR 19.98 at the third quarter, representing an increase of 10.5% since the beginning of the year. Year-on-year, the increase was 14%. With this NTA growth and our dividend, we delivered a total accounting return to our shareholders of 70% in the last 12 months, highlighting our superior return profile, which is unique to the real estate sector. And now I hand over to Richard. Richard Wilkinson: Our funding strategy remains centered on maintaining a stable investment-grade rating. And we are very happy that our improving credit metrics were recognized by Standard & Poor's with their upgrade in September. We focus on ensuring access to multiple sources of liquidity, meaning attractive funding is available at all times. We have a geographically diversified investor base, now further strengthened by Asian investors added in 2025 and a growing share of unsecured debt towards our target of 80%. Thanks to our highly accretive developments and proactive debt management, our interest coverage ratio increased to 2.5x. Our normalized net debt-to-EBITDA remained stable at 9.2x, and our loan-to-value stood at 45.2%. We expect loan-to-value to return to our 40% to 45% target as our development pipeline is completed and revaluation gains are fully booked. As presented during our Capital Markets Day, with our market-leading development yield on cost of over 10%, every euro we invest in our pipeline increases our ICR and decreases our net debt-to-EBITDA, allowing us to grow at our 10% to 15% annually while improving our overall cash flow credit metrics. This was also highlighted by Standard & Poor's on their upgrade of our credit rating to BBB flat with a stable outlook in September. Moody's have a positive outlook on our credit rating, confirming the positive trajectory of our ratings. In the first 9 months of 2025, we signed EUR 1.7 billion of unsecured debt to fund our organic growth. This included EUR 1 billion in dual-tranche bonds issued in March, an inaugural JPY 30 billion Samurai loan equivalent of EUR 185 million and a EUR 500 million syndicated term loan facility signed in June, which had commitments of over EUR 1.2 billion. Together with the 6.5-year, EUR 600 million bond we issued in October, this continues to demonstrate our ongoing strong market access. We continue to actively manage our funding costs. And over the past 12 months, we have renegotiated or repaid EUR 1.6 billion of our most expensive bank loans, including the prepayment in June of EUR 441 million of expensive unsecured debt. CTP maintains a conservative debt profile. The EUR 272 million of bonds maturing in June and the EUR 185 million maturing in October were both repaid from available cash. Looking ahead, maturities remain limited over the next 3 years with a EUR 350 million bond due in January '26 and a EUR 275 million bond in September '26. Our cash position stands at EUR 1.1 billion, including our EUR 1.3 billion RCF, our liquidity totals EUR 2.4 billion, more than sufficient to meet our cash needs for the next 12 months. The average debt maturity stands at 4.8 years and the average cost of debt at 3.2%. This represents only a minimal increase compared to year-end 2025 as our current marginal cost of funding remains below 3.5% for 5-year money. We remain confident in the outlook for CTP. We have a strong tenant lead list. In addition to what we have already pre-let within our development pipeline, we have 151,000 square meters pre-let for future projects for which construction has not yet started. We continue to see rental growth across all of our markets, supported by the nearshoring trend and ongoing e-commerce growth, particularly in the CEE region. Our tenant-led development pipeline remains highly profitable. With our industry-leading yield on cost of over 10%, we are able to deliver sustainable and profitable organic growth, while maintaining a robust financial position. We confirm our EPS guidance of EUR 0.86 to EUR 0.88 for 2025, which due to an intended acquisition in Romania not proceeding, is now expected to come in towards the lower end of that range. Thank you for your attention. We now welcome your questions. Operator: [Operator Instructions] Our first question comes from Marios Pastou from Bernstein. Marios Pastou: I have two questions from my side. So, I see leasing is up over the first 9 months. It's marginally down in Q3. I think you mentioned that you want to have a good final quarter, but I also see that last year, that final quarter was also very strong. So, do you expect to be up in terms of leasing volumes for the year as a whole? And then secondly, can you just remind us why the intended acquisition in Romania didn't proceed as planned? Maarten Otte: I will take the last question on the Romanian acquisition first, and then I'll let Remon comment further on leasing. So, it comes back to antimonopoly reasons where there were two restrictive conditions for us. So, we decided not to go ahead with it. We see enough opportunities in terms of acquisitions across Europe. We continue to buy land. So, we always do also relative capital allocation where it doesn't make most sense for us. In the end, with the restrictions here, it didn't make sense. So, we decide to prefer to invest in other opportunities. Operator: Our next question comes from John... Remon Vos: We didn't answer the second part of the question with regards to leasing. If you like... Operator: Apologies. Continue. Remon Vos: No, I can give some color on that. Anyway, with reference to what Maarten just said, well, even if we wanted to buy, we can't buy, because that is very complicated with the competition and antimonopoly whatever, which actually is not bad because there is other places where we can invest money. That's why I think, we waste a lot of time on that P3 acquisition, which didn't happen. But as I said, at the end, maybe it's even better without. With regards to the leasing, yes, as stated, we continue to see demand and that will turn into deals over the rest of the year. And yes, which is good. So that is often the case that fourth quarter is more takeup than first or second. I don't know exactly why that is, but it has been historically like that, and we think that trend will continue for '25. Yes. So, we did sign some leases just now in Poland, which is good. And in Romania as well, in Germany. So yes, overall, relatively positive, I would say, I think, and we are on schedule to hit the occupancy target for end of '25. Operator: Our next question comes from John Vuong from Kempen. John Vuong: On Vietnam, you said that you -- well, that we shouldn't expect huge things with only one or two developments. So just trying to understand here, over what time line do you expect to start these developments? And if you're really excited about the opportunities in the country, why only start with one or two and not with like a park strategy like you are in Europe? Remon Vos: Good question. Well, it's definitely going to be a park concept. So, we think of using or doing the identical thing or similar thing to what we do in Europe. So, park concept and business park, full-service business park with different property types. But -- so that is definitely the case. But you need to also get ready in terms of setting up a team. And so, we are now in the middle of recruiting people for our Vietnam office or Vietnam team. And that will take a bit of time. So, that's why I think, honestly, the recruitment process has started. We have met people. People came over to visit us in Europe in order to make themselves familiar with what we do, how we do it to get to know other people in the organization. So, it's also part of the recruitment process. And yes, it takes time until these people will actually join, which some of them will join in Q1, beginning of next year, Q1 of '26. And simultaneously, we have agreed an option on four land sites, and that would give us the opportunity to develop around 300,000 square meter. It will be very nice. And I think some of that we can start next year in '26, but those buildings will come to the market in 2027. And so, that is what I think now. So, that means 300,000 square meter, EUR 150 million. I think construction cost will be a bit lower in Vietnam, what you see at the moment it's going to EUR 500, it's more going to be like towards EUR 400 per square meter. And we think of, of course, doing that at 10% plus yield on cost, so above 10% yield on cost. But that is the base plan. And maybe we see opportunities to accelerate and to grow more through some acquisitions as we have done before when we entered a new market, that we do our organic growth, buy land and develop or maybe here and then buy something which would help us get a bit more volume. But yes, so that is how we see it now. So, we will need time to get familiar with the market, to put up a team, to get started. And we want to do that carefully. And -- but once we get going, so from '27 onwards, maybe there's an opportunity to do 200,000, 300,000 square meters per year, maybe. The market is big enough by 100 million people, there is hardly any stock. There are, of course, a couple of players, that's GLP or SLP, they have been -- they are Frasers, Mapletree. It's not -- so there is, of course, a significant amount of developers. But if you look at the stock compared to the amount of inhabitants, 100 million people. And if you look at all the opportunity, then the market is very -- yes, it's at the beginning. And as I explained, demand coming from our clients, we think it's a good opportunity to proceed with. But that's how I can -- I will continue, of course, to update you on how far, how quick we can get. But that's for now how I see it or how we see it. John Vuong: Okay. And just on the 10% yield on cost, is that net of land leases, given that you cannot own land in Vietnam? Remon Vos: Correct, it's 50-year leasehold or concession. So, what if we calculate as very primitive and as very simple. So, we add the concession cost for 50 years. Then on top, we add cost for everything related out of pocket to develop the property, so infrastructure, construction costs and all of that. So yes, that is included. And we think yield on cost in Vietnam is more towards what we do in Serbia. So, well above the 10% yield on cost. John Vuong: Okay. Great. So right. Remon Vos: It's included. Richard Wilkinson: But John, so in Serbia -- in Vietnam, like Remon says you're looking at kind of like Serbian type of relationship where you're developing at trying to get to 12% and revaluing 8.5%. Operator: Our next question comes from Suraj Goyal from Green Street. Suraj Goyal: Just a quick one. It's on leases again. So the new leases signed at rent levels 6% higher than last year. But it seems lower in Serbia, Hungary, Romania and Bulgaria. I appreciate there may be some nuances here, but would you be able to just share some color as to why this may be the case. Maarten Otte: That's always what we say. Some years will be up, some years will be down. It depends a lot on which leases you are signing, especially for the smaller markets, it depends a lot on which projects are coming online and when they are exactly coming online, in which quarter you are signing the leases. To be honest, you always see volatility. Last year, for example, we did less leases in Czech. This year, Czech in terms of absolute amount of leases is doing very well. Same with what we had in Hungary. Hungary, we did last year, a bit more leases, this year, a bit less. That's the normal business cycle. You can lease the space only once. You try to lease at the highest rental levels possible to what we think our clients which add value for us long term in our park model. So, it really depends on what is the opportunity building set you have for leasing. So, there is no -- if you look across the markets, there is no structural trends in either one of them that is really for us a point of concern. Some markets are better than worse. That's year-on-year. Overall, what you see is, we do more leases, we do them at higher rents, and that comes really back to the demand drivers, which are long term, and they won't change from one day or another. The demand drivers that were in place last year are still in place, and it comes back to the nearshoring, that comes back to the growth in domestic consumption, et cetera. But it depends a lot on which quarter you sign with specific deal. That's always been the case also if you look back historically. So overall, that's what Remon also said, we are confident in our occupancy targets to hit by year-end. And the leasing is progressing well towards that. Also, that's why we confirmed basically the guidance for our deliveries between 1.3 million and 1.6 million square meters for the year. So, we are very well on track. And with the amount of hope that we are doing and the conversations that the team on the ground has, we have confidence in getting there. And some markets will contribute a bit more than others, but that's normal. Operator: Our next question comes from Steven Boumans from ABN AMRO, ODDO. Steven Boumans: I have two. So the first one, a follow-up on the expected leasing numbers. Do you think that the average rent per square meter will rise above the EUR 6 per square meter per month for Q4? And what about '26? Maybe that's the first one. I do another. Remon Vos: It would be good if they are above EUR 6. In some markets, they will be. I don't know, maybe Maarten has the average number. Where do we see rental growth? We see a lot of rental growth in the German Deutsche Industry portfolio. Remember the old buildings we bought or older buildings we bought. Of course. Why is that? Because we bought relatively cheaper. When we bought, the rents were quite low, EUR 3.5, so let's say, EUR 42 per year. And that we see that going up to, yes, EUR 70, EUR 60, EUR 70. That's true. We have to also invest in those big properties. But just yesterday, we did a deal at that kind of number. So it's around EUR 6 per square meter for the Deutsche Industry. I think we see rental growth throughout -- also Romania because the other question was that, we do less in Romania. I don't think so. We have seen a lot of rental growth in Czech. So yes, Czech, I would think it's EUR 6. Maybe, Maarten, you can add some on that, whether it's EUR 72 or EUR 70 per year on average, maybe throughout the portfolio. I mean, big box logistics in Bucharest, you will not get to EUR 6 for sure, but something smaller in Czech, you will definitely get to EUR 6. Poland, you will not get. Although the -- by the way, the small stuff we do in Warsaw, so we have SBU, small business units. Obviously, that is higher than EUR 6, but those are small units of 1,000, 2,000 square meter units. So, lower than 5,000 square meter units. The square meter price will be significantly higher than a large 10,000, 20,000, 30,000 square meter warehouse building. So, I think there is also the difference in the rent per square meter per month. But that is going quite well, the smaller units, which also, yes, we like because there is good demand for it as part of the -- what's going on in the region of Central Europe, and of course, you have small and medium-sized companies, that segment is growing. But there's also big multinationals taking smaller units here and there. Yes, so then they pay more rent. Maarten, do you have some more details on the average? Maarten Otte: Yes. You can see that also in the presentation. If you look on -- Steven, if you look on Slide 10, you see exactly the rents that we are making per country. Whether we in the Q4 will be above EUR 6, like Remon said, it depends a lot on which market we are signing. If we are signing more in Czech, yes, we will be above EUR 6. If we sign more in other markets, it will be a bit harder. But that's normal. So what we are looking is what is the real underlying rental growth country-by-country. And that's ultimately -- that comes back to the 6% that we are showing. And smaller countries, as I said before, it depends sometimes a bit on location, because whether you're leasing the capital city, whether you lease indeed, like Remon said, smaller units or bigger units. So in Poland, we have, for example, seen the increase there. So, the leases which we did this year were on average at EUR 5.50. But that includes some smaller stuff, includes, in some cases, some extras that we do for tenants. But on average, Poland, we see some rental growth coming through. Romania as well, if you look an underlying, while if you look maybe to the absolute figures, they look flat, but that because there is a big unit again in this year's numbers. So big units typically pull it slightly down. But if you look -- and I know it's harder for you than for us, because we look at it on a unit-by-unit basis when we are doing the deal, when the leasing team sits down to speak to the tenant, we look, okay, what is the ERV of the unit. We continue to track towards that. And then, when we -- we look on that detailed level, we continue to see the rents creeping up in countries like Romania, in countries like Poland, in countries like Serbia, et cetera. Steven Boumans: Okay. To ask a bit differently. So -- and to fully understand. So, like-for-like growth per country is, let's say, inflation like, maybe a bit more, but let's say, inflation. And then the mix you don't want to commit that, that will change materially as of today. So, the mix should be broadly similar. It could be a bit better or a bit worse. Is that correct? Maarten Otte: Yes. That's correct. Look, what we see is -- what we said is we expect market rental growth indeed to grow in line with inflation. The mix depends indeed where we sign leases. That's hard for us to commit. If you look on a year or 2-year basis, yes, we can give a rough split, but not on a quarter-by-quarter. That doesn't make sense. That's not also how we run our operations. So, that's harder to determine. But the underlying rental growth remains there, and that's also the confidence we have, and that's also -- you see reflected in the like-for-like rental growth coming through in the P&L. So, it's not only the market rent. It's also if you look to the like-for-like when we are really capturing the reversion of leases coming up for expiry. Richard Wilkinson: Yes. Steven, I think that the big picture is, we see increasing demand, and we see that increasing demand at higher rent levels pretty much across the markets in which we operate. If you look at the more granular data, you will find something that looks a little bit worse. But the overall trend is the one that we would try and highlight, which is continuing strong growing demand and that at higher rent levels. Operator: Our next question comes from Vivien Maquet from B Degroof Petercam. Vivien Maquet: I hope you can hear me. I have two. Maybe on the first one, it's a follow-up on Vietnam. Just wanted to understand a bit what will be your target in terms of tenants? I would assume that you will mostly look for existing tenants that you already have in CEE for the first project. And secondly, what level of pre-let will you feel comfortable before launching such a project? Remon Vos: Thank you. Yes, we hear you loud and clear. Good questions. Indeed, so what we want to do in Vietnam is very similar to what we do in Europe, full service business parks, whereby we offer a variety of different property types. In Vietnam, they use the word ready-built factory and they use a ready-built warehouse, and they refer to build-to-lease. And we call it a little different. We say CT box, CT Flex, CT Space, but it's similar. So let's see -- let's test the market. We want to go out with a pilot. Yes, around 50% pre-lease. I think that is the kind of thing. But as I explained, the four of the locations which we have secured, you could do 300,000 square meters of total lettable, say, assume that you can start construction mid of next year, second half next year. You may start initially with 100,000, 50,000, let's see, in one location. And locations, I referred to maybe also a bit more to explain. And we are -- we do a paper. I think we have a paper, Vietnam paper, which we can share with you. It's going to be online. So, also to get a bit more background on what is the economy like, FDI, what is the market like and why do we see opportunities and where do we see opportunities. But to explain a little bit, we could talk about one location close to Hanoi in the north of Vietnam, which historically, it's a concentration. There's a lot of people living there. As I mentioned, total 100 million people in Vietnam. So in that part, in the northern part, a couple of dozen million people, so it's quite large. But more importantly, there is many of our clients with different activities. So, if you refer to the Vietnamese semiconductor industry, companies like Wistron or Foxconn, who are our clients, they have facilities in that part of Vietnam already. Historically, because they have a China Plus One policy, many of those, which means that not all of the manufacturing facilities are in Vietnam or in China, some in China for Chinese market, some outside of China for South Asian market. And that is -- those are Taiwanese clients who we have been working with for more than 20 years, especially in the Czech Republic. Anyway, those are there, and they have suppliers and subcontractors and all of that ecosystem. And that's one of the target groups, which we would, which we talk to and say, okay, yes, we will build properties in and around Wistron, Foxconn facilities in the region of Hanoi. But in Hanoi, obviously, you can imagine there's also consumer spending. So there's also FMCG, there is a need for warehouses. There is e-commerce. There is all kind of that. So, our clients who are involved in 3PL logistics -- involved in 3PL logistics or supply -- so that's the kind of ecosystem of the clients we have, which we will plan to work for in Vietnam. So yes, indeed, mostly existing clients, but could, of course, also be new clients. But there's many of our existing clients who have facilities in Vietnam or who are considering opening up facilities in Vietnam. Vivien Maquet: Thanks very clear and looking forward for the Vietnamese paper. Then second question is on, I think that you commented that you expect very strong ERV growth for H2. As I remember, we don't value the standing assets in Q3. So just to understand in which country you expect the biggest ERV growth? And how is it based to your recently signed lease? I think that we comment a bit on the rent level left and right, but just wanted to get from a valuation perspective, when do you see the biggest discrepancy between what you -- at what level you are leasing and what the valuers is assuming as ERVs? Maarten Otte: Yes, sure. So, what we said is that, we expect to grow it in line with inflation or slightly ahead of inflation, the ERVs. And that comes back to where we are signing the rents as we are continuing. As I said earlier, to sign the rents 6% higher. We also have indexation coming in. So, we see market rents growing in line with inflation or slightly ahead. If you look on a country level, there will be less ERV growth in Czech. In Czech, the opportunity for us, we have commented on that before, is more to capture the reversion because in Czech, we have one of the largest reversionary embedded potential as the market rent there already has grown quite a bit. And of course, with our leases, when they are 10 years or 15 years, it can take some time a while before you can capture that. So, you need to go through the world. And we expect more ERV growth in countries like Romania, for example. So, the more upcoming markets. We'll also see some ERV growth in Poland. In Poland, there will be really a divergence between the new and the old. There has been different build quality. As you know, we are a long-term owner. We commit to locations. We build buildings that will last because we have the commitment to own them long term, both vis-a-vis our tenants, but also vis-a-vis our municipalities. While in the past, the Polish market was more dominated by trader developers. So, what you see there is more a divergence where you might have given more incentives on really older product or lower quality product. While if you look to new product that is coming to the Polish market, you can lease at good rates, and that's what you also see reflected in the rental growth that we are doing. So, there will also be some ERV growth. But in general, also across some other markets like Serbia, we expect some ERV growth to come, Bulgaria. Hungary, I don't think so. Hungary is a bit more vacancy at the moment, especially around Budapest, but there is also a split between the region and Budapest and the other areas of Hungary see a bit stronger rental growth than Budapest at the moment. So, there's always those local factors. But on average, we expect to grow in line with inflation or slightly ahead of inflation. Vivien Maquet: And if I may squeeze a very quick third question. You could deliver up to 1 million square meter in Q4. Just wanted to understand how much of new projects you expect to launch in Q4? Keeping, I would say, the 2 million square meter of development pipeline, I would say, unchanged? Or could it be split a bit more into the beginning of 2026? Maarten Otte: It will be relatively unchanged. I don't expect our pipeline to materially change. It comes also back to next year because for next year, as you know, we guide to 1.4 to 1.7 million. So we also need to start those projects. Simple projects will take us 9 to 12 months. If you have a simple logistics building. In some cases, you can even do it a bit quicker. But there are more complicated projects if you do some extras for tenants, et cetera. So, we will always run a pipeline, which is slightly ahead of next year's deliveries, taking into account the time to complete. Operator: Our next question comes from Frederic Renard from KC. Frederic Renard: Just two questions on my side. The first one is on the reversion, which has come down 120 bps Q-on-Q since Q2. Can you comment maybe on that? And then second question is on occupancy rate. You are still at 93% versus the target of 95%. I see that client retention is at 82%. It's a good level, but it's for me the lowest figures you had over the last 2 years. So, is there more downside risk on occupancy rate than upside risk? And then have you any specific concern on some countries? Maarten Otte: So regarding the reversion, that's partly driven by the fact that we don't reset ERVs in the third quarter. In the third quarter, as you know, we don't revalue our portfolio, only the developments. So, if you don't reset your ERVs and we are capturing reversion as leases are coming up for maturity, naturally, the reversionary potential comes down in those quarters. It's more a mathematical effect than anything else. Then your question regarding occupancy, yes, we remain stable around 93%. And that's also what we explained during the Capital Markets Day. The two main markets which are below are the two market entries, Germany and Poland. Poland, we expect end of this year to be more around 90%. And then into next year, we will keep up to the 95% target. Same with Germany. So that's part of the market entry strategy. We target to be around 95%, especially for our mature markets. In some markets, you even would want to be a bit above. And why do we target around the 95%, maybe also good to remind you, that's really to have the growth opportunity with existing clients. We want to have always some space available to grow with existing clients in our existing parks, because that gives us -- if a tenant comes to us and say, I want to expand in an existing park, that gives us much more negotiation power than when you have to build a new unit. So, that's why we always target around 95%, and that's why our pipeline deliveries, we target to be 80% to 90% to always have that space available to grow with existing clients. If you also put it in perspective, on a yearly basis, we will sign more than 2 million square meter. If you look to the occupancy, if you take it from our portfolio, if you take 5% of a portfolio of 30 million square meter, that's 700,000. We leased 3x as much in a year. So actually, yes, we have a bit of occupancy, but that gives us an enormous amount of flexibility. And given the amount of leasing that we are doing, that's not a concern for us. It's just an opportunity to have those long-standing client relation and to leverage that to drive rents higher. Then on your last question or last part of your question, which was the retention rate. Retention rate was indeed slightly lower this year, correct. No fundamental issues, but there are, of course, sometimes you can have individual tenants who decide to leave. For example, if 3PL has a client and they want to consolidate or they want to move to a different location, they might terminate. It's not a reflection of your business, but it's more a reflection of sometimes the change in supply chains. Of course, we try to keep all our tenants. Sometimes actually, also, for example, we see in Germany, it's sometimes better to replace tenants if we really want to capture that upside potential, for example, in the Deutsche Industry portfolio. So, there we are sometimes actually happy when people move out and we can replace them for a higher paying tenant. So it's always a case-by-case analysis, of course, that we are doing. The absolute figure is slightly lower, but there is no fundamental underlying driver, which would mean that the rent retention rate will be lower going forward. It depends on the leases we signed in the quarter. Remon Vos: Yes, I can confirm that. So, I can just confirm Maarten said some of the leases we had to terminate in Germany, because we -- yes, the relationship was not great, and we felt that we would be better off with a new tenant in that building, doing some refurbishment and get more rent out of the property. So that happened in Germany and is still happening while we speak, which is part of cleaning up the portfolio in Germany. And also with regards to vacancy, yes, we have been at around 93%, 95%. Sometimes also, you don't need to be in a rush to lease it immediately. Sometimes certain areas need some time for the market to absorb some space. And then I'd rather have 6 months of vacancy cost and then do a better deal as pushing down on the rents. And so, we also need to balance and understand the market. And if there's no demand, there's no need to push, then you'd rather wait until there is demand or until the market has been able to absorb the space, which was available. But I think overall, also, we see from a supply side that yes, here and there, some of our peers and colleagues stopped or slowed down or there is no land or things like that, which is good. So long term, you -- we believe that these properties, which we have built are good quality properties, and they will continue to generate and produce income, which values may go up and down, it depends on the interest rates and so on and so on. But the income from the property so far has always grown, and we continue to see that. And that is more important to build the cash flow and to make sure that we create this income in time at the correct level. So yes, you play with the supply and demand and balance around the 93%, 95%. But yes, not huge. And overall, good, we are gaining market share, which is good, which also later on give us more opportunity to grow rents. It's good. Frederic Renard: And maybe just last one on my end. Can you remind us the size of the acquisition in Romania that you didn't do? What was again... Maarten Otte: The quantum of investment was around EUR 250 million. Operator: Our next question comes from Eleanor Frew from Barclays. Eleanor Frew: A few questions go one by one. So just to confirm, was the Romania acquisition explicitly baked into your guidance? And is the acquisition not happening going to impact your GLA target for the year of 15 million square meters? And moving forward, do you have any annual acquisition assumption guidance we could use? Maarten Otte: In terms of GLA, that's mostly driven by our development. So, we confirmed our guidance on terms of development between 1.3 million and 1.6 million square meters, which means indeed, like Remon already mentioned, we will deliver nearly 1 million square meters in the fourth quarter, which will bring us probably rounded towards 15 million, whether it's exactly 15.0 million or whether it's 14.9 million or 14.8 million, we'll see. It depends more on where we end in that range of the deliveries. That's ultimately the key one. So, that's with respect to the GLA target. If you look to acquisitions, no, we don't guide for a specific amount of acquisitions, because it's really opportunity driven. If we talk land, yes, we will do each year around 200 million, 250 million, in some years, maybe 300 million of land. Because that's a lot of individual plots and that as I said, it's part of replenishing the land bank in some of the existing markets, but also growing the land bank in markets which we entered recently or plan to enter. So, that is a more stable acquisition pipeline on the land bank side. On the standing assets, it's really opportunity driven because, yes, we like to do acquisitions, but they need to make sense in capital allocation. So, that's why we don't guide for a specific target. We will be there opportunistically. We are not the ones who want to pay a full price. We want to do things which make strategically sense for us. We can do things off market. That's much more our sweet spot in terms of M&A rather than committing and then forcing ourselves to buy 600 million of standing property per year, that will not drive shareholder returns for us. We need to be focused on what makes sense, where is pricing realistic and where can we add value. Because we are not an investor in buying simple core product, there needs to be value-add opportunities. Richard Wilkinson: Yes. And I think, Eleanor, you asked if the Romanian acquisition was part of our EPS guidance for this year. Yes. And that's also why we say that as a consequence of the Romanian transaction, not happening, we now expect to be at the lower end of our guidance range. Eleanor Frew: Great. Then on the reasoning for that portfolio falling through, does that impact your growth plans otherwise in Romania, i.e., is that region now saturated for you? And is there a risk on future permits maybe? And then on top of that, are there any other markets where you have a position that could prevent you from acquiring in scale? Richard Wilkinson: No, I don't -- it won't affect our ability to continue to grow organically in and around our existing parks by land to start new parks. So, that we don't see that as an impediment to continuing to grow our business in Romania through 10% plus yield on cost developments. And we don't have any other market where we would think that we would have a problem. Operator: [Operator Instructions] Our next question comes from Wim Lewi from KBC Securities. His question is, on Italy, can you give more details on tenants targets, greenfield versus brownfield? What is your SQM GLA targets for the next couple of years? Will you consider buying a standard asset portfolio? Remon Vos: Yes, thanks for the question with regards to Italy. I don't know how you see it, Maarten, but I think it's a bit too early. We don't go -- we don't disclose too much details there. What we can say is that, we have been looking at Italy for the past years. And we -- as we communicated back in 2021, when we did our IPO, we said, okay, we would like to go to Western European markets, which we said initially, we're going to look at the Netherlands and Germany. Germany worked out well. Poland, less. Happy with the ALC property in Amsterdam, which is -- there's been some good take-up, and that's okay. But besides that, we have done very little in the Netherlands. No, it's not the place where we see opportunity. So, we put -- we slow down. But we always communicated we wanted to do more in Western Europe. And Italy has been on our wish list. We now see a good opportunity to enter. I think we are ready for it in terms of -- we have the money, we have the capacity, we have the team. But more importantly, we have also identified the opportunity. So, what we have done in the meantime, we have established a small team of people. We currently work on securing land. And yes, and it's not in any of our pipeline projects. So, it's the base plan, the 26 million or 20-something million square meter land bank. There's nothing in Italy. It doesn't include Italy, so it's on top. But I think we will keep the good news for later. That's what I think, Maarten, let me maybe add or comment on anything you want to share at this moment. Maarten Otte: Yes. So, we'll announce the transaction when it's there. We always announce it when we have -- when we close something. But in general, we are looking at broader opportunities. Where we add most of the value is through land, whether that's greenfield or brownfield, we can do both. It comes back to what is the location. That's a key thing. Whether it's greenfield or brownfield is not a massive factor in that. It's just a bit different in terms of, do you have to take in account demolition costs, et cetera. We are looking for the right locations in Italy, which can give us a kick start. And we are looking for sizable opportunities where we can develop our park model, which is important for us. So, not only small land plots, but more sizable ones in line with our strategy. What we see in opportunities in Italy is a couple of things. There's a very strong manufacturing base. And if you look to our portfolio, we do a lot in manufacturing. Roughly 50% of our portfolio is manufacturing. So, we see opportunities there as many of our peers here in Italy are more focused on logistics. So, that's an opportunity for us. We see some opportunities in more some smaller business units closer to town. Italy has quite a lively SME environment. So -- and then, you know what we have done, for example, in Brno. So, you can think of doing certain of those projects here in Italy. So that's the opportunities that we see and that is the land plots we are looking for. And as part of each market entry, we are looking at, of course, a broad set of opportunities. And hopefully, we can update you later this year more specifically. Operator: Our next question is from Alvaro Mata from Santander AM. Their question is, the 93% occupancy looks a bit lower than others. I wonder if there is a specific reason for that. Any explanation would help. Your LTV at 45.2% continues to be a bit higher than your target of 40% to 45%. When shall we expect a decline and to what level? How important is this for you? ICR at 2.5x is in the low side. Do you expect an improvement in 2026? Remon Vos: No, the LTV is not of our concern. And the vacancy is around 93%, 95%. We talked about it before. We're not going to repeat. Also historically, has been around the same number. We wait for a good moment to do good deals at higher rents. And for the rest of the questions, I refer to what has been previously discussed. Thank you. Richard Wilkinson: Yes. Regarding the ICR, I think we reported earlier that we already took most of the repricing from the higher interest rate environment that we have today compared to the environment 2019, 2020, 2021. We see our ICR bottoming out at 2.5x. That's also what the rating agencies are saying, and we've consistently highlighted that everything that we invest in developing a 10% plus yield on cost is incremental to our ICR. That's also one of the reasons that the rating agencies are comfortable with where we are. And despite that ICR of 2.4x at the time, Standard & Poor's gave us a rating upgrade. So no, we don't see any problem with those ratios, and we expect that to improve over time. Operator: Our next question is from Jesse Norcross from ING. The question is, how big is the defense spending opportunity in Europe and Germany for the logistics sector and for the CTP in particular? What kind of timeline? And on Moody's, how confident are you of getting ratings upgrade there? Or is this not a priority at this point in time? Maarten Otte: So rating upgrade is always a priority. I think -- and we are happy with the upgrades we got from S&P to BBB flat, which I think reflects our ambition. We want to be a solid BBB flat company. We think that reflects the underlying of our business with the stable cash flow that we are each year able to generate, where Remon also referred to. We target to have a rental income of EUR 1 billion by 2027, which gives us an enormous amount of stability for the group, and a very good coverage basically of our ICR and net debt-to-EBITDA. So clearly, it's a priority for us to also work on Moody's. I cannot speak about the time line. We plan to deliver on the plan like we always do. Moody's has given us a positive outlook, but it's ultimately up to them, of course, to take the action. We work as hard as possible to get there. And then, I'll let Remon comment on the defense opportunity. Remon Vos: I don't know. Operator: Our next question is from [indiscernible] from ESP. Do you maintain the target level of deliveries for FY '26 within the 1.4 to 1.7 mn SQM range? Maarten Otte: Yes, we do. We have confirmed the guidance we have given at the Capital Markets Day. No change. We are on track for this year. So, we are also -- with the leasing we are doing on track for next year. Operator: Thank you. We currently have no further questions. So, I'll hand back to the CTP management team for closing remarks. Maarten Otte: Thank you all for attending. If there are any follow-up questions, don't hesitate to reach out to us. We are also doing quite some of the conferences and roadshow in the coming days. So, we're always happy to continue the dialogue with our investors. So thank you for now.
Operator: Greetings and welcome to the ACV Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim Fox, Vice President of Investor Relations. Thank you. You may begin. Timothy Fox: Good afternoon, and thank you for joining ACV's conference call to discuss our third quarter 2025 financial results. With me on the call today are George Chamoun, Chief Executive Officer; and Bill Zerella, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements, including statements regarding future financial guidance. These forward-looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements. A discussion of the risks and uncertainties related to our business can be found in our SEC filings and in today's press release, both of which can be found on our Investor Relations website. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in today's earnings materials, which can also be found on our Investor Relations website. And with that, let me turn the call over to George. George Chamoun: Thanks, Tim. Good afternoon, everyone, and thank you for joining us today. We are pleased with our team delivering record revenue despite challenging market conditions during the quarter. Our performance was driven by solid execution in our dealer wholesale business as we continue to gain market share, expand our dealer partner network, and leverage our value-added dealer solutions. And again, this quarter, ACV Transport and Capital delivered record revenue performance. We also executed on our product road map to further differentiate ACV's marketplace experience, support our commercial wholesale strategy, and expand our TAM. As Bill will detail later, we have updated our 2025 guidance to reflect continuing crosscurrents in the broader macro environment, while still expecting to deliver strong top line growth of 19% year-over-year. Furthermore, we expect to deliver strong adjusted EBITDA growth of over 100% while continuing to invest in our long-term growth objectives. We're confident that executing on this profitable growth strategy will create significant long-term shareholder value. With that, let's turn to a recap of our results on Slide 4. Q3 revenue was $200 million and grew 16% year-over-year, against a tough comparison in Q3 2024 with 44% growth. We sold 218,000 vehicles, which was 10% year-over-year growth despite the sustained market deceleration during the quarter. Next on Slide 5, we will again focus our discussion around the 3 pillars of our strategy to maximize long-term shareholder value: growth, innovation, and scale. I will begin with growth. On Slide 7, we highlight how ACV is leveraging AI across our suite of solutions to attract new buyers and sellers, increase penetration and wallet share, and gain traction with large dealer groups. Let's begin with our marketplace. For sellers, we provide highly accurate, condition-adjusted pricing guidance, enabling them to set better informed reserve prices, increasing buyer engagement. Flexible auction durations and scheduling allow dealers to customize their marketplace experience. Given the challenging market conditions, with vehicle price depreciation above normal seasonal patterns, dealers are increasingly leaning into ACV's technology. The buying experience on ACV is tailored across buyer personas, and we optimize the bidding experience by providing AI-enabled recommendations informed by dealer preferences and current market factors. Our differentiated marketplace experience is showing up in the numbers. In Q3, we achieved new quarterly milestones with over 10,000 sellers and 14,000 buyers transacting in our marketplace. Our franchise rooftop penetration also achieved a new milestone, reaching 35% in the quarter. And our major account team delivered impressive results with rooftop penetration within the segment increasing 300 basis points year-over-year. Lastly, from a geographic perspective, we delivered solid growth in our more established regions, where ACV has built significant market share. We also delivered accelerating growth in several emerging regions, like in Southern California and the Midwest, where unit growth exceeded 20% in Q3. While we are very pleased with this performance, there are certain emerging regions where we are enhancing our field engagement model to accelerate growth. These efforts will continue in 2026, and we are confident in the medium-term growth outlook for these emerging regions. Next on Slide 8 I'll provide some highlights on our data services. Market traction for ClearCar remains strong. Dealers are leveraging ClearCar service to generate consumer appraisals and offers in their service lanes, creating a valuable sourcing channel in the current supply-constrained environment. While this is great for our dealer partners, ClearCar is also becoming an effective lever to increase wholesale wallet share and attract new dealers to our marketplace. Dealers that recently launched ClearCar increased their wholesale volume by over 30% after going live. And 50% of recent ClearCar customers also became new sellers on our marketplace. ACV MAX is gaining further traction in the industry with dealers now using AI to accurately price retail and wholesale inventory. And we're seeing the same cross-sell dynamic when bundling ACV MAX with wholesale. A recent cohort of new ACV MAX dealers increased their wholesale vehicle sales on our marketplace by an average of 40% within 1 quarter of launching MAX. We're excited to see that our strategy to offer a broader set of solutions is creating another long-term growth lever for ACV. Turning to Slide 9. Let's review our marketplace service offerings, beginning with ACV Transportation. The Transportation team had strong execution in Q3, again, setting records for both quarterly revenue and transports delivered. AI-optimized pricing continues to drive strong growth and operating efficiency. Revenue margin expanded 200 basis points year-over-year in Q3 and was in line with our medium-term target in the low 20s. And our off-platform transportation service continues to gain traction from our dealer partners, creating additional long-term growth opportunities. Lastly, I'll wrap up the growth section on Slide 10 with ACV Capital highlights. ACV Capital team delivered strong revenue performance with 70% growth in Q3, which was the fourth quarter in a row of accelerated growth. In terms of managing risk and in light of the bankruptcy of a former customer, Tricolor, we conducted a review of our loan portfolio. Based on our review and current macro factors, we're lowering our exposure to higher-risk customer segments and reducing our Q4 ACV Capital revenue forecast. Overall, we are confident that ACV Capital will remain an important value-added service for our dealers and long-term growth opportunity. Next on Slide 11 I will address the second element of our strategy to drive long-term shareholder value, innovation. Turning to Slide 12. Let's go deeper into how we're leveraging ACV AI to drive growth and deliver value to our dealer and commercial partners. Using machine learning, we've used inspection and dynamic market data to provide real-time pricing for every vehicle within ACV's pricing platform. Last quarter, we highlighted how we're leveraging our pricing platform to offer ACV Guarantee to sellers and deliver a no-reserve auction format to buyers. This offering is the fastest-growing channel in our marketplace. We were pleased to see ACV Guarantee increase from 11% units sold in Q2 to 18% in Q3. As a reminder, our Guarantee sale is a win-win-win for buyers, sellers and ACV. This offering accelerates bidder engagement, increases buyer satisfaction, and delivers 100% conversion rate while removing seller market risk. We're confident this highly differentiated offering will be another key driver of continued market share gains. On Slide 13, we highlight how we're expanding our competitive edge with AI-driven next-generation products like Project Viper and Virtual Lift 2.0. Since launching our first few pilots in Q2, we added new dealers and our own remarketing centers to the pilot program. To date, over 60,000 vehicles have been inspected by Viper and Virtual Lift, and our team is leveraging this data to fine-tune the product. We are receiving tremendous feedback from dealer and commercial partners as our imaging and AI models are maturing and identifying key inspection data. We are looking forward to the commercial launch of Project Viper and Virtual Lift 2.0 in 2026. Wrapping up on innovation, let's turn to our commercial wholesale strategy on Slide 14. Our first greenfield remarketing center in Houston successfully completed its soft launch and volumes are beginning to ramp. Our team has deployed a range of capabilities developed over the past year, including vehicle assignments from AutoIMS, commercial inspection applications, work order and repair estimates, and integration with ACV's wholesale marketplace. We believe this new digital model and end-to-end experience will transform commercial vehicle remarketing. We also look forward to launching additional greenfield locations to expand our footprint. With that, I'll hand it over to Bill to take you through our financial results and how we're driving growth at scale. William Zerella: Thanks, George, and thank you for joining us today. We are pleased with our Q3 financial performance. Along with record revenue, we continue to deliver strong adjusted EBITDA margin expansion and growth, demonstrating the strength of our business model. On Slide 16, let's begin with a recap of our third quarter results. Revenue of $200 million grew 16% year-over-year and was at the midpoint of our guidance range, despite market headwinds in the last 2 months of the quarter. Adjusted EBITDA of $19 million was at the midpoint of guidance, with margins improving 280 basis points year-over-year. Note that adjusted EBITDA benefited from a $7.6 million class action lawsuit settlement against a data services vendor. However, this benefit was almost entirely offset by approximately $7 million in ACV Capital reserves. As George discussed earlier, during our quarterly review of capital loss reserves, we factored in current macro conditions and exposure to higher-risk customer segments, which yielded a higher level of reserves booked in Q3. Adjusted EBITDA also excludes $18.7 million of operating expenses related to the Tricolor bankruptcy. Finally, non-GAAP net income of $11 million was also at the midpoint of guidance. Non-GAAP net income includes the net impact from the legal settlement and ACV Capital reserves and excludes the $18.7 million bankruptcy-related reserves. Next on Slide 17, let's review additional revenue details. Auction and assurance revenue was 56% of total revenue and grew 10% year-over-year against a very tough comparison of 52% growth in Q3 '24. This performance reflects 10% unit growth and Auction & Assurance ARPU of $508, which grew modestly year-over-year but declined 3% quarter-over-quarter. The sequential decline resulted from targeted volume pricing and ACV Guarantee promotions we implemented to support our seller acquisition strategies. We were pleased to see the promotional activity deliver early returns, with unit growth accelerating in September to 13%, reflecting 16% market share gains. Note that we're expecting Auction & Assurance ARPU to increase sequentially in Q4. Marketplace Services revenue was 40% of total revenue and grew 28% year-over-year, reflecting record revenue for ACV Transport and ACV Capital. Lastly, our SaaS & Data Services products comprised 4% of total revenue and grew 2% year-over-year. Next I'll review Q3 costs on Slide 18. Non-GAAP cost of revenue as a percentage of revenue decreased approximately 100 basis points year-over-year. Note that cost of revenue benefited from a $7.6 million credit related to the class action lawsuit settlement. Excluding the credit, cost of revenue as a percentage of revenue would have increased approximately 300 basis points. The increased cost of revenue was primarily driven by increased arbitration costs within a specific cohort of customers. Given the pressure dealers are facing in the current market environment, we expect arbitration costs to remain elevated in Q4, but are taking steps to mitigate the impact and expect trends to normalize in 2026. Non-GAAP operating expense, excluding cost of revenue as a percentage of revenue, decreased approximately 100 basis points year-over-year. Note that Q3 non-GAAP operating expenses included the increase in ACV Capital reserves resulting from our loan portfolio review. Moving to Slide 19, I'll frame our investment strategy as we drive profitable growth. In 2025, we expect OpEx growth of approximately 12% to support our remarketing center strategy and commercial platform investments. Even with these growth investments, adjusted EBITDA margin is expected to increase by approximately 400 basis points year-over-year. Next, I will highlight our strong capital structure on Slide 20. We ended Q3 with $316 million in cash and cash equivalents and marketable securities and $220 million of debt. Note that our cash balance includes $200 million of marketplace float. In the figure on the right, we highlight our strong year-to-date operating cash flow, which reflects adjusted EBITDA growth and margin expansion. Now turning to guidance on Slide 21. Following 2 months of year-over-year declines in the dealer wholesale market in August and September, market conditions continued to weaken in October. Dealer wholesale price depreciation has been tracking above normal seasonal patterns, which has pressured industry conversion rates. As such, we're expecting the dealer wholesale market to decline in the mid-single digits in Q4, which is more than previously anticipated. Our updated guidance factors in this more challenging market environment and a $2 million reduction in projected ACV Capital revenue, reflecting a more cautious approach in Q4 as we prepare to further scale in 2026. We are now expecting fourth quarter revenue in the range of $180 million to $184 million, growth of 13% to 15%. Fourth quarter adjusted EBITDA is now expected to be in the range of $5 million to $7 million, reflecting the impact of the market conditions on dealer wholesale volumes plus higher expected arbitration costs discussed earlier. Based on the revised Q4 outlook, 2025 revenue is now expected to be $756 million to $760 million, growth of 19% year-over-year. Adjusted EBITDA is now expected to be $56 million to $58 million, growth of approximately 100% year-over-year. We are expecting non-GAAP OpEx, excluding cost of revenue, to grow approximately 12% year-over-year, resulting in a 24% incremental adjusted EBITDA margin at the midpoint of guidance. Before handing it back to George, I would like to share some initial planning assumptions for 2026. First, based on an uncertain backdrop for automotive retail and elevated trade retention rates, we believe it's prudent to assume that the dealer wholesale market is flat in 2026. Second, as George discussed earlier, we are enhancing our field engagement model in certain emerging regions and rolling out a host of new innovations next year, which will be key factors in reaccelerating market share gains over time. And third, we expect to balance margin expansion while investing for growth. And with that, let me turn it back to George. George Chamoun: Thanks, Bill. Before we take your questions, I will summarize. We are pleased with our record revenue performance in Q3 and accelerated market share gains, all while navigating through challenging market conditions. We are quickly overcoming these market challenges by continuing to enhance our technology and operating models, ultimately making us even more resilient. We continue to attract new dealer and commercial partners to our marketplace and expand our addressable market, which positions ACV for attractive growth as market conditions improve. We are delivering on an exciting product road map powered by ACV AI to further differentiate ACV and drive operating efficiencies. We are focused on achieving strong adjusted EBITDA growth and delivering on our midterm targets that we believe will drive significant shareholder value. We are committed to achieving these results while building a world-class team to deliver on our goals. With that, I'll turn the call over to the operator to begin the Q&A. Operator: [Operator Instructions] Our first question comes from the line of Chris Pierce with Needham & Company. Christopher Pierce: Is it fair to ask, do you guys think it's possible the wholesale market -- the dealer wholesale market has changed structurally and dealers are just going to hold on to trade-ins at a much higher rate? Or I just want to think about because it's been a choppy couple of years. Just how you guys think about this going forward? And then I just had one on competitive landscape as well. George Chamoun: Chris, I don't think we should assume that there's a long-term structural change. I think the dealer wholesale market is still -- should recover. I think when you look at all the factors, off-lease really hasn't come back in a significant way, where we haven't seen interest rates come down, you haven't seen all the macro factors play in. So I think at the end of the day, it'd be way too early to say with all the macro events that the dealer market has structurally changed. Christopher Pierce: So we've got this choppiness right now. And against this backdrop, and maybe a [ truer ] #2 competitor emerging, have competitive dynamics changed on the ground when you go to market to talk to dealers? Are dealers thinking they need to have a second source more? I'm just curious if you're hearing anything different from dealers that you were hearing maybe 18 months ago. George Chamoun: Chris, we'll be very specific. Quarter-over-quarter, we grew by 8,000 units. If you look at 8,000 units quarter-over-quarter, I believe that was significantly more than any other competitor that had U.S. growth. So that will be, I think, fact number one. So that shows pretty significant quarter-over-quarter growth. In addition, when you look at it, we went from -- our share gains became double digits again in Q3 for the whole quarter. And then last but not least, in September, according to AuctionNet, with the market being down 3%, we would, therefore, have had 16%, therefore, mid-teens growth. So the way I look at it is, yes, the market is softer, and with the market ending 3% down -- dealer wholesale market being down, obviously made the quarter challenging and the start of this quarter more challenging. But when you look at the fact that we've always had competitors from day 1, and we grew 8,000 units quarter-over-quarter and had end of the month -- end of the quarter right around those mid-teens objectives for that month, Chris, I would say we've always had competitors, we still have competitors, and we believe we have the best solution. Operator: Our next question comes from the line of Rajat Gupta with J.P. Morgan. Rajat Gupta: Just have a couple. Could you unpack a little bit on the third quarter auction ARPU moderation from second quarter? I appreciate your market share comments. I'm curious that if there were any price actions that were being taken to maintain that? Is that a change in strategy? I know you talked about putting more boots on the ground. So curious if you could talk about that a little bit. And I have a quick follow-up. George Chamoun: Yes, I'll start and then Bill can chime in, Rajat. We, I think, mentioned in the call that we have targeted regional pricing campaigns where we are being a bit more aggressive. Think about that more on the supply side. So where we're still new and we're still emerging, we are attacking the market and it is helping us win share. I think. Bill, also mentioned in the call that we expect Q4 for ARPU. How did you... William Zerella: Yes. So what I mentioned on the call was that we expect Q4 ARPU to actually go back up. So it went down 3% in Q3, but that's more just a result of some of the activities in that quarter. George Chamoun: So at the end of the day, Rajat, we're going to go out and win share. We are using pricing, especially where ACV has low volume in certain regions, we are being a bit more aggressive. So I think that that's definitely one part of your question. And the other part is I'm still very confident in our midterm model we've given you guys for pricing. So look at those as -- when you look at our midterm model and where we've been hovering, and I think I feel very confident in ARPU for Q4, but we will use pricing in certain regions to gain more share. Rajat Gupta: And you briefly touched upon the 2026 wholesale market outlook. I'm curious if there's any more color you want to maybe provide some soft guidance. Should investors still expect the same kind of share trajectory? Or should we expect some acceleration given you're putting more boots on the ground? Maybe if you could give us some sense of market share expectations going forward? And also what incremental margins is reasonable to assume at this point as you attack more share? George Chamoun: Yes. So again, I'll start and Bill will chime in. As you mentioned, I think assuming flat helps us all, so that -- basically just to be very open, we don't have analysts assuming right now dealer wholesale goes up next year. I just think we'd rather just put it out there. Let's not assume that. There's too many macro factors going on. I think better for all of us just assume flat. None of us really know. But if we just assume that, I think that would be prudent for all of us as we start to think about next year. Two, I would look at share gains and how we've operated. In most of our months and quarters, we've been hovering right around the double digits. You've seen us range -- granted last quarter, we were high single digits. This past quarter, we were double digits. We ended the quarter in that mid-teens. So when you look at that range of our execution, just to be fair, I would say our range has been on execution has been -- in that lower double-digit range has probably been our true execution. Our objective is to get back to mid-teens, but I would say we need to go out there and prove that. And that would be a way to maybe restate what Bill said. Maybe just -- I think I basically said the same thing he said a few minutes ago. But it's a way to think about we need to more consistently hit that mid-teens, which we haven't yet proved we can do each and every month. But having said all that, I'm really proud that if you look at the quarter-over-quarter, we grew more than anyone else last quarter. So I would separate those 2 things of how we grew last quarter was better than anyone else in the market. Rajat Gupta: And in terms of just the incremental -- sorry, go ahead. William Zerella: No, I was going to say just -- Rajat, one other thing I would just add, again, Q3 of this year was our biggest quarter of the year. And if you remember, historically, at least prior to last year, typically, our growth in unit volume would follow seasonal patterns. The first half would be relatively strong and then Q3 would be a bit weaker and then Q4 would be the weakest quarter. So last year, for the first time since we went public, our Q3 volume and revenue was actually the highest it was the entire year. And the same thing occurred this year. So the growth rate might have been a bit different since we came off of a very, very strong quarter last year. But again, we had record revenue in Q3 and record volume for the full year, bigger than Q1 or Q2. So I guess that's the other context to just give you in terms of our Q3 performance. Rajat Gupta: I just wanted to follow up on leverage. Given some pricing actions or the low double-digit share, should we assume lower than 30% for now as reasonable before you get back to the 40s on incremental margins? Just curious if that has been a bit of a change in the operations as well. William Zerella: Yes. I don't think we're ready to comment on that at this point, Rajat. we're in the middle of obviously putting our planning together for next year. You can assume some marginal improvement. But beyond that, there's nothing else for me to comment on at this point until we have our plans finalized. Operator: Our next question comes from the line of Bob Lubick with CJS Securities. Bob Labick: I wanted to ask a question about ARPU is where I'm going to get to. Hopefully, I can make this make sense. Recent J.D. Power's analysis showed the spread between retail prices and wholesale prices has widened from $9,000 to $15,000 over the last 5 years. And this seems to confirm earlier points you guys were saying that dealers are keeping more cars and better cars and retailing those versus wholesaling them. That's part of the problem now because there's no off-lease to have, et cetera, et cetera. So the question is, what does this mean for your ARPU going forward if retailers -- I'm sorry, if dealers are going to keep the highest value cars and wholesale lower ones, how should we think about this trend? And when does it start to reverse itself? George Chamoun: Yes. Bob, I think it's a great question. Difficult one to answer because you're predicting obviously, macro with everything else. I think the simple thing to do is just to look at a revenue range, an ARPU range that you're hearing us be comfortable with a certain ARPU range. And you saw our execution in Q2, Q3 a bit later. We're trying to give you guys a little bit of an indication on Q4. But I think for right now, just to keep everyone's expectations in line, I would just not have ARPU going up materially next year or at all. Because to your point, with all these factors going on, I would rather just put it out there that keep ARPU in this moderate area for now. There will be 1 quarter or 2 that it might bump up. And you may see a little bit of that. But I think we'll go into next year, and I think better to keep the expectations of ARPU in a reasonable area for analysts, never want to think about the year. And then to your point, in a more medium-term outlook, there probably is some ARPU that maybe in the next 1 to 3 years, whenever that happens, Bob, to your point, we could start to see ARPU bump up even more. And I just don't want to be wrong at this point, right, and put too much out there. So I just think let's take this correction and say, I think you're right, there will be a correction, and it would mean we'd have a higher ARPU. I just don't want to think -- I don't want to guess it's going to happen next year. If it happens, it takes a little bit longer. Bob Labick: No, absolutely fair. I think you just need [ deals ] to start wholesaling better as well, and therefore, off-lease to come back so that they have other things to sell, et cetera. Okay. Great. And then you talked about lower conversion rate for the industry in Q4 based on the accelerated depreciation of values. But at the same time, you guys are increasing your guaranteed pricing. I think you said it was 18% during the quarter, and that's higher conversion, obviously. So looking into next year, how should we think about conversion at auction with those little factors? George Chamoun: I think conversion rates, my biggest goal for next year is it's just not as crazy. We've seen some ups and downs this year, even within a quarter, that's pretty significant. And when you think about this year with everything from tariffs and everything else going on, we've really had a challenging year for dealers to absorb the value of a car. And then what is that value, what is that depreciation, all these factors, it's been a very difficult year for dealers. I hear sentiment from dealers saying some of this will normalize. I mean, that's what I'm hearing. I believe that's what many of you and others are hearing, which the normal -- having the value of these vehicles normalize would mean that we'd see the bid and the ask between sellers and buyers also start to normalize, and we won't have this up and down on conversion rates that we've seen. So I think next year, conversion rates would -- we'd see a bit more consistency in conversion rates across the industry. Obviously, it all depends upon all the macro factors. But I think some of the stuff starts to work itself out. I don't know, Bill, if you have any more on that topic. But it's a hard one, Bob, as you know, for us to predict next year as it relates to conversion rates. But I think you and others have also heard dealers saying things should start to normalize as some of these other factors start to take place. Operator: Our next question comes from the line of Andrew Boone with Citizens. Andrew Boone: I wanted to ask about ACV Capital and just the return to normalization of lending. Can you guys just help us understand the guardrails outside of macro of what you guys need to do to be able to return that business? And then again, going just back to top of funnel demand. Can you guys talk about cohorts, and is there anything you're seeing within the cohorts as we think about just the change in dynamic of macro and what you guys are seeing? Or is this just widespread? William Zerella: This is Bill. So I'll start with ACV Capital, and then I'll turn it over to George. So maybe first, a little bit of context in terms of ACV Capital. So as part of our planning, we have historically planned an historical loss rate that's slightly higher than some of the bigger players out there. Typically, we model a 3% loss rate based on the fact that we're in a high-growth phase for the business, and we're certainly not as mature as some of the bigger players out there. So that's what's been baked into our financial models for ACV Capital historically. So despite what occurred in Q3, and I'll get into that in a minute, our view of that loss ratio hasn't changed in terms of our modeling going forward into next year. That said, as I mentioned on the call, as a result of this large bankruptcy that occurred in which we've reserved basically over $18 million for that bankruptcy, not sure what the ultimate outcome will be in terms of recovery, we did do a very thorough portfolio review. And as a result, we've looked at our internal controls, our processes, and we're in the process of making a number of improvements going forward so that we can scale with comfort next year in terms of the confidence that we're going to stay within our planned target in terms of those loss ratios. But as a result of that, there were certain higher risk credits that we had outstanding that we concluded it was prudent to book some reserves in Q3, which is what flowed through the quarter, and that was approximately $7 million. In terms of the go-forward plan, there's still a lot of upside opportunity for us. This is very synergistic, obviously, with our auction business. So it's very strategic. And you can expect this business to continue to grow next year at a good clip, albeit maybe at somewhat of a slower rate than we experienced this year. And we are taking our ACV Capital revenue down a couple of million for Q4, as I mentioned, just to ensure that before we start to scale next year, we've got the right processes and controls in place. So hopefully, that gives you a little bit of color in terms of ACV Capital. George Chamoun: And maybe just 2 more things on that. Even with that bit of caution, we're still going to be executing on attach rates in the high teens. So look at this as it's still very strong execution, even with having this mitigated risk and being a bit more careful. The midterm model assumed 25% attach rates. So when you just -- the way I look at this is, listen, you learn on moments this, you sometimes just add some more controls. You take moments this. Obviously, there's other major banks in the world that had the same common customer. This will make us even a better company in the midterm. And you really become, I think, a more durable company in moments that when you have a situation this like this Tricolor. But I would say, I have the same confidence in getting back to the 25% attach rate goals in the midterm model. This is a small period of time. We have a lot of demand for ACV Capital. We've got a great product. You saw us execute really well up until that moment. And I would say one step backwards, I think we'll then take 3 steps forward. So that was all on your first question. Your second question, I believe, was about other cohorts and other things going on the business. Can you repeat that one, just to make sure because it was so long ago, it took us a while -- such a long time to answer your question that I remember your first one, but I want to make sure -- your second one, but I want to make sure I got it right. Andrew Boone: It was a great first answer. So let me try the second one again. If I think about macro just overlaying in terms of results, is there anything you want to call out in terms of specific cohorts or geographies that may help us better understand what's going on across the industry? George Chamoun: Yes, I'll try to give a little color on this. We mentioned on the call that 2 of the regions that we were probably known to be weaker in had 20%-plus growth year-over-year, and we were really excited about that. If you look at our largest regions from a cohort perspective, most of our large regions are still growing. And there's only one, and the one that -- it still grew. It grew, but it didn't grow as much. It was one where we've got nearly 40% market share. And so when you look at overall the cohorts, I still -- the reason why I remain confident in the midterm model is because in the regions where we don't yet have the brand and support of being the dominant player in that region, we're emerging. And in the areas -- in most of the areas where we have very significant market share, and that's significant against physical and digital, all in, we're still growing in the majority of those regions even with big numbers. So long-winded way of saying, I think not a lot has changed. But we did mention on the call, there's a few reasons where we need to step it up and grow even more, and we're on it. Operator: Our next question comes from the line of Naved Khan with B. Riley Securities. Naved Khan: Maybe just touching on commercial. How should we be thinking about the volume through the AutoIMS relationship ramping exiting this year and into next year? What trajectory should we assume there as we not only just map out Q4, but also look at 2026. And then, George, you spoke about being opportunistically with respect to discounting in certain markets where the penetration is low. What do you see from your competitors in terms of price promotions? Do you see any price increases occur in recent quarters? Or are we in an environment where pricing is not necessarily going to be a lever for any of the players, including yourself? George Chamoun: I'll go to the second one first. I think pricing between the hundreds of physical auctions and a few digital, there's a lot of different pricing things going on. To your point, some people continue to increase fees and some are using fees primarily on the supply side to get the attention. But generally speaking, buy fees typically go up every year with most of the competitors, which is the majority of the ARPU. And your first question on commercial, we're going to be hovering somewhere in the mid-to-higher single digits, I think somewhere 6%, 7% of our volume in commercial for 2025, somewhere in that range for commercial. So I'm very proud of what we're doing. But as I've said in many other calls that we are -- we're really laying out the foundation right now for many years to come. I'll just remind you of the 3 things we're doing there. One is the upstream digital like you said, with AutoIMS upstream digital. That's one. Two is the greenfields, like Houston being our first. And then we'll have a second greenfield that we launch sometime early next year. And then third is once our software is hardened and we're ready to go, we'll take it back to the 10 legacy locations that we acquired. So that will take us some time. So look at it as if you're -- right now, our total commercial is in that 6% to 7-ish-percent range of our total volume. And even if that increased pretty materially for next year, it won't be a big number. I just want to be fair to that. It will help. It all helps. And it will grow. But dealer wholesale will remain next year being a far significant piece of our overall volume. But then commercial, when you think about going into out years, into '27 and beyond, it starts to really add up. So hopefully, that gives you a lot of color, because we're really not yet talking about next year. Obviously, a lot of these questions are about next year, but trying to give you enough color. But we're going through that planning cycle right now to nail down our objectives. But maybe that gives you a little bit of color based on the base. Operator: Our next question comes from the line of Glenn Shell with Raymond James. Unknown Analyst: Just following up with what Naved said on commercial wholesale. Will we see that broken out so we can parse out dealer wholesale versus commercial wholesale? And then I just got a quick follow-up after that. George Chamoun: At this time, we don't know yet. We really didn't come into today's call with that answer, I would say, ready to go, but appreciate the question. But I would say we're not sure yet. Unknown Analyst: And then on Project Viper, is that still on track for a first half of '26 launch? Or is that more just generally '26? And then what have you been seeing from initial demand contribute to performance next year? George Chamoun: Yes. Project Viper is getting incredible feedback from dealers. Our goal -- and we need to still go out and hit this goal, I just speak to be open, but our goal is to start taking orders by an [ MADA ]. That's when we start actually taking orders by dealers, which will be in February and start shipping units in that middle of the year. Those are the internal goals. So I don't have any reason why we're not going to hit those goals of starting to take orders by [ MADA ]. I think next year will be primarily launching to enough dealer groups, get the feedback, and you then start scaling it the following year. But I would say so far, so good, getting great feedback, plan to go live, and we'll go from there. Operator: Our next question comes from the line of Jeff Lick with Stephens Inc. Jeffrey Lick: George, I was wondering if you could talk about you guys obviously have a pretty robust and novel set of services and features, ClearCar, ACV MAX, Data Services, obviously, Viper I guess up and coming. If you just look at the places that you're winning that are disproportionately doing better than the average, could you talk about just where you're really getting traction, and the dealer just looks at you to say, hey, look, this is a great partnership and where you clearly have an advantage and you're winning? George Chamoun: Yes, certainly. I'll try to give you a little bit of color without mentioning the dealers' names just to get a little closer to this. But yes, we mentioned on the call that dealers that have recently launched ClearCar and MAX, where we've won a higher proportion of the wholesale volume than our average across the board. And if you get to the why, you're now a strategic partner to that dealership group. And if they're using us for ClearCar and/or MAX, ACV MAX, and soon, hopefully, Viper, then they're using us to price their inventory. We're predicting the retail price, we're predicting the wholesale price, we're helping them make better decisions. And so we were the one to predict the trade value before they even bought the car. So you're not going to sit here and make the wrong decision on having wholesale values that are too high because you actually bought the car right way upfront during the trade. So when you think about what AI can do for this entire industry is take all these manual decisions that a lot of these dealers are working hard. These are people across the country who just don't have the right tools today, who got prices going down. And here we are, we're predicting the retail price of what the car is going to sell for in the next 30 days within a few hundred bucks. We're predicting the wholesale price on average within $100. That's really significant because now as you're sourcing and you're deciding what reconditioning you need to do, it's a big deal. So some of the data we mentioned during the call about dealers now selling more wholesale with ACV, they happen to have ClearCar and happen to have MAX. It's partially because they're actually making better decisions. And by the way, they're retailing more cars and typically having better margin versus our competitor or SaaS equivalent companies that we compete against. Hopefully, that gives you what you're looking for. Jeffrey Lick: And then a quick follow-up for either you or Bill. As it relates to what you guys referred to as targeted volume pricing on the supply side or for the seller, I was just curious because usually that's a pretty low price to begin with. How does that work in terms of -- we're probably talking you're saving $50, $75. Is it short-lived in terms of, hey, okay, I'll give you this. It would seem you're going to eventually have to provide a little more for them than just pricing. Are the dealers really motivated by $50, $75? George Chamoun: First of all, I agree with your question. $50 or $75 or $100 shouldn't matter. We're a better solution. And we're helping them sell the car for more money. But when you do give one of these sell-side promotions, you're getting their attention, you're getting them to try it, you're getting them into the family. And some of these guys have been using these legacy auctions for a very long time. So look at it as you're just trying to get their attention. And then what you do is you start to say, hey, this is good for so long, x period of time or y amount of volume. So you do start to set some parameters about it. And none of those parameters make me worry about our midterm model. Operator: Our next question comes from the line of Gary Prestopino with Barrington Research. Gary Prestopino: Last quarter, there was a big delta between listings and cars sold. Did you still see pretty good listings, but the conversion rate was just so much lower than expectations? George Chamoun: Yes, Gary. We continue to drive listings, which is listings obviously represents the opportunity to get in front of that car and sell it. But yes, so we've continued to see listings grow. Christopher Pierce: And then just a question. Bill had mentioned there was an increase in arbitration expense. With all the technology that you've put on your inspections, what is actually causing that to happen? Is it just that you're getting a car that might be a little bit lower quality? George Chamoun: So Gary, most of the customers that we inspect their car and then we go out and we look at the arbitration results, the far majority of the customers, we hit our target arbitration and goodwill. There are subsets of customers where it's become elevated. And what we've been doing is over the last couple of months is we're enhancing some of our dealer management tools to identify faster on what is going wrong with this one seller and/or buyer, what should we be doing differently, where it could be training or other best practices, and we're starting to build privileges and other aspects to our dealer management model. So it's really into the details of -- look at it as the far majority of the time, you really -- you don't have an issue, but you've got to get into those times where things become elevated, and we're diving in it. Again, when I look at this from a going into early next year, I think even by Q1, we're probably fine. I think just you go in there and you mitigate and you really learn through some of these things that crept in, and then we'll -- our dealer management and internal training when these things go wrong will be even better on top of that. Operator: Thank you. And we have reached the end of the question-and-answer session. I would to turn the floor back to Tim Fox for closing remarks. Timothy Fox: Great. Thank you, operator. And I'd to thank everybody for joining us on the call today. We look forward to seeing you on the conference circuit this quarter. We'll be at a couple of conferences in November and in December. And finally, thank you for your interest in ACV, and have a great evening. George Chamoun: Thank you. Operator: And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.
Operator: _ Greetings, and welcome to the Zevia PBC Q3 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anne Mcguinness, Investor Relations. Thank you. You may begin. Anne Mcguinness: Thank you, and welcome to Zevia's third quarter 2025 earnings conference call. On today's call are Amy Taylor, President and Chief Executive Officer; and Girish Satya, Chief Financial Officer and Principal Accounting Officer. By now, everyone should have access to the company's third quarter 2025 earnings press release and investor presentation made available this afternoon. This information is available on the Investor Relations section of Zevia's website at investors.zevia.com. Before we begin, please note that all financial information presented on today's call is unaudited. Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. During the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filings as well as the earnings press release, presentation slides that accompany today's comments and reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are also available on our website at investors.zevia.com. And now I'd like to turn the call over to Amy Taylor. Amy Taylor: Good afternoon, everyone, and thank you for joining our third quarter 2025 earnings conference call. Our third quarter results reflect strong progress and provide clear signs that our strategy is taking effect. Our initiatives are positioning us for durable growth and profitability over time. Our third quarter results exceeded our expectations with net sales growth of 12% to $40.8 million and adjusted EBITDA loss of $1.7 million. Based on our better-than-expected performance and the continued progress across our strategic growth pillars, we are raising our full year net sales and adjusted EBITDA guidance, which Girish will speak to shortly. I'll share the progress we've made across our 3 strategic growth pillars of high-impact brand marketing, accelerated product innovation and expanded distribution. Beginning with marketing, our brand-building initiatives are resonating with consumers and gaining traction against our key priority of expanding our user base. Strong third quarter results reflect in part the success of our summer campaign, the launch of Strawberry Lemon Burst and the playful summer break sweepstakes, which were activated on social and received favorable editorial media coverage, extending reach and driving engagement. Media has a great story to tell as the consumer moves away from the artificial and seeks better-for-you products from brands that they trust. We are Soda Made Better and our new brand messaging, design and tone of voice are resonating across media channels and in-store. Based on proprietary survey data, while early, brand consideration and purchase intent have made double-digit gains this year, and social media engagement rates continue to build to levels well above channel benchmarks. As the broad cultural conversation continues to focus on health and ingredients, major food and beverage companies scramble to remove artificial ingredients and colors. Zevia has and will continue to be ahead of this movement with a clean label clear soda with natural flavors and sweeteners and is telling its story through cross-channel brand campaigns and high-reach influencer activations. Our humorous engaging campaign supporting Amazon-exclusive Peaches & Cream is a great example, giving the flavor a hot start and the brand a strong halo via virality on Instagram and TikTok. In addition, Zevia competitions featuring UGC or user-generated content have been fruitful in driving awareness and trial, especially when activated with a focus on specific customers ranging from Albertsons, Kroger and Walmart to Costco. On the ground, we continue in-market activations at events like gaming 100 Thieves Block Party in July; Diplo's Run Club across August, September and October; and periodic joint efforts with well-aligned partners such as Life Time Fitness at running, cycling and mountain biking events. These events are equal parts brand building and sampling opportunities focused on winning new users, which remains our top priority. Turning to innovation. The performance of our recent product launches offer strong proof points that our portfolio evolution is driving brand momentum. New flavor profiles and a more sugar-like taste experience, along with delicious looking new packaging and dynamic marketing, continue to support velocity and drive trial. Our portfolio evolution this year is working. Exciting new flavors launched nationwide received strong consumer acceptance and retailer exclusive or limited-time-offer flavors brought brand heat. The debut of Strawberry Lemon Burst nationwide, Orange Creamsicle in the natural channel and fruity variety pack initially at Walmart demonstrate that we are on point in flavor trends. Each are showing promising results and have been drivers of increased Zevia space at retail and of accelerating velocities. Peaches & Cream and Salted Caramel provided new news this quarter as exclusives or limited-time offers, respectively, and Strawberries & Cream is doing the same in selected retailers here in Q4. Each is off to a good start and will inform the portfolio evolution for 2026 and beyond. Peaches & Cream has been the fastest-selling new Zevia item ever on Amazon, while Strawberries & Cream was immediately a top 3 velocity driver at Kroger. Our fruity variety pack has quickly become the #1 Zevia SKU at Walmart. We remain the only better-for-you brand offering multipacks and variety packs at accessible price points. And finally, we're very pleased with the positive response to our refreshed packaging. Featuring Soda Made Better, our strong brand block will highlight zero sugar, no artificial colors and no artificial sweeteners. Our proprietary research indicates a meaningful increase in purchase intent versus the prior design and versus competition. We are on track to roll new packaging out to legacy flavors as well in early 2026 in parallel with the introduction of a new more sugar-like taste experience across legacy and new flavors alike. Moving on to distribution, a key component of our strategic growth plan. We both regained and opened new points of distribution over the past 9 months. We attribute this expansion to strong product innovation as well as brand momentum delivered by marketing. Our national Walmart distribution continues to drive new-to-brand consumers. We're also pleased to share that following a successful pilot at the start of this year, we'll be expanding into more than half of Walmart's Canadian stores going forward. Distribution gains at grocery were also a key driver of our growth year-to-date with innovation in flavor and in packs supporting increased space gains. In the club channel, increasing sales velocity drove additional regional rotations, reflecting in part the impact of our new packaging. The positive reception has exceeded our expectations. And then in convenience, we're seeing some encouraging early indicators even as the rollout in the channel for brand and for category remains in the early stages of development. Performance is tracking in line with broader natural soda category trends, providing a good selling story as we continue to thoughtfully expand our regional footprint in 2026. In closing, with our strategy firmly in place and with strong execution, we are reshaping the business and paving the way to capitalize on the changing consumer landscape and category tailwinds. We see evidence that we are growing market relevance and are on track to thoughtfully scale the business quarter-by-quarter and year-over-year. And so with that, I'll turn the call over to Girish. Girish Satya: Thank you, Amy. Good afternoon, everyone, and thanks for joining our call today. Our third quarter results reflect strong execution of our strategic plan with both revenue and adjusted EBITDA exceeding expectations. Over the past 18 months, the savings from our productivity initiatives have enabled us to invest meaningfully while strengthening Zevia's market position within the better-for-you soda category. Importantly, the work we have done has created a solid foundation for sustained growth and profitability. In light of our strong third quarter performance, we are raising our full year 2025 net sales and adjusted EBITDA guidance, which I'll address shortly. Turning to our results. Net sales in the third quarter increased 12% to $40.8 million. The increase versus the prior year was primarily due to expanded distribution at Walmart and incremental regional rotations at the club channel. Gross margin reached 45.6%, a 350 basis point decline from 49.1% in the third quarter of last year, reflecting the $0.8 million in inventory obsolescence associated with the packaging refresh and the full realization of aluminum tariffs, which we discussed previously. As we mentioned earlier, we invested in a package redesign that brought to life our new flavor profile and better communicated the benefits of the Zevia value proposition. Selling and marketing expenses were $12.7 million or 31% of net sales in the third quarter of 2025 compared to $12 million or 33% of net sales in the third quarter of 2024. Breaking it down, selling expense was $7.7 million or 18.9% of net sales in the third quarter of 2025 compared to $8.5 million or 23.3% of net sales in the third quarter of 2024. The improvement was largely a result of lower warehousing and freight transfer costs as we continue to benefit from our productivity initiative. Marketing expense was $4.9 million or 12.1% compared to $3.5 million or 9.7% of net sales in the third quarter of 2024. The increase was primarily due to increased investments in brand marketing. General and administrative expenses were $7.7 million or 18.8% of net sales in the third quarter of 2025 compared to $7.4 million or 20.3% of net sales in the third quarter of 2024. The increase was primarily driven by higher accrued variable compensation expense. As a result of the aforementioned factors, net loss was $2.8 million, unchanged from the prior year. Adjusted EBITDA loss was $1.7 million compared to an adjusted EBITDA loss of $1.5 million in the prior year period. The decrease was due to costs associated with inventory losses related to packaging refresh and higher brand marketing spend, partially offset by strong sales growth and operating efficiencies. Turning to our balance sheet. We ended the quarter with approximately $26 million in cash and cash equivalents and have an undrawn revolving credit line of $20 million. Now turning to our outlook. Based on our strong third quarter results, we are raising our full year net sales guidance to the range of $162 million to $164 million versus prior guidance of $158 million to $163 million. We now expect our adjusted EBITDA loss for the full year to range from $5 million to $5.5 million versus prior guidance of $7 million to $9 million. Our 2025 adjusted EBITDA outlook represents a $9 million improvement versus prior year despite tariffs, ongoing marketing investments and a packaging refresh. Turning to the fourth quarter, we expect net sales of between $39 million to $41 million and adjusted EBITDA loss to be between $0.25 million and $0.75 million. As a reminder, the 350 basis points impact from inventory losses associated with the packaging redesign was largely captured in the third quarter. In closing, our third quarter results reflect the traction we are gaining towards building a solid foundation from which to deliver sustainable growth and profitability. These efforts not only reinforce our operational momentum, but also lay a strong foundation for sustained profitability as we move forward. I will now turn it over to the operator to begin Q&A. Operator? Operator: The first question is from Jim Salera from Stephens Inc. James Salera: I wanted to start off with, obviously, the positive news around expanding distribution with Walmart in Canada. Can you just maybe help size that up for us? Is that the primary contributor of the raised sales outlook? Or should we expect that to be more kind of a '26 event? And if you could just kind of size up how many stores that would be and any other color you could provide on how we should think about that uplift. Amy Taylor: Sure, Jim. Yes, that's -- we are excited about expanding with Walmart in Canada just because of the indicator of future opportunity for continued distribution expansion in Canada overall. It's also just a good, I think, reflection of the velocity coming out of the customer in the initial pilot. So it was fairly small out of the gate. We were less than 100 stores. And we're now in just over half of Canada's Walmart stores, which is just over 400 stores in total. So to answer your question directly, that is not the major driver of lift in growth. There are many other things driving growth through the quarter, but it is a good indicator of the health of the brand in Canada and opportunity to follow. James Salera: Great. And then I was looking through the deck you guys put out, I really like the new packaging. Can you just give us some color around how distributed is that? And maybe what type of timing we should think about between switching over from the old packaging to the new packaging until we kind of see that across all of your distribution points in the U.S.? Amy Taylor: Sure. So we're excited about the new packaging, too. We did some -- as I said in the prepared remarks, we did some initial proprietary research that indicated a significant increase in purchase intent with the new packaging relative to our previous packaging and relative to competition. And we believe that, that is because of the insights-based changes that we made to the messaging, which very clearly state Zevia's value proposition, talking zero sugar, zero fake color, zero fake sweetener then looking delicious, carrying the line Soda Made Better. So we're really bullish on the packaging. We do have some early indicators of how it supports the business, both from the standpoint of driving trial to new-to-brand users and driving velocity. And that's because one of our Q4 limited-time-offer flavors in Strawberries & Cream is already in the market in the new package. The rest of the portfolio will reflect the new packaging in early 2026, so mid-Q1 or late Q1 2026, and then we'll do a rolling rollout from there, not a hard cutover, but a rolling launch of the new packaging from there into the second quarter. Operator: The next question is from Sarang Vora from Telsey Advisory Group. Sarang Vora: Congratulations on a great quarter and good to see the healthy momentum in the business. My question is about when you look at the underlying metrics that drive growth, which is increase in household penetration, dollars per household, increase in frequency, can you remind us who are some of the new customers that are coming to the brand that weren't there before? And just from a broader standpoint, like how is the penetration for better-for-you products in general and versus your like a little north of 5%. So how big is the runway for you to catch up from a household penetration standpoint, just so that we can size the total addressable market as you keep moving on this path of expansion? Amy Taylor: Yes. Thanks, Sarang. That's a very good way to frame the opportunity and sort of the runway ahead. So we're really pleased to see movement in household penetration over the last 12 months. This last read being improved over the prior, and we are now back over that 5 million household -- 5% points of household penetration, excuse me. And so the major drivers of that are new consumers coming to the brand, yes, in part through marketing. So we're winning new consumers. It continues to be oftentimes a slightly higher-income millennial often with kids in the household, bringing Zevia soda home as a trusted brand stock in the fridge for all usage occasions and all family members, right? So it continues to be relevant across generations, but our sweet spot is the millennial and oftentimes the millennial household with children. Part of what's driving our gains in household penetration, though, is increased distribution. So we get support there from the Walmart expansion where especially with the introduction of new flavors, we're seeing very high percentage of new-to-brand users buying Zevia for the first time at Walmart. And there are other examples of that, expanded same-store sales and other major grocery outlets, expansion into the drug channel, et cetera. All of those are supporting household penetration growth. But to help you to size this, we see the category right now operating around 20 percentage points of household penetration. So there's a lot of ground to be gained for Zevia. And as we talk about very frequently, we see all of these category tailwinds as a net positive to Zevia. So there's tremendous opportunity ahead as the world continues to move away from sugar and towards clean label products, and we are the great-tasting, truly zero sugar and also affordable better-for-you products. So we see a lot of household penetration opportunities ahead. Sarang Vora: That's awesome. I have a second question. Soda business is clearly gaining momentum as we see in all these numbers. But one thing we don't talk much about is the energy business, energy drinks business. And my understanding that -- how should we think actually about energy drinks as you look at '26 and '27? Is there a thought to revive that category as well? Amy Taylor: We agree there's really tremendous opportunity ahead in energy. Right now, we have a really small energy drink business relative to the rest of the category. It is healthy and growing in the natural channel and in e-commerce where people know and trust the Zevia brand and continue to stock energy drink options in addition to soda. But right now, our focus is really on soda. We just talked household penetration, right? And it just outlines how much work there is still to do to realize our full opportunity in soda. So once I believe we are famous for being Soda Made Better and under that kind of halo of brand trust, we think there's a significant opportunity to turn our attention to the energy drinks category, which is still growing and will be for a long time. And we believe there's a consumer that wants a clean label energy drink and that our brand has permission to bring that to the market. So we'll continue to focus on the healthy growth that we see out of energy drinks in natural and in e-commerce. And at the right time, we'll think about channel and thus marketing and consumer expansion on a strong foundation of a healthy soda business. Operator: The next question is from Andrew Strelzik from BMO Capital Markets. Andrew Strelzik: With all the marketing that you've been doing and some of the momentum that you cited from that, the brand buck, et cetera, do you have any kind of awareness stats, brand-level awareness statistics or anything like that, that you can share to support beyond what you've talked about from a purchase intent perspective? Amy Taylor: Andrew, we haven't reported on awareness levels, but what I can share that kind of doubled down on the prepared remarks is that with our proprietary research, we saw double-digit increases not only in purchase intent, but also consideration. So we still have a way to go to grow brand awareness, and distribution, strong packaging design and marketing are all parts of that equation. But what I was really pleased to see this year is, again, double-digit growth in consideration. So now on that foundation, we know our messaging is working, right? Marketing and packaging is inviting trial. And then the product is satisfying the consumer, so we're getting strong repeat. That's a great formula upon or foundation upon which to now invest in expanding awareness. So we still got a ways to go, and I think that's reflected in our small household penetration. And our #1 objective is to expand that base, which is going to be a combination of awareness, trial and then building on that strong consideration metric. Andrew Strelzik: Okay. That's helpful. And my other question, if I remember correctly, just seasonally, you would normally see a bigger step down from 3Q to 4Q than the guidance suggests pretty marginal step down from what you did in 3Q from a revenue perspective to the midpoint of the guidance. And so I guess I'm curious, do you think you're seeing less seasonality in your business? Or should we read that maybe as a higher baseline from 4Q into next year? How -- what's driving that? Or how should we interpret that kind of as we think about next year? Girish Satya: Yes. Thanks, Andrew. So as a reminder, we were comping the Walmart load from last year this Q4. So that was a substantial amount of revenue, which was going to always be a challenging comp for the quarter. I think largely what you're seeing is a reflection of the distribution gains that we've made throughout the year as well as some incremental regional rotations in the club channel, which is really what's driving a lot of the positivity in Q4. So I think it's a little bit of both improved baseline as well as some incremental opportunistic club rotations. Operator: The next question is from Eric Serotta from Morgan Stanley. Eric Serotta: Great. Can you start by reflecting a bit in terms of shelf space expectations for next year? I guess with Walmart, we're just about a year -- or almost exactly a year into the rollout of their modern service set. What are you guys seeing in terms of what they're doing as the largest retailer, largest brick-and-mortar retailer as we look to next year? And then sort of outside of Walmart, what are your expectations in terms of shelf space? Amy Taylor: Sure. Let me start with Walmart, and then I can go to the outlook as it relates to distribution. So Walmart is developing nicely, bolstered by the introduction of a number of new items. Some of those are swap-outs and some are purely incremental new items that is helping us in the back half of this year and going into next year. We are one of the primary brands in that very sort of influential modern service set in Walmart, and that continues to be the case. Strategically, Walmart works hard for us because, as I mentioned before, it drives a lot of new-to-brand users. And so I think it's a great story to say, "Hey, when we have ample brand blocks, strong visibility, right price, right flavor mix, it's working hard for the brand.: And that's a story that we can take elsewhere. We've had other expansions, as I've mentioned on prior calls, such as a step change in shelf presence at big retailers in grocery like Albertsons in 2025. And again, that has contributed to some of our growth in the back half of the year. So when we look ahead, we -- this year, we surpassed our historical peak distribution levels at retail. And so we're not relying on new distribution for growth looking ahead. We're really focused on driving velocity, and that's why you hear us talk about the brand marketing and innovation priorities that we have. But we do see opportunity for new distribution. In terms of new stores, that would be in club, it would be in mass and it would be in the value and dollar channel and then long term in convenience and foodservice. And then in existing stores, there is still more opportunity to expand same-store distribution and to improve shelf. So there are major operators in the grocery channel, for example, where we still have, let's say, a lesser presence on the bottom shelf and an opportunity to build up to high level to gain space through innovation and to leverage all the strong data of 2025 to make those changes. So we're bullish both on accelerating velocity as well as continuing to increase distribution next year, be it in same-store or through new channels. Walmart should continue to perform for us next year. Costco offers opportunities for incremental rotations, and there are other green shoots in the club channel outside of Costco. As I mentioned, grocery offers opportunity in same-store distribution as well as new items and set improvements and then the long-term sort of slow but steady and strategic need to drive singles through convenience. So hopefully, that paints the picture a little bit about where we see our growth coming from, our bullishness on same-store distribution increases and then our greatest channel opportunities for next year. Eric Serotta: Great. And then one question in terms of profitability. Any -- I know you're not going to give us 2026 guidance yet, but any color as to how you're thinking about achievability of EBITDA profitability next year, puts and takes? It seems like, well, certainly, your top line is scaling. You're seeing some nice operating leverage there. Some of the costs with the new packaging shouldn't -- and inventory obsolescence shouldn't repeat, but then things like aluminum and Midwest premium keep moving higher. So any color on how you're thinking about profitability for next year would be helpful. Girish Satya: Yes, of course. So I think we continue to point towards being positive adjusted EBITDA in 2026. As noted, we're going to bias towards investing in the business. So don't expect a ton of flow-through because we do believe that right now, the time to sort of invest in customer acquisition. From a puts and takes standpoint, obviously, there's a huge headwind, which is aluminum tariffs, as you've articulated earlier, and we began to see that in Q3. As you also mentioned, we will largely see $15 million of the $20 million of our previously announced productivity initiative savings in this year, i.e., 2025. There's an incremental $5 million that we will begin to realize starting in sort of mid-Q1 of 2026. And so as we look towards flipping from negative adjusted EBITDA to positive, I think ultimately, the incremental savings along with scale and some pricing opportunities will allow us to flip that script into positive adjusted EBITDA while continuing to create opportunities for us to invest to grow the top line. Operator: There are no further questions at this time. I would like to turn the floor back over to Amy Taylor for closing comments. Amy Taylor: All right. Thanks so much for joining us. I am pleased with the progress this quarter, and I'm really proud of the team for the broader progress that we made across our 3 strategic growth pillars: so high-impact remarketing, accelerated product innovation and expanded distribution. Our soda portfolio is uniquely anchored by great taste, truly zero sugar and accessible price points. So the brand is starting to resonate with consumers, and all of this positions us well to capture the continued tailwinds in this better-for-you category. It's an exciting time to be at Zevia. So thanks again for your engagement, and we will see you next quarter.
Operator: Greetings. Welcome to Root's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to Matt LaMalva, Head of Investor Relations and Corporate Development. Thank you, and you may begin. Matthew LaMalva: Thank you for joining us. Root is hosting this call to discuss its third quarter 2025 earnings results. Participating on today's call is Alex Timm, Co-Founder and Chief Executive Officer. Megan Binkley, our Chief Financial Officer, will be unable to join us this afternoon due to a family medical matter. In her absence, I will be providing our financial results and will also be available for Q&A. Earlier today, Root issued a shareholder letter announcing its financial results. While this call will reflect items discussed within that document, for more complete information about our financial performance, we also encourage you to read our third quarter 2025 Form 10-Q, which was filed with the Securities and Exchange Commission earlier today. Before we begin, I want to remind you that matters discussed on today's call will include forward-looking statements related to our operating performance, financial goals and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call, and we are not obligated to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our most recent 10-K, 10-Q and shareholder letter. A replay of this conference call will be available on our website under the Investor Relations section. I would also like to remind you that during the call, we will discuss some non-GAAP measures while talking about Root's performance. You can find reconciliations of these historical measures to the nearest comparable GAAP measures in our financial disclosures, all of which are posted on our website at ir.joinroot.com. I will now turn the call over to Alex Timm, Root's Co-Founder and CEO. Alexander Timm: Thanks, Matt. The third quarter was another very strong quarter for Root, and we're excited by the momentum we are building. It was a record quarter for policies in force and revenue, driven by accelerating growth in both direct and partnership distribution channels. We achieved this growth while maintaining our exceptional loss ratio performance. As a technology company, we believe we have a structural and durable competitive advantage. This DNA is evident in everything we do, from our customer obsession, to our pricing technology, to the people we hire. It is what makes us special. And you saw that come through in the quarter across our pricing algorithm innovations, our partnership platform expansion and our direct marketing machine, all combining to generate exceptional performance. As one example, we deployed our newest pricing algorithm in the quarter, which is improving customer LTVs by 20% on average. This model allowed us to accelerate growth across all channels. And we aren't stopping there. In the quarter, we also launched our new UBI model, which, we estimate, has improved predictive power by 10%. We believe this speed of innovation is unmatched in the industry, and we have no plans of slowing down. Also in the quarter, you saw our growth strategy at work, more than doubling new writings in our partnership channel, launching Washington State and launching several experiments in new marketing channels. In our partnerships channel, we are extending our competitive advantage that provides seamless, easy purchase experiences with great prices to customers no matter how or where they shop. This represents a vast growth opportunity. Today, Root is only active in a very small fraction of distribution points in the insurance shopping ecosystem. This opportunity was on display in the quarter as we more than tripled our new writings year-over-year from independent agents, which now represents 50% of our partnership distribution. This channel alone is over $100 billion in premium nationally. And although we have made great strides, we are still active in less than 10% of agents, giving us a long and natural runway to rapidly expand our presence in this space. In our direct channel, new writings increased sequentially by high single digits despite increased competition. Combined with our new pricing model, we continue to invest in new real-time bidding algorithms that allow us to optimize for anticipated long-term economics. This machine continues to detect trends and changes in the marketplace and dynamically deploys our investments. We have also begun to see green shoots in a handful of new marketing channels, the focus of our R&D efforts. We plan to continue to accelerate our investments in these channels given our recent successes and react appropriately as the data emerges. Our success makes us excited and confident to invest further into the business to accelerate our pricing advantage, increase our distribution presence across channels and geographies and continue to create experiences customers love through product innovation. With a healthy capital position, excellent underwriting results and a culture of discipline and excellence, we are ideally positioned to accelerate our growth trajectory. Our goal remains to build the largest, most profitable personal lines insurance carrier in the United States, and this quarter represents marked progress toward that goal. I'll now turn the call back over to Matt for more details on the quarter. Matthew LaMalva: Thanks, Alex. For the third quarter, we recorded a net loss of $5 million, operating income of $300,000 and adjusted EBITDA of $34 million. As previously communicated, our net loss in the quarter was primarily driven by a $17 million noncash expense related to our warrant structure with Carvana. Of the $17 million, $15.5 million reflects a cumulative expense catch-up. This expense ultimately reflects the success of our partnership as the vesting of warrants depends on achieving policy origination milestones. Even with this expense taken into account, we have generated $35 million of net income on a year-to-date basis. In the third quarter, we accelerated growth while continuing to achieve our target unit economics. Year-over-year, we delivered double-digit percentage increases in policies in force, written premium and earned premium while achieving a 59% gross accident period loss ratio. These strong results were driven by the deployment of our latest pricing model, advancements in our real-time bidding algorithm and expanded partner integrations. Our capital position remains strong with unencumbered capital of $309 million at the end of the third quarter. Given our exceptional underwriting performance, we also continue to be in a position of excess capital across our insurance subsidiaries. This allows us to optimize our operating structure and deploy growth capital to the highest profit-yielding opportunities. We continue to take a disciplined and opportunistic approach to direct marketing investment, adjusting quarter-by-quarter based on prevailing competitive dynamics. On the partnership side, we are still early in scaling this channel, and we expect it to continue to increase as a percentage of our overall book over the long term. Looking ahead, we expect continued acceleration of policies in force growth and are excited to support that growth by increasing our investment in direct R&D marketing by roughly $5 million in the fourth quarter. Further, we anticipate a headwind to our loss ratio from typical seasonality in the fourth quarter, which is driven by elevated animal collisions and bad weather. Last year, the impact of the seasonality was roughly 5 percentage points of the accident period loss ratio, and we expect a similar impact this year. As we close out 2025 with exceptional underwriting performance, a healthy capital position and a strong culture, we are now focused on accelerating growth at our target unit economics. Put simply, we are optimistic that our superior technology will drive growth despite an increasingly competitive environment. We are just getting started. With that, Alex and I look forward to your questions. Operator: [Operator Instructions]. Our first question comes from Andrew Andersen with Jefferies LLC. Andrew Andersen: Sounds like some opportunities in the direct channel this quarter with some new writings increasing sequentially, high single digits. Maybe you could just talk about how that opportunity came to be and just the overall level of competitiveness you're seeing on the direct channel? Alexander Timm: Yes. Thanks for the question. We are still seeing competition up in the quarter and in the channel. But really, what has happened, and we've continued actually to see that even this quarter to date, a continued acceleration of new writings and growth in our direct channel and our partnerships channel and really every channel overall. And a big thing that's driving that is our price. Last quarter, we detailed that we shipped a new pricing algorithm that improved customer LTVs by 20%. That unlocks a lot of opportunity for us to continue to grow. And as we do that and we continue to refine pricing, continue to collect more data and continue to get better at it, you're going to continue to see us be able to grow despite increased competitive pressures. And that's exactly what you saw this quarter, and we're still seeing that quarter-to-date as well. Andrew Andersen: And then on the severity number, plus 9%. It seems to have ticked up a little bit after kind of some 6s and 7s in recent periods. Can you maybe just talk about the change that you saw in severity this quarter, and if it requires any change to rate here? Alexander Timm: We're not anticipating any major changes to rate. It's going to be -- we're broadly rate adequate. There will be some maintenance rate that we take here and there. I think the increase that you saw in the quarter is well within sort of natural variation for those numbers. We did see a little bit more in our property damage line, so in vehicle collisions versus our medical coverages. But again, I think that it was well within the normal range of variation. Operator: Our next question comes from Tommy McJoynt with KBW. Unknown Analyst: Can you hear me? Alexander Timm: Yes, we can hear you. Unknown Analyst: Awesome. You mentioned being active with less than 10% of independent agents. Can you just give us some color on how that figure has trended over the last couple of years so we can get a sense of the trajectory of your penetration? And then what's the process to go live with more agents? Alexander Timm: Absolutely. Independent agents has been one of the most attractive near-term growth levers we've actually seen in the business, and we just are getting started. We really just launched a couple of years ago significantly into independent agents. And last quarter, I believe we had disclosed that we were in less than 4% of all agents nationally. And so it represents -- it's 1/3 of the market still. It was 1/3 of the market a decade ago, it was 1/3 of the market 100 years ago. So we don't think the independent agents channel is going anywhere. And we're -- again, we're just barely dipping our toe in. And so as we continue to grow that, we grew at 3x year-over-year this quarter, and we're not seeing that slow down. So we are marketing to agents. We're actively onboarding more agents. We are continuing to improve the product for agents so that they have more service capabilities, better prices for their customers as well. So we're seeing that as a really attractive growth channel, and we don't have any plans to slow down on appointing agents. Unknown Analyst: And then my second question is just that you gave us the partnership as a percentage of new writings in the quarter. But if we wanted to think about partnership as a percentage of earned premium, could we take a trailing 12-month average? Matthew LaMalva: So this quarter, you saw roughly flat partnership percentage of overall new writings, and that's because both of our channels grew very strongly. We're still continuing, as Alex mentioned, to see very strong growth in partnership driven by IIA, but we have the pricing model that we launched last quarter, which tends to be the tide that lifts all ships. So we are seeing very strong growth there. But when we look over sort of the medium to longer term, we do expect partnership to continue to grow and to continue to be an increasing proportion of our book over time. Alexander Timm: And as a matter of earned premium, you're probably going to see -- you see higher average premiums in the partnership channel. They're just larger policies that come through because there's more vehicles per household in that channel, particularly in the independent agency channel where a lot of preferred business shops. And so I think you're going to see a little bit more -- it will be a little bit more skewed towards earned premium than sort of a trailing 12-month average. Operator: Our next question comes from Hristian Getsov with Wells Fargo. Hristian Getsov: My first question is on the average premium per policy. It actually went down quarter-over-quarter. And I was trying to get a sense of how much was that driven by that new pricing model? And then given you continue to trend well below the 60% to 65% target loss ratio, do you have more flexibility to maybe give up a little bit more on price to continue to win in this environment? Alexander Timm: First, on average premium, you saw us, I believe it was in June, take a fairly sizable rate decrease at the order of like -- it was double-digit rate decrease in Florida. And Florida is a very big market. I think you saw that some folks had to do some refunds in Florida. We really wanted to make sure that we were giving the right prices to customers upfront. And so we took that rate decrease proactively. And that's why you've seen sort of those average premiums come down, which has actually put us in a really good position for the end of the year. In terms of the ability to give more price back or to potentially lower prices, we're not in a position right now where we're broadly lowering rates, believing that we're overpriced. But we really do see a continued very healthy loss ratio. And what that's allowing us to do is to just continue to grow faster. And that's what we saw in this quarter. And again, we've seen that quarter-to-date as well. Hristian Getsov: Got it. And then for my follow-up, any changes in the competitive landscape? Obviously, it remains elevated, but have you noticed anything, I guess, any recent changes? And then, do you have any color on how October PIF has trended versus the Q3? Alexander Timm: Yes. October PIF growth has definitely accelerated versus what you saw in Q3. And again, we're not seeing that slow down. And so we feel good there. The competitive environment, it's still very competitive. You are seeing lower rate -- the lower pace of rate increases in the market right now. You're also seeing continued high levels of marketing advertising. And so on the direct channel, specifically, you are seeing high degrees of competition. But again, we saw that in Q3. And I think now we've been able to show that we can even grow, and we can execute through that cycle. And that's really driven by our technology and our new pricing models that are continuing to allow us to grow despite the fact that competition is about as hot as we've ever seen it. Hristian Getsov: Got it. And if I could sneak one more in. Obviously, tariffs were a topic of discussion at the start of the year, and now it's kind of dwindled down, and I think people are maybe expecting less of an impact than they originally thought. I guess, have you guys seen any meaningful change in your data? And has your expectation for those impacts changed? Alexander Timm: We have not -- we have not seen that come through yet. Right now, it still looks like our expectations are basically right in line with what we'd expect just from natural trend. And so we don't think that we're seeing any sort of impact to inflation in the data or in the numbers right now from tariffs. We do expect to see loss ratios generally increase in Q4. There's seasonality, and that's usually -- if you look at 2024, you can see that's usually 3 to 5 points. So we might see some temporary increases in loss ratios in the fourth quarter, but we don't think that's going to be driven by tariffs. Operator: Ladies and gentlemen, this now concludes our question-and-answer session and does conclude today's teleconference as well. Thank you for your participation. Please disconnect your lines, and have a wonderful day.
Operator: Good day and welcome to the Energy Transfer Q3 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tom Long. Please go ahead. Thomas Long: Thank you, operator, and good afternoon, everyone, and welcome to the Energy Transfer Third Quarter 2025 Earnings Call. I'm also joined today by Mackie McCrea and several other members of our senior management team who are here to help answer your questions after we get through the prepared remarks. Hopefully, you saw the press release we issued earlier this afternoon. As a reminder, our earnings release contains a thorough MD&A that goes through the segment results in detail, and we encourage everyone to look at the release, as well as the slides posted to our website, to gain a full understanding of the quarter and our growth opportunities. As a reminder, we will be making forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These statements are based upon our current beliefs as well as certain assumptions and information currently available to us and are discussed in more details in our Form 10-Q for the quarter ended September 30, 2025, which we expect to file tomorrow, Thursday, November 6. I'll also refer to adjusted EBITDA and distributable cash flow, or DCF, both of which are non-GAAP financial measures. You'll find a reconciliation of our non-GAAP measures on our website. Let's start off today with the financial results for the third quarter of 2025. We generated adjusted EBITDA of $3.84 billion compared to $3.96 billion for the third quarter of last year. Excluding several nonrecurring items, adjusted EBITDA was flat year-over-year. We saw several volume records during the quarter, including midstream gathering, NGL transportation, NGL and refined products terminal volumes and NGL export volumes. We also saw strong volumes through our natural gas interstate and intrastate pipelines. Year-to-date, we generated adjusted EBITDA of $11.8 billion compared to $11.6 billion for the same period in 2024. DCF attributable to the partners of Energy Transfer, as adjusted, was approximately $1.9 billion. And for the first 9 months of 2025, we spent approximately $3.1 billion on organic growth capital, primarily in the NGL and refined products, midstream and intrastate segments, excluding SUN and USA Compression CapEx. Now turning to the results by segment for the third quarter, and we'll start off with the NGL and refined products. Adjusted EBITDA was $1.1 billion compared to $1 billion for the third quarter of last year. We saw higher throughput across our Gulf Coast and Mariner East pipeline operations, as well as through our terminals. For midstream, adjusted EBITDA was $751 million compared to $816 million for the third quarter of 2024. Results for the third quarter of 2024 included $70 million in proceeds from a onetime business interruption claim that was recognized in the third quarter of 2024. Absent this claim, midstream results would have been up compared to the third quarter of last year due to higher volumes in the Permian Basin, which were up 17% as a result of processing plant upgrades and new plants placed into service, as well as the addition of the WTG assets in July 2024. This growth was partially offset by lower gathering volumes in the dry gas areas. For the crude oil segment, adjusted EBITDA was $746 million compared to $768 million for the third quarter of 2024. During the quarter, we saw growth across several of our crude pipeline systems, including the Permian joint venture with SUN. These were offset by lower transportation revenues, primarily on the Bakken pipeline, as well as on Bayou Bridge, where we saw greater impacts related to some refinery turnarounds in Louisiana, which have since been completed, and volumes have returned to normal levels. In our interstate natural gas segment, adjusted EBITDA was $431 million compared to $460 million for the third quarter of 2024. Results for the quarter included a $43 million increase related to the resolution of a prior period ad valorem tax obligation on our Rover system. Excluding this accrual, interstate results would have been up compared to the third quarter of last year due to higher demand on several of our interstate pipeline systems. And for our intrastate natural gas segment, adjusted EBITDA was $230 million compared to $329 million in the third quarter of last year. During the quarter, we saw increased volumes across our Texas intrastate pipeline system due to third-party volume growth. This was offset by reduced pipeline optimization, primarily as a result of our continued shift to more long-term third-party contracts, which are expected to provide more stable revenues at good rates over the next 10-plus years. Now looking at organic growth capital guidance. We now expect to spend approximately $4.6 billion on organic growth capital projects in 2025 compared to our previous guidance of $5 billion. This is a result of project forecast reductions as well as spending deferrals into 2026. Looking ahead to 2026, we expect growth capital to be approximately $5 billion, the majority of which will be invested in our natural gas segments. We continue to expect our growth project backlog to generate mid-teen returns. The majority of the earnings growth associated with the Flexport Permian processing, NGL transport and Hugh Brinson Pipeline Expansion Project is expected in 2026 and 2027, promoting strong growth in the coming years. Beyond these projects, we also have a significant backlog of opportunities which support continued growth. Taking a closer look at some of our recently approved and currently underway projects, we continue to see significant demand for our services on the natural gas side of our business, which is expected to support growing demand for gas-fired power plants, data centers, and industrial and manufacturing. First, looking at our Desert Southwest pipeline project, which we announced last quarter. This strategic expansion of our Transwestern Pipeline will enhance system reliability and provide new and existing markets in Arizona and New Mexico with access to low-cost, reliable Permian Basin natural gas. We recently completed an open season, and the 1.5 Bcf per day project is now fully contracted under long-term commitments with investment-grade counterparties with a term of 25 years. This includes a 400,000 MMBtu per day contract with a new demand source along the pipeline route. In addition, since the launch of the open season, we have received significantly more interest in current planned capacity, and we are evaluating options around a potential increase in capacity. We also recently entered into commitments with U.S. pipe mills to lock in the majority of space and delivery for pipe in the fourth quarter of 2027, at favorable prices, and we expect to have 100% locked up very soon. Since the day we announced this project, our teams have been actively engaging with elected officials, county leadership, and associated communities along the route to communicate project information and updates. To date, we have engaged with over 175 stakeholders who have interest in or are involved in this project. Our discussions have been very positive, as these stakeholders are pleased about the economic benefits expected and also realize the critical need for a substantial supply of gas to help address the significant demand growth in Arizona and the Mexico markets by providing access to reliable, affordable electricity. Next, we continue to expect Phase 1 of our Hugh Brinson Pipeline to be placed into service no later than the fourth quarter of 2026. As of today, 100% of the right-of-way has been acquired for the proposed route. Over 85% of the pipe has been delivered to our pipe yards, and construction is underway on all 5 spreads of Phase 1 of the project. In addition, last quarter, we announced Phase 2 of the project, which will include additional compression. This system will be bidirectional, with the ability to transport approximately 2.2 Bcf per day from West to East and approximately 1 Bcf per day from East to West. The Hugh Brinson pipeline will provide significant optionality by connecting shippers to our vast natural gas pipeline network, as well as providing access to the majority of gas utilities in Texas, and to ever major trading hub in Texas. Additionally, our existing customers have the option to increase their volume commitments, and we will expand the system to meet those commitments in accordance with those agreements, if exercised. At this point, over 90% of our 3.8 million MMBtus per day of Texas cross haul capacity is sold out with demand charges through 2036, with the majority of this volume extending out through the remainder of the decade. This includes Hugh Brinson and all the other pipeline flows from the Permian Basin to markets in the East. We have also sold capacity from East to West on the same systems, which will add significant revenue to our pipeline assets without additional capital. We are constantly evaluating whether our pipelines can generate more revenue by transporting a different product. In numerous instances, we have converted systems to different products, which have generated significantly more revenue once they are converted. Although we are highly confident that we can keep our NGL pipelines out of the Permian Basin at or near capacity, we are considering converting 1 of our NGL pipelines to natural gas service. Considering the contracts we have already consummated, as well as the numerous transactions we are negotiating, we believe we may have the opportunities to significantly increase the value of that capacity by converting it from natural gas liquids to natural gas transportation service. In August, we also approved the construction of a new storage cavern at our Bethel natural gas storage facility, which is expected to double our working gas storage capacity at the facility to over 12 Bcf. And we expect to place the new cavern in service in late 2028. This expansion will increase our equity gas storage capabilities to serve growing demand in the heart of our extensive intrastate natural gas pipeline network and will further strengthen the reliability of our systems, as well as provide the opportunity to benefit from pricing volatility. We are well positioned to meet the future growth, and we have the ability to develop at least 15 Bcf of additional storage capacity at Bethel. Now for a brief update around the recent natural gas opportunities for new power plant and data center development. As a reminder, on our last call, we announced that we had signed a deal to provide natural gas supply to a major hyperscaler in Texas. Since then, we have added to that agreement and are now able to disclose that we have entered into multiple agreements with Oracle to supply natural gas to 3 U.S. data centers, 2 of which are in Texas. Under the terms of these long-term agreements, Energy Transfer will deliver approximately 900,000 Mcf per day of natural gas. Supply for these agreements is expected to be sourced from our extensive intrastate pipeline network and construction of a new pipeline lateral from Hugh Brinson and our North Texas pipeline is underway. First flow is expected to occur by the end of the year, with final completion to follow in mid-2026. We have also entered into a 10-year agreement with Fermi America to provide a pipeline interconnection and exclusively provide initial gas supply of approximately 300,000 MMBtus per day to Fermi's hypergrid campus located outside of Amarillo, Texas, subject to Fermi's election. Energy Transfer has entered into several of these types of exclusivity agreements with data center and power plant customers, reflecting more than 1 Bcf of additional supply should these projects move forward. In addition, we recently entered into a 20-year binding agreement with Entergy Louisiana to provide 250,000 MMBtus per day of firm transportation service to fuel their facilities in Richland Parish, Louisiana, subject to limited conditions precedent. The agreement would begin in December 2028, and includes an option for Entergy to expand the capacity in the future. Within the last year, we have contracted over 6 Bcf per day of pipeline capacity with demand-pull customers. These contracts have a weighted average life of over 18 years and are expected to generate more than $25 billion of revenue from firm transportation fees. This includes volumes from end users, data centers and utilities off of Desert Southwest, Hugh Brinson and other of our natural gas directed projects. Also, our interstate power plant and data center team is working on multiple transactions in a number of states other than Texas and Louisiana, which have a high likelihood of reaching FID. These opportunities continue to show how extensive our interstate pipeline network is throughout the country and how fortunate we are to have so many of them near our pipeline assets. In addition to the gas-fired power plants and associated data center opportunities, we also continue to negotiate with industrial, manufacturing and utility customers needing our gas storage and transportation services. Our team continues to do an excellent job of identifying the most likely opportunities, and we remain in advanced discussions with several other facilities in close proximity to our footprint. Lastly, construction of eight 10-megawatt natural gas-fired electric generation facilities continue, and we are currently commissioning the third facility at our Grey Wolf processing plant. Now looking at the Permian processing expansions. As a reminder, both the Lenorah II and Badger's 200 million cubic foot per day processing plants are in service. The Lenorah II plant is currently running at full capacity, and the Badger plant continues to ramp up. As a result of our recent processing plant optimization and expansion projects, our processed volumes in the Permian Basin, as well as Y-grade transportation throughput from the Permian, reached new records during the quarter. In addition, we continue to expect our Mustang Draw plant to be in service in the second quarter of 2026. We also recently approved the construction of Mustang Draw II, which will have a capacity of 250 million cubic foot per day, and is supported by continued growth from existing customers. Mustang Draw II is expected to be in service in the fourth quarter of 2026, and is expected to cost approximately $260 million, including spend related to additional gathering and downstream pipeline infrastructure. It will add additional revenue to our downstream assets as well. At our Nederland terminal, our Flexport NGL Export Expansion Project was previously placed into ethane and propane service, and volumes are expected to continue to ramp up throughout the remainder of 2025. In addition, the facility is now ready for ethylene export service. We expect to have over 95% of all LPG export capacity at Nederland contracted through the end of this decade. In our crude segment, an expansion is underway at our Price River Terminal in Wellington, Utah. This expansion, which is backed by an agreement with FourPoint Resources, is expected to double the terminal's export capacity and enhance its deliverability of American Premium Uinta oil to markets throughout the Lower 48. The expansion includes new railcar loading facilities, a new heated storage tank with approximately 120,000 barrels of capacity and 2 additional 6,000-foot storage unit tracks, which will significantly improve storage capacity at the facility. The project is expected to cost approximately $75 million and is expected to be in service in the fourth quarter of 2026. In September, Energy Transfer, along with Enbridge, completed a successful open season for the Southern Illinois Connector project, which resulted in 100,000 barrels per day of contracts for transportation of Canadian crude oil to Nederland from both Flanagan and Hardisty. This project will connect Enbridge's pipeline near Wood River to Energy Transfer's assets in Patoka, Illinois to support the delivery of Canadian crude oil to the U.S. refineries, further strengthening market connectivity and value for all our stakeholders. Separately, Energy Transfer is working with Enbridge to provide capacity for approximately 250,000 barrels per day of Canadian crude oil through our Dakota Access pipeline. This project would provide much needed capacity for oil out of Canada, and would be a significant part of the steady volume throughput on Dakota Access for many years to come. We have taken FID on the Southern Illinois Connector project and expect to take FID on the other project by mid-2026. We are very excited about both projects, which would fill available and additional capacity on our Dakota Access and ETCOP pipelines, and we look forward to providing additional details in the future. Turning to Lake Charles LNG, we are in advanced discussions with MidOcean Energy related to its participation as a 30% equity owner of Lake Charles LNG with a commensurate percentage of LNG offtake. We're in discussions with other parties for the remaining equity we intend to sell in order to reduce Energy Transfer's equity interest to 20%. We are also in the process of converting nonbinding heads of agreement with several offtake customers to binding agreements with the remaining volume of offtake needed for positive FID. FID on the project will be dependent upon bringing these items to the finish line. We continue to be extremely focused on capital discipline. The process we are going through during the development of our LNG project highlights this focus. Our projects need to meet certain risk/return criteria, and we are not there yet on LNG. Now turning to guidance. We expect to be slightly below the lower end of the guidance range of $16.1 billion to $16.5 billion. Looking ahead, Energy Transfer is one of the best positioned companies in the industry to help meet the substantial growth in demand for energy sources over the next several years. We are leveraging our strong relationships to develop new projects, backed by high-quality counterparties on both the supply and demand side, and we see growth opportunities across all aspects of our business. When combined with our existing natural gas pipeline network, our Hugh Brinson, Desert Southwest and Bethel storage projects further establish us as the premier option for customers seeking reliable natural gas solutions to support their power plant and data center growth plans. Our significant processing capacity expansion in the Permian Basin will help feed our downstream pipeline network. We are continuing to expand our NGL business in the United States to help meet growing international demand, and we continue to expand our crude oil pipeline network with strategic projects that will help fill available and additional capacity on our existing pipelines. In short, we have an extensive backlog of growth projects that are coming online over the next several years, and we continue to be extremely focused on capital discipline. These projects are highly contracted under long-term agreements, many of which are demand pull in nature, and they are expected to generate significant revenue, providing strong returns and considerable earnings growth over the next decade or more. That concludes our prepared remarks. Operator, let's open the line up for our first question. Operator: [Operator Instructions] The first question comes from Keith Stanley with Wolfe Research. Keith Stanley: First, I just wanted to clarify on the guidance for the year. So saying you'll be a little bit below the low end of the range for 2025, does that include SUN's acquisition of Parkland? Or is that still stripped out when you're making that statement? Dylan Bramhall: This is Dylan. For the guidance, we have not included Parkland in there. So we're saying without Parkland, we expect to be slightly below the initial guide. Keith Stanley: Okay. Great. And then picking up on Lake Charles, where you left off there. Can you give us more detail on -- I guess, realizing you guys are showing capital discipline, just how many more contracts you need at this point to firm up? And I guess, where you are timing-wise in the sell-down process to get to an FID decision? Marshall McCrea: Yes, Keith, this is Mackie. Let me step back real quick. We worked on Lake Charles for a lot of years. We've had different partners. We've gone through the pandemic. We've gone through DOE positive, LNG positive, Ukraine. Everything kind of ebbs and flows, and Tom and Amy and his team have done a great job of getting markets in difficult times, especially when we're competing against companies that's all they do is LNG and they're willing to go to FID without having sufficient contracts to provide guaranteed rates of return. So where we sit is -- and we've said this all along, Tom and I -- the only way we get to the end zone with LNG is to check all the boxes. And the major boxes are our EPC contract. We feel great about Raj and Rob and the team that worked very well with KBR and Technip to get a good price there and add contingency and get rates of return that work for us. And then we've spent a great deal of time getting the markets to where they need to be. We're very close to that 15 million, 15.5 million tons. Some of those are still HOAs, we've got to convert to SPAs that we expect to do by the end of the year. But the big box -- and Tom has already hit on this -- we really are focused with all the opportunities we have on our financial discipline. So we're very stringent about this one in regards to we're going to keep 20% of the equity in this, and we've got to have 80% of the other partners that are going to ride with us, good or bad, whether it's -- comes in under or over at the end of the day. So a specific number of contracts, and we've got a whole handful of equity players. We have -- it's amazing, the international market of how bad they want this project to go. It's one of the most attractive projects still not at FID, but we've got a lot of work to do. We -- time is not working against us. We'll have to go in and renew the EPC contract before too long. So we're hoping that these equity partners will step up by the end of the year and get us to where we want on kind of the risk profile and the participation we want in this project. So we're going to keep our heads down, we'll see over the next couple of months how things turn out, and we're pushing hard to get there, but we've got a ways to go. Operator: The next question comes from Jeremy Tonet with JPMorgan. Elias Jossen: This is Eli on for Jeremy. Just wanted to start on some of the recent data center deals you guys have signed. Trying to get a sense of the financial impact going forward. Just given the size of the partnership, I understand the orders of magnitude that it could have to the business, if you can provide some commentary there? Marshall McCrea: You bet. I think probably 7 or 8 of us, we'd love to talk about this. It's so exciting. We talk about every time we get on these calls. A year ago, when we announced Hugh Brinson, we didn't even know what a data center was. And we kicked it off a little less than 1.5 Bcf, and then data centers kicked in, and it's really been an impetus between that pipeline. Also, Desert Southwest had a lot to do with data centers. And then it just opened up the door for so many opportunities we're so excited about. The unique nature of these data centers, especially the hyperscalers are very confidential. So unlike a lot of our business, we can't really talk about it. I can't really get out there and get out in front of it. We were pleased to have the ability to disclose what we disclosed for this earnings call, believe me. And Tom said in the opening statements, we have so many of these we're chasing. A lot of them are high probability to get there. As far as how many we've done so far than what we've disclosed, which is on demand pull, a lot of that $25 billion is toward data centers. And I'll say one more thing, too, around data centers. Besides the fact that so many of them are in such close proximity to our pipelines, the Hugh Brinson pipeline, I believe -- and I don't think I've said this to a lot of our folks here is that I think it will be the most profitable asset we've ever built. And the reason for that is it's kind of the main artery connecting the Permian Basin with the rest of the world, the Southeast, East and rest of Texas, Gulf Coast and all that. And so not only have we sold out to this point, 2.2, we have data centers that have options over the next few quarters to exercise the right to create 800,000 more of capacity. So we'll be doing some more looping of Hugh Brinson. And in addition to that, we've sold a material amount of capacity, significant revenues from an East to West standpoint, which means a backhaul with no additional capital. And I think our data -- Adam is sitting here with me, he leads our data center group in Texas. And we couldn't be more upbeat about where we sit today through data centers throughout the country, but especially in Texas because of our ability to perform and provide reliable gas to all these data centers and because of our close proximity to where these are being built and our ability to source from Waha, Maypearl, Katy, [ Hex ] South Texas, Carthage. You can even leave the state and bring gas into some of these data centers. So it's something we'll be able to talk more and more about as these confidentiality issues go away as we're able to visit more. We're very excited about the future, and it's hard to over-exaggerate what these data centers and power plants associated with those and power plants unassociated with those for a grid -- to deliver electricity into the grid. So a very positive, exciting part of our growth for many years to go. Elias Jossen: And then recognize 2026 budgeting is likely ongoing, but just want to think about it at a higher level, the kind of major puts and takes that you guys are looking at, both on the base business and then some of the organic growth projects that you're bringing on, just kind of framing the high-level drivers for performance next year? Dylan Bramhall: This is Dylan. So as we look at next year, I think the biggest piece is really to look at -- we are going to have really the main impact of Flexport coming online. Those contracts kick in basically January 1. And so while we've got a little bit of -- little bit of spot volumes running here through the third and fourth quarter this year, we're going to get the full impact of Flexport coming online. Permian. Permian plants continue to fill the plants. We've got new plants that we're constructing right now, so we'll see the continued growth out of that. With all those plants, remember, we're sending those liquids down our NGL lines into our NGL and fractionators as well. So that will continue to be growth. We'll have frac line coming on next year as well. And so those are the main pieces there. And then Hugh Brinson will come online at the end of the year next year. And so just wait to see based on timing, how much impact that will have as well. Operator: The next question comes from the line of Theresa Chen at Barclays. Theresa Chen: I want to ask about the consideration of converting one of your NGL pipes to natural gas service in the Permian. Would you be able to provide any additional details related to that at this point? Which pipeline do you have in mind for this? I imagine something directed to the Gulf Coast. What would be the cost and related economics of doing something like this? Marshall McCrea: Yes, Theresa, this is Mackie again. Let me give a quick little history. So you'll probably know most on the call that we are constantly looking at every one of our assets. And if assets are underutilized and could be put into a different service, we do that. And we have a [ record ] of doing that. Dakota Access would not have been a project without our ability to convert our 30-inch trunkline from natural gas to oil. It was very beneficial to the North Dakota producers to get a good rate down to the Gulf Coast. We converted a TW line as a natural gas interstate pipeline and natural gas liquids, which has been instrumental about getting a lot of liquids out of the Delaware Basin into our pipeline network. And also, our J.C. Nolan, it was a liquid line that we converted to diesel and are flowing diesel from the refineries in the Gulf Coast to West Texas. So it's something we're constantly looking at. And what we run into on the NGL front is that we have some tiers, some contracts, cliffs over the end of this decade that is kind of approaching. So as we negotiate to extend and/or fill that up, what we've started to recognize is there's been a lot of announcements. One of our competitors several months ago announced a large diameter NGL line. That was just the most recent pipeline announcement for an NGL line. We're scratching our head. How in the heck in this environment, at the rates these folks are quoting to producers, how they can build these assets and get any kind of reasonable rate of return. So what it's causing us to look at is -- we have 3 NGL pipelines out of the Permian Basin. Does it make sense to continue those NGL service? It may. We're in negotiations with over 300,000 barrels right now. But we're looking at very closely as we continue to negotiate. As the fees get more and more tight and more competitive, it just doesn't make sense. So you correlate that with the success Adam and his team have had on these data centers and you start putting numbers to it. If these options are exercised over the next few quarters, we're going to be loop and pipe. We're going to have to be required to loop Hugh Brinson, make it a bigger project. We could forego between $800 million and $1 billion. And if you look at the rates that we'll have to move that gas on the anticipated volumes that will recontract up at these much reduced rates, some of the scenarios show twice the revenue with natural gas as what we might see with NGL. So this is not something we're making a decision on today. But as we always look at and analyze, how do we make the most money we possibly can for our unitholders with the assets we have, and we are certainly, seriously looking at this conversion. Theresa Chen: Understood. And on that same line of thinking as it relates to capital efficiency, your agreements with Enbridge on the crude side and moving WCS through DAPL and ETCOP to Nederland, it seems like that time line would line up nicely with DAPL's recontracting in the 2027 time frame. And considering the narrowing of Bakken differentials over time, certainly, a new source of barrel is welcome. From an earnings perspective, are these connections backfilling volumes and maintaining earnings at the level that they are versus facing a contract roll off? Or would you expect earnings growth across your crude assets as these projects come online? Marshall McCrea: This is Mackie again. I think we probably used the word exciting, excitement too much. But we're very excited about what's going on in there and teaming up with Enbridge because you're right. It's almost like you've got somebody in our office. You're right. I mean, we've seen volumes level off. If you talk to the majority of the largest producers in the Bakken, they're not talking growth anymore. They're talking kind of flatline. So as these cliffs fall off of some of these contracts, the timing with what we're doing with Enbridge could not be better. We just announced today that we've got FID on 100,000 barrels of heavy that we'll deliver into our southern end of our Dakota Access, which we call ETCOP. And even more exciting is the need for Canadian barrels to find better markets, and the best markets for Canadian barrels or U.S. refineries. So we're very pleased with where we sit with Enbridge. We -- they are going through a process with the Canadian producers. It's going to take several months. I'm not sure I've heard -- we've heard any protest, exceptions or anything. Everybody is fully behind this. We kind of think of this as the first phase, that's 250,000 a day. So to your answer to the question, it fits in perfectly. Our first priority will be to make sure that we give the opportunity for all the producers in North Dakota to sign up for whatever term they want to make sure there's capacity on Dakota Access for their pipeline. That's our first priority. Our second one is keeping our pipeline full. We have the ability to move 750,000 barrels a day. We're 500, 550 today, so we can move a lot of the barrels from Enbridge without much capital, but we also think this may be just a stepping stone of what we may be able to accomplish with Enbridge out of North Dakota. But anyway, on the first 250, that we're parlaying very well with any declines or any cliff that we have on existing with the timing of these first 250,000. And then like I said, we think there's also some upside. So as Tom said in his remarks earlier, we are so excited about the timing of this and how it's going to keep Dakota Access full for a long time because these are 15-year agreements that we'll be working on with the Canadian producers. It will take us into the 2040s. Operator: The next question comes from the line of Spiro Dounis with Citi. Spiro Dounis: I want to start with the growth backlog more broadly. Curious, how you're thinking about the total opportunity set for growth, maybe beyond the sanctioned projects and a lot of the ones you've talked about today. Some of your peers have started to quantify these opportunities with multibillion-dollar backlogs. And so curious if that's a number you'd be sort of willing to share? Or maybe even another way to think about it, how do you think about a new run rate for CapEx in this environment? Thomas Long: Yes. Listen, I'll go ahead and start off with that. This is Tom. We have put out the $5 billion for next year. Obviously, as we get into early next year and year-end, we'll keep that number updated for you. So you can see we've got -- we do have a great backlog of very good, high-returning projects. And if you start trying to look out further than that, I don't know that we can really give you a lot of guidance there. But you can see just from what we're already talking about. I'm not trying to guide you toward the '26 number continuous, but you can see we continue to have a lot of opportunities, and we've got a great team that's out there chasing a lot of these. So in fairness, at this stage, don't really have a -- probably a number for you there, but it's going to be a strong number. And they're going to be good returning projects, and we're going to make sure that we have the appropriate risk on them too as we venture off into these. So... Spiro Dounis: Got it. Tom, I appreciate taking a swing at that one. Second one, maybe just going to Desert Southwest. You mentioned seeing additional interest there. Could you maybe just remind us again how you're thinking about upsizing that pipeline, what diameter you're looking at now. And you also mentioned, I think it was 400,000 dekatherms a day of demand source along the route. Can you just expand a little bit more on that? Marshall McCrea: Yes, this is Mackie again. Yes, Beth and her team did a fantastic job. We kind of -- in a lot of these cases, on these projects started way behind. And it took a while to get there, but we were very pleased to announce that. We've taken trips to Washington. We've been to both states along the way, and the project is very highly thought of from a political standpoint and from an economic standpoint. So huge upside there. We did complete the overseas on as we have said, there's at least a Bcf above what we've already sold out above the 1.5 Bcf. So we're in -- a lot of work to figure out. Some of those involve some laterals off of [ DSW ]. So we've got some work to do. But we're -- certainly have the capability of increasing it by at least 0.5 Bcf, possibly up to 1 Bcf, we'll be making those decisions over the next 5 or 6 weeks. We've locked in steel prices for a majority of that project, and we up until the middle of December, we have the flexibility to go from 42 to 48 or any combination thereof. So we sit in a really good spot on where we've already locked in prices, and we'll see how it plays out. As part of the 400,000, that kind of falls under that unique nature of confidentiality. We can say a whole lot more on that. But that project and others similar to that, we are chasing. And I would say, we're pretty confident that we will expand it higher than 1.5 Bcf, but not sure if we'll get to 2.5 Bcf, but we'll see how the next six weeks play out before we have to make a decision on pipe size. Operator: Next question comes from Jean Ann with Bank of America. Jean Ann Salisbury: Congrats on all the data center deals. I know you get asked this frequently, but you've been so active with the hyperscalers. I think you said earlier this year that Energy Transfer place in the story is primarily gas supply. But what keeps you from wanting to go into the power generation itself in a bigger way? Marshall McCrea: This is Mackie again. I think we're all anxious to answer this. Because we like good rates of return on our projects, and we just -- unless we've missed the boat on that, the opportunities that we've seen are low double, if not high single digit, it just doesn't fit. I mean, we'd love to team up with the folks that are generating those projects and provide all the gas they want. Not saying that we never will participate in that, but we'd have to see a lot better rate of return than what we've seen in the projects we're aware of. Jean Ann Salisbury: That's very clear. And then as a follow-up, earlier this year, you FID-ed the Bethel gas storage expansion. Are gas storage rates high enough today to drive material other brownfield storage expansions in the U.S.? Or is Bethel kind of a unique case? And do you kind of see more upside on gas storage rates as LNG starts up in the next few years? What inning do you feel like we're in, in those rising? Marshall McCrea: I'll go again. Here we go again, exciting. Storage is another huge area for us. We have about 233 Bcf of storage. We're expanding Bethel by another 6 Bcf, which is about 240 Bcf. The majority of that, probably 190 Bcf is in Oklahoma, Louisiana, Texas, very well positioned, tied to our large [ end of the ] pipeline. And with the absolute necessity of reliable gas supplies to the -- all these data centers, it's imperative that we have the ability through our big inch diner pipe to deliver and more importantly, deliver when we have freeze offs in Oklahoma or freeze-offs in the Permian Basin or other areas. So we believe that the value of storage is going to skyrocket. You think about 30 Bcf of LNG that's going to come online by the end of this decade, early [ 2030 ], and you pick a Harvey, you pick a hurricane that spins along the Gulf Coast for days. Yes, there's some storage capability of all these LNG facilities, but there's going to be problems, and it's going to happen. And we're going to be very well positioned. As far as Bethel, which we had 100 Bcf there. It's in the heart of all of our large diameter systems. It gives us the ability to come out of those systems and go anywhere in Texas, all the major hubs, all the major utilities, and as well is going into the interstate markets both at Waha area, our interstates and others and also the Carthage area. So we are very bullish. However, we're not going to go out and just back a bunch of storage. We're very disciplined. It's kind of where we're at now, and all of our capital spending, as we -- as Thomas said several times. And so -- but it doesn't mean that within the next 6 months, we don't kick off another storage to back to another project. And it's very important to our data center customers. So we have a lot, and we look forward to talking over the next few quarters of a lot of others that we intend to add, but to not only have the capability we have. I just said kind of all these other receipt points, but also in dire times like [ Uri ] and tough times, we have the ability to perform unlike anybody else. And storage gives us that backdrop to be able to do that. Operator: The next question comes from Michael Blum with Wells Fargo. Michael Blum: I wanted to go back to the data center deals, you've announced Entergy, Fermi and Oracle. Is there a way -- can you provide us any kind of framework for how to think about the capital outlay for each of these data center supply projects and your expected returns? I realize they're all a little bit different, but just like high level or a way to think about that? Marshall McCrea: Sure. High level, and we've said this before. A lot of the data centers were talking to, very low capital. As I mentioned earlier on Hugh Brinson, we didn't have a data center in our head when we announced that project. And then [ low and behold ], we go through right by Abilene with 1 of the largest -- potentially largest data centers in Texas. All we have to do is lay a lateral, 24-inch lateral kind of a loop system that provides what's going to be needed that location. You look at Franklin Farms in North Louisiana, we're looking at a less than 20 mile lay. So pretty low capital stuff. Others, depending on where we go, there's some -- a couple of them that are kind of out in the middle of the [indiscernible]. But we look at [ the land too ]. Those would be capital exclusively for the large capital dollars exclusive for those opportunities. But Michael, I think you said it well, it's all across the board. I mean, it can be embedded in some of our large inter-projects that we already have built. It could be embedded in projects that we've announced. And part of that is data center expansions, which is what helped us expand Hugh Brinson was these data center deals that we have done. So it's kind of a combination. But I'd say a lot of what we're looking at now, especially in Oklahoma and other areas of Texas that we're very close to getting some deals done, much less capital than for the amount of volume that we're talking about. And I have one thing to that. We have some data centers that have secured their electricity supplies somewhere. Renewables, somewhere else. And yet they're willing to pay large demand charges or the ability to instantaneously pull gas from our system in the event they've got interruptions from there. So those are very low capital projects that we'd be utilizing. As I mentioned earlier, our storage capabilities, along with our large diameter capabilities to move large volumes quickly to these locations. Michael Blum: Okay. Got it. That makes sense. And then just a clarification on your earlier comments on Lake Charles. I guess the first question is, would you definitely -- do you see this as you're definitely going to get to FID? Or is it really subject to all of those criteria that you laid out earlier? And if you do get to FID, what would you -- what's your latest on when you think timing-wise, you'll get there? Marshall McCrea: Yes. So let me make this real clear. Yes, we will not proceed with LNG until we have secured 80% of equity partners similar to ourselves. And we've got some work to do -- to do that. I mean, we -- getting the contracts done, feel great about that. If you see contract, feel great about that. But the last big, most important box, especially as we're emphasizing this financial discipline that's very important to us. When you only chase 1 or 2 projects, you don't think about as much. When you're changing billions of dollars in projects, several of which we've already announced, we've got to be careful in stepping out on something like this. And -- we're not an LNG company, like we compete -- we're a pipeline company that has an LNG or a regas facility, converting part of it to LNG. So no, we're not going to get to FID until we have the required amount of equity partners that we need. And we've -- as we've said, we've got our work cut out for us to get that done timely enough to be able to get to FID in relation to our EPC costs that are -- that we have with our EPC contractor today. Operator: The next question comes from Zack Van with TPH. Zackery Van Everen: Maybe going back to Hugh Brinson. Now that Phase 1 is fully contracted and we've seen a few producers come out and indicate they signed up for capacity. Can you talk to the breakout of supply push from Waha and demand pull contracts from data centers and other demand sources on that pipe? Marshall McCrea: Yes. This is Mackie again. I think you said Hugh Brinson, it seems like that. We didn't hear the first part of that. But yes, that project started out as demand pull. Then to kind of get to finish line, we had a lot of producer push. And now as we've grown and expanding it, it's pretty much all demand pull. So it's been a pretty balanced combination of those two. But what we do see on the growth on any type of expansion will be a demand pull. Zackery Van Everen: Okay. Perfect. And then I know this might not be your arena and more on the end customers, but it feels like there's a lot of straws going into the Permian for gas between your projects and various other ones through the end of the decade. Have you seen your customers start to talk about actually signing supply deals out of Waha to make sure that gas is there on top of the FT contracts they have with you all? Marshall McCrea: What a great question. It's interesting because if you don't think we're looking at this closely and doing our own studies in this, but there's been four pipelines announced. Depending on rumors, about one of those going to a 48-inch, possibly one of ours going to 48-inch. We could -- you could see north of 11 or 12 Bcf of new demand projects built out of that, not counting probably 0.5 Bcf to 1 Bcf of data centers that are built in the Permian Basin. So to answer your question, we are aware of some of the end users have reached out to producers to try to lock some of that up. But the great thing about our assets, our gathering assets, our intrastate, our interstate assets coming out of the Permian Basin, it can do nothing but grow dramatically. It's got to grow between 12% and 15% just to get enough gas to fill the pipes that have been already announced over the next 4.5 years. If I was in market, I would be out locking up production today. Operator: The next question comes from John Mackay with Goldman Sachs. John Mackay: I appreciate the time. A quick one for me. You have in this slide -- on gas going to the power, you talk about 6 Bs of new deals signed over the past year. If you do some math, it's actually a pretty good margin on those. I'd love to know, how much of that 6 is kind of incremental growth on top of kind of what the business is doing right now? And then, yes, if we were to kind of back into a margin on what -- or a fee and what that's implying, is that a reasonable run rate for what you guys are seeing on some of these incremental power data center deals? Dylan Bramhall: Yes, John, this is Dylan here again. Yes, that's all incremental business that we've signed up that we're not currently doing today. So these are all new demand sources that are in the process of being constructed right now. And so that's all incremental. Now backing into the fee, yes, that's correct. If you do that math, you will back into a few, but that is made up of a lot of different types of contracts. So I'd be careful on trying to just project that forward on everything. I mean, that's got a good mix of Desert Southwest, some of the setoff in Hugh Brinson and then a couple of Bcf of just other demand growth along our systems or we're building laterals out too. So when you put that all together, yes, you do get to that pretty strong weighted average fee. But like I said, it is made up of those different sources. Operator: Thank you. This will be our last question. It's from the line of Manav Gupta with UBS. Manav Gupta: I'll ask only one question. Bloomberg has reported that Energy Secretary, Wright, has sent a [ draft ] proposal to FERC that would limit the regulators review period for data center connections to power grid to 60 days, expediting the process, which can currently take years. I'm just trying to understand if this proposal does go through, could that mean a material acceleration in demand for natural gas to support electric generation? Because, honestly, it's like bring your own electricity right now. So that you might be the only game -- or your pipeline side be the only game in town if this proposal actually does go through. Marshall McCrea: Manav, I think we've not heard that yet, but that would definitely be a big boost to the pipeline business. And being able to move that quickly there would definitely be good for our business. Manav Gupta: Okay. Can you elaborate a little bit on the expansion of Price River Terminal? It looks like a very interesting project, an exciting project. And what would be the demand for this expansion? Marshall McCrea: Yes. Once again, Adam is sitting here next to me. What a great project. Years ago, we kind of took over that and it was kind of struggling and our team worked very hard to really grow that business, and it's phenomenal what they've done. I would say we've got time to know what percentage locked in of the acreage up there, but it's a significant amount of that acreage is locked into us for many years to come. That's for a lot of refineries that's very valuable, kind of lack the oil that fits what they're looking for. So not only is that a great project for us as we expand that terminal, but we also see a lot of synergistic downstream, have new possibilities with a lot of those barrels going to St. James and possibly to Nederland. So there's a lot of upside to that project, but stand-alone, that's going to be a really great project for us. Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Tom Long for any closing remarks. Thomas Long: Listen, once again, we do thank all of you all. As Mackie answered on several of the questions -- excited, it was the most commonly used word here of how excited we are. And you know that we've -- we've always dreamed of kind of getting to this point right now through our growth here with M&A and organic growth projects. And the reason why you're seeing a lot of this is just because of the massive infrastructure that we've built up and where our assets sit. So that's what's provided the opportunity. We are going to stay very disciplined on our capital. But these are the kind of projects that are just very high returning projects, that are right in our wheelhouse, and we're going to continue to chase them with a great commercial team and the E&C team to build them. And of course, the finance team and the rest of the group, the team to be able to keep everything going. And so you're going to see these opportunities, and we look forward to talking to you more about this capital and about these great projects. Appreciate all of you joining today, and we look forward to the follow-up questions. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by, and welcome to Enovix Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's program will be recorded. And now I'd like to introduce your host for today's program, Robert Leahy, Head of Investor Relations. Please go ahead, sir. Robert Lahey: Thank you. Hello, everyone, and welcome to Enovix Corporation's Third Quarter 2025 Financial Results Conference Call. With me today are President and Chief Executive Officer, Dr. Raj Talluri; and Chief Financial Officer, Ryan Benton. Raj and Ryan will provide remarks followed by Q&A. Before we begin, please take note that today's call contains forward-looking statements that are subject to risks and uncertainties. These statements are based on current expectations and may differ materially from actual future results due to various factors. For a discussion of these risks, please refer to the disclosures in today's press release and our filings with the Securities and Exchange Commission. You can also find these materials on our website at ir.enovix.com. All statements made on this call are as of today, November 5, 2025, and we undertake no obligation to update them, except as required by law. Additionally, during the call, we may reference non-GAAP financial measures. You can find a reconciliation to the most directly comparable GAAP measures in the materials posted on our Investor Relations site. With that, I'll turn the call over to Raj. Raj Talluri: Good afternoon, everyone, and thank you for joining us. Enovix is expanding the limits of battery capabilities and transforming how the battery industry will evolve over the coming years with a silicon battery. During this quarter, our team made significant advancements in developing a silicon battery while strengthening our key partnership alliances. Today, I'll highlight our progress in Q3 and then provide updates on our initiatives in smartphones, smart eyewear, defense and strategic initiatives before turning it over to Ryan for a financial update. We delivered strong execution and financial progress in Q3. Revenue grew 85% year-over-year to $8 million. We achieved a non-GAAP gross profit of $1.7 million or 21% margin compared to a loss in the prior year. We also secured long-term funding, which is expected to finance Fab2 and enable our path to positive cash flow. Completing a shareholder-friendly warrant dividend and issuing a new convertible notes due in 2030 brings total cash and marketable securities to $648 million at the end of the quarter and allows us to execute from a position of strength. Our AI-1 smartphone battery was validated by an independent testing firm, Polaris Labs, as the highest energy density battery reported for a smartphone battery in the industry and in addition, having leading fast charge capabilities. Our lead smartphone program with Honor, a top 8 mobile OEM has entered the final validation phase ahead of planned 2026 smartphone launch. Honor has been an outstanding partner, and we appreciate their cooperation as we work tirelessly to bring this breakthrough technology to the mobile phone industry. Honor's feedback on our product development and inputs into mobile battery needs has been instrumental in the execution of our road map as we advance towards commercialization. Besides Honor, our second smartphone OEM development program is also accelerating with this additional customer also now in qualification. And we are continuing to sample to other top mobile OEMs. Our mobile partnerships offer us key market insights and reflect the strong commercial relationships we have today in this market. In smart eyewear, we delivered over 1,000 battery packs to our lead customer under our supply agreement. These packs are now undergoing customer qualification. Furthermore, we have delivered samples to 9 other unique OEMs and ODMs, and we expect to have some of them launch products using our batteries in 2026. On the manufacturing front, we made significant progress in yield, throughput and cost optimization. We achieved yield improvements in Fab2 in Malaysia across all production zones, notably in Zone 1 laser dicing. We optimized our battery formation process in Zone 4 to increase the throughput materially. We believe Zone 4 capability now exceeds the volume requirements for the second and potentially the third high-volume lines, significantly reducing future CapEx requirements. Shipments from our Korean factory accounted for the majority of our year-to-date revenue, with the largest contributions coming from defense and industrial customers, where we continue to benefit from strong demand. We completed the integration of our Q2 acquisition of SolarEdge assets, adding cell capacity, incremental coating equipment and room for future expansion. Additionally, leveraging the capabilities of this team, we began building our first cell manufacturing capability for our 100% active silicon anode technology in Korea also. This will serve as a new product introduction line, our NPI line. Finally, I want to welcome Dan McCranie to our Board of Directors and Srikanth Kethu as Head of Enovix India, expanding our leadership team as we scale globally. Dan is a high-impact operator, sales executive and a broad leader with deep experience scaling complex technology businesses. His track record at onsemi and other global semiconductor companies adds immediate strength to our Board as we expand commercialization and manufacturing in 2026 and beyond. Our new Head of India, Srikanth, will strengthen our world-class R&D center in Hyderabad, which accelerates our R&D efforts and help ensure the success of scaling our Malaysia facility. Now let's talk about smartphones. Since I started in 2023, I focused the company on smartphones as the most financially attractive market to our batteries. After visiting key OEMs in April 2023 and getting an understanding of the key product requirements from them, we started developing our smartphone batteries to meet these stringent performance targets. As we developed our technology to meet these requirements, we entered into a development agreement with Honor as a lead customer in September 2024. Over the last year, we made significant progress both in our product development and meeting their product qualification milestones. We passed the vast majority of Honor's qualification requirements and in several cases, exceeded them. In order to consistently achieve 1,000 charge discharge cycle with their components, we have agreed to a design iteration, which is already underway. We're on track to ship these samples in Q4, enabling Honor to complete full life cycle testing. This additional cycle is part of a thoughtful, collaborative qualification process that's typical when introducing breakthrough battery technology into flagship smartphones. This rigorous collaborative process of building a leading-edge smartphone battery with Honor, we believe, enables us to launch products with the rest of the smartphone industry in a relatively seamless fashion. Our second smartphone customer is now validating the AI-1 performance. The next milestone for this customer will be to provide us with the precise mechanical dimensions of battery we need to supply and move to a qualification and an expected commercial launch in 2026. Additional smartphone customers have similar requirements to our lead customer, and we expect their qualification process to go much faster. What's exciting about AI-1 is that it's not just a smartphone battery. It's a platform. Providing this level of performance can open the doors to a much wider set of markets. We started in smartphones, a $12 billion opportunity where our 900 watt hour per liter performance gives us a clear edge for on-device AI. From there, the same technology moves naturally into smart eyewear, AR/VR and IoT, about an $8 billion market today, where success depends on getting high energy into the smallest possible space. In defense, roughly a $3 billion market opportunity, customers are choosing Enovix for a rugged, safe, mission-ready designs and diversified supply chain with manufacturing in Korea and Malaysia. And longer term, our silicon anode architecture scales across EVs and computing markets that should exceed $500 billion by 2040. Now let's turn to smart eyewear specifically, which is proving to be a faster-moving adjacent market than we previously expected. We currently have 2 cell designs for this market as we see 2 distinct product classes emerging, displayless smart eyewear designed for lightweight, voice-driven experiences and display-enabled AR eyewear, which carries much higher compute and battery demands. We expect this to be a broad market with many different consumer electronics and fashion brands launching products in 2026. The AI-1 platform enables significantly longer run time in this space-constrained application. We now have sampled the AI-1 platform to 10 unique smartware OEMs and ODMs, and we expect to showcase the first end product with an OEM publicly in CES 2026 in January. Turning to defense. Momentum continues to build this quarter across multiple geographies. In Korea, we combined seasoned manufacturing capabilities for conventional lithium-ion batteries with our expertise in silicon anodes. Our leading products now include silicon doped anodes and the customer response has been encouraging. Year-to-date, our Korea facility has shipped roughly $20 million of products, the majority of which went to domestic defense and industrial customers, including two of the major three contractors in the Korean military. With customers outside Korea, we are seeing strong progress in both aerial and subsea drone markets. These customers are increasingly diversifying their supply chains and our manufacturing footprint has opened doors with them. Based on customer feedback, our products are meeting the demanding requirements of this segment, including high pressure tolerance, long cycle life, large capacity formats of up to 60 amp hours that operate reliably in low temperature environments. We have a robust pipeline of opportunities in this segment growing to over $80 million globally. Before I turn it over to Ryan for the financials, I want to provide an update on the M&A front. Our mission remains unchanged, commercializing our 100% active silicon anode architecture for space-constrained high-volume devices. Our conviction drove us to strengthen our balance sheet, giving us optionality to accelerate growth organically and inorganically through strategic M&A. This quarter, we began evaluating several opportunities that could advance commercialization through vertical integration and accelerating entry into complementary markets. A select few that meet our strategic financial criteria are under consideration, and our funnel of opportunities continues to grow. While we continue to evaluate opportunities that fit our strategy and financial filters, we have not entered into any agreements at this time, and there is no certainty that any such opportunities will result in completed transactions. Now I'll turn it over to Ryan to give a financial update. Ryan Benton: Thanks, Raj, and good afternoon, everyone. Before I get into the financial results, I want to highlight the capital markets activity we executed during the third quarter. On the left side of the slide, you can see the summary of our warrant dividend program. We completed the program at the end of August with all warrants either exercised or expired. Roughly 26.5 million warrants were exercised, generating about $224 million in proceeds, net of fees and expenses. During the third quarter, we repurchased approximately $58 million of common stock. The net of these 2 programs resulted in $166 million in net liquidity, strengthening our cash position, enabling the funding of our Fab2 build-out and other strategic initiatives. On the right side, we show the convertible notes offering completed in September. We issued $360 million of 4.75% notes due in 2030, which after purchase discounts and capped call costs added about $303 million in net liquidity. The notes convert at $11.21 per share with a redemption trigger at approximately $14.57 per share. The capped call overlay has the ability to substantially offset potential dilution. As shown on the slide, we structured the cap call using multiple tranches, which provides several interim payoff opportunities during the term rather than the typical all or nothing settlement at maturity. If Enovix's stock price meets or exceeds one of these price thresholds, there is a substantial payout. If we meet all of the targets specified, the company could receive cash proceeds of over $200 million. We believe that this structure lets us capture value as we execute while managing dilution responsibly over time. The net result of all this is that we closed the quarter with $648 million in cash, cash equivalents and marketable securities. The goal wasn't just to raise capital. It was to remove what we perceived as a financing overhang to give Raj and the team the confidence to execute upon our strategy without distraction and to give our customers comfort in our financial strength. I believe to a large extent, we have achieved these goals, and it's been impactful. We now have the resources we expect will allow us to fund Fab2 to pursue select strategic opportunities and to operate with confidence. It's exactly where a company at our stage should be. Now turning to the Q3 results. This was another strong quarter of execution for Enovix. Revenue came in at $8 million, up 85% year-over-year as we continue to deliver solid growth across defense and IoT programs while simultaneously advancing sampling activities with our lead smartphone and smart eyewear customers. Non-GAAP gross profit was $1.7 million, representing a 21% gross margin compared to a loss in the same period last year. The improvements reflect higher sales, favorable product mix and continued cost discipline. Non-GAAP operating expenses were $31.5 million, up year-on-year. The majority of the increase was driven by higher depreciation and amortization with modest increases in R&D and manufacturing readiness investments. As a result, non-GAAP loss from operations came in at $29.8 million versus $26.9 million in the same period last year. Adjusted EBITDA, however, which excludes depreciation and amortization, improved by $2.3 million, a 10% improvement year-over-year. Non-GAAP net loss per share attributable to Enovix was $0.14, an improvement of $0.02 from Q3 2024. Overall, we delivered against our plan and continued building the foundation for scale and profitable growth. You just saw the detailed walk-through of our Q3 results, so I'll focus here on guidance for Q4 and some context. For the fourth quarter, we expect revenue between $9.5 million and $10.5 million, up 25% sequentially at the midpoint. We expect non-GAAP loss from operations between $30 million and $33 million, reflecting continued investment in manufacturing readiness and product launch preparation as we scale towards volume production. For non-GAAP net loss per share attributable to Enovix, which includes the impact of interest expense on the new convertible notes, we expect between $0.16 and $0.20. And finally, we've added a new metric for guidance. We are forecasting capital expenditures, which for the fourth quarter, we expect to be between $9 million and $12 million, primarily tied to Fab2 equipment as well as the build-out of the NPI production line in South Korea. Note, our guidance does not include mass production for any commercial smartphone shipments to Honor in Q4 2025. Importantly, however, we believe that the customer commitment and launch plans remain firmly intact. Our second smartphone OEM program is also progressing well in parallel. While we're not giving 2026 guidance today, investors should expect a more back-weighted revenue profile next year following end customer qualification and product launches. With $648 million in cash, we believe we are well positioned to continue executing on our plan, and we remain prepared to pursue strategic opportunities where they meet both our strategic and financial criteria. And with that, operator, we're ready for questions. Operator: We will now begin the Q&A session. Please note that this call is being recorded. Before we go to the live questions, we're going to read two of the most highly voted questions submitted by shareholders ahead of this call during the call registration. The first question is, do you have just 1 or 2 smartphone battery customers at this point? And do you have enough capacity to satisfy their needs? Raj Talluri: Thank you for the question, and thank you all for listening. We have agreements with 2 smartphone OEMs, and both are in different stages of qualification. And of course, we've also sampled 7 of the 8 top smartphone OEMs over the past period from -- with our batteries. And we -- and we are getting positive feedback from all of them on how they feel about the batteries, different safety tests they're performing. On the capacity front, we -- as I mentioned, we have a line that when fully facilitized, can produce up to 9 million batteries a year next year. And we also started making some -- last call, I mentioned that we started making some initial payments towards augmenting the Line 2 and so on. So we absolutely do have the capacity to support both the customers as they ramp. And 2026 will be a breakout year, and we'll continue to add capacity to support all our customer demand in '27 and so on. Operator: Thank you. And the second question is, will Enovix pursue rapidly evolving drone manufacturers requiring improved batteries? Raj Talluri: Yes. Thank you for that question. So this is a market that, as you mentioned, is rapidly evolving. We are getting a lot of interest from many drone OEMs, both in aerial and subsea, like 2 class of drones that we are finding. And we have been shipping batteries, high-performance, high rate batteries from our Korea facility to many defense customers in South Korea. We are now able to satisfy and sample those to other drone manufacturers that are asking us for those batteries now. And in fact, we just got another purchase order today from a high-tech defense manufacturer here in the U.S. to provide more samples for evaluation of their programs. So yes, this is a fast-moving market, and we're getting a lot of interest for our already existing commercial batteries that we're making in Korea. Operator: Okay. And we will now go to the queue. [Operator Instructions] Our first question comes from Mark Shooter from William Blair. Mark Shooter: Congrats on naming Honor as your lead smartphone customer. This is a big name in China. Unfortunately, though, it looks like they want 1,000 cycles now. Is this correct? And how much of this was a surprise to the team? And what's required in the design front to achieve that? Raj Talluri: Yes, the requirement has always been 1,000 cycles. As I mentioned in the last earnings call, we have -- it's a development program that we're working together with them, and we gave them samples in July, and we were doing cycle life testing while they were doing cycle life testing on the same batteries we provided. And as we went along in this testing process, we realized that we need to make one more small design change to get to the full performance that they want. And we validated that change now internally, and we have confidence that, that change we made will actually go to the 1,000 cycles requirement. We're now making batteries to that specification, and we expect to get those batteries and send them out to Honor this quarter, and they will start the testing again. And as you know, batteries are one of those things where when you give a new design iteration, we got to start the cycle life testing again, and it takes 3 to 4 months to do it because of just the nature of the process. We expect that to get done in 1Q next year, and then we expect to get the commercialization after that. But we're very happy with the progress we've made. It's been very collaborative, and they have allowed us to mention their name, giving us -- with all the progress they have seen and what we have made and how good the batteries are. So I'm very, very confident with what the team has done, and it's going well, and we expect the batteries -- and I'm confident the batteries we shipped in 4Q will meet all the requirements. Mark Shooter: That's great. I appreciate that. You touched on that time line. I'm wondering if you could add any more color there? Should -- you mentioned 3 to 4 months. Should we be expecting that first regional testing PO to happen in Q1 with a follow-up maybe in Q2? I mean how are you guys looking at this now? Raj Talluri: Yes. I mean, look, we don't want to launch anything -- they don't want to launch anything together. We want to launch a battery that's fully tested, solid, safe, meets all the requirements because the first battery to production, and we want to make sure we do everything right. So as I mentioned, it takes 3 to 4 months to validate it after we shipped it. And then they'll need to put it in their phone and then the next model will intersect. So we should expect something in the first half of next year if everything goes well. Operator: And our next question will come from George Gianarikas from Canaccord. George Gianarikas: I'd like to just continue on the path of the questions around Honor. Again, congratulations. And just trying to understand the cadence of production and orders that we should be expecting. You mentioned the first quarter, we should get more detail around an order and then maybe ramping production in the second. Just your level of confidence that this is sort of the last design change before achieving order status and then production. Raj Talluri: Yes. Look, I'm very confident. My team is very good. They've done tremendous work, and this has been a close cooperation with the customer. So we are seeing everything and they're seeing everything. They are giving us solid feedback. Again, we are trying to launch everyone should understand 100% active silicon anode battery into a smartphone, which has never been done before with a brand-new factory. So we made tremendous progress. That's why I put the time line out there. So for all the -- all our investors and for you guys to get a feel for what -- how complex this is and how much progress we have made. I'm very confident. But as I always mentioned, we don't want to launch anything that's not 100% solid, and we work closely with our customers. And if all the testing goes well, I think it will be fantastic to launch next year. And again, there's another customer right behind that's also testing it, the same design iterations that we're making. That customer is also getting it. We got feedback from them that this is really benchmark in energy density that they're seeing. So there's a lot of interest, but we want to make sure it's solid when it goes to production. And as Ryan mentioned, we have a strong balance sheet, and we are well capitalized. So we have what -- we have the resources we need. We have a factory that's running well to get it to full production at the right time next year. George Gianarikas: And maybe as a follow-up to switch gears regarding an acquisition. Obviously, you've built up an incredibly strong balance sheet. I'm curious as to where you're looking? In other words, what opportunity set are you looking to explore from an M&A perspective just because you have this enormous opportunity in front of you just with the cells that you plan to manufacture soon. What could you add to the tool set that will make that addressable market even bigger? Raj Talluri: Yes. Well, first thing I want to say is I want to be -- everyone to be clear, our mission is to make this great technology we have of 100% active silicon anode batteries into smartphones, AR/VR, IoT, compute and in some aspects into some EVs. That's our #1 goal, and we are squarely focused on that. But we do find as we go into that, that there are other aspects we could add to accelerate that growth in terms of channel, in terms of time to market, in terms of other components that help get that penetration of this great technology into market faster. But again, we will do it very thoughtfully. We're not -- we're going to do it in a way that is financially makes sense and also does not distract us from our main goal. So that is probably all I can say at this point. And we are getting quite a bit of inbound interest, as you mentioned, because we have a very strong balance sheet, but we're going to be very thoughtful about how we use it. Ryan can comment. Ryan Benton: I mean I can't say it better. I mean, I think we'll pride ourselves on being good stewards of capital. It will have to make sense from a strategic standpoint, from a technology standpoint in order to further the core mission, and then we'll apply discipline, financial and diligence filters to it. Operator: Our next question comes from Jeff Osborne from TD Cowen. Jeffrey Osborne: Just two on my side. You mentioned, Raj, the yield improvements in Malaysia. I was wondering if you could just level set us where were things, where are things? Where do you need to be? I think TJ touched on sort of a risk ramping up aggressively next year to meet the customer demand. So relative to maybe where his expectations and yours are, what's left to do? And what have you achieved so far? Raj Talluri: Yes. Great question, Jeff. Look, this year, what has happened is we've had so much inbound interest on various markets. As I mentioned, 2 cell phone OEMs that we have development agreements that we had to make the batteries and these are actually the batteries that you see here that have been sampling to the customers. And then we had 2 different smart eyewear customers, and this is actually the batteries that we ship from our factory that go right into the leg here, 2 different sizes of that. Then we had another IoT customer, which is potentially very high volume. That's a slightly different size. We had to make that one. Then we were making the battery for the defense contract that we had. So a lot of like 5, 6 different cells that we're making. And the reason I tell you that is when you're making so many different sized cells, you have to constantly adjust the lasers, adjust our stackers to -- and the tooling to make each of those. So we -- and these are just samples, right? We're talking hundreds and thousands of units. So we did not really spend that much effort and energy on optimizing for yields because by the time we got one done, you're just retooling it for the next one. Now we've given all the samples to the customers. We are focused on 2 markets, 2 products, which are shorter term for production like in '26, which is a bigger smartphone cell, this one and the smaller AR/VR cell. So these 2 cells is what we are focused on now. We have an Agility line, we have an HVM line. And since the last couple of months, the yields are coming up very nicely. And I review this every week. Actually, every week, I have a meeting on execution and very pleased with the progress, particularly on the laser side and on the stacking side, they are where we expect it to be. And again, like I said, the high-volume production now is mid- to late next year. So we will be ready for benchmark yields by that time. So I feel pretty good that it's headed in the right direction, and we are focused on it now. Jeffrey Osborne: Great to hear. Maybe just as my second question, to follow up on Mark's prior question. Can you just be more specific as it relates to was there a scope change with Honor as it relates to their expectations? Or was there a form factor change or chemistry change? I'm just trying to understand better the tweak that you made that then now has to go through this new validation testing cycle. I get that there was a change, but what was it driven by? And what was the nature of the change? Raj Talluri: So when we send the samples to them, I think I mentioned last time, we were doing cycle life testing while they were doing cycle life testing, which means you charge your battery, discharge your battery, charge your battery, discharge the battery. You want to do it 1,000 times. Now we weren't -- we hadn't completed the cycle life testing before we shipped the battery. We had done some amount of cycle life. We sent it to them. They started doing it. Along the way, we noticed that the trend line is now such that to get past 1,000 cycles, we have to make a chemistry change, not a form factor change, not a scope change. So -- and we started validating that chemistry change, and we now have samples internally that we believe now will go all 1,000 cycles. And we are making batteries with that new chemistry now, and those should come out in Q4. And this is a normal process in building a battery for the first time. Things take a little bit longer initially than we expect. But once you get the first one done, it's a whole lot easier because all the other smartphone customers have very similar requirements. Operator: Our next question will come from Colin Rusch from Oppenheim. Colin Rusch: Could you talk a little bit about the supply chain and preparedness? Certainly, there's been a lot of innovation around some of the anode materials that you guys could potentially use. And can you talk a little bit about what that opportunity set looks like as you work to advance some of the advanced applications that you're talking about here, both in the phone and the military markets? Raj Talluri: Yes, absolutely. So what we are finding now is, I think maybe just for the broader audience, we are an architecture first battery manufacturer in the sense that we can take advantage of higher capacity or higher voltage cathodes. We can take advantage of different kinds of silicon anodes. We can take advantage of the latest advances in electrolytes to build a great battery because the better the materials get, the better our battery and our energy density we provide gets because we control the swelling and we have intellectual property and how to mix these different materials. So to your point, what we are finding, Colin, is that there are quite a few now of silicon anode suppliers. We were using before a silicon anode called SiOx, which is some kind of oxide -- silicon oxide. Now we're using SiC, which is silicon carbon. But there's different variations of silicon carbon. For example, the size of the particle of the carbon or the shape of the particle is a little bit different. The way they're manufactured is different. So we are testing quite a few of them. We are sampling with one, but we have second source and third source on various one of these things. So it's an exciting time to be a battery manufacturer because we can take advantage of all these tremendous material innovations and provide better and better batteries. Colin Rusch: And can you talk a little bit about the laptop opportunity? You've heard a lot about the phones and eyewear. But certainly, you guys have a fairly sizable opportunity in laptops as well. And as you get through some of the validation on the phones, how quickly could you transition into some of these other opportunities given that it seems like once you get the first one done and dusted, a lot of folks are going to line up real quick for incremental demand? Raj Talluri: Yes. I mean it's a very good question. I mean I think you see now what AI is doing to all the edge markets, right? I mean you can see now all the AI PCs that are coming out. We talked about AI applications and smartphones. AR market is just happening because of generative AI because you're able to now talk to these things. So almost all these end markets which use batteries at the edge, the demand is increasing and the performance requirements and the battery requirements are increasing. So laptops is a very exciting market. But again, for a small company like ours in early stage, we need focus. And I have been very focused on going after smartphones because I always believe that is the toughest battery to make, and we have a very good relationship with customers who are giving us requirements that we need to meet. From then -- from there, once we make that battery, we will be able to very quickly address other markets. Similarly, you can -- you are seeing now how quickly we were able to address the smart glasses market because we have the smartphone technology. And I see the computers coming similarly. Once we get our smartphone battery ready and in production, we should be able to quickly go into the compute market. Because in that market, basically, what it is, is it's a bunch of smartphone batteries put together. That's one way you can think about it. It's not like one giant battery. It's a bunch of 5 batteries packed together. So packaging, battery management systems, those are the kind of things that we partner to get our battery technology into those markets. So we are talking to some of those customers. But if anything, I'm holding back the team from getting too many samples out there because we don't have the scale to support all of them at once. I'd like to do 1 or 2 really well and then expand. Operator: Our next question comes from Ananda Baruah from Loop Capital. Ananda Baruah: Yes, I guess a couple of clarification for me. Raj, was it that you said first half 2026, expect initial production volumes with Honor? Raj Talluri: Yes. Again, it depends on how well the testing goes with them. I'm confident that what we're gaming this time will be really good in the sense of meeting the 1,000 cycle requirement. And if that goes really well, we'll find the right phone intersect for first half. Ananda Baruah: Got it. Awesome. And then the second smartphone customer, was it production in 2026 is the goal? And then part B of that question is, you had mentioned that you're able to sort of go through the process more quickly with the second smartphone customer. Can you just give some context around that? How much more quickly, what parts of the process like that? And I got a quick follow-up. Raj Talluri: Yes, sure. Yes, it's also targeted for second -- for next year's production, but probably the later half of next year because given where we are starting -- because what we need to get from them, we've given them some cells, they're not testing. And next step from them is to get the exact dimensions of the cell that will launch into production next year, towards later part of next year, fall is when typically they launch. And we'll have some time to make the battery to the exact dimensions in the first half, give it to them and they'll put it through their phone and qualify it. Like, for example, as I mentioned, this 1,000 cycles testing, right? We've now figured out what it takes to get to 1,000 cycles, and we have that chemistry now that we'll be sampling end of this quarter -- in fourth quarter of this year. You can see now that the next customer will actually get samples that we would have validated for 1,000 cycles. So you can see this problem that we are now addressing would have been solved, right, because we got ahead of that. And there's a lot of things we learned with our collaboration with Honor, how they do with the drop test, how they do cycle life test, how they do fast charge test, how the battery management system is controlled by them, what temperatures they store the batteries, how much swelling is allowed at various temperatures. So there's a tremendous amount of know-how in how batteries are tested to get into smartphones, which we now have, thanks to our first customer. And that's helping us with the second one because the second one also gave us the requirements and we looked at it, we're like, wow, these look very similar to the ones we got for the first one. So we're now able to meet them much faster. And my expectation is that the rest of the market will have very similar requirements because they're all phones going into similar markets. So that's why my comment on the first one is the hardest for the ones after that will be a whole lot simpler. Operator: [Operator Instructions] Our next question will be from Derek Soderberg from Cantor Fitzgerald. Derek Soderberg: So Raj, on the chemistry change, my understanding is the chemistry reformulation can take maybe multiple months, depending on how big of a change it is, I guess. Can you share like the time line from when you notice the issue to actually solving and integrating the new chemistry? And I guess what's maybe the risk that the new chemistry doesn't quite interact with the rest of the battery and you might need to reformulate it again? Raj Talluri: Yes. I mean, look, the way we operate is we have a bunch of different chemistries that we are constantly have as backups. If this one doesn't work, what do we do next? What do we do next, what is next? My engineering team has been studying these, again, for the last whole the last year. We picked one that we felt was -- had the best chance, but we had backups running at the same time to see what it would be if that one had some challenges. And now the backup, we've tweaked it and the results so far look very good. So I'm confident that the batteries we shipped this quarter will meet. But we have other backups running to them if those need another tweak. I don't believe we'll need one more, but we're always good to be prepared with multiple chances, right? The unfortunate thing about this, Derek, these are not like chips where we can do simulation and figure out what will happen, what will not. Like, for example, when I used to build processors, we'd have a simulation model. We would do analysis. We'd know what to do and then tools will help you do it. And when you tape out, you're pretty much guaranteed to get it. Unfortunately, in batteries, you just have to run for 1,000 cycles before you -- before you know if you got it. That's just the nature of it. But the good news is once you get it, you have it. So the first one is hard, but I feel pretty confident, but let's see how it goes. Derek Soderberg: Got it. No, I appreciate that. And then as my follow-up, Ryan, as you're looking into some of these potential agreements, I think ASPs have maybe changed since you guys have kind of last spoken about maybe a revenue breakeven point for the company. So as you guys sort of start to ramp to multiple customers, can you maybe share maybe what that revenue breakeven point is for you guys or anything else maybe on the near-term profitability model, if you update -- if you need to update margins or anything like that, can you share any of that detail now that you guys are sort of moving towards commercialization here next year? Ryan Benton: Yes. No, I think, look, fundamentally, I think we like where the market is going in terms of valuing our technology in our product. I'll stay consistent with what we've said in the past that an important milestone for us is to get multiple HVM lines in place build out in Fab2, and that's why we've started that process. In addition to getting lots of operational benefits of being able to switch over lines and run multiple products, it helps get to a certain level of scale. And it's really beyond that point. So Line 2, Line 3 that we think gets us to where we're gross margin positive and able to absorb the overhead. This is on a non-GAAP basis. And then really, it's as we march towards filling Fab2 with equipment and getting full utilization there that we see as being adjusted EBITDA positive or a proxy for cash flow positive. Operator: There are no further questions at this time. With that, I'd like to turn the call over to Dr. Raj Talluri for closing remarks. Raj Talluri: Yes. Thanks, everyone, for the thoughtful questions and joining us today. To close, I want to bring it back to the big picture. Enovix is entering one of the most important phases in our company's history, which is taking our breakthrough technology and scaling it to commercial production. We have a clear line of sight to that goal. Our AI-1 platform has been validated by third-party Polaris Labs as the highest energy density battery ever reported in a smartphone. Our lead smartphone and smart eyewear programs are progressing towards launch. Our manufacturing capabilities at Fab2 are ramping steadily. And we've delivered -- we have strengthened the balance sheet, and we secured the capital we need to execute. And we built a team that knows how to deliver. While qualifications and ramp cycles take time, what matters most that we are on the right path, with the right partners, with the right technology and with the resources to see through. I am incredibly proud of what the team around the world has accomplished, and I'm confident in the road ahead. Thank you once again for your continued support and for your interest in Enovix. We look forward to updating you on our progress next quarter. Thank you.
Matias Jarnefelt: Hello, everyone, and welcome to Harvia's Third Quarter '25 Earnings Webcast. My name is Matias Jarnefelt. I am the CEO of the company. And with me, I have Ari Vesterinen, our Chief Financial Officer. Ari Vesterinen: Hello. Matias Jarnefelt: I will first start by taking you through the highlights of quarter 3 in terms of business and financial performance, and I will also talk a bit about our strategy implementation. After that, Ari will continue and will shed more detail on our financial performance and numbers, after which we are very happy to get your questions. So let's start and summarize quarter 3. This time, it actually is very easy. We can summarize even with just one number, 19. So 19% top line growth at 19% adjusted EBIT margin. So essentially, when we talk about the top line, we delivered EUR 46 million, and that's, I said, 19% growth versus the comparison period. In terms of comparable exchange rates, that's 22% growth from last year. Organic growth was solid double-digit at 16%. We're very pleased that the growth was broad-based. Essentially, we had double-digit growth across all of our 4 geographical sales regions. And this despite the fact that, of course, this year has been rather volatile in terms of the macro environment. We had modest quarter 2 in North America. Now returning to a solid double-digit growth. That's, of course, something we are very pleased with. APAC and MEA continued very strong double-digit growth. And we're also very happy that Europe that has been a bit on the slower momentum for now the past couple of years, returned to double-digit growth as well. Our adjusted operating profit was EUR 8.8 million, and that represents 19% of our revenue. And that's an improvement from quarter 2 when we had 17% margin, while it's still slightly below our long-term target. The operating profit margin was impacted by the gross margin and in particular, higher cost of goods sold due to tariffs and currency exchange rates. This specifically refers to our heating equipment business, where we make the products mainly in Europe. And then when we sell them in the United States, they are sold in USDs. And of course, the increased tariffs also apply. Also, we've been increasing our operating expenses as we continue to build the foundation for long-term success in areas such as product development, brand building, channel expansion and operational efficiency. If you think about the year-to-date performance, it could be summarized at 17/20. So 17% top line growth at 20% operating profit margin. And looking ahead, we remain focused on executing our strategy and building the foundation for long-term success. And at the same time, we are focused on also delivering strong results in the short-term. In the near-term, our key focus areas include commercial excellence that includes topics like driving growth and driving pricing in this volatile environment, also sourcing and operational excellence to manage the materials cost and also prudent OpEx management. But it is very clear. This is extremely attractive market that's supported by strong long-term growth drivers, and Harvia is extremely well positioned to continue to lead this market and deliver significant growth. Here are the key figures for quarter 3. So revenue at EUR 46 million, and that's 19% growth, organic 16% and at comparable exchange rates, that's 22%. Adjusted operating profit margin at EUR 8.8 million, and that's 19% of our revenue. Operating free cash flow in this quarter was minus EUR 600,000. And there's 2 reasons to this. One is that historically, quarter 3 is our lowest cash-generating quarter. And the reason for that is that during the quarter 3, we are building products to sell during the high winter selling season. Also, we do believe in the long-term growth and success of Harvia. And that's why we're also investing in the platform to grow. So we've been making quite significant investments compared to our investment history in improving our operational efficiency and also building capacity to grow. So last year, we grew -- last year, we bought land around our West Virginia factory in the United States, and we have started to develop the site. And that's just one example of what is going on in our business. In terms of the first 9 months of the year, revenue at EUR 145 million, and that's 16% growth versus last year and organic growth at solid double-digit 11%. Growth at comparable exchange rate at 18%. Adjusted operating profit very close to that 20% mark at 19.7% and operating free cash flow for the first 9 months, positive EUR 13 million. As I opened, I mentioned that we are really pleased that we delivered strong broad-based growth during this quarter. So all of the regions grew double-digit. The highest growth rates continue to be outside Europe and also in terms of absolute contribution, North America and APAC contributed the most. But as I said, we are very pleased that now we also saw Europe playing strong and delivering double-digit growth in both of the European sales regions. When we look at Northern Europe, the region grew by 15%, and that's a significant momentum change after tough 3 years. And during quarter 3, North Europe represented 24% of our total revenue. Where did this momentum come from? We had strong performance in Sweden, in particular. And there, that momentum has been built through channel expansion and development. And also, I personally believe that, here there is some impact from the excitement that KAJ and Eurovision created around sauna in Scandinavia during first half of the year, and now we see that realizing in our numbers. Also Baltic countries delivered strong growth. I'm also very pleased that Finland that has been also struggling already it's quite some time, actually turned back to growth. And here, our focus is to continue on a positive path and really build foundations for sustainable, steady growth for the years to come. Continental Europe grew by 10%, and that's on top of 8% growth a year ago in the comparison period. And I think that tells a story about continued solid progress in the market. So essentially not just a temporary swing, but there is now already a longer trend where we see Continental Europe strengthening. If we look at Continental European markets, submarkets, we have many very strong performance countries there. For example, United Kingdom, Spain, countries in Eastern Europe like Poland. North America returned to double-digit growth after the modest quarter 2. And essentially, our revenue grew by 24% and the region represents now 36% of our total revenue. If you look at the comparison period and exchange rates, the dollar is now around 6% weaker than a year ago. So give and take at constant currencies, North America would have grown around 30%. In terms of organic growth and organic growth in North America, I'd like to note that ThermaSol, a company we acquired in the summer of '24, has been fully consolidated in our numbers since August '24. So essentially, it contributes to inorganic growth for Harvia Group only for the month of July. So August and September this year are already part of our organic growth. And majority of our revenue growth in North America clearly came from organic development. I'd also like to highlight a piece of news that came after quarter 3 was closed, and that is that we have appointed new President of Harvia North America and Region Head, Nathan Hagemeyer. We had a thorough process to find the best possible person to take the lead of this crucially important region for us. And Nathan brings a wealth of experience in selling technical products to residential and commercial facilities in a multichannel sales environment that resembles largely the sales setup that we have in Harvia in U.S. And also, I think there's a strong culture fit, something that we also value a lot. And I'm extremely pleased that Nathan accepted our offer and has already started actually since Monday this week in his new role. APAC and Middle East and Africa is continuing on its strong growth path. And you can see here the comparison figures from '22 through '25. This region is really picking up momentum. And also in terms of just absolute size, representing now 12% of our total revenue, it is a significant part of our business. And what we're also very pleased with is that APAC, when it was smaller, it was more volatile and prone to, for example, individual product deliveries. But when we look at the numbers now, the growth is broad-based, and we feel that the growth is on a strong platform in APAC and Middle East. Now looking at the portfolio view, we continue strong performance in our core of technical equipment for sauna and spa. And you can see that the heating equipment represented 56% of our top line during the quarter 3. We also are having strong momentum in other areas, but heating equipment just grew so fast that the relative shares of some of the other parts of our portfolio didn't develop. Now if we look at the growth bridge for quarter 3 by product category, you can see that the biggest absolute contribution, nearly EUR 5 million came from heating equipment, and that's 23% growth, but also solid double-digit growth in many other parts of our portfolio, and this is also something we are very pleased about. Now then let's talk a little bit about our strategy. Harvia is playing in a very interesting market. We are world leader in a market that has strong growth drivers that we believe have sustainability over a long time. And we want to be a proactive leader and leader that shapes the market and excites the market. And our strategy is based on 4 focus pillars that respond to questions what, where to whom and how. So what delivering the full sauna experience about product leadership and portfolio leadership. Where it's about winning the right markets that matter the most, to whom it's having the leading channels and brands in this business and how it relates to our operational excellence and competencies and people. And I'd like to mention a few things how we've been executing our strategy during quarter 3. In terms of delivering the full sauna experience of product and portfolio leadership, I'm very pleased that we have a strong core, and strong core helps us to build also the future. So when you look at the heating equipment performance, you could see that it is really going from strength to strength. At the same time, we are clearly upping the game in terms of innovation and differentiation. And in the following slides, I will share some of the examples of new products that we brought to the market or launched. In terms of winning in the markets that matter the most, North America, of course, we are very pleased that it's back on strong growth trajectory. And looking at the first 9 months, North America is really performing very strong. Also, APAC is performing extremely strong, and we are continuing systematic activities to drive growth across key markets and making sure that we are not too dependent on any single market in that region. I'm also very pleased that in terms of Europe, the tenacious and systematic work that we've been putting in place over the last couple of years is really starting to bear fruit. So having both regions now in double-digit growth is something that does help us in our strategic and growth journey a lot. In terms of leading the key channels, we, at the same time, want to deepen and grow our partnerships with the existing and traditional customers, that's mass volume merchants and also dealer channel. We want to be the best partner. At the same time, we want to build an even stronger direct-to-consumer channel, and I would encourage you to go and visit our almostheaven.com site and thermasol.com site. So you'll see the level of excellence that we've been able to build during the past 12 months on our direct-to-consumer channels. In terms of best-in-class operations and great people, we are continuing to invest in the heart of our competitive advantage, which is operational excellence. So we've been investing, for example, in energy-efficient and new coating system for Dierdorf that provides cost benefits and also efficiencies. We are investing in our Lewisburg site in West Virginia, in particular in anticipation of driving a significant and ambitious growth strategy in that region. We are also investing in our group IT, so streamlining, bringing common platforms and bringing more simplified and modern platforms for us. And that's also a very important enabler for us to keep scaling this business up. And now a few highlights from our innovation pipeline. So we have now started the sales of Harvia Fenix, which is a new full touch control unit for volume segment. I think it's really the leading product in this category. Exiting 4.3-inch full touch screen product. It's very easy to use with, for example, ready-made presets like mild, cozy and hot. It's smart. So actually it learns about your sauna. So it knows how fast the sauna heats up. So instead of programming it your heater to start heating, for example, 30 minutes before you want to go to sauna. Actually, sauna knows how long it takes to heat up your sauna. So you can just easily put that I want to go to sauna at 3 p.m. and the sauna will be ready, making it very easy for you and also saving energy. What's really cool about it, it's Wi-Fi enabled, and it's over-the-air updatable, so we can keep updating the software and providing even more functionality over the life cycle of the product. And in addition to being able to sell it with new heaters, we can actually sell it to significant installed base of saunas already out there since it's backwards compatible with huge seller Harvia Xenio control panel. So a really exciting product that we are very happy about. Another example is our new MyHarvia smartphone app and definitely the most advanced sauna app there. It very nicely aligns the user experience with Harvia Fenix. It's modern, consistent. Again, a lot of features, functionality to help you get most out of your sauna, including over-the-air updates, and for commercial users, ability to control multiple saunas from the same app and interface. We've also been working on the Harvia cloud platform in the background. So really making us ready for the future. Now in the United States, we've been playing mostly when we talk about ready-made saunas in the more like entry level through Almost Heaven Saunas in price points from $5,000 to $10,000. And with ThermaSol brand, we are now attacking the high end much more aggressively in the past. So we've introduced a range of really exciting 3 new models for the premium sauna category in price points from $30,000 to $35,000. And the response to this introduction has been very, very strong. So very much looking forward to what we can do in terms of delivering results in the coming quarters and years with this strength and play in the high end. And one highlight is that we actually got a prestigious recognition as Time Magazine selected Harvia Group solar powered sauna as one of the best inventions in 2025. And this is quite unique product. So it's basically electric heater powered product but designed so that it actually can be very efficiently and conveniently run with solar power. So really providing full freedom from electrical grids and very sustainable solution. Again, a highlight of what Harvia can do. And then the final slide before handing over to Ari. This is just an example of how we also continue to build other group brands like EOS, our high-end brand for technical equipment. Aufguss World Championships were held end of the summer in Italy. And in the center of the picture, you can see an example of what kind of products we can deliver. So that's an EOS event heater. And that was really exciting to see us as the centerpiece of such an event. Maybe another event to mention, Osaka World Expo was running 6 months during this year with over 20 million visitors. And essentially, Harvia was part of sauna experience site there, which run for 6 months, and it was fully booked 7 days a week, full day for 6 months, really shows the power of sauna and what we can do to excite the market. So with that, I would hand over to Ari. Ari Vesterinen: Okay. Thank you. So when we now compare the quarters, actually, the quarter 3 was great. We had a very clear growth path and the profitability level in absolute money stayed basically on the same level as a year ago, but the percentage is lower. And one thing what is here important to note, almost all financial metrics in the profit and loss statement improved in Q3, except the use of materials and external services. And this measure is not always the same from quarter-to-quarter. It depends on the promotions and product mix and so forth. And frankly speaking, we had a very good year last year. We had that percentage only about 30%. And now we had 37% of the annual -- the quarterly revenues, but this 37% is actually very close to our average, which has been in the past about 35% of the total sales. So I'm personally not worried about this percentage at all. It just requires certain price management with which we have been working. And as said, the quarters are not always alike. Here, we see the most important financials, the key figures for the review period. Okay, we have already seen the profitability and growth rates, but probably some highlights to note. The earnings per share increased about 12% now. The operating free cash flow, okay, it is now lower than a year ago, and it's because of the growth investments we have also in net working capital and in CapEx. And that's visible on the line investments in tangible and intangible assets. This year is an exceptionally high investment year. We are investing for the growth. Net debt stayed more or less on the same level as a year ago and leverage also net working capital has been growing. Also, our number of employees has grown, but only about 8% when we have grown 19% in the sales. So the effectiveness of the staff and the organization has improved. Here, we see the operating free cash flow and cash conversion over the quarters. And what is very typical for Harvia is the seasonality. We have the lowest cash flow usually in Q3 and then the highest usually in Q4. So that has been at least the pattern in the past. And the reason is simply that we have been making products to our stock during Q3 and the biggest sales seasons in North America, in Central Europe and many other areas. The biggest sales seasons are actually in Q4 and Q1. So we are well prepared for the Q4 sales season, and that's demanding some investments in advance. The leverage has been staying on a rather low level, 1.4 at the end of Q2. And in our long-term financial targets, we would like to stay under the level of 2.5. But in the case of acquisition also, we could temporarily also exceed it. But as you see, we have a very healthy balance sheet situation in terms of debt. The net financial items, no big changes now there. We had quite steady environment now during Q3 with U.S. dollar and also the interest and interest rate swaps, they helped also to keep the interest rates quite steady. So actually, the effective interest rates of interest costs -- financial costs to be paid out followed very much the accrued balance sheet-related costs. Here, we see how the investment levels have increased during Q3. And I'm personally not expecting as high level for Q4 anymore, but this year at '25 is somewhat over the historical average level of investments. And the investments, they are really, really required, and they have a quite short payback time, and they improve our operational efficiency also in the near-term. Okay. The Harvia's long-term financial targets, just to repeat, they haven't changed anywhere. They have been quite a while on the same level since last Capital Markets Day 2 years ago, 1.5 years. The average annual growth rate over 10% profitability, adjusted operating profit margin over 20% and leverage, as mentioned already earlier, under 2.5%. Harvia pays twice a year dividend, and now the second dividend installment was paid out October 28 this fall. So now there is time for questions, please. Ari Vesterinen: I have actually got a few questions here in the tablet and most of them are business related, also some finance questions. So I start to make -- ask 2 questions from Matias first. Is there an effect of prebuying ahead of announced price increases in your strong U.S. sales growth in Q3? Matias Jarnefelt: Maybe I would take you back to 3 months ago when we talked about our quarter 2. And I understand the quarter 2 results were a bit of a disappointment to the market, in particular, what comes to the modest performance of North America during that quarter. But at that time, what I told you, I said that look at quarter 1 and quarter 2 in combination because there were clear kind of shifts between quarter 1 and quarter 2, in particular in the comparison period from '24. And when we look at the performance in North America now quarter 3, it's actually a logical continuation of the first half. Another thing that I did mentioned during that earnings call was that we saw quarter 2 in North America modest in the earlier part of the quarter, but we saw signs of improvement as the quarter progressed. So essentially, I would say that this is a logical continuation of the performance already from a longer period of time. Maybe, however, I'd like to make a one brief comment, which is related to quarter 4 last year. And that's, of course, relevant for the baseline now in the quarter that we are now living in quarter 4 this year. And that, of course, is that we had a very strong top line growth last year, overall 28% growth in quarter 4 last year and 63% growth coming from North America, which had a significant portion of rather low-margin campaign sales. So maybe that's something to take into account as you assess Harvia's near-term outlook. But all in all, we see strong performance, continued performance in North America despite all the noise in the market. And despite that the consumer confidence generally on a macro level, we've seen, of course, taking a hit. But what comes to interest in our category, we seem to be in a good place. Ari Vesterinen: There is actually quite closer question to that. What is your strategy ahead of campaign heavy Q4 in terms of inventory levels and pricing? Matias Jarnefelt: Well, first of all, the plan is to participate in campaigns. Campaigns are a significant part of many of our partners' business model. So when we think about, in particular, large volume retailers, typically, they want to have something exciting to offer to their customers during the high selling season, for example, Black Friday, Cyber Monday. And we have a choice, either we participate, or we don't participate. And for us, it is clear we want to keep developing these partnerships. We want them to be a win-win for both. We feel that there's great opportunities for us. But of course, we've also reflected the outcome of quarter 4 last year and always try to learn from the past experiences. In terms of building the inventory, that's also visible in the cash flow. It is very clear that we have been building inventory to be able to deliver and sell during quarter 4 and quarter 1. And I think it's also a sign of confidence that we in the management have for the business. Ari Vesterinen: Then one question actually, you shortly mentioned it, but I ask this anyhow. Can you please tell more what is the heater behind the premium range launched under ThermaSol brand? Matias Jarnefelt: The ThermaSol saunas that we launched will be equipped with EOS heaters. So if you think about our premium brands, we practically have 2 of them. We have the German-based EOS that we have had in our portfolio since 2020 and ThermaSol, high-end brand for the steam and kind of home spas in North America that we acquired last year. In U.S., ThermaSol is clearly more well-known brand versus EOS. So while ThermaSol has great channel access to high-end spas and high-end commercial facilities, we feel it's a great opportunity for us to piggyback with EOS on that. So essentially, the idea is that what comes to steam products and then the kind of full sauna solutions in North America, they are branded ThermaSol. But what comes to the heating equipment, it's powered by EOS. So ThermaSol powered by EOS. Ari Vesterinen: Can you specify the investments in the efficiency you made in Q3? What segments and regions? Matias Jarnefelt: Well, the investments are rather broad-based. So one of the example we pointed out was the EOS factory that's located in Driedorf close to Frankfurt. We made quite significant investments there. Another example I did mention as part of my presentation, we bought land around our West Virginia factory in anticipation of building options to grow. And now we are taking action. So there is already works, the groundworks ongoing on the site, and we are expanding the facility as we continue to see significant growth opportunities for us for years to come in that region. Ari Vesterinen: Then more finance-related question. What was the ForEx impact on sales level in North America? I am after the euro-USD exchange rate you used in Q3 '25. The exchange rates we used for our P&L, they are the average rates from Bank of Finland. And for this quarter, we used exact average. It was $1.168 per euro. And a year ago, it was about $1.10. So actually, dollar was about 6% weaker than a year ago during this quarter. And as we saw from the pictures already in the presentation, we were way over 20% of the growth in Northern America. And in terms of U.S. dollar, it was about 30%. Is EMEA growth more one-off or new projects already coming after current project deliveries? Matias Jarnefelt: EMEA, so is that Europe? Ari Vesterinen: Yes. It is the -- well, let's consider the whole area, APAC, EMEA. Matias Jarnefelt: Okay. APAC and Middle East and Africa. Okay, sure. It used to be much more volatile. And of course, when the scale of the APAC, Middle East and Africa business was smaller, it was quite easily swung either direction by single large orders, for example, significant project deliveries. But over the past few years, our key goal has been to develop the region in a sense that it really provides not only growth opportunities, but also on a stable ground, so diversify the kind of outreach that we have in the region. And when we look at the quarter 3 in terms of the markets and countries that delivered to that regional performance, it is wide spread, and that's very good thing for Harvia. So we saw significant growth in countries like Japan, China, Oceania, Australia and also strong performance in EMEA. So it's not like something really stood out and kind of made the whole thing happen. It really is broad-based growth. And there wasn't -- there's always some project deliveries in Middle East, in particular. That is more a project-based business. But I would consider almost something that is very part of the business we do in that part of the world. And there wasn't any particular outliers in terms of, for example, project business impacting our quarter 3. So all in all, I would assess it as a solid broad-based performance. Ari Vesterinen: Yes. There is really a great interest for sauna, a growing interest in wealthier Arabic countries and certainly some business to come also in future. So it was really not a one-off even in those areas. The new Fenix control and app, is that an opportunity for installed base? Does it give modernization demand? Matias Jarnefelt: This is exactly the thinking we have. So I think in the sweet spot of innovation, we have something that excites the market and we can sell with the new products, but at the same time, provides us an opportunity to tap into the existing Harvia installed base. And if you think about the kind of strategic rationale of how we see Harvia in the long term, it is very important for us now to be a winner as the market goes through a significant growth phase. So have more Harvia products and saunas out there in the world. And the way we think about it is, that we want to make it easy for customers to get into the Harvia world. And once they are in the Harvia world, they want to stay. And one of the example is that if you have already Harvia sauna where you have that Xenio kind of mid-range control panel, it works perfectly with the new Fenix. There's no need to renew, for example, the wirings. That's an exciting opportunity for us to reach out to Xenio owners and basically send a message that there's an exciting innovation. Do you want to upgrade your sauna experience and modernize it with now this full touch smart console that Harvia Fenix is. So the idea is that as we basically sell products and new products, we also want to build the foundation for recurring revenue and loyalty for the long run. Ari Vesterinen: Okay. Now there is a series of 3 U.S. related -- more or less U.S.-related questions. So let's start. What is your best estimate on your performance relative to competition in the U.S.? Is part of the gross margin pressure attributable to increased price competition or merely by the impact of tariffs? Matias Jarnefelt: So around 30% growth after 9 months in the U.S. I think it's a solid performance. The market continues to grow. I believe that we have taken share. So that's one perspective to it. On the kind of pricing competition side, I think it's more related to inertia in having price increases effective that then truly reflect the changes in the cost of doing business due to tariffs and for example, exchange rate changes that happened actually pretty rapidly. If you think about the dollar depreciation, it really started to happen actually towards the end of quarter 1, then quarter 2 was significant rapid deterioration and then more stabilizing during the quarter 3. And then, of course, the tariff increases. We used to have tariffs of around 4% for our heaters that we make in Europe and sell in North America. And essentially, with that 15% general tariffs plus extra tariff on the steel part of the product, we talk about a little bit above 20%. So it's also quite significant impact in terms of that hardware business from Europe. We have implemented already pricing change, but it's also a little bit of a balancing act that what's the right strategy and right pace because at the same time, we want to keep growing, we want to keep our customer relationships strong. But of course, we also need the appropriate compensation for the great products that we make. So ultimately, the sort of margin dynamics, I think it's more related to just the macro factors, the exchange rate and tariffs rather than there would have been significant intensification of competitive landscape. Ari Vesterinen: Do you expect that the price increases implemented to counteract tariffs will be fully visible in Q4, thus supporting margins? Matias Jarnefelt: Well, long story short is that, I think, of course, price increase are always supportive. There's maybe kind of one area of uncertainty, which is basically kind of financing rules. So basically, to a degree, we've still been selling some products that were imported to the market before the tariffs took effect. And basically, it's first in, first out principle. So of course, we have been modeling also the kind of what's the full impact of the tariffs as we will transition in a situation where practically 100% of the products will be having a tariff attached to them. But all in all, I'm confident in the work that we have been doing. Significant effort has been put in pricing analytics and assessing the situation and agreeing and implementing the right course of action. Ari Vesterinen: How do you aim to improve your margin performance in Q4 in the U.S. versus last year when aggressive campaigns heavily diluted your margins? Matias Jarnefelt: Less aggressive campaigns. Now that's maybe a little bit of a kind of a cheek -- tongue in the cheek, but there is some truth to it. That's, of course, for sure. There is many things. So generally -- general price increases that we have been implementing and they have been also coming in force step by step. So we basically built a more like a transition path. It's not yet in full effect, but it's already partially in effect. It's about also being smart in terms of what kind of campaigns and campaign pricing, not only with kind of key accounts we have, but also what do we have available in our direct-to-consumer, which is the fastest channel where our pricing decisions can basically be affecting the price the next minute. And most likely, you would see a little bit less aggressive campaigns, but still good campaigns because at the same time, we want to continue to drive top line growth, and we want to continue to take share in this growing market to place us very strongly in terms of how do we have products out there, building the installed base and building the brand leadership for years to come. Ari Vesterinen: If there is a retrofit demand, perhaps you talk about ASP for such an upgrade, average sales price. Matias Jarnefelt: Yes, I think that's a great comment and something that we are increasingly focused on. So while we are driving growth and volume growth and as I said, building the installed base, it is very clear that in our minds, there's also the long-term future where hopefully, there will be essentially millions of products and saunas where we can sell more continuously. In terms of kind of metrics that we would be reporting like ASPs and ASPs by product category, that's something that we haven't done so far, but the idea, of course, behind that question is a very good one. Ari Vesterinen: Yes. Just to remind, in the more traditional sauna areas, 70% to 80% of our total revenues is actually replacement revenue. People are buying new saunas to their old or -- old place or replacing the heaters. And actually, our sweet spot of heater sales is the second heater for the same sauna. When the construction company has selected the cheapest heater, Harvia heater usually for the new sauna. And after a couple of years or probably 5, 6 years, the user of the sauna wants to have a better one. And that's the most interesting heater for us with more equipment and features and also with higher margins. Matias Jarnefelt: And maybe I could also continue on your very good answer. And just examples of the sort of building recurring business on the installed base. One example is, of course, now Fenix, where we can actually, through OTA, over-the-air updates, actually sell new features during the life cycle of the product. And then, of course, we are looking at -- basically these control panels are becoming fully connected interfaces in the wellness oasis that sauna is, what kind of, for example, digital services in the coming years we can offer that could also provide direct service revenue that would be high margin and scalable. Ari Vesterinen: You discussed already earlier about that we make probably not so strong campaigns, but we make campaigns during Q4. Now the follow-up question to that, shall we expect negative organic growth for North America for Q4? Matias Jarnefelt: I will leave that to your Excel exercise. We, of course, always want to see positive figures, and we have, I would say, high ambition level. And then as you know, we don't give short-term guidance. So that's something that you will need to assess. Ari Vesterinen: Okay. Your CapEx has been now somewhat elevated both in '24 and '25. Is this higher CapEx expected to continue in '26? Or should it decline? Our estimate is currently that it will decline a little compared to this '25, but we don't give more exact figures for that. Okay. When are you able to offset the tariff impact with price increases? That was more or less already discussed a little. By the way, the tariff impact for completely sauna cabin set in U.S. for us is actually not so heavy. So -- because the saunas are produced there in Northern America and from local wood with local work power. So only the hero, which is coming from Finland, it has max up to 20% impact tariff for the landed cost, but it makes -- from the total price of the package only about 10%, 10% to 15%. So the impact of the tariffs for the complete sauna cabin, which we are mostly selling there is only about 2% and with our pricing power, we should really be able to increase that 2% or somehow otherwise compensate. So the biggest impact of the tariffs are for importers who are importing only the heaters for their saunas and for the distribution. And we have that kind of customers also in U.S. who are actually paying the import tariffs by themselves. Matias Jarnefelt: And maybe to also build on what Ari said, we, of course, are in close discussions with our key customers. And some of them have also big companies, public listed companies making statements also in terms of the development on kind of the pricing of the merchandise that they buy from suppliers from the Far East. And I think it is clear that there is kind of this dynamics that the inventory that many companies have in the U.S. to a degree has been imported before the tariffs took in place. And now more and more companies are really the kind of, I would say, the back against the wall implementing the price increases. So essentially, I would say, as my personal assessment that we have not fully yet seen the pricing increase impact of the tariffs that are currently in force and finding that new equilibrium in the market will take probably another 6 months. Ari Vesterinen: From some of my personal channel checks in Europe, it seems that the winter selling season has started earlier than normal. Several distributors told me that Harvia sales have been accelerated notably throughout the summer and since October. Would you like to comment that? Matias Jarnefelt: Well, I can comment. Actually, I'll take you again back to 3 months ago when we were talking about quarter 2. And actually, usually, I don't talk about weather as an excuse. But actually, 3 months ago, I did mention that. And I did mentioned it in particular in relation to our Northern European performance. So in Northern Europe, we had basically vacation house sauna season, so-called cottage season is very important for us. But in North Europe, we had a very poor beginning of the, I would say, spring and beginning of the summer. And the weather was significantly better in July. And that's what I also mentioned. So I would say the quarter 3 that you now see, it's actually a little bit the dynamics from the season. Actually, the spring season started a bit later just due to the weather. Ari Vesterinen: The same is true for U.S. when looking at recent momentum on Costco and Wafer. Most importantly, customers are increasingly mentioning that Harvia has been the best value for money. Thank you. Not working for us, this [ ask. ] Somehow, this feels like COVID-19 2.0 light as consumers are staying more at home. Meanwhile, we are coming out of a period of subdued home improvement, which has started to pick up again, also benefiting Harvia in mature regions. Does this match to your view? Matias Jarnefelt: Well, I think there's a little bit different dynamics between how much are we in wellness business and how much are we in home improvement business depending on the region. So for example, in Finland, it's very clear that sauna has close connection to the property market and new build construction just for the simple reason that saunas in such a big majority of houses, apartments and summer cartridges. So there is such a correlation. Whereas in regions where the sauna density is much lower, clearly, the dynamics is much more about buying a wellness product. And sauna is like, I would say, miracle wellness oasis. Sauna has significant health and wellness benefits. And it's unique since you can get those health and wellness benefits in such a pleasant way. And this combination, it does great for you and it feels great, story resonates extremely well, almost no matter what the economic times are. And personally, I'm a strong believer of this sauna as a perfect wellness oasis and the strength of the story for years to come. Ari Vesterinen: During the conference call in September, Costco's CEO said they would radically reshuffle their holidays offering. For the first time, they will also bring in saunas in store for which they didn't have enough space previously. Does this impact Harvia given that Costco members are now limited to shopping almost 7 saunas product online? Does it imply that Costco will carry saunas in its own inventory and thus impact Q4 and future performance? Matias Jarnefelt: Well, I wouldn't comment too much on the CEO of another company. But of course, we have taken a note, and we have a long-standing relationship with Costco. And the growth ambition of Harvia is to grow each of our accounts, so we want to keep developing Costco, and we see significant growth opportunities. We also want to have more of the big box retailers as part of our partnership network. We want to grow in the dealer channel where we can sell more premium products like ThermaSol saunas, which require, for example, installation support for the end user. And we see significant opportunity also in our D2C with a portfolio that's tailored for D2C so that all channels can grow without cannibalizing each other. And of course, as I said, we know about the comment made. And it's an example of actually in a sense, in the sort of big macro picture, the tariffs most likely are bit of a negative thing, but they do also change the supply chains and competitive landscapes. And one example is that, of course, Harvia makes majority of our products inside the United States. So we are not fully insulated from tariffs as discussed, but we are better insulated than most of our direct competitors. But there's also this competition between categories in big channels. And essentially, we know that many companies like the one mentioned and others have seen significant price increases, in particular products that have been imported from the Far East and making reassessment of their commercial potential in their channels and also, for example, for the kind of sales season campaigns. And this is something we have now seen that actually a category like sauna that seems to be resisting very well kind of the macro environment because the story of the category is so strong and partner like Harvia that can produce good value and much of it -- much of that value created in the United States are in great position. Ari Vesterinen: Looking at the strong growth in heating equipment. Harvia has got more than 20% market share. No matter how you look at it, it can't be coming solely from new build or replacement at your existing customers. You must be converting non-Harvia customers into Harvia customers, coupled with upselling, the price difference between a digital control versus a basic heater. Can you comment on the drivers behind the strong growth in heating equipment? Matias Jarnefelt: Well, on one hand, the whole -- like sauna category is growing. And many saunas in the world are powered by Harvia. And if we think about just putting things in scale with Harvia, we talk about Harvia making -- we make clearly more than 200,000 heaters per year and give and take maybe 20,000 sauna cabins. And practically, that means that we have 10x more volumes in the heaters. And that, of course, tells the story that many saunas, which have been provided may be custom-made on site or maybe provided by some other sauna cabin providers actually use Harvia. And the reason is very clear. We have excellent products, and we provide great value for money, but we also are very good at designing the products so that the market wants them, and we have efficiencies in production. So that, of course, leaves good margins for us. But ultimately, this is the dynamics. We want to keep growing in the equipment business. We see significant opportunities. And in terms of volume, in order of magnitude, it's significantly larger than the cabin business at the moment. But at the same time, we want to sell these full solutions because it does help us tap into much bigger spend potential in the key markets. So these sauna and heating equipment do complement each other, and I think we are well placed in both of them. Ari Vesterinen: Looking at your LinkedIn pages, recruitment has ticked up quite a bit at ThermaSol and Almost Heaven Saunas over the past 2, 4 weeks. This matches the early indicators that sauna demand is already a lot higher versus previous year. Notably, it comes at the time of the shutdown. Here is the [ current ] shutdown meant. Are you impacted by the current shutdown? Matias Jarnefelt: I would say mostly no. That would be the answer. Maybe on the sort of recruitment, of course, if you think about a region that's growing 30% year-to-date and has a history of growth of 40% over a period of 6 years on average, of course, that puts us in a situation where we have opportunity and need to strengthen the organization. And I would take it also as a sign of confidence from the management side to the future of Harvia. Ari Vesterinen: In the Q2 results information for Sweden, it was mentioned that consumer trade is expected to improve towards the end of the year as a new partner is being sought or started to replace Kesko. What is the situation with this? And if the partnership has already started, has it had an impact on the Q3 results yet? Matias Jarnefelt: Yes, I did touch upon it when I talked about North Europe as part of the presentation. The answer is yes. So for Harvia, when Kesko made the strategy alignment or like realignment kind of choosing to leave D2C technical trade in Sweden that left a big gap in our channel landscape in Sweden. And we have been able to bridge that gap, and we have started to work with the new partner, and that's going very well. Ari Vesterinen: And Kesko is still selling our products also in Sweden with a slightly different concept. In APAC/MEA, given that the multiple markets seem now to demonstrate sustainable growth, but you are partly dependent on relatively long logical routes from Europe. Are there opportunities for M&A? Or have you considered adding capacity into the region? The same note, are you delivering whole sauna kit solutions increasingly to the region? Can you give a little bit color on your outlook in that -- in this regard? Matias Jarnefelt: Yes. We do have actually a factory in Asia. So -- since 2005, so this is actually 20th anniversary of our factory in Guangzhou. We have, I would say, mini version of Muurame. So Muurame is an equipment factory that is also a volume factory. We have another volume factory, which is the China factory. On top of that, for the heaters, we have the value factory close to Frankfurt in the EOS home space. So we actually do have supply source in that region. And the majority of the products we sell in APAC are the technical equipment. So if you look at the sort of the cabin full solutions business, it is very clear that the star of the region is North America. We do have ambition to also increase the full solutions business in Asia. We are already doing it mostly through partnerships. Some of the products, cabins are also shipped from Europe. And at the same time, we are assessing what potentially could be the right time for us to have sauna cabin factory in that region when the volumes would justify it. Ari Vesterinen: Okay. Ladies and gentlemen, we have now spent exactly 1 hour with Harvia. I don't have any more questions on the list. Thank you very much for following, and let's sauna. Matias Jarnefelt: Thank you very much. Let's sauna.
Remon Vos: And good morning, and thanks for joining on this Q3 call, talk about the results and the things we have been busy with over the past couple of months and maybe start with talking about CTP, a growth company. We enjoy growth. We like growth, and we see growth opportunities to continue to develop, build for our clients and secure new business. So, growth comes from supply chain professionalization, if you like. So, we have seen obviously many events over the past decade and you could maybe conclude or say that this whole supply chain becomes more professional. So, companies adapt or adjust to different market circumstances or different events, which we have seen over the past years. We benefit from that in different ways. That's one, supply chain. Second is Nearshoring. We continue to see manufacturing coming to Central Europe for the region, for Western European countries as well. But we also see growth in the markets of Central Europe. So, the consumer spending, maybe when I came here first in '95, 30 years ago, Central Europe was about low-cost manufacturing. In the meantime, of course, with all the GDP growth, which we have seen over the past decades, the local population have money to spend and they do spend. And obviously, that results in demand for property warehouse, for example, e-commerce, et cetera. We see also growth coming from defense industry. There's a lot of talk about it. But in the meantime, we've also seen some concrete demands in our German portfolio. For instance, there is multiple companies who are involved in the defense industry, and they ask for more space. So, that's good. So, we continue to see mostly from existing clients, strong demand from a diverse tenant base, it's including retailers, pet food manufacturers, semiconductor business, but also demand from automotive-related industry, maybe moving from West Europe to Central Europe to Eastern Europe or Asian companies coming in and set up business in Europe for the European market. In numbers, we signed 1.6 million square meter over the past 9 months in '25. This is 6% up compared to what it was in 2024, 6% plus. And we have done that at 6% more rent. So, our rent average per square meter per month has grown with 6%. Again, we look also forward to continue this trend. And typically, we close a lot during the last part of the fourth quarter of the year as we've done last year and the years before. So, we're on schedule to close more leases by the end of the year. Stable, consistent growth, 2/3 of our business comes from existing clients, our partners, long-term clients, loyal clients. It's also them who help us grow in new markets. We get 99.8% of all the rent which we charge is being paid, retention rate, 85% and 80% of all the new construction happens in existing business parks. Our integrated business model combines the operator. So, I'll talk about how we break down our different business lines. The operator is the income-producing part of the business. Those are all the properties which we have built over the past years is good for EUR 780 million of rental income around that number. The second activity, the developer with 2 million square meters of properties under construction with a land bank of 26 million square meter. Those are the people who are busy with building property, constantly improving the quality of the property, come up with different property concepts and innovations, make the properties consume less energy, less maintenance cost. You want generic design buildings because the building will last beyond the lease term of the first tenant, et cetera, especially nowadays with so many changes going on, it's very important that you get the property right, the location right, and to make sure that you have amenity services, utilities, electricity on site in those business parks to make sure that your clients grow. And that's what happens. The last, if you break it down and say, okay, we have this operator income-producing developer construction. The last bit, maybe most exciting part is the growth engine. We have been growing beyond the markets where we are active. Remember, the IPO we did also to raise capital to get access to capital, affordable, cheap capital to grow our business beyond, and that's what we continue to do. This year, we delivered 500,000 square meters, a bit more 0.5 million square meter. Mostly pre-leased. We do 10.3% yield on cost. And who are those tenants? It's LPP for Bucharest, Hitachi for Brno, Japanese client, long-term client, but also Zoomlion in Tatabánya in Hungary. This is one of our Chinese clients. Thank you very much to the clients for the continuous support, commitment and loyalty and thanks for working with us. We've been able to complete these projects on time and in budget. Again, end of the year normally is a lot of projects come to the market. We have 2 million square meters under construction, 2 million. Not all of that will be complete by year-end, but many will and the rest will go to 2026. When all of the stuff which we build and complete this year comes to the market and is leased, and we are another EUR 165 million of rental income at 10% yield on cost, we are well underway to hit the EUR 1 billion of annual rent by 2027. That is our target, and we are on schedule to hit that target. A couple of highlights maybe on different markets. What we see good is Czech, stable. We've been here for a long time. It's our home market, good occupancy, good returns. Poland, relatively new for us, largest economy, of course, in Central Europe, quite important to be there. We've done well, more than we planned. So, quite happy with that. Germany, as well, we see more demand over the past couple of months also turn into deals. We signed the lease contracts, which is good and also makes us positive for the future. Some of you had the opportunity to visit us at our Capital Markets Day in Wuppertal in September. So, you have also seen our projects in Mülheim, Aachen and of course, a couple of other places. So, it looks like over the past years, we have been able to put a team together. We have secured land and permits that we now can go ahead and build those properties and lease them, which we look forward to doing. Yes. So, we actually think it's just the beginning of CTP. I think it's more complicated probably to come from 0 to build 10 million or 15 million square meter portfolio than it is to double from 15 million to 30 million square meter. Let's see, we have systems in place. We have a fantastic team of people, great relationships with clients, but also with the local authority. So actually, we look forward to hit that 30 million square meter one day. We target for 2030. Let's see how far we get. So far, it looks good. Maybe a couple of things about the new markets. I wanted to talk about Italy, which is another European market, Northern Italy, where we have many clients coming from that part of Italy. We now have an opportunity to get started with some projects, which we look forward to doing, and we hope some of them will already be complete next year in 2026. So that will happen. We think it's a next logical step in the region. We obviously already active in Germany and Austria and yes, in Italy, Northern Italy, we see some good opportunities to introduce our full-service business park concept. We'll start with some smaller projects maybe, but there's also an opportunity to accelerate and to come up with a different entry strategy similar to what we have done in other countries, Germany and Poland over the past years. And then Asia, we definitely like to have a closer look at the opportunities in Asia as we think our company and our clients don't stop in Europe. They go beyond. They are often global players, and they have asked us whether we would be willing to support them in Asia and Vietnam to be exact, and we have been spending the past 12 months looking at opportunities. And we became more positive and enthusiastic about the idea of doing a project in Vietnam. So, we expect more to come from that. Don't expect huge things. We will start with one project and maybe do a second. We learn by doing with existing clients, with pre-leases, but definitely it's an opportunity, it's 100 million population, early 30s average age, so young, very productive with huge FDIs, not only from the consumer electronics industry, but also LEGO and Volkswagen Skoda have just opened up a plant or building a plant. So, many opportunities we see there, which we want to have a close look at. Happy to answer any questions. I think, I'll hand over to Maarten for now with some more details on the financials, and then I'm here later. Thank you very much for your attention. Maarten Otte: Moving on to the financial highlights. The like-for-like rental growth came to 4.5% in Q3 '25, while occupancy remained stable at 93%. The net rental income increased 15.4% to EUR 549 million as we continue to reduce our service charge leakage. The NRI to GRI ratio, therefore, improved to 97.7%, while we also continue to improve our EBITDA margin. Annualized rental income increased to EUR 778 million, illustrating the strong cash flow generation of our portfolio. The company-specific adjusted EPRA earnings increased by 13.1% year-on-year to EUR 305.2 million. While the group's EPS amounted to EUR 0.64, an increase of 7.2%. Thanks to the deliveries and net development income being backloaded to the fourth quarter, the group is on track to reach it's guidance for the year. Now looking at the valuation results. For the Q1 and Q3 results, only the investment properties under development are revalued. Valuation results in the first 9 months of the year came to EUR 802 million. Of this, EUR 385 million was driven by the construction and leasing progress on our developments, but EUR 373 million came from the revaluation of outstanding portfolio and EUR 43 million from our land bank. The total gross assets value now stands at EUR 17.7 billion, up 10.6% from full year '24 and 16% year-on-year. CTP's reversionary yield stands at a conservative 7% and we expect further yield compression and positive ERV growth in line with inflation or slightly ahead of inflation for the rest of '25. This is also illustrated by the new leases signed in the first 9 months of '25, where rents are 6% higher than the new leases signed in the first 9 months of '24, which is supported by the undersupplied nature of the CE markets and industrial and logistics space per capita is only half compared to the U.K. or other Western European markets. The transaction markets continue to recover across Europe as there's more clarity around funding costs. We expect an increase of transactions into next year, especially on the private equity side, where funds are coming to maturity. We expect to see more turnover. This will offer opportunities for us. We also remain active in the market for land acquisitions, plenishing the land bank in our existing markets, growing the land bank in countries that we entered recently like Poland, which we plan to enter like Italy and Vietnam, while maintaining our disciplined capital allocation. Our EPRA net tangible asset per share increased from EUR 18.08 at year-end '24 to EUR 19.98 at the third quarter, representing an increase of 10.5% since the beginning of the year. Year-on-year, the increase was 14%. With this NTA growth and our dividend, we delivered a total accounting return to our shareholders of 70% in the last 12 months, highlighting our superior return profile, which is unique to the real estate sector. And now I hand over to Richard. Richard Wilkinson: Our funding strategy remains centered on maintaining a stable investment-grade rating. And we are very happy that our improving credit metrics were recognized by Standard & Poor's with their upgrade in September. We focus on ensuring access to multiple sources of liquidity, meaning attractive funding is available at all times. We have a geographically diversified investor base, now further strengthened by Asian investors added in 2025 and a growing share of unsecured debt towards our target of 80%. Thanks to our highly accretive developments and proactive debt management, our interest coverage ratio increased to 2.5x. Our normalized net debt-to-EBITDA remained stable at 9.2x, and our loan-to-value stood at 45.2%. We expect loan-to-value to return to our 40% to 45% target as our development pipeline is completed and revaluation gains are fully booked. As presented during our Capital Markets Day, with our market-leading development yield on cost of over 10%, every euro we invest in our pipeline increases our ICR and decreases our net debt-to-EBITDA, allowing us to grow at our 10% to 15% annually while improving our overall cash flow credit metrics. This was also highlighted by Standard & Poor's on their upgrade of our credit rating to BBB flat with a stable outlook in September. Moody's have a positive outlook on our credit rating, confirming the positive trajectory of our ratings. In the first 9 months of 2025, we signed EUR 1.7 billion of unsecured debt to fund our organic growth. This included EUR 1 billion in dual-tranche bonds issued in March, an inaugural JPY 30 billion Samurai loan equivalent of EUR 185 million and a EUR 500 million syndicated term loan facility signed in June, which had commitments of over EUR 1.2 billion. Together with the 6.5-year, EUR 600 million bond we issued in October, this continues to demonstrate our ongoing strong market access. We continue to actively manage our funding costs. And over the past 12 months, we have renegotiated or repaid EUR 1.6 billion of our most expensive bank loans, including the prepayment in June of EUR 441 million of expensive unsecured debt. CTP maintains a conservative debt profile. The EUR 272 million of bonds maturing in June and the EUR 185 million maturing in October were both repaid from available cash. Looking ahead, maturities remain limited over the next 3 years with a EUR 350 million bond due in January '26 and a EUR 275 million bond in September '26. Our cash position stands at EUR 1.1 billion, including our EUR 1.3 billion RCF, our liquidity totals EUR 2.4 billion, more than sufficient to meet our cash needs for the next 12 months. The average debt maturity stands at 4.8 years and the average cost of debt at 3.2%. This represents only a minimal increase compared to year-end 2025 as our current marginal cost of funding remains below 3.5% for 5-year money. We remain confident in the outlook for CTP. We have a strong tenant lead list. In addition to what we have already pre-let within our development pipeline, we have 151,000 square meters pre-let for future projects for which construction has not yet started. We continue to see rental growth across all of our markets, supported by the nearshoring trend and ongoing e-commerce growth, particularly in the CEE region. Our tenant-led development pipeline remains highly profitable. With our industry-leading yield on cost of over 10%, we are able to deliver sustainable and profitable organic growth, while maintaining a robust financial position. We confirm our EPS guidance of EUR 0.86 to EUR 0.88 for 2025, which due to an intended acquisition in Romania not proceeding, is now expected to come in towards the lower end of that range. Thank you for your attention. We now welcome your questions. Operator: [Operator Instructions] Our first question comes from Marios Pastou from Bernstein. Marios Pastou: I have two questions from my side. So, I see leasing is up over the first 9 months. It's marginally down in Q3. I think you mentioned that you want to have a good final quarter, but I also see that last year, that final quarter was also very strong. So, do you expect to be up in terms of leasing volumes for the year as a whole? And then secondly, can you just remind us why the intended acquisition in Romania didn't proceed as planned? Maarten Otte: I will take the last question on the Romanian acquisition first, and then I'll let Remon comment further on leasing. So, it comes back to antimonopoly reasons where there were two restrictive conditions for us. So, we decided not to go ahead with it. We see enough opportunities in terms of acquisitions across Europe. We continue to buy land. So, we always do also relative capital allocation where it doesn't make most sense for us. In the end, with the restrictions here, it didn't make sense. So, we decide to prefer to invest in other opportunities. Operator: Our next question comes from John... Remon Vos: We didn't answer the second part of the question with regards to leasing. If you like... Operator: Apologies. Continue. Remon Vos: No, I can give some color on that. Anyway, with reference to what Maarten just said, well, even if we wanted to buy, we can't buy, because that is very complicated with the competition and antimonopoly whatever, which actually is not bad because there is other places where we can invest money. That's why I think, we waste a lot of time on that P3 acquisition, which didn't happen. But as I said, at the end, maybe it's even better without. With regards to the leasing, yes, as stated, we continue to see demand and that will turn into deals over the rest of the year. And yes, which is good. So that is often the case that fourth quarter is more takeup than first or second. I don't know exactly why that is, but it has been historically like that, and we think that trend will continue for '25. Yes. So, we did sign some leases just now in Poland, which is good. And in Romania as well, in Germany. So yes, overall, relatively positive, I would say, I think, and we are on schedule to hit the occupancy target for end of '25. Operator: Our next question comes from John Vuong from Kempen. John Vuong: On Vietnam, you said that you -- well, that we shouldn't expect huge things with only one or two developments. So just trying to understand here, over what time line do you expect to start these developments? And if you're really excited about the opportunities in the country, why only start with one or two and not with like a park strategy like you are in Europe? Remon Vos: Good question. Well, it's definitely going to be a park concept. So, we think of using or doing the identical thing or similar thing to what we do in Europe. So, park concept and business park, full-service business park with different property types. But -- so that is definitely the case. But you need to also get ready in terms of setting up a team. And so, we are now in the middle of recruiting people for our Vietnam office or Vietnam team. And that will take a bit of time. So, that's why I think, honestly, the recruitment process has started. We have met people. People came over to visit us in Europe in order to make themselves familiar with what we do, how we do it to get to know other people in the organization. So, it's also part of the recruitment process. And yes, it takes time until these people will actually join, which some of them will join in Q1, beginning of next year, Q1 of '26. And simultaneously, we have agreed an option on four land sites, and that would give us the opportunity to develop around 300,000 square meter. It will be very nice. And I think some of that we can start next year in '26, but those buildings will come to the market in 2027. And so, that is what I think now. So, that means 300,000 square meter, EUR 150 million. I think construction cost will be a bit lower in Vietnam, what you see at the moment it's going to EUR 500, it's more going to be like towards EUR 400 per square meter. And we think of, of course, doing that at 10% plus yield on cost, so above 10% yield on cost. But that is the base plan. And maybe we see opportunities to accelerate and to grow more through some acquisitions as we have done before when we entered a new market, that we do our organic growth, buy land and develop or maybe here and then buy something which would help us get a bit more volume. But yes, so that is how we see it now. So, we will need time to get familiar with the market, to put up a team, to get started. And we want to do that carefully. And -- but once we get going, so from '27 onwards, maybe there's an opportunity to do 200,000, 300,000 square meters per year, maybe. The market is big enough by 100 million people, there is hardly any stock. There are, of course, a couple of players, that's GLP or SLP, they have been -- they are Frasers, Mapletree. It's not -- so there is, of course, a significant amount of developers. But if you look at the stock compared to the amount of inhabitants, 100 million people. And if you look at all the opportunity, then the market is very -- yes, it's at the beginning. And as I explained, demand coming from our clients, we think it's a good opportunity to proceed with. But that's how I can -- I will continue, of course, to update you on how far, how quick we can get. But that's for now how I see it or how we see it. John Vuong: Okay. And just on the 10% yield on cost, is that net of land leases, given that you cannot own land in Vietnam? Remon Vos: Correct, it's 50-year leasehold or concession. So, what if we calculate as very primitive and as very simple. So, we add the concession cost for 50 years. Then on top, we add cost for everything related out of pocket to develop the property, so infrastructure, construction costs and all of that. So yes, that is included. And we think yield on cost in Vietnam is more towards what we do in Serbia. So, well above the 10% yield on cost. John Vuong: Okay. Great. So right. Remon Vos: It's included. Richard Wilkinson: But John, so in Serbia -- in Vietnam, like Remon says you're looking at kind of like Serbian type of relationship where you're developing at trying to get to 12% and revaluing 8.5%. Operator: Our next question comes from Suraj Goyal from Green Street. Suraj Goyal: Just a quick one. It's on leases again. So the new leases signed at rent levels 6% higher than last year. But it seems lower in Serbia, Hungary, Romania and Bulgaria. I appreciate there may be some nuances here, but would you be able to just share some color as to why this may be the case. Maarten Otte: That's always what we say. Some years will be up, some years will be down. It depends a lot on which leases you are signing, especially for the smaller markets, it depends a lot on which projects are coming online and when they are exactly coming online, in which quarter you are signing the leases. To be honest, you always see volatility. Last year, for example, we did less leases in Czech. This year, Czech in terms of absolute amount of leases is doing very well. Same with what we had in Hungary. Hungary, we did last year, a bit more leases, this year, a bit less. That's the normal business cycle. You can lease the space only once. You try to lease at the highest rental levels possible to what we think our clients which add value for us long term in our park model. So, it really depends on what is the opportunity building set you have for leasing. So, there is no -- if you look across the markets, there is no structural trends in either one of them that is really for us a point of concern. Some markets are better than worse. That's year-on-year. Overall, what you see is, we do more leases, we do them at higher rents, and that comes really back to the demand drivers, which are long term, and they won't change from one day or another. The demand drivers that were in place last year are still in place, and it comes back to the nearshoring, that comes back to the growth in domestic consumption, et cetera. But it depends a lot on which quarter you sign with specific deal. That's always been the case also if you look back historically. So overall, that's what Remon also said, we are confident in our occupancy targets to hit by year-end. And the leasing is progressing well towards that. Also, that's why we confirmed basically the guidance for our deliveries between 1.3 million and 1.6 million square meters for the year. So, we are very well on track. And with the amount of hope that we are doing and the conversations that the team on the ground has, we have confidence in getting there. And some markets will contribute a bit more than others, but that's normal. Operator: Our next question comes from Steven Boumans from ABN AMRO, ODDO. Steven Boumans: I have two. So the first one, a follow-up on the expected leasing numbers. Do you think that the average rent per square meter will rise above the EUR 6 per square meter per month for Q4? And what about '26? Maybe that's the first one. I do another. Remon Vos: It would be good if they are above EUR 6. In some markets, they will be. I don't know, maybe Maarten has the average number. Where do we see rental growth? We see a lot of rental growth in the German Deutsche Industry portfolio. Remember the old buildings we bought or older buildings we bought. Of course. Why is that? Because we bought relatively cheaper. When we bought, the rents were quite low, EUR 3.5, so let's say, EUR 42 per year. And that we see that going up to, yes, EUR 70, EUR 60, EUR 70. That's true. We have to also invest in those big properties. But just yesterday, we did a deal at that kind of number. So it's around EUR 6 per square meter for the Deutsche Industry. I think we see rental growth throughout -- also Romania because the other question was that, we do less in Romania. I don't think so. We have seen a lot of rental growth in Czech. So yes, Czech, I would think it's EUR 6. Maybe, Maarten, you can add some on that, whether it's EUR 72 or EUR 70 per year on average, maybe throughout the portfolio. I mean, big box logistics in Bucharest, you will not get to EUR 6 for sure, but something smaller in Czech, you will definitely get to EUR 6. Poland, you will not get. Although the -- by the way, the small stuff we do in Warsaw, so we have SBU, small business units. Obviously, that is higher than EUR 6, but those are small units of 1,000, 2,000 square meter units. So, lower than 5,000 square meter units. The square meter price will be significantly higher than a large 10,000, 20,000, 30,000 square meter warehouse building. So, I think there is also the difference in the rent per square meter per month. But that is going quite well, the smaller units, which also, yes, we like because there is good demand for it as part of the -- what's going on in the region of Central Europe, and of course, you have small and medium-sized companies, that segment is growing. But there's also big multinationals taking smaller units here and there. Yes, so then they pay more rent. Maarten, do you have some more details on the average? Maarten Otte: Yes. You can see that also in the presentation. If you look on -- Steven, if you look on Slide 10, you see exactly the rents that we are making per country. Whether we in the Q4 will be above EUR 6, like Remon said, it depends a lot on which market we are signing. If we are signing more in Czech, yes, we will be above EUR 6. If we sign more in other markets, it will be a bit harder. But that's normal. So what we are looking is what is the real underlying rental growth country-by-country. And that's ultimately -- that comes back to the 6% that we are showing. And smaller countries, as I said before, it depends sometimes a bit on location, because whether you're leasing the capital city, whether you lease indeed, like Remon said, smaller units or bigger units. So in Poland, we have, for example, seen the increase there. So, the leases which we did this year were on average at EUR 5.50. But that includes some smaller stuff, includes, in some cases, some extras that we do for tenants. But on average, Poland, we see some rental growth coming through. Romania as well, if you look an underlying, while if you look maybe to the absolute figures, they look flat, but that because there is a big unit again in this year's numbers. So big units typically pull it slightly down. But if you look -- and I know it's harder for you than for us, because we look at it on a unit-by-unit basis when we are doing the deal, when the leasing team sits down to speak to the tenant, we look, okay, what is the ERV of the unit. We continue to track towards that. And then, when we -- we look on that detailed level, we continue to see the rents creeping up in countries like Romania, in countries like Poland, in countries like Serbia, et cetera. Steven Boumans: Okay. To ask a bit differently. So -- and to fully understand. So, like-for-like growth per country is, let's say, inflation like, maybe a bit more, but let's say, inflation. And then the mix you don't want to commit that, that will change materially as of today. So, the mix should be broadly similar. It could be a bit better or a bit worse. Is that correct? Maarten Otte: Yes. That's correct. Look, what we see is -- what we said is we expect market rental growth indeed to grow in line with inflation. The mix depends indeed where we sign leases. That's hard for us to commit. If you look on a year or 2-year basis, yes, we can give a rough split, but not on a quarter-by-quarter. That doesn't make sense. That's not also how we run our operations. So, that's harder to determine. But the underlying rental growth remains there, and that's also the confidence we have, and that's also -- you see reflected in the like-for-like rental growth coming through in the P&L. So, it's not only the market rent. It's also if you look to the like-for-like when we are really capturing the reversion of leases coming up for expiry. Richard Wilkinson: Yes. Steven, I think that the big picture is, we see increasing demand, and we see that increasing demand at higher rent levels pretty much across the markets in which we operate. If you look at the more granular data, you will find something that looks a little bit worse. But the overall trend is the one that we would try and highlight, which is continuing strong growing demand and that at higher rent levels. Operator: Our next question comes from Vivien Maquet from B Degroof Petercam. Vivien Maquet: I hope you can hear me. I have two. Maybe on the first one, it's a follow-up on Vietnam. Just wanted to understand a bit what will be your target in terms of tenants? I would assume that you will mostly look for existing tenants that you already have in CEE for the first project. And secondly, what level of pre-let will you feel comfortable before launching such a project? Remon Vos: Thank you. Yes, we hear you loud and clear. Good questions. Indeed, so what we want to do in Vietnam is very similar to what we do in Europe, full service business parks, whereby we offer a variety of different property types. In Vietnam, they use the word ready-built factory and they use a ready-built warehouse, and they refer to build-to-lease. And we call it a little different. We say CT box, CT Flex, CT Space, but it's similar. So let's see -- let's test the market. We want to go out with a pilot. Yes, around 50% pre-lease. I think that is the kind of thing. But as I explained, the four of the locations which we have secured, you could do 300,000 square meters of total lettable, say, assume that you can start construction mid of next year, second half next year. You may start initially with 100,000, 50,000, let's see, in one location. And locations, I referred to maybe also a bit more to explain. And we are -- we do a paper. I think we have a paper, Vietnam paper, which we can share with you. It's going to be online. So, also to get a bit more background on what is the economy like, FDI, what is the market like and why do we see opportunities and where do we see opportunities. But to explain a little bit, we could talk about one location close to Hanoi in the north of Vietnam, which historically, it's a concentration. There's a lot of people living there. As I mentioned, total 100 million people in Vietnam. So in that part, in the northern part, a couple of dozen million people, so it's quite large. But more importantly, there is many of our clients with different activities. So, if you refer to the Vietnamese semiconductor industry, companies like Wistron or Foxconn, who are our clients, they have facilities in that part of Vietnam already. Historically, because they have a China Plus One policy, many of those, which means that not all of the manufacturing facilities are in Vietnam or in China, some in China for Chinese market, some outside of China for South Asian market. And that is -- those are Taiwanese clients who we have been working with for more than 20 years, especially in the Czech Republic. Anyway, those are there, and they have suppliers and subcontractors and all of that ecosystem. And that's one of the target groups, which we would, which we talk to and say, okay, yes, we will build properties in and around Wistron, Foxconn facilities in the region of Hanoi. But in Hanoi, obviously, you can imagine there's also consumer spending. So there's also FMCG, there is a need for warehouses. There is e-commerce. There is all kind of that. So, our clients who are involved in 3PL logistics -- involved in 3PL logistics or supply -- so that's the kind of ecosystem of the clients we have, which we will plan to work for in Vietnam. So yes, indeed, mostly existing clients, but could, of course, also be new clients. But there's many of our existing clients who have facilities in Vietnam or who are considering opening up facilities in Vietnam. Vivien Maquet: Thanks very clear and looking forward for the Vietnamese paper. Then second question is on, I think that you commented that you expect very strong ERV growth for H2. As I remember, we don't value the standing assets in Q3. So just to understand in which country you expect the biggest ERV growth? And how is it based to your recently signed lease? I think that we comment a bit on the rent level left and right, but just wanted to get from a valuation perspective, when do you see the biggest discrepancy between what you -- at what level you are leasing and what the valuers is assuming as ERVs? Maarten Otte: Yes, sure. So, what we said is that, we expect to grow it in line with inflation or slightly ahead of inflation, the ERVs. And that comes back to where we are signing the rents as we are continuing. As I said earlier, to sign the rents 6% higher. We also have indexation coming in. So, we see market rents growing in line with inflation or slightly ahead. If you look on a country level, there will be less ERV growth in Czech. In Czech, the opportunity for us, we have commented on that before, is more to capture the reversion because in Czech, we have one of the largest reversionary embedded potential as the market rent there already has grown quite a bit. And of course, with our leases, when they are 10 years or 15 years, it can take some time a while before you can capture that. So, you need to go through the world. And we expect more ERV growth in countries like Romania, for example. So, the more upcoming markets. We'll also see some ERV growth in Poland. In Poland, there will be really a divergence between the new and the old. There has been different build quality. As you know, we are a long-term owner. We commit to locations. We build buildings that will last because we have the commitment to own them long term, both vis-a-vis our tenants, but also vis-a-vis our municipalities. While in the past, the Polish market was more dominated by trader developers. So, what you see there is more a divergence where you might have given more incentives on really older product or lower quality product. While if you look to new product that is coming to the Polish market, you can lease at good rates, and that's what you also see reflected in the rental growth that we are doing. So, there will also be some ERV growth. But in general, also across some other markets like Serbia, we expect some ERV growth to come, Bulgaria. Hungary, I don't think so. Hungary is a bit more vacancy at the moment, especially around Budapest, but there is also a split between the region and Budapest and the other areas of Hungary see a bit stronger rental growth than Budapest at the moment. So, there's always those local factors. But on average, we expect to grow in line with inflation or slightly ahead of inflation. Vivien Maquet: And if I may squeeze a very quick third question. You could deliver up to 1 million square meter in Q4. Just wanted to understand how much of new projects you expect to launch in Q4? Keeping, I would say, the 2 million square meter of development pipeline, I would say, unchanged? Or could it be split a bit more into the beginning of 2026? Maarten Otte: It will be relatively unchanged. I don't expect our pipeline to materially change. It comes also back to next year because for next year, as you know, we guide to 1.4 to 1.7 million. So we also need to start those projects. Simple projects will take us 9 to 12 months. If you have a simple logistics building. In some cases, you can even do it a bit quicker. But there are more complicated projects if you do some extras for tenants, et cetera. So, we will always run a pipeline, which is slightly ahead of next year's deliveries, taking into account the time to complete. Operator: Our next question comes from Frederic Renard from KC. Frederic Renard: Just two questions on my side. The first one is on the reversion, which has come down 120 bps Q-on-Q since Q2. Can you comment maybe on that? And then second question is on occupancy rate. You are still at 93% versus the target of 95%. I see that client retention is at 82%. It's a good level, but it's for me the lowest figures you had over the last 2 years. So, is there more downside risk on occupancy rate than upside risk? And then have you any specific concern on some countries? Maarten Otte: So regarding the reversion, that's partly driven by the fact that we don't reset ERVs in the third quarter. In the third quarter, as you know, we don't revalue our portfolio, only the developments. So, if you don't reset your ERVs and we are capturing reversion as leases are coming up for maturity, naturally, the reversionary potential comes down in those quarters. It's more a mathematical effect than anything else. Then your question regarding occupancy, yes, we remain stable around 93%. And that's also what we explained during the Capital Markets Day. The two main markets which are below are the two market entries, Germany and Poland. Poland, we expect end of this year to be more around 90%. And then into next year, we will keep up to the 95% target. Same with Germany. So that's part of the market entry strategy. We target to be around 95%, especially for our mature markets. In some markets, you even would want to be a bit above. And why do we target around the 95%, maybe also good to remind you, that's really to have the growth opportunity with existing clients. We want to have always some space available to grow with existing clients in our existing parks, because that gives us -- if a tenant comes to us and say, I want to expand in an existing park, that gives us much more negotiation power than when you have to build a new unit. So, that's why we always target around 95%, and that's why our pipeline deliveries, we target to be 80% to 90% to always have that space available to grow with existing clients. If you also put it in perspective, on a yearly basis, we will sign more than 2 million square meter. If you look to the occupancy, if you take it from our portfolio, if you take 5% of a portfolio of 30 million square meter, that's 700,000. We leased 3x as much in a year. So actually, yes, we have a bit of occupancy, but that gives us an enormous amount of flexibility. And given the amount of leasing that we are doing, that's not a concern for us. It's just an opportunity to have those long-standing client relation and to leverage that to drive rents higher. Then on your last question or last part of your question, which was the retention rate. Retention rate was indeed slightly lower this year, correct. No fundamental issues, but there are, of course, sometimes you can have individual tenants who decide to leave. For example, if 3PL has a client and they want to consolidate or they want to move to a different location, they might terminate. It's not a reflection of your business, but it's more a reflection of sometimes the change in supply chains. Of course, we try to keep all our tenants. Sometimes actually, also, for example, we see in Germany, it's sometimes better to replace tenants if we really want to capture that upside potential, for example, in the Deutsche Industry portfolio. So, there we are sometimes actually happy when people move out and we can replace them for a higher paying tenant. So it's always a case-by-case analysis, of course, that we are doing. The absolute figure is slightly lower, but there is no fundamental underlying driver, which would mean that the rent retention rate will be lower going forward. It depends on the leases we signed in the quarter. Remon Vos: Yes, I can confirm that. So, I can just confirm Maarten said some of the leases we had to terminate in Germany, because we -- yes, the relationship was not great, and we felt that we would be better off with a new tenant in that building, doing some refurbishment and get more rent out of the property. So that happened in Germany and is still happening while we speak, which is part of cleaning up the portfolio in Germany. And also with regards to vacancy, yes, we have been at around 93%, 95%. Sometimes also, you don't need to be in a rush to lease it immediately. Sometimes certain areas need some time for the market to absorb some space. And then I'd rather have 6 months of vacancy cost and then do a better deal as pushing down on the rents. And so, we also need to balance and understand the market. And if there's no demand, there's no need to push, then you'd rather wait until there is demand or until the market has been able to absorb the space, which was available. But I think overall, also, we see from a supply side that yes, here and there, some of our peers and colleagues stopped or slowed down or there is no land or things like that, which is good. So long term, you -- we believe that these properties, which we have built are good quality properties, and they will continue to generate and produce income, which values may go up and down, it depends on the interest rates and so on and so on. But the income from the property so far has always grown, and we continue to see that. And that is more important to build the cash flow and to make sure that we create this income in time at the correct level. So yes, you play with the supply and demand and balance around the 93%, 95%. But yes, not huge. And overall, good, we are gaining market share, which is good, which also later on give us more opportunity to grow rents. It's good. Frederic Renard: And maybe just last one on my end. Can you remind us the size of the acquisition in Romania that you didn't do? What was again... Maarten Otte: The quantum of investment was around EUR 250 million. Operator: Our next question comes from Eleanor Frew from Barclays. Eleanor Frew: A few questions go one by one. So just to confirm, was the Romania acquisition explicitly baked into your guidance? And is the acquisition not happening going to impact your GLA target for the year of 15 million square meters? And moving forward, do you have any annual acquisition assumption guidance we could use? Maarten Otte: In terms of GLA, that's mostly driven by our development. So, we confirmed our guidance on terms of development between 1.3 million and 1.6 million square meters, which means indeed, like Remon already mentioned, we will deliver nearly 1 million square meters in the fourth quarter, which will bring us probably rounded towards 15 million, whether it's exactly 15.0 million or whether it's 14.9 million or 14.8 million, we'll see. It depends more on where we end in that range of the deliveries. That's ultimately the key one. So, that's with respect to the GLA target. If you look to acquisitions, no, we don't guide for a specific amount of acquisitions, because it's really opportunity driven. If we talk land, yes, we will do each year around 200 million, 250 million, in some years, maybe 300 million of land. Because that's a lot of individual plots and that as I said, it's part of replenishing the land bank in some of the existing markets, but also growing the land bank in markets which we entered recently or plan to enter. So, that is a more stable acquisition pipeline on the land bank side. On the standing assets, it's really opportunity driven because, yes, we like to do acquisitions, but they need to make sense in capital allocation. So, that's why we don't guide for a specific target. We will be there opportunistically. We are not the ones who want to pay a full price. We want to do things which make strategically sense for us. We can do things off market. That's much more our sweet spot in terms of M&A rather than committing and then forcing ourselves to buy 600 million of standing property per year, that will not drive shareholder returns for us. We need to be focused on what makes sense, where is pricing realistic and where can we add value. Because we are not an investor in buying simple core product, there needs to be value-add opportunities. Richard Wilkinson: Yes. And I think, Eleanor, you asked if the Romanian acquisition was part of our EPS guidance for this year. Yes. And that's also why we say that as a consequence of the Romanian transaction, not happening, we now expect to be at the lower end of our guidance range. Eleanor Frew: Great. Then on the reasoning for that portfolio falling through, does that impact your growth plans otherwise in Romania, i.e., is that region now saturated for you? And is there a risk on future permits maybe? And then on top of that, are there any other markets where you have a position that could prevent you from acquiring in scale? Richard Wilkinson: No, I don't -- it won't affect our ability to continue to grow organically in and around our existing parks by land to start new parks. So, that we don't see that as an impediment to continuing to grow our business in Romania through 10% plus yield on cost developments. And we don't have any other market where we would think that we would have a problem. Operator: [Operator Instructions] Our next question comes from Wim Lewi from KBC Securities. His question is, on Italy, can you give more details on tenants targets, greenfield versus brownfield? What is your SQM GLA targets for the next couple of years? Will you consider buying a standard asset portfolio? Remon Vos: Yes, thanks for the question with regards to Italy. I don't know how you see it, Maarten, but I think it's a bit too early. We don't go -- we don't disclose too much details there. What we can say is that, we have been looking at Italy for the past years. And we -- as we communicated back in 2021, when we did our IPO, we said, okay, we would like to go to Western European markets, which we said initially, we're going to look at the Netherlands and Germany. Germany worked out well. Poland, less. Happy with the ALC property in Amsterdam, which is -- there's been some good take-up, and that's okay. But besides that, we have done very little in the Netherlands. No, it's not the place where we see opportunity. So, we put -- we slow down. But we always communicated we wanted to do more in Western Europe. And Italy has been on our wish list. We now see a good opportunity to enter. I think we are ready for it in terms of -- we have the money, we have the capacity, we have the team. But more importantly, we have also identified the opportunity. So, what we have done in the meantime, we have established a small team of people. We currently work on securing land. And yes, and it's not in any of our pipeline projects. So, it's the base plan, the 26 million or 20-something million square meter land bank. There's nothing in Italy. It doesn't include Italy, so it's on top. But I think we will keep the good news for later. That's what I think, Maarten, let me maybe add or comment on anything you want to share at this moment. Maarten Otte: Yes. So, we'll announce the transaction when it's there. We always announce it when we have -- when we close something. But in general, we are looking at broader opportunities. Where we add most of the value is through land, whether that's greenfield or brownfield, we can do both. It comes back to what is the location. That's a key thing. Whether it's greenfield or brownfield is not a massive factor in that. It's just a bit different in terms of, do you have to take in account demolition costs, et cetera. We are looking for the right locations in Italy, which can give us a kick start. And we are looking for sizable opportunities where we can develop our park model, which is important for us. So, not only small land plots, but more sizable ones in line with our strategy. What we see in opportunities in Italy is a couple of things. There's a very strong manufacturing base. And if you look to our portfolio, we do a lot in manufacturing. Roughly 50% of our portfolio is manufacturing. So, we see opportunities there as many of our peers here in Italy are more focused on logistics. So, that's an opportunity for us. We see some opportunities in more some smaller business units closer to town. Italy has quite a lively SME environment. So -- and then, you know what we have done, for example, in Brno. So, you can think of doing certain of those projects here in Italy. So that's the opportunities that we see and that is the land plots we are looking for. And as part of each market entry, we are looking at, of course, a broad set of opportunities. And hopefully, we can update you later this year more specifically. Operator: Our next question is from Alvaro Mata from Santander AM. Their question is, the 93% occupancy looks a bit lower than others. I wonder if there is a specific reason for that. Any explanation would help. Your LTV at 45.2% continues to be a bit higher than your target of 40% to 45%. When shall we expect a decline and to what level? How important is this for you? ICR at 2.5x is in the low side. Do you expect an improvement in 2026? Remon Vos: No, the LTV is not of our concern. And the vacancy is around 93%, 95%. We talked about it before. We're not going to repeat. Also historically, has been around the same number. We wait for a good moment to do good deals at higher rents. And for the rest of the questions, I refer to what has been previously discussed. Thank you. Richard Wilkinson: Yes. Regarding the ICR, I think we reported earlier that we already took most of the repricing from the higher interest rate environment that we have today compared to the environment 2019, 2020, 2021. We see our ICR bottoming out at 2.5x. That's also what the rating agencies are saying, and we've consistently highlighted that everything that we invest in developing a 10% plus yield on cost is incremental to our ICR. That's also one of the reasons that the rating agencies are comfortable with where we are. And despite that ICR of 2.4x at the time, Standard & Poor's gave us a rating upgrade. So no, we don't see any problem with those ratios, and we expect that to improve over time. Operator: Our next question is from Jesse Norcross from ING. The question is, how big is the defense spending opportunity in Europe and Germany for the logistics sector and for the CTP in particular? What kind of timeline? And on Moody's, how confident are you of getting ratings upgrade there? Or is this not a priority at this point in time? Maarten Otte: So rating upgrade is always a priority. I think -- and we are happy with the upgrades we got from S&P to BBB flat, which I think reflects our ambition. We want to be a solid BBB flat company. We think that reflects the underlying of our business with the stable cash flow that we are each year able to generate, where Remon also referred to. We target to have a rental income of EUR 1 billion by 2027, which gives us an enormous amount of stability for the group, and a very good coverage basically of our ICR and net debt-to-EBITDA. So clearly, it's a priority for us to also work on Moody's. I cannot speak about the time line. We plan to deliver on the plan like we always do. Moody's has given us a positive outlook, but it's ultimately up to them, of course, to take the action. We work as hard as possible to get there. And then, I'll let Remon comment on the defense opportunity. Remon Vos: I don't know. Operator: Our next question is from [indiscernible] from ESP. Do you maintain the target level of deliveries for FY '26 within the 1.4 to 1.7 mn SQM range? Maarten Otte: Yes, we do. We have confirmed the guidance we have given at the Capital Markets Day. No change. We are on track for this year. So, we are also -- with the leasing we are doing on track for next year. Operator: Thank you. We currently have no further questions. So, I'll hand back to the CTP management team for closing remarks. Maarten Otte: Thank you all for attending. If there are any follow-up questions, don't hesitate to reach out to us. We are also doing quite some of the conferences and roadshow in the coming days. So, we're always happy to continue the dialogue with our investors. So thank you for now.
Operator: Ladies and gentlemen, welcome to the Marqeta Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Maria Greiser, Investor Relations. Please go ahead. Maria Greiser: Thanks, operator. Good afternoon, everyone, and welcome to Marqeta's Third Quarter 2025 Earnings Call. Hosting today's call is Mike Milotich, Marqeta's CEO and CFO. Before we begin, I would like to remind everyone that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available on our Investor Relations website, including our annual report on Form 10-K for the period ended December 31, 2024, and our subsequent periodic filings with the SEC. Actual results may differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of the time of this call, and the company does not assume any obligation or intent to update them, except as required by law. In addition, today's call includes non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release or earnings release supplemental materials, which are available on our Investor Relations website. With that, I'd like to turn the call over to Mike to begin. Mike Milotich: Thank you, Maria, and thank you for joining us for Marqeta's Third Quarter 2025 Earnings Call. To start, I'll briefly highlight our Q3 results, followed by an update on our progress growing the business across the full spectrum of debit and credit products, consumer and commercial offerings in a wide variety of use cases and geographies with both new and existing customers. I'll conclude with details about our Q3 financial results and our expectations for the remainder of the year. Our great third-quarter financial performance continues to demonstrate tremendous growth, resulting in our ability to deliver higher adjusted EBITDA through both efficiency and scale. Total processing volume, or TPV, was $98 billion in the third quarter, a 33% increase compared to the same quarter of 2024 and an acceleration of over 3 points from last quarter. Since this is the second consecutive quarter with accelerating TPV growth despite our increasingly larger base to grow over. To put this performance in perspective, this is our highest TPV growth rate since Q1 2024, despite the base we are growing over this quarter being almost 50% larger than the base we grew over in Q1 2024. Q3 net revenue of $163 million grew 28% year-over-year due to robust growth across a broad spectrum of use cases we enable. Gross profit was $115 million, a 27% increase year-over-year, largely in line with the net revenue growth. Adjusted EBITDA was $30 million in the quarter, a 19% margin, fueled by both exceptional gross profit growth and continued expense discipline while we make strategic investments in new capabilities and scale to fuel future business growth. This is another all-time high for adjusted EBITDA dollars as we progress on our path to profitability. This year, we remain focused on expanding and deepening our customer relationships by enabling innovative programs and seamless geographic expansion while also increasing our bank supply. One factor driving our performance is a remarkable growth in our lending use cases, including Buy Now, Pay Later. The growth is a testament to our ability to support customers in many markets, including North America, Europe, and Australia, but also to the innovation at scale that we enable. Once again, we are adding unique value to our customers in support of this use case. While BNPL started with Marqeta enabling virtual cards for seamless payment experiences without costly back-end integrations, the category continues to evolve. We have been at the forefront of enabling the new wave of growth in the space with what we call pay anywhere cards that allow end users to pay anywhere that cards are accepted, with the flexibility to split a purchase over time. We were also the first to support the Visa flexible credential in the U.S., which gave us a significant lead, as it has been rapidly adopted over the past year and now includes Klarna's recent expansion into Europe. The newer solutions enable our customers to deliver a better value proposition to their consumers with more flexibility to expand the availability of credit. Our unique combination of capabilities, geographic reach, and scale has helped broaden the category significantly, with TPV and lending, including Buy Now, Pay Later use cases, growing much faster than the overall company TPV growth. Another area where we have continued to see increased growth and demand is in commercial programs, particularly platforms that enable SMBs to reach bigger markets with money movement and access to working capital. In Q3, we signed a Fortune 500 customer to enable electronic supplier payments for the small- and medium-sized businesses they serve. Our customers' global platform has a comprehensive suite of financial and business management applications, serving millions of users. They were looking for a partner who would allow them to stay at the forefront of the needs of their end users with easier and more modern payment options. They saw Marqeta as a leader and enabler of innovation and expense management use cases and selected Marqeta for both our flexibility and ability to execute at scale. In Q4, this program will be the first to launch with one of our new U.S. bank partners. At the start of the year, we talked about our desire to expand our bank supply with partners who prioritize new capabilities and technology, maintain a strong focus on regulatory compliance, and can support our full range of offerings across debit and credit. In the U.S., Cross River Bank is now live, and we are in the process of technically integrating Coastal Community Bank to support programs starting in 2026. We are excited to grow with both banks going forward. With the addition of TransAPay, enabling us to provide program management in the U.K. and the EU, we are also adding bank partners in Europe. Griffin Bank in the U.K. is now live in support of a new program currently in testing, which will launch broadly in Q1 2026. We also plan to add a new bank partner for the EU in the first half of 2026. In order to seamlessly interface with multiple banks, this year, we built our business integration platform with the flexibility to rapidly onboard additional partners around the world. It serves as the orchestration layer that connects our internal money movement systems with external banking and payment partners through secure APIs and web hooks, ensuring every transaction remains synchronized end-to-end. This approach makes our platform bank-agnostic and reduces the time for bank integration by more than 50%, enabling us to scale new products and geographies without heavy engineering work or custom integrations. Centralizing business logic and routing across banks also reduces operational complexity, improves resiliency, and creates leverage in our cost structure as we expand with more banks and payment partners globally. Europe continues to deliver strong results with momentum across a diverse set of use cases, driving TPV growth to remain over 100% year-over-year. This quarter, we completed the acquisition of TransActPay on July 31. This transaction has driven significant customer interest and increased referrals from the payment ecosystem, including our network partners, as well as increasing our TAM to pursue more enterprise customers looking for a single provider for processing, program management, and EMI license in both the U.K. and the EU. This enables us to deliver a complete offering comparable to what we offer in North America, so customers don't have to navigate the complexity of working with multiple partners. In Q3, we signed one of our top 5 expense management customers that we have supported in North America for many years to expand into Europe. The acquisition of TransactPay was the catalyst, as they can now deliver their offering in Europe at parity with North America through the Marqeta platform without a lot of incremental work. We also continue to gain steady traction as we seek out the right partners for our innovative credit solutions. We are having productive conversations with prospects who are looking to differentiate their offering and work with a single modern provider who can support multiple use cases. This quarter, we were selected to power a credit solution for our company's loyalty programs, which enable small and mid-sized companies. This customer has millions of monthly active users and the underlying data to help companies capitalize on trends through analytics and a credit product to drive incremental loyalty benefits, both in stores and through their app. They chose Marqeta because they were looking for a modern partner who could grow and scale with them, given their significant embedded customer base. This customer plans to utilize several services in addition to processing, including tokenization, disputes, and our real-time decisioning risk product. To wrap up before moving to the details of our financial results, the business continues to have strong momentum as we head into the last quarter of the year, both in terms of our actual performance and the level of engagement from prospects on future opportunities. What continues to become clear for current and prospective customers is that Marqeta has a unique combination of modern capabilities, scale, geographic reach, expertise, and flexibility to enable its innovations without the need to make trade-offs. We provide our customers with a level of agility and control in issuing payment credentials that maximizes their ability to deliver value to their users, whether it's through creating new revenue streams, deepening engagement, or improving access to capital. This will continue to serve us well as we further diversify the business outside of debit and beyond the U.S. to deliver future growth. Now, let me transition to our Q3 financial results. Q3 was a very strong quarter with performance significantly outpacing our expectations. Q3 TPV growth of 33% accelerated by over 3 points from Q2 after increasing by 3 points in Q2 versus Q1. This accelerating volume growth, combined with slightly higher net revenue and gross profit take rates versus Q2, drove the P&L outperformance. Additionally, our adjusted operating expense growth was on the lower end of our expectations, which resulted in adjusted EBITDA of $30 million. For the second quarter in a row, the business outperformance and disciplined investment brought us close to GAAP net income, showcasing how the business can scale and demonstrating the tangible progress we are making on our path to profitability. Q3 TPV was $98 million, an increase of 33% year-over-year. The Q3 TPV growth acceleration versus Q2 was broad-based, including both block and non-Block growth as well as each of our 4 major use cases. Non-Block TPV is now growing 2.5x faster than block TPV, helped by Europe TPV continuing to grow over 100%. Growth within financial services continued to be a little slower than the overall company. Our non-block customers are growing over 3x faster than block within these use cases. Consistent with prior quarters, expense management growth continues to be a little faster than the overall company, driven by our customers continuing to acquire new end users as their modern platforms gain share. On-demand delivery growth accelerated into the double digits in Q3, growing about twice as fast as last quarter, primarily fueled by both the merchant category and geographic expansion of our customers. Lending, including Buy Now, Pay Later TPV growth, accelerated 10 points versus Q2, with a year-over-year growth rate that is about double the rate of the overall company. Six of our top 10 customers within this use case had their growth rate accelerate from Q2 to Q3, with 3 customers growing over 100%, while 2 customers were growing slower than 20%. This remarkable growth is driven by a combination of trends that accelerated from last quarter, with the 2 most significant being increased adoption of Pay Anywhere card solutions, including growth in flexible network credential usage and geographic expansion, and growth on our platform. The TPV growth acceleration in Q3 is another demonstration of our ability to grow at scale, processing over $1 billion in volume on about 2/3 of the days in the quarter. Q3 net revenue growth was $163 million, growing 28% year-over-year. Our Q3 net revenue growth acceleration of 8 points versus Q2 and the outperformance versus expectations was driven by strong TPV growth in all of our major use cases, and our net revenue take rate of 17 basis points was slightly higher than last quarter. The addition of the TransActPay acquisition for 2 months after closing on July 31 contributed 2 points to growth. Block's net revenue concentration of 44% in Q3 decreased by about 2 points from Q2. While both block and non-Block net revenue growth accelerated from last quarter, non-Block growth was over 10 points higher than block growth, driven by the strong TPV and the inclusion of TransAPay. Q3 gross profit was $115 million, growing 27% year-over-year, fueled by strong TPV growth and a gross profit take rate of nearly 12 basis points, slightly higher than last quarter. The addition of TransActPay added 2.5 points to growth. Gross profit growth was 10 points higher than the top of the expected range we shared with you last quarter. So obviously, there were a few positive surprises in the quarter. I would classify the outperformance into 4 categories. By far, the most significant factor driving our outperformance is the underlying business growth. Accelerating TPV growth, combined with a favorable business mix supporting our gross profit take rate, accounted for approximately 6 points of the outperformance. On our earnings call in August, you might remember we spoke about our Q2 TPV growth accelerating 3 points versus Q1, which was a little unexpected. So we wanted to see an elevated growth trajectory endure for longer than a couple of months before adjusting our forecast for the remainder of the year, especially considering the macroeconomic uncertainty. As I just walked through, Q3 TPV further accelerated by more than 3 points versus Q2, driven by a broad cross-section of our customers and use cases. About 2/3 of this underlying business outperformance was driven by lending, including Buy Now, Pay Later and on-demand delivery. The growth in these 2 use cases meaningfully accelerated in Q3 versus Q2 as we continue to support our customers' business expansion. Second, approximately 2.5 points of the outperformance were driven by unusual items that were unexpected. The large majority of this impact was driven by recovering fees from smaller customers who previously terminated their card programs. We have worked diligently to recover contractually obligated fees, and it just so happens that several of the larger efforts were resolved during Q3. Third, approximately 1 point of the outperformance resulted from earning a network rebate from one of our network partners that we did not anticipate. Based on the Q3 results, we expect this will continue to be a benefit going forward. The final component of our outperformance was the strength of the TransactPay business, which contributed approximately 1 point more to our gross profit growth than expected. The TransactPay business is on a better trajectory in 2025 than we had expected, and our visibility was limited until we started to consolidate results following the July 31 closing. As a reminder, we revised our accounting policy for estimating and recognizing card network incentives starting in Q2 of this year. We are now accruing incentives each quarter based on the forecasted annual contract tier we expect to achieve, as opposed to booking the incentives each quarter as they are earned and moving through the progressive tiers. As a result, Q3 gross profit growth had a headwind of 1.4 points due to the difference in methodologies for the year-over-year comparison. Q3 adjusted operating expenses were $84 million, growing 4% year-over-year, which was on the lower end of our expectations. This was a timing shift of marketing initiatives from Q3 to Q4, which lowered Q3 growth by approximately 2 points. The addition of Transact Bay contributed approximately 3 points to our year-over-year growth. Q3 adjusted EBITDA was $30 million, reaching another all-time high in dollars for the second quarter in a row. This resulted in a margin of 19% as we continue to make significant progress on our path to profitability. Adjusted EBITDA margin based on gross profit, which was 26%, is the metric we look at internally to illustrate the profitability potential of our business. The Q3 GAAP net loss was $3.6 million, which included $8 million of interest income and a nonrecurring litigation-related expense of $4.3 million. We ended the quarter with a little over $830 million of cash and short-term investments, driven by strong operating cash flows. With the addition of TransactPay this quarter, one thing to note on our balance sheet is the $235 million of restricted cash and the offsetting liability. TransactPay must comply with the regulatory safeguarding requirements associated with the EMI licenses, so we account for the customer funds they hold differently than our approach in other geographies, such as the U.S., where our program funding arrangements are structured more optimally. Our share repurchase activity remains ongoing as we continue to believe the current valuation does not fairly represent the company's value or the market opportunity ahead of us. In Q3, we repurchased 3.2 million shares at an average price of $6.12. For the year-to-date period ending September 30, 2025, we have repurchased 64.6 million shares at an average price of $4.53, which is a reduction of nearly 13% of the total issued and outstanding shares as of the 2024 year-end. As of September 30, we had $88 million remaining on our buyback authorization. Now, let's transition to our expectations for the fourth quarter of 2025. Based on our Q3 results, we are raising our expectations for Q4 and the full year. We now expect Q4 2025 net revenue and gross profit growth to be at least 5 points higher than what we had shared last quarter, and adjusted EBITDA margin to be 2 points higher. Therefore, we now expect net revenue to grow between 22% and 24% in Q4 and approximately 22% for the full year 2025. Gross profit growth is expected to be between 17% and 19% in Q4 and approximately 23% for the full year 2025. The expected slowdown in gross profit growth from Q3 to Q4 of approximately 9 points is primarily driven by 3 factors: First, Q3 growth benefited by approximately 2.5 points from unusual items, mostly the recovery of contractually obligated fees. Second, the impact of our revised accounting policy for network incentives on the year-over-year comparison will be the most significant in Q4. We expect a drag of about 5.5 points on gross profit growth in Q4, which is approximately 4 points more drag than Q3. Third, as we have discussed all year, we are actively engaged in renewal discussions with 2 large customers. We expect one of those renewals to be in effect in Q4, resulting in a headwind of approximately 2 points. We expect Q4 adjusted operating expenses to grow in the mid-single digits, in line with what we shared last quarter, despite the timing shift of some marketing expenses from Q3 to Q4. Adjusted EBITDA margin is expected to be between 15% and 16% in Q4 and approximately 17% for the full year 2025. This equates to a little over $100 million in adjusted EBITDA in 2025, which is more than 3x higher than last year and nearly double what we anticipated at the start of 2025. In conclusion, our incredible Q3 financial results not only led us to raise our full-year 2025 expectations for net revenue, gross profit, and adjusted EBITDA, but they also reflect the deepening of our customer relationships and expansion of our platform capabilities. The combination of strong gross profit growth, efficiency increases, and scale benefits is rapidly improving our profitability and foreshadowing the future earnings potential of the business. We expect to finish the year strong as we position the business for sustainable long-term success through multiple growth vectors and increasing scale. I will now turn it over to the operator for questions. Operator: [Operator Instructions] And our first question comes from Bryan Keane with Citi. Bryan Keane: Mike, congrats on the very solid results. I guess my question is just trying to figure out new business, new ramping of contracts, and what that pipeline looks like. It looks like a lot of the outperformance is just by the existing business. And then my follow-up is just kind of thinking about going forward, does it make it tough to figure out how to guide and what the normalized growth rate of the company should be, given that you have areas like BNPL with such outsized growth? It's just hard to predict. Mike Milotich: Yes. Thank you, Bryan, for your question. So I would say, first, when we are looking at the growth, we look at it, I guess, slightly differently than the way you characterized it. We look at new business in terms of new programs and, within those new programs, how many of them are driven by existing customers versus new customers. So you are right that many of the exciting growth areas of the business are coming from our existing customers, but most of that is being driven by new programs that they are launching with us, either new products or expanding into new geographies. And whenever they make those decisions, of course, we would like to have deeper relationships with them. But of course, they have other options. And so we still consider that great new business that drives growth. This year, we've talked a lot about what we call our new cohort business, which includes all programs that have launched since the start of 2024. And those are very much on track with what we believed at the start of the year, excluding the impact of Varo deciding to terminate. So our programs this year, again, programs that have launched since the start of 2024, are expected to contribute over $40 million in revenue in 2025. So that business is ramping well, and we're excited to continue to see it ramp into next year. In terms of guiding, I think we do have a complex business. But I feel like, generally speaking, we do forecast the business pretty well. I would say going into the holiday season in Q4, where Buy Now, Pay Later, the volume significantly ramps up. It is a little bit more difficult in Q4 and particularly with sort of the uncertainty in the macroeconomic environment, it's a little bit tougher to tell, but we feel pretty good about our ability to project the business forward, and we'll see as the quarter unfolds. Bryan Keane: And then just as a follow-up, it sounds like TransactPay has been key to kind of develop the European market. Is it just expansion from existing customers that they didn't kind of feel comfortable expanding until you had that solution? I'm just trying to figure out exactly how big that could be for you guys now that you have that asset under your belt. Mike Milotich: Yes. So there are 2 primary sources of value for us with TransactPay. So one thing you mentioned is that it does make it much easier for our customers to move to either side of the Atlantic, so either North American customers going to Europe or European customers coming to North America. And the reason for that is prior to TransactPay, we couldn't offer the same level of solution that we could in North America, with the biggest difference being program management. So when a U.S. customer, for example, wanted to go to Europe, we'd be able to tell them, well, from a processing perspective, this will be pretty seamless on our platform, but there's a lot of things that you're going to have to find someone else to do for you in Europe that we take care of for you in the U.S. So that was not ideal for our customers. And so the TransactPay acquisition removes that barrier, where actually our offering now will be very similar and very seamless to expand going either direction across the Atlantic. The other source of growth for TransactPay is incremental business. What we repeatedly have heard in the market and even what other ecosystem players tell us is the very large opportunities, the real enterprise customers want one partner, one platform to serve as both processing program manager and bring the EMI license. So there was a part of the market, which is really the bigger part of the market, the high end of the market, that we really couldn't play in before. And now with the TransactPay acquisition, we can play in that market, and our pipeline reflects that. So those are the 2 things that are quite exciting about the addition. And we're only 3 months in now, but we've hit the ground running since the close. Operator: And our next question comes from Timothy Chiodo with UBS. Timothy Chiodo: I was hoping we could dig in a little bit more into the Kara Card relationship. So clearly, it's expanding into 15 new markets, I believe, is the number that was put out there. This is the in-store relationship with the card, but I also understand that the Apple Pay portion would be applicable as well. I was hoping you could help us, one, just put a little bit more detail around the relationship. But also to the extent, even directionally, you could give us a sense of some of the numbers that we could start to put around this, meaning we certainly have estimates around the number of cards that this could be, given there's a wait list in the U.S., and we could put some kind of an assumption around the markets in Europe. But volumes per card, what's a reasonable expectation relative to the, call it, 2,000 or so per card that we see with the Affirm Card? And then directionally, if the yield on this business were lower, higher, or about the same, that would be appreciated. Mike Milotich: All right. Thanks, Tim. I'll let you throw a lot in there. So let me see how much I can cover. So yes, Klarna is a great partner of ours. They've been a customer for a very long time, certainly going back probably 7 or 8 years. And we continue to have a great relationship where we can enable innovation together. What's exciting about the expansion of the Visa flexible credential into 15 new markets is that last October, we did a pretty significant migration for Klarna in Europe. It was in 3 countries, and we converted or migrated over 5 million cards. And so we've been operating with them in 3 markets, and now they're going to add 15 additional markets to that relationship. So we have, I guess, a good amount of information based on the 3 markets that we see today, but those were businesses that already existed before they got onto our platform. So it's a little bit different than in these new markets where they're starting with the first time of having a card solution. What I can tell you is that what we see in those 3 markets is that the growth has been really strong. So when you're doing a migration, you move a lot of the historical information from one platform to your own. And so we had a good sense of the trajectory of the business prior to it coming onto the Marqeta platform. What we're seeing in the quarter since that happened is a significant acceleration in that business. And so part of that, of course, is that Klarna gets all the credit. They're executing really well and driving a lot of growth. But we'd like to hope that we at least have some hand in the capabilities of our platform and really making it easy and reliable for them to drive that kind of growth. And so we'll see how the new 15 markets go because we don't really have as good a benchmark because as you said, in the U.S., they had waitlists and other things. So I can't share those numbers. Maybe they would share them with you. But the yield was your last question. I would say, in general, Europe, the yields tend to be a little bit lower because just the economics in Europe are a little different, but there are still healthy yields for us to drive growth and also allow Klarna to be very competitive and offer a very effective value proposition for their end users. Operator: Moving on to Darrin Peller with Wolfe Research. Darrin Peller: There was a lot on the call, but I want to just take a step back. And if we look at the puts and takes of what you look at for 2025 and think about the trajectory of the business that you're on right now relative to what you'd expect and hope for going forward, anything anomalous that we're seeing now in this trajectory that we should think is unsustainable because the growth obviously has done very well this quarter. And I guess we're getting questions on how that can look at the end of the year and into next year already. So any early indication of what you're seeing in terms of just trends and anything that may not be? You mentioned 2 contracts that might be renegotiated, or anything else you can call out? Mike Milotich: Sure. Yes. No, thanks, Darren. I mean, there's no doubt that the trajectory of the business is stronger than we expected. Just the TPV growth is accelerating again for the second straight quarter. And as I mentioned, this is our fastest TPV growth in about 6 quarters. So clearly, things are on a good trajectory. I would say, first, from, I guess, the positive aspects that are driving this is certainly the Buy Now, Pay Later use case. And again, this combination of some geographic expansion as well as these, what we call Pay Anywhere cards, but the Buy Now, Pay Later companies offering a card that can be used anywhere a card is accepted to deliver the Buy Now, Pay Later use case. We are getting really strong adoption. And our lead and leadership, I guess, with the flexible credential from Visa has been something that we're quite proud of as the first to enable that, and that's leading to a lot of growth. Also, in SMB lending, that part of the market is also doing quite well. I didn't highlight that much, but that's another area. So everything in lending, I would say, is definitely performing better than we expected and driving better growth. And then the on-demand delivery acceleration this quarter was a little bit of a surprise. Our customers continue to expand into new merchant categories, I guess, as well as geographies, and that's driving strong growth. And then just in general, I would say the business is doing a little better. The things that can change there are a few. So one is, we talked about the renewals at the start of the year. And as I just mentioned, one of them we expect to be in effect in Q4, and lower our growth by about 2 points in our gross profit growth by 2 points in Q4. That other renewal, we do expect to get done in the early part of 2026. So what we said at the beginning of the year was we expected those 2 to be a combined 4 points of drag on growth. The first one is coming out to what we expect it to be, about 2 points; we'll see. So we'll update you on those 2, but that's one thing that's changing. I think the second thing I would highlight is that we do now expect that Cash App is going to diversify some of their new issuance with Bancorp and use another processor. So it's the new issuance for now, is our understanding. Even if they do all their new issuance starting January 1, which would be aggressive. But if we just use that as an assumption, we think that would be about 2 points of drag on our growth in 2026. So that's something that we also expect to change. And then the last thing I would just point out is that in this quarter, we did have 2.5 points of just unusual items that we think are very unique to the quarter, and those wouldn't continue. So those are a few of the factors that are, I would say, we expect to change in '26, but we'll tell you more about that when we talk again in February. Operator: Our next question comes from Tien-Tsin Huang with JPMorgan. Unknown Analyst: This is Connor on for Tien-Tsin. Mike, I wanted to ask about Europe a little bit. You talked about it still growing 100% plus or doubling. I was curious if you could just talk about how sustainable you feel like that is? I think it's across a couple of use cases, and it seems like you've got a couple of clients doing particularly well, but maybe just thoughts on the sustainability of that and mix shifts you're seeing within the use cases, maybe? Mike Milotich: Sure. Thanks, Connor. So yes, the international business is doing really well, and a lot of that is being fueled by Europe. Just so you have a sense, our non-U.S. business represents sort of a high teens percentage of our TPV, and that's up 5 percentage points from Q3 of last year. So that very high growth rate means it's grabbing a bigger share of our business over time. And the European growth remains over 100%. That's probably not sustainable, obviously, as the base gets larger, but we've now done that for several consecutive quarters. The use cases in Europe, what's great is that it's very similar to our U.S. business. We have very large customers who are growing quickly in neo banking, lending, and Buy Now, Pay Later, as well as in expense management. So all 3 of those areas are all growing over 100% and are all of substantial size. I would say the only difference in Europe compared to the U.S. is just the on-demand delivery business is much smaller. It is there, but it's not nearly as significant as it is in the U.S. So that's really the biggest difference. In terms of sustainability, I mean, again, 100% growth is probably a little bit much to expect, as the base just keeps getting bigger and bigger. But we do think that the TPV growth in Europe can continue to grow at a materially faster rate than the overall company. And that's because we've got TransactPay coming into the fold, which again just makes our offering that much more compelling and allows us to seamlessly support customers who maybe want to move to Europe or European customers who want to move to North America. And it just allows us to compete in the premium market where the large enterprises play. So the big volumes that can be had are now available to us, and we can be competitive, which really wasn't the case. So what I would say is in the coming quarters, our growth rate might slow a little, like dip below 100%, but still be very fast, much faster than the overall company. And then the plan would be in a year or so, as some of these programs with the combination of Marqeta and TransactPay together start to come on board that, that TPV growth could reaccelerate. So we think it's going to grow much faster than the overall business for at least the foreseeable future. Unknown Analyst: Perfect. And maybe a follow-up on just like Flexential more broadly. I'm curious, I mean, you talked at some length about within BNPL kind of the use case for Visa Flex Credential. Curious, like outside of BNPL, are you seeing demand for it from any of your customers? What can you say about adoption curves if we exclude BNPL? Mike Milotich: Yes, we are seeing a lot of interest because of the flexible credential beyond just Buy Now, Pay Later, because really, the first use case was this combination of a debit credential with the ability to do essentially transaction-based lending or Buy Now, Pay Later lending. But what is coming from the networks that, again, you could ask them for more details. I don't want to steal their thunder, but we are going to move to a world where the flexible credential could be debit and more of a revolving credit instrument. And so then that now has a lot of applicability for people versus today, we probably all have a credit card and a debit card in our wallets. In the future, you might be able to just have one card that allows you to pay now and pay later, or revolve all in one credential. So the discussions about that type of offering we have a lot of those conversations given that we have the most experience with these flexible credentials. And so we have a lot of conversations about that. The second area that I'd also say is right now, it's the Buy Now, Pay Later companies who are at the forefront of using this flexible credential, but we also talk to other companies who want to have a debit offering where you might embed Buy Now, Pay Later that comes from one of these major Buy Now, Pay Later customers of ours. So we do think even the current use case can expand beyond just Buy Now, Pay Later companies, but other issuers as well. And that would be both good for that issuer's value proposition as well as drive distribution for the Buy Now, Pay Later customers of ours. Operator: Moving on to Craig Maurer with FT Partners. Craig Maurer: I wanted to ask, when we think about 2026, how does Cross River help with the backlog? Does it open you up to new potential in terms of growing that? And second, the renewal cadence, you obviously talked about renewing 2 customers in the fourth quarter and the first quarter. How should we think about that going forward? And just lastly, how are the opportunities with American Express starting to shape up? Mike Milotich: Sure. Thanks, Craig. So yes, and just in terms of Cross River Bank, I mean, we're excited to start working with Cross River Bank. Again, we have a program that is going to go live in Q4 and launch, which we're excited about. And then early next year, we expect to also have Coastal Community Bank up and running. The key thing is that when we are looking for new potential bank partners, we look for the combination of both with banks that have a lot of capabilities and technology. So they had made a lot of investments themselves because those are the things that we can utilize seamlessly to deliver value for our customers. We wanted them to have, obviously, a strong regulatory compliance footing. And then we also wanted banks that could support a broad range of offerings. What makes Marqeta unique is that we do all use cases across debit and credit, consumer and commercial. And so we really want partners who also have that kind of breadth of offering. And Cross River Bank, we feel like is a great partner, and we're excited to work with them as we go forward. So it will be more and more part of the new business that we bring on board to our platform, starting in Q4. In terms of the renewal cadence, so yes, originally, we thought these 2 renewals would get done kind of in the middle of 2025. And they've just taken longer. They're both going to get done before the contract or the current contract expires. So it's not like we're bringing it down to the wire here, but they are just taking a little bit longer. They're bigger customers, larger relationships. And so there's just more to discuss. And we expect one in Q4 and then the other one in the early part of 2026. And once they're done, we'll give you updates. And then your last question on American Express. So there are several opportunities that we're talking to customers about with American Express. And we are also talking to American Express about unique things we could do together. So I would say we had a few things in mind when we started the integration, which is almost complete. And we do continue to partner together to capture some people who are trying to do unique things in the market, where we both bring something unique to the table. Operator: We'll go next to James Faucette with Morgan Stanley. James Faucette: I wanted to ask, you talked about your ability and opportunity you've had to ramp incremental markets with Klarna, et cetera. Can you talk about how that impacts your ability to add new markets for other partners and things that you can do to accelerate that process operationally for them? It seems like that would be a good opportunity, especially as people look at different countries around the world where they may want to have a presence. Mike Milotich: Totally agree, James. And we're doing this for a broad number of customers. Our view is that a lot of the fintech winners have been crowned, if you will, and many of them are becoming big businesses, and they're expanding in terms of both products and geographic reach. And we're really helping them do that. If we look at our top 10 customers, 8 of them operate in more than one geography with us, which we would define as sort of the U.S., Canada, Europe, Australia as sort of the primary geographies that, I guess, in 1 or 2 countries in Latin America. So we already have the majority of our largest customers operating in more than one of those on our platform. And I think it's around in the mid-teens of our top 20 customers are also in more than one market. So this is something we already do and have been doing for a while, but we think there's even more potential because in a lot of cases, these were maybe smaller efforts, but I think now many of our customers are seeing traction and looking to invest in those markets as there just aren't nearly as many people chasing all the same opportunities as there was 3, 4 years ago. And so that's creating opportunity, which is part of the reason, as we talked about earlier, for the TransactPay acquisition is just to make our platform and our capabilities on a geographic basis much more consistent. And when we look at the pipeline of who we talk to now in terms of new customers and new opportunities, this is one of the key criteria when we're looking at who we should target is who are the companies that are already multinational and have the scale that could take advantage of that unique capability that we have. So the fact that we are 100% modern and operate at scale and can do all kinds of use cases across debit, credit, consumer, and commercial, but that also means that we were one stack. And so we make it very easy for you to move from market to market, versus many other competitor platforms that might be a whole different platform that requires a different integration. So this is an area that we're leaning in both with our existing customers, as well as if you were to see our pipeline, it includes a lot of companies that very quickly want to be in more than one market. Operator: [Operator Instructions] And we'll go next to Jamie Friedman with Susquehanna. James Friedman: So I was wondering if you could share any perspective on the kind of respective revenue yields, as there's relative growth in some. For example, you called out that revenue yield in Europe might typically be lower. How should we compare commercial, say, the expense management initiatives relative to consumer? Any perspective that you might have on revenue yield would be helpful. Mike Milotich: Sure. Yes. Thanks for your question, Jamie. And I would say I'll talk about our gross profit take rate since we tend to focus on gross profit take rate. So I would say the yields from use case to use case are not as different as you would think. I would say, generally, they're relatively consistent. What changes the actual yield in each kind of use case has more to do with the size of the customers that we have. So, how big are the very largest customers in that space? So when we compare our offerings or our gross profit take rate in the various segments, the differences more come from the weighting or the mix of the size of the customers in each, as opposed to us fundamentally charging different amounts for different use cases. For example, in our financial services and the neo banking, obviously, our largest customer, predominantly their business is there, but we have a couple of other quite significant customers. And so that one tends to be a little bit lower. And I would say the same thing in expense management. We have 2 or 3 very large customers in that space. And so the gross profit take rate tends to be a little bit lower than in on-demand delivery and lending, and Buy Now, Pay Later, it's a little bit more diversified customer base. There are a lot more customers who are contributing. And so the gross profit take rates are a little bit higher. The only other thing that I would just mention about this is one of the other things that I haven't mentioned when we talk about TransactPay is that traditionally in Europe, our gross profit take rate was much lower because we were only providing processing, and we really didn't have much else to offer versus now we'll have processing and program management, including the license, all of which you can monetize. And then also, we're bringing a lot more of our value-added services to Europe. So we do expect that our gross profit take rates in Europe are going to improve over time, which will maybe also make the difference between, say, North America and Europe, not as significant as it is today. James Friedman: And that's a good follow-up to my second one, Mike, which is about value-added services. I might have missed it this quarter. I felt like you had more about it in the script earlier in the year. So what is the narrative on value-added services? And I apologize if I missed it earlier. Mike Milotich: No, no, you didn't. Yes, we didn't cover it much this quarter, but we spent a lot of time on it last quarter. We continue to expand our value-added services. If you really think back to 2, 3 years ago, a lot of our engineering energy was going into scaling the business. A payment platform that has to work every time. There's a lot of effort that goes into it when your volume is growing at the rates ours has over the last several years. That was a big part of our efforts. But I would say in the last 12 to 18 months, we've really broken through that next level of scale. And it's allowed us to then divert some of our resources to adding more value-added services and making the offerings more robust. So some of the big areas, I would say, right now are related to things related to tokenization, as well as our risk products are both growing quite quickly. So those are 2 areas that we're excited about. And then the new area that we just started launching this year is our ability to support people with the user experience, so a white label app. A lot of the customers or a lot of prospects on our platform do want that full end-to-end solution because, as we move into embedded finance, just remember that the way we at least define embedded finance is that it's companies whose core business is outside of financial services. So our traditional customer base in fintech, they wanted to own a lot of these things and build a lot of these things themselves, versus an embedded finance, these customers have another core business, and they're really looking for a full end-to-end solution. which is why we've really been investing in this area because we think more and more of our business going forward will be full solution sets, including lots of different offerings from our platform to make it easier for them. So it's relatively small right now, but growing quickly and will become a bigger part of the story in the coming years. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
Operator: Good afternoon, ladies and gentlemen. Welcome to Workiva's Third Quarter 2025 Earnings Call. My name is Chuck, and I will be your host operator on this call. [Operator Instructions] Please note that this call is being recorded on November 5, 2025, at 5:00 p.m. Eastern Time. I would now like to turn the meeting over to your host for today's call, Ms. Katie White, Senior Director of Investor Relations at Workiva. Please go ahead. Katie White: Good afternoon, and thank you for joining Workiva's Q3 2025 Conference Call. During today's call, we will review our third quarter results and discuss our guidance for the fourth quarter and full year 2025. Today's call will include comments from our Chief Executive Officer, Julie Iskow, followed by our Chief Financial Officer, Jill Klindt. We will then open up the call for a Q&A session, where we will be joined by Mike Rost, our Chief Strategy Officer. After market closed today, we issued a press release, which is available on our Investor Relations website, along with supplemental materials. This conference call is being webcast live, and following the call, an audio replay will be available on our website. During today's call, we will be making forward-looking statements regarding future events and financial performance, including guidance for the fourth quarter and full fiscal year 2025. These forward-looking statements are based on our assumptions as to the macroeconomic, political and regulatory environment as of today, reflect our best judgment based on factors currently known to us and are subject to significant risks and uncertainties. Workiva cautions that these forward-looking statements are not guarantees of future performance. We undertake no obligation to update or revise these statements. If the call is reviewed after today, the information presented during this call may not contain current or accurate information. Please refer to the company's annual report on Form 10-K and subsequent filings with the SEC for factors that may cause our actual results to differ materially from those contained in our forward-looking statements. Also during the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliations of GAAP and non-GAAP measures are included in today's press release. With that, we'll begin by turning the call over to Workiva's CEO, Julie Iskow. Julie Iskow: Thank you, Katie, and thank you all for joining us today. In Q3 of 2025, we delivered another quarter of strong financial performance, powered by the continued demand for our broad portfolio of solutions and our AI-powered platform. We beat the high end of our revenue guidance with 23% growth in subscription revenue and 21% growth in total revenue. On a year-to-date basis, we've delivered 22% subscription growth and 20% total revenue growth. This performance underscores the resilience of our business and the focused execution by our team at Workiva and our partners. As a result of the Q3 revenue beat, we're increasing our full year 2025 revenue guidance. We continue to deliver value to the market because we focus on customer needs. Our customers need to trust the numbers they're disclosing. They need to provide transparency across their business, both financial and nonfinancial information. And yes, they must be accountable with assurance as a requirement every step of the way. So our customers are looking to us and our platform to solve their most challenging problems. This value we deliver to our customers is highlighted by the continued growth in our large contract cohorts. In Q3, the number of contracts valued over $100,000 increased 23%. Those over $300,000 increased 41% and contracts valued over $500,000 increased 42%, all compared to Q3 of 2024. This large contract growth was driven by both additional solution sales within our existing customer base and the landing of larger new logo deals. At the same time, we delivered a non-GAAP operating margin of 12.7%. This is a 470 basis point beat on the high end of our guide. It's also an 860 basis point improvement compared to Q3 of 2024. With this margin beat, we're raising our full year 2025 non-GAAP operating margin guide by 200 basis points at the midpoint. These results reflect our continued focus on durable growth and meaningful margin improvement. They also demonstrate tangible progress toward our medium- and our long-term operating margin targets. We believe that our disciplined execution and our operating rigor position us to deliver additional leverage over time. I'll move on now to provide some representative Q3 deals. These customer wins provide meaningful insight into our business. They highlight the breadth of our solution portfolio, the location and the types of customers that we're selling to and the role that our partners play in the adoption and the success of our platform in the market. I'd like to start off with a few deals that demonstrate our continued success as a global platform company. First, a top 5 global pharmaceutical company signed a mid-6-figure 2-solution account expansion deal for sustainability reporting and policy management. Already a 13-year loyal SEC reporting customer, they nearly tripled their spend with the platform expansion into the GRC and sustainability solution categories. This global organization invested in the Workiva platform to support their sustainability road map. The road map includes requirements across CSRD, ISSB and other local requirements in some of the 100-plus countries in which they operate. The deal was sourced and it will be delivered by a Big 4 firm. Second, a North American telecommunications and media company signed a mid-6-figure account expansion deal for 4 solutions. The deal included audit management, controls management, operational risk and sustainability. This 9-year loyal SEC customer more than doubled their spend with this account expansion and now uses 6 solutions on the platform. There were several business drivers behind this deal. They included replacing multiple GRC solutions and consolidating on a single platform to drive efficiency and cost savings, enabling risk mitigation across sustainability and operations and providing support for an integrated annual report, combining both financial and nonfinancial information. Workiva was the only solution evaluated that could address all 3 of these requirements on a single platform. The deal was sourced and will be implemented by a Big 4 firm. And third, we closed a high 6-figure expansion deal with a European-based energy services company. The deal covers 6 solutions, sustainability reporting, controls management, enterprise risk management, policy management, compliance and operational risk management. The customer first adopted Workiva back in 2022 for ESEF reporting. It has since increased its annual spend more than eightfold, now exceeding $1 million in annual subscription revenue. This was a competitive win over multiple GRC solution providers and multiple sustainability reporting solutions. The deal was sourced and will be delivered by a Big 4 firm. Our deal momentum extends beyond platform-wide wins. We continue to land and expand with the financial reporting category, which remains a durable growth area for us. A key financial reporting driver is our multi-entity reporting solution, purpose-built for multinational organizations managing complex global structures and operations. A strong Q3 example of a multi-entity reporting deal is a 7-figure expansion with a leading global oil and gas company. This customer more than doubled its spend and now leverages 6 Workiva solutions. As part of a multiyear financial transformation tied to ERP consolidation and an S/4HANA migration, Workiva will enable the modernization of their local statutory reporting across 300 legal entities. This deal was sourced and will be delivered by a regional consulting firm. Another example of our multi-entity reporting deal momentum is a mid-6-figure account expansion with a U.S.-based global manufacturing company who's been a Workiva customer for 14 years. The deal adds 2 financial reporting solutions, multi-entity reporting and regulated financial reporting, and it increases the customer's annual spend nearly fourfold. Both solutions replace legacy manual processes previously managed through desktop tools. The deal was sourced and will be delivered by a regional consulting firm. Expansion deals aren't the only driver of financial reporting growth. A strong new logo win in Q3 was a 4-solution deal with a European export credit corporation. The customer adopted Workiva for SEC reporting, ESEF reporting, bank regulatory reporting and sustainability. They're pursuing 2 major initiatives, standardizing SEC and ESEF reporting on a single platform and preparing for CSRD compliance as a Wave 1 filer. Workiva was the only solution evaluated that could support their integrated reporting requirements across both sustainability and financial reporting. This deal was a co-sell and will be delivered by a Big 4 firm. I'd like to move on now to one of our vertical-specific solution categories, financial services, and I'll highlight just a few of our Q3 wins in this vertical. First, we secured a mid-6-figure new logo with one of Europe's top 10 banks. The customer adopted 5 solutions, SEC reporting, ESEF reporting, sustainability reporting, multi-entity reporting and bank regulatory reporting. The deal replaces multiple on-premise systems and manual spreadsheet-driven processes. Multiple Big 4 and global consulting firms participated in the co-sell effort. Delivery is to be executed through several Workiva partners. Second, we closed a 7-figure new logo deal with a European fund services administrator. This was for fund reporting. This was a competitive win over the incumbent on-premise software solution. The customer selected Workiva for 2 key reasons, our ability to scale reporting across 2,500 funds and our platform's clear differentiation from legacy technology. The deal was sourced and will be implemented by a Big 4 firm. Turning to sustainability. Demand remains steady as organizations respond to expanding stakeholder expectations and evolving regulatory mandates. First, a top 5 global payments provider signed a 6-figure expansion for Workiva Carbon. They purchased our carbon solution to support multiple regulatory frameworks as well as the California climate disclosure rules. The deal replaced a legacy carbon accounting system and represented a competitive win over 4 alternative solutions. The customer has been publishing a global impact report for 7 years aligning its disclosures with GRI, SASB, UNGC and the UN SDGs. But it found that its prior carbon accounting system was insufficient to meet the evolving requirements. This deal was a co-sell and will be delivered by a Big 4 firm. Second, a top 5 Australian bank signed a 6-figure expansion for sustainability reporting. It was to meet the new Australian sustainability reporting standards, AASB S1 and S2. These standards require sustainability disclosures within annual filings, and they cover governance, strategy, risk management and Scope 1, 2 and 3 emissions. Australia's approach demonstrates how regulators are embedding sustainability into financial reporting through ISSB alignment. Approximately 1,000 organizations qualify as Group 1 filers with the first mandatory reports due June 30 of 2026 for June year-end entities. This deal was sourced and will be implemented by a Big 4 firm. Let's move on now to GRC, which in Q3 included several notable wins. First, a U.S. financial holding company signed a mid-6-figure expansion for enterprise risk management, a Workiva SEC reporting customer since 2012, this firm has expanded into 7 solutions across the platform, including multi-entity reporting, living will, stress testing, bank regulatory reporting, sustainability reporting and now enterprise risk management. This most recent expansion increased annual spend by 25%. The new solution will centralize 45 internal enterprise risk reports covering risk metrics, categories, subcategories and risk statements. The deal was a co-sell and will be implemented by a Big 4 firm. Second, a U.S.-based regional community bank signed a multi 6-figure expansion for 3 GRC solutions, controls management, operational risk management and policy management. A 13-year SEC reporting customer, the bank now uses 5 Workiva solutions. This expansion more than tripled its annual spend. The deal was sourced and will be delivered by a regional consulting firm. Wrapping up our solutions section. Here are a few highlights on capital markets. Q3 saw a notable uptick in IPO activity. Workiva supported several high-profile IPO listings, including Sigma, Klarna, HeartFlow and Shoulder Innovations. For Workiva, an improving capital markets environment extends well beyond the S-1 filings. First, we engaged with private companies years before they go public, through our private company reporting and internal control solutions. We believe that a stronger IPO outlook increases the incentive for companies to invest early in scalable reporting processes. And second, more SEC registrants expand the addressable market for additional Workiva solutions, including SEC and SOX reporting, even in instances where we're not directly involved in the S-1. We are encouraged by Q3 IPO activity and the economic environment supporting the rebound. We're optimistic that the IPO momentum will continue into Q4 once the U.S. government shutdown ends. Let's shift focus to discuss innovation. In September, we hosted Amplify, our annual user conference. We welcomed over 2,300 customers, partners and investors in Washington, D.C. We showcased our commitment to innovation, and we launched product enhancements to continue to meet and exceed our customers' growing expectations. During the event, we announced several agentic AI extensions, and we launched Intelligent Finance, Intelligent Sustainability and Intelligent GRC. Each delivers specialized fit-for-purpose capabilities that enhance customer speed, agility and confidence. These offerings leverage the fact that the Workiva platform is intelligence ready. Being intelligence ready means that all data and narratives are structured, consistent, traceable, interpretable machine readable and built with context, not just content. This is what differentiates Workiva. Our reports are structured, validated data products, not static documents, They allow AI and automation to read, reconcile and publish with full lineage, embedded controls and regulator-grade assurance. We also embed global frameworks and taxonomies directly into the platform, transforming every report into a machine interpretable data product. As a result, AI can operate without guessing what's material, how metrics are defined or how to compare them. With Workiva AI at the core of our unified platform, we're delivering an intelligent companion that enables customers to achieve their most critical outcomes faster and with confidence. A great example of how our AI capabilities are driving value to our customers is a Q3 multi 6-figure new logo win with a rapidly growing privately held defense contractor. The customer purchased 4 solutions, controls management policy management, compliance management and private company financial reporting. It was our AI-powered GRC capabilities that differentiated us from the competition. This company is building their first controls management framework. They're creating company policies and building a compliance program for the cybersecurity maturity model certification. This is a prerequisite for doing business with the U.S. military. By leveraging Workiva AI, including the AI-powered control creator, the customer will author and implement policy control and compliance frameworks in-house, reducing reliance on third-party consulting spend. At Amplify, we also hosted our Annual Investor Day. We detailed our commitment to both durable growth and improved operating leverage. Our recent margin progress in 2025 reflects the disciplined approach we've been taking to achieve greater operating leverage in the business. Since the start of the year across every function, every department and every team who have been focused on 4 themes. First, organizational and operating model redesign, We're simplifying span of control and reducing layers. We're evolving the operating model across sales, customer success and R&D and we're putting a greater emphasis on performance management. These ongoing efforts will provide a structure that reduces duplication and strengthens execution. Second, process streamlining and automation. This includes both single and cross-functional initiatives. We're streamlining and improving workflows and leveraging technology where it brings value. And yes, that includes the automation of routine tasks and the use of AI. Third, optimizing product and go-to-market resources. We're sharpening our investment discipline so that we can direct resources towards initiatives with the highest likelihood of success and the greatest customer value. And finally, more focus on fiscal discipline. We're exercising greater financial discipline across all functions. Together, these focus areas are designed to increase productivity as we grow and scale, and drive greater operating leverage across the business. By functional area, here's a quick summary of our productivity initiatives. For cost of sales, we're scaling digital support optimizing cloud computing costs and shifting low-margin setup and consulting services to our partners to get greater leverage. For R&D, we're focused on workforce diversification, engineering productivity and scaling our operating model. Finally, we do recognize sales and marketing is where we have the largest opportunity to drive additional efficiency and productivity. Our approach is practical, to minimize the risk of disrupting growth as we continue to focus on capturing our large and expanding TAM. We've targeted 3 areas to improve sales productivity. First, transitioning to a more efficient sales structure and creating better alignment of sellers to territories. Second, a focus on staff which includes up-leveling our seller expectations and bringing in new hires that have seen scale, sold platforms and know how to win with strategic partners. And third, we're bringing even more precision to where and what we sell, optimizing our coverage models to improve efficiency, drive focused new logo growth and achieve greater account expansion. We're committed to staying in the lead and going after our growth opportunity, while at the same time, improving productivity within and across our organization. Finally, I'd like to share an important leadership update. After over 15 years with Workiva, Michael Hawkins is stepping down from his role as Executive Vice President and Chief Sales Officer, effective today, November 5. Mike has been part of Workiva since our early days, and he's helped to shape the company that we've become. Mike has played a key role in our evolution from a single solution company in the U.S. to adjusted global platform serving thousands of customers. I'd like to thank Mike for his years of leadership, his dedication to our mission and his many contributions to our success. His impact on our people, our customers and our growth will be felt long after his departure. We also announced today the appointment of Michael Pinto as our new Executive Vice President and Chief Revenue Officer. Michael's career spans more than 25 years, driving rapid growth for some of the world's largest technology companies. Most recently, he was the Senior Vice President and General Manager for the Americas at Databricks, a $4 billion revenue run rate data and AI company. Prior to Databricks, he held senior sales leadership roles at Amazon Web Services, Medidata and SAP. Michael will oversee Workiva's global sales, partnerships and alliances and commercial operations. He'll focus on scaling and accelerating profitable growth, modernizing go-to-market strategies, strengthening customer engagement and advancing global expansion. We believe that his leadership experience, his track record of guiding multiple companies to scale and his deep understanding of enterprise SaaS strongly align to what's required for our next phase of growth. Finally, a brief update on our CFO search. We have identified a final candidate but we're not yet able to provide detail at this time. As you know, bringing in a sitting public company CFO is a complex process. And there is a sensitivity in the timing of the communications and the announcements. In closing, I'd like to thank our team of dedicated employees across the globe for their relentless focus on innovation, our customers' success and our go-to-market execution that continues to fuel our growth. I'd also like to acknowledge their disciplined commitment to productivity and performance that's driving measurable improvement in operating leverage in our business. And with that, I'll now turn the call over to Jill to walk you through our financial results and updated 2025 guidance in more detail. Over to you, Jill. Jill Klindt: Thank you, Julie, and good afternoon, everyone. Thank you for joining us. Today, I will begin by providing an overview of the financials and key metric highlights for the third quarter of 2025. I will then provide guidance for Q4 and the full year 2025. As Julie discussed, we had a strong Q3, generating $224 million of total revenue, up 21% over Q3 2024 and beating the high end of our revenue guidance by $4 million. There was an approximately 1 percentage point positive impact on revenue growth due to foreign currency fluctuations. Q3 subscription revenue was $210 million, up 23% from Q3 2024. Both new customers and account expansions continue to contribute to our solid revenue growth with new customers added in the last 12 months, accounting for 40% of the increase in Q3 subscription revenue. Q3 professional services revenue was $15 million, flat versus Q3 2024, with decline in setup and consulting services, offset by higher XBRL services. Our non-GAAP operating margin for the quarter was 12.7%. This 470 basis point beat on the high end of our guidance was driven by stronger-than-expected top line results, increased PTO usage and continued focus on operational efficiency and productivity. I'll now move on to our performance metrics for the quarter. We had 6,541 customers at the end of Q3 2025, a growth of 304 customers from Q3 2024. Our gross retention rate was 97%, exceeding our 96% target. And our net retention rate was 114% for the quarter versus 111% in Q3 2024. Similar to revenue growth, there was an approximately 1 point positive impact on NRR due to foreign currency fluctuations. During the quarter, 73% of our subscription revenue was generated from customers with multiple solutions. This is up from the 68% we achieved in Q3 2024. Growth in our large contract customer metrics also reflected strong momentum. As of the end of the second quarter, we had 2,372 contracts valued at over $100,000 per year, up 23% from Q3 the prior year. The number of contracts valued at over $300,000 totaled 541, up 41% from Q3 2024. And the number of contracts valued over $500,000 totaled 236, up 42% from Q3 2024. Moving on to the balance sheet and cash impacts. As of September 30, 2025, cash, cash equivalents and marketable securities were $857 million, an increase of $43 million over the prior quarter end. In Q3, we used a portion of our generated cash to repurchase 126,000 shares of our Class A common stock for $10 million. This was done under the share repurchase plan approved by the Board in July 2024. As of the end of the quarter, we had $40 million remaining of the original $100 million authorization, which we will continue to deploy periodically in order to help manage dilution. As of September 30, 2025, we expect $701 million in remaining performance obligations to be recognized over the next 12 months. This is an increase of 21% versus the prior year. I also wanted to discuss a couple of notes on the PTO program changes I shared at our September Investor Day. In the U.S., we will be transitioning from our current accrued PTO program to a flexible time off plan at the beginning of 2026. As the accrued PTO was used, it will have a positive impact to op margin, but this impact will not flow down to our free cash flow margin. There will not be a onetime cash impact on the balance sheet due to this transition. Turning now to our outlook for Q4 and full year 2025. With our outperformance in Q3, we are now raising our full year revenue guide and increasing our operating margin guide to reflect our ongoing commitment and focus on driving both durable growth and improved operating leverage across the business. With that in mind, for the fourth quarter of 2025, we expect total revenue to range from $234 million to $236 million. We expect services revenue will be down compared to Q4 2024. We expect non-GAAP operating margin to be in the range of 16.7% to 17.4%. For the full year 2025, we are increasing total revenue guidance to range from $880 million to $882 million. Similar to 2024, we expect total services revenue will be down year-over-year as we move low-margin services to our partners. We now expect subscription revenue growth will be at least 21% year-over-year. We now expect our non-GAAP operating margin will range from 9.2% to 9.4%. This 200 basis point improvement at the midpoint reflects our revenue beat and our ongoing commitment to drive expanding operating leverage in the business. We now expect 2025 free cash flow margin to be approximately 12%. As we look to 2026, I want to provide some early comments on next year in order to help with your modeling. In 2026, we expect to make continued progress towards our 2027 medium-term revenue and operating margin goals. We expect XBRL services revenue will continue to grow at a modest low single-digit rate in 2026, while we expect setup and consulting revenue to decline from 2025 to 2026, as we continue to move low-margin services to our partners. The net result will be relatively flat total services revenue for the year. Similar to 2025, we expect operating margin in the back half of 2026 will be stronger than the first half. We expect momentum on improved operating leverage to continue well beyond next year. Julie walked you through our approach to improving productivity and driving operational efficiency within the organization, while executing on our long-term profitable growth strategy. Year-to-date, we've raised our full year 2025 operating margin by over 400 basis points from 5% to 5.5% at the start of the year to 9.2% to 9.4% today. This improvement reflects how thoroughly operational rigor is being embraced by every employee across the organization. Our commitment to productivity is at the core of our short-term strategy and long-range planning. As you all know, this is my last earnings call. I wanted to say how proud I am of everything the Workiva team has accomplished over these last 17 years. I look forward to watching the company achieve its highest potential in the months and years to come. I also want to thank my amazing team. It has brought me great joy to get to know and work with each and every one of you. You all have made my time here meaningful and truly special. I hope your path forward is filled with rewarding challenges, exciting opportunities and significant achievements. To our analysts and investors, it has been a pleasure working with all of you over the years and I wish you all the best. Thank you all for joining the call today. We're now ready to take your questions. Operator, please open the line for Q&A. Operator: [Operator Instructions] And the first question will come from Rob Oliver with Baird. Robert Oliver: I had 2. But first, Jill, just wanted to say best wishes. It's been a pleasure working with you. And good luck to Mike Hawkins as well. First question, Julie, is just around platform sale, you made reference to some competitive consolidations within some of the wins you had this quarter. And I guess, kind of a bigger picture question, when the office of the CFO buyers are thinking about kind of applications aligned with underlying data and workflow integrity, are you starting to see a bit of a tipping point where more of these functionalities, whether it be things within GRC or things within the financial suite around filing are starting to be consolidated around a single buyer, and should we expect that to happen more in the next couple of years and color you have there would be great. And then I had a quick follow-up. Julie Iskow: Sure. Thanks, Rob, for the question. And I would say that the trend that you're describing is a trend and it probably comes from 2 things really. One is the age-old just consolidation when companies are looking to take more responsibility for their productivity, for their efficiency and so forth. That's one. Just -- there's so many benefits to a platform, and we've seen that since day 1 as we've evolved to the platform. It's just a responsible thing to do in the CFO and the CIO office, of course. But then there's the trend of data and the importance of it and the ability to leverage it and how it works across all of our solutions. And certainly, there is a recognition. You see this by our increase in expansion deals that there's a recognition that these solutions in the office of CFO played better together. We have capability that makes them better together and that data, that's one of our key competencies really is the ability to bring all that data together, the financial and the nonfinancial CFOs get a much better and more comprehensive view of their business. And so I would say it's, one, for the efficiency of the platform, but, two, also data, particularly with AI and so forth and be able to leverage it and get better insights more quickly. It's just way more important now we have the tools and the capabilities to be able to leverage it. And our platform is unique in that we have all of these capabilities together, and our customers get a much more holistic view and they're able to leverage that for better business decisions and speed and accuracy and so forth. So 2 reasons why the trend you've spotted is going to continue. Robert Oliver: Great. Very helpful. And then just a quick follow-up around, you guys touched on at the Analyst Day portion down in D.C., the kind of a new approach to pricing around good, better, best. And I just wanted to get any color you could provide around early reads or indications around the acceptance of that pricing? I mean, I know you guys are already not a seat-based model. So you're not facing at least from what we can tell any of the risk or concerns around that. But would be interested to know what the early indicators are on the pricing change? Julie Iskow: Sure. And this is nothing we are disclosing at this time. It certainly plays a positive role in our expansions. We can share that. And again, early on and looking forward to doing more of it and rolling it out in a broader way across the platform. But thank you for highlighting. It's a great way to get our additional capabilities in and roll them out and get increased adoption. So thank you, Rob. Operator: Your next question will come from Steve Enders with Citi. Steven Enders: Okay. Great. And Jill, great to have worked with you over the years. Maybe just starting with you, I want to touch a little bit just on the early kind of view in the '26. I appreciate some of the guide points there. But maybe how should we think about the kind of continued operating margin expansion. Is it -- does it seem a little bit more kind of straight line from here to the medium-term targets? Or is there still a view of a hockey stick? And then I guess, secondarily, just, is there any way to maybe frame the magnitude of the accrued PTO change and the impact that might have on margin over this year or in the next year? Jill Klindt: Sure. Thanks, Steve. For the op margin for 2026, as I mentioned, we do expect, as the trend has shown for the past couple of years, for margins to be better in the second half versus the first half. We will continue to have that seasonality. Thinking about the trajectory towards our 2027 medium-term target, we will continue to make progress, and you saw us make great progress this year. We're very pleased with the guidance that we're providing and the progress that we've made and everything that Julie has talked about as far as the company focusing on that margin improvement and focusing on productivity and getting leverage from our existing resources will continue into 2026. And so we will continue to see the results of that work throughout the year. We're not going to provide a specific number on margin for 2026 at this time, but I can tell you that we will continue to progress towards our updated 2027 medium-term target, the updated amount that we provided during our Investor Day in September. And then related to PTO, just as the second part of your question related to the PTO portion of that question. If you -- you can always take a look at our footnotes and looking at the balance of our accrual at the end of Q3, it's at around $19 million. A large portion of that would be from the U.S. Our accrued PTO balance will never go to 0, but as far as helping to build some models, we will see that balance continue to decline, and we expect the U.S. portion of that balance to decline significantly through the end of 2026. Steven Enders: Okay. Perfect. That's helpful. And then just on the, I guess, the large deal execution. I mean, I think for the past couple of quarters, we've seen record adds in the $300,000 and $500,000 customer level. But I guess, anything to call out that maybe is helping drive that or support the strength there? And then I guess, how do we think about maybe the forward trend there continuing as you look at the pipeline going into Q4 and into next year? Julie Iskow: Sure. I can take that. And I'll say again, probably a two-pronged answer. One, the platform is resonating, and we are just -- we are getting better at selling it. So I think it's those 2 things. It's execution and the platform resonating the market. So just again, these solutions with the platform that has all of these capabilities unified together with data, with the capabilities we continue to roll out, it is resonating in the market across financial, nonfinancial and assurance. And we also have a team, a go-to-market team that is executing and they continue to get more capable of selling with partners, of selling larger deal sizes and selling multi solution. We just continue to get better and better in execution. And I think those are the 2 reasons that you are seeing that trend. Operator: The next question will come from Alex Sklar with Raymond James. John Messina: This is John on for Alex. Wanted to ask here on the capital markets activity. Can you maybe touch on the deal pipeline there? It certainly sounded like IPO activity or your share of IPO activity picked up. But can you maybe talk about the reasons behind that? And maybe any early perspective on how things are shaping up for 2026? And then I have a quick follow-up. Julie Iskow: On capital markets, specifically, we can comment on that certainly. One of the questions we get most consistently on earnings calls is around the capital markets. And we did see an increase in activity this quarter. And we had a lot of great high-profile IPOs, Sigma, Klarna, HeartFlow, et cetera, and we're encouraged by it, but we also know we're in the midst of a shutdown. So we expect it to continue once the shutdown goes away, if and when, And so we do expect it to come -- the momentum to continue on post that. We don't talk about, of course, forward-looking activity around our pipe. But we did give guidance for the quarter. So you probably have an idea about how we're thinking about the next quarter. John Messina: Okay. Helpful there. And then on the international side, continue to see positive momentum there in business coming from international markets. Can you maybe talk a little bit more about what you're seeing internationally, maybe how sales cycles are trending there versus domestic markets? And then maybe any differences you'd call out in multiproduct adoption internationally versus here in North America. Julie Iskow: Sure. Year-to-date, revenue outside of the Americas represents, at this point, greater than 19% of our total revenue compared to 17% in the year about a year ago. And we continue to put focus on it. Europe has become a strong story for us in the past 12 months. Demand has been healthy. And it's essentially broad-based as it is across our -- all regions really, it's broad-based in the region. We're selling the value of the platform. We've got the multi-solution deals, partner-led, we're getting new logos and account expansion. So we continue to remain optimistic about the market opportunity and the future growth there. So good healthy demand, broad-based. Operator: Your next question will come from Jacob Roberge with William Blair. Jacob Roberge: Jill, it's been great working with you, best wishes moving forward. Julie, can you talk a little bit more about what you're seeing in the demand environment? I know you all have talked about some macro uncertainty over the past few quarters, but both revenue and bookings growth continued to be very strong. So it would be great to hear what you're seeing in the environment and just how the Q4 pipe is shaping up. Julie Iskow: Sure. I mean, this year has been defined by consistency, but it's consistent uncertainty. Just a lot of change. Changes are different every week, day, tariffs, policy changes, elections, government shutdown, inflation, rate cuts, the list just goes on. But the Workiva teams just continue to execute through the consistent change. And as we've mentioned in the past many times, our broad portfolio of solutions gives us a resilient business. But make no mistake about it, there is definitely uncertainty out there. but we are powering through with our value proposition, and it's a good one in these times, providing transparency, accountability and trust, and it just continues to resonate in the market. Jacob Roberge: Okay. That's helpful. And then just on GRC, from the Analyst Day in your prepared remarks today, it seems like there's some good momentum with that business right now. What do you think has changed for that business over the past year that's helping drive that growth? Julie Iskow: Something went wrong there. Can you say which business you're talking about? I missed it. Jacob Roberge: I was talking specifically about the GRC business and just some momentum you're seeing there. Julie Iskow: Yes. Again, we continue to be very competitive in that market, rolling out capabilities, but we're seeing in the market a move to a cloud. And we are, again, moving strongly there on our execution. There's a lot of legacy software out there and teams are getting stronger and stronger and also many multi-solution deals there. So it's a great platform expansion. It's a land capability. So it just continues to get strong and continue to move on the trends of legacy software removal and also move to the cloud. Operator: Your next question will come from Brett Huff with Stephens. Brett Huff: Congrats on a nice quarter. First one is, can you give us an update on how the base that is kind of your core base of the SEC reporting. I know that was going to be a big focus of potential cross-sells and sort of returning to those folks also with the good, better, best upgrades. To us, that seems a really big asset that you all have that you're just starting to really go back to. Any update on that on how that's going, how the conversations are evolving? Julie Iskow: Sure. Thank you for highlighting that. I mean our base is, of course, one of our tremendous assets with 95% of Fortune 100 to 85% of the Fortune 1000. We are executing well on account expansion. I highlighted a number of those deals on the call today. You can see some longtime SEC reporting customers moving into our other categories. So that account expansion is very strong. We also highlighted our account expansion and the percentage increases for those with ACV over $300,000 and $500,000 in the low 40%. So it is a -- an absolute focus for us is expanding into the installed base and bringing them more value and bringing the unified platform and all the capabilities. Brett Huff: That's helpful. Just final question for me. Can you talk a little bit about some of the nonregulatory drivers from the FSG product? I think last quarter or maybe at the Analyst Day, you were talking about some of the science-based targets and things like that, you're still seeing good momentum there. Beyond sort of the direct regulatory drivers, is that still a part of the conversation still driving new logos for you all? Julie Iskow: Yes. I'm glad you brought sustainability up. It's very simple. It just -- it remains a strategic solution for us. Has the near-term tailwind subsided? Yes, and we've been open about this, but we continue to win large deals in the sector. And you said it yourself, and it is beyond regulatory drivers. There's business performance, there's risk management, companies wanting to be resilient. They want to manage stakeholders and they're tracking to yes, those science-based targets you mentioned. So yes, it's regulation worldwide, but it's also a number of other factors that are driving this business. And again, it does remain a strategic solution for us. Operator: The next question will come from Adam Hotchkiss with Goldman Sachs. Greyson Sklba: This is Greyson Sklba on for Adam. And Jill, it's been great working with you. I wanted to actually start on the sustainability demand environment. I know you touched on it briefly. Is it fair to say that you're seeing a similar softer demand environment in that space than what you called out in the previous few quarters? Or did you see a little bit of improvement there in 3Q? I just want to marry that with some of the strong sustainability deals that you called out in your prepared remarks. Jill Klindt: So as far as sustainability and what we're seeing currently, you just heard Julie talk about the -- that some of the -- we haven't had the same tailwinds and we talked about this, this year, but it has still been a consistent driver. You heard her talk about some of the deals that we were able to close during the quarter, and we still see demand as far as sustainability reporting that's not tied to regulatory drivers. And so we would say that it's a similar story to what we were seeing that it has not -- or ever gone to 0 that we continue to sell sustainability, and we believe it will have -- there'll be a long demand within that solution for us. Greyson Sklba: Got it. And I also just wanted to quickly ask on the free cash flow margin guidance. I saw you brought that back up to where it was in the beginning of the year. And so I'm just curious, what are the drivers behind that and sort of bringing that back to the 1Q guide. Jill Klindt: Yes, sure. Thanks for the question, Greyson. So thinking about our free cash flow margin, early in the year, we did have, back to sustainability, we had the moderation in demand for that business in the first half. And so it did influence us to reduce our free cash flow margin earlier this year from our original 12% that we have guided. And then since then, though, we have seen improvement in our op margin, which, of course, is a tailwind to our free cash flow margin. And we've also seen, as we talked about, improvement in Q3 and had good business during that quarter as well, and we're pleased with the results. And so it's going -- it's a combination of all those things that are influencing the -- our ability to bring that guide back up to 12% for free cash flow for the full year. Operator: The next question will come from Andrew DeGasperi with BNP Paribas. Andrew DeGasperi: Thanks, and good luck, Jill, for the future. It's a pleasure working with you as well. I wanted to ask a question on the appointment of Michael Pinto as Chief Revenue Officer. I know titles matter. And I don't remember a Chief Revenue Officer per se being at Workiva recently. Can you maybe elaborate, why is that if it is or if I'm wrong, a meaningful change in terms of that person being in charge of sales organization? And what do you expect -- what changes do you expect him to bring forward or if there's any change in the reporting lines in terms of what -- how it was before. Julie Iskow: Sure. I'll start by saying Michael is being brought in to take our go-to-market machine to the next level. It's -- the change is all about future growth and scale for us from $1 billion to the multibillions, building scale and efficiency in the sales organization, accelerating our high-performing partner ecosystem, driving new logos, account expansion, revenue retention activity, all of this in partnership with our go-to-market teams, marketing and customer success organizations and so forth. So that is why he's here. It's all about the next era of growth for us. On this title, I mean, we looked at market standard titles for the role. He's taking on the global sales organization, the partnerships and alliance and all the commercial organizations. So this is the title and the role, and we're enthusiastic about having him in and look forward to what he's bringing. Andrew DeGasperi: Got it. So it sounds like there's been a change in terms of the people that report to him to a degree or to that role before. But in terms of also -- I noticed the change in tone this earnings call, just in terms of your focus on efficiency, both across sales and marketing, R&D and gross margin expansion, of course. So am I right to think that there's been a shift pretty much since the Investor Day in terms of improving that and you're actively taking steps to meaningfully drive that to get to those midterm targets you laid out? Julie Iskow: Sure. We have been working towards those targets and just improving productivity across the organization. We did roll it out in Investor Day, but we've have these plans. We've been working across the organization, whether it's automation efficiency, AI. We've been bringing in new roles across the organization, people who have been there and done that at scale. We have strong leadership across the organization, some of which is new. We've talked for a long time about having a blend of those people in the organization who've been here are evolving. We've been talking about them going out with -- understanding the customers, understanding our industry understanding our markets and then mixing that with the people who have been there and done that at scale. So it is not a new motion for us. The dual focus on growth and productivity that we did talk about at Investor Day has been a focus for us and will continue to be to drive shareholder value. Operator: This will conclude our question-and-answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to CS Disco's Third Quarter of Fiscal Year 2025 Conference Call. [Operator Instructions] I would now like to turn the call over to your first speaker today, Head of Investor Relations, Aleksey Lakchakov. Alexey, please go ahead. Aleksey Lakchakov: Good afternoon, and thank you for joining us on today's conference call to discuss the financial results for DISCO's third quarter of fiscal year 2025. With me on today's call are Eric Friedrichsen, DISCO's Chief Executive Officer; Michael Lafair, DISCO's Chief Financial Officer; and Richard Crum, DISCO's Chief Product, Technology and Strategy Officer. Today's call will include forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding our financial outlook and future performance, our future capital expenditures, market opportunity, market position, product and go-to-market strategy and growth opportunities and the benefits of our product offerings and developments in the legal technology industry. In addition to our prepared remarks, our earnings press release, SEC filings and a replay of today's call can be found on our Investor Relations website at ir.csdisco.com. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Forward-looking statements represent our management's beliefs and assumptions only as of the date made. Information on factors that could affect the company's financial results is included in its filings with the SEC from time to time, including the section titled Risk Factors in the company's annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 20, 2025, and the company's upcoming quarterly report on Form 10-Q for the quarter ended September 30, 2025. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. Reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus our closest GAAP equivalent is available in our earnings release. And with that, I'd like to turn the call over to Eric. Eric Friedrichsen: Good afternoon, everyone. I am delighted to be here with you all today to report on another quarter of accelerated revenue growth and operational execution for DISCO. Software revenue in Q3 was $35.2 million, up 17% year-over-year, while total revenue in Q3 was $40.9 million, up 13% year-over-year. Adjusted EBITDA for Q3 was negative $297,000, representing an adjusted EBITDA margin of negative 1%, which is a $4.2 million improvement over Q3 of 2024. Our results include $1.3 million of revenue related to a matter that was contingent on a successful outcome of the case. Michael will speak more to this later. But even without this bump, I am pleased to share that we exceeded the high end of our guidance range for software revenue, total revenue and adjusted EBITDA. We finished the quarter with $113.5 million of cash and short-term investments and no debt. We ended Q3 with 326 customers who each contributed more than $100,000 in total revenue over the last 12 months. The proportion of revenue attributable to these customers is 76%. We're extremely excited about our performance this quarter. The growth acceleration coupled with our improved operational execution is a testament to our larger strategy. Last quarter, I discussed our focus of the growth of large multi-terabyte matters, and we've seen continued positive trends this quarter in that area. The usage patterns in our business have continued to give me optimism. This quarter, we saw continued growth in revenue from both large and small matters with acceleration in revenue from multi-terabyte matters. We are also very pleased with the continued adoption that we are seeing related to our suite of generative AI capabilities, including Cecilia AI and our AI-driven Auto Review. The number of customers utilizing Cecilia AI over the quarter more than tripled year-over-year, and we have experienced consistent sequential growth in Auto Review adoption throughout 2025. Our overall positive performance continues to be driven by our relentless focus on delivering value to our customers through our value proposition of with you in every case. A great example of this is with a large multinational company involved in an industry-transforming lawsuit. They selected DISCO as their legal technology provider and services partner. The case involves more than 10 terabytes of data, and this customer chose DISCO because we demonstrated our end-to-end capabilities in handling very complex cases. This customer selected DISCO because they value the speed, scale and ease of use of the DISCO platform. They were able to reduce time to evidence while searching across hundreds of thousands of conversations, spanning multiple communication forms and time periods. And in terms of support, they valued our onboarding and our in-house services capabilities. They appreciated their forensics team was on call to handle dozens of data sources, that we had a fully staffed project management team and that we had leading review experts who could partner with them to deliver end results at an exceptional speed. This customer was sourced through our lead generation team, leveraging the new territory-based account orchestration model that I mentioned last quarter. This is just one example of that change already yielding results. The entire sales process for this customer was completed in roughly 4 months, a clear demonstration of the strength of our strategy and execution. Our results this year reflect a sharper focus on the right customers. Over the past year, we refined our approach to target those that we believe are the best fit for DISCO based on their scale, industry and complexity as well as the specific matter types to best take advantage of the capabilities of the DISCO platform. This is further validated by IDC, who named DISCO a leader in the 2025 IDC MarketScape for worldwide end-to-end eDiscovery software. The IDC MarketScape noted that with the ability to scale seamlessly from modest projects to multimillion document matters, DISCO's tools handle large data volumes effectively, facilitate thorough analytics and support core workflows such as time line creation, deposition summarization and intelligent batching, all while maintaining accuracy and transparency for defensibility. This is a powerful statement by IDC that really encompasses what we strive to do here at DISCO. As you know, we have previously discussed how our platform is particularly beneficial for certain types of matters. One of these matter types is intellectual property litigation. This past quarter, we began a new initiative that highlights our strength in IP litigation over our competitors, focusing a portion of our marketing and sales efforts specifically on IP litigation. Customers tell us that DISCO is an ideal fit for IP litigation for 3 key reasons. First, IP litigation cases are typically very large and highly technical, involving decades of research, product development files, technical specifications, e-mails, source code, CAD files and other complex document types. DISCO's ability to handle complex file types and deliver at scale makes us a key enabler of client success, and we shine brightest when building deep trusted partnerships in these types of environments. The second reason is that these matters tend to be high stakes bet the company litigation. A company's entire business plan may hinge on the outcome. DISCO's AI embedded within our platform helps lawyers quickly identify and understand the most relevant materials seamlessly across diverse file types, providing a strategic case-defining information advantage to the legal teams. Third, these cases typically involve aggressive time lines set by the courts and sheer volume of work that makes speed and precision critical. Our AI-assisted workflows with Cecilia AI and Auto Review significantly reduce time to evidence, enabling our customers to hit deadlines and develop an optimal case strategy without sacrificing accuracy or quality. Our unique capabilities make DISCO the natural solution for IP litigation that can deliver significant value for our customers while driving long-term growth for DISCO. As a matter of fact, this customer success story that I mentioned earlier is an IP-related matter that perfectly fits our strategy. In the future, you will see us roll out similar initiatives for other matter profiles where DISCO delivers immense value compared to our competitors. Finally, we are operating in a highly complex environment. The legal world is changing rapidly, and DISCO is in a prime position to be the disruptor in this technology revolution. We have a core platform that makes complex workflows look simple and effortless, which is then paired with AI capabilities that are transformational to how our customers approach their craft. I often get questions from you about Cecilia and our generative AI innovation and how DISCO is different. With that in mind, I want to take some time for you to hear directly from Richard Crum, our Chief Product, Technology and Strategy Officer, on this specific topic, and I'm excited for you to hear from him. So with that, I'll turn it over to Richard. Richard Crum: Thanks, Eric. I appreciate the opportunity to share more about how and why our technology is a strategic advantage in this really exciting time. I joined DISCO 16 months ago, knowing of our reputation for having a strong product and for leveraging modern cloud technology and AI to offer a solution that is intuitive, innovative and operating at scale with impressive performance metrics. I also joined looking forward to teaming up again with Eric, whom I worked with as Chief Product Officer at Emburse. Here at DISCO, I have the privilege of leading our product and engineering teams, and I've seen close up how effective we are at offering solutions that meet the high bar our customers have for the technology they use to achieve the best outcomes on the legal matters they manage. Let me give you some examples of why that is true. It shouldn't surprise you that I want to start to tell you about the AI capabilities that make our products so effective with customers. Before I talk about the GenAI features that understandably get more airtime, I think it is important to note that DISCO has been building AI throughout our products for over a decade in ways that directly impact how our customers manage legal matters. Our dynamic topic clustering technology is often the first place a user of DISCO will go after ingesting all of the likely relevant documents. The analytical capability of the models that powers this set of features gives attorneys a quick glance into the people, entities, information and topics resident in the document population. The technology automatically updates the information as new data and documents are added to the platform. Attorneys use this tool set to help understand and analyze thousands or millions of documents in real time. And they can do this without requiring the help of a services team or needing to leverage a separate solution. It's one of the many great examples of the power of the DISCO platform and something we know drives real value for our customers. A second example is our predictive analytics that observes the work attorneys do in DISCO and directs them to the other documents and data that are likely to be highly relevant based on how they have interacted with other documents. When you have a database with terabytes of information, the time savings this capability offers can be massive. And helping legal teams quickly narrow down the population of documents down to the right set enables them to focus on the evidence that matters most. In the last few years, we have built on the foundation of these examples of AI-powered tools to offer additional GenAI features that we call Cecilia. They further enable legal teams to identify relevant evidence quickly and with confidence. Cecilia Q&A operates at the level of an individual document or across an entire database that could contain millions of documents. In a simple context-aware chatbot, lawyers can ask natural language questions and interact with the data as if they were speaking to an associate who has read and fully understood every single document and get answers with reference only to the evidence contained in the documents because that's what we built Cecilia to be. And it's not just impressive at finding the key documents quickly and explaining to you why they're relevant to your inquiry. Cecilia is built to be a trusted tool for attorneys. In a world that worries about generative AI hallucinations and what data a model was trained using, we developed Cecilia to be technology that customers can have confidence in. When it returns results, it also provides citations back to the exact part of the document that is used to answer your question. And its answers are only based on the documents in your database. This is not a simple LLM wrapper. We develop Cecilia with a set of technical sequences that deliver a product experience that is powerful and impactful to your legal work. Cecilia Q&A is just one of the impressive GenAI skills that is built right into the DISCO platform at moments in the workflow that matter. We also offer document summaries, definitions of any term based on the information of the document set, automatic time lines and topic summarization of deposition transcripts. Altogether, Cecilia is a sophisticated set of tools, leveraging generative AI technology that we have been offering to the market for almost 2 years and constantly investing to make it better. Tools built upon the existing system of record the legal team is already using to manage the matter. And when legal professionals experience the impact, it can be hard to imagine working on a matter without Cecilia. A great example comes from an Am Law 50 customer that tried out Cecilia AI for the first time in July of 2024. They saw the value that is provided by utilizing these capabilities I just described. And since that initial use of Cecilia, their adoption has continued to expand. Following their initial trial, this customer has adopted Cecilia AI in a variety of types and sizes of matters from matters as small as 5 gigabytes to large complex matters with millions of documents. In fact, the number of matters utilizing Cecilia AI at this firm has grown 7x from Q3 2024 to Q3 2025, which corresponds to a more than 12x growth in revenue. We are proud to continue partnering with this innovative customer, delivering advanced generative AI solutions that turn time-consuming legal challenges into streamlined, high-value opportunities. Another DISCO GenAI capability that has been delivering significant value to customers for more than a year now is Auto Review. You have heard Eric and Michael talk about Auto Review since it was launched last August and how impressed customers have been with its performance, accuracy and the cost savings it offers, particularly on very large matters. From an engineering standpoint, it represents something much more sophisticated and technically challenging than sending off documents to a large language model. The technology behind Auto Review is built upon a decade of deep understanding of the review process and technology that was developed to handle the scale and complexity of documents and data that our customers bring to DISCO. This technology earns our customers' trust by providing clear explanation for tagging performed by Auto Review and offering tools to report quality statistics that align with how courts measure the efficacy of other technology-assisted document review approaches. I've spoken a few times about trust when describing our AI-based capabilities. We take that very seriously, and it extends even back to the core technology platform where we bring all these features and capabilities together in a simple yet powerful user experience. At DISCO, we obsess about ensuring the entire product experience for our customers is secure, reliable and incredibly performant at the scale of the matters that our customers bring. The volume and sources of data that could be necessary to review for evidence and litigations, investigations and regulatory matters has continued to explode and no one believes there's an end in sight. This has resulted in customers bringing larger and larger matters to DISCO, and we have continued to perform with the speed and accuracy they've come to expect. That's because DISCO was built for scale. Leveraging the best technology and engineering talent, DISCO is ready for whatever our customers need. Let me finish up with a word on another phrase I've used more than a few times in my commentary, and that's scale. Because of our personal experience with consumer technology that can feel like it's improving at an astronomical rate, we can begin to believe that business software in general is also advancing at the same rate, but that's not always true. In fact, much of the legacy software used for document review is far behind DISCO and how well it performs under high database sizes. Ask any legal professional about their experience in legacy Ediscovery solutions with simple tasks like switching between 2 documents or running a keyword search, and you're very likely to hear the word slow in their response. That's because operating at scale doesn't just mean being able to hold a large quantity of data. It also means providing a user experience that runs just as well in both small and massive sets of data and documents. This is an area where DISCO shines. And we do it both with those simple tasks I just referenced and the experience of using Cecilia Q&A, something that definitely leaves our users amazed when they see it live. Operating a platform that performs like DISCO is the result of years of solid engineering work and our obsession with providing an incredible user experience to everyone who logs into DISCO every day. And it is a great example of how we are with you in every case. It is not easy to operate AI at the scale the way we do at DISCO. It is also a competitive advantage that will enable DISCO to continue to expand our product offering and win more and more loyal customers who say it has to be DISCO. And with that, let me turn things over to Michael. Michael Lafair: Thank you, Richard. In Q3 2025, total revenues were $40.9 million, up 13% year-over-year, and software revenues were $35.2 million, up 17% year-over-year. Included in these balances is the revenue contributed from a case that has been on our platform for several years and was contingent on the successful outcome of the case. In Q3, we were able to recognize $1.3 million of total revenues from this case, of which $1.2 million related to software. I would like to note that the Q3 total revenue and software revenue year-over-year growth would have been 9% and 13%, respectively, without this contingent revenue, which still exceeds the high end of our guidance range for both metrics. Excluding the large one-time case we recognized in Q3, 2 primary drivers of the software year-over-year revenue performance were growth in the revenue across large and small matters, especially with multi-terabyte matters as well as growth of Cecilia AI adoption. Services revenues, which include DISCO managed review and professional services, were $5.7 million. In discussing the remainder of the income statement, please note that unless otherwise specified, all references to our gross margin, operating expenses and net loss are on a non-GAAP basis. Adjusted EBITDA is also a non-GAAP financial measure. Our gross margin in Q3 was 77% compared to 74% in the prior year. As we mentioned before, our gross margins fluctuate from period to period based on the nature of our customers' usage, for example, the amount and types of data ingested and managed on our platform. Sales and marketing expense for Q3 was $13.6 million or 33% of revenue compared to 38% of revenue in Q3 of the prior year. On a dollar basis, sales and marketing expense decreased $0.2 million, predominantly driven by lower marketing and consulting expenses. Research and development expense for Q3 was $11.5 million or 28% of revenue compared to 31% of revenue in Q3 of the prior year. On a dollar basis, research and development expense increased $0.4 million, driven primarily by headcount-related costs. General and administrative expense in Q3 was $7.7 million or 19% of revenue compared to 21% of revenue in Q3 of the prior year. Adjusted EBITDA was negative $0.3 million in Q3, representing an adjusted EBITDA margin of negative 1% compared to an adjusted EBITDA margin of negative 12% in Q3 of the prior year. This represents a beat of the high end of the guidance range we provided last quarter and $4.2 million year-over-year improvement. Net loss in Q3 was $0.6 million or negative 1% of revenue compared to a net loss of $3.9 million or negative 11% of revenue in Q3 of the prior year. Net loss per share for Q3 was $0.01 compared to $0.06 per share for Q3 of the prior year. Turning to the balance sheet and cash flow statement. We ended Q3 with $113.5 million in cash and short-term investments and no debt. Operating cash flow for the first 3 quarters of 2025 was negative $15.7 million compared to negative $10.8 million in the same period of the prior year. Turning to the outlook. For Q4 2025, we are providing total revenue guidance in the range of $38.75 million to $40.75 million and software revenue guidance in the range of $33.75 million to $34.75 million. We expect adjusted EBITDA to be in the range of negative $3.5 million to negative $1.5 million. For fiscal year 2025, we anticipate total revenue guidance in the range of $154.4 million to $156.4 million and software revenue guidance in the range of $132.6 million to $133.6 million. I would like to note that the contingent revenue case I spoke about earlier was previously included in our full year guide. We expect adjusted EBITDA to be in the range of negative $11.5 million to negative $9.5 million. Now I'd like to turn the call over to the operator to open up the line for Q&A. Operator? Operator: [Operator Instructions] And it appears there are no questions. So I will now turn the call back over to CEO, Eric Friedrichsen, for closing remarks. Eric? Actually, Eric, we did just receive one question, if you would like to take it. Eric Friedrichsen: Sure. Operator: Okay. Our first question comes from the line of DJ Hynes with Canaccord. David Hynes: I guess I just wanted to ask about the contingent liability or the contingent case rather. How many cases are like that? Is that industry standard or it's still a little odd? Richard Crum: DJ, let me touch on that real quick. We have a small number of other contingent cases in the system, but nothing close to this size. Let me explain by what we mean by a contingent case. It's basically on a limited basis, we'll enter into a contract where basically the payment is contingent on the conclusion of the legal matter. And in these instances, we don't recognize the revenue until the legal matter is resolved. In Q3, one of our customers under one of these arrangements experienced a favorable conclusion, allowing us to recognize $1.3 million in revenue, of which $1.2 million was software and the balance was services. Eric Friedrichsen: Yes. And so that's why we called it out specifically, DJ. We had 17% software growth and 13% overall growth. But even without that case, we had 13% software growth and 9% overall growth in the business, which exceeds the high end of our range even without that contingent case, but we did want to make sure to call out that contingent case specifically. David Hynes: Okay, great. And then just a quick one for Michael. So we have your previous guidance or I guess your target for in-quarter EBITDA breakeven for Q4 of 2026. But I'm looking at -- we're seeing some linear improvement over the past couple of quarters where you were just under breakeven this quarter. Are you still maintaining that target for next year or do you think there's some upside we could see there? Eric Friedrichsen: I'll take that one. This is Eric. Yes, we're still targeting adjusted EBITDA breakeven for Q4 of 2026. We could certainly push to get to profitability sooner. But right now, we're making really smart investments in the business that are obviously paying off in the results in terms of the go-to-market investments that we make, in terms of the innovation investments that we make and those transformational investments. So look, this is a big market. It's a growing market, and the money that we're spending right now is really helping accelerate the revenue of the business. So the target is still Q4 of 2026 for adjusted EBITDA breakeven. Operator: [Operator Instructions] All right. Do not see any callers. So again, I will hand the call back to CEO, Eric Friedrichsen, for closing remarks. Eric, take it away. Eric Friedrichsen: Great. Thank you very much. Thanks, everyone, for joining the call today. Look, I am really pleased that our progress in Q3 and really, frankly, our progress throughout the entire year. We've been very fortunate. We set a strategy for this year to focus on our biggest and best customers with the most opportunity for growth and also the matter types where we could add the most value to our customers and also generate the most revenue for DISCO. So we set that strategy, but more importantly, I'm really proud of the team for how they've executed upon that strategy. And it's given us the opportunity in each of the quarters this year to be able to beat our guidance -- this last quarter to be able to beat the high end of our guidance range and for us to be able to increase our guide for the full year every single quarter. But it's not even so much the results that I'm happy about. It's the team and how they've executed upon our strategy. And that gives me a lot of confidence. It gives me a lot of confidence about our future. So I just want to thank our teams. I want to thank our customers for everything they're doing to stay focused on accelerating the growth for DISCO. And I'm looking forward to updating you next quarter. Have a great evening. Operator: Thanks, Eric. And this concludes today's conference call. You may now disconnect. Have a great day, everyone.
Operator: Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 Franklin Covey Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Boyd Roberts, Head of Investor Relations. Please go ahead. Boyd Roberts: Thank you. Hello, everyone, and thank you for joining us today. We appreciate having the opportunity to connect with you. Before we begin, please remember that today's remarks contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, including, without limitation, statements that may predict, forecast, indicate or imply future results, performance or achievements and may contain words such as believe, anticipate, expect, estimate, project or words or phrases of similar meaning. These statements reflect management's current judgment and analysis and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations, including, but not limited to, risks relating to macroeconomic conditions, tariffs and other risk factors described in our most recent Form 10-K and other filings made with the SEC. We undertake no obligation to update or revise any forward-looking statements, except as required by law. Now with that out of the way, I'd like to turn it over to Mr. Paul Walker, our Chief Executive Officer and President. Paul Walker: Thanks, Boyd, and good afternoon, everyone, and thank you for joining us. It's great to be with you and to have the opportunity to share our results and an update on the business. We're pleased with our momentum and that our fiscal '25 full year revenue and adjusted EBITDA results came in right in line with what we expected when we provided guidance in our Q3 call. We're also pleased that while much of fiscal '25 was a period of transition and organizational transformation, beginning in the fourth quarter and as we turn to fiscal '26, we're now in a period of execution and a return to growth. In a few minutes, Jessi will share more detail about our fiscal '25 results and our fiscal '26 guidance. Before we go there, I just wanted to share a couple of thoughts with you. And the first is that we're off to a strong start in the first quarter, particularly in our Enterprise North America business, where we're experiencing the acceleration in invoice growth we expected to see from investment in and implementation of our go-to-market sales transformation. A few points of evidence of this acceleration in Enterprise North America include we're having a strong contracting quarter in Q1 and expect to achieve strong growth in our invoiced amounts in the first quarter. A portion of this meaningful increase in invoiced amounts is being driven by strong new logo growth across the first 2 months of this Q1 of this new fiscal year, where the number of new logos sold and the associated revenue is pacing above prior year. Similarly, our services booking pace through the first 2 months this year is off to a very strong start, with services booked in Enterprise North America up double digits over the prior year. This is an indication of the importance of the outcomes we're helping our clients achieve and is an important leading indicator of future reported revenue growth. This acceleration in North America, coupled with the fact that we anticipate our education business to have a strong year, indicates that we expect invoiced amounts for the company, which declined last year to return to meaningful growth in fiscal '26. A portion of this meaningful growth in invoiced amounts will translate into reported revenue in fiscal '26 and an even greater portion will translate into even greater reported growth in fiscal '27, which will also flow through to strong growth in adjusted EBITDA and free cash flow. The objective of our investments in our go-to-market transformation was always to accelerate growth in revenue, adjusted EBITDA and free cash flow beyond the levels we'd achieved in our previous model. And this is still very much our objective. While we took a step back in fiscal '25, primarily due to external factors we could not foresee at the time we made our investments, we're back on the road to growth and expect this to be reflected in our fiscal '26 results and even more so in fiscal '27. Strategically, we're planning for something very clear and very important, to be the partner of choice for leaders pursuing breakthrough results, results that depend not only on great strategy, but also on how people work together to deliver it. Every organization faces these challenges, whether the goal is faster growth, integrating cultures after an acquisition, improving customer experience or transforming culture, success depends on institutionalizing the right behaviors and practices across leaders and teams. We help leaders make the link between behavior and performance tangible, measurable and scalable. That's what drives breakthrough results. This work doesn't get easier in uncertain times. It becomes more essential. AI is transforming how work gets done, but it also makes human capabilities, judgment, trust and collaboration more critical than ever. The ability of people to stay aligned, focused and accountable while working together with high trust and execution remains the ultimate differentiator. Our role is to help organizations achieve their most important goals by strengthening collective behavior, raising the level and the consistency of how people lead, collaborate and execute and scaling what already works well in pockets across entire organizations. As you can see shown on Slide 4, in pursuit of this objective, we're focused on 2 key priorities. The first is to be the leader in combining world-class content, technology and services to deliver breakthrough impact for our clients. And the second priority is to transform and accelerate our go-to-market approach to win more larger and more strategic new logos and to expand and retain existing ones. I'd like to just take a couple of minutes here and go into each of these priorities in a little bit more detail. First, as it relates to building world-class solutions, a few years ago, we asked what would it take to accelerate our ability to be the partner of choice for leaders pursuing breakthrough performance. Our answer led to 4 key initiatives. First, we sharpened our focus on helping organizations address mission-critical challenges. As you can see shown on Slide 5, the market in which we operate ranges from content providers to true performance partners. Our strategic focus is on the latter as a performance partner, the space where large-scale behavior change delivers measurable business results. That focus is reflected in flagship solutions like the 4 Disciplines of Execution, Helping Clients Succeed, the Leader in Me and our leadership suite of offerings. Focused here, we see AI not as a threat, but as a very important enabler. Many of the largest companies in the world across a variety of industries who are themselves pouring millions, if not billions of dollars into building AI capabilities throughout their organizations are at the very same time turning to Franklin Covey every day to help them navigate the vital leader and people elements of alignment, trust, change and execution. For example, we're currently partnering with one of the largest technology companies in the world, a leader in AI, who engaged us to work with one of the key teams in their organization to speed their progress in making sure they stay at the forefront of the AI race. For this organization, speed will make all the difference. And while they have the best AI engineering capability in the world, their speed is impacted by the level of trust, alignment and collaboration they're able to achieve. These are among the very breakthrough behaviors Franklin Covey excels at helping leaders address, and we're partnering with those organizations to implement our speed of trust solution. Leading in the current environment is perhaps more difficult than it's ever been, and Franklin Covey is a trusted partner to leaders around the world. Last March, we held our first ever virtual Impact Conference, and we were pleased to have 20,000 people registered to attend. Building on the success of that first conference yesterday, we kicked off this year's Impact Conference and are pleased to have not 20,000, but 30,000 leaders and individuals joining for sessions throughout this week focused on disruption, trust, AI and leadership. Second, we continue to invest in proven high-impact content and services. Our trusted frameworks like the 7 Habits, the Speed of Trust, the 4 Disciplines of Execution, Leader in Me and a host of others continue to deliver measurable client outcomes. Our average Net Promoter Scores are very high. And when I say very high, they're in the 70s and for some of our offerings in the 80s. These solutions have generated billions in cumulative revenue and immense value for our clients. Third, we leverage technology to scale performance. Our impact platform integrates content, services and technology to deliver solutions globally in multiple languages and at every level. We followed a similar model in education where Leader in Me now serves more than 8,000 schools worldwide. Importantly, we're now embedding AI across all of our offerings, providing real-time coaching, feedback and reinforcement. For example, in our Helping Clients Succeed sales transformation solution, AI now supports sales professionals with live deal coaching and objection handling to improve win rates. We view the combination of our best-in-class content, our expert facilitation and coaching services and AI as a powerful combination of capabilities to help our clients accelerate leadership, culture and execution results. And fourth, we rebuild our business model to support long-term client partnerships. We created the All Access Pass and built a deep ecosystem of implementation strategists, consultants and coaches dedicated to lasting partner for life relationships. The second key priority that I'll just talk about for a minute here is that of transforming the way we go to market to win more strategic clients and to expand our work with existing ones. Over the past 3 quarters, we completed this transformation, reorganizing our sales and client success teams around 2 clear goals: first, landing new strategic clients; and second, expanding relationships with those we already serve. This structure is now fully in place, and it's delivering strong early results across 3 areas. The first area is around new client wins. New client growth is up both in volume and deal size with higher services attachment driven by clients who desire collective behavior change and a partnership with us to help them do that. For example, in the fourth quarter, we won a new client. It's a global ingredient processing manufacturer. This resulted in approximately $250,000 contract that's comprised of around $50,000 in subscription revenue and $200,000 in subscription services. This client is partnering with us to equip their leaders to lead through a high degree of change and to drive performance during a period of rapid expansion for them in their business. And they not only want access to our content and tools and frameworks, but to our expert coaches and facilitators as well to really drive and cement the behavior change that they're seeking to achieve. The second area and evidence of acceleration is around client retention and expansion. More clients are extending subscriptions, adding services and broadening their reach. Even in a more difficult environment where some clients have had to adjust over this past year, the overall size of their subscription, and we did lose a couple of clients we talked about last quarter, including a couple of government contracts. We continue to achieve the same high percentage of overall client retention that we've been able to achieve over many years, providing a very strong base for expansion both in terms of subscription seats and services this year into that existing client base. And the third area is our subscription services attachment. I mentioned this briefly, but I'll just touch on it again. Despite tighter client budgets, enterprise services attachment overall was a strong 53% in fiscal '25. And as I mentioned a minute ago, it was an even stronger 56% in North America this last year. And through the first 2 months of this year, as I mentioned, North America services bookings are up double digits year-over-year, which is a leading indicator of future services revenue. While fiscal '25 results didn't turn out like we expected at the beginning of the year, due to DOGE related government slowdowns, midyear tariff uncertainty and short-term effects of our own transformation. The lead metrics are strong, and our momentum accelerated through year-end and continues into the first quarter of fiscal '26, setting us up for strong invoice growth in fiscal '26 that, as I mentioned, will lead to growth in fiscal '26 and even more reported growth in fiscal '27. Shifting gears to Education. We're pleased with the continued strength of our Education business. Despite a difficult and uncertain education environment this past year, where we saw the Department of Ed threaten closure and shrink in size and where large amounts of federal Title dollars were initially available, then pulled back and then only restored very late in our fiscal year. We're pleased that Education reported revenue growth for the year overall that our Education subscription revenue grew 13% in the fourth quarter and 10% for the full year, that our balance of deferred revenue increased 13%, establishing a strong foundation for accelerated growth in fiscal '26. And that we were able to bring on 624 new schools and the school retention remained a very high 84%, which was equal to the year before, which we felt quite good about in the environment. Just a closing perspective here before I turn the time over to Jessi. As we enter fiscal '26, I feel confident in both our progress and our direction. I'm pleased with the progress our teams are making, and I'm grateful for the clients who continue to trust us. And I'm confident that the strategy we've been pursuing will continue to create value in the years ahead. I'd now like to turn the time over to Jessi, and she'll share more detail on our results in the fourth quarter and for the full year and also lay out our guidance for fiscal '26. Jessica Betjemann: Thanks, Paul, and good afternoon, everyone. Franklin Covey continues to see healthy demand for our products and services in the fourth quarter despite the ongoing macroeconomic and industry headwinds. And as Paul discussed, the strategic investments we've undertaken to transform our go-to-market strategy are gaining traction. As shown on Slide 6, our fiscal year 2025 results were in line with our most recent guidance provided on our third quarter earnings call on both revenue and adjusted EBITDA. Fiscal 2025 was a year of transition and transformation. I'd like to take a step back and provide a reminder of the events that took place this year that impacted our financial performance. At the beginning of the fiscal year, we laid out a strategic go-to-market transformation plan for the Enterprise North America segment, which required significant SG&A investment that would result in an approximate $50 million decline in year-over-year EBITDA but enable significant future growth -- revenue growth starting back in the back half of the year and beyond. As we implemented these growth investments, several unanticipated macroeconomic factors unfolded starting in January, including threatened or enacted tariffs that created significant business environment uncertainty for our clients, specific actions to cut U.S. federal government spending, ongoing geopolitical tensions and a general weakening of economic conditions, both domestically and internationally. In response to the economic uncertainty, many of our current and prospective clients sought to reduce their spending to maintain their profitability, which led to delayed decision-making and decreased contract expansion. The government's actions also disrupted the Department of Education and Title funds available to districts and schools across the country. All of the preceding events adversely impacted our business and financial results across both divisions for the fiscal year from our original expectations. Despite these headwinds, however, we have retained the vast majority of our client base and now with the bulk of our transformation investments coming to completion and those efforts beginning to bear fruit, we expect fiscal 2026 to be a year of focused execution where our adjusted EBITDA and more importantly, our free cash flow will return to growth this year and accelerate thereafter. In my remarks today, I'll start by providing some highlights for the fiscal year and walk through our fourth quarter financial performance. Then I'll turn to our balance sheet and capital allocation priorities. And finally, I will provide context around our fiscal year 2026 outlook. Franklin Covey generated total reported revenue of $267.1 million or $267.3 million in constant currency, which was within our guidance range. Reflecting the macroeconomic factors I just summarized, revenue was down 7% from the prior year due to a 10% decline in the Enterprise Division, which was partially offset by a 1% increase in the Education Division. A summary of our consolidated financial results is on Slide 7 in the earnings presentation. As we expected and captured in the guidance we shared in the third quarter, total revenue for the fourth quarter of fiscal 2025 was down 15%. Of this, revenue in the Enterprise Division was down approximately 22%, reflecting the government actions and macroeconomic environment. In addition, there was a $6.2 million IP contract with a large client in the fourth quarter of last year that did not repeat this year, although this client is still an ongoing client today. The Education Division was flat in the fourth quarter compared with the prior year, reflecting disruption in the Department of Education and associated Title funds, which delayed new school purchases in the spring and early summer, which we expect to recapture in fiscal 2026. Consolidated subscription revenue recognized for the year was flat year-over-year at $147.9 million. Importantly, the foundation for increased future growth remains solid and is evidenced by the 3% year-over-year increase in our consolidated deferred revenue balance to $111.7 million, which will be recognized as reported revenue in the coming quarters. Unbilled deferred revenue contracted for the year increased 7% to $48.4 million, with the total balance declining 3% to $72.8 million, reflecting the lower beginning balance at the start of the year. Gross margin for fiscal 2025 was 76.2% compared to 77% in fiscal year 2024. This reflected increased product amortization costs and softened margins in our international direct offices due to lower sales. Gross margins for the fourth quarter were 75.5% compared to 78.1% in the prior year as a result of lower margins in Enterprise North America from the recognition of the IP portion of the large contract last year that did not repeat in our non-subscription-related business, lower margins in the international direct office and also lower margins in Education as a result of shifts in product mix. Operating, selling, general and administrative expenses for fiscal '25 were $174.8 million compared with $165.8 million in the prior year, reflecting the increased associate costs from the hiring of new sales and sales support personnel, marketing and product-related costs in connection with the rollout of the go-to-market transformation in our North America segment. Offsetting these investments were the cost reductions we made in the third quarter, which resulted in $7 million in SG&A savings for the year and an annualized run rate savings of $8 million in fiscal year '26 that will be partially offset by normal investment levels this year. Adjusted EBITDA was $28.8 million or $29 million in constant currency, in line with our guidance of $28 million to $33 million. In the fourth quarter, adjusted EBITDA was $11.7 million compared to $22.9 million in the previous year, reflecting the lower revenue, gross margin and higher SG&A expenses I previously mentioned. Cash flow from operating activities were $29 million for the year compared to $60.3 million in the previous year. The decrease was driven primarily by a $20 million decrease in net income stemming from lower revenues, planned increases in spending to fuel the Enterprise North America go-to-market transformation, increased restructuring and headquarter moving costs as well as $7 million in unfavorable changes in working capital, including the impact of higher cash paid for taxes. We also had a $5 million increase in CapEx for building construction costs, and all of this resulted in free cash flow for the year of $12.1 million compared to $48.9 million generated in fiscal 2024. I'll turn now to a discussion of our business divisions. For fiscal '25, our Enterprise Division generated 70% of the company's overall revenue with Education Division generating 28% of the company's revenue. Fiscal '25 Enterprise Division revenue was $188.1 million compared to $208.1 million in the prior year. As mentioned previously, Enterprise revenue was heavily affected by canceled U.S. federal government contracts, geopolitical trade tensions and as a result, ongoing macroeconomic uncertainty. The challenging business environment adversely impacted the value of new logo sales and expansion revenue, both domestically and internationally during the second half of the year. As shown on Slide 8, the North America segment revenue was $147.6 million, a 10% decrease from the prior year. Fourth quarter Enterprise Division revenue was $45.7 million, down 22% versus the prior year, with North America being down 24% compared to the prior year. Our North America sales accounted for 79% of our Enterprise Division sales in fiscal year '25. It is important to note that 60% of the Enterprise Division's decline for the year was driven by declines in direct office non-subscription and services revenue, and half of that was attributable to the $6.2 million North America IP contract that I previously referenced. This is an indication that our core subscription-related business is still fundamentally strong, declining by 5% year-over-year, reflecting the macroeconomic factors previously discussed. Adjusted EBITDA for the North America segment decreased to $27.4 million for fiscal 2025 compared to $46.6 million last year due to lower revenue and increased SG&A expenses tied to our planned go-to-market investments. Our fourth quarter adjusted EBITDA in North America was $7.6 million compared to $16.2 million in the prior year and again, mainly driven by the large IP deal recognized in the fourth quarter of the prior year. Our balance of billed deferred subscription revenue in North America was $46.7 million at the end of the fourth quarter, down 5% from the prior year and unbilled deferred revenue was $67.6 million, down 1% compared to last year. Importantly, the number of North America's All Access Passes contracted for multiyear periods increased to 57% in the fourth quarter, and the contracted amounts represented by multiyear contracts remained strong at 60%. Turning to the international direct operations. As shown on Slide 9, revenue for our international direct operations, which accounts for approximately 16% of our total Enterprise Division revenue in fiscal '25 was $29.3 million, which is now -- which was down from $33.3 million in the prior year as a result of our business in Asia and the U.K. decreasing due to challenging business conditions as a result of geopolitical and trade tensions. Revenue in the fourth quarter from these offices was $7.4 million compared to $8.8 million generated in the fourth quarter of the prior year. Adjusted EBITDA for the international direct operations segment was a loss of $0.4 million in fiscal '25 compared to a positive $3.4 million generated in the prior year. This loss was primarily driven by the decreased revenue, whereby the segment was not able to absorb all of the cost allocations distributed to them. Adjusted EBITDA in the fourth quarter was $0.5 million, which was down from the $1 million generated in the prior year. Our international licensee revenue, which accounts for approximately 6% of our total Enterprise division revenue in fiscal '25 was $11.1 million, down 3% compared to the prior year. International licensee revenue for the fourth quarter was $2.4 million, which was essentially flat with the previous year. Adjusted EBITDA for the international license segment was $5.5 million for fiscal '25 and $1 million for the fourth quarter, both slightly down compared with the prior year. Turning now to our Education Division, as shown on Slide 10. Education Division revenue in fiscal '25 was $74.6 million, which was 1% higher than the prior year as lower material sales were offset by increased coaching and consulting revenue. The lower material revenue was primarily due to a new statewide initiative in the second half of fiscal '24 that included a significant amount of training materials in the initial phases of the program. Revenue for the fourth quarter of this year was $24.4 million, which was slightly higher than prior year. Education subscription revenue increased 10% in fiscal '25 to $45.9 million. Combined subscription and subscription services revenue was $69.4 million, up 4% versus the prior year. Education subscription and subscription revenue in the fourth quarter was $23.3 million, up 3% compared to the fourth quarter in the prior year. Adjusted EBITDA for the Education Division in fiscal ' 25 decreased to $8.2 million compared to $9.8 million last year, reflecting increased SG&A for associate expenses. Adjusted EBITDA for the fourth quarter was $6.2 million compared to $7 million in the prior year. Education's balance of billed deferred subscription revenue increased 13% to $54.6 million, establishing a strong foundation for continued growth in fiscal '26. We are seeing good momentum in our Education Division, particularly in the number of large state and district level opportunities we are actively pursuing. This pipeline strength, together with the base of more than 8,000 schools globally at the end of August, gives us confidence in the demand for the kind of outcomes our Leader in Me solution delivers. I would now like to spend a few minutes discussing our balance sheet and capital allocation priorities. We continue to pursue a balanced capital allocation strategy focused on 3 primary areas that are aligned with our strategic goals. First, maintaining adequate liquidity. Our business continues to produce reliable cash flow and our liquidity remains strong at over $94 million at the end of the fourth quarter with $31.7 million cash on hand and no drawdowns on the company's $62.5 million credit facility. Second, investing for growth. We will continue to invest in strategic opportunities to drive improved market positioning, accelerated profitable growth and financial value, such as continued spend in product innovation, business transformation initiatives and opportunistic acquisitions. And finally, returning capital to shareholders as appropriate is our third priority. In the fourth quarter, we purchased approximately 168,000 shares in the open market at a cost of $3.3 million. For the full year, we purchased approximately 791,000 shares in the open market at a cost of $20.4 million. On August 11, 2025, the Board of Directors approved a replenishment of the previous authorized plan to purchase up to $50 million of common stock. On August 14, we initiated a 10b5-1 plan to purchase $10 million of our common stock. This plan was completed in the first quarter of fiscal '26. We remain committed to being disciplined stewards of capital while staying focused on driving long-term value creation. Now turning to our financial outlook for fiscal '26. The company's projections reflect the positive momentum we are seeing and expecting in both the Enterprise and Education Divisions, balanced with a disciplined view of the risks and opportunities ahead as we continue to execute in an uncertain macro environment. We expect to achieve solid growth in invoiced amounts this year. However, net reported revenue growth this year will be constrained in comparison, driven by the lower deferred revenue generated in fiscal '25 and the conversion lag of invoiced to reported revenue in the year as a portion of the invoiced growth will go onto the balance sheet as deferred revenue. As shown in Slide 11, we currently expect fiscal '26 revenue in the range of $265 million to $275 million. We currently anticipate fiscal '26 adjusted EBITDA in the range of $28 million to $33 million, capturing the benefit of our cost reduction efforts, including additional restructuring actions taken this quarter while maintaining flexibility to manage through continued macro uncertainty. We expect both revenue and adjusted EBITDA to be weighted towards the back half of the year. We anticipate approximately 45% to 50% of fiscal year revenue will be recognized in the first half, reflecting normal seasonality, especially in the Education Division and the timing of client delivery. For adjusted EBITDA, we expect approximately 30% to 35% to be generated in the first half, with margin expansion expected as cost savings and operating leverage build through the back half of the year. Given the volatility we experienced in fiscal '25 and the continued challenging market environment, we would like to execute our strategic and operational plans in the current and upcoming near-term quarters before providing specific longer-term guidance. However, while most of the projected strong growth in invoiced amounts this year will not translate to high reported revenue growth in fiscal year '26 itself, we anticipate this will result in meaningful top line growth in fiscal '27. With the bulk of our transformation investments coming to completion and the expected increase in operating leverage, we believe the company will deliver strong EBITDA and free cash flow growth with improved margins and free cash flow conversion in fiscal '27 and thereafter. We have strong conviction in our strategy and long-term plan, and we're confident in the company's ability to deliver sustainable growth. Our optimism is grounded in strong client retention, expanding demand for leadership development and breakthrough organizational performance services across both Enterprise and Education Divisions, and the continued strength and resiliency of our business model. As mentioned at the start of my remarks, we view fiscal '26 as a year of execution and the return to growth and fiscal '27 as a year of acceleration and compounding growth in revenue, adjusted EBITDA and free cash flow. We remain fully committed to creating long-term value for our shareholders and clients. Before I pass it back to Paul, I would like to thank the entire Franklin Covey team for their hard work and dedication to our business and for providing unparalleled services to our clients. Paul, now I'll turn it back to you. Paul Walker: Thanks, Jessi, for that review of the year and for laying out the guidance. Thanks all of you for joining today. We'll now look forward to asking the operator to open the line and taking your questions. Operator: [Operator Instructions] And our first question comes from Jeff Martin of ROTH Capital Partners. Jeff Martin: I apologize I was late on the call, so some of these questions might be redundant to what you've already had in your prepared remarks. But I was just curious if you could give us a sense of kind of how the decision-making environment has evolved the last several months here. And then also an update on how your sales transformation has performed in the past quarter relative to expectations. I'll just -- I'll cut it off there. I have a couple of more questions on top of that. Paul Walker: Okay. Great. As far as the decision-making environment goes, I would characterize it this way. I would say that we launched last year and at the time we talked at this time last year, we were kind of on the eve of the new administration. And after we got done reporting the year-end, the year before, we started to see then some of the uncertainty show up in the market as the new administration came in and started to enact some of the policies and decisions they made. And that created a fair bit of turbulence during a good bulk of last fiscal year. We talked about that a lot. I won't go back and dwell on that. But the reason I start there is to then kind of contrast that with where we are today. I would say that we -- having come through that period of turbulence and uncertainty, I think the team is doing a nice job of navigating that. And while I'm not sitting here today saying that the environment is all of a sudden a lot more certain than it was, there's still uncertainty out there. I think our -- we're dealing with that uncertainty better today than we were certainly November through April, May last year during that period there. And so I would say the environment is -- there's still uncertainty. We're seeing, though, as it trickled down, our clients have kind of moved from a lot of uncertainty to, okay, we've got to keep moving our businesses forward. We saw budgets start to free up and loosen up a little bit, and that's been reflected in. I think that's being reflected now as we move to your second question of how is the transformation going or the sales transformation going. We're really seeing some of the evidence of both that us navigating the uncertainty and maybe a little bit more certainty in some of our clients' decision-making plus then just us now being 3 quarters into this transformation. And you might not have been on the beginning there, but just to quickly recap a couple of things I said. We're seeing some strong indicators that we'll have a good invoiced growth in the first quarter in Enterprise North America. Our new logos count and the size of new logos are up in the first 2 months here in September and October. Our services booking pace is up quite significantly, double digits over what it was a year ago. And so we look at those things as evidence that we're starting to gain some traction here with the go-to-market transformation, and we're doing that in an environment that's not tremendously more certain, but I think for us, we're navigating that environment better than we were certainly back in the December, January, February, March-ish time period. Jeff Martin: Great. And then could you comment on the renewals? Are clients renewing at similar size contracts? Are they contracting a little bit? Are they expanding? What's been your recent? Paul Walker: Yes, great question. So I would start first with, when we look at renewals, we look at renewals on -- through 2 lenses. One is the percentage of clients overall that we retain, which is a client count retention metric. And then we look at the revenue associated with those clients we're retaining. One of the things we're pleased with is that the percentage of overall clients staying with us has remained very consistent and very steady. So we've now been in the all Access Pass game for about 10 years and measuring client retention for 10 years now. And while we don't -- we haven't disclosed that number specifically, I'll just tell you that the percentage rate we're achieving today and that we even -- we achieved throughout this last fiscal year amid all that uncertainty has remained quite consistent with where it was even in the heady years where interest rates were really low and the economy was quite different. So we feel good about that, and we see that as an indicator of, hey, what we're doing with clients is important to them. Now that doesn't mean that there haven't been some clients who amid their own uncertainty this last year, didn't need to rescope the size of their pass. And we did see on the margin, some clients that where they might have purchased for a larger population, brought that back down for a more discrete population for that moment in time. And so that has been happening on one side. On the other side, we're seeing some clients really meaningfully expand very significantly. And so net-net, as we went through fiscal '25, the client retention was about like it had always been. The revenue retention was a little bit lower in fiscal '25, and that's part of what contributed to the decline in invoiced amounts last year we talked about. But we believe that our go-to-market focus, having a whole dedicated team of client partners who now only service those existing accounts and are in looking for expansion opportunities there that over time, we expect to begin to see the expansion outweigh any of the contraction and that this will be -- the retention -- the overall revenue retention revenue percentage we'll get back up into the historical rates we'd always be able to achieve. Jeff Martin: And then one more, if I could. Jessi, could you maybe give us a little bit of help with respect to what you're expecting revenue and EBITDA in Q1? Jessica Betjemann: Yes. So what I indicated was we're not giving specific guidance for Q1. What I indicated was kind of first half, second half type of trajectory. So from a revenue perspective, around 40% to 50% of revenue will come in first half. And the EBITDA would be around 30% to 35% in the first half. So it will be a little bit more back-end weighted in terms of first half of the year versus second half. Operator: And our next question comes from Nehal Chokshi of Northland Capital Markets. Nehal Chokshi: So I believe that you said this twice now, but I just want to make sure I heard it correct, that invoice subscription bookings for North America Enterprise is up year-over-year for basically the first 2 months of the fiscal year. Is that correct? Jessica Betjemann: Yes. Paul Walker: Yes, it is. Yes. Nehal Chokshi: Okay. That's fantastic. And that is off of what was the growth rate in the year ago period that you guys were seeing of that metric? Jessica Betjemann: In the last -- I don't have that for the last 2 months. Nehal Chokshi: For the first 2 months? Jessica Betjemann: Of last year. I don't have that readily available. Nehal Chokshi: Okay. Or maybe just the fiscal first quarter of '25? Jessica Betjemann: For North America? Nehal Chokshi: Yes. Yes. Jessica Betjemann: So the invoiced -- I have -- for total Enterprise Division, the invoiced amounts for the fourth quarter. Nehal Chokshi: First quarter, last year. Jessica Betjemann: First quarter. Paul Walker: Well, first quarter last year, Nehal? Nehal Chokshi: Correct. Paul Walker: Yes, first quarter last year. Jessica Betjemann: We'll have to come back to you on that. I don't have that readily available. Nehal Chokshi: Okay. All right. Well, just the growth that you're seeing is obviously strong evidence that the investments you're making in the hunter and farmer go-to-market model is producing results. Can you refresh us on what was working in the prior quarters? And what's been the incremental as far as working in terms of farmers versus hunters? And I know you call it differently, but sorry. Paul Walker: No, no. It's okay. We totally understand what you're -- yes, the distinction there between hunters and farmers. So I think just stepping back for a second, of course, just -- and I'll do this briefly. But the reason for making the transition in the first place is that we've grown our subscription business nicely over the time we've had All Access Pass. And we recognized for the last number of years that as nicely as we've grown that, there was a lot of potential in the market we weren't getting to, and there was a lot of potential inside the existing clients we had that we also were not getting to. And we recognize we were asking the same sales force to kind of do both to try to go after the potential in the market for net new customers and to expand inside their existing customers. That was the first reason. The second reason to make the transition is consistent with what I shared is we've been on this journey now for a few years to move our overall business to being a more strategic outcomes partner to clients. And so getting the right team in place that could sell at that level to those types of buyers. And so that was the original thesis and the original bet. We feel good about that still today, and we are beginning to see -- started to see the evidence of that last year show up in the pipelines, and we're now seeing the conversion of that pipeline beginning to happen as we -- specifically in gaining steam as we're moving into the first quarter, as I mentioned, we're seeing new logo wins up in the first 2 months. The services booking rates are up, right? So what's happening is Nehal is as we move to a bit more of a strategic buyer focused on more strategic outcomes, not only are we winning logos, but the size of those initial clients are larger because we're attaching a greater amount of services to those new logo wins as well. And I think that's indicative of solving problems that are bigger, that are more strategic where clients value and those buyers, business leaders value not only our great content and tool frameworks, but also the expert services that we can provide those clients. And the combination of those 2 things is rolling through. We're getting good conversion rates on that pipeline. And so for us now, the key measures we're looking at are how do we continue to grow the pipeline of opportunities. Part of what we did is we made a bet last year on standing up a more robust SDR function, kind of a presales function. That's been -- we have now had that for a few quarters, and that's kicking in. And so everything -- we're just moving everything righter and tighter around executing the original strategy that we put in place, and we're seeing that begin to roll through. Jessica Betjemann: Nehal, just coming back to you. I was able to track that number down for you. So the Enterprise Division because we don't report out invoiced amounts for North America, but the total Enterprise Division in Q1 of '25 was $43.7 million. Nehal Chokshi: And that was up how much percent year-over-year in that year ago period? Jessica Betjemann: Well, it was 2025, right? So it was actually down year-over-year. 7% down from the prior year. Yes. Nehal Chokshi: Got it. Okay. Very good. And so what gives you confidence that this growth in invoice subscriptions you're seeing in the first 2 months isn't just simply a year ago easy compare then? Paul Walker: Holly Proctor's here, our President of Enterprise, you want to comment on that? Holly Procter: Yes, sure. The reason why there's confidence here, as you can imagine, we are students right now, especially our large deals. So when we see multi-million -- trillion dollar deals come in, we're students of not just how we want them, but what ingredients inside that deal did we not have in our prior model. And so as we study those deals, there are several things that are pointing to the win that we didn't have in our prior model, where we're confident we likely wouldn't have won that business before. And so I'll give you an example. A large deal that we'll announce in Q1, multimillion dollar multiyear deal was a product of an RFP win. That RFP win was turned around in a handful of days based on systems that we've implemented as part of this structure. We never would have been able to facilitate that type of engagement a year ago. And so as we study these large wins and we see the system starting to work and then more volume going into the system that brings a lot of confidence that this is a trend. Operator: And our next question comes from Alex Paris of Barrington Research. Alexander Paris: Nice finish to what was a really challenging year and nice green shoots of activity in the first 2 months of fiscal 2026. I had a question about guidance also, and I appreciate the color about first half versus second half on both revenues and adjusted EBITDA. But as I look over my historical model, that's kind of the way it always is. You get more revenue and more EBITDA in the second half of the year, typically looking back before the year just ended. But what I also see that happens is between Q1 and Q2 there is a sequential decline in both. I'm wondering if this year, it might be flipped because you're claiming out of that transition. In other words, the revenue that you expect in the first half, would you think that Q2 would be greater than Q1, which is history? Jessica Betjemann: No. I think it will follow more to what we've had in the past. And remember, when the kind of the time period of Q2, you're starting to get into a holiday time period and all that. So you're going to have the normal seasonality that will come into play. So we still will have some of that. Alexander Paris: Okay. So not necessarily a decline in revenue -- sequential decline in revenue from Q1 to Q2. And the same thing for EBITDA. Jessica Betjemann: No, no. I'm saying there will be -- I mean, we would still expect a slight decline in the revenue from Q1 to Q2, similar to prior years. That seasonality is still going to continue. Yes. Alexander Paris: Got you. I was suggesting would it be the opposite of that this year, but you're saying not. Jessica Betjemann: I'm saying, no. Yes. Alexander Paris: I appreciate that. Paul Walker: Alex, part of the reason for that just is that Q2 services with the holidays. There's just fewer services delivered during the -- with December being in the holiday period. And so that always kind of shows up a little bit in the Q1 to Q2. Alexander Paris: Great. And then just a follow-up question on the sales force transformation. Any updates in terms of the size of the sales force between hunters and farmers? I think the last note that I had is you had 44 hunters and around 65 farmers. And then turnover, both voluntary and involuntary turnover in the new sales force. How is that working for you? Paul Walker: Yes. Great question. So the sales force is still very, very close, like very close to the size -- the numbers you just threw out there. I think it's the same. We haven't had any turnover in the sales force. Of course, we turned some of the sales force over last year as part of the transformation. But the folks that we have here and in place now, we have that team. I think that on a go-forward basis, where you'll see growth in the sales force in the periods to come will be on that, particularly on the new logo hunting side, where -- and as we continue to make investments on the marketing side to drive even greater leads of that sales force. That will be the factor that allows us to expand that hunting sales force. And then there's good leverage on the farming side of the sales force as we throw those new accounts over the wall and have them service them through a combination of our client partners and our implementation or our client success team. So same size as we've had, and we do expect we'll grow that. And on Education, it's roughly the same size as well right now. Alexander Paris: Okay. Helpful. And then since you brought it up Education, I was wondering if we can get a little bit more color on Education. We spent a lot of time on North American enterprise because that makes sense. It's a bigger business, and there's big changes happening on that side. But on the Education side, it was a flat year and a flat quarter in terms of revenue and gross income, a decline in adjusted EBITDA in both periods. I get it, there's a lot of disruption in Education, reduction in force. How should we think about fiscal 2026 in Education? I think the comps would be relatively easy, but whatever color you could offer, I'd appreciate. Paul Walker: Yes, Sean is here. Sean, do you want to share perspective? Michael Covey: Yes. Alex. Yes. So looking at this year, we remain quite bullish about the year. Last year was hard because 2 things happened last year. One is we had the ESER COVID relief funds expire, right, in September of '24. That hit us. And then the Department of Education shenanigans of withdrawing Title funds and reinstating them kind of left a hangover effect, where a lot of schools were hesitant to buy, purchase. We probably had 100 to 150 schools that delay we might have got in otherwise. Looking to this year, we feel good about the year and think we can get back into good solid growth like we have been doing for the last decade; for 2 reasons. One is we have -- as you can see in the data, we've got lots of deferred revenue. That grew by 13% last year. It's going to help us. We have that on our balance sheet. It's going to be recognized this year. We also have many large district and state opportunities. We mentioned that we had one big one last year. It will repeat. And so, the pipeline of the bigger opportunities is really strong. Our funding partner that we've shared before remains in place. This is a partner that helps with really hundreds of schools every year. That helps to drive demand. There's still a great need in the marketplace for what we offer. It seems to be increasing all the time, higher test scores since COVID, test scores have dropped a lot. Everybody wants to get them back up. We're good at that. Teacher retention is a big turnover problem right now in schools. We're good at that as well and then mental wellness that we address also. And then finally, I think it's hard to predict the Department of Education and the Trump administration, what they're going to do, but it's likely to get better than last year. I don't see how it could get worse. Of the Title dollars, which is where most -- where Title I is for low-income students, and that is what funds a lot of Leader in Me schools, at least in part. Most experts agree that that's not going to be touched and it's going to be safe. And whether it goes to the states or remains at the federal level remains to be seen, but there's strong support for Title I dollar. So all of that combined, all things considered, we feel good about the upcoming year and feel we can get back to some good solid growth. Operator: And our next question comes from Dave Storms of Stonegate. David Storms: You mentioned in your prepared remarks, Paul, how much AI you're starting to implement into your services. I was hoping you could maybe spend a little more time there and maybe lay out kind of what inning you think we are in when it comes to implementing AI. Paul Walker: Innings for the world, innings for Franklin Covey? No, just teasing. Yes, so I think, obviously, I think the whole world is still in very early innings on AI and trying to exactly predict where all this is going to go is -- but I wouldn't pretend to do that. I will say that where the first, where we're focused and where we see real opportunity with AI is in 2 places, and then I'll get into a little bit more specifics. The 2 areas that we see AI as an important opportunity for Franklin Covey. The first is actually what AI is doing out there with our clients. Increasingly, the deals we're winning and the existing clients we're partnering with, a common circumstance that they want help with is as the more they're implementing AI, the more it's shining a light on some of the human, people, leader, culture, collaboration, aligning people challenges. Those have always been hard parts of leadership, and they don't get easier with because you have AI. And so I think it's actually shining a light on many of the things that we are good at and have been good at for a long time. And so strategically, I think that's an opportunity for us is to really help and we are helping to be a partner in that set of circumstances and in that environment. Second, we've always had what I would -- I think is really, really fantastic content. We talk about world-class content because it is. One of the things we hear from our clients over and over again is that they value the quality of the content, the quality of the principles and frameworks and insights that it's just -- it's differential from others. We also have always had really great -- we call it services, but really what that is, is people who are going in and doing facilitation and coaching and in some places, some consulting, and they're helping schools and organizations implement this powerful content in a way that really does change behavior, change performance and lead to better outcomes. We've always had those 2 legs of the stool. AI is this really new unique third leg of the stool. And we see it as a real accelerator to add to those other 2 legs because it's this wonderful technology that allows people who are trying to change behavior and leaders who are trying to move people, it allows for better visibility into that, better -- a new type of coaching, a new way to reinforce the principles we're teaching. Our AI coach picks up where a human coach leaves off and is able to be there all the time with somebody helping and coaching them through specific situations and circumstances they find themselves in. And our clients can trust that, that what's being coached is coming from this very trusted principle-based reservoir of content. We've trained our AI coach on all of our stuff and clients can really trust that. And so for us, we view it as kind of this important third leg of the stool. And candidly, it wasn't a leg of the stool that was even available a few years ago. Nobody had come up with AI. But now that it's here, we see it as this great third piece. And so as we think about, as I made the comments that we're investing in embedding AI into our solutions, it's kind of with that third leg of the stool in mind, how does it complement our great content and our great services that we already provide our clients, and we're seeing all kinds of ways to do that. I just gave the one example earlier of the -- how it's helping with our -- Helping Clients Succeed sales performance solutions, where now not only being taught great content and learning how to use tools and not only having a great facilitator and coach personally, I've got an AI coach that's with me all the time who can give me real-time feedback on how that last sales call went, how I should position the product better next time? How do I overcome this kind of common objection? How do I get prepared for this next upcoming sales call? Those are the things that really make a difference. And for organizations, if they can improve that behavior by even a marginal amount, 5% or 10% across a large sales force, that trickles down to significantly more won revenue. And so that's just one example, and we're applying that across our leadership content, our 4 Disciplines of Execution solution. We're excited to see how this can come into our Leader in Me offerings as Sean and team are imagining what that looks like. And so I would say innings-wise, we're in the early innings. I think the world is still in the early innings, but we're quickly trying to advance into deeper into the game as quickly as we can. David Storms: Understood. That's great color. One more for me, if I could. Just earlier in the year, there was the government cuts that could be pretty directly tied to some of your results, some of the headwinds that we've seen. Are you seeing anything of this magnitude from the current government shutdown? Paul Walker: No, we're not. When we reported at the end of Q1 last year, so in January, we outlined what the impact we expected to see last year at that time. We don't expect to see anything like that this year. In fact, if anything, that might be -- we get to lap against that last year. Of course, the government shutdown at the moment. But as that government opens back up, we expect that we'll continue to win some business with the government. And actually, on a comp basis, we get a chance to kind of comp against that last year. And that hopefully -- we expect that should work in our favor somewhat this year. Operator: I'm showing no further questions at this time. I'd like to turn it back to Paul Walker for closing remarks. Paul Walker: Thanks, everyone, for joining today. Thanks for your great questions, as always. We appreciate the lengths you go to understand the business. Hopefully, this came through today, but we're pleased and optimistic about as we turn the page into fiscal '26 and what we're seeing happening on the invoice growth side that, that we expect that to trickle through this year into increased growth and really next year as those invoice amounts build up this year. So we're looking forward to that and off to a good start and just hope you all have a wonderful rest of your evening. And again, thanks for being here today. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.