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Operator: Good morning, ladies and gentlemen, and welcome to the YETI Holdings Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Arvind Bhatia, Head of Investor Relations at YETI. Please go ahead. Arvind Bhatia: Good morning, and thank you for joining us to discuss YETI Holdings' Third Quarter Fiscal 2025 results. Leading the call today will be Matt Reintjes, President and CEO; and Mike McMullen, CFO. Following our prepared remarks, we will open the call for your questions. Before we begin, we would like to remind you that some of the statements that we make today on this call may be considered forward-looking, and such forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. For more information, please refer to the risk factors detailed in our most recently filed Form 10-K and subsequent Form 10-Qs. We undertake no obligation to revise or update any forward-looking statements made today as a result of new information, future events or otherwise, except as required by law. Unless otherwise stated, our financial measures discussed on this call will be on a non-GAAP basis. We use non-GAAP measures as we believe they more accurately represent the true operational performance and underlying results of our business. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release or in the presentation posted this morning to the Investor Relations section of our website at yeti.com. I would now like to turn the call over to Matt. Matthew Reintjes: Thanks, Arvind, and good morning. YETI's third quarter performance highlights growing momentum from consistent and strong execution against our long-standing strategic priorities, driving product innovation, broadening our brand and addressable market and expanding our global presence. These initiatives are yielding meaningful results and building towards what we believe is a long-term top line growth range of high single to low double digits. Our product innovation pipeline has never been more robust, extending and deepening our portfolio. Our brand is connecting with both legacy and new customers domestically and abroad. Our international growth is accelerating with exceptional performance in the U.K. and Europe, robust consumer demand in Australia and Canada and a great early read in Asia with more opportunity to come. Strong consumer demand for our products across channels and geographies, combined with recent innovation continues to reinforce the durability and growing relevance of the YETI brand. This demand translated into top line growth, fueled by robust double-digit gains in our Coolers & Equipment category in our international markets. These results were achieved despite softer U.S. e-commerce performance and significant caution in wholesale sell-in, which created a notable gap compared to very strong double-digit sell-through across both Drinkware and Coolers as reported in that channel. The quarter underscores the strength of our diversified go-to-market strategy, our ability to meet consumers where they shop and the accelerating impact of our international expansion. Turning to growth and starting with product innovation. Our products continue to set the standard for durability, design and performance. Our 2 core categories, Drinkware and Coolers & Equipment, anchor a dynamic portfolio built on 13 scalable product platforms, fueling innovation and long-term growth. These platforms are featured in our updated quarterly highlights presentation available on our Investor Relations website. Across these platforms, we are on track to launch more than 30 new products in 2025 even as we navigate strategic trade-offs to advance supply chain diversification. Importantly, we have a robust pipeline that is aligned with the continued momentum of our brand and positions us for sustained expansion. As we stoke the brand globally, we create natural opportunity for product innovation, expansion and vitality. Within Drinkware, the strength of our core portfolio and our uptempo focus on innovation is driving accelerated momentum despite ongoing wholesale inventory pressure and promotional intensity in the U.S. market. Even as overall sell-in was down year-over-year in the U.S. wholesale, sell-through strength highlights the underlying momentum of YETI, in particular, the durability of our Drinkware business in that highly contested market. It reinforces our global strategy of building a sound foundation through diversification to set up for growth in Drinkware in Q4 and beyond. Our innovation this year has spanned across several Drinkware platforms, showcasing the diversity and range of our portfolio. Recent launches include our insulated food jars, travel bottles, updated Rambler Jug, ceramic lined Drinkware and a cast iron expansion with our [ 6-quart ] Ranch Pan. Within the last 2 weeks, we launched our Silo Jug built for everything from sports to job sites and outdoor adventures. This is a great product that works not only for athletes, but for anyone looking for large capacity, easy-to-access hydration with YETI cold holding power. We believe this launch continues to position YETI as a go-to brand across a wide range of use environments and very naturally fits with our expanding focus on sports. Looking at the remainder of the year and into 2026, we're energized by feedback we've received from our partners about the innovation ahead in Drinkware, including the upcoming release of our YETI Shaker Bottle, featuring a patented design that improves upon the standard shaker providing an incredible mix experience while removing the traditional wire ball. This speed to launch is enabled by the acquisition of the design, tooling and IP we communicated in our second quarter call. With the shaker bottle, which will be manufactured in the United States, we are targeting a roughly $2.5 billion market, fueled by the rapid growing demand for hydration powders, protein supplements and wellness products, aligning with YETI's expansion into sport, health and wellness. Early feedback from wholesale sports and health partners has been very positive. The acquired design and IP comes from Helimix, which will cease operations as we relaunch an updated design to build upon the market awareness and momentum from Helimix's over 39,000 4.5 star reviews on Amazon. This quick turn launch represents a compelling opportunity to drive organic growth going into 2026 and deliver a margin-accretive product line with a strong ROI. Importantly, this further deepens our connection with consumers in new and existing markets. The breadth of innovation across our Drinkware portfolio is demonstrating clear traction and setting us up for continued success and long-term category leadership. In Coolers & Equipment, our double-digit growth for the quarter underscores the broad demand we're seeing across the portfolio. On the innovation front, our Daytrip soft coolers saw significant demand. Additionally, we have several highly anticipated Daytrip line expansions planned in the coming months to address an even wider market opportunity. In bags and packs, we continue to see strength across new and legacy products with notable performance in backpacks, totes and duffles. Following strong demand for Camino totes, which sold out across channels a number of times, we've worked to replenish inventory through limited re-releases and are partnering with our retailers to capture some of the anticipated holiday demand and sustained momentum of this iconic product. In hard coolers, our Roadie and Tundra families continue to extend reach even as we lapped the significant debut of the Roadie 15 and Roadie 32 in the prior year. The recent additions of customization capabilities on a range of our coolers unlock significant opportunities, particularly among our existing partnerships and sports relationships. Last month, we launched an expansion of our storage and protective case platform with the GoBox 1, which comes at a giftable price point right in time for the holiday shopping season. Expect to see much broader expansion here in 2026. I'm also very excited about the build-out of our global innovation capabilities. Our Thailand innovation center focused on hard goods is now fully operational and already driving impact, giving us the capability to significantly increase our speed and capacity for product development. In addition, I'm pleased to announce a new development and innovation office in Vietnam to open in early 2026, dedicated to the design and development of bags and soft cooler bags. This will complement our existing product talent and capabilities in Austin, Denver, Bozeman and Thailand. Together, these innovation centers will enable a 24/7 global cycle across both current and future products and provide us with the ability to respond with even greater agility to market opportunities, fueling long-term growth and competitive advantage. It's clear that our product expansion and innovation are working. And as we look forward with our pipeline stronger than ever and significant white space ahead, we are well positioned to execute. Our second strategic growth priority focuses on broadening our brand and our global customer base through brand awareness, community engagement and a unique omnichannel strategy that enables us to reach consumers where and how they shop. We are amplifying our brand marketing as we approach YETI's 20th anniversary. Starting later this month, we will release our largest ever U.S. brand campaign around major sporting events in the run-up to peak holiday shopping. Partnering with the incredible talent at Wieden + Kennedy, we are on the front end of shaping the next decade of our brand. This brand campaign will span linear, connected and digital media. Additionally, to amplify our reach, particularly on social platforms like TikTok, we've added a new media partner to drive this effort. These initiatives mark a significant step towards elevating YETI's always-on brand presence and impact, connecting to our powerful foundational audience while broadening our reach. In terms of engagement at a local level, in Q3, YETI activated at over 80 events worldwide, deepening connections with consumers across diverse passions and communities. To that end, our sports presence has never been higher. Following the launch of our strategic partnership with Fanatics, we are now licensed with the NBA, rounding out Major League relationships across NFL, NHL, MLS and MLB. We're also proud to have recently signed on as an exclusive partner, including courtside presence for League One Volleyball, a fast-growing women's professional Volleyball league and parent to roughly 2,000 youth and junior teams and 24,000 players. Internationally, YETI's footprint is expanding through continued partnerships with top clubs and teams, including Tottenham Hotspur, now featuring YETI on the front of the women's team training kit, the New Zealand All Blacks, Oracle Red Bull Racing and more to come. Our limited edition product launches and signature programs continue to power these partnerships into consumers' hands. At the collegiate level, YETI has outfitted over 50 NCAA schools and 80-plus Division 1 teams covering almost 4,000 athletes, including a strong combination of both women's and men's sports. As we continue to grow our sport relationships, we see further exciting potential to expand our channels to market from youth up to professional. These initiatives highlight YETI's accelerating momentum in sports from grassroots to the global stage supporting athletes with high-performance products and driving brand growth across new audiences and markets. As we execute our brand-building strategy, YETI is unlocking significant opportunities for global growth, leveraging strategic partnerships and a refreshed media approach to expand our reach and our influence. Shifting to our channel performance. The continued expansion of our product portfolio, combined with our diversified presence across channels, is a key part of our strategy to broaden our audience. Our wholesale channel demonstrated very strong momentum despite a continuation of more cautious ordering and tighter inventory management from our retail partners, particularly in the U.S. Sell-through trends remained strong, reflecting healthy consumer demand throughout the quarter. As we enter year-end, we are well positioned from a channel inventory perspective and feel great about our setup heading into 2026. Last month, we started a new wholesale partnership with Nordstrom, where YETI is being featured in their holiday gift activation across 91 doors and online and permanent placement in 70 Nordstrom home doors. This new retail partnership underscores our focus on adding complementary distribution channels to support our diverse product portfolio. In our direct-to-consumer channels, we continue to leverage our omnichannel approach to meet evolving shopping behaviors with speed and agility. YETI's Amazon marketplace continues to see strong performance, and our corporate sales business once again exceeded expectations, supported by expanded customization capabilities across hard coolers and select bags as well as our growing partnerships in sports and hospitality. Notably, our collaboration with Fanatics, a leading global digital sports platform is off to an exceptional start. This partnership significantly expands YETI's presence in the sports licensing market and is already driving strong engagement across fan communities. We're incredibly excited about the momentum we're seeing and the opportunities ahead as we build on this performance and further accelerate growth across our consumer and commercial channels. On yeti.com, traffic and average order value grew in Q3 with strong engagement around new product launches. Conversion rates remained pressured in the quarter, impacting our overall performance and reflecting a greater prevalence of deal shopping by consumers. In response, we focused on effective deployment of performance marketing spend, prioritize higher-quality traffic and launched targeted initiatives to improve conversion efficiency. In the near term, we're optimistic about our upcoming gear garage event, which is expected to further elevate customer engagement and drive traffic and purchase intent. These efforts are laying a strong foundation for yeti.com in 2026. In retail, we remain focused on maximizing the performance of our existing stores. During the quarter, we launched localized branded apparel and accessories in 16 stores to add a unique impulse purchase moment. We also introduced immersive walk-throughs on yeti.com to showcase the YETI retail experience. With more initiatives planned for Q4, we're building upon our retail foundation to support the next phase of growth and continued impact on the rest of our channels to market. Our third key growth driver is expanding our global presence. The YETI brand continues to build as we execute our proven go-to-market strategy across our international markets. I recently spent time in the U.K. and Europe with a number of iconic global brand partners. I walked away from those meetings incredibly energized about the mutual brand respect, passion and creativity for working together. Mike will talk further about the performance in the quarter and the setup for Q4, but suffice it to say, we're on the front of the global wave. Europe continues to show outstanding growth led by excellent performance in the U.K. and continued traction across key European markets. In addition to the recent partner meetings in the U.K. and Europe, I also joined partners across Asia earlier this year. The energy and momentum is undeniable. Combined, these markets echo the early surge we saw during YETI's rapid U.S. expansion and again in Canada and Australia. What's unfolding is not just market growth. It's a product-led brand-endorsed movement. We're confident in the trajectory ahead and energized by the opportunity it represents. In Japan, our presence continues to scale quickly with over 270 doors opened to date and 400-plus stores expected by year-end. Looking ahead, with our core leadership team in place, our priority is consistent execution of our go-to-market strategy, leveraging the strong fit between YETI's premium positioning and the Japanese consumers' appreciation for quality. We see the broader Asia region as a key long-term driver of international growth potential. This year, complementing our launch directly in Japan, we added distribution in Thailand. In addition, we have signed distributor partners and are planning launches in 3 Asian markets next year, Malaysia, Singapore and the Philippines. We're also making progress against our plans and potential partnerships in Korea, China, Indonesia, Taiwan and Hong Kong. In Canada, end consumer demand for YETI products continues to be robust even as our wholesale partners remain cautious during the third quarter. Seasonal colorways and innovation across categories are resonating in Canada, highlighting the relevance of our diverse product offering and the impact of our localized brand strategy. In Australia, we delivered growth across all channels and core categories during the quarter, and we anticipate further acceleration in Q4. Brand enthusiasm remains strong, positioning us for sustained momentum through the end of the year and into 2026. Going into 2026 and beyond, we continue to see attractive opportunities for further global expansion across the Middle East and South America. In terms of supply chain transformation, our diversification plan is well on track with key factory partners now live across multiple geographies. These partners are consistently meeting our high standards for quality and cost. We continue to expect that by year-end, on a go-forward basis, less than 5% of our total cost of goods sold will be exposed to U.S. tariffs on goods sourced from China. And importantly, our multi-country sourcing strategy will be fully operational. As we look ahead to 2026, we're extremely well positioned with a more resilient, flexible and diversified supply base that strengthens our ability to scale globally while mitigating geopolitical and operational risks. As we navigate a dynamic macro, our fortress balance sheet and very robust free cash flow generation continue to underpin strategic investments in growth and innovation. At the same time, it enables us to execute our growth-oriented capital allocation priorities in addition to creating value through share buybacks. With $173 million in share repurchases year-to-date, we are upsizing our 2025 plan from $200 million, now targeting $300 million by year-end, bringing our total repurchase to $500 million across 2024 and 2025, representing approximately 14% of our shares outstanding. Alongside our growth and disciplined capital allocation, we're making investments and focusing resources on potentially transformative technologies, including artificial intelligence to unlock new growth opportunities, enhance consumer engagement and drive efficiency. We're early on the journey, but committed to it. Our AI strategy spans high-impact applications from automated custom image moderation, reducing the necessity for manual processes, customer support, site search, advanced marketing analytics and back-office automation tests. We are also leveraging AI to amplify brand visibility in the evolving search landscape. Recent initiatives include AI-enabled product customization, including the launch of a Gen AI photo-to-line-art features to elevate consumer creativity and the launch of Ranger, a conversational shopping assistant designed to boost conversion on yeti.com. Our efforts around AI-driven content optimization helped secure YETI the #1 share of voice across major AI discovery platforms over the past quarter, and we've modernized our marketing measurement with AI-powered ROAS modeling. These initiatives not only differentiate YETI, but also deepen consumer insights, enable data-driven decisions and create the potential to strengthen long-term margins. As it relates to our full year 2025 outlook, we remain confident in our disciplined execution against a well-established strategy, and we believe we are well positioned to continue our momentum into year-end. I'm incredibly encouraged by the global feedback we're receiving, underscoring growing passion for the YETI brand, strong enthusiasm for our products and anticipation for the innovation ahead. As mentioned last quarter, we plan to hold our Investor Day in the first half of next year. Today, we're excited to announce that we'll be hosting the event in Austin, Texas to fully showcase YETI and where we are going. We will be providing additional details on the event in the near future. Looking ahead, we're entering an incredibly exciting chapter for YETI, driven by immense passion for our brand, the amazing quality and innovation in our products and the scalable nature of the business model. We have a strong foundation to build off as we advance the business toward the global growth potential for YETI with a clear focus on execution against our strategic priorities. I'll finish by thanking our team and partners for their commitment to building this brand the right way, setting us up for the incredible potential in front of us. With that, I'll now turn the call over to Mike. Michael McMullen: Thanks, Matt, and good morning, everyone. I appreciate you all joining us today. I'll start by reviewing our third quarter 2025 performance, then share our outlook for the full year. Following that, we look forward to taking your questions. As a reminder, all results presented on today's call will be on a non-GAAP basis to better focus on the operating performance of the business during the quarter. Let's begin with the top line. In the third quarter, we delivered sales growth of 2%, reaching $487.8 million, which was above our expectations. This performance was driven by double-digit growth in both our Coolers & Equipment category and in our international business. In addition, we are incredibly encouraged by the underlying momentum we are seeing across the business. Consumer demand is strong, and our recent innovation is resonating even as caution persists among consumers and wholesale partners. Looking at our product categories, Drinkware sales declined 4% to $263.8 million, which was in line with our expectations. The U.S. Drinkware market remains challenged during Q3 with similar levels of promotional activity as compared to the prior quarter. However, there was real strength within key pieces of our broad and diversified Drinkware portfolio. And outside the U.S., Drinkware continued its growth trend. As we said last quarter, we believe that our global Drinkware business will return to growth in Q4, driven by innovation, international growth and as we lap the more challenging market dynamics that began in the fourth quarter of last year. Coolers & Equipment had a strong quarter globally with sales up 12% to $215.4 million. Bags had a fantastic quarter across the full portfolio of products, and we saw strong growth from soft coolers. Both categories benefited from recent innovation, and we believe that there is tremendous opportunity for growth in each category going forward. Diving into performance by channel. Direct-to-consumer sales grew 3% to $288.7 million. Our Amazon Marketplace continued its strong performance even in the face of a softer Prime Day event as compared to last year, underscoring consistently strong consumer demand for the YETI brand within this channel. Corporate sales continued to deliver solid growth, and we are excited about the growing number of strategic partnerships that we are developing around the world. When combined with an expanding portfolio of customization capabilities, we believe this will enable us to capture demand while at the same time, growing our brand on a global basis. As for e-commerce, while we were pleased with the performance of our international sites in the U.S., yeti.com saw a continuation of trends from Q2. Traffic and average order values grew year-over-year, but conversion continued to be a challenge, which we believe is a sign of a discerning consumer. In the wholesale channel, sales increased 1% to $199 million in the third quarter. Our international wholesale business delivered good growth, both on a sell-in and sell-through basis. In the U.S. wholesale channel, strong C&E performance was offset by a decline in the Drinkware category, stemming from a continuation of trends seen in the second quarter, elevated promotional intensity, coupled with conservative ordering from some of our wholesale partners. But we believe the underlying trends in sell-through are incredibly important. We observed double-digit sell-through growth in the U.S. for both C&E and Drinkware. This accelerated the trend we saw in the prior quarter, where sell-through growth is exceeding sell-in growth and has resulted in a reduction in our channel inventory levels versus the prior year. We believe this positions us well for the future, especially when combined with the exciting new U.S. distribution opportunities that we have announced this year, including Fanatics and Nordstrom. Moving to our international business. Sales outside the U.S. grew 14% to $100.4 million, representing approximately 21% of total sales in the third quarter. This reflects growth in every region, Europe, Australia, New Zealand and Canada as well as very early contribution from our launch of Japan. Europe was the real growth highlight in Q3, continuing the trends that we have seen this year. We have tremendous momentum in the U.K., where we continue to benefit from growing brand awareness, strong consumer engagement and increasing interest from wholesale partners. Also, we are pleased with the progress we are making in Japan. This is a foundational year for us in Japan, hiring the team, establishing relationships and building the infrastructure that we need to capitalize on what we believe is a tremendous opportunity. Now moving down the P&L. Adjusted gross profit decreased 2% to $272.5 million or 55.9% of adjusted sales compared to 58.2% of adjusted sales in the third quarter of last year. This 230 basis point year-over-year decline was driven by a 320 basis point unfavorable impact from higher tariff costs. In addition, a lower mix of Drinkware sales in the quarter had an 80 basis point unfavorable impact on gross margin. These were partially offset by a 60 basis point benefit from continued product cost savings, a 50 basis point benefit from selective price increases executed early this year and a 60 basis point benefit from a number of other smaller factors. Adjusted SG&A expenses in the third quarter increased 3% to $205.9 million or 42.2% of sales compared to 41.7% in the prior year period. We continue to make strategic investments to drive future growth in key areas such as product development and technology, while at the same time, taking a disciplined approach to managing our operating expenses. On an adjusted basis, operating income decreased 16% to $66.6 million or 13.7% of sales, and net income decreased 18% to $49.6 million or 10.2% of sales. Adjusted net income per share decreased 14% to $0.61 versus $0.71 in the prior year period. Our EPS this quarter includes a $0.14 net impact from incremental costs associated with tariffs announced in 2025. Turning to our balance sheet. We ended the quarter with $164.5 million in cash as compared to $280.5 million in the prior year quarter. During the third quarter, we repurchased 4.3 million shares of YETI's common stock on the open market for $150 million, bringing the year-to-date total to 5 million shares for $173 million. Total debt, excluding finance leases and unamortized deferred financing fees was $74.9 million compared to $79.1 million at the end of last year's third quarter. From a total liquidity standpoint, we ended Q3 in a substantial net cash position and with our $300 million revolving credit facility fully available. Inventory decreased 12% year-over-year to $324 million, reflecting strategic management of our inventory purchases and continued supply constraints related to our supply chain transformation. Now turning to our updated fiscal 2025 outlook. We now expect full year sales to increase between 1% and 2% versus fiscal 2024's adjusted net sales and as compared to our prior outlook of flat to up 2%. This updated guidance continues to include an approximately 300 basis point unfavorable impact related to our supply chain diversification efforts and subsequent inventory supply disruptions, which is consistent with our previous outlook. From a product perspective, we expect C&E to be up mid-single digits and Drinkware to be down slightly for the full year fiscal 2025. As I mentioned earlier, for the fourth quarter, we continue to expect positive growth in Drinkware, reflecting the impact of recent innovation, growth outside the United States and the lapping of market dynamics that we began to see in Q4 of 2024. From a channel standpoint, we expect DTC growth to be slightly above wholesale growth in fiscal 2025. Geographically, we are maintaining our outlook for our international business as we continue to expect growth of between 15% and 20% in fiscal 2025. This implies an acceleration in international growth in Q4, reflecting the timing of order patterns that we mentioned last quarter and the continued strong consumer demand that we have seen throughout this year. In the U.S., we anticipate a low single-digit decline for the year, largely due to the dynamics within the Drinkware category that we have discussed. That said, we remain encouraged by the resilience of our U.S. Drinkware business, and we anticipate improving growth trends in the fourth quarter. We continue to expect gross margins for the year to be between 56.5% and 57%. As was the case last quarter, this reflects an approximately $40 million or 220 basis point net impact from tariffs. Trade policy discussions are ongoing and the ultimate outcome regarding tariff rates remains uncertain. In our guidance, we are assuming that the latest tariff rates as announced, remain through the end of the year. But given the late timing in the year and our successful efforts to transition our supply chain, the recent reduction in the tariff rate on goods imported from China will not have a material impact on our gross margins in 2025. We continue to expect operating expense growth of between 2% and 4% versus the prior year. This reflects the impact of ongoing investment in our growth initiatives, partially offset by continued cost optimization. We continue to expect operating income for the full year to be between 14% and 14.5% of adjusted sales, reflecting a net unfavorable impact of approximately 220 basis points from higher tariff costs versus the prior year. Below the operating line, we continue to expect an effective tax rate of approximately 25.5%. We now expect full year 2025 diluted shares outstanding of approximately 81.5 million versus our previous outlook of 82 million. This reflects the impact of our increased share repurchase target through fiscal year-end to $300 million versus $200 million in our prior outlook. Reflecting the narrowing of our sales guidance and the impact of our increased share repurchase target, we now expect adjusted earnings per diluted share of between $2.38 and $2.49, including an approximately $0.40 net unfavorable impact from higher tariff costs versus the prior year. Consistent with our previous outlook, our capital expenditures for the year are projected to be approximately $50 million. Our capital spending remains focused on advancing our technology, launching innovative products and strengthening our supply chain. We now expect free cash flow of approximately $200 million in 2025 compared to the prior outlook of $150 million to $200 million. As it relates to year-end inventory, we continue to expect a decline year-over-year. We are proud of the results we delivered and the growing momentum we created in the third quarter, especially against the backdrop of a persistently dynamic macroeconomic environment and heightened overall consumer caution. This performance reflects our unwavering commitment to executing on our strategic growth priorities. At the same time, we continue to focus on fortifying our supply chain, exercising cost discipline and capital management and driving operational excellence. These efforts are designed to support sustainable long-term global growth and deliver value to our shareholders. Now I will turn the call over to the operator to take your questions. Operator: [Operator Instructions] Our first question comes from Randy Konik, Jefferies. Randal Konik: I guess, Matt, you led off the call this morning and you said something to the effect of you see this business long term having a growth algo potential of high single digits to low double digits, I believe. Maybe kind of think about not the -- I don't necessarily need the timing of that, but maybe kind of think about or give us kind of the building blocks you think about to kind of get back towards that growth algo in time. How do you kind of put all those pieces together, obviously, on the product side and the geo side. Just give us a little more framing up of how you think about that. That would be helpful. Matthew Reintjes: Thanks, Randy. I appreciate the question. And I think as people have followed along with the story since our IPO, everything in this business is built on product and making great product. And I look at where we were a year ago, growing 9%. I look at where we've been since the IPO, low double-digit growth CAGR. I look at the setup that we have across innovation, both the strength of our existing portfolio. I think you started to hear that on the call today, the things that we saw in the third quarter, the buildup for the rest of the year in the U.S. in particular, the expansion opportunity, the drive we've seen in C&E, which is really driven by both legacy products and new expansions and the things that we're seeing that are really exciting in the bags. The second big one is the brand reach. And I think as this brand continues to grow globally, we reach new audiences. We have new interactions with consumers. We create more opportunities to bring YETI product into different ports or parts of their life. And then the third one is, as I said on the call, I think we're -- from a global perspective, we're on the front end of the wave. And so when you step back and think about what the growth algorithm going forward for YETI is, it's going to be built on innovation, both the performance of the products we have today and the expansion. It's going to be built on the continued brand relevance and deep connection and the reach that we have with the brand. And the third one is the global opportunity we have in front of us. And I think that's what we started to see in Q3. I think we've indicated the things that we'll see in Q4, and it's what we're excited about as we go into 2026 and beyond. Randal Konik: That's great. And then I guess my follow-up, on the wholesale side, can you just kind of elaborate a little bit more? It sounds like the sell-through is very strong, sell-in is more subdued, and I'm talking about the United States market in the wholesale. Should we expect that the sell-in start to improve as inventories get worked down, improve into 2026? And then on the direct-to-consumer side, you talked about, I believe, conversion down, but traffic and AOV, I believe, up. As you launch more things like the Silo Jug, my 8-year-old, thanks you because I bought it for him, he loves it. As you kind of keep pushing out more and more newness and the consumer gets more and more attention to it, do you think that these traffic levels and AOV continue to rise and conversion starts to improve as we head into 2026 on the DTC side? Just want to get your perspective there. Matthew Reintjes: Yes. Great question, Randy. Thanks to your 8-year-old. It is an incredible product that we're really excited about. And I think it exemplifies the strategy we have in Drinkware. And I think it's why we've had the results and why we continue to be bullish on what's happening in Drinkware, particularly in the U.S. And we're building on that incredible foundation we have and really think that the forward look and the opportunity in that category is great. I think when you talk about the U.S. wholesale, the sell-in, sell-through dynamic, I think we always start with looking at sell-through, where is the consumer demand. And that importance of wholesale to us, that importance of that moment to sell to and interact with consumers and see their demand for YETI is outstanding, and we're really excited about what we see there. The sell-in dynamic is sensitive to what's happening from an inventory position. I think it's disproportionately a Drinkware story. And we've said this for the last number of quarters. We expected the Drinkware category to settle out. We work very closely with our wholesale partners on what their inventory is. And we've seen, we believe, categorical destocking happening around Drinkware. The great news is we're seeing the strength on the consumer demand. We're seeing the strength from the innovation. We're seeing the strength of the opportunity go forward as we talk about the portfolio that we have coming in Drinkware in particular. As it relates to DTC, we always want to look for strength and that traffic and AOV are both really positive signs, I think, in our dot-com. The conversion rate is really something that we're focused on, how do we drive more efficiency, more productivity, higher conversion of the people that are showing up on our dot-com site. But I think what the results show is it exemplifies the power of our omnichannel strategy. And we talk a lot about we want to be where consumers are shopping. We're thrilled with the performance we've seen on the Amazon marketplace. We love to see our wholesale partners showing really strong sell-through growth and consumer demand. And we continue to invest behind making yeti.com a flagship place for discovery consideration and ultimately purchase, which should continue to improve the conversion. Operator: Our next question today comes from Brooke Roach, Goldman Sachs. Brooke Roach: Mike, I was hoping you could help us understand the scaling opportunity of some of the new sport-focused launches that you are putting into the marketplace in the back half of this year, whether that is the co-branded Drinkware with Fanatics or also the Sport jug and some of the blender bottles that you're putting into the marketplace. What kind of contribution do you expect from that as you scale over the course of the next year? And will that be the driver of the return to growth? What's the forecast for your core business of legacy products? Matthew Reintjes: Thanks, Brooke. I'll take the front end of that and Mike can step down on the forecast topic. What I would say largely is we feel really good as we look at our Drinkware portfolio and the innovation our team has been driving and the diversification. We've had these conversations over a number of quarters as that category had a lot of attention around it. And we said our strategy has been diversify, be relevant, build a strong foundation and base and then grow off of it. And I think that when we look across the portfolio we have today, it isn't about leaving behind the things we've done. We're really excited about what we -- the innovation we have coming in bottles and jugs. We're really excited about the tumblers and cups. We just had a release yesterday of a large-format straw, and you can see what the social response to that was an leakproof large handled tumbler. And so we're really excited about that travel mug. But when we look to sport and where we're going, we believe we can play from the sideline to the home, to the outdoors, to the job site. And I think the -- the jug is an incredible versatile, very YETI product in that way. I think where the sports partnerships come into play is that connection of fandom and connecting brands, the channels to market that Fanatics offers, the licensing partnerships that go through existing wholesale partners that we have and provide a direct-to-consumer opportunity, I think, are really exciting. You'll see us continue to innovate in that category because we believe that sports on top of our outdoor legacy, on top of our historical fishing legacy is an incredible way of expanding our audience through innovation, through connection to consumers. And so we're really excited about where this is going. Michael McMullen: Brooke, it's Mike. So in terms of the forecast, I mean, I'd say it's all part of what we talked about as why we believe Drinkware will return to growth in Q4. I mean we said it was driven by innovation. This is obviously a piece of that. The Sports Jug we talked about, Silo, we talked about, the Shaker bottle launching this quarter. It will be late in the quarter, not a huge amount, but it's all just part of that overall innovation story. And then the second thing we talked about is why we believe that Drinkware can return to growth in Q4 is just the international growth story and the opportunities that we see to continue to grow Drinkware as we expand internationally. So it's all part of the overall story. Operator: Our next question today comes from Peter Benedict, Baird. Peter Benedict: I guess I'll ask about the promotional environment. As you think about the double-digit sell-through U.S. wholesale for Drinkware, how much are promotions driving that? And then how do we square that with kind of the lower conversion that's happening on yeti.com? Is there just a higher promotional cadence in wholesale and not as much on your site? Just trying to understand that and understand how you think about the promotional cadence in the holiday and going forward, how much you do and how much your partners do? Matthew Reintjes: Peter, thanks for the question. I would say a couple of things. We've been talking for a number of quarters that not only did we expect Drinkware in the U.S., in particular, to be promotional in nature, but it's been consistent. And we've seen that. And that's across brands. You go out and do market surveys, you'll see that out there. I think for us, we've had a really nice combination of sell-through driven by the innovation that we've launched. And when we look at -- we talked about our Wetlands Camo, when we look at this new launch of the Silo Jug, we've got this travel straw that just announced yesterday. We go back over the quarters and look at the innovation that we brought to market in color material finish and form factors, we really believe that innovation expansion, brand relevance is the thing that drives YETI, not a -- and really drives it in an environment that is highly promotional and continues to be that way. From our promotional posture, our promotions are consistent with things that we've done in the past as we transition out of colors, transition out of styles, and we'll continue to do that. As we get bigger and the portfolio gets bigger, there may be incremental ones we do just based on the numbers. But I think largely, what we're focused on is how do we drive the premium nature of YETI, the desire for the innovation, the looking to YETI for what's new. And I think that's what our team has done an extraordinary job this year amidst an incredibly complex supply chain transition of which I'm really proud of the work we've done and the setup that we have, both in innovation and the posture of our global supply base for 2026. I think as it gets to yeti.com and the conversion, I really think that there's -- we're continuing to watch where consumers want to shop and some changing and shifting behaviors. I think that ties in a little bit to some of our comments on the call about how we're looking at AI and what that does to search and how we play into it. And so it's an area we're really focused on, but the overall display is the power of having our diverse omnichannel to market from wholesale through our diverse DTC all the way to our dot-com and our retail stores. I think that's -- we want to be where YETI can win. Operator: Our next question today comes from Phillip Blee from William Blair. Phillip Blee: So I just wanted to talk a little bit about the fourth quarter. The implied guide assumes a bit of a sales acceleration. Can you maybe just provide a bit more color around your confidence there? A lot of retailers are calling out consumer demand that's been increasingly choppy. But are you seeing any of that? Or have you already seen some of that improvement in sell-in or sell-through quarter-to-date? And then just a clarification question on Drinkware. The category should inflect positive in the fourth quarter, but do you see the potential for the U.S. market to return to growth? Or is it going to be more of an international story? Michael McMullen: Phillip, thanks for the question. So I'd say both your questions are related. So as we look at Q4 and where we sit today, I mean, we've been -- all year long, we've talked about strength in C&E -- and we saw that in Q3. We had a really good bags quarter, really strong soft coolers quarter and an overall really strong C&E quarter in both the U.S. and international. In Drinkware, really strong outside the U.S. in Q3. And then in the U.S., it played out about like we expected. But as we've consistently said, when we look at the innovation we have coming, when we look at the growth outside the U.S. that we think can continue and we start to comp some of those when the market dynamics really started in Q4 of last year, we expect to see a stabilization of the Drinkware market in the U.S. So those are all the factors that sort of combine to say that, hey, we believe we can get Drinkware back to growth in Q4. We believe we can continue the growth we've seen in C&E, and that should lead to a better outcome in the U.S. market. When you run the math, it kind of says the U.S. based on our guide, will definitely improve as we look to -- from Q3 to Q4. And I think it's all those factors that we've talked about. You mentioned consumer demand being choppy. I mean, really, like Matt mentioned, consumer demand was -- at a sell-through level was strong in Q3, and we feel good about that as we head into Q4. On the DTC side, I think the choppiness comes from across channels. So Amazon and corporate sales have been strong. U.S. e-commerce has been a little more challenged. But overall, we feel good about where we are as we head into Q4. Operator: [Operator Instructions] Our next question comes from Peter Keith, Piper Sandler. Alexia Morgan: This is Alexia Morgan on for Peter. I was wanting to follow up on the previous question. So international in Q4 implies a pretty big step-up just to get to the 15% to 20% guidance for the year. I was wondering what gives you confidence there on that step-up? And then also what level of international growth is sustainable to support your provided long-term algo for high single to low double-digit sales growth? Michael McMullen: Yes. Alexia, thanks for the question. So I'd say you are correct. So the guide would imply a step-up from Q3 to Q4. But I'd say a couple of things. One, the step-up is in and around the levels that -- of growth that we have seen over the last 6 quarters or so last year and in the first quarter of this year. So it's not like we're not getting back to levels where we've been before, number one. Number two, all year long, we talked about some timing differences related to international wholesale that are -- growth is going to move around a bit. You saw the return of us back to double-digit growth in Q3, and we expect that momentum to continue as we go into Q4. But also, just like in the U.S., we have some consumer demand reporting that gives that, that has remained strong outside the U.S. And so when we combine all those factors together, it gave us confidence that we can get back to the levels that we would need in Q4 in order to hold our guide for the year. In terms of long-term international, I mean, obviously not giving any guidance beyond 2025 this year or this quarter. But what I'd say is we believe when we look at the opportunities that we have in Europe, that we have in Asia, both in Japan and beyond that, based on some of the comments that Matt made this morning, we still believe we have a significant opportunity in front of us. And the word we've used is we believe we're on the front of the wave in terms of what we think the opportunity is outside the U.S. Operator: Our next question today comes from Joe Altobello, Raymond James. Joseph Altobello: I want to quickly touch on tariffs. You have a net tariff impact this year of about $0.40 per share. I realize you're not giving any kind of guidance for next year, but just trying to get an idea of what that might look like going forward. Michael McMullen: Yes. Thanks for the question. So I mean, you're right. We're not giving any kind of guidance beyond 2025 on this call. There are also a lot of moving pieces. So on one hand, you've got the rate on imports into the U.S. from China coming down recently, won't have a material impact on 2025 given the timing. Like we've said, for most of this year, China has been at 30%. And by the end of this year, we will largely be out of China for goods imported into the U.S. We will see an annualization of the full year of impact of tariffs in other countries outside of China. I'd say the other thing is, given how we've diversified our supply chain, we now have the opportunity to look at where we produce and optimize our sourcing based on where tariff rate sits. I mean there are some countries that we -- in which we source that do not currently pay a tariff. So I think next, we'll look for ways to optimize our costs, continue to partner with our suppliers. And then lastly, we'll also look at price. And so there are a lot of pieces moving around, and there's work for us to go do that we're going to continue to go do. So not giving guidance specifically beyond this year other than to say it's something that we're watching closely and that we will -- it's a -- remains a significant priority for us, and we'll have -- and we'll continue to work it. Joseph Altobello: That's helpful. And just kind of quickly looking at this quarter, were U.S. sales up if you exclude Drinkware? Michael McMullen: Well, I think -- yes, I mean, we didn't give the specific number, but we talked about C&E strength in the U.S. and international. So I think it's fair to say that U.S. sales were up if you exclude Drinkware, correct. Matthew Reintjes: The only thing I would add to that is if you really think about, and you'll see it in our revised investor deck, a more blown out view of our product portfolio. But really, the drag in our Drinkware business is pretty concentrated around that trend-driven last couple of years style. And the overall strength in our Drinkware business is what gives us confidence in the expansionary strategy, the innovation, the growth we're driving, the relevance to consumers. So it's -- I think that's why we feel good about the forward look. Operator: Our next question today comes from Molly Baum, Morgan Stanley. Molly Baum: I want to follow up on your thoughts around 4Q, specifically the holiday season. I know you mentioned that you had a softer Prime Day versus last year. So can you maybe give a little bit more detail on what drove this? And if that's -- if there's any read-through there on what we might expect for some of these key holiday selling periods? Michael McMullen: Molly, so yes, we mentioned overall strength on Amazon despite a softer July Prime Day versus the prior year. And we -- from what we saw and that we weren't alone in sort of seeing that. So I think the holiday time period is different. It's not one event. It's over a longer period of time, which I think plays to our advantage a little bit because that's what we saw in Q3 was that just sort of sustained demand -- strong consumer demand on Amazon. But it's just one piece of our overall growth story in Q4. Obviously, our dot-com business and what we have planned around gear garage is always an important piece of our Q4 business, and we feel good about where things stand and what we have planned. We will -- obviously, we believe, given the overall strength on Amazon, we're set up for a good holiday season. And then that's -- we're just talking to U.S., obviously. I mean we feel really good about where our international business is the acceleration that we have planned in Q4. So I don't think you can take a direct read-through from Prime Day and apply it to the holiday season because I think there's just too many other factors at play. Operator: Our next call -- sorry, our next question today comes from Noah Zatzkin, KeyBanc Capital Markets. Joseph Altobello: I guess just on kind of the M&A front, I think there was kind of a thought some time ago that maybe tuck-ins would kind of play a role in how you're thinking about the long-term algo. So how do kind of tuck-in acquisitions factor into the high single-digit to low double-digit long-term growth rate? And then just in general, kind of how are you thinking about M&A more near term? Matthew Reintjes: Thanks, Noah. I appreciate the question. A couple of things I would say. We obviously talked a lot on the call, and you have seen over the last couple of years, our capital allocation priorities. And disproportionately, it's been a really strong sign in the buybacks that we've completed. And as we communicated on the call with the upsized target for this year, it would be $500 million over the last 2 years in buybacks. And I think that shows the conviction we have in what we're doing at YETI and what's in front of us. As it relates to acquisitions and that, what I would call, very targeted deployment of capital around technologies, designs, IP is really all innovation focused. And so if you go back and look at the types of things that we've done, it's not tuck-in in the traditional sense of the tuck-in of a business or a brand, it's really about access to capabilities so that we can accelerate the innovation pipeline. We did it with the expansion we've had in bags underneath the YETI brand, and you saw that starting earlier this year, and we're excited about what's to come in '26 and beyond. In the cast iron, we had an opportunity to get a small niche design, make it a YETI design, enhance it, bring it to market and really set a marker out there in the market for what we can do in this expanding cookware and culinary world. And then the Shaker bottle, similarly, we had -- we got a chance to get something that was unique in the market from a design perspective, enhance the product and bring it back to the market, which is what we communicated will happen in Q4. And so those opportunities, I look at them as adjuncts to the investment we make in the people, technologies, processes we have inside the business. And so we'll continue to look for those which sort of jump the curve on getting product to market, jump the curve on technology, expand sort of our open innovation, our acqui-hire thought process. But suffice it to say that our forward look on this business is driving growth underneath the YETI brand that we think complements our channels to market, complements our brand extension strategy and really addresses consumer needs and consumer opportunities we see. Operator: Our next question today comes from John Kernan, TD Cowen. Krista Zuber: This is Krista Zuber on for John. Just on the international sort of bigger picture, with the double-digit growth you've demonstrated through much of this year and the international mix of sales now around roughly 20%, how are you thinking about the margin profile of this business relative to the U.S. or the company average overall? And then just secondly, on the product launches, you've talked about the opening of the Thailand Innovation Center, complementing the Austin center. Now you're adding Vietnam. You're on track to exceed roughly 30 new product launches this year. Is that how we -- how are you or thinking about the run rate of launches going forward? Michael McMullen: Appreciate the question. I'll take the first question, and then we'll pass it to Matt for the innovation question. So international margins, so what we've said is that there's some channel and product mix differences across the different regions. But from a gross margin perspective, when you normalize for that, our gross margins are pretty similar to the U.S. outside the U.S. versus the U.S. And so from an operating margin standpoint, I really think it kind of varies by where the region is in its maturity. So regions where we've been in for a while, Canada, Australia have really strong profitability, places like Europe and Asia where we're building, where we're growing brand awareness, we're investing. Obviously, it's a little different. So I think you'll start to see as Europe continues to grow and become a more mature piece of our business like Australia and Canada, then I think you'll see that start to -- Europe start to sort of progress toward where Australia and Canada are, but then you've got our efforts in Asia where we're going to be investing as well. So that's kind of how I would think about it. There are a lot of moving parts in there, but it's really -- from a gross margin perspective at a channel level, they're very similar. Matthew Reintjes: What I would add is as we think about the cadence and pace of innovation, it's really less about 30 this year versus 35 next year versus 25 or whatever the numbers may be last year. It's really about opportunity we see, product market fit, opportunity to merchandise in our existing channels to market, opportunity to expand our channels to market, intercept the consumer at a new buying occasion. But what I think Thailand, Vietnam, Bozeman, Denver, Austin offer us is immense capabilities to respond to market opportunities we see to bring innovative products to market, to control our innovation, to partner with the best contract manufacturers around the world to bring it to the consumer and our partners in the most efficient and effective manner. And so I think everything from ideation to the innovation, to the development to ultimately the sourcing and execution, we're building capabilities to take advantage of the global opportunity that we see. And that includes the continued penetration growth, deepening of our relationships in the U.S., which is an incredibly important market to us and the expansionary opportunities that the rest of the world offers. Operator: Our next question today comes from Anna Glaessgen from B. Riley Securities. Anna Glaessgen: I have kind of a bigger picture question, thinking through the long-term algo, kind of why reiterate that high single-digit to low double-digit growth now? And to what extent is -- or thinking through balancing the investments required to drive the innovation required to get to that growth versus maybe seeing some more OpEx leverage in the out year or years beyond? Matthew Reintjes: Anna, thanks for the question. I'm going to do my best. I think I got most of that, but let me kind of take a crack at it. And if you have a quick follow-up, we'll address it. The timing is when you really think about we're building this brick by brick. We've always been product focused. We've always been brand expansionary focused. We've always talked about the international opportunity. I think what we have seen build over the last number of quarters and really kind of came together in Q3 is the kind of foundational opportunity we continue to see in the U.S., the global opportunity we're seeing outside of the U.S., the proof points of the reach the brand is getting in this next evolution and connection as we talked a lot about sport and the innovation both the investment we've made, which we think is a very scalable investment that has a high return, but the strength of our existing portfolio to continue to drive us forward and the impact of the expansionary growth. And so it was a great time for us to start that build towards this moment, and then we'll go into our 2026 guide in the Q4 call when we're back together. And then we'll go into an Investor Day. And all along, what I expect from YETI is what we have seen since we went public in 2018, which is we just continue to execute. We continue to build this brand the right way. We continue to innovate and lead the market, and we continue to find new market opportunities around the world. And I think that's as simple as the rationale is, and we think the algorithm builds into that. Operator: Thank you. There are no further questions at this time. I will now turn the call over to CEO, Matt Reintjes. Please go ahead. Matthew Reintjes: Thanks, everyone, for joining us. We look forward to connecting on our fourth quarter call. Have a wonderful rest of the week. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the DIRTT Environmental Solutions Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Kristin Bradfield, Senior Vice President of Marketing and Communications. Please go ahead. Kristin Bradfield: Thank you, operator, and good morning, everyone. Welcome to today's call to discuss DIRTT's third quarter 2025 results. Joining me on the call today will be Benjamin urban, CEO; and Fareeha Khan, CFO. Today's call will include forward-looking statements within the meaning of applicable Canadian and United States securities laws. These statements are based on the company's current intent, expectations and projections, they are not guarantees of future performance. In addition, this call will reference non-GAAP results, excluding special items. Please reference our Form 10-Q as filed on November 5, 2025 with the Securities and Exchange Commission, or SEC, and other reports and filings with the SEC for information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. I will also remind you that this webcast is being recorded, and a replay will be available early next week. I will now turn the call over to Benjamin. Benjamin Urban: Thank you, Kristin, and good morning, everyone. As referenced in our outlook, Q3 marked a shift back to normal business with improving margins and a return to positive adjusted EBITDA. Our growth strategy is showing strong results, which I will highlight later in the call. I will now turn it over to Fareeha to discuss the financials. . Fareeha Khan: Thank you, Benjamin, and good morning all. Please note that we have issued a press release discussing our third quarter 2025 results and have also provided additional analysis in a supplemental presentation. Both documents are available on our website. Revenues for the third quarter were $37.7 million, a decrease of 13% compared to the same period in 2024. We entered the third quarter of 2025 with 12-month forward pipeline 18% higher as compared to July 1, 2024, but experienced higher-than-normal order delays due to job sites not being ready, when such order delays or pushouts occur, order dates typically move out 1 to 12 months. Gross profit margin decreased from 38.8% of revenue in the third quarter of 2024, and to 30.4% of revenue in the third quarter of 2025. But sequentially compared to Q2 2025 grew from 27.8% to 30.4% and despite slightly lower revenue levels. This sequential growth is due to ongoing realization of the 5% price increase announced in March 2025 and the 3.5% surcharge announced in June 2025 to negate the impact of tariffs. Tariff costs this quarter were $1.9 million. There has been no change on tariff rates and materials impacted by tariffs this quarter. Operating expenses for the third quarter, excluding reorganization costs, stock-based compensation and impairment charges were $11.8 million, a 17% decrease from the same quarter last year of $14.2 million. The decrease primarily relates to a $1.1 million decrease in professional services and a $0.8 million decrease in compensation costs. I will now comment on our reorganization costs. Earlier this year, we set up a transformation office to accelerate DIRTT's strategic transformation by positioning construction services for new market access and continued share gains, streamlining operations and implementing margin-oriented best practices. We hope to realize cost efficiencies and also introduce future operating leverage in the business as top line scales over time. The reorganization costs to date primarily comprise of termination costs and onetime consultancy costs. Net loss after tax for the third quarter of 2025 was $3.5 million, compared to net income after tax of $7.1 million for the same period of 2024. Net loss after tax was impacted by a $5.3 million decrease in gross profit, a $2 million increase in reorganization expenses, a $7.5 million decrease in gain on extinguishment of convertible debentures, offset by a $2.5 million decrease in other operating expenses, a $1.1 million decrease in interest expense and a $1 million increase in foreign exchange gain. Adjusted EBITDA for the third quarter of 2025 was $1.2 million, a decrease of $2.9 million from $4.1 million during the third quarter of 2024. The decrease is as a result of the gross margin and operating expense variance explained earlier in the call. With respect to our balance sheet, the quarter finished with $26.1 million in unrestricted cash, an increase of $3 million from June 30, 2025. Cash provided by operations was $4.4 million while cash used in investing activities, mainly capital expenditure, was $0.8 million. Cash used in financing activities was $0.4 million and primarily consisted of routine repayments of debt and repurchase of debentures and shares through the normal course issuer bids. Working capital decreased slightly from June 30 as a result of the previously mentioned results. Liquidity was $32.3 million as of September 30, 2025, including $6.2 million of availability under our ABL credit facility with RBC. We have not drawn on this facility to date. This quarter, we had minimal activity in our debentures NCIB and shares NCIB program. We renewed our original debenture NCIB program for an additional year. To date, we have repurchased 5.6 million common shares through the shares NCIB and 0.8 million convertible debentures through the debentures NCIB and renewed NCIB program in aggregate. Looking forward to the final quarter of the year, we are pleased to see our pipeline converting into revenue. Our 12-month forward sales pipeline, excluding leads at October 1, 2025, was $333 million, an increase of 20% compared to $278 million at January 1, 2025. For the fourth quarter of 2025, we are expecting revenue between $48 million and $52 million and adjusted EBITDA between $5 million to $7 million. We are also pleased to announce on October 28, 2025, we entered into a nonbinding term sheet with the Business Development Bank of Canada, or BDC, for proposed financing of up to CAD 15 million. We expect to use the proceeds to partially settle the January debentures. The remaining January debentures of CAD 1.6 million would be settled through our cash balance. Advancement of funds remain subject to, among other things, completion of due diligence by BDC. In addition, on November 4, 2025, we also extended our RBC ABL facility by an additional year. This concludes the earnings and financial position report. I will now turn it back to Benjamin to discuss DIRTT's business updates. Benjamin Urban: Thank you, Fareeha. While 2025 has presented a number of macroeconomic challenges, we have faced these challenges head on and continued to advance our strategic growth plan. Recent contract wins and pipeline growth demonstrate the strategy is working. We recently shared news of a project with Google at the Caribbean campus in Sunnyvale, California. This marked more than 250 projects with Google during a 10-year relationship. Our repeat customer business is incredibly high, in our current 12-month pipeline, 49% are customers we have previously worked with demonstrating confidence of satisfaction and trust in what DIRTT delivers. We are also seeing success with new clients. During the past quarter, we secured over $3 million with Exxon for a project expected to begin installation next quarter, adding to our extensive list of Fortune 500 clients. DIRTT has also been evolving how we pursue and deliver projects. Last year, we established a team called Integrated Solutions to explore expanded revenue opportunities. During Q3, we formalized this team as DIRTT Construction Services to better reflect their full scope and capabilities. They provide preconstruction, design, build assistance, targeted estimating, self-perform installation and more, elevating DIRTT from manufacturing to a multi-trade prefabricated interior construction company. By expanding our service offering, we are able to take a more proactive approach in how we pursue projects and maximize the scope we can capture per project. It also gives us a significant competitive advantage over other manufacturers who rely exclusively on third parties to execute their products. DIRTT Construction Services is designed to complement our existing partner distribution network. We can provide more technical capabilities to help select partners bid on and win larger projects or helpful gaps a partner may have in their team. And we're already seeing success. Some of our largest recent projects were secured using this collaborative approach, including a $13 million project with a large semiconductor company. Construction Services also enables DIRTT to pursue projects in markets without partner coverage in sectors that require specific expertise or for our existing national account strategy. Large clients with a national footprint, executing projects in multiple regions. This expanded commercial capability is a key driver of our growth strategy. After 3 challenging quarters, we are seeing positive momentum from Q4 onwards, validating the strategy is working. We ended Q3 with a 12-month forward pipeline of $333 million a 20% increase from the beginning of the year, continuing the strong steady growth we've seen throughout 2025. This growth is fueled by our continued investment in innovation marketing and further developing the Construction Services capabilities to capture more of the total addressable market. Within that 12-month pipeline, $50 million is through the Construction Services division. To further this growth, we have invested in staffing to support execution as Fareeha discussed earlier, and marketing for awareness and increased customer acquisition. Early success indicates the potential is incredibly strong. We continue to focus on growth in our partner network. We are in the process of our annual retiering to identify our most engaged partners and those most positioned for growth. This tiering delineates the level of investment, services and business growth opportunities we provide to the network. Our highest tier, platinum receives the most, including more collaboration on construction services projects and the potential for market expansion. For example, we recently expanded a partner into Kentucky based on outstanding performance and capabilities that directly met our need in the new market. In key markets with existing strong distribution partners, we have invested in additional business development resources. In Q3, we added new sales representatives in New York, where there is significant growth across all verticals. Toronto, where commercial is strong and government and national accounts opportunities are expanding. Vancouver, to support growth in commercial, education and multifamily. And Denver to drive growth across all verticals. Each of these markets present opportunities such as significant presence of large self-performing general contractors and demand for key DIRTT value propositions like lower labor cost, compressed construction schedules and sustainability. We also continue to bring new partners on board and diversify the types of partners we work with. During Q3, 2 of our top 5 performing partners were new to DIRTT in the past 24 months. And 3 of the top 5 are outside the traditional furniture fixtures and equipment profile that we have historically worked with. All of this contributes to the continued transformation of how we do business and capture expanded scope. Our business transformation goes beyond our commercial strategy. We have continued to advance this process through talent initiatives and operational efficiency. A key driver of our success has been the quality and reliability of the products we manufacture and deliver to the market. But we need to continually innovate and identify the pain points and unmet needs of our customers to deliver solutions that solve these challenges. In Q3, we brought a new Vice President of Product Development and Strategy on board to lead our product innovation strategy for growth. Michael Mullen brings more than 25 years of strategic product design and development experience, with expertise in manufacturing and innovating to meet customer needs. We are excited to have Michael on the team and look forward to his contributions. As always, safety is a top priority for DIRTT. Our total recordable incident rate at the end of Q3 was 0.99, which is 75% below our industry standard. I'm also proud to share that DIRTT has been recognized as Canada's safest manufacturing employer in the industrial sector by Canadian occupational safety. This award reflects the strength of our safety culture and our commitment to operational excellence. Our safety team works diligently to make this possible and our manufacturing team members embodied DIRTT's dedication to safety every day. Lastly, an update on the Falkbuilt litigation. The 8-week trial covering multiple allegations is scheduled to begin on February 2, 2026. DIRTT is pursuing damages in both the United States and Canada, which could exceed $50 million. This trial will be underway when we report year-end earnings, and we will provide another update at that time. In closing, I would like to thank our entire DIRTT team for their dedication to continuous improvement and transformation, which requires reimagining how we do business, and innovating to be steps ahead of the market and competition. This takes a highly strategic collaborative process, and our team has risen to the challenge. Thank you for joining us today. I will now open the call to questions. Operator: Our first question comes from Julio Romero with Sidoti & Company. Julio Romero: Excited to be joining the call. To start, can you maybe walk us through how customer behavior has trended over the course of July, August and September in terms of decision-making and delays. And then also, could you share any initial read-throughs with respect to customer behavior in the month of October? Fareeha Khan: Yes, Julio, I'll take that question. So in Q2 we had seen a pause in decision making. But that customer behavior changed in Q3, and we felt everyone was getting back to business. The push outs we had in Q3 related to sites not being ready. The jobs have not been ready, which in a way is a good sign, right, as everyone is getting back to work. So going into Q4, we see everyone getting back to normal. So we see that as a positive development. Julio Romero: Got it. Yes, that makes sense. Very exciting to hear the continued momentum within the construction services initiative with $50 million of the pipeline relating to that initiative. Can you help us unpack some of the drivers of the momentum you've seen there? And then secondly, how big of a role has new product offerings such as the 1-hour fire-rated walls played in that momentum? Benjamin Urban: Yes. No, that's a great question, Julio. We are seeing continued expansion in that Construction Services division. We've also been balancing it as we've scaled, right, such that we were able to service that work that's been growing in it. Currently of that $50 million that we're showing in pipeline for 2026, there's actually not that much in it. It is fire-rated partitions. There's a bit, but we see that as a larger opportunity as we get into the end of 2016 and into '27. Julio Romero: Got it. Very helpful there. And then last one, if I may, is just to the extent that you can, how would you have us think about how 2026 could look like even at a high level and also what the potential contribution could be from Construction Services for '26? Fareeha Khan: So Julio, the way we would look at it, I think the pipeline is a good indicator of what's happening. So if you look at the year-on-year pipeline increase, it's $80 million. It's quite a significant increase. So I think that will be a good indication of what's to come. I think the collaboration between Construction Services and our construction partners is going to open more opportunities for us. And we hope to see that converted to pipeline and to revenue going forward. Operator: Our next question comes from Nicholas Boychuk with Cormark Securities. Nicholas Boychuk: Going to break my question up here to 2 different time frames. I just want to make sure I understood Fareeha your comments here in the first part related to Q4 '25, the adjusted EBITDA outlook, is there anything unique that's occurring within that quarter that would say, point to that pent-up demand? Like how much, I guess, of that $5 million to $7 million EBITDA boost is related to the pent-up demand, large projects that are recognized in the quarter that maybe won't repeat. The real question I'm asking is, based on the operating environment that you see right now, is that $5 million to $7 million kind of what you should expect going forward? Or are there one-off items within that quarter? Fareeha Khan: So Nick, the way I'd look at it is -- so yes, we had higher push rates in Q2 and Q3. But if you look at Q3, the year-on-year revenue decrease was $5 million. Whereas if you look at our annual pipeline movement, the increase is $80 million, right? So there will always be some push outs that go into the next quarter. But the bulk of the Q4 number is from growth. Q4 is historically always our highest quarter. So I hope that explains the revenue part of it. From an adjusted EBITDA perspective, there's a fixed cost leverage as well. Whenever we have higher revenue, you'll see our AGP goes up. So there's definitely a benefit there because of the efficiencies of the factory. Through the transformation office, we are really focusing on the SG&A side as well to find back-office efficiencies. And the key focuses there are how do we do -- how can we be more efficient, faster, better and be ready for any scale-up of revenue growth. So the adjusted EBITDA, I would not say is a surprising figure based on that revenue level. And at that revenue level, we should be able to sustain that adjusted EBITDA level. Nicholas Boychuk: Understood. And you brought up 2 themes of my next follow-up questions. On the operating leverage specifically, you mentioned again in the press release and the MD&A that the capacity of both your facilities is about $400 million and that you will get that operating leverage. Once you start to scale revenue, how much of that leverage can you extract? Where do you ultimately hope gross margins land in '26 and '27? Fareeha Khan: So there are a couple of things there, and there's so many variables in gross profit, but I'll try to answer that the best I can. So we have $400 million of manufacturing capacity. Of that, probably about 15% is -- of our COGS is straight up fixed costs. So when you have higher revenue, there are more opportunities for us to do things more efficiently, run the plants at an efficient level. So we benefit from that. Our ideal gross profit, I mean, we can always have ideals. But if you go back to last year, our AGP was 38%. So we know we can do it. Now things that will affect AGP would be what's happening with the price of raw materials. But again, even for that, we are fairly proactive. We watch the market. Our supply chain team is actively looking at prices, looking for ways to be more efficient. We can always mitigate the impact of rising raw material prices. This year, you know the tariffs did impact our adjusted gross profit. But again, going into Q4 and next year, based on the prevailing tariffs, we feel we have put in place enough actions to mitigate that effect. So I would use last year's AGP as a reference point of what we can be. And of course, we're going to continue to look for ways to improve that adjusted gross profit. Nicholas Boychuk: And then you mentioned as well the $50 million contribution into the pipeline from the customer services team. How should we be thinking about that from a quality standpoint, like if that's more internally funded or found opportunities, is there a change in quality or likelihood of conversion. So I guess of the $333 million total pipe, is it likely that the next 12 months might see a little bit higher historical conversion than the typical 45% to 50%? Benjamin Urban: Yes. I'll take that. It's an astute observation there. Typically, when we are in control of that pipeline and the construction services projects, we do see a greater conversion rate on those opportunities because we are closer to that. Of that $50 million and what that represents in the pipeline moving forward. And just a reminder, right, that's only our 12-month pipeline. We aren't disclosing the full pipeline. And many of the projects that we're pursuing now could also be into 2027. So the full pipeline is larger than that altogether. But even within that Construction Services at a point in time next year, Construction Services will represent more than 10% of our overall revenue. So we will disclose that independently. And then you will also be able to see the conversion rates associated with Construction Services against the pipeline to give you a better gauge on forward-looking revenue. Nicholas Boychuk: And then the last one for me on the transformation office and the termination benefits this quarter. That was obviously a little bit of an uptick in expense. Can you maybe walk through a little bit what it was exactly you guys have done and what you're hoping that this transformation office strategy does moving forward? Benjamin Urban: Yes, for sure. There has been a bit of an uptick in expense associated with the transformation offices. We brought in additional resources to accelerate that process. And really at its core, that transformation partnered with our corporate strategy is really coming at it at 2 ends. One is how do we take down the additional capacity that we have through growth on the top line on the commercial side, all the while driving efficiency throughout the business such that we can get that expansion in AGP and EBITDA, right? So the -- I think you'll start to see some returns. We are already seeing it internally, efficiencies that are driving out of that transformation. And we have been pursuing this for coming up on a year now. So a lot of the hard work that our team has done to identify where the opportunities reside has now transitioned into full execution of that transformation to drive that expansion. Operator: This concludes our question-and-answer session. Thank you for your participation. You may now disconnect. Everyone, have a great day.
Masataka Kaji: Good evening, everyone. Thank you very much for taking precious time to attend Ajinomoto's Fiscal 2025 First Half Earnings Call. We thank you very much for your time this afternoon. I am Kaji of the IR office. I'll be serving as moderator. Let me first introduce the participants from the company. We have Representative Executive Officer, President and CEO, Mr. Nakamura; Representative Executive Officer and Executive Vice President, Mr. Shiragami; Executive Officer and Senior Vice President, General Manager of Corporate Division, Mr. Sasaki; Executive Officer, Senior Vice President, General Manager, Food Products Division, Mr. Masai; Executive Officer, Senior Vice President, General Manager, Bio & Fine Chemicals Division, Mr. Maeda; Executive Officer and Vice President, in charge of Finance and Investor Relations, Mr. Mizutani; Executive Officer, Vice President of Supervision of Frozen Foods, Mr. Kawana ; Executive Officer in charge of Diversity and HR, Ms. Kayahara; Corporate Executive General Manager, Bio-Pharma Services Department, Bio & Fine Chemicals Division, Mr. Otake. 9 members from the company are present today. For today, at the outset, Mr. Nakamura will explain the overview of the first half results for the year ending March 2026 and also the corporate value enhancement initiatives, after which we would like to move on to the Q&A session. We expect to finish the entire meeting in about 1 hour and 30 minutes. The materials to be used for today's presentation is already posted on the IR information site of our corporate home page. Please look at them as adequate. Please be advised that this session will be recorded, including all the way to the Q&A session to be posted on the company's IR site later. Now without further ado, we would like to begin the meeting. Mr. Nakamura, the floor is yours. Shigeo Nakamura: Now I, myself, Nakamura, will make presentation. What I would like to talk about is 2 points. Both sales and business profit in first half of FY 2025 remained at the level of previous year, while progress toward the full year plan is slightly behind schedule, we are quickly addressing the issues faced in Q2 FY 2025 and aim to steadily achieve our forecast for FY 2025. In our efforts for further growth and evolution of ASV initiatives, we have identified issues, set out a direction for actions and worked out concrete strategies. We will evolve our activities to achieve the 2030 Roadmap and we'll tackle the creation of innovation to achieve sustainable growth over the medium to long term. This slide presents a digest of first half financial results of FY 2025. Sales was JPY 738.8 billion, nearly unchanged year-on-year. Revenue increased in Healthcare and others with the impact of the sale of Althea excluded as well as in Seasonings and Foods, but decreased in Frozen Foods. Business profit was JPY 86.7 billion, nearly unchanged from the previous year. Profit attributable to owners of the parent company increased 2% from the previous year. We are thoroughly committed to achieving bottom line profit as well. This slide shows an analysis of the changes in the business profit in the first half of FY 2025 and of FY 2024. The change in GP due to changes in sales decreased by JPY 2 billion due to decreased revenue. The change in GP due to change in GP margin in both the Food and Healthcare and others businesses contributed to improvement of the GP margin and GP increased by JPY 10 billion overall. In line with our 2030 Roadmap strategy, we'll firmly control SG&A expenses while undertaking investments aimed at future sustainable growth. This slide shows a year-on-year analysis of changes in business profit by segment for the first half. For reference, at the bottom of the slide is analysis of changes for the full year forecast from the previous year's results. In the first half, profit decreased in the Seasonings and Food and the Frozen Foods businesses. Profit increased in the Healthcare and others business. While progress appears to be lagging versus the full year forecast, we expect an increase in profit in the second half. Looking closely at the 2 businesses where profit decreased, the Seasonings and Foods was affected primarily by a profit decline in Umami seasonings for processed food manufacturers and oversupply in the market due to increased production and new entry by major Chinese manufacturers. In the Frozen Food business, key reasons for the decrease were the inability of home use frozen foods in Japan to fully meet the diversifying needs of consumers and the loss of mainstay product market share to private brands, et cetera, following price increases with the result of sluggish sales. Later slides will look at the current situation and our comeback strategy. In Healthcare and others, business profit increased significantly in the Functional Materials. Profit also increased in Bio-Pharma Services & Ingredients. This slide shows our forecast for FY 2025. Due to the shift of promotional activities for Frozen Foods in North America to the second half and expectation of a significant profit increase for CDMO business in the second half, sales and profits are projected to rise in the second half. In Umami seasonings for processed food manufacturers and frozen foods in Japan, as areas in which progress is behind schedule will act agilely to recover sales and profit in the second half. At the same time, amid positive market conditions, both sales and business profit in the Functional Materials grew to 120% of the previous year's levels in the first half. We will continue to accelerate growth in the second half. We aim to achieve our forecast for the group overall. This slide shows progress toward ASV indicators of the 2030 Roadmap in the first half of FY 2025. The organic growth rate remained 1.9%, but EBITDA margin steadily grew to 17.5%. These are the ASV indicators for each segment. This slide breaks down sales into volume and unit prices for Sauces & Seasonings and Quick Nourishment both in Japan and overseas with an analysis of change in business profit. Sales in Japan in the first half were 107% year before, and volume was 94% and unit price was 113%. Within this, sales of coffee grew to 120% versus the previous year due to price increases despite a decrease in volume. Consumer frugality increased and second quarter was also affected by extremely hot weather, but sales of Food Products in Japan, excluding coffee, exceeded last year's results, achieving 101% in overall sales with volume at 99% and unit price at 102%, responding to high raw material costs and the weaken with price increases. Overseas sales increased to 103% versus the previous year. Volume remained flat, while unit prices rose to 103%. Volume in Sauce & Seasonings achieved low single-digit percentage growth. In addition to Umami and flavor seasonings, both exceeding last year's levels in terms of growth and volume and unit price. We achieved solid growth for menu-specific seasonings. We realized unit price growth not only through price increases, but also by increased sales of high value-added products. On the other hand, RTD coffee, sensitive to economic trends, saw a decline in volume. In SG&A expenses, we focused investing in advertising to enhance our future brand value. As a result, business profit increased by JPY 2.5 billion, coming close to our full year forecast of JPY 3 billion. Now I will look at results by subsegment, beginning with combined overseas and Japanese results for the Sauce & Seasonings business. This business, a cornerstone of our group, is resistant to changes in the macroeconomic environment and is steadily growing sales. Business profit margin fluctuated significantly during the COVID-19 pandemic and in FY 2022 fell to the level of 10 years earlier. Due to soaring raw materials prices due to initiatives such as repeated price increases and increased sales of high value-added menu-specific seasonings and also introduction of new products, business profit margin in the first half of FY 2025 exceeded that in FY 2019, which was before the pandemic, we'll continue working to increase sales and profit margin to support the stable growth of Food Products business. This slide looks at Umami seasonings of processed food manufacturers. In the first half, revenue and profit decreased in MSG and nucleotides. This was mainly due to both increased production and new market entry by major Chinese manufacturers, leading to oversupply in the market. This business has suffered drops in profit in the past due to increased production by competitors and high prices of raw materials and fuels, we see the decrease in revenue and profit shown here as originating in a cyclical phase, not a change in business structure. We believe we can restore a business foundation that generates stable profits. Umami seasonings for processed food manufacturers is an important business that supplies main ingredients for B2C seasonings. In April this year, we established the MSG business collaboration promotion department as part of our Food Products business orchestration and further strengthen the linkage between B2B and B2C. By centralizing the management of B2B and B2C businesses to optimize company-wide operations, the MSG business aims to achieve sustainable growth and maximize profitability. We also actively engaged in protecting our intellectual property, including filing lawsuits against infringement of our MSG manufacturing patent, an intangible asset of our group to maintain our competitive advantage. We also use our proprietary technologies to enhance productivity and cost competitiveness. With these measures, we will secure our competitiveness and advantageous position to grow continually. Next, Frozen Foods. The issue in Frozen Foods in Japan is sluggish sales of home-use products. Strong performance continues in restaurant and industrial use products for which we have narrowed our product strategy targets and channels as well as in the Aete frozen lunch box within D2C services that meet niche consumer needs. In particular, Aete is expected to achieve growth with annual sales projected to reach billions of yen. However, our home-use products, which enjoy strength in mass production have been slow to fully meet the diversifying needs of consumers. Following price increases, our mainstay Gyoza products lost over 10 percentage points of market share, primarily to private brands. Amid increasing consumer frugality driven by rising living costs since September, we have been revising our pricing strategy under awareness that we have not been providing products at prices that meet the needs for cost effectiveness. Results have quickly become apparent. In September alone, following a strategy revision, we regained the top share with an increase of over 2 percentage points. By recovering market share, we will further increase points of contact with consumers to enhance corporate value for the Ajinomoto brand. In our mainstay Gyoza products next spring, we'll introduce revised products intended to balance product strength with profitability. We'll work to recover share and strengthen our profit structure. In the medium to long term, we'll reinforce the consumer perspective for Gyoza and for home-use products as a whole, expand a new lineup of products with those that meet consumer needs and revitalize the business. Heading toward 2030, this business will contribute to the growth of the Food Products business by increasing sales to a CAGR of about 3% and business profit to about 7%. This slide deals with Frozen Foods in North America. In the first half, both sales and profit declined year-on-year even on a local currency basis. The main factors are transient, the U.S. tariff policy and a timing shift in customer sales promotions to second half. We believe that we will be able to grow sales and profit in the second half. Our North American Frozen Foods is essentially a local production for local consumption business. However, some products are imported from group companies in China and have been affected by higher tariff rates. We have already responded with price revisions to these products and believe that we can improve profitability in the second half. Performance was also affected by the fact that sales promotions in large-scale distribution channels carried out in the second half of the previous fiscal year were not carried out in the first half of the current fiscal year and are planned to be carried out in the second half. The North American business structure has evolved into a stable one with structural reform and initiatives to expand TDC margin. While quarterly fluctuations may occur, we will solidly expand the business throughout the year and in the medium to long term. Previous slides looked at current status of the Food Products business and action taken. We recognize that in the first half, we faced the issues in the Frozen Foods in Japan and Umami seasonings for processed food manufacturers. We'll strictly manage these areas. As CEO, I recognize the importance of properly assessing the true nature of the issues. In addition to a return to growth through actions to address Frozen Food business in Japan and Umami seasonings for processed food manufacturers, we will achieve steady volume growth in the Food Products business overseas and with the recovery of profit margin to the pre-pandemic level in the Food Products business in Japan, we work to achieve the 2030 Roadmap. Next, about the Healthcare and other segment. I'll begin with Functional Materials. In the first half of fiscal '25, there was no change in the environment, i.e., the strong sales for AI servers, the recovery of PCs and general purpose services continued from 2024. Both sales and business profit grew year-on-year in excess of our expectations. Assuming no major changes in the environment, we expect to maintain strong momentum in the second half as well, sustaining a trend from the first half. We will work to grow our Functional Materials business, including in areas peripheral to the Ajinomoto Build-up Film by solidly fulfilling our responsibility to supply and meet demand by undertaking next generation and next-generation development within the ecosystem with the end users included. This shows the current status of Bio-Pharma Services CDMO by geographic area. Europe continues to perform well. India is also receiving many recoveries and contributing to profit. There's no change in the status of orders, and we expect this momentum will continue in the second half. The results for AJIPHASE in Japan are below the previous fiscal year. This is due to the shipments being moved back compared to the fiscal -- previous fiscal year when shipments were concentrated in the second quarter. However, the progress vis-a-vis the full year trend target remains unchanged. In the second half, we expect growth in AJIPHASE shipments and AJICAP to make a profit contribution. In North America, Forge is performing well, and I'll explain the details in the next slide. This slide is about Forge, the North American gene therapy CDMO that we acquired in 2023. Within the advanced medical care field of gene therapy, Forge has won the trust of customers and increasing its sales on the strength of its proprietary technologies. Projects are also progressing smoothly as sales grow dramatically and customers steadily increasing. The number of projects that have obtained IND approval, that is the U.S. FDA approval for the start of new drug clinical trials has also increased significantly following our acquisition. There are also projects aiming for early commercialization. Funds to cover the expenses of preparing for commercialization, which are scheduled for next year or later are being used earlier than planned. While this will weigh down short-term profit, we will pay these expenses ahead of schedule as investments to accelerate future growth and will aim for early commercialization. We will work to achieve the target of a positive EBITDA during the current fiscal year by doing our best to absorb these upfront costs through increased sales. And Mr. Otake, who is a member of the Forge management and well versed in on-site operation is present today, so we welcome your questions. AJICAP is a proprietary antibody conjugate ADC technology based on AminoScience. Our ADC drug discovery support services and manufacturing adopt an asset-light business model centered on AJICAP technology licensing. Last month, we signed 2 new AJICAP technical license agreements. One of these is with an undisclosed overseas companies and the other is with Astellas Pharma Inc. And we will continue to conclude new license agreements with companies in Japan and overseas with both major and venture enterprises and will contribute to develop AJICAP as a growth driver. With the aim of maintaining financial soundness and maximizing capital efficiency from 2025, we are changing our fiscal discipline indicator from previously net D/E ratio to now net interest-bearing debt over EBITDA ratio. We will continue to keep our financial leverage at an appropriate level, one that can contribute to organic growth and capital efficiency. Operating cash flow in the first half fiscal 2025 was JPY 93.2 billion, about JPY 11.5 billion higher than the first half of 2024. We will continually strive to improve our cash generation capability. As reported in our recent release on the construction of a new factory in the Philippines, we will steadily invest to grow organically, and we will also promote -- proactively invest in intangible assets that can create innovation. These are the key management indicators of our midterm ASV management 2030 Roadmap. We will aim to steadily achieve the guidance for fiscal 2025. Based on our foundation of sustainable business growth, we are working to further strengthen our cash generation capabilities or our earnings power. Building upon these achievements, we are promoting resource allocation with a focus on capital efficiency in line with our Roadmap. To further improve capital efficiency, we are actively implementing shareholder returns and striving to enhance our corporate value. In addition, we remain committed to achieving the goal set out in our Roadmap of tripling EPS in 2030 compared to the 2022 level, and we will make -- we will continue to make steady progress towards this target. Based on this approach, in addition to the JPY 100 billion share buyback announced on May 8, we are pleased to announce a new share buyback program of JPY 80 billion with the acquisition period starting from December 1 and until November 2026. Going forward, we will continue to enhance shareholder returns as we strive to further improve capital efficiency. From this slide, I would like to talk about the progress of our initiatives aimed at further growth of the Ajinomoto Group and the evolution of ASV initiatives. After I took office as CEO, we implemented a 60-day program from April to address the issues identified through cross-water analysis and constructed a framework for identifying management issues and clarifying the responsibility and what actions to take. The outcome was that we were able to lay the groundwork for change. Since July, we have discussed concrete strategies and actions based on this framework in what is called the Ajinomoto Group Executive Seminar or AGES, with a focus on executive training for all executive officers, corporate executives and corporate fellows. And the content of this is described on the next place onwards. At the AGES meeting, we discussed 7 topics. We first focused on the creation of the new businesses that will drive our mid- to long-term growth, and we discussed concrete strategies and actions in 4 key areas: health care, food and wellness, ICT and green. In the future, we will deepen discussions from the angle of 3Cs: continuity, change and challenges. I recognize that creating new businesses that comes after ABF is my duty as CEO. And I will establish an R&D budget that we can flexibly utilize, and I will leverage my experience of commercialization APF to nurture the seeds of new businesses. At the AGES, in addition to the 4 topics that I mentioned, we discussed 3 other topics aimed at maximizing management's resources, strengthening corporate brand, strengthening global management structure, strengthening data-driven management. For example, with respect to strengthening corporate brand, we examine the ways to increase brand value and so that it can lead to business expansion, taking into account the different conditions in each market and regions. Furthermore, to strengthen data-driven management, we will further promote the advancement of management through the utilization of data. We will confirm our progress on these topics at the Executive Committee meetings and lead it to actions. Our group will work as one to increase our corporate value. The Ajinomoto Group is working steadily to achieve our 2030 Roadmap by evolving our ASV initiatives while making regular course corrections to our medium- to long-term plans and group-wide strategies aimed at addressing the management issues. Also drawing on the discussions at the AGS meetings, we plan to begin discussions of our long-term vision during the current fiscal year, which is 1 of the 7 important management matters for the Board of Directors, and we'll make those discussions on the starting point for the post-2030 by looking at our strategy for achieving the 2030 Roadmap with the post-2030 plan. And by agilely making course recorrections, we will drive innovation and endeavor to create new businesses that can come after ABF. Here, I intend to demonstrate the leadership as positive energizers promoting this linkage. Next, about our human assets. Human assets are the most important intangible assets for the Ajinomoto Group. We are currently in the phase of strengthening our ability to plan and execute. The evolution of our human assets organization and corporate culture is vital in supporting this. During the time of former CEO of Fujie, we broke down the silos in Japan and achieved growth for the group. During my time, we will advance global integration and aim for further growth. Towards this end, we will appoint diverse human resources regardless of gender or region to overseas assignments or key positions. We will also develop career paths that cut across business departments such as Food Products and bio and fine chemicals and functional departments such as technologies and sales to achieve further diversity, evolution into a truly global company. That is the future that I envision for Ajinomoto Group. The preliminary scores for the 2025 engagement surveys are shown here. For ASV realization process, there were increases in every category, a 2-point increase from the previous fiscal year to 78 points. The score of empathy for our purpose rose to 94 because of the activities to promote empathy with our philosophy, which tie the purpose of individual employees to the Ajinomoto Group's purpose, contributing to the well-being of all human beings, our society, our planet with AminoScience. We see this increase as an indication that activities are steadily taking root throughout the group. The score of enhancement of productivity, which has been an issue, improved by 9 points to 28. Although the score remains low, we added a new question this fiscal year. I believe the unnecessary approvals are kept to a minimum in my daily work when making decisions. This question received a favorable response score of 78. While there are still many approvals required before decisions are made, we have confirmed that a certain number of employees do not necessarily perceive these approvals as unnecessary. We will continue to analyze the engagement survey and work towards further improvement. Innovation for the future is created by our human assets. Through the creation of ASV, we will strengthen our human assets and aim to become a company that can continue to create new innovation. This is the last message for myself. Even in an uncertain environment, we will properly recognize change, respond quickly and aim to achieve our 2025 guidance in a steadfast fashion. We will endeavor to achieve the 2030 Roadmap ahead of schedule through sustained growth in the Food Product business and dramatic growth in the Healthcare and others business, always maintaining a healthy sense of urgency. Aiming for growth beyond the 2030 Roadmap, we will further enhance corporate value by creating concrete strategies for realizing a vision and by sustainably driving new innovations. I believe that creating new innovation is my duty as CEO. The assumption that the present state will continue is the most dangerous thing that we could do. By always maintaining a healthy sense of urgency, we will sustainably grow the group. That's all for myself. Thank you very much for your attention. Operator: [Operator Instructions] The first question, Saji-san from Mizuho Securities. Hiroshi Saji: On Page 38, full year segment numbers, how to look at this? In first half so it was flat mostly. And the full year forecast has remained unchanged. So you have -- you are increasing -- expecting a significant increase in second half? As for CDMO in Healthcare, there's a good response. That's what you have explained. But especially for Seasonings and Sauces and Frozen Foods, I think this is quite deviant from the plan in the first half. So in the second half, to what extent you see the viability of your forecast? What will be the driver for increased numbers in the second half? Shigeo Nakamura: Can you -- do you want me to explain the second question? Well, thank you very much for your question, Saji-san. For the full year forecast, we haven't changed. In the first half, in the food business, the Umami seasoning for processed food manufacturers has seen a decline in profit, and there was an extreme heat in Japan. And because of a shortage of rice, there was some decline in sales and profit, but we have to provide some 9, 10, 11, they are all performing well. So we can increase the months in the second half. So for Bio and Fine, Maeda will explain. Sumio Maeda: First, as for food business, Masai will answer the question. So let me give you more details. First of all, as for Seasoning and Food, there will be 50 more in the second half compared to the first half. That's what you had asked about. As for Seasoning and Foods, there's B2B and B2C, and this is the total sum that we're talking about. As Nakamura said, especially for Umami seasonings for processed food manufacturers was quite challenging in the first half. So how to recover this is what I'm going to explain. And then I will talk about home-use seasonings. In the Solutions and Ingredients division or B2B business, the following 3 are the differences between first half and second half. The first one, is the special factors, extraordinary factors. So this year, Brazil Ajinomoto, the largest site for us in Brazil, in the first half, MSG new technology introduction was prepared and construction work was done, but we got stuck and introduction didn't go well, and we struggled slightly. However, this issue has been already resolved. So in the second half, from the beginning, we can expect increased production because of this new technology introduction. So this will go well, and this will also lead to cost reduction. That's the first one. And second one, the North America, in the retail, there is a loss of a major customer, but this can be made up for. So this will be -- there will be a recovery in the second half. In the fermentation, the raw materials are going to be below budget in the second half. That's what we're expecting. So we are seeing signs of recovery in the second half for B2B because of those 3 factors. And as for home-use, B2C, especially in Japan, there are several points that I'd like to emphasize. First of all, as you know, our seasonings food is strong in winter. And ahead of the peak in the second half, there's a very favorable environment that is being built up. Especially what is important is [ HEF ] coffee and there's a lot of recovery signs and green beans or the raw material prices are going up. But overcoming that, this business has started -- has been set up in first half, and this will be carried over to second half. So AGF will be in even better position in the second half. And usually, the sales promotion expenses are recognized in February and March, but we have intentionally distributed and evened out this sales promotion expenses in the first half. So this will be favorable in second half. And in first half, mayonnaise, which is one of the major businesses for us, the competitors in mayonnaise has run centenary anniversary campaigns in a large scale. So we struggled because of that. But from September and October, we have been successful in recovering our share. So this will be all reflected as it is in the second half. And last but not least, in last year, there was a large-scale sales promotion for Umami seasonings, that went well. But in the first half this year, we were below the last year's level because customers have bought a lot, and there was a home inventory that was built up, but this has been resolved now. So we can see a recovery in Umami seasonings in the second half. There are many others favorable points, but that's why we are expecting recovery in the second half of seasonings. Yoshiteru Masai: Thank you very much, Saji. As for Bio, Fine, just I'll be very brief. On Page 38, it's JPY 17 billion increase. But if you go back to JPY 4.2 billion ahead of the last year's and only JPY 4.2 billion improvement in first half, but JPY 17 billion in second half. So in '24, in Q2, there was a peak. But in fiscal 2025, in Q4, as Nakamura said, we'll see profit peak. So JPY 17 billion improvement from the previous year against the budget, as you can see in the material, Bio, Fine and Healthcare after first half, 48% progress against profit budget for the full year. So there will be stronger profit in the second half. So 48% in the first half and 52% in the second half. So this will be how we can match the full year forecast. Hiroshi Saji: This will be leading to the second question. So the Umami seasonings for processed food manufacturers, I think there was a JPY 1.4 billion profit decline. So there were some troubles or a challenging environment in the past. So Meihua has already announced like 10,000 ton class production capacity increase. So there could be a sustained oversupply next year. So with this seasonings, is there any prospect for recovery for the second half? Is it really realistic to expect recovery? Shigeo Nakamura: So Masai will continue to answer that question. Yoshiteru Masai: First of all, there is a mid- to long-term prospects and also short-term issues. As for MSG, including nucleotide, the Chinese manufacturers increased production capacity was started in 2023, 2 years before. And from that timing on, we have been quite concerned and taking actions, as Nakamura said. This Umami seasonings, we have combined B2B and B2C businesses and centralized management was considered to be important. So MSG collaboration promotion department was established. So we struggled with the production capacity increase by Chinese manufacturers in amino acid in the past. But MSG and amino acid, the biggest difference between these 2 is that in MSG, in Ajinomoto Group, there is internal sales within the group, and that proportion is quite high. More than 70% of MSG is intra-group sales. So home-use Umami seasonings or flavor seasonings are expected to increase steadily. So in the long term, this internal sales proportion of 70% is going to be raised to more than 85% by 2030. And that is our plan. And also going forward, even if prices are increased, fortunately, there are customers that want to buy from Ajinomoto. There are so many customers that say that. So because of those 2 factors, in the mid- to long term, even if there's a continued competition from Chinese manufacturers, we are seeing the environment where we can compete. And in the short term, there are various actions to counter competitors in this MSG collaboration promotion department. And one of them is what we announced on October 14 as a press release. Our Chinese competitors have infringed upon our intellectual property rights, and we have taken action. And this will break -- put the break on export increase. And as for nucleotide, we are planning various initiatives to counter the competitors. We can't say everything here, but organization on a systematic basis, we are taking actions against competitors. So please feel assured. Especially for the short term, as I said, in Brazil, this new technology introduction will contribute in the second half to the profits. And in the short to midterm, there will be new technology introduction that will be done in various factories around the world. So there will be a long-term recovery in MSG business. Operator: Now moving on to the next question. This is from Goldman Sachs. Miyazaki-san, please begin your question. Takashi Miyazaki: This is Miyazaki from Goldman Sachs. I also have 2 questions. The first question, from the first half towards the second half, you just talked about the trends. According to the presentation material, strategic expenses -- strategic investments, you said that there are several initiatives implemented for strategic purposes in the first half already. You also talked about SG&A on Page 5 and also the Frozen Foods structural reform-related initiatives. And for Forge towards commercialization, you talked about investments and expenses for commercialization. So are there some one-off things that are incurred in the first half only, but not in the second half or something that will not incur in the next year? So what is the amount of strategic spending and how much in which area, if you can explain that? Shigeo Nakamura: Thank you very much, Mr. Miyazaki, for your question. As you rightly pointed out, SG&A changes are presented on Page 6. And roughly speaking, personnel expenses, marketing spend, R&D investments, those are recording increases. Besides them, separate from them, DX-related and AI-related system investments have been made. And this relates to licensing fees. So these expenses are likely to continue in the future. Regarding the expenses for bringing forward the commercialization of Forge, this is a one-off expense for commercialization. So this is not going to be recurring. Anything to add, any members? Is there anything to add? Unknown Executive: No, thank you very much for that. Yes. On Page 20, as you can see on Page 20, the IND approval, this is, I think, pleasant cry, but this has happened much earlier than expected. So you have to produce larger quantity than expected. So this, I think, is a one-shot expenses for commercialization related including consulting expenses. I think as Nakamura mentioned, so those one-off expenses have occurred in the first half of this year, and that had an impact on the performance. Takashi Miyazaki: Okay. I just wanted to confirm, so Forge-related expenses, it's difficult for you to quantify. Is it difficult for you to quantify? And also for the personnel expenses on Page 6 and marketing spend and DX related? Those investments incurred in the first half of this year and those are likely to continue and be recurring in the future as well. Is that the right assumption? Shigeo Nakamura: The Forge-related expenses is not disclosed, but that was quite a hefty amount. Takashi Miyazaki: Okay. I understood. Okay. and the remaining expenses are likely to continue in the subsequent years according to my interpretation. And the other one is Functional Materials related. So I have a question relating to Functional Materials. In the second quarter compared to the first quarter, I think the sales was slightly declined, but still be higher than the target and the plan and the profit margin was higher than the first quarter in the second quarter. So I think you are seeing a favorable trend here. So as in the second quarter, can we expect a favorable performance comparable to the first half? Shigeo Nakamura: For semiconductor overall, I think the demand and also your competitiveness in the market? I'm not worried about these factors. But ABF packages, for example, there is a restriction in the supply of some of the components. And because of that, the demand for ABF was dragged by that. And I think the demand has come down -- will likely come down. Takashi Miyazaki: Do we have to anticipate such kind of risk? So can you talk about the second half and towards the next year? What is your recognition? If you can update on your recognition of this business? Shigeo Nakamura: Thank you very much for the question. As I explained earlier, the AI-related demand, high function semiconductor is enjoying great demand, and I think that is the most advanced products. So therefore, the gross margin is high, and that's the reason why we are performing like this. The semiconductor WSTS, World Semiconductor Trade Statistics, WSTS, this is an indicator used in the semiconductor business. On June 3, it was not updated, but the calendar year logic IC growth was plus 23.9%. That was the expectations back then. And I think we are close to 20% growth is already shown here. So we have been able to enjoy growth as planned. In calendar year 2026, this is going to come down to 7.3% according to WSTS projection. We believe that is too conservative. That is rumored to be too conservative, but there might be some factors behind that. It's impossible for us to comment on the supply situation of other components. But according to what we hear from customers, in the second half, we expect a favorable performance in the second half as well. Takashi Miyazaki: Okay. Then let me confirm. So the -- set aside the components of other companies, I cannot -- I don't want to ask that. But as you have been engaged in communication with your customers from before and according to that conversation, you have an outlook that is expecting a favorable growth? Shigeo Nakamura: That is correct. Operator: Next, from English webinar, there is a person who wants to ask a question. Bernstein, Mr. McLeish, please. Euan Mcleish: Just following on from the ABF question there. Can you confirm that you're not seeing any negative impact at all from downstream production bottlenecks at this stage? Is that the right understanding? Shigeo Nakamura: Thank you very much, Mr. McLeish for your question. So in terms of first half growth, well, if there is more needs, then it could be settled down. But with regard to the growth in the first half, we can continue on with that pace of growth in the second half. Euan Mcleish: Okay. And then over in the domestic food business, we've seen that coffee bean prices have been declining for almost 8 months now. When do you expect that to benefit your margins? And how does this change your coffee portfolio strategy in Japan going forward? Shigeo Nakamura: Well, as coffee beans procurement lead time is long, 6 months to 1 year is the contract period. So the most recent coffee beans lower prices will be reflected at the lagging timing. So I'd like to let Masai answer the question. Yoshiteru Masai: Masai speaking. Let me answer the question. Actually, -- so there is some time lag, but in actuality, AGF coffee business from this first half compared to the previous year has been making more contribution to profits. So there's no detailed breakdown. But if I may say, in Japan, in this page on the left, so plus 0 compared to last year as this graph shows. But in the coffee business, actually, in the first half alone, compared to the previous year, more than JPY 1 billion profit increase was recorded. So then you may ask what are the negative businesses that are offsetting that. So let me make some comments. So in this graph, it's not from the apple-to-apple comparison perspective, from this fiscal year, part of the common fee has been allocated to the business units. So about JPY 600 million has been paid for by the business units. So excluding that, then in the previous fiscal year, plus 0 is shown in this graph, but actually plus JPY 600 million or JPY 700 million is actually -- would have been shown. And then part of that is borne by coffee business. And there's JPY 600 million negative numbers in other business. But at least for the coffee business, there is significant signs of recovery that is manifesting in coffee business. So I'd like you to understand that way. Operator: Now moving on to the next question. Morgan Stanley MUFG Securities. Miyake-san, please. Haruka Miyake: This is Miyake from Morgan Stanley. I'm sorry, I have a sore throat, so maybe it will be difficult for you to hear. The overseas seasoning -- food and seasoning for processed food, I just wanted you to give me so much color regarding the changes. If you look at the Page 11, as far as I look at this, the SG&A increase is a major factor behind the changes that is diluting the revenue growth. So if we look at this by region, S&I is also included here. But if you just single out the second quarter only and talk about the Sauce & Seasoning altogether, there was a decline of JPY 1.8 billion in revenue. So the seasoning for processed food accounts for JPY 1.4 billion out of that, I believe. But the raw material prices is also decreasing for fermented food. And also you have increased expenses, you said. But if you look at the general trend of revenue, the July, September quarter, I think the trend was strong. So if you could just talk about the profit performance driven by revenue growth. And also, if you can divide between consumer and also the restaurant channel demand and how have they affected the decline in revenue by those different channels? Shigeo Nakamura: Okay. Thank you very much for the question, Mr. Miyake. For overseas, first, SG&A. In order for us to increase the brand value, we have made intensive investments for the brand investment. And if you look by segment, the volume is not increasing in Thailand, and that is due to the coffee bean raw material price increases, and therefore, the coffee drinks, beverages in Thailand did not increase so much in terms of volume vis-a-vis the competition. And also instant noodles due to geopolitical reasons in Cambodia, those exports that we had made in Cambodia did not grow as much. So those are one of the factors behind the revenue performance. And maybe Masai-san can add some more comments. Yoshiteru Masai: Thank you very much, Miyake-san, for the comment -- for your question. I would like to supplement. As Nakamura-san just mentioned, in addition to what he just said, I would like to add that, as you rightly pointed out, in fact, the situation was difficult in some regions, especially for overseas home-use business. What are the challenges? And in the second half, what are the countermeasures that we are going to implement? I will have to talk about that. Especially in the ASEAN region, the Asian regions, there are 3 points that I would like to share with you. For the Umami seasonings, home-use, because of the competitor in China, there was an indirect impact from this Chinese player because this competitor, they are -- they have been using China. So that's the reason why we are affected by them. And China's players, they are also engaged in a B2C business. So they are a direct threat for us as well. So against this, we have been trying to reinforce our sales. We have taken a meticulous look at it and leveraging our strength, i.e., the strength -- our sales rep strength. We are trying to counter them and fend them off, especially in Nigeria, in Myanmar, we have struggled in some of these markets, but we are seeing the recovery trend already. So I think this will have a positive impact on the second half performance. The second was the flavor seasoning. Flavor seasoning previously, mainly in Europe, there was a global competitor, and that was the main player in the past. But recently, in many ASEAN regions, we are seeing the emergence of local competitors competing directly against us because they are stepping up their activities. The way of combat is different. So therefore, we were confused a little bit in this first half, but we have analyzed already, and we now see how to compete against them. So the competition with the local player is going to be a key factor in the second half of the year. For instant noodles, Mr. Nakamura already mentioned that and talked about Cambodia. But if I add one more comment, another thing that I would like to comment on is Latin America. Latin America, instant noodle is performing quite well. Having said that, however, the production facility is located in Peru, and there is a shortage of production capacity, and that's the reason why we are not able to sell the quantity that we intended to. But we have completed the construction of new line in September. So we are now already pressing the accelerator. So the produced the instant noodles produced in Peru is now expanded sales in other markets, in the peripheral market. So although we struggled a little bit in the first half, but I think these efforts will begin to bear fruits in the second half of the year. For processed food, I've already commented, and I think that will be overlapping. So I won't comment on processed food anymore. Haruka Miyake: And regarding Brazil, you talked about the introduction of new technology, and you struggled in the initial introduction of the new technology. In terms of expenses in the first half, especially in the second quarter, was there any cost associated with that? Shigeo Nakamura: Thank you. That's correct. Yes. Exactly. With the introduction of this new technology, we were not able to produce. So meaning that we only had to incur these fixed expenses. So that had a weight on the cost. But that is not going to be the case from October onwards. So this will have a positive impact on the performance of the second half onwards. Operator: Now let us move to the next question from Daiwa Securities, Igarashi-san, please. Shun Igarashi: I am Igarashi from Daiwa Securities. I have 2 questions. First question, you talked about ABF and to the question of ABF, in the next fiscal year, the numbers look a bit lower, but the major players are coming up with new chips. That's what we heard. So unit price could increase or area could increase. So this could accelerate your growth. Isn't there such expectation that we can have? Can you elaborate on that? Shigeo Nakamura: Thank you very much for your question, Igarashi-san. In terms of statistics, as I said, this is from June and industry is on the conservative side. As you said, each player is coming up with new products. And if you look at our customers, their investments are going well, and there will be more plants that are coming online. So for us, the growth in the statistics is not realistic in our view. So in terms of volume and unit price, you believe that the numbers will be accelerated? Well, for the cutting-edge technologies, the best mix with the cutting-edge products are coming out. And Ajinomoto Fine-Techno Gunma plant, we made investment and that production equipment will have the latest version for AI applications. So what you said is right. Shun Igarashi: And profitability rate in first quarter, you hired people aggressively and profitability lowered. But in the second half, there was a recovery. So is there any changes in the policy? Shigeo Nakamura: Well, we are growing. So we have -- the personnel expenses are increasing and the Gunma new plant has come online. So there will be depreciation costs that will be incurred. So there will be profitability that will suffer a bit. But in terms of cutting-edge semiconductors like AI chips, the products with the better mix are being launched and sold earlier than expected. So that has helped us improve profitability. Shun Igarashi: The second question, the frozen food business in America. So if you look at the profit decline in the second quarter, that seems to be larger. In Slide 16, the tariff has impacted and sales promotion timing, those were the 2 factors you mentioned. Were they all transitory and tentative? And can you see a recovery and also product initiatives like pricing strategy that you talked about in Japan, but in the North America, what are the initiatives that you have in mind specifically? Shigeo Nakamura: So as you said, so the tariff policy in the U.S. and the customer sales promotion timing that have been lagged. Those are the 2 main factors in the U.S. There's nishiki gyoza, that is a premium, and it is performing well and major retailers are having those in the stores in the shelf. And so things are going well. So Kawana will make more comments. Hideaki Kawana: So as Nakamura said -- so with regard to tariff policy, the price increase will be a bit delayed. So there is some impact, but there are some production disruption. So those are all tentative factors, so we can make a recovery in the second half in our view. And as for sales, as was said, nishikino gyoza and the shumai dumpling, they are all delivered to our customers, and we can expect sales increase from there. And also previously, in the food service, we are not selling too much in Asia. But now the shift is for Asia. So there could be more profit margin expected. So we could be more positive in the second half. Shun Igarashi: What about the production disruption? Has it been resolved? Shigeo Nakamura: Yes, this has been completed. Operator: Now moving on to the next question. UBS Securities, Ihara-san. Rei Ihara: Can you hear me? Shigeo Nakamura: Yes, we hear you. Rei Ihara: Ihara from UBS Securities. I also have 2 questions. First, regarding domestic Frozen Food business structural reform, you previously mentioned that you're going to announce your structural reform program, and you did already. But this did not live up to our expectations because, to be honest with you, the second quarter Frozen Food business' profit margin is less than 1%. And then 3% of sales and profit growth of 7% CAGR, that is not going to be a strong impact in any event. And even if the Frozen Food gross profit margin is returned to the pre-COVID era, still that level in the first place is low. So this Frozen Food business in Japan, I think you are at the phase of having to go through a structural reform. With a shorter time horizon, can you take any actions in a shorter time frame? That's my first question. Shigeo Nakamura: Thank you very much for the question, Ihara-san. For the Frozen Food business, drastic reform, well, we have been engaged in structural reform all the time and the integration of our production facilities, manufacturing centers and producing multiple products in a single line. And through these efforts, we try to improve the production efficiency. And also, we have focused on delicious food and launched Gyoza products and so forth. This time around, we have conducted a price hike that does not match with the customers' perception for value. So not only this deliciousness, but we have also decided to focus on affordability and release products -- Gyoza products. So we changed our strategy in that regard. Maybe that will not be conducive to profit margin. So we would like to provide different levels of products. So on one hand, we would like to focus on cost performance, but also time performance and health value and experience of cooking. So we will produce and prepare different menus, different pricing ranges so that we can optimize overall. So the highest productivity -- highest product will be the ready-to-eat with microwave heating only. So those are kind of products that are already available. So wherever possible, we would like to generate profits with all these 3 different patterns of categories. And as I mentioned earlier, Gyoza is a touch point of ours with many different customers. So because Ajinomoto is known for the delicious products, we would like to have customers try many other food products that we offer. So this is a touch point to enhance our brand value. So we are not really complacent with the low profit margin, but I think this offers additional value, not only the prices. Then Kawana-san can add some comments if necessary. Hideaki Kawana: Thank you. I'm so sorry for the concerns that you have. As I mentioned, the growth overseas is larger compared to the Japan growth rate. So that's the reason why we have shifted the focus of resources to overseas. And we have tried to improve efficiency of Japan as a cash co, and that's the reason why we were related in structural reform. There are 2 major challenges that we are facing today. One is that the market is diversified much more than before. So in that environment, the traditional approach of selling only to the mass market will deprive us of some segments like the Gyoza product that we have today is tuned towards the mass market. So the biggest audience -- we are trying to sell the products to the largest audience. But in the current contemporary age, there are more diverse needs, people who want a larger with greater meat portion gyoza, that's taken by other competitors. And there are some other people who want something affordable gyozas, and those are taken by PBs and PB brands. So we have been taking away the market share for different needs of Gyoza products. So in order to address this, previously, we focused on this production efficiency, and we focused on the single products, and that was the reason why we were not able to address these needs, and that has diluted our profit margin. We are now currently going through a reform and so we would like to look into different lineups and have a more broader range of product lineup. So we had this business lineup, but now we look into a different portfolio for different categories of products and thereby improve the utilization of the factories. Fortunately, in October, we have seen a very steadfast growth. So I think you can be reassured about that. The other thing that I wanted to address and the other challenge that we are facing today is that in the market, the frequency of people cooking is now declining in the market. And we have been selling complete meals and staple foods, not only the ready-to-eat meals. And that is the trend that we are seeing in many other industrialized markets. So we were belated in addressing these needs. So we now have the Aete products. So we would like to focus more on the meal products going forward. As we started this initiative, we believe that this is an area where we can leverage our strength, the design of deliciousness, the design of new nourishment, I think we are very good at that. So I think depending on the preferences of the customers and health conditions, we are able to customize. So we realize that we have the strength. So in these areas, we would like to achieve growth in the future. Rei Ihara: Okay. Understood. So my second question, if I may, the share buyback. This year, JPY 100 billion share buyback is already ongoing, and you have additionally announced another JPY 80 billion program this time around. So JPY 100 billion plus, I think, is going to be the size that you are going to address for share buyback per year -- per fiscal year. But if it's JPY 110 billion this year and again next year and then the year after that, if you continue this, the net debt-to-EBITDA ratio will be lower than 2x. I think you can continue that. But the net D/E ratio with more leverage, I think that will have a detrimental impact on your financial leverage according to what I think. So this share buyback program, do you think this can be sustained? If you can comment on that, that will be appreciated. Shigeo Nakamura: Thank you very much for your question. This is on Page 26. We have this cash management policy on Page 26. Of course, the cash that we generate will, of course, be first allocated for investment for organic growth so that we can properly grow the company. Then we'll look into M&A, other inorganic opportunities and the share repurchase is the third priority. So this is the cash management priorities that we have. And on top of this idea, we have decided on the share buyback program this time around. Mizutani will explain in more detail. Eiichi Mizutani: Thank you very much, Ihara-san, for your question. As Nakamura just mentioned, this time around, this share buyback period, if you look into that period, this will end in November 30 next year -- on November 30 next year. So this includes the repurchases planned for next fiscal year as well. And if you can go back to Page 26, this is the cash allocation policy that we have. And at the bottom, you see on the right-hand side, we will shrink to JPY 900 billion as for the cash balance. So the current cash balance plus the JPY 90 billion, if you look at that, the extra things -- because we would like to improve the capital efficiency with this new decision. And the profit that can be spent out for dividends, we'll look into that as well and also manage the debt. We will look at the leverage level. So I don't think you have to worry about that. So that's all for myself. Rei Ihara: But like JPY 100 billion, if you wanted to buy back with a 6-month period, and I think this is -- this period is going to get over shortly. And this JPY 80 billion is going to be done over a 1-year period. If you look at things from that angle, your capability for share repurchase, given that your leverage is now increasing, I think the leeway for additional repurchase is now coming down. Don't I have to be concerned about that? Shigeo Nakamura: Well, again, at the risk of repeating myself, this program will last up to November last year -- next year. And the budget for next year is not formally decided yet, but we have some assumptions for next fiscal year, and we will make sure that the leverage will not be over this level. So we are properly managing that. So I hope that you understand that. Rei Ihara: But the market participants, not JPY 80 billion, but I think they are looking at the level next fiscal year on top of this. I just wanted you to be mindful of that. So that's all from my side. Operator: Now next question from JPMorgan Securities, Fujiwara-san, please. Satoshi Fujiwara: Fujiwara from JPMorgan Securities. I'd like to ask this question to Mr. Nakamura. It's not about specific segments, but in the financial results this time, honestly speaking, it seemed negative and disappointing slightly. That's a fact in various businesses, there are some problems that we are seeing. And as we listen to the presentation, you say that these are all tentative and you can do better in second half. So this could be assuring, but root cause is Japanese -- Chinese players and more intense competitive players' activities. So maybe you have to revisit your management in the core. So the response speed -- I think your company has been quite quick in responding to the changes, but you may have to accelerate that in order to tighten up your management. That may be necessary. So how to run your business? Can you give your thoughts on this as President, Nakamura-san? Shigeo Nakamura: Thank you very much, Mr. Fujiwara-san. Well, this time, there is a healthy sense of urgency that we have. So as much as possible, we have to earn and those business that are growing are growing. But as you said, because of competition from Chinese players, we have been a bit late in responding, as Masai said, but however, in the short term, we have taken actions that we were able to take. And as for mid- to long term, we have instructed business units to accelerate. So it's not exotic materials, but those products that are weakening, including Frozen Food, so successor development has been instructed to Ajinomoto Frozen Food. So we have to increase the speed to even higher level. And we have to be strongly aware of the competition. And that's what we -- I have been saying in my dialogue. So Chinese players more recently have been gaining momentum. So I talked to Korean customers, and I talk about this to our employees and there are 3 impossible or unknowns. You don't rest, you don't go home and you don't sleep. That's what they say about Chinese. But -- and they have 3 shifts, and so they are catching up with Toyota Motor in terms of EV. That's what we are -- I am telling our employees in dialogue. So we have to look at the global environment, and we have to compete with the players around the world. So we have to keep this sense of urgency. Satoshi Fujiwara: There's another question. So I'd like to ask one more question, if I may. In the Frozen Food, I do understand what you have taken as actions. But as for home-use, other than Gyoza, there are other categories. And compared to competitors, your competitiveness is not that high in my view. So for those categories, you may have to narrow them down further like Gyoza or restaurant, industrial use dessert. So you have to focus more on those where you excel strongly and then you throw away other categories. Isn't that the risk that you can take? Shigeo Nakamura: As Kawana said, as for Gyoza, in a single production line, there will be multiple products that are coming out. So shoga, ginger gyoza and miso paste gyoza have been launched on top of the regular gyoza, and they're selling well. So in the current production line, we can create some products in terms of different SKUs that will sell. And as for dessert, as you pointed out, this is something that we can focus more on. And the frozen food without meat through desserts, there is some qualification for exports or a profit for exports. So we are planning to also consider the potential exports from dessert. So if there's any more comments from Masai? Yoshiteru Masai: Yes. Thank you. So as for dessert, on our part in Ajinomoto, as Ajinomoto Group, what produced in Japan has not been exported too much. But we had a sense of urgency now. So Ajinomoto and Frozen Food, AGF, this is a common issue. So as of October 1, export promotion department was established. And what is going to be the main points in this is frozen food dessert. And so these activities will be done and gyoza and dessert were pointed out by you, but I totally agree, and we would like to focus our resources on those. And for the question that was asked previously, so structural reforms may look a bit weak compared to others. And I'd like to just make more comments on that. So subsequently, what we found and thought was that the actions taken against competitors. And from that perspective, especially the competitors in Gyoza and Frozen Food are not just Japanese players. So Japanese structural reform is important, but we have to have more global perspective to compete. And so Japanese structural reform is necessary, but we have to make more investments in Asia, and that's what we're considering. So as we do structural reforms in Japan, at the same time, for Gyoza and Frozen Food, we are taking actions against competitors. So before structural reforms in Japan, we are also aiming for expansion in Asia. That's what we have begun to consider. Satoshi Fujiwara: Okay. Then -- so Karaage or fried chicken or Chahan or fried rice, you have those products. Would there be any change in the positioning of those products? Shigeo Nakamura: Well, as I said, we are revisiting our categories, especially Gyoza and dumping shumai and chicken and sweets. Those are the major segments. But Gyoza and dumping shumai and sweets, there's still room for growth. As for chicken, well, in the structural reform, we are narrowing down the items, and we are seeing increased profits as a result. So -- but we're not trying to grow this. And frozen rice is the biggest challenge. Osaka plant was closed to enhance efficiency, but there's still challenges to address. And so we have to review this more. So we are shifting towards complete meal, and that's what we're trying to do. And as for rice, you shouldn't just look at Japanese business. In overseas, the rice is more of a mainstay in U.S. and others. And all these are exported from Japan. So in total, there's profits that are generated. But what about -- what to do with rice business in Japan is something that we have to address. So we have to go beyond that. So like -- and by transitioning to complete meals and others. Operator: The next question, we would like to address the next question. In the interest of time, I would like to limit to only 2 more questioners for today. So the first will be for Furuta-san of SMBC Nikko. Tsukasa Furuta: This is Furuta from SMBC Nikko Securities. I have a question relating to the outlook for CDMO business in the second half. I'm looking at Page 19. You mentioned that the AJIPHASE shipment delay in Japan was a factor, but I think your performance in the first half was in line with the plan. As for the different initiatives in each region, can you give us some more color for the second half initiatives in this CDMO business? Shigeo Nakamura: Thank you very much, Furuta-san, for your question. So this will be answered by Otake-san because he's here today. Yasuyuki Otake: All right. I would like to address your question. Forge, as we explained during the presentation, Forge is enjoying favorable growth, especially towards 2026 and 2027, we are expecting to start the commercialization. We have decided to bring this forward. So with this year, we have incurred some consultation fee, and therefore, the EBITDA positive is quite challenging, but we are still working on this target. And also the sales has increased by 4x compared to the time of acquisition. So we are achieving a very steadfast growth here. As far as the Japanese business is concerned, AJIPHASE, we have a very big growth projection in the future. But compared to that plan, we are slightly behind the plan. But starting this fiscal year, Forge AJIPHASE salespeople are sent there so that with the Forge members and the Healthcare members in North America, we are working together in the sales activities together with them. With this, we have been able to cultivate new customers. So towards the 2030 Roadmap, we are going to make steadfast progress in our actions. For AJICAP and also last year, COYRNEX as well, we have made a press release regarding the collaborative efforts. And with AJICAP, AJICAP has been driving the growth of CDMO business. But in addition to that, AJIPHASE, AJICAP and COYRNEX and Forge. So these are the unique businesses of Ajinomoto, and they are going to be the pillar of our business in the future. So with these pillars, we believe we shall be able to achieve the growth of the company. So the prospects of future is becoming much brighter than before. Tsukasa Furuta: Okay. Then I have a follow-up question. AJICAP, on Page 21, customer expansion, you're talking about customer expansion, and you are talking about the new client in overseas and also Astellas. So I think -- can you comment on whether the speed of customer expansion is accelerating? Can you talk about that? Shigeo Nakamura: May I? I'll try to answer that. Yes. Okay. As it's written up here, in October, we have signed up new license agreement with Astellas and another company, 2 companies altogether. So the sales is expanding. In order to further accelerate the sales within Ajinomoto Group, we would like to leverage our internal network. OmniChem, for example, we would like to leverage that network. And in addition to that, the former [ Lonza ] business development chief, we have entered into an agent agreement, a consulting agreement with them. So we would like to leverage those external networks as well so that we can accelerate our customer cultivation efforts. CRO, CMO, we will promote collaboration with them so that we can further increase the number of licensing agreements after -- so that we can -- AJICAP can become a next driver for growth after AJIPHASE. And we believe we have been able to achieve a steadfast progress towards that direction. Operator: Last question from Nomura Securities, Morita-san, please. Makoto Morita: Morita from Nomura Securities. I'd like to ask about Seasonings and Food once again. In this presentation meeting, what has become one big theme is action taken against competitors. So from that perspective, why at this timing, the competitive risks have risen. So before the pandemic, getting back to the pre-pandemic level, the Americas, you have increased the profitability margin, and that has driven your profit in your business. But maybe your profitability level has risen too much. That is my concern. Of course, profitability level being higher is good, but this would reduce the entry barrier. So I think your profitability level has risen, especially in overseas. So maybe you're earning too much or it's not unsustainable business or profit level or you have an overhang. What is your thoughts on this possibility? Shigeo Nakamura: Thank you very much for your question. So profit level and pricing, it won't go up if you don't need the customer value. So you have to increase the customer value and profit margin. So [ Saji ] will explain more. Unknown Executive: So with regard to profit margin, well, I'd like to answer the question, including that. So with regard to actions taken to competitors, it is very important initiative. Honestly speaking, previously, in Ajinomoto Group, especially for home-use businesses, so we were quite strong. So we -- honestly speaking, we were a bit short in terms of actions taken against competitors. So as I said, in 2023, we had seen these signs. So we have established a competitor response team, several competitor response teams. And one of them is competitors in China. And also, there are some organizations that are taking actions against other types of competitors. So we are very serious in taking actions against competitors, even though we haven't disclosed this yet. And as for China, especially, honestly, it's not just food, but in all industries, the same is happening. So we're not an exception. So with the economic slowdown in China, maybe regardless of supply-demand balance, if I may so, they are taking actions. So we had expected the supply-demand balance to take effect, but actually, they are disregarding this. So we have to be ready and take action with that in mind. And with regard to profitability level or margin, it's not a straight answer to your question, but to Chinese competitors and Ajinomoto, we're looking at the price differences, especially. So what sort of price differences would be allowed for customers to buy our products. If this is too wide, then they will not buy our products. But if this is not too wide, then they will buy from us. So we have learned that from our experience, and we are taking pricing policies. And if that works well, we are defeating competitors in some countries. But in others, we haven't been able to do so. So we are taking more actions. It's not a straight answer to your question, but we're looking at price differences. And the pricing margin or pricing ratio comparison is what we are taking. Makoto Morita: So in the short term, you are increasing profits in the short term. But in the mid- to long term, that is going to be important. But just for clarification, so the price gap between Chinese players and your company, is it still higher than the optimal level? And maybe you have to make adjustments to match that optimum level. Is that correct understanding? Shigeo Nakamura: Well, different countries have different situations. For example, in Europe, euro is quite strong now. So with the euro being strong, Chinese players, when they export products at CIF, probably in dollars. So in Europe, there is the tendency that price gap will be widened. So you have to reduce our prices in there. But in Asia, regardless of foreign exchanges, I think things are settling down. So in some countries, we don't have to reduce prices. But in some others, we may have to reduce the prices. So with the collaboration promotion department being playing a central role, we are looking at that. Makoto Morita: Well, a different question from a different perspective. The food business is -- the consumption is very weak, not just in Japan, but around the world. I think the weakening is more than you are assuming. So with these changes in the business environment, what sort of actions you have to take in your thoughts? Shigeo Nakamura: Well, the first one, there is difference between Japan and other countries, but it depends on the country that you're talking about. What is -- what we are driving our business in ASEAN compared to the past 5 years and the next 5 years, probably growth rate will slow down. So in ASEAN countries, we have to find a new frontier to compete, and we have already have done that from the 5-star to Cambodia, Laos, Myanmar and Bangladesh, we're shifting our focus to those countries. And same goes for Latin America, like Brazil and Peru to adjacent countries. That transition is what we're taking as an action. And as for Japan, it's not just a Ajinomoto or food manufacturer carbon alone because of population decline, as I said, you have to strengthen exports. So what we produce in Japan is not just delivered to Japanese customers, but to customers around the world. And so that's why we have established export promotion department. So depending on regions and countries for the consumption decline, the actions that we have to take will be different. We have -- I have learned a lot. Operator: So with this, we would like to finish the Q&A session. So finally, Mr. Nakamura will have the final closing remarks. Shigeo Nakamura: Well, thank you, everyone, for staying with us for such a long hours. We always would like to maintain this sense of healthy urgency -- healthy sense of urgency, and we would like to drive the company on a continuous basis. We look forward to your continued support and patrons. Thank you very much indeed for today. Operator: With this, we would like to finish the earnings call for today. We thank you very much for your participation. This is the end of today's session. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning, ladies and gentlemen, and welcome to the Somnigroup Third Quarter 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Aubrey Moore of Investor Relations. Please go ahead. Aubrey Moore: Thank you, operator. Good morning, and thank you for participating in today's call. Joining me today are Scott Thompson, Chairman, President and CEO; and Bhaskar Rao, Executive Vice President and Chief Financial Officer. This call includes forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve uncertainties and actual results may differ materially due to a variety of factors that could adversely affect the company's business. These factors are discussed in the company's SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q. Any forward-looking statements speak only as of the date from which it is made. The company undertakes no obligation to update any forward-looking statements. This morning's commentary will also include non-GAAP financial information. Reconciliations of this non-GAAP financial information can be found in the accompanying press release, which is posted on the company's website at www.somnigroup.com and filed with the SEC. Our comments will supplement the detailed information provided in the press release. As a reminder, year-over-year comparisons are impacted by the acquisition of Mattress Firm in the first quarter of 2025 and the related divestiture of Sleep Outfitters in certain Mattress Firm retail locations in the second quarter. At certain times in the call, to better illustrate underlying business trends, we will focus on like-for-like numbers defined as reported numbers adjusted for the acquisition and divestiture impact. We would also like to mark the calendars for March 4, 2026, as we will be having our Investor Day in New York. That will include various members of executive management from Somnigroup, Tempur Sealy and Mattress Firm. Formal invitations will be sent out closer to the event. And now with that introduction, it's my pleasure to turn the call over to Scott. Scott Thompson: Good morning, and thank you for joining us on our third quarter 2025 earnings call. I'm pleased to share with you that Somnigroup International delivered a record quarter across nearly all key operating metrics. These results were driven by the early benefits from the Mattress Firm combination and successful execution of our key operating initiatives. Importantly, we achieved this strong financial performance while the U.S. bedding market remains basically flat from a sales perspective, and it is still at trough levels, while the U.S. housing market is yet to recover and international markets continue to face numerous challenges. Additionally, we have not fully realized all of the benefits from the Mattress Firm combination. This backdrop underscores the potential of our business, the strength of our competitive position and the meaningful opportunity ahead as our markets improve and we continue to deploy capital and optimize our vertical structure. In the third quarter of 2025, we're pleased to achieve record net sales, adjusted EBITDA and adjusted EPS. Net sales were up approximately 63% to $2.1 billion. Adjusted EBITDA was up approximately 52% to $419 million, and adjusted EPS was up approximately 16% and to $0.95 per share. Now turning to some highlights for the third quarter. First highlight. Our aggregate like-for-like sales growth was 5% over the same period last year, led by strong performance in our international operations, which I'll discuss in a minute. Tempur Sealy North America reported 5% like-for-like sales growth which is the strongest quarterly sales trend in 9 quarters. This performance was broad-based across our portfolio and price points as we significantly increased our balance of share at Mattress Firm and experienced growth with our other third-party retailers. Both Tempur-Pedic and Sealy brands reported solid growth in the quarter, driven by our new Sealy Posturepedic products and our strong commitment to advertising, including over $110 million invested in the third quarter to keep our brands top of mind and drive valuable customer traffic to all retailers. Our collaborative marketing approach focused on delivering high-quality, brand-centric advertising to retail partners continues to drive strong results for us and the industry. Retailers who have actively participated in our brand activation program have seen a significant boost in sales of Tempur-Pedic and Sealy products. In short, we continue to win in the market with great product, robust advertising and a dedicated sales force to help our customers improve their business. Second highlight. Mattress Firm continues to outperform the market, reporting strong same-store sales growth of 5% in the quarter. The strong third quarter performance was possible due to our relentless focus on delivering superior in-store execution and equipping our sleep experts with the tools and training they need to meet the customers' sleep needs. Further, we continue to invest in consumer experience for our store refresh program, including installing Tempur brand walls to support increased customer engagement and education. Where placed, Tempur brand walls have shown to drive higher retail tickets resulting in strong return on investment. We began scaling this initiative in the back half of the quarter and expect to finish rolling it out to all 2,200 store locations nationwide by the end of next year. Other retailers have also taken part in this program as we are committed to an omnichannel approach. Additionally, we are ramping up our previously disclosed 3-year program to invest a total of $150 million between 2025 and 2027 to refresh certain Mattress Firm stores, ensuring all locations meet our brand standards. Third highlight, our international business continues to deliver impressive sales growth despite a challenging operating environment. Our Tempur International sales grew 11% in the quarter and continued to outperform the market by a solid clip, driven by the refreshed Tempur product lineup, expanded distribution. Strong local execution, combined with meaningful investments in advertising that significantly boost brand visibility, consumer engagement, resulted in this double-digit performance. We continue to refine our late-stage customization manufacturing process to support this momentum. This approach allows us to efficiently tailor products for specific markets, channels and customer segments. With a solid foundation and significant long-term potential, we are confident in the growth trajectory of our Tempur international operations. Dreams, our U.K.-based bedding retailer also delivered strong quarterly market outperformance, driven by same-store sales growth and new store openings. Dreams continues to drive cost efficiencies, advance strategic growth initiatives and deliver exceptional product quality and industry-leading customer satisfaction. Our final highlight is related to the progress on our sales and cost synergy initiatives following the combination of Mattress Firm. Mattress Firm is focused on retailing high-quality products with differentiated innovation at all price points, while driving industry demand with market-leading advertising investments. On synergies, we are ahead of our expectations in achieving a more market-driven distribution of Tempur Sealy brands and private label products at Mattress Firm. We now expect Tempur Sealy to represent a mid-50% of Mattress Firm's total sales in 2025, up from our previous estimate of below 50%. In total, we now expect sales synergies to result in $60 million of benefit to adjusted EBITDA this year. Looking to 2026, we expect an incremental $40 million of EBITDA benefit from the wraparound impact of these share gains and is on track to comfortably achieve our targeted $100 million of run rate sales synergies. As a reminder, we held Mattress Firm sales flat in estimating the balance of share opportunity. As the U.S. bedding industry recovers and Mattress Firm sales increase, we expect the dollar synergies to grow. Our increased scale and vertical integrated operations are unlocking efficiencies throughout manufacturing, logistics and sourcing. Additionally, improved insights into in-consumer demand patterns is enabling us to optimize production, upcoming product introductions and product end-of-life strategies. We remain on pace to achieve a minimum of $100 million in annual run rate net cost synergies, beginning with $15 million projected for 2025, an incremental $50 million in 2026 and a further $35 million in 2027. Long term, we're excited about the potential to align Tempur Sealy and Mattress Firm's messaging to increase our advertising efficiency, an opportunity which is not yet quantified in our cost synergy targets. Today, as a unified Somnigroup entity, we are positioned to deliver more cohesive, high-impact advertising to support both our brands and the broader U.S. bedding market. Our new Mattress Firm advertising campaign, Sleep Easy, launched mid-third quarter, aligns our messaging with a cohesive voice. The campaign educates consumers on the importance of a well-suited mattress for restorative sleep and activates them to take the next step in their purchase journey. It highlights some of the most common impacted sleep disruptors and shows how certain products and Mattress Firm's sleep experts can effectively address these important sleep issues. We're very encouraged by the strong consumer response to Sleep Easy campaign. Initial research identified it as the highest performing campaign in Mattress Firm's recent history across all metrics. Subsequent studies have reinforced this finding, showing the campaign significantly outperformed both industry benchmarks and Mattress Firm's previous messaging. Although it's still early in the campaign's rollout, we are confident that we are on the right path. We expect the positive impact to grow as the campaign becomes more established in the marketplace. Overall, we are pleased with the rapid progress in both sales and cost synergy efforts and remain excited about the long-term opportunities for retail customers, Somnigroup employees and shareholders. And with that, I'll turn the call over to Bhaskar to review the financial statements. Bhaskar? Bhaskar Rao: Thank you, Scott. In the third quarter of 2025, consolidated sales were $2.1 billion, and adjusted earnings per share was a record $0.95, up 16% over the prior year. There are approximately $40 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility. These adjustments are primarily related to costs incurred in connection with the combination. We expect pro forma adjustments to decline going forward. As a reminder, we have aligned accounting for store occupancy costs across Somnigroup, which resulted in Tempur Sealy reclassifying our store occupancy costs from operating expense to cost of goods sold. We have adjusted prior year Tempur Sealy financial information included in today's earnings release to reflect this change for ease of comparability. I will be highlighting like-for-like comparisons to normalize for these items in our commentary. Now turning to Mattress Firm results. Net sales through Mattress Firm were approximately $1.1 billion in the third quarter. On a like-for-like basis, Mattress Firm sales grew 3% over the prior year, which includes strong same-store sales growth of 5%. Mattress Firm's adjusted gross margin was 35.6% and adjusted operating margin was 9.4%, in line with our expectations. Now turning to Tempur Sealy North American results. Like-for-like net sales through the wholesale channel grew approximately 10% in the third quarter, normalizing for the previously disclosed foreclosed distribution. Without this normalization, the wholesale channel grew approximately 6%. Like-for-like net sales through our direct channel declined 4% in the third quarter. North American adjusted gross margins increased 1,700 basis points to 58.6%, primarily driven by the elimination of the intercompany sales to Mattress Firm from Tempur Sealy. On a like-for-like basis, North American adjusted gross margins declined 40 basis points versus the prior year, primarily driven by merchandising mix, which includes strong Sealy performance. This was partially offset by operational efficiencies and fixed cost absorption. North American adjusted operating margins improved 940 basis points to 29.5%, primarily driven by Mattress Firm intercompany sales elimination. On a like-for-like basis, North American adjusted operating margins increased 60 basis points versus the prior year, primarily driven by fixed cost leverage, partially offset by the decline in gross margin. Now turning to Tempur Sealy International results. International net sales grew a robust 11% on a reported basis and 7% on a constant currency basis. Our international gross margins declined 40 basis points versus the prior year, primarily driven by a competitive U.K. marketplace, partially offset by operational efficiencies. Our international operating margin was consistent with the prior year at 18.1% with fixed cost leverage offsetting the decline in gross margins. In July, Tempur Sealy rolled out a price increase equating to approximately 2% of total North America sales, largely focused on the higher-end products in our portfolio. We believe this price increase was generally lower than the industry peers and succeeded in offsetting implemented tariff headwinds with no discernible impact and consumer demand. As the tariff landscape has continued to evolve, we see another $20 million of incremental cost exposure, primarily on an adjustable basis. To offset this headwind, we announced a small price increase earlier this week that will go into effect in early 2026. We remain confident in our ability to adapt to tariff changes supported by our strong product offering, agile team and support of supply partners. Now moving on to Somnigroup's balance sheet and cash flow items. At the end of the third quarter, consolidated debt less cash was $4.6 billion, down $300 million versus the second quarter, and our leverage ratio under our credit facility was 3.3x, down 30 basis points or 8% versus the second quarter. We expect our leverage to return to our target leverage range of 2 to 3x early in 2026. We achieved record operating cash flow of $408 million and record free cash flow of $360 million in the quarter, demonstrating the power of our business model even in a soft market. Our strong cash generation positions us well to continue to optimize our debt structure. We expect to continue to pay down debt and benefit from lower market interest rates and improved cost of our variable price debt as we return to our target leverage range. We expect this trend to add to future EPS growth. As a reminder, our guidance considers the elimination of intercompany sales between Mattress Firm and Tempur Sealy, which we expect to represent approximately 20% of global Tempur Sealy 2025 sales. Intercompany eliminations in accordance with GAAP will reduce Tempur Sealy sales but be margin accretive and neutral to dollars of operating profit. Consistent with prior quarter, our guidance also reflects the divestiture of Tempur Sealy Sleep Outfitters retail business as well as 73 Mattress Firm stores in May of 2025. Before turning to our annual guidance, let me also share our perspective on the fourth quarter. We expect continued like-for-like sales growth across all of our business units, with an underlying assumption that the demand environment will be stable. Now to our revised 2025 guidance. We have raised our adjusted earnings per share guidance to be between $2.60 and $2.75. This guidance range contemplates a sales midpoint of approximately $7.5 billion after intercompany eliminations. This revision includes our expectation for the bedding industry to be down low to mid-single digits versus prior year, a slight improvement from our prior outlook. Our annual guidance also reflects like-for-like Tempur Sealy sales to be flattish and reported sales to be impacted by the intercompany elimination I referenced a moment ago. Tempur Sealy North America sales declining low-single digits on a like-for-like basis, which includes our continued market outperformance, a mid-single-digit headwind from foreclosed distribution and the industry pressures. International business growing low-double digits on a reported basis and constant currency basis, which includes the continued momentum of our omnichannel expansion strategy. And our like-for-like Mattress Firm sales to be flattish, supported by in-store initiatives to grow AOV and conversion and reflecting the industry pressures. We also expect gross margins to be slightly above 44%. Our outlook also contemplates our updated assumption for Tempur Sealy to be in the mid-50s percentage of Mattress Firm's total sales. This represents about a $60 million EBITDA benefit for 2025 compared to 2024 and $700 million of advertising investments, all of which we expect to result in adjusted EBITDA of approximately $1.3 billion at the midpoint. Regarding capital expenditures, we expect 2025 CapEx to include approximately $150 million of normal recurring CapEx and an investment of approximately $25 million to bring stores acquired by Mattress Firm prior to the acquisition up to our standards. We expect to invest an additional $125 million over the next couple of years to refresh these stores. Over the long term, we expect normalized run rate Somnigroup CapEx to be approximately $200 million. Lastly, I would like to flag a few modeling items. For the full year 2025, we expect D&A of approximately $295 million, interest expense of approximately $260 million on a tax rate of 25% with a diluted share count of 210 million shares. With that, I'll turn the call back over to Scott. Scott Thompson: Thank you, Bhaskar. Well done. Just a couple of thoughts on capital allocation. First, we are pleased to report our investment in Kingsdown, acquiring 25% passive interest in this leading North America luxury mattress manufacturer and valuable buyer to Mattress Firm. This will allow SGI to participate in expected growth in Kingsdown sales and profits as their presence on Mattress Firm's floor expands and they pursue other growth opportunities. This decision reflects our disciplined capital allocation strategy, which is focused on high-return investments to strengthen our competitive position and drive long-term value for shareholders. Second, we're ahead of our financial plan, and we believe that we've mitigated significant risk over the last few quarters, including those related to the Mattress Firm combination. As a result, in the first quarter of 2026, we intend to begin to allocate approximately 50% of free cash flow to capital returns to shareholders in the form of dividends and share repurchase. At the same time, we will continue to deleverage, targeting our historical range of 2 to 3x adjusted EBITDA. After we are comfortably back within our targeted leverage range, we'll reevaluate this allocation. In closing, this quarter's performance reaffirms our strength of our strategic direction and underscores our momentum we've gained through the combination with Mattress Firm. We've demonstrated our focus on long-term growth and our ability to navigate a complex industry backdrop across our Tempur Sealy, Mattress Firm and Dreams operations. We are positioned as a global industry leader committed to delivering products that provide customers innovative solutions that can change their lives through improved sleep. Our operational agility, strong manufacturing capabilities, trusted brands, retail leadership and exceptional workforce drive Somnigroup's performance and we expect will drive future value creation. That ends our prepared remarks, operator, you can open the call up for questions. Operator: [Operator Instructions] Your first question comes from Susan Maklari from Goldman Sachs. Susan Maklari: I want to talk about demand. It's interesting to see how it sounds like the industry is starting to come back a bit and that's really counter to what we've seen in the housing market, but also just what we're hearing in terms of housing and consumer-related categories broadly. Can you talk about what is driving the relative divergence that we're seeing in bedding and how much of it do you think is attributable to the efforts that you've put in over the last several months and years around new products, more recently, some of the ad spend and the initiatives there. And how we should think about the sustainability of it, just given the macro and the environment that we're in? Scott Thompson: Thank you for your question, Susan. All 12 of them that you wound into one. First of all, I think we've talked about this before. Look, the housing market can be a headwind or a tailwind for the bedding industry. But we've always thought of it as it's in the top 5 items that we think about, but it's certainly not the first or second. And I think the point you make in your question is exactly right. The bedding industry can be successful without the housing market necessarily be turning around. And we've always thought about in the bedding industry, what drives the bedding industry, of course, is innovation. And clearly, the new Sealy Posturepedic product that came out this summer is helping us, Mattress Firm and the industry. It's also -- the other thing we think that drives the industry is advertising. And you know that we've completely retooled we'll call it the advertising at Mattress Firm, and Mattress Firm is the leading advertiser in the U.S. by a factor of 2 and we've changed their creative and we've changed the placement and some of the strategies there. And we're seeing benefits again for us and for the industry. For the first time in, I think, probably 15 or 20 years, we had direct advertising coming out of Tempur Sealy on the Sealy brand in support of the new Sealy product. That certainly has been incremental. And then the other things we watch obviously are consumer confidence. And it hasn't been robust, but at least it hasn't been negative. So when we look forward, certainly, we're hoping for lower interest rates. And I think if you put a 5 handle, on the 30 year, you might get quite a bit of activity in housing and probably furniture and bedding. We're getting close. We're a low 6. But we can be successful without the housing market turning around and it does feel like if you look at the numbers in the industry, you can't get perfect industry numbers. But there's no question the industry, I think step -- had a good step forward from the second quarter. So sequentially, certainly improved. I think we're calling it somewhere close to flat from a sales standpoint. And then as expected and as designed, we performed better than the marketplace, and you can see that in our numbers. I think one of the things that I really focused on this quarter was when I take a look back, in the first quarter, we delivered basically flat EPS, adjusted EPS. In the second quarter, we were down 16%, had some launch costs in there. And then we delivered quarter-to-date at plus 16%. And obviously, people can squeeze out what the implied fourth quarter is, and we'll call that 15% to 20%. So you can see the momentum as the industry has gotten slightly better. We have implemented some of our strategies, and we're getting the synergies both in sales and costs from Mattress Firm acquisition. Operator: Your next question comes from Bobby Griffin from Raymond James. Robert Griffin: Congrats on the momentum here in the quarter. I'm going to hit you with a 2-part question, unfortunately. But when you kind of sit and look at the business today starting to flex and you kind of look at the enterprise as it's set up now, where do you see the most opportunities for growth among the different brands that SGI is pushing into? And on the optimization of the enterprise, is there a big unlock to come? Or is it more little parts that get more optimized over the next kind of 3 to 5 years during the recovery? Scott Thompson: Okay. I think I got your question, and Bhaskar, help me out. So when you look at it by brand, okay? Obviously, I think the Sealy posturepedic brand probably has a greater growth potential in the short term, next few quarters. Some of that is new technology, some of that's new advertising. And quite frankly, it's got an easier compare in that the product we're replacing had a little bit of age on it. Then you have Stearns coming out and we've cannibalized a little bit of Stearns with the new Posturepedic product as we moved it upstream from a pricing standpoint. And we'll have new Stearns out, call it, late 2026 with some interesting technology. And that's certainly an opportunity there. And then as you know, I mean, Tempur is just magical, and it continues to take share every quarter a little bit and I would expect it to continue. But I think also when you look at opportunities, if you look at the whole enterprise, you have to say all of the changes we've made in Mattress Firm are really just getting started. I mean we've changed the advertising program. There's certainly a more sophisticated and broad-based looking at the merchandising strategy to really understand what products on the floor are good for customers first and are good for Mattress Firm. And I think that's going to continue to pay benefits. And then you've got the whole bucket of synergy, cost synergies, which, as we've talked about, are going to take -- it's a multiyear project. as you work through logistics, warehousing, delivery, lots of stuff, but there's a good trail there that's going to be -- is going to -- that keeps on giving for a number of years. And I would be remiss if I didn't mention the international operations, which is, I don't know, how many quarters is this double digits, Bhaskar? 10 quarters of double-digit growth. in an international market, that is not robust. It's challenging. And we sometimes underestimate how difficult that lift has been, but both the Dreams operation which has been fighting a U.K. economy, which has not been pleasant or it's been grumpy as they like to say, has done very well over there. And the Tempur International, what we call the legacy Tempur Sealy operation has done a great job opening up new customers and in taking share. So I mean those are all kind of we call it company-specific opportunities robust. But the other thing you just can't miss is if you look at the bedding industry in the U.S. and I'm going to use round numbers and say that it's down 30%, and it has been down 30% for multiple years, okay? And if you just -- whether it's pent-up demand or just going back to trend line, if you layer in going back to trend line, okay, just get me back to 30% that fell. The flow-through on that is very robust as we've positioned the company during this downturn. Operator: Your next question comes from Rafe Jadrosich from Bank of America. Rafe Jadrosich: There are a lot of moving pieces here just on the guidance. In terms of the kind of guide to guide changes, can you just walk us through what assumptions have changed from the prior guidance. It sounds like a lot of that is just better synergies on the revenue side. And then what's embedded in terms of like-for-like and underlying industry growth in the fourth quarter? Bhaskar Rao: Absolutely, absolutely. And if I were to just think about it high level, there's only been a couple of items that we've refreshed on as it relates to our expectations. The first one is around the industry. We expected the industry to be, let's call it, down mid-single digits. That's for the full year. Sitting here today, our expectation is that it's going to be down low to mid-single digits. So an improvement from an industry environment standpoint. Then what I would go to is the balance of share. Previously, where we were at is thinking about it as low 50% from a balance of share of the family brands into Mattress Firm. Now we're at the mid-50s. So as it relates to a high level, those are the 2 moving pieces that impacted how we performed in the third quarter and then our expectations for the full year. As it relates to the fourth quarter specifically, let me just aggregate that a bit. So given our sales guide of in and around $7.5 billion for the full year, think about the fourth quarter somewhere a little north of $1.9 billion. If you ratchet that down, what that would get you is from a Tempur Sealy, let's call it, like-for-like legacy standpoint, that would put the growth rate in Tempur Sealy somewhere between mid- to high-single digits. Going to North America on a like-for-like basis, that would imply a mid-single digits. And then turning to Mattress Firm, we called that out specifically, but think about that as low-single digits from a growth standpoint in the fourth quarter. As you go below the line, just call out for gross profit. Naturally, what happens is, is that you get the seasonality of the business, the third quarter being the highest on a consolidated and on a business unit perspective and the natural step down that you'd expect going from the third into the fourth. Operator: Your next question comes from Peter Keith from Piper Sandler. Peter Keith: Great results, guys. Bhaskar, if I could just follow up on that. There's a little bit of short-term investor anxiety around the fourth quarter just because following last year's election, the industry did improve. So we'll just say kind of high-level compares get a little bit tougher. It seems like the outlook you just gave on the like-for-like is basically a continuation from Q3, I guess, slightly tougher compares. So if you break out your crystal ball, I guess how do you think about the fourth quarter as this, I don't know, coming off the bottom, but still a little bit more challenge compares year-on-year? Scott Thompson: Great question. I'm going to jump in and let Bhaskar clean me up because I also thought that there was, I'm going to call it, a pretty good-sized bump in the fourth quarter last year when we had a peaceful transition of government is what we call it. And so we studied that. And because we now own Mattress Firm, we have more data. Before, when we talked about that, we had to look at our wholesale orders, which can kind of be lumpy and sometimes they don't totally track retail sales from a timing standpoint. So getting that kind of data was difficult. But now that we had -- have Mattress Firm, and if we could go back and look at last year's fourth quarter on a day-by-day basis and week by week and then look at our data, I would tell you that I do not believe that we had a bump in our business in bedding, in Mattress Firm or Tempur Sealy from a peaceful transition of government, which was different than my thinking going into preparing for the quarter. Fair Bhaskar? Look through that data. But they basically had to pull that data to get me off of that same anxiety that you're mentioning. Operator: Your next question comes from Daniel Silvertstein from UBS. Daniel Silverstein: Given the strong progress you're making in gaining the balance of share at Mattress Firm, what penetration level is reasonable at this point in 2026 or 2027, what's the upper bound we should think about from that standpoint? And then maybe just 1 quick follow-up. Where will Kingsdown fit in the assortment at Mattress Firm? Scott Thompson: Sure. Let me answer it this way. The way we think about Mattress Firm is that a reasonable balance of share for the strength of our brands and they're running a multi-branded retailer. When we look across all of our customers and everything is to think about it in the low 60s, 62% of the business would probably land in the family brands, okay? And I think we'll be there. There's still some merchandising changes that will go on in the fourth quarter. So -- but we'll be there probably, give or take, at that run rate by the end of the year. Now after that, that's going to bounce around a bit. And it will bounce around based on the strength of the innovation of each brand, whether it be family brand or outside brand and the strength of their sales force and their advertising that supports that. And so if it 1 day gets 60%, that's not being the world, someday it might be 64%. But there'll be a reasonable bandwidth around that 62%. Again, based on strength of innovation, strength of advertising is the way we think about the business model, consistent with that. And we ran into the Kingsdown brand and the merchandising team at Mattress Firm, which is in charge of their floor to optimize what the customer wants and to drive their business. It became apparent that Kingsdown was underrepresented at Mattress Firm compared to what we think the customers want, what the RSAs want and bring some more differentiated product to the floor. And then when we looked at that, it was clear that they were going to be expanded, some in the store. And when we thought through the financial impact of that, it appeared to us to be the best way to participate in that economics was with a passive equity investment so that we could win in that success, and they could win. And so they'll be at the high end and they concentrate primarily in spring area, high profile and have good brand strength in Canada and the Northeast. So they're good people, and we're glad to be a passive investor. Operator: [Operator Instructions] Your next question comes from Brad Thomas from Capital Markets. Bradley Thomas: Congrats on the great quarter here. My question was going to be around any thoughts -- my question was going to be around 2026. And any early thoughts you might be willing to share particularly in light of a longer-term target that you have for earnings by 2028, which does imply sort of a mid-20s growth rate. How should we think about the shape of earnings in any particular high-level comments on 2026 that you might want to share? Scott Thompson: That I want to share that will, of course, be no comments, what I will share will be some comments Okay. A couple of observations. I mean this quarter, you can see with just what I'll call minimum sales growth, the flow-through is really the first quarter we've printed that you can see. So you can see some of the dynamics of the business model. So you don't need much from the top line to get to the bottom line numbers that you're talking about. And I think you're referencing what we call -- we're calling a prospectus, but now we're just going to go ahead and just call it a target because now we've done enough at Mattress Firm, integrated enough, have enough confidence in the plan that I think we can call that 3-year glide path on EPS more of a target than a perspective. I think the only other call out I would give is probably new to me that I probably haven't talked much about is the impact of interest rates on the consolidated Somnigroup because there's a couple of items there. I mean you can obviously see from a debt standpoint, obviously, interest rates go down. We got some variable debt. That's good, blah, blah, blah. Of course, then as you pay down your debt, you get into a lower spread grid, blah, blah, blah, that's good, too. The one that sometimes I don't think people would fully appreciated because I know I didn't fully appreciate is the cost of the promotion when Mattress Firm or the Tempur stores offer a 60 months, 0% financing or 72 months. That is a retailer's expense. But that is -- that's grid-priced based on short-term rates. So as short-term rates come down, the cost of that financing comes down. And that's kind of -- you don't see that in the balance sheet when you're looking for the impact of 100 basis points. So I'm going to give you the number that for me was a little surprising, which is a 100 basis point change in interest rates on our cost, okay, equates to $0.18 to $0.20 per share or about a 7% lift of EPS based on our midpoint, okay? That's more leverage to falling interest rates probably than people were thinking. And that does not include the benefit that we would get from falling interest rates from a recovery in housing market. So the way I think about it, and maybe the big -- the newest news for '26, although we're certainly not doing any guidance or anything or prospectus is really the benefits of the falling interest rates are, I think, more robust than the market is perceiving. Operator: Your next question comes from Keith Hughes from Truist. Keith Hughes: You've given us kind of cash flow uses next year, shifting back to cash flow to shareholders because you're going to delever this thing pretty fast. I guess at what point would you consider instead of doing these passive investment in brands, would you consider a purchase of another retailer or another manufacturing brand? Is that something on the horizon? Scott Thompson: Yes. The way we think about utilization of capital is it really hasn't changed. I mean, obviously, we've got to keep being disciplined and keep our balance sheet properly leveraged, not overleveraged, okay? And then we are constantly looking at opportunities to do exactly what you just said, other manufacturers, other adjacents, other retailers and we are constantly in discussions around the world and have been for years that nothing changes. And we're constantly considering it. And we basically look at that and said, we'd rather do that or buy stock back. So I do think that it's likely that we will do some more acquisitions over the next few years, but that will be dependent on finding the right acquisition at the right price. If we don't do another acquisition, that would be fine with me. We never do one. We don't budget them. We don't target them. But I think the nature of the market, the competitive advantages we bring to a company when they join us are such that it's probably likely that we will do something in the future. And that may slow down a little bit on the glide path on deleveraging or it might slow down the actual ending ratio. But we continue to be active and looking at various companies. Operator: There are no further questions at this time. I will now turn the call over to Scott Thompson for closing remarks. Please go ahead. Scott Thompson: Thank you, operator. To our 20,000 associates around the world, thank you for what you do every day to make the company successful. To our retail partners, thank you for your outstanding representation of our brands. To our shareholders and lenders, thank you for your confidence in the company's leadership and its Board of Directors. This ends the call today, operator. Thank you. Operator: Thank you, ladies and gentlemen. This concludes today's conference call. Thank you all for your participation. You may now disconnect.
Operator: Hello, everyone, and thank you for joining us today for the Xeris Biopharma Q3 2025 Earnings Conference Call. My name is Sami, and I'll be coordinating your call today. [Operator Instructions] I'd now like to hand over to your host, Allison Wey, Senior Vice President of Investor Relations and Corporate Communications, to begin. Please go ahead, Allison. Allison Wey: Thank you, Sami. Good morning, and welcome, everyone, to the Xeris Biopharma Third Quarter 2025 Earnings Call. You can find this morning's earnings release and our detailed financial results on the Investor Relations section of our website. Today, I'm joined by John Shannon, CEO; and Steve Pieper, our CFO. After our prepared remarks, we will open the line for questions. Before we begin, I'd like to remind you that this call will contain certain forward-looking statements concerning the company's future expectations, plans, projects and financial performance. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. For more information on our risks, please refer to our earnings release and risk factors included in our SEC filings. Any forward-looking statements in this call represent our views only as of the date of this call and subject to certain applicable laws. We disclaim any obligation to update such statements. Please note that some metrics we will discuss today are presented on a non-GAAP basis. We have reconciled the comparable GAAP and non-GAAP figures in our earnings release. I'll now turn the call over to John for opening remarks. John Shannon: Thanks, Allison, and good morning, everyone. I'm excited to share that Q3 marked another record-setting quarter for Xeris. Total product revenue exceeded $74 million, representing a 40% increase year-over-year. As highlighted in this morning's press release, the strength of our year-to-date results gives us the confidence to raise the lower end of our full year total revenue guidance. We now expect total revenue for the year to be in the range of $285 million and $290 million, a 42% increase at the midpoint. Our performance was fueled by robust patient demand across all 3 of our products, reflecting the tremendous value our therapies are bringing to patients and the consistent and outstanding execution of our team. RECORLEV remained the primary growth engine with revenue more than doubling versus the prior year. This momentum reflects the continuing expansion of new patients and prescribers. Gvoke delivered another quarter of steady, reliable growth, demonstrating the effectiveness of our efforts to expand awareness and reinforce adherence to established medical guidelines. KEVEYIS outperformed our expectations, supported by new patient additions, which drove an increase in the average number of patients on therapy. Let's take a closer look at each product, starting with RECORLEV. RECORLEV generated revenue of $37 million in the quarter, a year-over-year increase of 109%. We continue to expand our prescriber breadth and depth as more clinicians gain experience with RECORLEV and recognize the important clinical benefits. The average number of patients on therapy grew by 108% versus the same period last year, reinforcing our confidence in RECORLEV's position in the growing hypercortisolemia and Cushing's syndrome marketplace. Turning to Gvoke. Gvoke delivered another solid quarter with revenue of more than $25 million, up nearly 10% from the same period last year. As we continue to educate patients and providers, we see considerable potential to reach more individuals who could benefit from having a ready-to-use glucagon on hand. Moving to KEVEYIS. KEVEYIS continues to serve a critical need for patients living with primary periodic paralysis. Quarterly revenue was approximately $12 million, driven by growth in the average number of patients on therapy. These results underscore what we know to be true, that effective treatment of PPP requires more than just delivering a product. It requires a sustained, holistic commitment to supporting patients throughout their journey. Our continued strong commercial performance this year has enabled us to accelerate our strategic priorities. As previewed during our August call, the third quarter marked the initiation of our next commercial expansion, a key milestone in laying the foundation for future scalable growth. This initiative is centered on expanding our commercial footprint to capture the significant opportunity ahead for RECORLEV while simultaneously strengthening the operational backbone required to scale efficiently in 2026 and beyond. This strategic expansion, nearly doubling our sales and patient support teams will enhance our ability to reach more clinicians and serve more patients and allows us to capitalize on the significant market opportunity ahead. Let's turn now to our pipeline in XP-8121, our once-weekly subcutaneous form of levothyroxine for primary hypothyroidism. XP-8121 continues to advance according to plan. Leveraging our proprietary XeriSol technology and drug device development capabilities, we are creating a novel formulation and a high-precision delivery system that will enable the administration across a wide array of doses. Important drug manufacturing and device validation work is in process, and we remain on track to initiate our Phase III clinical trial in the second half of 2026. As we've stated before, we're really excited about this product and the unmet medical need it can address. While at the recent American Thyroid Association's Annual Meeting, we enjoyed a large number of enthusiastic discussions with key opinion leaders who further reinforced our conviction in XP-8121's blockbuster potential. Before I turn the call over to Steve to walk through the details of our exceptional quarter, I want to leave you with this. We are focused. Our ability to deliver remarkable performance quarter after quarter highlights the value of our commercial product portfolio, the effectiveness of our strategy and most importantly, our dedication to serving patients. With that, let me hand the call over to Steve. Steven Pieper: Thanks, John, and good morning, everyone. Before diving into our financial performance, I want to highlight the considerable progress our company has made this year. Over the past 9 months, we've generated outstanding revenue growth, fueled by both robust demand for our therapies and a high-performing commercial organization. At the same time, our gross margin has continued to improve, underscoring the strength of our operations. In the third quarter, we generated significant positive cash flow as well as net income for the first time in the company's history. We also delivered strong adjusted EBITDA growth, further demonstrating the scalability of our business and reinforcing our ability to translate consistent top line performance and bottom line results. These results are a clear testament to the discipline, focus and execution across the organization, and they reinforce the solid foundation we've established for sustainable growth well into the future. Turning to our third quarter results. On a year-over-year basis, net product revenue increased 40% to $74.1 million with total revenue of $74.4 million. RECORLEV delivered another record quarter with net revenue of $37 million. Compared to the prior year, net revenue once again more than doubled, increasing approximately 109%, driven almost entirely by patient growth of 108%. Gvoke net revenue was $25.2 million, an increase of approximately 10% compared to the same period last year. This growth was driven by a 5% increase in total Gvoke prescriptions as well as some favorability in our gross to net. KEVEYIS net revenue was $11.9 million. We saw a modest increase in the average number of patients on therapy in the third quarter, and we continue to see a healthy pace of new patient starts, underscoring the durability of this franchise. Turning to gross margin. We delivered a significant improvement this quarter with gross margin growing to 85%, driven primarily by improved product mix. Research and development expenses were $7.5 million for the quarter, a $1.6 million increase versus last year. This increase primarily reflects our continued investment in our pipeline and technology platforms. Selling, general and administrative expenses were $46.5 million in the quarter, an increase of approximately 3% compared to prior year. The increase in SG&A primarily reflects incremental personnel-related expenses. Adjusted EBITDA for the quarter was $17.4 million, improving more than $20 million compared to the third quarter 2024. This impressive result underscores the strength of our operating model and validates the actions we have taken to drive long-term value creation. As I mentioned earlier, for the first time since the company's inception, we reported quarterly net income. This achievement highlights our growing commercial strength and operational discipline. As we continue to make targeted investments across a range of growth opportunities, we do expect some variability in quarterly EPS results going forward. And to be clear, we remain committed to maintaining positive adjusted EBITDA even as we make these incremental investments. Moving to our near-term outlook and guidance. As John highlighted, our strong performance year-to-date, coupled with the momentum we are seeing in the fourth quarter, gives us the confidence to raise our full year 2025 guidance for total revenue. We are raising the low end of our previous range, which, as a reminder, was $280 million to $290 million, to $285 million to $290 million. The new range represents growth of 42% at the midpoint compared to 2024. Additionally, as we make incremental investments in our RECORLEV commercial organization and as we prepare for our Phase III clinical study start for XP-8121 in 2026, we expect an increase in both SG&A and R&D spend starting in the fourth quarter. These investments are aligned with our strategic priorities of supporting near and long-term growth. Before we move to Q&A, I want to reiterate my earlier comments and emphasize our considerable progress this year. We delivered strong top line growth once again reflecting robust ongoing demand for our therapies. With gross margins around 85%, strong cash generation and significantly positive adjusted EBITDA, we continue to prove the strength of our business model. Overall, this has been a year defined by exceptional execution and transformational progress. With that, I'll turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Dennis Ding from Jefferies. Yuchen Ding: I'd like to ask on RECORLEV. Can you just please talk about the impact of the expanded sales force that you guys have implemented last year and if productivity has ramped up yet? And as you're thinking about further expansion, when do you think those reps will be fully trained and get to productivity? And then as a follow-up on RECORLEV, your competitor continues to have supply issues with its specialty pharmacy. Just curious, were you able to capitalize on that in Q3? Or should we see more of a tailwind from that in Q4? John Shannon: Steve, do you want to? Steven Pieper: Yes. So the expansion last year, we increased the size of the RECORLEV commercial team by 50%. So we were at around 42 reps starting in the third quarter of last year. And as you know, it takes a little bit of time to ramp up productivity. But I would say that starting in the first quarter, second quarter this year, those reps were operating at optimal productivity. Looking ahead, we expect more of the same in terms of productivity from our next expansion. And the timing of that would be, we'll bring those reps on board in January, take some time to train them up, get them out in the field, get a couple of quarters under their belt before they're operating at optimal productivity. John, do you want to take the competition? John Shannon: Yes. I would say we didn't see anything unusual in Q3 as it relates to where our patients were coming from. We continue to see the majority of our patients are new to therapy for RECORLEV and the rest come from competition, all the same mix as we've seen in the past. So I would say nothing unusual and everything is as status quo. Operator: Our next question comes from Chase Knickerbocker from Craig-Hallum. Chase Knickerbocker: Congrats on the quarter. Maybe just to start on some kind of under-the-cover stuff on RECORLEV. Can you maybe just give us an update on kind of what you're seeing from a persistency perspective? Any sort of help you can give us as far as kind of the current discontinuation rates and how that's trended over the last couple of quarters? John Shannon: Yes, Chase, I think everything is, again, same as what we've had in the past. We're again adding so many new patients that that's really keeping all of those metrics in check right now. So we're getting the same amount of people started, the same time to get them started. No real change in dropout rates, average dose, all those things. We're too new in our life cycle here to see any kind of real significant changes in there. And again, they're overwhelmed by the high level of new starts. Chase Knickerbocker: Can you just remind us what kind of 6 or 12 months discontinuation rates are either for the condition or specifically for RECORLEV? John Shannon: I don't know exactly what they are for the condition. I would tell you, RECORLEV is pretty typical to a specialty product like this in a complex disease state. I think what we're seeing is as expected in the space, but we haven't really disclosed any of that directly. Chase Knickerbocker: Got it. And then maybe just as we kind of look into 2026, you've had pretty remarkable progress, particularly on the RECORLEV front this year. Would you be willing to share kind of any thoughts as we go into 2026 and start having some more impressive comps to deal with, obviously, as we look at the impressive RECORLEV performance this year? I mean any thoughts on kind of how to set expectations as far as top line growth, either for RECORLEV specifically or the business as a whole? John Shannon: Yes, I'll try to take that on the context of RECORLEV. As you heard, we're investing on more expansion around RECORLEV. That's driven by a market that is ripe for expansion. There's more and more people being screened for hypercortisolemia. We have, in my opinion, the best product for normalizing cortisol. And we're expanding into a market that's continuing to grow as we're expanding. So I see plenty of growth for RECORLEV. We said back in June, we think this is on pace to be a $1 billion product. And this is all part of our plan to get to that $1 billion. Chase Knickerbocker: Maybe just last one for me. Steve, I hear your comments as far as some variability on the bottom line as far as we think about expenses in the go forward. Any additional thoughts you'd be willing to give us as far as kind of when that cadence of R&D should be fully reflected from enrollment perspective as it comes to the 8121 trial? I mean, should we ramp that up into mid next year and then that's kind of peak enrollment? Or just kind of give us some thoughts on particularly the R&D line next year, but also obviously, SG&A as we think about the RECORLEV expansion? Steven Pieper: Yes. Good to talk to you, Chase. As we think about -- in my comments earlier, we're going to start to see some of those investments for both RECORLEV and 8121 stepping up in the fourth quarter. John highlighted in his prepared remarks that we plan to start the trial in the second half of next year. So I think that's when you'll really start to see the spend start to ramp up and then obviously well into '27. That's probably where it will peak off. And then in terms of the RECORLEV investment, we started to make some of these investments this quarter, late third quarter, but we're bringing on the reps starting in January. So that's where you're going to see another step-up in SG&A spend. But again, all things under the umbrella of supporting growth in our strategic priorities. And as we've said a number of times, even with these investments, we are committed to remaining adjusted EBITDA positive going forward. So that's a really important point here is even with the significant step-up in spend, over the next 15 months, we will remain adjusted EBITDA positive. Operator: Our next question comes from Leland Gershell from Oppenheimer. Leland Gershell: Congrats on the continued progress. Just a question with regard to your longer-term sales guidance for RECORLEV. Just wondering if that anticipates any further build-out of the sales force or if you expect that you'll be able to achieve those targets based on your current force? John Shannon: Thanks, Leland. We said that we're going to continue to invest over the next several years on RECORLEV. And we'll need to do that to manage the patient load, so we'll have to make investments in pharmacy, patient services, all the commercial footprint it takes to be successful in this space. We'll also need to and look to start investing even more in data and other things that can help drive more growth in this space and position us to really capture that growth. So yes, there will be investments all the way through to the end for this product. As you build a $1 billion product, you continue to scale your investments with that growth level. Leland Gershell: Got it. And I also wanted to ask, we have 8121 coming through and we still have a bump in R&D over the next couple of years as it gets through its pivotal program. But then R&D should come back down unless that we'll be looking for maybe other candidates to be coming out of XeriSol or the company's platform to maybe fill in, in the early pipeline. John Shannon: That's a great question. One of the beauties of the business here at Xeris is we continuously find great ways to invest in our technology, using our technology for new opportunities. 8121 is a perfect example of that to be able to create using our XeriSol technology, a once-weekly subcu product that can really meet an unmet medical need. So in those time frames, sure, we're not prepared to say what those would be now, but we see it as an opportunity for us always to make incremental investments with the platforms we have and the capabilities we have to continue to drive even more growth than we've already stated in our plans. Operator: Our next question comes from Brandon Folkes from H.C. Wainwright. Brandon Folkes: Congrats on the progress. Can you just remind me of the gating steps between now and the initiation of 8121 trial? And then maybe just following on from some of the questioning. As you make these multiyear investments in the infrastructure behind these products, does that infrastructure ever get large enough where it makes sense to bring in additional products? Just any comment there would be great. John Shannon: Let me answer the first one on 8121. So we've been really clear that we're planning and building a blockbuster here with 8121. And we're taking all the necessary steps before we start the Phase III trial to basically make sure we've got the ready-to-go commercial product to take into that Phase III trial. So we're right now in the middle of manufacturing scale-up, device verification and design that device verification and making sure that what we go into the clinical trial with can deliver the wide range of doses that are necessary in this space. And we just need to make sure that we get that done before we start the Phase III trial so that we're not going back later on and dealing with delays because we weren't able to do that. So we're going to do this very carefully, planfully, and we'll start that trial when all that work is done, and we can go into it with the commercial presentation. Remind me on the second question. Steven Pieper: The infrastructure and leverage for business development. John Shannon: Yes. Of course, yes, the infrastructure -- I mean, we're in such a growth mode right now, the infrastructure is pretty much dedicated to the brands we're driving the growth with. But as we get a little more mature, yes, sure, it makes sense to use that infrastructure to kind of leverage even more opportunities and capabilities. Operator: Our next question comes from David Amsellem from Piper Sandler. Alexandra von Riesemann: This is Alex on for David. My first question is, how are you thinking about competitive dynamics for RECORLEV to the extent that Corcept's relacorilant gains approval by the end of the year? And what are your base case scenarios for the impact of that potential entrant on RECORLEV? And then maybe also a second question just on the headcount for RECORLEV. Do you have any plans in the future to call on general practitioners? And I'm sorry if I missed that earlier on the call. John Shannon: So yes, we anticipate relacorilant gets approved by the end of the year. We've said this in the past, and I'll say it again, is we think that this is a market where there's so much opportunity and so much potential that another player in this marketplace talking about screening, detection and finding people with hypercortisolemia is a good thing. So we think relacorilant will help the market. We know they're going to make great -- and they're already making great investments to drive that. And we see that as opportunity as well. And then in terms of numbers on the expansion, I'll let Steve maybe. Steven Pieper: Yes, I think the question was around targeting GPs. Are we going to be targeting GPs? John Shannon: Yes. So we're approaching this data-driven kind of approach to expansion and focus. And where the patients are is where we will go with our commercial footprint. And that leads you into some GP area. Most of those GPs are endo-like, high diabetologists, things like that. So yes, as we expand, of course, we'll be moving into those spaces to really go where the opportunity is. Operator: [Operator Instructions] Our next question comes from Roanna Ruiz from Leerink Partners. Roanna Clarissa Ruiz: So a follow-up question on RECORLEV. I wanted to see if you could talk about how much momentum you're seeing across new and repeat prescribers. And just thinking ahead to 2026, any seasonality trends or volume growth drivers we should consider for RECORLEV going forward? John Shannon: So yes, we're seeing repeat prescribers and new prescribers come on. And we have momentum on both of those with 108% increase in patients and prescriptions, you're getting from both. So we're excited to see that momentum. We see that momentum is still very, very strong, and obviously, the reason why we're expanding into that opportunity. Steven Pieper: In terms of seasonality for RECORLEV, maybe a little bit with deductibles that get reset in the first quarter, and you see that across all of our products really. But I wouldn't say that that's overly material for RECORLEV. We're not expecting it to be overly material, but that's something we pay attention to every year at the first of the year. So that would be the only potential seasonality impact, Roanna, that I would expect for RECORLEV. Roanna Clarissa Ruiz: Yes. That makes sense. And one other question I had was just could you talk a bit more about the KEVEYIS franchise durability? It seems to be continuing pretty steadily. Do you expect that to persist into next year? And have you been hearing anything else about competition to KEVEYIS? John Shannon: Well, we're always watching for more competition in this space. But like you, I'm excited every time we talk about KEVEYIS because this is just a great model where what we do for patients is really important. And starting with finding the patients, helping them get diagnosed for the first time, working them through treatment and helping them stay and remain on treatment. All of those things really, really matter in this space, and that's why KEVEYIS continues to hang in there, and it remains to be a very durable asset for us. We continue to bring on new patients to brand every week, which is just really exciting in this space because we're really making an impact on those patients in the marketplace. Operator: We currently have no further questions, so I'd like to hand it back to John for some closing remarks. John Shannon: I want to quickly thank everyone for their questions and continued interest in Xeris. As we look ahead to the end of 2025, I couldn't be more proud with how our team delivered this year. We are finishing the year from a position of real strength, evidenced by our strong commercial and financial performance. At the same time, we're building for the future with the foundation in place to initiate the XP-8121 Phase III clinical study next year and continue advancing our broader strategic priorities. We believe these efforts position Xeris exceptionally well heading into 2026, a year where our operational momentum will continue to translate into outstanding revenue growth, profitability and long-term value creation. Thanks again for joining us today and for your continued support. Operator: This concludes today's call. We thank everyone for joining. You may now disconnect your lines.
Operator: Greetings, and welcome to the Nomad Foods Third Quarter of 2025 Conference Call. [Operator Instructions] Also, please be aware that today's call is being recorded. I would now like to turn the call over to your host, Jason English, Head of Investor Relations. Please go ahead. Jason English: Hello, and welcome to Nomad Foods Third Quarter 2025 Earnings question-and-answer session. We've posted the associated press release, prepared remarks and investor presentation on Nomad Foods website at noomadfoods.com. I hope you've all had a chance to review them. I'm Jason English, Head of Investor Relations and I'm joined by Stefan Descheemaeker, our CEO; Ruben Baldew, our CFO; and sir Martin E. Franklin, our Co-Founder and Co-Chairman. During this call, we'll make forward-looking statements about performance that are based on our view of the company's prospects, expectations and intentions at this time. Actual results may differ due to risks and uncertainties discussed in our press release, our filings with the SEC and in our investor presentation, which includes cautionary language. We will also discuss non-IFRS financial measures during the call today. These non-IFRS financial measures should not be considered a replacement for and should not be read together with IFRS results. Users can find the IFRS to non-IFRS reconciliations within our earnings release and in the appendices at the end of the slide presentation available on our website. Please note that certain financial information within the presentation represents adjusted figures. All adjusted figures have been adjusted primarily for, when applicable, share-based payment expenses and related employer payroll taxes, exceptional items, foreign currency translation charges, or gains. Unless otherwise noted, today's comments from here will refer to those adjusted numbers. With that, operator, let's open the line to questions. Operator: [Operator Instructions] Our first question here will come from Andrew Lazar with Barclays. Andrew Lazar: Welcome to Dominic. Maybe to start, one for you, Martin. Nomad discussed quite a bit at our September conference about medium-term goals, productivity and even said the company expected to deliver positive EBITDA growth in '26. Obviously, since then, Nomad has changed CEOs. And investors, I think, are rightfully asking whether those commitments sort of are still relevant, as oftentimes a new CEO appointment can signal the need for some form of a profit reset. So I guess my question is whether Nomad still stands by those recent comments at this stage. Stéfan Descheemaeker: Thank you for your question. I would say a few things. First of all, these commitments and if you like, internal commitments and goals are ones that are approved and studied by our entire Board, not just our CEO. We made a few commitments that I think are important that are consistent and what we've talked about already in our prepared remarks. Our EUR 200 million multiyear efficiency target, obviously, it still stands and is still actively being worked on, I think, quite successfully. The second, our medium-term goals to compound EBITDA in low single digits. Those goals continue to be in place and you have to excuse me. And third, accelerating free cash flow growth by delivering EBITDA and also -- and importantly, while reducing exceptional items. So I think all of these goals are in place. Obviously, when we bring in a new CEO, it's our CEO's prerogative to evaluate everything in fairness to Dominic, he's in the company for 3 days. He doesn't take over as CEO until the year-end, but we brought in Dominic because of his growth orientation and in the business. So I'm excited to have him and only see this as being a positive in terms of our metrics of performance. Andrew Lazar: All right. And then maybe as a follow-up, I know I think private label trends tends to lag branded price increases when Nomad's led with them. And sometimes that's led to some temporary market share weakness in the past. I guess how is Nomad balancing sort of the pricing that you're going to be taking next year with keeping share momentum? And maybe can your higher level of productivity help offset some of the inflation such that maybe more modest pricing can be enacted than otherwise that might have had to have been the case? Ruben Baldew: Yes. Thank you, Andrew. Let me take that question. So first, the kind of price lag and dynamics. If we look at the last 3 months, last 6 months, last 9 months, we've seen our price index versus competition and our competition is mainly private label slightly go down, so 2%, 3%, which is helpful in the context that we have to take pricing. I do have to say that's the average of an average. So of course, you always have to go a bit more in the detail per country and the specific product, but there has been a bit of catching up of private label. So that's one thing. I think more importantly, and you were already given half of the answer, is what are we seeing for next year. And we've been clear that the inflation we're seeing most of the pricing we're going to take in quarter 1, '26. Now a couple of things there. The inflation in total is not the same level of inflation. We said it before like 2 years ago. We're looking around cost price inflation of around single digit. And that's probably at this moment what we're looking at. Second point, also when you compare, and that's also probably the question behind your question on competitiveness and not going too aggressive in terms of pricing and losing share, our RGM capabilities versus 2, 3 years are in a better place, and we said it before, we will do this very surgically. Third point is what you alluded to. We've launched this cost competitiveness program, and Martin also mentioned of EUR 200 million, and we still passionately stand behind it. And by the way, this is not only a forward-looking program. You also heard in our remarks that in quarter 3, but also in quarter 2, we are delivering lower overheads, compensating for inflation even when you correct for the bonus release. So that cost competitiveness program, we will drive forward, and that will help for us to make the right trade-offs in how much should you price versus where actually do we have some offset in savings. We will also look at pricing, how that links with the renovation. So if we're looking at some renovation with different superiority, different product quality, we try to link that to pricing. So there's also new news both for retailers as well as consumers. And the last remark, just to be clear, I think it's just too early days to really see what the effects are. We are sending out the price as we speak. We have already sent to certain customers in certain countries. There's a bit of difference overall. And we can come back more on that when we release our quarter 4 results in the new year. Operator: And our next question will come from Scott Marks with Jefferies. Scott Marks: I just wanted to follow up on a question that Andrew asked about reiterating some of the medium-term targets. I think as we think about '26, with pricing coming in, Dominic taking over and some of the other dynamics that you've laid out. Just wondering how we should be thinking about '26 preliminarily in terms of maybe cadence of the year or when we should be thinking about some of these newer initiatives kind of that are kicking in. Stéfan Descheemaeker: Ruben, do you want me to take that? Ruben Baldew: Well, I can do. I build on -- let me just build on what Martin already said. So I think what Martin just said, and it's also your question, Scott, we launched a program strategy in September, which is not only the program of Stefan or of a CEO, it's something endorsed by the entire Board and our whole internal program. What Martin just said, look, we will passionately drive a EUR 200 million competitiveness program. We will see the benefits of cash flow. But it would also be unfair to make a lot of additional comments concretely on '26 with Dominic just coming into the role. But there is a clear focus on the top line recovery and some of the effects we're seeing this year will help also for next year. And overall, we expect results to be better next year than this year. How much that will be completely is more for when we announce our full year results in early next year. Scott Marks: Okay. Appreciate the answer. And then second question from me would be, you called out, obviously, some challenging dynamics in the U.K. with the expectation for some of those to stabilize. As we think towards the Q4 and low end into the guide, if results were to come in, let's say, below what you're anticipating or above what you're anticipating, maybe what would be the reasons for that? How should we be thinking about kind of like the risks and the potential upside risks as well? Ruben Baldew: Yes. So we've said today, we're confirming, reiterating the guidance, albeit at the low end of the guidance. The low end of the guidance on the top line implies a quarter 4 between minus 1.5% and minus 2%. And let's just take a step back. If we look at our sell-out, our sell-out year-to-date is plus 0.2% -- if you look at our sellout -- and by the way, that's plus 0.2% in a year where we're not happy. It's a year where we've seen the impact of the weather, both as well in our savory business, savory frozen food in Northwestern Europe as well, we're not so happy with the ice cream performance more in quarter 3. Despite that, our sellout is plus 0.2%. We also said part of that is transitory, and we see the market recovering and also our own sell-out numbers. If you look at the last 3 months, value is plus 0.5%. Our last 3 months volume growth is plus 0.7%. So our sellout is not where we want it to be, but it is positive and actually it's slightly improving. And that you have to see then to an implied guidance of minus 1.5%, minus 2%. Now, what gives us confidence that we're able to hit that. If you look at our difficulty plan, and you've also seen that some of it in the prepared remarks, we improved the product quality of our pizza business in the U.K. That's one. We started around September with our new campaign in the U.K. It's a bit too early to tell, but the first positive, the first signals are positive. We see distribution increases in Italy, but also in France. So we're now 1/3 of the quarter is now behind us. To your question, what needs to go well, wrong, what could change it. There's a bit where you could look at pricing. We've increased the prices of our chicken range in the U.K. because we said a lot of the pricing will be taken next year. It's a bit depending what competition will do, so that could go up or down a bit, but I think those are probably the big ones. Operator: And our next question will come from John Baumgartner with Mizuho. John Baumgartner: I'd like to stick with private label, but I'm curious more about the competitive aspects because market share has always been high, but it hasn't really increased in your categories for the better part of the decade prior to the cost of living crisis. And even now it seems to have sustained momentum even as price inflation has moderated. So I'm curious, what are you seeing from retailers? Is private label competing differently aside from price? Is the innovation more refined? Is the quality improving? Are there differences in non-price factors that you're seeing over the past 24, 36 months? Because it does seem that maybe there's an evolution here from store brands. Jason English: Thanks for the question, John. I think it's... When you think about this category, frozen food, it's a very good category. Category is growing nicely year after year. But definitely, private label is a big thing. And I think the learning from my 10 years is basically, you have to be -- I mean, every day, you have to be non-complacent. And you have to make sure that you have the right value equation, which is partly price and partly obviously, renovation, A&P and all the rest of it. And when you think about, let's say, this year in the U.K., for example, we lost it a bit. And I think exactly what Ruben mentioned in terms of renovation of fish fingers, in terms of renovation of pizza, in terms of some renovations of packaging in peas, for example, that's exactly what we're doing right now, which is to come back with the right value equation. That together obviously with to Ruben's point, which is pricing-wise, we are slightly better compared to where we were a few months ago, a few quarters ago. I think that's where we think we can do a better job. But definitely, to your point, it's not only pricing, it's the non-pricing peas. And that peas is when I compare '26 with '25, starting now actually, I mean, our program is much better. And let's face it, I think we can be hard with ourselves. I think '25, I don't think we've been good enough in terms of value equation. And that's why we're doing all these renovation in pizza, for example. And what we can see is in the U.K., well, even we've compare ourselves with premium, we are superior with the takeaways. We intend to do the same with the second part, which is thin. We intend to come with the renovation, a superior fish finger, which is a big thing for us. The fish finger is around 40% of our fish business. which is really big. And it's going to hit the market together with the sizing in Q1. So that's the kind of things we're doing. We're doing things. We're renovating the packaging in peas. Peas we have -- definitely, we have a superior product. But definitely, I don't think it can do better in terms of packaging. So it's -- philosophically, it's very simple. I think our job as branded people, we need to bring additional value compared to private label. And if we don't do that, obviously, we lost our relevance. And that's, I think the program for '25, '26, second half of '25 and definitely '26 is going to be much better than what we have. Operator: Our next question will come from John Tanwanteng with CJS Securities. Jonathan Tanwanteng: I was wondering if you could talk about the decision to keep the majority of your repricing to next year. You've previously demonstrated the ability to go to your retailers and make adjustments ahead of that annual negotiation. Maybe first, what drove that decision this year not to do so? And second, does that give you any incremental leverage or ability to make up a portion of that inflation that you ate in '25 as you talk to your retail next year and within, obviously, the context of end demand elasticity? Stéfan Descheemaeker: Well, let me contextualize a bit this decision. Put yourself back in 2022, where between March and June, every month, we had another $50 million additional COGS. And so whilst all the negotiations, the prenegotiations with all the retailers in Europe were behind us. Well, it was simple. It was force majeure, and we decided to reopen everything. And by the way, we not only reopened it once, but sometimes twice, even 3 times. And we did it, and it worked overall even in countries that are probably a bit more difficult like France and Germany. This time, it's very different. It's not force majeure. It's just an additional COGS that came in the middle of the year and the negotiations were behind us. And quite frankly, we took the commercial decision not to take it this year. I think it would have been a mistake to reopen the negotiation for something which was not considered as a hyperinflation. So that's why we did it. But definitely now, obviously, we need to take a more holistic approach for next year, how much we need to price, also combine also with the renovation program and the whole 360 approach. That's obviously for next year. Jonathan Tanwanteng: Okay. Great. And then second, could you talk a little bit more about some of the cost saving items over the next quarter and year and how they phase in and possibly net out between your cost restructure, the resumption of bonus accruals and then how that nets out with also the savings realizations as well? Ruben Baldew: Yes. So it links a bit to our overall $200 million program. That $200 million program, vast majority of that sits in supply chain, around $170 million invested in overheads. Overheads, you already see some savings coming through this year, which is really about making the organization simpler. We've done restructuring in some of our functional support areas. We're also looking at non-people costs where we also now started with the indirect procurement team and getting savings out of that one. So that's the first part. Then if you look at supply chain, we actually have already been delivering quite a bit. It's a step-up in supply chain from EUR 145 million to kind of EUR 180 million, EUR 175 million. The big step-up there is procurement. And it's not that in procurement, we're all tomorrow going to have huge consolidation in the fish supply base. But if we look at elements like ingredients, like packaging, some other ingredient base, we think we can further consolidate our supplier base, and that's the big driver of the savings there. The other part is in our factory footprint, we've lost volumes. So there, we're going to do 3 things. 22% of our volume still sits at CoCopac, and we think we can in-source that. So we'll do that. Secondly, we see some of our bigger factories where we have an opportunity to rightsize both cost and asset base. And thirdly, and again, it's not only promising. You've seen in our year-to-date results that we announced a closure in one of our smaller factories, which not only helps from a profit perspective, but also from a cash perspective. So we're doing that, and we will continue to do that. How we allocate that to the P&L is exactly linked to the question of Andrew, we're going to be surgical where we think that saving needs to be used not to price for the last piece of inflation and dampen some of the supply chain impact or we say, look, in areas like, for example, peas, where we know we have good quality, we're going to invest more in communication or like what Stefan mentioned, we see in fish thing is that we have an opportunity to improve quality, and we're going to use those savings to improve product quality. Operator: And our next question will come from Steve Powers with Deutsche Bank. Stephen Robert Powers: So you've spoken a little bit about this indirectly, but the implied fourth quarter guidance does contemplate an acceleration on a 2-year basis. And I guess you've spoken a little bit about where your confidence comes from that. But I guess just a little bit more clarity or a little bit more color as to how you think you're protected against downside just because the comparison is a bit more difficult. Ruben Baldew: I understand the question. Maybe it's also good to understand '24 comparator, and it's how far back do you want to go versus '23 comparator because we had the same discussion, I think, last year when we delivered a 3% growth in quarter 4, which is the background of your question. If you look at the year before, actually H1, the year before was minus 2%, and in H2, we had a minus 8%. So you also have to look at the comparator of the comparator, which sounds a bit as we're going back very many years. But in the end, it's looking at run rates, and we knew that the comparison run rate wasn't the strongest. The second point, which for me is a crucial point, we are not happy with this year. We know we had the destocking. We had not the greatest ice cream season, but our sellout is plus 0.2%. If you look at the last 3 months, it's a plus 0.5% growth in volume plus 0.7%. That is vis-a-vis a guidance implied of minus 1.5%, minus 2%. So there's some call it buffer, but some difference there. And secondly, if you then look at our activity program for the fourth quarter, there is a lot with additional distribution. There's a lot where we're stepping up quality in pizza. There is the mass brand in the U.K., U.K. specifically because we're not happy with the U.K. performance, and that's not something which will be solved in 4 to 12 weeks, but we see stabilization of shares, which also gives confidence. I think, yes, that's probably all the context and color I can give at this moment. Stephen Robert Powers: Perfect. Okay. That makes a ton of sense and it's confirming. I guess the other question I wanted to ask about was just around capital allocation priorities. I think your comments over the course of time, especially recently have been pretty consistent about how you plan to deploy capital, obviously, supporting the dividend and prioritizing share repurchases. It seemed like in the prepared remarks that there was even more emphasis on that capital allocation prioritization. And I do note that in the recent refinancing that you executed, I think there was an extra $150 million or so raised with that. So should we infer that, that will be deployed towards buybacks? Or are there other uses of that extra capital? Martin Ellis Franklin: I'll take this one. It's Martin. I don't know how many companies you're able to buy at 6.5 PE, but I think while we're in that ZIP code, we're going to be buying back our own stock. We see obviously a far higher intrinsic value of the company than the equity markets give us credit for. I think we said that in our prepared remarks. And obviously, the credit markets really do recognize the strength of the company and its cash flow. So we will be continuing to be bought by stock in the past. We're going to continue to buy back stock until we feel that the markets are fairly valuing the company. And obviously, the extra $150 million of cash that we have gives us more liquidity to do so. Operator: And with no remaining questions, I'd like to turn the call back over to Stefan Descheemaeker for... Stéfan Descheemaeker: Well, thank you all for joining us today. This has been my 40th earnings call with the company, and it will be my last. The past 10 years have been dynamic with the good, but also challenging times, but the company has persevered through it all, emerging from each challenge stronger than before. It held true during Brexit, Russia's invasion of Ukraine, the more recent period of hyperinflation, and it will be true again this year. This year was more challenging than we initially expected, but I'm already seeing the companies begin to bounce back. The foundation for improvement has been laid, and I'm excited to see Dominic build upon it as the next CEO. The best is still ahead for Nomad Foods. And with that, thank you, and goodbye.
Operator: Good day, and welcome to the Q3 2025 Walker & Dunlop, Inc. Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Kelsey Duffey. Please go ahead. Kelsey Montz: Thank you, and good morning, everyone. Thank you for joining Walker & Dunlop's Third Quarter 2025 Earnings Call. I have with me this morning our Chairman and CEO, Willy Walker; and our CFO, Greg Florkowski. This call is being webcast live on our website, and a recording will be available later today. Both our earnings press release and website provide details on accessing the archived webcast. This morning, we posted our earnings release and presentation to the Investor Relations section of our website, www.walkerdunlop.com. These slides serve as a reference point for some of what Willy and Greg will touch on during the call. Please also note that we will reference the non-GAAP financial metrics, adjusted EBITDA and adjusted core EPS during the course of this call. Please refer to the appendix of the earnings presentation for a reconciliation of these non-GAAP financial metrics. Investors are urged to carefully read the forward-looking statements language in our earnings release. Statements made on this call, which are not historical facts may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe our current expectations, and actual results may differ materially. Walker & Dunlop is under no obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, and we expressly disclaim any obligation to do so. More detailed information about risk factors can be found in our annual and quarterly reports filed with the SEC. I will now turn the call over to Willy. Willy Walker: Thank you, Kelsey, and good morning, everyone. Our third quarter financial results underscore an improving commercial real estate market and Walker & Dunlop's strong brand and market position. Pent-up demand for assets and a material increase in the supply of debt capital drove increased transaction volumes across our platform, generating $15.5 billion of total transaction volume on the quarter, up 34% year-over-year. Strong transaction activity across all capital markets executions, sales, debt financing, equity and structured finance, investment banking, research and appraisals led to third quarter revenues of $338 million and $0.98 of diluted earnings per share, up 16% and 15%, respectively, year-over-year. Adjusted EBITDA grew 4% to $82 million and adjusted core EPS increased 3% to $1.22. With the 10-year sitting just above 4% and a strong forward pipeline, we expect a gradual increase in commercial real estate capital markets activity to continue forward. The 34% increase in total transaction volume to $15.5 billion was led by an extremely active quarter of lending with Freddie Mac, up 137% to $3.7 billion, along with solid growth in Fannie Mae volumes, up 7% to $2.1 billion. It is important to note that while the growth in GSE lending and W&D's market share is fantastic, the mortgage servicing rights associated with our GSE business have decreased significantly due to the majority of our loans being 5-year loans versus 10-year loans. This shift, which began in 2023, has a large impact on the capitalized mortgage servicing rights we book, as Greg will speak to momentarily. But given the growth we are seeing from both existing and new clients to W&D, this shorter duration presents a huge opportunity for asset refinancing and/or sales over the next 2 to 5 years. Compounding this opportunity are the upcoming refinancings on the 10-year loans written in 2018, '19 and '20. As you can see on this slide, there is $31 billion of scheduled agency maturities in 2025, mostly comprised of 10-year loans originated in 2015. The level of agency maturity steps up to around $50 billion for both '26 and '27 and then increases dramatically to $97 billion in 2028 and $144 billion in 2029 as those later vintages of both 10-year and 5-year loans mature. And as we have seen in previous cycles where there appears to be a wall of loan maturities, assets will get sold and refinanced, pulling forward a large portion of the refinancing wall. HUD lending volumes were up 20% in the quarter to $325 million. And while the government shutdown is impacting HUD's ability to process business, the newly implemented efficiencies at HUD and increased borrower demand for HUD capital makes us bullish on the outlook for this lending business going forward. Our Q3 investment sales volume was very strong, up 30% to $4.7 billion and outperforming overall market growth of 17% according to RCA. While oversupplied high-growth markets such as Austin and Nashville, where our team sold $3.5 billion of assets in 2021 and 2022, are still struggling and not seeing much sales activity, gateway cities in their suburbs have operating fundamentals attracting capital. A good example of this is the $550 million multifamily portfolio we sold in Boston in Q3 and the $350 million financing we arranged for the buyer of that portfolio, reflecting the broad geographic coverage of our team that is driving our growth in 2025. And while suburban gateway and slower growth Midwestern cities have stronger supply-demand fundamentals today, the Sunbelt will come back due to job growth and lifestyle choice, and we have the teams in place to capture deal flow when that rebound occurs. Our investment sales platform has 26 teams across the country, including 4 national specialty practices and is well positioned to take advantage of an increase in activity across geographies as the next cycle gains momentum. There is still a tremendous amount of equity capital that needs to be recycled to investors before commercial real estate private equity funds can raise fresh new capital. As Slide 6 shows, there is over $600 billion of equity capital invested in historic funds for over 5 years that needs to be returned to investors and nearly $300 billion that was raised in 2021 and 2022 that is yet to be invested. This pressure to return capital and deploy uninvested capital is an important component part of what is driving increased transaction volumes in 2025. Our brokered debt financing team placed $4.5 billion in Q3, up 12% over Q3 '24. Debt funds, banks and life insurance companies are all active in the marketplace, increasing liquidity, which in turn is beginning to drive down cap rates. Our technology-enabled businesses of small balance lending and appraisals continue to grow with appraise revenues up 21% in the quarter and small balance lending revenues up 69%. We continue to invest in customer-facing technology like Client Navigator, our digital experience for W&D clients. We currently have over 2,700 clients actively monitoring their loans and properties through this portal. Similarly, our clients are increasingly using WDSuite, a new web-based software that provides instantaneous market and asset level insights. Galaxy, our proprietary loan database, continues to source new clients and loans for W&D with 16% of our transaction volume year-to-date being with new clients and 68% of our refinancing volume being new loans to Walker & Dunlop. Our success continuing to broaden our client base and win loans from our competitors is a testament to the powerful combination of our talented bankers and brokers, innovative technology and exceptional customer service. As you can see from every client-facing execution experiencing strong growth in Q3, W&D's people, brand and technology are well positioned in the marketplace and winning. We see the secular tailwinds behind our business, almost 3 years of pent-up demand, lower interest rates and the need to recycle capital to investors for future investment continuing over the next several years as the economy continues to grow and commercial real estate fundamentals improve. We are seeing very similar market dynamics in 2025 to what we saw after the great financial crisis in 2011, '12 and '13 and have built Walker & Dunlop to meet the market's needs and grow. I will now turn the call over to Greg to talk through our financial results in more detail. Greg Florkowski: Thank you, Willy, and good morning, everyone. As Willy just outlined, the continued momentum of the commercial real estate transaction markets drove growth across every one of our product offerings in Q3 '25. Both of our operating segments, Capital Markets and Servicing and Asset Management grew revenues this quarter, reflecting the strength of our overall business model as the market continues to improve. Diving into our segments, our capital markets team continued to build momentum, delivering volume growth across every product offering this quarter when compared to the year ago quarter. As a result, loan origination fees grew 32%, property sales broker fees grew 37% and MSR revenues increased 12% year-over-year. Over the past 2 years, we highlighted 2 trends in our GSE lending volumes. The first is a shift away from 10-year loan products towards shorter duration 5-year products. As this graph shows, back in 2020, 82% of W&D's GSE lending was 10-year or longer paper and 0% was 5-year. Fast forward to today, and those numbers have essentially inverted. Year-to-date in 2025, 23% of loans are 10-year or longer, while 60% are 5-year. The second trend we have seen over the past 2 years is tighter servicing fees due to the higher interest rate environment. Both of these trends continued this quarter, which led to lower valuations for our noncash MSRs. So even though the 64% growth in GSE lending volumes this quarter was fantastic, it only drove a 12% increase in our noncash MSR revenues compared to the year ago quarter. These clients are part of our ecosystem and their loans are now in our servicing portfolio, and we will be in the pole position to address those loans for our clients as they prepare to transact over the next 5 years. As shown on Slide 9, total Capital Markets segment revenues grew 26% year-over-year. Net income grew 28% to $28 million, and adjusted EBITDA improved 83% to a loss of less than $1 million. This segment's performance this quarter is a reflection of the team on the field and what they are capable of delivering as market conditions continue improving. We expect to see more quarters like this as momentum in the markets continue building. Our Servicing and Asset Management, or SAM segment grew third quarter total revenues by 4% year-over-year, as shown on Slide 10. Our $139 billion servicing portfolio continues to generate steady cash servicing fees that grew 4% this quarter. Our placement fees and other interest income also grew this quarter by 5%, even though short-term interest rates declined year-over-year. We experienced an uptick in loan payoffs this quarter, many of which we refinanced for our clients, temporarily increasing the balance of our escrow accounts and offsetting the year-over-year decline in interest rates. This is a nice surprise in Q3, but not something we expect to persist in future quarters. Overall, SAM segment net income declined 1%, but adjusted EBITDA grew 2% to $119 million. Turning to credit. Our at-risk servicing portfolio continues to perform exceptionally well with only 10 defaulted loans totaling just 21 basis points. We recognized a $1 million provision for loan losses this quarter compared to $2.9 million in the year ago quarter. The provision this quarter was driven by updated loss estimates on 2 previously defaulted loans as well as standard loss provisions for the growth in our overall at-risk portfolio. We continue to see strengthening operating fundamentals across the portfolio as rates come down, excess supply in certain high-growth markets get absorbed and national occupancy increases. While our portfolio performance is exceptional, and we feel extremely good about the credit quality of our book, we continue to investigate in collaboration with the GSEs, specific incidences of borrower fraud that took place largely as a result of changes in industry practices in the aftermath of the pandemic. We are currently in negotiations with Freddie Mac on the indemnification of 2 such loan portfolios totaling $100 million. While Freddie Mac and Walker & Dunlop jointly underwrote these loans, we have a long-standing partnership with Freddie Mac that requires us to repurchase loans or indemnify them if certain borrower documentation is determined to be fraudulent. Our current expectation is to use approximately $20 million of Walker & Dunlop capital to collateralize our indemnification of Freddie Mac for these loans, and we expect to take the credit losses associated with this portfolio in the fourth quarter. While loan buybacks and the associated losses are never welcome, we do not have other fraud investigations underway with either GSE and feel confident that the policies, procedures and new technology we have in place today protect us from the type of borrower fraud that transpired during and in the immediate aftermath of the pandemic from occurring again. As Willy just outlined, we have significant momentum heading into the fourth quarter and the strength of our pipeline and the macroeconomic environment has our core business on the path toward achieving our annual guidance for EPS, adjusted core EPS and adjusted EBITDA, absent any losses related to loan buybacks. We ended the quarter with $275 million of cash on our balance sheet, reflecting the continued recurring revenues from our SAM segment, combined with a rebound in capital markets activity. Our capital deployment strategy remains focused on organic growth opportunities through recruiting and retention, reinvestment in strategic areas of the business and continued support of our quarterly dividend. To that end, yesterday, our Board of Directors approved a quarterly dividend of $0.67 per share payable to shareholders of record as of November 21. As I said previously, we feel very good about our business model, credit outlook, market positioning and growth opportunities for 2026 and beyond. Thank you for your time this morning. I will now turn the call back over to Willy. Willy Walker: Thank you, Greg. As Greg just described, our business is very strong as we finish off 2025 and start looking ahead to the coming year. Our bankers and brokers are winning, driving strong transaction volume and revenue growth. And while our clients borrowing for shorter duration is putting downward pressure on noncash mortgage servicing rights, we are being set up for an extremely strong run of both cash origination fees and new mortgage servicing rights as the shorter duration loans of 2023, '24 and '25 come up for refinancing over the next 2 to 5 years. Our market share with the GSEs continues to grow. And as Fannie and Freddie get ready for potential public offerings, we expect to see their multifamily lending volumes increase. Similarly, we see HUD becoming a more efficient and competitive source of capital. We remain at the top of the league tables with Fannie, Freddie and HUD, and we see a tremendous amount of opportunity ahead as the Trump administration focuses on lowering the cost of housing in America. We saw the opportunity and necessity to be a scaled player in multifamily investment sales back in 2015. And after a decade of growth, our sales volumes have increased 40% in 2025, handily beating the industry average of 17%. We can still grow this group further in the United States, Europe as well as into new asset classes such as hospitality, retail and industrial. Investment sales is the tip of the spear with regard to real estate capital markets activity, and we will continue to invest in great talent for many years to come. We are focused on the continued expansion of our debt brokerage business. We split this business into 2 units earlier this year, one led by Aaron Appel, focusing on institutional clients and the other run by Alison Williams, focusing on middle market and regional borrowers. Both of these groups have a massive total addressable market of almost $3 trillion of refinancing volume based on our contractual maturities over the next 5 years. We will both add bankers and brokers as well as expand our investment sales business to make W&D as competitive in banking, the retail, hospitality and industrial sectors as we are in multifamily. Given the strong total transaction volume we closed in Q3 and the strength of our Q4 pipeline, it is clear that our bankers and brokers are meeting their clients' broad needs today. Year-to-date, our annualized average transaction volume per banker broker is $220 million, ahead of our 2025 goal of $200 million per banker broker and tracking towards our 2021 peak of $311 million. We see data becoming increasingly important to us and our clients. As I mentioned earlier, our Galaxy database continues to identify new clients and loans to W&D. Our client portal developed completely in-house provides our borrowers with data on their loans and portfolio of assets that we believe is unique and differentiating in the marketplace. And while there are multitudes of point solutions for technology and data in the marketplace today, we see the combination of our people, technology and data as the way to differentiate us today and going forward. Aggregating data from our Zelman research, brokers' opinions of value, appraisals, loan underwriting and servicing portfolio to identify trends and investment opportunities for our clients is where we will continue to invest. W&D is the 10th largest commercial loan servicer in the United States. We have invested heavily in people and technology and believe we have one of the best servicing platforms in the world. But we know there are economies of scale we can gain by expanding our servicing business by either buying mortgage servicing rights or increasing our loan origination capabilities significantly. Our fund management business continues to grow, but we need to raise more capital. In 2025, our team will invest just under $1 billion of capital in debt and equity investments, and over half of that deal flow was sourced by Walker & Dunlop bankers and brokers. We see great value in both our fund management professionals' ability to structure and deploy capital as well as our large distribution network of 225 bankers and brokers across the country who have placed $28 billion of capital year-to-date. We are extremely focused on growing our fund management business by raising additional capital vehicles to meet our clients' varying capital needs. We see the continued institutionalization of the commercial real estate industry as capital raising and technology become more differentiators. W&D has best-in-class point solutions in lending, property brokerage, research and appraisals with a very real opportunity to combine these service offerings into a scaled suite to the institutional investor community. Our capital markets group is increasingly selling more than one service to our clients, debt financing along with investment sales or fund valuation services along with research. The opportunities for growth in our industry with W&D's people, brand and technology are enormous. And the challenge and opportunity over the coming years will be to integrate our service offerings to meet the needs of our customers, particularly institutional investors, where we see capital and assets aggregating. Finally, our brand could not be stronger. The Walker Webcast is about to surpass 20 million views on YouTube and Spotify, placing it as the preeminent voice to the commercial real estate industry by a wide margin. Zelman research continues to expand its coverage universe and maintains its reputation as one of the most insightful housing research companies in the United States. And our bankers and brokers exceed their clients' expectations consistently, which in the services business is the best branding and marketing possible. W&D's net promoter score year-to-date is 86, a number well above the financial services industry average and a reflection of the exceptional people, technology and client focus of Walker & Dunlop. These are exciting times for our company. We see an enormous opportunity ahead to expand our capabilities, bring technology to our business that makes our clients and us more insightful and more efficient and continue growing to drive exceptional shareholders' returns. I'd like to thank our entire team for a terrific Q3, and I would ask the operator to open the line for questions. Thank you. Operator: [Operator Instructions] We'll go first to Jade Rahmani with KBW. Jade Rahmani: Just to start off with on the 2 new loan repurchase requests. So far this quarter, we have seen some of the agency multifamily lenders, particularly Greystone take charges, JLL and Arbor also have taken charges. W&D's credit has been pristine through this cycle. So this is a modest surprise, although I don't think it's huge. But just can you give any context as to how widespread the issue might be? I think the last repurchase requests you received were in 2024. Willy Walker: Yes, Jade, thanks for joining us. As Greg underscored, this is isolated to the portfolios that have been identified by us and by Freddie, so we do not have any other investigations underway with either GSE. And so we feel good about that. And at the same time, as Greg said, we never like it when this happens, but feel very good that we have the people, the processes and the systems in place to make sure that this doesn't happen again. Jade Rahmani: And in terms of credit trends within the portfolio beyond these select instances of apparent fraud, how has credit been performing? I know in the past, you've talked about 2x debt service coverage ratio in the Fannie portfolio, but are you seeing any credit deterioration at this point? Willy Walker: No. Actually, if you look at the provision for loss sharing in Q3 of last year at $2.9 million and it lowering to $1 million this quarter and Greg's comment as it relates to the overall performance fundamentals of the portfolio, it's exceptionally good. I would underscore the fact that our at-risk portfolio right now as it relates to defaulted loans is sitting at less than 20 basis points. If you look out into CMBS portfolios, the multifamily default rate in CMBS portfolios just eclipsed 7%. And so I think it's a testament to us and to the underwriting policies and procedures that the agencies have had in place for decades that has maintained such a pristine credit track record. And we feel extremely good about the underlying credit fundamentals of our portfolio, particularly with the amount of debt capital that has come back to the market as well as where interest rates and cap rates appear to be trending. Greg Florkowski: Just to add to what Willy said just real quick. I mean there's still really strong national occupancy and just fundamental tailwinds behind multifamily as a sector. So that just contributes to the strength of the portfolio. So it's not just our assets, but it just broadly, there's really strong tailwinds behind the sector that just continue to strengthen overall credit. So I think the repurchases are isolated relative to the broader credit of our book. Jade Rahmani: Just turning to volumes. Fannie Mae volumes seemed a little light and the strength was clearly in the Freddie business. Was there anything that weighed on Fannie volumes in the quarter? And do you expect to pick up in the fourth quarter? Willy Walker: As you know, Jade, from having covered us for quite some time, Fannie and Freddie sort of wax and wane as it relates to market participation and market volumes. And when one sort of steps in, the other one goes down a little bit. The nice thing for us is that we are #1 with Fannie Mae and our indication right now, there are no league tables that have come out year-to-date, but our indication is that we're right at the very top of the league tables with Freddie Mac as well. And so as a very large scaled agency lender, as one or the other is more competitive, we're going to benefit from getting more deal flow done with the agency that is doing more transaction volume at that time. And so we feel extremely good about where both agencies are today as it relates to annual volumes. As you know, neither Fannie nor Freddie hit their caps in 2024 or 2023. And it is very clear that both Fannie and Freddie are headed towards hitting their caps in 2025. The regulator has not given the cap number for 2026 yet, but there is a lot of talk about an increase in the cap. How much of an increase is to be determined, but we see that it's great that both agencies are headed towards hitting their 2025 caps and that my sense from having spoken with officials at FHFA that we'll probably see a cap increase in 2026. Operator: We'll take our next question from Steve Delaney with Citizens Capital Markets. Steven Delaney: Willy, my question was going to be would you see the possibility of a refi wave coming later this year as the Fed cuts and maybe the bond market rallies a little bit? It sounds like you're in one. And if you could comment on that -- those vintage, the post-COVID vintage loans, the nature of those transactions, do you think that those borrowers had a shorter mindset? In other words, was it more opportunistic money and that's why you're seeing some exiting of properties as opposed to simply doing a rate and term refinance? Just your thoughts on if the nature of the recent originations is really what's causing the prepayments that you're seeing now. Willy Walker: Sure, Steve, thanks for joining us. I think you have to underscore the recycling of capital as one of the major drivers of the market we're in today. Many, many of the large participants in the broader commercial real estate markets and more specifically the multifamily markets are fund businesses that have finite lives and have a tremendous amount of capital that needs to be recycled back to investors before they are going to be able to go and raise that next fund. And with essentially very limited to -- you can't say no deal activity in 2023 and 2024, but very muted deal activity in '23 and '24, we sort of arrived in '25 with a lot of people sitting there saying, I've got to start recycling capital back to my investors if I have a chance of going and raising my next fund. And so a lot of the sales activity and financing activity that we've seen in 2025 has not been because cap rates have been, if you will, exceptionally low or exceptionally exciting for someone to sell into. It's been that need to recycle capital that has driven the transaction markets. And what that's also done is it's closed off the bid ask. A lot of sellers have sat there and said, I don't really like the price that I'm selling at. And yet at the same time, they have to recycle that capital. So they have, to some degree, capitulated on the pricing of the market and allowed the buyer to step in and buy the asset at a price that they find to be attractive. And so throughout the year, we've seen that bid-ask shrink. The beginning of the year was much wider and it's gotten tighter and tighter. Interest rates have obviously played into that, making it so that both on the buy side, you're buying the asset at a relatively cheaper price. And we've also seen cap rates come down modestly. I think that what we're now looking at is with that transaction volume going on, you now have buyers and sellers back in the market. That bid-ask has come down, which just drives that transaction activity. And it's getting a lot of people off the sidelines, if you will. And so you know this, Steve, we're in a cyclical business. We have been in a down cycle for the last 3 years since the great tightening began. And we're now starting that next cycle, and it's not just happening at Walker & Dunlop. If you look at the commentary of all of our competitor firms on their Q3 capital markets activity, there is pretty widespread commentary that transaction volumes are picking up. I would also say that everyone has been very tempered in their commentary to say this is a slow build back to where we were at the end of the last cycle. I don't think anybody is saying there's some massive amount of activity that's going to happen in the upcoming quarter because I think everyone is quite honestly a little scared to get over their skis and say, hey, this is going to be game on. But we clearly, from looking at our transaction volumes from Q1 to Q2, Q2 to Q3 and what we're looking in our forward pipeline for Q4, are seeing a resurgence of activity in the real estate capital markets. Steven Delaney: Interesting. And it sounds like the loan product has definitely shifted to more demand for a 5-year term than a 10-year term, if I heard you correctly. What are you quoting a 5-year Fannie or Freddie multifamily loan at just the range of what you're quoting the coupon at today for 5 years? And how would that compare to the weighted average coupon in your servicing book? Willy Walker: Steve, well, I can tell you this, first of all, there are a couple of factors that play into that. One of the things that I think is an important data point is that the spread between a 5-year treasury and a 10-year treasury, last I looked at it, it was about 50 basis points. But if you actually do a 10-year loan versus a 5-year loan, it's actually only 15 basis points more expensive to the borrower. And so one of the big things that's going on in the market is, I believe, borrowers look at that 50 basis point spread between the 10-year treasury and the 5-year treasury and they say, well, I want to go short. But given where spreads are on 5-year agency paper versus 10-year agency paper, you're only 15 basis points more expensive going long than you are going relatively shorter. The other piece to your specific question is whether the client is doing a rate buydown or whether the client is just taking the existing rate and spread on top of it. But if you're taking the existing rate and the spread on top, we're doing a lot of financing in the high 4s right now. Last one I looked at yesterday was a 4.83% coupon on a 5-year deal. But that 4% to 5% number is also something that a lot of clients are sort of getting attracted to where they sit there and look at, hey, I can do a 5-year deal at a 4.78% coupon. And if I do a 10-year deal, that's going to push it up closer to 5%, I want to go with the lower one. The other piece to it, Steve, is the prepayment flexibility that a 5-year loan gives you versus a 10-year loan. What we're seeing a lot of borrowers do is sit there and say, I don't want to sell the asset today, but I probably want to sell the asset in the next 3 to 5 years. Therefore, let's go with a 5-year loan that gives us prepayment flexibility and a lower prepayment penalty in year 3 or opens up at 4.5, then go and lock in a 10-year instrument that is rate lock, that is prepayment protected for 9.5 years. And so one of the things that that says to me is that if they're buying that optionality today and only going with a shorter structure, that sales activity or refinancing activity that's going to come up in 2, 3 and 4 years is going to be quite robust because they're buying that optionality to do something with the asset in the next 3, 4, 5 years. So that's the reason why the shorter durations. We don't like the downward pressure it's put on our mortgage servicing rights, but we also are sitting there saying, wow, there's going to be a great opportunity in the next 3, 4 and 5 years as this 5-year paper from '23, '24 and '25 needs to either be sold or refinanced. Steven Delaney: A lot of transaction activity potential, it sounds like. Willy, new clients, that's been a focus of W&D, just trying to broaden out your brand and more touch points with the institutional multifamily community. When you look at your third quarter transactions, do you have any data as to on those transactions, can you estimate how many of those were with new clients to WD or repeat borrowers? Willy Walker: Yes. I cited that in my script, Steve, and I don't have the exact data point in front of me, but I think it's 14% were new clients to Walker & Dunlop and 60-some-odd percent were new loans to Walker & Dunlop. So the new loans are pieces of business with an existing Walker & Dunlop client, just a loan that one of our competitor firms had done that we refinanced or financed the acquisition for our client. So over 60% is new product to Walker & Dunlop. And then totally new clients, I think was it 14%? Steven Delaney: 16%. Willy Walker: 16%, yes. 16% were new clients to Walker & Dunlop. And so look, as you know, Steve, we operate in an exceedingly competitive market. We have great competitor firms that have wide distribution networks and in some cases, seemingly a banker and broker on every corner. And so the opportunity for W&D is to go and attract new clients and bring new loans and new sales opportunities to our platform. And as our Q3 numbers show, we did just that. And I would also say, as our growth numbers show, we are outstripping a number of our competitor firms as it relates to growth in our capital markets executions, from aggregate volume numbers. Steven Delaney: Just one final thing for me, Willy, big picture. The S&P is up 16% or so year-to-date 2025. You're putting up good numbers, but W&D share is down about 18% year-to-date '25. What do you think people are missing? I mean this is a strong report. Rates are headed down, not up, that generally is a good thing for real estate-related firms. I know you're probably frustrated by it, but I don't see the negative bear case for W&D shares. I think my notes reflect that. So I'm not saying anything that's not out there on the street. But it just seems to be a disconnect between the way your shares are trading and where the market is and where the rate outlook is. Willy Walker: So Steve, a couple of things. One, and clearly, as the largest individual shareholder in Walker & Dunlop, I take your comments very seriously. Two, as having been fortunate enough to be CEO of this company for all 15 years of its public life, I've been around this too long to let it frustrate me and really just focusing on what we need to do to execute as a company. Third thing I would say is, look, Q1 of 2025, given where rates went at the end of 2024, was a very slow start to the year. As I hope investors can see, we have been building momentum in Q2 into Q3. And Greg's and my commentary talk about a forward look on Q4 that looks quite good. And I think that '26 is going to present to us and all of our competitor firms a very big opportunity to continue to grow in the capital markets area. The fourth thing I'd say, Steve, is that, look, some of our big competitor firms have steady Eddie real estate services businesses that are not as cyclical as the capital markets businesses are and have provided them with significant ballast in their financial performance for '23 and '24 and into 2025. But those businesses are not nearly as high growth as the real estate capital markets are. And so if you look at some of our larger scale competitor firms, they've done very well as capital markets transaction volumes have been way down in '23 and '24 and started to come back in '25. We are a real estate capital markets pure play for all practical purposes. And we better get the benefit of the growth that we are seeing coming to us in '26 and '27 as the capital markets reflate. And that's on us to go and perform and put up the numbers. And so I appreciate you pointing out where we stand, and I also appreciate the positive outlook you have on W&D and our forward performance. But we also know it's up to us to go address the market and put up the numbers going forward to make it so that our investors are benefiting from that growth and from that performance. Operator: At this time, there are no further questions. I will now turn the call back to Willy for any additional or closing remarks. Willy Walker: I just want to thank everyone for joining us this morning. Thank the W&D for a fantastic Q3. And I wish everyone a very nice day and end of the week. Thank you very much, operator. Operator: Thank you. This does conclude today's conference. We thank you for your participation.
Operator: Welcome to Devon Energy's Third Quarter 2025 Conference Call. [Operator Instructions] This call is being recorded. I'd now like to turn the call over to Mr. Chris Carr, Director of Investor Relations. You may begin. Christopher Carr: Good morning, and thank you for joining us on the call today. Last night, we issued Devon's third quarter earnings release and presentation materials. Throughout the call today, we will make references to these materials to support prepared remarks. The release and slides can be found in the Investors section of the Devon website. Joining me on the call today are Clay Gaspar, Chief Executive Officer; Jeff Ritenour, Chief Financial Officer; John Raines, SVP, Asset Management; Tom Hellman, SVP E&P Operations; and Trey Lowe, SVP and Chief Technology Officer. As a reminder, this call will include forward-looking statements as defined under U.S. securities laws. These statements involve risks and uncertainties that may cause actual results to differ materially from our forecast. Please refer to the cautionary language and risk factors provided in our SEC filings and earnings materials. With that, I'll turn the call over to Clay. Clay Gaspar: Thank you, Chris. Good morning, everyone, and thank you for joining us. Let's begin with Slide 2. With outstanding execution and innovation from every part of our organization, Devon delivered another outstanding quarter. I'm proud of our team's performance. We exceeded the midpoint of guidance on every key metric, including production, operating costs and capital. These results mark our strongest performance of the year, highlighting the exceptional quality of our assets and our unwavering commitment to operational efficiency and cost control. Building on this performance, we continue to advance our business optimization plan, firmly on track to generate an incremental $1 billion of annual pretax free cash flow. As we enter the fourth quarter, we have already achieved more than 60% of our target, underscoring both the effectiveness and urgency of our approach. These initiatives go beyond cost reductions. They are fundamentally reshaping our business by enhancing margins and boosting capital efficiency across our portfolio. The output of these compounding efforts show up in our strong preliminary outlook for 2026, which Jeff will discuss in more detail. Despite persistent macro headwinds, these achievements directly contributed to our resilient free cash flow as we returned over $400 million to shareholders in the quarter and retired $485 million of debt, demonstrating our focus on delivering meaningful value to our shareholders. Beyond business optimization, we continue to unlock significant value throughout our portfolio. While getting into the details on a later slide, our teams have capitalized on a multitude of opportunities to drive additional value for the organization. Collectively, these achievements reinforce Devon's momentum and position us exceptionally well for the remainder of 2025 and into 2026. Let's flip to Slide 4 and take a deeper look at the quarter. Our relentless focus on production optimization continues to drive our outperformance. With oil production exceeding the midpoint of guidance by 3,000 barrels per day, the outstanding efforts of our teams to reduce artificial lift failure rates and improve workover efficiencies resulted in a 5% reduction in operating costs compared to the start of the year. Additionally, effective cost management drove our capital investment 10% below the first half run rate. These accomplishments, combined with other ongoing initiatives, led to robust free cash flow of $820 million in the third quarter and enabled us to deliver substantial cash returns to our shareholders. Moving to Slide 5. Our consistent track record of disciplined execution and tireless pursuit of capital efficiency is evident. Quarter after quarter, we drive meaningful improvements to our outlook. This momentum is reflected in our updated guidance, where we've raised our full year production expectations every quarter this year while reducing capital by $400 million since our preliminary guidance. These are not isolated wins. They result directly from our steadfast commitment to operational excellence, our culture of continuous improvement and a rapid adoption of leading-edge technologies across our portfolio. Now looking at Slide 6. This continuous improvement is also resulting in top-tier performance versus our competitors. Our well productivity stands in the upper echelon of our peers, reflecting the strength of our asset portfolio and the execution of our teams across every basin. On the right-hand side, our disciplined approach to capital allocation is evident in our industry-leading capital efficiency, setting us apart in a highly competitive space. These achievements highlight the power of our advantaged portfolio and the rigor of our capital allocation process and the ability of our people to drive superior results. And with our extensive inventory, we are well positioned to continue this strong performance moving forward. Turning to our business optimization initiative highlighted on Slide 7. Our teams are outperforming expectations and delivering results well ahead of schedule. We have already captured more than 60% of our ambitious $1 billion target. When we originally launched this initiative, our focus was for year-end 2025 was $300 million in value uplift. As shown on the left side of the slide, we are on pace to double that milestone this year alone. This exceptional progress is highlighted this quarter by our significant progress in capital efficiency and production optimization on the right side, and we are fully confident in our ability to deliver these substantial cash flow improvements as we advance towards 2026. Driving this rapid progress is our outstanding execution. With greater visibility and confidence in our 2025 full year production volumes, we anticipate a sustainable increase in free cash flow of $150 million resulting from incremental 20,000 BOE per day above our initial baseline when this initiative began. This reflects further acceleration from our outlook from last quarter, highlighting the urgency of our efforts. When we announced the plan in April, we recognized that the market wouldn't immediately price the aspirational $1 billion of incremental free cash flow in our share price. We knew we would have to earn it. While the plan is still in flight, I'm encouraged that Devon's stock is starting to feel a bit of relative appreciation to our peers. That said, I believe that we have much more ground to gain, and I look forward to earning that value in time. Slide 8 showcases key examples of the initiatives our teams are pursuing to meet targets in each category. These represent some of the most impactful efforts currently underway. As our teams proactively implement these initiatives, we remain confident in our ability to achieve our targets and maintain clear line of sight to our objective. Turning to Slide 9. I'd like to highlight several portfolio optimization actions we've taken on this year, which are delivering an uplift of over $1 billion to enterprise NAV. Importantly, these gains are in addition to the improvements through our ongoing business optimization initiatives. Early in the year, we signed an agreement to dissolve our joint venture in the Eagle Ford, giving us control of our development and the ability to reduce well costs and significantly enhance returns. In Q2, we completed the sale of the Matterhorn Pipeline and subsequently acquired the remaining interest in Cotton Draw Midstream. Last quarter, we executed 2 strategic gas marketing agreements that expanded our natural gas sales portfolio into premium markets. In Q3, we acquired approximately 60 net locations in New Mexico for $170 million, increasing our runway of high-return opportunities in Delaware. And finally, we've benefited from the Water Bridge IPO, which now provides a public marker for our investment valued at greater than $400 million. These actions showcase our team's initiative and strategic thinking to create shareholder value. As we execute our business plan, we will seek further opportunities to optimize capital allocation, efficiency, costs and asset mix. We remain committed to continuous improvement, innovation and technological leadership, taking decisive steps to strengthen our operations and deliver strong shareholder returns. With that, I'll hand the call over to Jeff. Jeffrey Ritenour: Thanks, Clay. Turning to Slide 10. Devon delivered another quarter of strong financial results. In the third quarter, we generated operating cash flow of $1.7 billion. After funding capital requirements, free cash flow totaled $820 million. This robust free cash flow generation enabled us to return significant value to shareholders, including $151 million in dividends and $250 million in share repurchases. We remain committed to our capital allocation framework, balancing high-return investments with substantial cash returns to shareholders. Moving to Slide 11. Devon's financial strength and liquidity continue to set us apart. We ended the quarter with $4.3 billion in total liquidity, including $1.3 billion in cash. Our net debt-to-EBITDA ratio remains low at 0.9x, underscoring our commitment to a strong balance sheet. As part of our disciplined capital return framework, we accelerated the retirement of $485 million in debt this quarter, completing the repayment ahead of schedule and generating approximately $30 million in annual interest savings. With this action, we've now achieved nearly $1 billion towards our $2.5 billion debt reduction target. Looking ahead, our next maturity is our $1 billion term loan due in September of 2026. We remain focused on executing our debt reduction strategy and maintaining the financial flexibility that supports Devon's value-enhancing growth. Beyond debt reduction, we also used cash on hand to acquire all outstanding noncontrolling interest in Cotton Draw Midstream, saving $50 million in annual distributions and secured additional resources in the Delaware, as Clay mentioned earlier. These timely transactions reinforce the value of maintaining an investment-grade balance sheet and ample liquidity. As we approach 2026, we're determined to accelerate our operational momentum, prioritizing per share growth, maximizing free cash flow and making targeted reinvestments for sustained success. Slide 12 highlights the key attributes supporting our strong preliminary outlook for 2026. Given ongoing commodity price volatility, we're taking a disciplined approach to capital planning. We intend to maintain consistent activity levels to keep production around 845,000 BOE per day with oil production at approximately 388,000 barrels per day. With macroeconomic uncertainty and an appearance of a well-supplied oil market, we do not plan to add incremental barrels to the market at this time. To support this production profile in 2026, we anticipate capital investment of $3.5 billion to $3.7 billion, a reduction of $500 million compared to our maintenance capital levels just 1 year ago. Importantly, we can fund this program below $45 WTI, including the dividend, providing significant flexibility. This disciplined plan positions us to generate strong free cash flow at current prices and deliver a free cash flow yield that exceeds the broader market. Regarding free cash flow allocation, our financial framework provides flexibility to deliver market-leading cash returns to shareholders and achieve our debt reduction objectives. We'll continue to target share repurchases of $200 million to $300 million per quarter, and we'll retain free cash flow beyond share repurchases on the balance sheet to efficiently reduce net leverage. Complete 2026 guidance will be provided on our February call after the budget is finalized with our Board. In summary, Devon had all the key attributes to thrive in today's environment and create value well into the future. Our high-quality portfolio provides a solid foundation while our disciplined strategy keeps us focused on growing per share value and generating free cash flow. With a strong balance sheet, we are positioned to deliver lasting value and confidently navigate whatever the market brings. With that, I'll now turn the call back over to Chris for Q&A. Christopher Carr: Thanks, Jeff. We'll now open the call to Q&A. [Operator Instructions] With that, operator, we'll take our first question. Operator: Our first question comes from Neil Mehta with Goldman Sachs. Neil Mehta: Yes. Thanks so much for the visibility as we look into 2026. And I think the capital efficiency and the cost savings is really starting to materialize, including in the guidance. So maybe that's where we start off, which is where we are in the business optimization program and the $1 billion. You gave us a little bit of color on Slide 8, but kind of unpack what's left to do in the journey. And if you end up surprising to the upside relative to the initial guide, where could that be? Clay Gaspar: Yes, Neil, I appreciate it. This is Clay. We're incredibly proud. This was a big, hairy, audacious goal. When Jeff and I started first contemplating, one, what was the metric we wanted to focus on, and that was sustainable free cash flow and then how audacious should it be and what kind of time frame should we put it around? I can tell you there was a tremendous amount of discomfort around the organization and just amongst Jeff and I on how do we get there from here. But what we knew, I mean, deep in our soul was that you get the flywheel starting to turn, and there's so much that continues to come our way. Right now, we have over 80 parallel work streams on different ideas. So the progress that we've made essentially in 1/3 of the time to accomplish 60% of the results, I can tell you, I'm even more encouraged about what this leads to. The most important measure of success will be locking these earnings in and building into the culture of the organization, benchmarking, hunger for more creative ways of creating value. And like I said, there is much more to come from this. Trey, you may jump in and just throw a couple of pieces of color of ideas that you have. Robert Lowe: You bet. I appreciate the question, Neil. We've -- Clay mentioned the 80 work streams that we have ongoing. The early results that we saw, a lot of them show up very quickly in the capital side of our business on the drilling completions operations. Over the last quarter, last kind of 4, 5 months, we've seen a lot of new ideas arriving from our production department. And we continue to see those starting to show up now in our forecast and what's going forward. One of the examples I mentioned even a quarter ago was our focus on automating and using our technology stack to help us with our downtime. We've made a ton of progress over the last 3 months on that one and scaled that across the organization. And now we're working on the next phase of using even more kind of AI to underpin what we're trying to do to continue to look at our faults and what causes those faults. And we're going to see those type of examples show up. We estimate over $10 million on that work stream in 2026, but that shows up and that's sticky, like Clay said, and we'll see that in our base production. And those are the types of things that we're looking forward to in the future. All of that is underpinned by really a desire across our employee base to use technology. At this point, essentially all of our office-based employees are using AI to help them with productivity gains. And we're right now on the very tip of what we call Wave 2 and Wave 3 is where you're implementing that AI in our work processes. So a lot of momentum there, a lot of excitement across all of our organization to continue to move the ball down the field, and everything is looking good. Neil Mehta: Appreciate the color, guys. And then as you think about setting that CapEx budget for '26, you probably took a view on different product lines on the services side. And just talk about -- we're trying to isolate the structural cost improvements, which you talked about in the answer to the first question versus more of the cyclical stuff. So can you talk about the service environment right now and which product lines you're seeing deflation and which ones -- which of the cost items you're seeing flat to inflation? Clay Gaspar: Neil, we feel really good about our positioning ahead of what could be a really challenging 2026. We look like the market is exceptionally well supplied, maybe potentially oversupplied. And so as a kid that grew up on the Gulf Coast, we know how to prepare for a hurricane. And when the storms come and you make sure you got your balance sheet right, you got your operations really buckled down. You got the teams focused on the right things, and then that helps drive through those troubling times. So when I think about what could come from 2026 and how we think about this preliminary guide, we've taken out any assumptions of inflation or deflation, really kind of time stamp where we're at today. We don't know where commodity prices are going to go in subsequent activities and therefore, subsequent deflation. So just consider that flat to where we're at today, and then we're prepared for whatever comes our way from a macro standpoint. Operator: Our next question comes from Arun Jayaram with JPMorgan. Arun Jayaram: I was wondering if you could maybe elaborate on what you're doing to kind of manage your base production. You highlighted in the release that it's leading to maybe 20 MBOE per day of production uplift and a pretty meaningful improvement in cash flow from those efforts. And maybe talk about your views on the sustainability as we think about go forward 2026 beyond. Clay Gaspar: Thanks for the question, Arun. This, I think, is really important for us to spend a little time on. So I really appreciate the angle on this one. We -- it's pretty easy to quantify savings on that side of the equation. It's harder to quantify these wins. And we've been very clear from the beginning. This is not just a cost reduction program. This is a value enhancement program, and that should come on both sides of the ledger. This what you're talking about is more value enhancement. And I can be honest with you, it's really hard to measure how much downtime would we have had theoretically, how much are we gaining incrementally from the actions, but that's exactly what this attempt is. We're trying to be exceptionally credible. At the same time, we know that this is a hard number to precisely quantify. I'll ask John to dig in on a couple of things that we're doing to measure this, quantify this and then how we're seeing wins. John Raines: Yes, Arun. I appreciate the question. I think Clay hit it well. When you look at the full year, we've had a really strong production beat. And the first thing I would say on that is when you look at that production beat and you break it down, we certainly beat on our wedge. We've had some outperformance on our wells. We've had a little bit of acceleration. But overall, the biggest part of that production beat comes from our base, and we feel that, that's very measurable. Now we've got, and I think Clay said earlier, over 80 work streams on our business optimization. We've got a ton of these that go towards the base. I'm going to talk about a few that I think have contributed the most this year. We've got a combination of technology and good blocking and tackling. I'll start with a project that I'm very proud of that we've deployed in the Delaware Basin. Really, this deploys some next-generation technology. You've heard me talk about it before. But this is our smart gas lift project in the Delaware Basin. What we're seeking to do here is essentially to deploy AI models that continuously optimize the optimal rate of gas injection for gas lift wells that sit on centralized gas lift systems. This is a project that we piloted back in Q2. And we saw tremendous results here. We saw a 3% to 5% uplift. And we talked about moving to a pilot 2 on that. We saw success that was so good that we've moved essentially into full deployment of that in the Delaware Basin. And we expect to be complete roughly by year-end on that. The beauty of this project is we also have application in the Williston Basin. We have application in the Eagle Ford. And so this is going to be a project that's going to have ongoing sustainable results to our base production, and we're super excited about that. Probably a couple of other projects I'll hit on, and Clay mentioned this in our opening remarks, but we've had a tremendous focus on workover optimization this year. I'd say this year, this really started last year. We're looking at every which way that we can get better on our workover operations from operational efficiency all the way to safety. We took advantage early in the year. We made some changes in the organization to focus on this. We've got leads that work together to look at best practices across our basins. And when you look at what we've done there operationally, we've looked at advanced KPIs to manage our rig fleet. We've looked at design optimization. We've looked at equipment standardization. And really, we've looked at planning optimization. Not only have we been able to pull a ton of cost out of the system, but we've been able to lower the amount of time that we're spending on pad with these workovers. And essentially, what we've seen is we're getting our wells back quicker. And when we try to break down how much base contribution this had or the contribution to the base beat, we think it's over 2,000 barrels a day net production that we're seeing so far this year. And importantly, we think that's sustainable. I think maybe the last example I'll provide, we've had a really tremendous focus on failure rate reduction and optimization. We've had this throughout the portfolio. I'll brag on the Rockies team a little bit here. Over the course of the last 18 months, we really looked at our artificial lift failures. We did some very intensive look backs on that front. We did some proactive redesign there. And when we look back at the reduction in failure rate, we're tracking towards something that's 25%. And so again, that's a good example of a project that takes cost out of the system, but it also increases our uptime pretty significantly. And so a lot of really good projects in the queue like that, but we think these are all importantly, very sustainable to the base production overall. Arun Jayaram: Maybe just a follow-up. Your Rockies production has been trending maybe a little bit better than we had been modeling. In fact, if you look -- you grew your oil 7,000 barrels a day sequentially and you're relatively flat versus the 4Q 2024 number. So maybe talk to us a little bit about what's been driving that and maybe how the overall integration with Grayson Mill assets has been going? John Raines: Yes, I'll start with the integration of the Grayson Mill assets. That integration is roughly complete. It's gone really well. We've had a lot of bidirectional lessons learned there, everything from midstream to the base operations to learning more and more about the reservoir, how to drill these wells, how to complete these wells. So I can't say enough good things about how that integration has gone. When you talk specifically about the production, you're seeing a few things there. One, again, on the wedge, we're seeing well results that meet or exceed our expectation. And so we've continued to be very pleasantly surprised with the good production we've seen, the good well results, especially as we focus on the western side of the play. But Neil -- or excuse me, Arun, a lot of what I just said around the base is really what's driving that sequential improvement. And I would say the Rockies team has really led the way on that. That artificial lift failure reduction that I talked about as a huge driver for us in the Rockies. And specifically, we've seen our workover rig count in the Rockies come down the most and probably the biggest contribution to the base come from the Rockies. So really proud of the work they've done, and I can't emphasize enough how important that base uplift has been for us there. Clay Gaspar: Yes. Arun, I just want to jump in on John's comments. As we talk about the workover rigs, especially, a lot of this motivation, I can tell you, was around safety. The workover rigs was something the industry was really struggling with. And with this hyper focus, we found incremental value, cost savings, production efficiency and maybe most importantly, safety improvement as well. So really proud of all the teams that are working on that, and that's been kind of around the industry focus. So great progress on that. Thanks again for the questions, Arun. Operator: Our next question comes from Neal Dingmann with William Blair. Neal Dingmann: I was late last quarter. Clay, my first question is just on M&A. Specifically, I couldn't help but notice. I mean, you guys did a great job on the ground game being active on New Mexico lease sales. So I'm just wondering, with that said, do you all anticipate the ground game such as this, maybe in New Mexico or other states around other plays continue to represent a significant portion of your M&A? Clay Gaspar: Thanks for the question, Neal. Yes, I would say this is very important. We've done a lot of this work quietly kind of on the backs of trades, 40 acres in, 40 acres out. I mean, just hard work every single day that can be incredibly value creative. We've had some more opportunities with state lease sales and upcoming federal lease sales. That's definitely something we want to participate. We'll look at it objectively as we do all incremental investments, but really excited about that opportunity and definitely something we want to play an active role in. Clearly, we have. And we think we have -- with the flywheel, the machine that we have running in the Delaware Basin, in particular, I think it's a great opportunity for us to leverage not just the skill sets, the momentum that the team has, the technology, the benefit from the business optimization, all of those things, but also the mechanics of being there, boots on the ground every single day has a great ability to scale. So we think we have every right to be on the front end of that and successful thus far. Neal Dingmann: Great. Great point. And then that leads me to my second question, Clay. I can't help but notice just how much you continue to advance the Delaware, not only just better wells, but you continue to recognize more resource just undeveloping -- kind of developing more rock. So I guess with that said and just how well you're doing there, does that cause you to think about differently maybe one of your other plays like the Anadarko or PRB where you have less scale and 1 rig and I'd suggest investors are not giving you full credit. I mean why -- any thought about potentially reallocating selling something and reallocating into the more -- even more in the Delaware where you continue to see all this upside? Clay Gaspar: Yes, Neal, as you know, we look at this stuff all of the time. Our Board -- this is an imperative that our Board has for us to be thinking about all of the art of the possible. And that certainly means we're not going to be in these 5 basins exactly as constructed for the indefinite future. Objectively, we need to think about what's the right opportunity for us for how these positions would fit given the market demands, but also thinking about what the opportunities are to continue to scale and grow and make sure that we've got a sustainable value-creating business going forward. When you look back at the 50-plus year history of Devon, and I would say any organization that survived 50 years in this very tough business, we have reinvented ourselves a number of times along the way. We always will remain objective about what that could mean going forward. And again, this is regular conversations that we have with our Board as we should about thinking the longevity of creating long-term shareholder value. It's just fundamental to what we do. Operator: Our next question comes from Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: Clay, I wonder if I could come back to the business optimization for a second. I think I've maybe been confused about something, and I'm looking for some clarity. You have some of the legacy midstream contracts rolling off. But my understanding is it's beyond the time line of the $1 billion target. So I'm thinking EnLink specifically. So can you tell us what's included in the remaining $400 million? And it sounds like there might be an upside case for that based on some of these longer-dated contracts. Sorry if I'm getting that wrong. Clay Gaspar: No, I think you're exactly right, Doug. I think there is upside. One of the things that we debated early, I can tell you the original construction from the team that was presented to Jeff and I as we were thinking about what could this look like? It was actually a 3-year look, and that includes some other things that we know we're going to have in kind of year 3 of this opportunity. I can tell you there's additional wins in years 3, 4, 5 and for the foreseeable future. We've really focused on '25 and '26 wins. And as you pointed out, there are some really material specifically in the gas contract world that comes out further than that. I'll ask Jeff to dig into some of those opportunities. Jeffrey Ritenour: Yes, Doug, just to be clear, so in the business optimization guidance that we rolled out to get to the $1 billion of free cash flow starting in January of 2027. The bulk of that, that relates to the commercial opportunities is what we talked about in the previous quarters, which is reduced fees on gathering, processing, transportation and fractionation. Most of that's on gas and NGLs, specific to the Delaware Basin. So the lion's share and bulk of that really resides in the Delaware. T. Hat's where you're going to get this incremental uplift, if you will, of the commercial opportunities that we highlighted specific to the $1 billion. As Clay just said, beyond 2027 and beyond, there'll be other opportunities across our portfolio where we could see some incremental benefit. But in the $1 billion, the real driver of that is what we're seeing in the Delaware specific to our gas and NGL contracts. Douglas George Blyth Leggate: That's very helpful. I guess it would be a bit of a stretch to ask you to quantify the upside at this point, but maybe that's for another call. My follow-up is a little self-serving, I'm afraid. And I just want to make sure I'm not misinterpreting or overstating this. But if I look back to the legacy commitment from when you were still COO, Clay, you used to talk about 70% of your free cash flow coming back to shareholders. It seems that your presentation deck has adjusted that a little bit to now include debt reduction in your shareholder returns. Is that the right interpretation? Because obviously, we're big fans of that. I just wanted to clarify with you if that's how you're thinking about it. Clay Gaspar: Yes, I appreciate that. I mean I think it is a fundamental piece of how we think about returning value to shareholders. And certainly, ahead of what could be a pretty choppy year in 2026, I think we want to make sure that we are thinking about debt, debt structure, how we capitalize the company and that we're prepared for anything that comes ahead. So there was an opportunity for us to take the $485 million down. We certainly consider that part of, again, returning cash in various forms to shareholders. And obviously, we had an illustration this time that included that. So yes, I appreciate your support over the years for debt reduction. This is a very -- it's a challenging business. We think the more that you can be prepared for the storms, the storms turn into real opportunities. And I think that's where Devon is positioned today that when these challenges come ahead, we're going to be front-footed and on the -- have an opportunity to really be -- to turn them into a value-creating opportunity rather than just a defensive posture. Douglas George Blyth Leggate: Sounds like an M&A question, Clay, but I'll leave it there. Clay Gaspar: Thank you, Doug. Appreciate it. Operator: Our next question comes from Scott Gruber with Citigroup. Scott Gruber: I want to come back to the production optimization bucket. great gains there. I think the bulk of that effort hits production and therefore, a reduction in your maintenance CapEx needs. I think there's also an LOE benefit as well. How does that split? And we see your LOE rolling lower. How should we think about the LOE cost in '26? Clay Gaspar: Yes, Scott, that's a great question. And it is -- this manifests in a few different categories, and some of them are cost reductions. As you mentioned, LOE, we've seen a significant improvement quarter-over-quarter. We'll continue to see benefits there. It shows up, obviously, in the maintenance capital requiring us to drill fewer wells. I think our original plan versus the plan we're executing now, we're actually drilling 20 fewer wells this year because of these kind of benefits, essentially lowering that burden of maintenance capital and as a side benefit, prolonging the really high-quality portfolio that we have. I might ask John to see if he has anything else to add to that. John Raines: Yes, As we originally contemplated this, you're absolutely right. There's a component of our production optimization target that's LOE -- there's a component that is production uplift. There's even a little bit there that is pulling capital out of the system. What I'll tell you right now is the way that we're looking at the $150 million, that's essentially all of the production uplift at this point in time. We have had some success on LOE over the course of the year. I think if you look back to Q1 and you break it out from the number we disclosed, LOE plus GPT, we're sitting about $6.50 a barrel. I want to say this quarter, we're sitting just above $610 a barrel, so about a 6% improvement year-over-year. LOE is pretty sticky and it lags. So as we go into 2026, we expect ongoing reductions on LOE, and you'll see more LOE contribution show up within production optimization. But essentially, what we're taking credit for up to this point is that base uplift that I mentioned earlier. Scott Gruber: I appreciate that color. And with the efforts reducing your well count how do we think about the TIL count that's embedded in your '26 preliminary guide here? Clay Gaspar: Yes. I think that's obviously contemplated as we get both more efficient on how quickly we can execute, drilling, completion, building facilities and then the effectiveness of those completions and how they contribute. Again, we're in a base capital mode -- excuse me, a base oil production mode and the lower maintenance capital is certainly reflected by that preliminary $3.6 billion guide, which again is a substantial improvement from where we were 12 months ago when we were providing a preliminary guide for 2025. So we are winning significantly on that. That's showing up in the numbers. I continue to be encouraged by the work that we're doing and the great efforts of the team and how this is showing up and will continue to show up in time. Scott Gruber: But should we think about the '25 TIL count kind of less 20 as a starting point for '26? Is that fair? Clay Gaspar: Look, I don't know if we want to get into details of that. But here's what I would tell you is take the preliminary guide, start with the numbers that we're guiding on 2025 as of today. And I think that's a good kind of relative application and allocation. Again, we've mentioned no additional deflation is baked in. So I think that's a good starting point for assumptions. And then obviously, when we come back to you early in the year with firm guidance, we'll have a lot more details to share with you then. Operator: Our next question comes from Kevin MacCurdy with Pickering Energy Partners. Kevin MacCurdy: Kind of going back to M&A, there's been a lot of industry interest in the Anadarko and specifically M&A in the Anadarko. And maybe a 2-part question there. I mean, being located there in Oklahoma, what do you make of the interest in that basin? And what do you think is driving kind of the renewed interest? And does the level of interest kind of make you reconsider your -- the Anadarko's place in your portfolio? Clay Gaspar: Yes, Kevin, would say on the first question, obviously, it's gas oriented. It's positioned well. It's not backed up behind Waha. So there's some structural advantages of the Mid-Continent, the Anadarko Basin that we benefit from today. And certainly, we're very aware of that, and we take great pride in that. I'll go back to my earlier comments. We consider everything all the time. Our Board is very inquisitive and very thoughtful about how do we build the right term -- right long-term shareholder opportunity value set. How do we think about the portfolio. You have to remember, we're always consuming the front end of our portfolio. So how are we backfilling with quantity and quality of the portfolio to make sure that we have a very substantial and solid 10-year runway in front of us. All of those things are considered. And so as markets change and we see other things, we have interest, we have interest in other things, all of that certainly comes into play, but no additional details to share with you on that today, but I appreciate you asking. Kevin MacCurdy: Got you. And then as a follow-up, I really like the details on Slide 9. I think that highlights the value creation that you've had that doesn't always kind of show up in the production numbers. I guess a question on Waterbridge. Is there any operational reasons that you would keep that equity interest? Clay Gaspar: Yes, Kevin, I'd probably put it in the same category. We've done a lot of deals kind of adjacent to our core business. Think about something like Matterhorn, where we entered that opportunity. The key there was really specific to Matterhorn, making sure that we had gas takeaway from the basin. That was the phenomenal or the fundamental importance that we did. By underwriting that, we ensured that, that pipe was built. We have a significant position on that. We've retained that volume on the pipe. We also benefited from an equity position. We made a very, very substantial return on that. We're very proud of that. But again, the objective was making sure that, that pipe was built and making sure that we had our ability to get our gas to market. Similarly, with Waterbridge, the main objective there is making sure that we're thinking a lot about a super system -- we reserved poor space. That's very proactive in our industry. John's probably tell you a little bit more about that when I hand it to him. But I can tell you, the really fundamental and important piece of this was to make sure that we have our water taken care of in the Delaware Basin. And through this JV, this partnership, we've secured that. Now as a very beneficial byproduct, we have a substantial ownership in a publicly traded entity that's done very well. There's no reason we have to hang on to it. By the same token, it's a great investment. And I would tell you, we're not -- we have to sell either in that position. So it's option value for us. We have a lot of that in our organization, and we continue to evaluate that just as we do with other things in our portfolio, and it's a regular part of the conversation we have with our Board. John, anything else you want to add? John Raines: Clay, I think you covered it really well. I would say the relationship there remains very important to us. Operationally, we work with those guys every day. We've got a very multifaceted water management effort in the Delaware Basin. That's both to manage cost but manage future risk associated with water. I've talked about this before on our calls, but our first call on water is always to go to recycle. We've got a big recycle operation in the basin. In New Mexico, we've got a large water midstream presence. We probably don't talk about enough. That gives us a lot of flexibility there. We've got a lot of strategic offloads. Many of those offloads are WaterBridge. And then when you get into Texas, we really leverage our WaterBridge relationship to give us diversity of options across the play there. So we feel really good about how that's working operationally. Operator: Our next question comes from Kalei Akamine with Bank of America. Kaleinoheaokealaula Akamine: I want to start with the Wolfcamp B drilling program for this year, and maybe this one is for John. So production in the Delaware has been holding up quite well this year. Can you kind of compare how the Wolfcamp B results are comparing to your expectations? And then for 2026, do you anticipate this zone comprising a similar proportion of the program? John Raines: Kalei, appreciate the questions. I would say Wolfcamp B is performing very well relative to our expectations for the year. You probably heard me mention this on the last call. When you look at 2025, we've got a very diversified program as far as the zones that we're targeting for the full year. We're looking at about 30% Wolfcamp B or deep Wolfcamp, about 30% Upper Wolfcamp, about 30% Bone Spring and the remainder in the Avalon. What you're really seeing, you're going to see some volatility in terms of zone mix each quarter. A lot of our Wolfcamp B wells have come on in the first quarter and really the first half of the year. So we've had a little bit of a run at seeing how those wells are performing. And generally speaking, I'd say they're mostly meeting our expectations with quite a few of those wells beating our expectations. What I think you can expect from us going forward for 2026, it's too early to get in and talk specifically about zone mix throughout the year. But I think Clay said earlier, you can expect some stability, some consistency in how we're thinking about our overall Delaware program. And as we've shifted more into this multi-zone co-development, from a well productivity standpoint, we took that trade-off to go a little bit lower this year in exchange for better NPV overall and for a longer inventory runway. But I think you can expect that well productivity to be very consistent going forward for the next couple of years. Clay Gaspar: Yes. And if I could add, I'm going to ask Tom just to add a little bit more about our D&C efficiency that we continue to see in the Delaware Basin. I mean, I think it's very important as we think about all of these additional zones. The Wolfcamp B is just a touch deeper. But as we start expanding to the geographic edges and up and down the zone, so to speak, that efficiency really contributes as well. So Tom, just maybe a little bit on how we're thinking about on the efficiency gains there. Thomas Hellman: Yes, Clay. It's been really interesting this year. We've been really leaning into benchmarking in the Delaware Basin and using the AI tools on top of that. We have both AI tools that help us on sort of the new school, where we can predict -- use the AI to look at the parameters, the drilling parameters that really help us predict how to drill faster on the current well. And we're even using AI tools right now to help us trip faster and drill curves faster and even running casing faster, all about 30% faster. Each one of those saves us millions of dollars. And now in the Delaware Basin, we have a new record at about 1,800 feet per day. That really screens well versus all of our fastest peers. So Clay, it's looking really good, and I think the AI tools and the benchmarking is really coming through for us. Kaleinoheaokealaula Akamine: That's awesome. I appreciate that detailed answer. My follow-up is on the lease sales. So yesterday, that sale was a state sale, but this presidential administration has put federal lease sales back on the table, and they should occur with a pretty steady cadence. How are you guys thinking about those? And do you anticipate that being a part of your cash allocation priorities for'26? Clay Gaspar: Yes, great question. And I think, as I mentioned earlier, I think this is something we should be able to compete exceptionally well. We've got an existing footprint, the momentum of the organization, the efficiencies Tom was just talking about around D&C, the infrastructure that we have, including Water Bridge, the relationships that we have with the gas midstream partners. And then, of course, the existing infrastructure of the people applying this business optimization, the technology puts us in a really good position to be super competitive. So when we look at those, you bet, we'll be participating in the process. There's some really interesting land. We're thrilled to have the BLM open up some of these opportunities. And there's some pretty material lease sales coming up. So yes, we -- as we've shown on the last lease sale, we want to be part of the process. And at the same time, we want to be very objective about how do we create value, full cycle value from these opportunities. So yes, count us in as part of the process. And as long as -- alongside everything that we're doing on the ground game, including trades, small acquisitions, ground floor leasing in all the basins we're doing. We just see a real interesting opportunity coming in the Delaware. So definitely leaning in that direction. Operator: We have no further questions. And so I'd like to turn the call back over to Chris for closing comments. Christopher Carr: Yes. Thank you for your interest in Devon today. If there are any further questions, please reach out to the Investor Relations team. Have a good day. Thanks. Operator: Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Open Text Corporation First Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Greg Secord, Head of Investor Relations. Please go ahead. Greg Secord: Thank you, and good morning, everyone. Welcome to Open Text's [ Fourth ] Quarter Fiscal 2026 Earnings Call. With me on the call today are Open Text's Executive Chair and Chief Strategy Officer, Tom Jenkins, together with James McGourlay, Interim Chief Executive Officer; Steve Rai, Executive Vice President and Chief Financial Officer; and Cosmin Balota, our Senior Vice President and Chief Accounting Officer. Today's call is being webcast live and recorded with a replay available shortly thereafter on the Open Text Investor Relations website at investors.opentext.com. Earlier yesterday, we posted our press release and investor presentation online. These materials will supplement our prepared remarks and can also be accessed on the Open Text Investor Relations website. Now turning to the upcoming investor events. I'd like to take the opportunity to invite institutional investors and financial analysts to join us at Open Text World 2025 Investor Track on Tuesday, November 18 in Nashville. The Open Text World Conference is a unique opportunity for investors and financial analysts to learn about our latest product innovations and with full conference access, allow open dialogue with our customers and partners on site. The conference keynotes and investor track will also be available by webcast virtually. Open Text will also be participating in the following investor conferences. On November 21, we'll attend the Needham Tech Conference virtually. And on November 24, we'll be at the TD Technology, Media & Telecom Conference in Toronto. On December 2, we'll be at the Bank of America Leveraged Finance Credit Conference in Boca Raton and on the same day, we'll also be at the UBS Global Technology and AI Conference in Scottsdale, Arizona. On December 8, we'll be at the Raymond James TMT and Consumer Conference in New York. And then finally, on December 10, we'll be heading to the Barclays Global Technology Conference in San Francisco. We look forward to meeting with you at one of those events. And now on with the reading of our safe harbor statement. During this call, we'll be making forward-looking statements relating to the future performance of Open Text. These statements are based on current expectations, assumptions and other material factors that are subject to risks and uncertainties, and actual results could differ materially from the forward-looking statements made today. Additional information about the material factors that could cause actual results to differ materially from such forward-looking statements as well as risk factors that may impact the future performance results of Open Text are contained in Open Text recent Forms 10-K and 10-Q as well as in our press release that was distributed earlier yesterday, which may be found on our website. We undertake no obligation to update these forward-looking statements unless required to do so by law. In addition, our conference call may include discussions of certain non-GAAP financial measures. Reconciliations of any non-GAAP financial measures to their most directly comparable GAAP measures may be found within our public filings and other materials, which are available on our website. And with that, I'll hand the call over to James. Christopher McGourlay: Thanks very much, Greg. I would like to welcome everyone on the call today. Joining us today is Tom Jenkins, Executive Chair and Chief Strategy Officer. I also want to give a warm welcome to Steve Rai, who joined Open Text as Executive VP and CFO in October. Steve brings a wealth of experience from technology and software. He is based in our Waterloo, Ontario headquarters. Also joining on the call is Cosmin Balota. I want to thank Cosmin for his leadership as Interim Chief Financial Officer, and Cosmin has now resumed his role as Chief Accounting Officer. The entire Open Text team is committed to delivering secure information management products that let our customers curate and enable agentic AI with their content. We have a tremendously strong and deep customer relationships. It is because of this that we have such incredible and loyal installed base. Now let's get into our Q1 fiscal '26 results. Q1 total revenues, ARR, adjusted EBITDA margin, adjusted EPS are all above Street expectations. As you saw with the Q1 performance, we are continuing our momentum from last quarter, especially in our core content business. We remain focused on sales execution, having just completed a major product cycle. We believe we are in the market with the right products at the right time. Turning to our cloud performance this quarter. Q1 cloud revenue was $485 million, up 6% year-over-year, which is well on track towards our F '26 outlook range of 3% to 4% growth. Cloud bookings continue to remain strong as we saw Cloud cRPO up 6% year-over-year. More importantly, our long-term cloud RPO is up 16% year-over-year, and total cloud RPO is up 11% year-on-year. Our other measure of cloud performance is enterprise cloud bookings, which were up 20% year-on-year in Q1. This puts us in a good position towards achieving our F '26 outlook range of 12% to 16%. We closed 33 deals greater than $1 million in Q1, which is up 43% year-on-year. We had key wins in the quarter with ALTEN, Australia Department of Health, Core42, Optiv Security and mh Services. In September, we provided additional disclosure on our main business -- businesses, which we break into product categories. This disclosure is in our IR presentation on the website and allows you to better track the performance. Tom will speak more about the tremendous opportunities in our core information management for AI business. For Q1, you can see that Content being our largest business continues to lead our growth in Cloud. Content Cloud grew 21% year-on-year in Q1. This was driven mostly by bookings won in financial services, energy and utilities as well as telecom verticals. We saw strength in retail, automotive and manufacturing verticals which also contributed to our business network positive growth in Q1. We are pleased with our Enterprise cybersecurity business growth this quarter and mainly driven by a few sizable wins. Our product offerings continue to be recognized by industry experts such as Gartner, and we are establishing key partnerships that are important for content management and agentic AI. We're excited about our upcoming Open Text World event being held in Nashville from November 17 to 20. Thousands of our customers and partners and other stakeholders will join in person to see our latest product offerings and innovations, especially our Aviator and agentic AI solutions in action. We will also showcase our sovereign cloud, keeping our customers data local and secure. We are very excited to see how our customers unlock the power of their own data using Open Text products to foster innovation and spur growth. As we look ahead to the rest of fiscal year, we are not changing our fiscal '26 annual outlook. Please remember that we are an annual business and that results can fluctuate quarter-over-quarter. With that said, we expect Q2 total revenue to be between $1.275 billion and $1.295 billion and the adjusted EBITDA margin to be between 35.5% and 36%. We continue to see strength in our Content business going forward. For the second half of fiscal '26, we expect revenue to skew higher towards a strong Q4. There is typical seasonality that we see in Q3, but the momentum from our new product cycle is expected to come mostly in the latter part of fiscal '26 and beyond. We continue to expect ARR to return to growth in fiscal '26 with Cloud growth outpacing maintenance declines, while customer support revenue is on track to meet our fiscal '26 annual outlook. We are seeing some of our customers making faster decisions to shift their workloads from on-premise into the cloud. We have always given our customers the choice of where they want to deploy and note that the on-premise deployment is still being sought after in heavily regulated industries and governments. To conclude my remarks, I want to take a moment to thank our Open Text team across the company for their professionalism, dedication and hard work during this period of change as well as our partners, customers and shareholders. Finally, I would like to thank Tom Jenkins and all of the members of the Open Text Board of Directors. Their support to both myself and all of our employees has been tremendous. This is an exciting time for Open Text. We're in a great position financially and operationally. We are in the right markets of secure content and data that trans-agentic AI. When I stepped in as Interim CEO, my main priority was to take care of our customers and carry forward our initiatives and deliver our fiscal '26 annual outlook. We had a great start to Q1, which sets us up nicely for the rest of the year and beyond. With that, I will hand the call over to Steve Rai, our EVP and CFO. Steve Rai: Thank you for the kind introduction, James. It's great to be here. Good morning, everyone, and thanks for joining the call. I'm 1 month in at Open Text and very excited to contribute to the tremendous opportunity ahead. Over the past few weeks, I've spent a lot of time with James and Tom and the extended team, and I'm in full support of the company's vision and direction. I look forward to working together with them to deliver on this. Cosmin Balota, our Chief Accounting Officer, who was the Interim CFO before I joined, is on the call today, and he will discuss the highlights of our Q1 financial results. I would like to thank Cosmin personally for his unwavering support, insights and maintaining a steady ship through the transition. For those of you who may not know me, my last role was as CFO at BlackBerry, where I was deeply involved in the company's corporate technology and organizational changes. I'm truly energized to join Open Text at this stage in its journey and will be based in our global headquarters in Waterloo, Canada. Since joining, I've been very impressed with the professionalism and passion from everyone that have met across the organization. I see a company with solid financial fundamentals with expanding margin and free cash flow and excellent foundational technology. Open Text supports an impressive global enterprise customer base and is poised to capture a broad-based step change in the market for training and adoption of agentic AI. I look forward to putting my deep experience in technology and transformation to work with such a dedicated team. With that, I'll hand the call to Cosmin to discuss our Q1 highlights. Cosmin Balota: Thank you, Steve, and good morning, everyone. Let me start by saying that in Q1, we continued our momentum from last quarter, particularly from growth in cloud revenues, led by our Content product category and through overall margin expansion. Total revenues for the quarter were $1.3 billion, which was an increase of 1.5% year-over-year. This growth exceeded our expectations for Q1 and was mainly driven by Cloud and License revenues. In the quarter, our Cloud revenues of $485 million were up 6% year-over-year. This growth was mainly attributed to strong demand in our Content product category, which makes up approximately 40% of our overall business and grew 21% year-over-year in Cloud and 3% in total revenues, as outlined on Slide 6 of our investor presentation. Customer support revenues of $587 million were down 1.5% year-over-year, while our ARR or annual recurring revenue was $1.1 billion, which was an increase -- sorry, an increase of 1.8% year-over-year. ARR was 83.2% of total revenues, which was a slight increase compared to the 82.9% in the same quarter last year. Moving to profitability. Q1 GAAP-based gross margins was 72.8% or 76.5% on a non-GAAP basis, which were up 100 basis points and 60 basis points year-over-year, respectively. These increases were mainly due to Cloud gross margins growing 280 basis points year-over-year and 270 basis points on a non-GAAP basis. Adjusted EBITDA for the quarter was $467 million, which is a 36.3% margin and was up 130 basis points year-over-year. This improvement was mainly driven by higher revenues, which, as I mentioned, was primarily from continued growth in Cloud and our Content category with additional benefits realized from the expanded business optimization plan and improved gross margins. The costs and benefits associated with the business optimization plans and other savings initiatives, as outlined on Slide 19 of our investor presentation, and they have not changed since the prior quarter. The strong margin performance in Q1 resulted in an adjusted EPS of $1.05, which was up 12.9% year-over-year. Q1 free cash flow was $101 million, which was a significant increase of $218 million year-over-year. As you may recall, in Q1 of last year, we made a onetime tax payment, driven by the gain on sale from the AMC divestiture. This concludes my summary of the Q1 fiscal '26 financial highlights. And with that, I'd like to hand the call back to Steve. Steve Rai: Thank you, Cosmin. The results in Q1 demonstrate the resilience of Open Text's business supported by the strong financial position of the company. Along with our portfolio-shaping initiatives and announcing the recent sale of our eDOCS business. This solid foundation supports our capital allocation strategy of consistently paying a growing dividend, buying back shares, reducing debt and reinvesting in growth. I'm a month in and looking forward to continuing my engagement with the Open Text team and meeting our investors and analysts. I'm excited to work with James and Tom and the rest of the executive team and Board to carry out our strategic objectives. With that, I'll hand it over to Tom. Paul Jenkins: Thanks, Steve. Good morning, everyone. Before I get started, I'd like to thank Mark Barrenechea for his 13 years of dedicated service to our company. His leadership scaled and developed our company as a leader in enterprise information management. And Steve, a very warm welcome to you, and welcome to Open Text. You've only been here for a month, but I appreciate having you here on the call today. Since we made our announcement on August 11, we've met with hundreds of shareholders and analysts and investors. And it's been great for me to renew all the acquaintances. And I thank all of you who said that I haven't aged a day since the last time you saw me, I wish that was true. This has allowed us an opportunity to communicate to you a simpler strategy for the company to unlock the value that Open Text has. We're going to concentrate on our core business units and enterprise information management and specifically those that provide the training for the new area around enterprise artificial intelligence. You'll hear us use the term at agentic AI as well and more on that in a minute. After all, it makes sense for us because Open Text is one of the biggest -- we think it's the biggest, but it's certainly one of the biggest corporate data and metadata vendors in the world with hundreds of connectors to legacy and current data sets. That's a powerful asset inside Open Text for AI, and we plan to unlock it. We'll do this first, though, by selling off all our noncore business units and using those proceeds to further create shareholder value. And that's really our end goal. And so in a way, what is old is new again, we're going back to our historical roots of being a content management company, except this time, we have additional products in business networks and machine management, wrapped in an enterprise-class security layer. That will be our core business. We already have the global scale, the go-to-market sales force, the product line in these businesses and the core of our core, which is the Content Management business, is also our largest business unit at about 40% of our total revenue. And it also happens to be the fastest growing with, on average, more than 20%. Cloud growth over the past few years. So it was a pretty obvious strategic decision by the Board to take these actions. We now have the entire company from the Board, the exec management team to our 20,000-plus strong global workforce aligned and locked into achieving our FY '26 objectives and beyond. We're going to stick to our plan. There are early signs that we may be even going faster towards the cloud as the year goes on. And as we shed the noncore units, our Cloud Content business will be soon the dominant share of all of our revenue sources. That's our goal. We'll keep reporting our business unit breakout as we go through this journey so that you can track right along with us our progress towards that goal. So speaking of progress, if you take our August 11 release and some of the short-term priorities that we said we would address. I'm pleased to report we've addressed almost all of them. We've had a very busy 90 days and the next 90 days will be just as busy. As I mentioned, we started by providing additional transparency with all of the revenue breakout performance for our business units. We did this in early September so that you could track along with us on our progress. That's where you saw the strength of the Cloud growth. In fact, last year, Content Cloud grew 17%. And this quarter, it grew 21% year-over-year, and that's the acceleration I was referring to. So clearly, our Content Management customers are moving even faster to the cloud, and this will start to change our revenue mix slightly in our plan, but it's an indication that we're moving faster to becoming a fully cloud-centric company. Now of course, we appointed Steve Rai as our permanent CFO. And he, of course, has a solid background in financial and operational reporting. And even more so, with his background at BlackBerry, he has a lot of experience in portfolio shaping. So we welcome that wisdom to the management team. This was followed by our first announcement of a noncore business unit sale within the analytics business, as has already been mentioned. It's an on-premise piece of software. So that will help the pivot towards cloud even further as we shed the noncore units. We also talked about the refreshment of the Board. And recently, we appointed a new Board member, George Schindler. He's the former CEO of global IT consulting giant, CGI. He's a fantastic addition to the Board, brings valuable perspective and now includes other members that we've announced in the past year, such as the senior partner in technology and telecom from Accenture, the Chief Human Resources Officer of Hewlett Packard, the CIO of Cisco, among just the new members that we've announced in the past year. So we're quickly retooling everything at Open Text. Yesterday, we published our Q1 fiscal '26 results that demonstrates the resilience of the business and the continued demand for Content Cloud and AI. We're focused on the right market at the right time. It leaves us with one major priority remaining, which is to find a permanent CEO. Their search is ongoing, both internal and external candidates, and I'm pleased to note that we have had many world-class candidates step up and put the hat in the ring for consideration by our search committee. Our goal is to find a leader whose solutions focused and to help us elevate to the next phase of Open Text's journey. In the meantime, I'd like to thank James for stepping in as Interim CEO. He's been a steady hand leading the operations of the company and to Cosmin for leading the financial group. As you can see from the results, they've both done a great job stepping up on short notice. Open Text is on a solid financial and operational foundation of growing long-term margin and free cash flow. And we're committed to unlocking shareholder value through our capital allocation strategy, which will include reducing debt, paying a dividend, share buybacks and tuck-in M&A. And with all of this, we're committed to providing investors with clear, simple, transparent metrics so you can better understand our business and performance and follow along with us on this journey. Let's turn to our strategy now and how Open Text plays an important role for our customers in agentic AI. We provided some slides. And obviously, we're also going to speak at our user conference and Analyst Day next week, as James had mentioned. So a lot more detail to come, but we thought we'd give you an overview of what you'll be seeing next week. And it really falls around a recent MIT study on agentic AI, which indicated that the importance to productivity that AI must be trained by specific content that can only be found inside the firewall of organizations. Keep in mind that many of the world's first most amazing GenAI products like ChatGPT and Perplexity and [ Claude ] were all primarily trained on public information. Now public information only represents about 10% of the world's information. About 90% of that information is behind the firewall. In fact, many years ago, Open Text wrote a book called Behind the Firewall that described where all this information is and how you find it and how you use it. Now of course, most of that was built as records management and archive for regulated industries, and Open Text was the leader in all of that. So that positions us with an enormous access to all the data. And so as you know, we have hundreds of thousands of organizations all throughout the world that we've built these systems for over the past 35 years. That's really the gold mine for customers that are seeking to build productivity-related agentic AI. So we'll provide a lot more information on that. But where does that apply to Open Text? Well, Open Text in enterprise information management, it's got data stored in 3 major business units that we've broken out for you today in Content, our ITOM and our business networks. These products, our users are able to use their own data to train agentic AI that's way more powerful for anything that's available in the public domain. So that's why we call this enterprise artificial intelligence in the same way that we used to call it enterprise information management and before that, enterprise content management. So what is old is new again, and we're returning to our roots. And we think that there's an enormous demand for this as we go forward. Now we're also seeing an interesting change around proprietary clouds. And in the case of governments, they call it a sovereign cloud. Users don't want to lose the keys to their castle. AI is very different than just storing data. And our users are starting to find that they want to be very careful how they construct clouds that use AI. They want to make sure that they're inside the firewall. So we're noticing that the domestic telecoms throughout the world are starting to take a more substantial role in the supply chain for these proprietary clouds. And I think you'll see in the future, Open Text get more involved with those telecoms throughout the world as those channel opportunities present themselves. It's interesting because we're finding that major corporations that went to the cloud actually don't have an IT capacity internal to their companies anymore. And that's why they're seeking alternatives where they can maintain a proprietary AI, but do it on a managed service basis through ourselves, other vendors and the telecoms, as I have mentioned. Now these trends, they're going to be a major topic of our upcoming user conference. James has mentioned that we'll be having later this month in Nashville as well as the Analyst Day. Now we're also going to have a new book called enterprise artificial intelligence available that explains all these concepts in much more detail, both to yourselves as well as our users. So in closing, what lies ahead for Open Text is perhaps the greatest opportunity in the history of the company. We hope that you'll follow us on that journey as we take our core businesses and focus on them. We're going to train agentic AI with all that content. Our Board committee continues to make the divestitures of the noncore business, and our Board identifies and on boards our new CEO. So with that, could the operator please open the line to have questions. Operator: [Operator Instructions] The first question comes from Richard Tse with National Bank Financial. Richard Tse: So Tom, you're embarking on a pretty ambitious strategy here. I just kind of want to get your thoughts in terms of what you think Open Text's competitive edge is and content as you make this pivot to leveraging your data for AI because there are a number of companies in the marketplace. Paul Jenkins: Yes, the competitive edge, you don't create competitive edges overnight, as you know. That competitive edge was built over 35 years. We're the only company that has the hundreds and hundreds of data connectors. You had to be around back in 1995 to be able to have a connector into word perfect and into the Lotus Notes and then the Lotus 1, 2, 3 and all that stuff. And the reality is that legacy data is critical to training agentic AI. And we have all of those connectors, whether it's in business networks, whether it's in IT operations management or in human content. And that stuff gets built up over decades. You had to have been there at the time. And so all that source code, all of that plumbing is buried inside our products, whether it's SAP archives that are written directly in ABAP, that kind of stuff, you just can't make up later. You had to have been there at the time. So that's the part that really gives us a huge competitive advantage. I think the other part that we're going to find play out in the market is that we offer a hybrid mix. We offer on-prem through license as well as in the cloud and managed services. So there's a mix that users can pick because as you go to build these AI systems, that information is located throughout corporations in many, many different attics, so to speak, throughout. And we're equipped to be able to do that. Richard Tse: And my second question has to do with the Content business. Thank you for that segmented disclosure. It obviously is growing at a pretty rapid rate, certainly on the cloud side. Can you maybe give us a bit of color in terms of the mix of where that growth is coming from? Is it sort of AI readiness? Or is it something else because for mature markets, granted its sort of off a small base on the cloud piece, but still curious to see how that's playing out. Paul Jenkins: Yes. I'll defer this to James. But I will say one thing when a CIO approaches this problem, the first thing that they have to do is they have to curate their content in general. That's why I think you're seeing a lag in some of the adoption of AI because even though we had COVID and even though we created a lot of digital pieces inside our organization, the reality is we were doing that in a hurry during COVID. Getting this in an organized fashion, that takes a lot of content management. It takes a lot of archival, a lot of records management. So a lot of organizations were simply getting digitally ready. They had never been asked to do this before. They were keeping all that data for regulatory reasons. Now they're starting to present that data in real time and ready so that they can do training. So I'll leave it to James to talk about the very specific parts. Christopher McGourlay: I think you covered it pretty well, Tom. We're seeing our customers looking at moving into the cloud for a number of reasons, including the managed capability that we offer, curating their data for AI readiness and just overall simplification of the management of the system for them. So customers are moving quickly. We're seeing new customers coming in, coming on board, jumping directly into our cloud offering, as you would expect in this day and age. But it's across the board, we're seeing a shift to cloud in the customer base. Operator: The next question comes from Kevin Krishnaratne with Scotiabank. Kevin Krishnaratne: Maybe, Tom, just on that last point on the data readiness and can appreciate the sort of decades worth of content that you're managing for your customers. Is that -- like can you just talk about maybe -- is there a sweet spot in terms of how far back customers need to go? You talked about all the data that you've got to train agentic. But I'm wondering like how relevant is data from 30 years ago versus, say, 5 years ago? Is there -- again, just sort of a sweet spot that you're seeing in terms of how far back -- how much data customers are bringing in to think about their agentic AI training purposes? Paul Jenkins: Yes, that's a great question. And even to go further, we could say that there were early attempts to create synthetic data where you would take 5 years of data and just simply replicate it to try and fake out some form of agentic AI training. The reality is, I think the person who did this analysis the best was Larry Summers, who is, of course, now on the Board at OpenAI and former Harvard President when he was doing the analysis of how the Fed had made such an error during COVID. And when he went to look at the Fed models, he discovered that they had gone back 20 years. And you can go on YouTube and watch this. It's a fascinating presentation and analysis by Larry Summers. And basically, he looked at them and he said, you didn't go far enough back. You had to go to where the black swan was, which was in the '70s. And that's why you missed it. And it's an interesting point because what you're doing when you're training GenAI, you're going back looking for patterns. And so if you have the data, you go back as far as you can because you're looking to get the pattern of the black swan. That's what a corporation wants to be able to see. Where are those anomalies. And so quite frankly, you can't go far enough back. If you've got the ability to go back 35, 40 years, you're absolutely going to do that because your AI will be more accurate and quite frankly, wise. And that's the race. There is no such thing as data that is not useful. The more you have, the better off you are. Kevin Krishnaratne: That's super fascinating. Maybe switching over to Steve, welcome to the team. If you think about the Q2 guide on revenue, it's a range. It does imply a scenario that could see quarter-over-quarter decline. So I'm just wondering if you can maybe talk about the drivers that would get you on the one hand down to the bottom of the range and on the other hand, the top end of the range. Can you just talk about expectations for the coming quarter? Steve Rai: Well, I think it's the most critical item for the quarter and the rest of the year and beyond is this theme that we -- that Tom has been talking about and James commented on. I mean, focus -- I'm new on the scene, right? But what's so compelling to me as -- from what I look at is you look at content and those -- and the core pieces that kind of feed into that and -- and that -- and then take a look at the cRPO, right? That current remaining performance obligation, that is just really kind of going to -- that's what's carrying everything here. That is the biggest component of the business. And from a -- what -- where Q2 is versus the second half, we haven't changed our annual outlook. So there is going to be some degree of shift from the other elements of the business, but that trajectory is the key trend to watch. Paul Jenkins: Yes. And don't forget that the thing that we don't know is what's the mix of revenue caused by how fast people are going to the cloud. As you know, the revenue reporting for cloud gets distributed when we make a contract 3, 4, even 5 years as opposed to license, which gets recognized right away in that quarter. So that's part of the issue that we don't know what the mix of that revenue will be. We sure do have the customers, though, it's just that what buckets of revenue will that go into quarter-by-quarter. That's the thing that we think we're seeing an even faster move to the cloud. Operator: The next question comes from Stephanie Price with CIBC. Stephanie Price: Maybe just a follow up on Kevin's question around the Q2 guide, and I appreciate the color on the go-forward strategy. In terms of EBITDA growth in the second half, the reiterated guide implies a pretty significant step-up in H2. Just curious about what's driving that growth? Is it primarily transformation initiatives? Or any color on that, Steve, and welcome would be great. Steve Rai: Yes. I'll let the others jump in. But certainly, there's a lot of the portfolio reshaping, the very significant business optimization initiatives that have been underway for some time and continue to be -- I mean, that's a $0.5 billion run rate improvement since the program was what was announced that we're working on. So a significant portion of that, call it, 1/3, I understand was realized last fiscal year. There's another 1/3 approximately that's built into the plan for the current year, and then we continue to work beyond that. So all of those things really drive that improvement. Stephanie Price: Great. And then, Tom, maybe just an update on the divestitures initiatives. Congratulations on eDOCS. How should we kind of think about the cadence of divestitures over the next several quarters here as you look to divest 15% to 20% of the overall revenue? Paul Jenkins: Yes, that's a great question. We've been grappling with that and talking to Steve about the right way to do it. Clearly, there are multiple business units here that are noncore. And I think what you'll see is we'll establish a pace of doing one per quarter because it does take a lot of effort. If you think about what Steve just said, as we divest a unit, there's parts that do not go with the unit sale that we then have to restructure. So it's a nontrivial exercise. We're going to do it methodically. And I think you'll see us generally be done within the next year. That's sort of what our overall goal is. But yes, you'll see a drumbeat of this. It will not be all at once. that would be irresponsible. We want to stay very disciplined on our EBITDA and keep -- as you know, the company is very disciplined when it comes to EBITDA. We'll make sure that we do this in a methodical fashion so that we don't get big changes in EBITDA. So that will guide us. We'll have to ask everyone's patience while we do it, but we don't want drama. We just want to have it in a real constant drumbeat as we go through the year. Operator: The next question comes from Steve Enders with Citi. George Michael Kurosawa: This is George Kurosawa on for Steve. Maybe one follow-up on the divestiture point. Steve, I think one of the things that jumped out to us on your resume, your time at BlackBerry was your involvement in divestitures with that organization. Maybe any thoughts on your approach or playbook? What do you feel like is similar or different coming into the situation? Steve Rai: Well, the primary difference that we've got here is the core represents the largest and fastest-growing piece of the business. So that is a great position to be in. And then beyond that, just given the kind of the landscape that Tom painted, everybody realizes we're on the cusp of a major step change in terms of AI and agentic AI, in particular, developing. And we've got -- this company has got AI of its own. But in addition to that, that access to all the information to training it. I mean that training ground and providing that access to it is, I mean, what a phenomenal time to kind of -- again, this is 35 years in the making, a great position to be in to kind of capitalize on that market picture. George Michael Kurosawa: Got it. Okay. Great. I appreciate that color. And then I also appreciate the additional disclosure on the business unit side. I think the Content Cloud side really jumps off the page, it's been well discussed. I think the other thing that caught our attention maybe on the flip side was the cybersecurity enterprise piece, particularly that cloud component declining. I know it's small, but I think we were kind of interested in the cross-sell opportunity there. So surprised to see that moving in the wrong direction. Just any color or commentary on what's happening in that business and your outlook there going forward. Christopher McGourlay: Look, I think it's fair to -- it's James speaking. I think it's fair to say that we're working extensively on that business. And we've made several investments in the product development since we acquired the product lines. We are seeing great success as we're moving forward. And we will start to see those cloud numbers coming up with investments in specific regions. But I can look at various deals that we've done with large strategic banks where we've sold content and cloud and security together. So we are seeing success in our cross-selling efforts. We're expanding those efforts, and you'll see us continue to expand those efforts as we go through this year and beyond. Operator: The next question comes from Samad Samana with Jefferies. William Fitzsimmons: This is actually Billy Fitzsimmons on for Samad. I want to double-click on Content Cloud because it's important. And when we think about the 21% Content Cloud growth in the quarter, how would you break down that growth between, call it, net new customer wins, seat expansions, ARPU expansion for selling additional modules in the base? And then cloud conversions in your existing base. And what I'm kind of getting at here is when we think about cloud versus non-cloud, Open Text has always made a point to support customers where they are. And so just so we're all clear, were there any, call it, shorter-term tailwinds to the Content Cloud growth rate from you guys using either carrot or sticks to incentivize your existing on-prem customers to move to the cloud? Or would you more categorize this as customer-driven and that they're choosing to transition because of their AI readiness? Christopher McGourlay: So first of all, I would character this as -- characterize this as a joint effort between Open Text and customers. As you said, we're selling to our customers where they want to be. We allow our customers to make that choice, and that's where we go. We don't have a program in place that incentivizes customers to move into the cloud. We're not pushing people to the cloud. This is really a joint effort and a joint decision as we go forward. There's nothing exceptional that I can -- that comes to mind in the quarter that would drive that growth other than the concerted effort of our sales team selling. Paul Jenkins: I think there's also a really big point buried inside that question. We, as a company, are focused on shareholder value. How do we make the most profit and the installed base has a tremendous amount of ARR, what we would classically call maintenance. It's very lucrative for the company. We're not in a hurry to see that leave. And quite frankly, neither are our customers. Our customers are very -- if they didn't broke, don't fix it. And so we're not in a hurry. I know other vendors because they want to categorize everything into the cloud or converting, we don't see the wisdom of that, not for our customers and not for ourselves. They're happy to actually pay us more under the old way, and we're happy to take it. So I think you'll see that this, as James says, is a partnership ongoing between our users and ourselves. But we're not dogmatic on this. We're just driven by how do we make the most amount of money and the most amount of money is by doing what customers want. William Fitzsimmons: Makes perfect sense and crystal clear on that. And maybe if I can ask one to you, Steve. I'll leave this pretty open ended, but it's only been a month or so since you joined, and this is your first earnings call. Can you just talk through kind of what are your initial priorities as CFO? Steve Rai: Well, obviously, understanding the priorities on the part of our customers, understanding the products. Obviously, there's been some very significant strategic initiatives recently announced, and the Board obviously has been very involved in that. But the big things are the primary trend that we've been talking about with content leading the growth and wrapped with all the business optimization initiatives, and that's really the top line, but bottom line, I mean, those are the most significant and most impactful items. So that's where I'm focusing and just obviously getting to know the team and how we do things. Paul Jenkins: Steve is certainly not bored. There's a lot of balls in the air, and he's just in a perfect position. We had a meeting early in and I said, Steve, what do you think? He said, go faster. And I think that characterizes Steve for us. He's a veteran, been around, he sees what we're doing, just go faster. Operator: The next question comes from Stephen Machielsen with BMO Capital Markets. Stephen Machielsen: So with respect to the ITOM business, you clearly had some strong cloud growth, albeit off of a small base. What would your expectations be for stabilizing total ITOM revenue? Like is this something you hope to accomplish as you exit this year? Or is it still TBD? Christopher McGourlay: I think we're -- I think we'll say at this point, it's still TBD. I mean we are working on stabilizing as we go along. And obviously, you can see the growth coming in on the cloud. There's some great product features, benefits that are coming out in our upcoming releases. We're seeing stronger demand from our customers. So yes, we're working towards stabilizing. I'm not willing to put a date on it at this point in time, but we are progressing well towards that end. And we're winning some great deals against some strong competition. So we've got really positive plans for ITOM and a key part of the portfolio. Paul Jenkins: I think what you'll see at Analyst Day and also at the user conference, although we break out these units as ITOM and enterprise security and content, you're quickly seeing us evolve into a go-to-market strategy where we're training all content for agentic AI. You'll see us go to market where the ITOM, which is really machine-generated content for agentic AI, you'll see business networks, which is really transactional content for agentic AI and then the original content server business, which is human-generated content, all of those components are going to come together in an offering from us because our users, when they go to train agentic AI, they don't think of it as ITOM or the way we as vendors would break it up in the historical way of creating content. They just think of it as content, a big data pool. And so you'll see us go to market where we would in the past call that cross-selling. We're coming to the market now to give our users what they need, which is really all of the data, not select data that previous vendors had but rather all of the data. I think this is a very important thing you'll see us go-to-market with starting with next week with Analyst Day. Stephen Machielsen: All right. We'll look forward to it. My second question is the Q2 revenue guide seems to imply a double-digit decline in license. Can you provide some color on that dynamic? Is it reflective of clients transitioning from license to cloud? Or is there some other dynamic or factor to point to? Paul Jenkins: So this is what I was referencing before. We're really driven by the selection that our customers are making. As James has said, we don't have a definitive target. We simply show up and say, here's the menu. Would you like this on-prem? Would you like this as a managed service. So in many ways, that mix is really a reflection of how quickly customers are going to the cloud. And quite frankly, last quarter, they chose cloud more than they did license. That could change next quarter because there is that other dynamic going on where the need for a proprietary cloud or a sovereign cloud that will have an element of on-prem, and it will have an element of wanting license revenue. So it's not something that we can predict with absolute precision. We think overall, though, that the trend line will continue just like what you saw this quarter into the following quarters. But that variability quarter-to-quarter is really hard to really nail down. James, what's your... Christopher McGourlay: I think you covered it great, Tom. Paul Jenkins: What we're seeing ... Christopher McGourlay: That's what we're seeing. We're seeing our customers move to cloud. There's some large deals out there, some variability in when those deals will happen on the license side. But the main driver is that customers are moving to the cloud. Those are bigger deals, but they're spread over time, and that's the impact on the quarter. Operator: The next question comes from Seth Gilbert with UBS. Seth Gilbert: Maybe another one on the 2Q revenue guidance that you outlined. 2Q usually seasonally stronger than 1Q with the December year-end -- calendar year-end. Maybe can you help us out a little bit, is cloud services, is that line going to be less than the 6% because there's a fine mix if you kind of play with license in the previous question and if you play with cloud. And maybe trying to help us understand for modeling purposes where those 2 will kind of be in 2Q, I think, could help squash a lot of investor fears. Steve Rai: I would kind of start with -- we haven't revised the outlook for the full year. So there is some element of larger deal timing, particularly on the license front because the rev rec is more upfront on that. But this is why at the outset, and I think we've covered in some of our IR presentation as well, that if that's a trade-off and the customer chooses to go to the cloud rather than signing up for a license deal with more upfront rev rec, keep an eye on the RPO because that's where that trade-off and that customer choice ends up and particularly the current RPO, which is the next 12 months. So it's that -- it is a positive shift for the long term to see it. But obviously, there's that near-term accounting rev rec impact. So that's how I guide you to kind of view that. Seth Gilbert: Got it. And maybe as a follow-up, recognizing you have not changed your full year guidance, which was good to see. So maybe this is a question about a little bit further out. But can you talk about how you're thinking about the changing revenue mix to impact margins maybe at a high level? Paul Jenkins: Yes. No matter what the revenue mix, we are committed to the margin. We've always been a very disciplined operator. So there will be no change to the margin regardless of the revenue mix. We will adjust as we go along. And it's like Steve said, some of this from a rev rec point of view, all the so-called dump truck still has the same amount. It's just that we're letting some of it out slower in one of the scenarios with cloud. But the dump truck still has the same amount of dirt in it. So it's just -- as we meter it out, we will make sure we maintain our margins. We've got a long history of being a very disciplined operator. Operator: I will now hand the call back over to management for closing remarks. Please go ahead. Paul Jenkins: Thanks, everyone, for joining us today. We're excited about our fiscal '26 and all the opportunities in front of us. We hope you'll join us at Open Text World in Nashville on November 18 for our Analyst Day. We'll go into more detail on some of the things that we talked about. As Greg noted, we'll be out in the field quite a bit at many investor conferences through the fall spending time with you and looking forward to you hearing your feedback. Thanks again for joining us today. Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Operator: Good morning, and welcome to the Tecnoglass Third Quarter 2025 Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Brad Cray, Investor Relations. Please go ahead. Brad Cray: Thank you for joining us for Tecnoglass' Third Quarter 2025 Conference Call. A copy of the slide presentation to accompany this call may be obtained on the Investors section of the Tecnoglass website. Our speakers for today's call are Chief Executive Officer, Jose Manuel Daes; Chief Operating Officer, Chris Daes; and Chief Financial Officer, Santiago Giraldo. I'd like to remind everyone that matters discussed in this call, except for historical information, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding future financial performance, future growth and future acquisitions. These statements are based on Tecnoglass' current expectations or beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary in a material nature from those expressed or implied by the statements herein due to changes in economic, business, competitive and/or regulatory factors and other risks and uncertainties affecting the operation of Tecnoglass' business. These risks, uncertainties and contingencies are indicated from time to time in Tecnoglass' filings with the SEC. The information discussed during the call is presented in light of such risks. Further, investors should keep in mind that Tecnoglass' financial results in any particular period may not be indicative of future results. Tecnoglass is under no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise. I will now turn the call over to Jose Manuel, beginning on Slide #4. Jose Daes: Thank you, Brad, and thank you, everyone, for participating on today's call. We are pleased to report another exceptional quarter that demonstrate the strength and resilience of our business model even under challenging macroeconomic conditions. Our third quarter total revenues reached a record $260.5 million, up 9.3% year-over-year driven by strong organic growth from both our single-family residential and multifamily commercial businesses. Our robust results in the face of market uncertainty and ongoing inflationary pressure showcases our team's dedication to excellence and our ability to consistently outperform market trends. In our single-family residential business, we grew revenue of 3.4% year-over-year to a record $113.5 million. This performance reflects the early benefits from our pricing initiatives implemented earlier this year. Continued market share gains through geographic and leadership expansion and contribution from our growing vinyl portfolio. Our multifamily and commercial business delivered impressive growth of 14.3% year-over-year to a record $147 million. The improvement reflects both market share gains in key markets and solid execution on our expanding project pipeline. The industry outperformance we're seeing in our commercial activity has resulted in a record backlog of $1.3 billion, up over 20% year-over-year. We maintained a strong profitability with a gross margin of 42.7% and an adjusted EBITDA margin of 30.4%. Our vertically integrated platform a previously implemented strategic pricing actions are helping to mitigate various cost pressures positioning us well as we move into 2026. This margin resilience, combined with our disciplined working capital management, drove robust cash flow from operations. This cash generation enabled us to return significant capital to shareholders while maintaining a strategic flexibility. To that end, we were pleased to repurchase $30 million in shares and paid $7 million in dividends during the quarter. Our Board authorization to expand our share repurchase program to $150 million reinforces their confidence in the business and our commitment to balanced capital allocation. Our third quarter results demonstrate the power of our vertically integrated business model and our ability to execute in a dynamic environment. With our strong balance sheet, record backlog providing multiyear visibility and multiple growth initiatives advancing, we remain as confident as ever in our ability to continue delivering exceptional shareholder value for years to come. I will now turn the call over to Christian. Christian Daes: Thank you, Jose Manuel. Moving to Slide #5 and 6. Our third quarter performance reflects the successful execution of our growth strategy across both businesses with stable order activity and continued market share gains across our key regions. Our multifamily and commercial business delivered record revenue driven by robust activity within the key markets. We ended the quarter with another record backlog of $1.3 billion, up substantially over 20% year-over-year. This expanding pipeline provides a strong visibility through 2026 and 2027 with additional market share gain opportunities across our core geographies and project execution on track. Our backlog has seen consistent sequential growth since 2021, reflecting sustainability of our structural competitive advantages even under challenging macroeconomic conditions. Our book-to-bill ratio remained healthy at 1.3x for the third quarter, continuing our track record of maintaining a ratio above 1.1x for the past 19 consecutive quarters. As previously stated, the composition of our backlog has changed during the last year, shifting more towards high-end large-sized projects, which tend to be less sensitive to higher interest rates and overall affordability. Moving to Slide #7. Our single-family residential business achieved record revenues on entirely organic growth. This performance was driven by previously enacted pricing initiatives that are now flowing through the P&L and helping to offset higher input costs. We were encouraged by double-digit year-over-year increase in residential orders during this quarter. This is very notable because we had $5 million to $7 million in orders that pulled forward into the second quarter ahead of our price increase. This positive performance demonstrates successful geographic expansion, a strong reception of our expanded product offering, more than 20% year-over-year growth in our dealer network and growing contributions from our vinyl product line. We are excited about several growth initiatives that we expect will further strengthen our market position. Our dealer network expansion continues to drive market penetration supported by short lead times and initiative products offering. Better than nationwide demographic trends across our key Southeast markets, combined with our geographic diversification efforts are creating multiple avenues for continued market share gains. The California showroom opening in the fourth quarter and the introduction of the light aluminum legacy line designed for new geographies represent an important milestone in our geographical expansion, where we are already seeing encouraging growth in orders. With our expanded product line portfolio spanning aluminum and vinyl solutions, we are well positioned to continue to grow into 2026. Additionally, we continue to advance our feasibility study for a new fully automated facility in Florida, which would diversify our manufacturing footprint and provide logistics and lead time advantages in many of our target markets, further strengthening our vertically integrated platform. I will now turn the call over to Santiago to discuss our financial results and full year outlook. Santiago Giraldo: Thank you, Christian. Turning to the drivers of revenue on Slide #9. Total revenues for the third quarter increased 9.3% year-over-year to a record $260.5 million, with growth in both our single-family residential and multifamily commercial businesses. This performance reflects pricing gains as well as a robust demand for our best-in-class product offerings driving strong organic momentum. Our Continental Glass asset acquisition contributed approximately $4 million to revenue during the quarter. Looking at the profit drivers on Slide #10. Adjusted EBITDA for the third quarter of 2025 was $79.1 million, representing an adjusted EBITDA margin of 30.4% compared to $81.4 million or a 34.2% margin in the prior year quarter. This quarter gross profit was $111.3 million, representing a 42.7% gross margin compared to gross profit of $109.2 million, representing a 45.8% gross margin in the prior year quarter. The year-over-year change in gross margin reflected several factors. First, we had an unfavorable revenue mix with a higher proportion of installation revenue. Second, raw material costs were impacted by U.S. aluminum premiums reaching all-time highs during the quarter. Third, the Colombian peso strengthened significantly during the quarter, affecting our non-hedged portion of local costs. SG&A expenses were $47.3 million or 18.2% of total revenues compared to $41.5 million or 17.4% of total revenues in the prior year quarter. The increase included approximately $3.1 million in aluminum tariffs on stand-alone component sales, which we are mitigating through our pricing actions. Additionally, we had higher transportation and commission expenses associated with our revenue growth as well as increased personnel expenses related to annual salary adjustments implemented at the beginning of the year. Our strategic pricing initiatives and cost control measures are gaining traction. We implemented mid-single-digit pricing adjustments on residential products and shifted to U.S. sourced aluminum, and we're beginning to see the benefit of those actions as higher priced orders are invoiced. We expect our pricing actions and supply chain optimization efforts to offset an estimated $25 million full year impact of tariffs and increased premiums on U.S. aluminum. Now examining our strong cash flow and balance sheet on Slide #11. We generated operating cash flow of $40 million in the third quarter, driven by strong profitability and efficient working capital management, which more than offset incremental inventory purchases of U.S. aluminum and increased receivables on higher installation revenues, which carry longer cash cycles. Capital expenditures of $18.8 million in the quarter included scheduled payments on previous investments and continued progress on our growth initiatives. We continue to expect capital expenditures to moderate through year-end, driving strong free cash flow generation in the fourth quarter. Our balance sheet remains exceptionally strong with total liquidity of approximately $550 million at quarter end, including a cash position of $124 million and $425 million of availability under our recently refinanced and expanded senior secured credit facility and other bilateral bank facilities. In September, we expanded our syndicate facility to $500 million from $150 million, reducing spreads by 25 basis points and extending the maturity to 2030, providing significant financial flexibility for growth and other strategic capital allocation initiatives. With total debt of $111.9 million, we maintained a net debt to LTM adjusted EBITDA ratio of negative 0.04x, providing us with tremendous financial flexibility to execute on growth initiatives while returning capital to shareholders. On Slide #12, our strong track record of generating returns above the broader industry continues to validate our disciplined capital allocation approach. Over the past 3 years, our strategic investments in operational excellence and capacity expansion have consistently delivered superior returns for our shareholders. This outperformance reflects our focus on high-return investments in our vertically integrated platform as well as our industry-leading profitability and significant improvements to working capital, which are driving sustainable cash generation and shareholder value while maintaining our financial flexibility to pursue additional growth opportunities. We're also pleased to continue returning a portion of capital to shareholders through share repurchases and dividends. During the quarter, we repurchased $30 million in shares and paid $7 million in dividends. Given the Board's confidence in our continued cash flow generation capabilities, prudent balance sheet management and commitment to delivering superior returns to shareholders, they have authorized an expansion of Tecnoglass share repurchase authorization to $150 million. Following the expansion, the company had approximately $96.5 million remaining under its existing share repurchase program. Now moving to our outlook on Slide 14. Based on our strong performance through the first 9 months of 2025 and the expectations for the fourth quarter of the year based on current market conditions, we're updating our full year 2025 financial guidance. We now expect revenues to be in the range of $970 million to $990 million, reflecting growth of approximately 10% at the midpoint. This updated range reflects lower project starts in light commercial due to current macroeconomic uncertainty while maintaining our confidence in double-digit top line growth for the full year 2025 as well as for the full year 2026. Additionally, we're updating our adjusted EBITDA outlook to a range of $294 million to $304 million, representing approximately 8% growth at the midpoint. This guidance assumes that pricing initiatives and other mitigation efforts will help compensate for the projected $25 million full year impact from elevated input costs and tariffs on select products, but now accounts for higher-than-expected aluminum cost, U.S. aluminum premiums and a stronger local currency. Key assumptions supporting our outlook include stable volumes on residential orders for the rest of the year, lower volumes in light construction activity, continued downtrend in interest rates driving mortgage rates lower, FX headwinds from a stronger Colombian peso year-over-year and a healthy cash flow generation during the rest of the year. We expect low single-digit growth for legacy single-family residential revenue with a higher mix of commercial jobs with installation. We now anticipate gross margins in the low to mid-40% range. In conclusion, our third quarter 2025 results demonstrate our ability to execute effectively in all environments by leveraging our competitive advantages to gain market share while maintaining industry-leading margins and generating exceptional cash flow. With our record backlog providing multiyear visibility, expanding market presence through geographic and product diversification and strong balance sheet supporting strategic flexibility, we are well positioned to continue our track record of outperformance. We remain confident in our ability to deliver another year of strong growth in revenues and adjusted EBITDA while creating lasting value for our shareholders and also anticipate to be able to once again grow our top line by double digits in 2026. With that, we will be happy to answer your questions. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Tim Wojs with Baird. Timothy Wojs: Maybe just first on 2026 and kind of calling out double-digit growth. I'm just curious if you could add a little bit of context around the visibility to that, what kind of you're assuming in that number for some of your larger project work, residential and then also just kind of acknowledging some of the kind of weaker kind of smaller commercial projects right now. Santiago Giraldo: Tim, I'll take this first. Obviously, we have a record backlog in place that gives us visibility, especially on the larger projects that are either in execution or already breaking ground that has financial closings in place already. So that gives us a lot of visibility. And I think the single-family residential component, a lot of the growth is coming from what we're seeing as far as the geographical expansion into other places and the vinyl product ramp-up. We'll obviously come back to you guys with more granular detail. This is kind of like what we're seeing based on making some general assumptions and have a lot of confidence in that. But as far as the breakdown goes and where we think specifically each bucket is going to contribute, I think we'll give you more detail in the next call. Timothy Wojs: Okay. Okay. And then as I think about the cost side of things, is there a way just to give us some -- I think aluminum was a $5 million headwind, and you had a couple of million dollars from FX. But I guess how do those -- how does the aluminum piece kind of trend in the fourth quarter and early '26? And then if you could just maybe talk about kind of when you would expect some of the peso headwinds to kind of normalize out? Is that kind of a mid-2026 time line? -- at this point? Santiago Giraldo: Yes. On the aluminum, if you look at what's happened here in the last 3 months, LME has gone up 15% from about $2,500 to $2,900. So that's been a pretty fast ramp-up. And the U.S. aluminum premiums have gone up even faster, about 67% from about $1,000 to $1,800, right? So that's happened fast as of late. I think the thought process here is that as volumes and demand subside, those are going to correct. But as of now, it is anybody's guess as to what's going to happen there. Hopefully, that won't stay at record high levels for a prolonged period of time. And if you look at what's happened with the FX since our last call, we were at $41.70 and now we're at $38.50. That's an 8% revaluation in 90 days. So again, it's a headwind of a very rapid ramp-up over the last 90 days. What's happening there as well is that the government of Colombia did a liability management deal where they have monetized a lot of dollars as of late. The expectation is for the peso probably to come back up about 4,000 by year-end. Luckily, we're covered on about 60% of our cost and expenses, and we'll be looking to be opportunistic and find an attractive entry point to mitigate that risk going forward. But the expectation based on the economist is that we should be closer to the 4,000 level by year-end. Timothy Wojs: Okay. Okay. And then I guess just last one for me. On the vinyl business, could you just give us an update maybe on kind of where that business is tracking in 2025 and maybe your kind of initial expectations for next year there? Jose Daes: Listen, this year, Tim, this is Jose. This year, we duplicated what we did last year, but it's still minimum compared to what is going to be next year. We expect the next year to be from 7 to 10x more than we have done this year because we're going to have a complete line, and we have already like 50 new dealers lined up just waiting for the line to be complete. Operator: Our next question comes from Sam Darkatsh with Raymond James. Sam Darkatsh: So I wanted to piggyback a little bit on Tim's questions around '26. Can you remind us what the price and tariff cost rollovers are from '25 into '26? And I guess what I'm getting at, Santiago, is what do you figure, generally speaking, '26 gross margins might shake out? And can you lever EBITDA margins next year? Santiago Giraldo: Yes. So obviously, there's a few moving pieces here. As far as pricing goes, as you know, we increased single-family residential pricing 5% to 7% in May. So obviously, all of that now has the new pricing. And on the commercial side, you see a lot more of the backlog that was signed earlier in the year coming in with new pricing. Obviously, we're executing still some of the older backlog where we didn't adjust pricing. As far as gross margin goes, I mean, it's early to tell, but I think the idea, depending on what happens with the inputs that we just discussed is that we can be able to maintain the low to mid-40s type profile. But as you see, there's FX, there is aluminum cost, there's mix. We're doing more installation based on the high-end projects that GMMP is executing. And you got operating leverage, right? I mean if we're saying that we can grow top line double digits again next year, we would obviously expect to get operating leverage in there. But again, we'll get you guys more detail as the time approaches and we report Q4 and full 2026 guidance in the next call. Sam Darkatsh: Got you. And then as it relates to pricing, as it stands right now, do you anticipate further pricing actions to mitigate some of your costs? And what are you seeing out in the field in terms of a competitive response to all the aluminum pressures? Santiago Giraldo: Generally, you're seeing tight pricing, as you would expect. Everybody is trying to maintain their market share. So for as much as we would like to take further pricing actions, the market dictates really what you can do. So the expectation for our growth next year is more on the volume side, as Jose was mentioning, not only we're expecting the full ramp-up on vinyl, but all of the other geographies contributing much more meaningful. So when we're talking about double-digit growth, it's more coming from volume rather than the assumption that we're going to be able to raise prices again based on what the competition is doing and the dynamics for the industry. Sam Darkatsh: And then my last question, the prospective U.S. facility that you are contemplating, I know it's still in the semi- early stages. But can you give us a sense of how much capacity you're looking at, what the CapEx cost might be and the timing of those sorts of expenditures? Christian Daes: Well, we're still designing, starting, doing engineering, but we do believe that the building and land will be around $225 million, and the machines will be around $150 million, and it will be the -- we will have the capacity of 40% of most lines. It's still too early to tell. We do have a line already a piece of land that we like, is in a very special place. We're making -- we're going to bid on it. And when we have all the numbers together because it's going to be a fully automatic robotic factory that will employ like 1/8 of the people that we normally employ to make the same window. When we have all that, we'll give you more color on what is it that we have to do. But we are really looking into it because it's a good thing to do, especially that we want to do it in the East Coast and also in the West Coast. Santiago Giraldo: Samuel, just to add to Christian's comments, obviously, that CapEx is multiyear, right? So this is something where if the factory is going to take 2, 3 years to get built out, this is something that gets spent over a multiyear horizon. And also, it can be built gradually, right, depending on demand. So you don't have to make a full investment without having the demand for the excess capacity as well. Sam Darkatsh: So roughly $350 million to $400 million in total costs and maybe $500 million in capacity. Is that the broad brush way of looking at it? Santiago Giraldo: Yes. That roughly sounds good. So if you extrapolate to decent margins, the payback is attractive, obviously. Operator: Our next question comes from the line of Rohit Seth with B. Riley. Rohit Seth: Just on the guidance, you cited slower-than-anticipated invoicing light commercial construction as the driver of the guidance cut. Can you quantify how much revenue maybe slipped from Q4 into 2026? Is this like 1 or 2 projects? Or is this more a broader issue in the commercial side? Santiago Giraldo: Well, we're talking about a $20 million reduction at the midpoint of the guidance more or less. We would estimate that at least half of that is 2026 business, which obviously further supports the idea of double-digit growth next year. And I would say some of that is coming from more stable resi invoicing than previously anticipated. But these are projects that are obviously in the backlog and not expected to obviously drop off. It's more a timing issue. Rohit Seth: Okay. And then on the 2026 double-digit growth guide on revenues, could you maybe narrow that down to a specific range? Is it 10% to 12% or 13% to 15%? Santiago Giraldo: I mean, at this point, I would assume low double-digit growth. But again, more details to come. We're basically working with back-of-the-envelope calculations and assumptions. But when we report Q4 and give you full guidance, we'll provide more granular detail on that. Rohit Seth: Okay. And your gross margins come down to the mid-40s. As you think about 2026, I mean -- and you're driving your margin assumptions. What are the key swing factors? Is there a path back to the mid-40s? Do you think this low 40s is sort of the new run rate? Santiago Giraldo: Low to mid-40s is what we had talked about on the earlier question. And if you kind of back into the math, that's more or less where we can end up this year. Next year, again, there's different variables related to input cost. Hopefully, some of the recent spikes in aluminum cost and premiums will come down to normalized levels. FX is also in question. So it's an important input, and installation mix versus manufacturing mix also comes to play. And finally, how much operating leverage can we get on those incremental sales. So again, there's different variables. We'll provide more color when we report next quarter. Rohit Seth: Okay. And just on the higher mix of revenues with installation, it's been a headwind. Just can you quantify what percentage of your commercial revenue is installation versus product only? Santiago Giraldo: What percentage of the commercial revenues, what, I'm sorry? Rohit Seth: What percentage was the installation mix in the third quarter versus product only. Santiago Giraldo: If you look at the overall revenue for the year, we're doing about $990 million, take about $200 million of that is going to be installation for the year, and that is up 50% versus last year. This quarter, the impact on mix alone for the fourth quarter is roughly about $2 million of EBITDA versus where we were in the prior midpoint. Operator: Our next question comes from the line of Brent Thielman with D.A. Davidson. Brent Thielman: Just coming back to the sort of the short-cycle commercial work that's maybe pushed some revenue out or delayed revenue, however you want to frame it. I mean what is sort of, in your view, kind of changed in the last few months that's influenced that? And I guess as a follow-up question, the backlog continues to grow here. Maybe what you see across the country in terms of high-end base? Is the market getting better? Is the backlog growth clearly an influence of you taking share? If you could comment on those 2 things, that would be great. Santiago Giraldo: Well, I think that the input costs that we're mentioning here is playing a part in many other segments in the construction industry, right? So when you have light commercial construction depending on those input costs, it's probably prudent to kind of push up some of those projects until things normalize. So I think in what you have seen, we talked about LME going up 15% in 90 days and U.S. aluminum premiums up 65% in the same time period. That's translating into other things, right? So for somebody that is putting in place a smaller project where they don't have necessarily financial closings of people that have already bought condos, for instance, that's a different story. It's a different proposition. So it's a matter of timing and having things normalized. At some point, there's going to be some type of correction. So I think that's what's playing a part there. And on your second question, can you repeat? I think Jose is going to address that. Brent Thielman: Maybe just the back -- I mean, look, the backlog is growing at the same time here. So is this, is the market for high-end space getting better in the U.S.? Is this that you're capturing more share in new regions, just discussion there. . Jose Daes: Well, we are expanding geographically. For example, before, we didn't have any work in the Tampa, St. Petersburg area. And now we have a lot of work there. We have work in Jacksonville. We have 3 buildings where we never had any, and we keep quoting. We have a lot of work in the Panhandle area, and that's only in Florida. And now we see a resurgence in the Boston, New York area. And also, we are quoting directly with the GMP brand, which is the installation brand. in Texas, California and even Hawaii. So we're not just relying on Florida anymore. We are expanding Florida, South Florida to all over the state, and we are expanding outside the state with really good results. Brent Thielman: Okay. And then maybe just one more follow-up on the single-family product line, when you look outside of Florida, where do you -- are these different geographies you're targeting? Where are you getting the most traction? Like where are you getting a lot of momentum building the Texas East Coast West Coast? Jose Daes: All over the East Coast is growing with the new line, but we see most of the growth is West Texas, Arizona, Nevada, California, Utah, even Hawaii. I mean we sold last year in Hawaii around -- I don't know exactly, but we're going to end up invoicing this year like $6 million to $10 million, and we hope to do $20 million or $30 million next year. Operator: Our next question comes from the line of Julio Romero with Sidoti. Julio Romero: I appreciate the preliminary revenue expectation for '26 and understand we'll get more color to come on the puts and takes there. Any preliminary thoughts on how we should think about capital allocation? I know you have the automated plant in Florida that you're currently weighing. Just trying to think about how you're thinking about capital expenditures and your recently upped share repurchase? And how would you have us think about that? Santiago Giraldo: On CapEx, as we have mentioned before, it's trending down, and we're talking about core growth CapEx, not talking about the potential to do the U.S. plant, which is still early in the process. So the CapEx is going to trend down. Utilized capacity still allows us to grow well into double digits for the next couple of years. You saw what we did in terms of buybacks last quarter and in terms of the Board action to increase that program. So I think that's definitely a good use of capital going forward as we continue to generate free cash flow. The dividend continues to be there. So that's another way to return capital to shareholders, obviously. And we have very little debt. We continue to expect to be in a net cash position for the foreseeable future. So I think it will be finding opportunities to continue reinvesting in the business. If the backlog continues growing or as Jose mentioned, the opportunities on single-family residential materialize and we grow significantly over the next year, then at some point, we'll have to just reinvest in growth. But immediately, I think doing something on the buyback front makes sense as you saw from the Board's actions and willing to see what happens with the general conditions of the market. Julio Romero: Very helpful there. And then on single-family, I know we talked about vinyl and we talked about showrooms, but I wanted to get a progress update on Multimax, how that's doing at the moment. And a lot of the homebuilders have been rather pessimistic expressing that the near-term rebound isn't likely in the near term. I would be curious to how you're thinking about that product line and the outlook at the moment. Jose Daes: Well, Multimax is doing much better this year, even though the new housing have dropped a little bit for every builder because we gained a couple of very nice accounts -- we now are selling to 3 more homebuilders, and we expect to take 1 or 2 more within the next 6 months. So that line is doing well. But most of the growth next year, particularly are going to come from the new lines that we are launching complete by the end of the year to the other markets to Texas, California, Arizona, Nevada, Utah, I mean those lines, even though they're not complete, we are already selling in those states with -- people are really, really happy and enthusiastic. They can't wait to buy a lot more. So we're really excited about those lines. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jose Manuel Daes for closing remarks. Jose Daes: Thanks, everyone, for participating on today's call. We hope to keep growing double digits. Please keep time for better news. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Cineplex Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. I will now hand the conference over to Rayhan Azmat. Please go ahead. Rayhan Azmat: Good morning, everyone, and thank you for joining us to discuss Cineplex's Third Quarter 2025 results. I'm Rayhan Azmat, Vice President, Investor Relations, Corporate Development and Financial Planning and Analysis. Joining me today are Ellis Jacob, our President and Chief Executive Officer; and Gord Nelson, our Chief Financial Officer. I remind you that certain statements being made are forward-looking and subject to various risks and uncertainties. Such forward-looking statements are based on management's beliefs and assumptions regarding the information currently available. Actual results may differ materially from those expressed in forward-looking statements. Information regarding factors that could cause results to vary can be found in the company's most recently filed annual information form and management discussion and analysis. Following today's remarks, we will close the call with our customary question-and-answer period. I will now turn the call over to Ellis Jacob. Ellis Jacob: Thank you, Rayhan, and good morning, everyone. I'm pleased to share our 2025 third quarter results with you today. After a softer start to the year, the second and third quarters delivered steady performances driven by a consistent supply of high-performing diverse titles with growing consumer demand for premium experiences. While there were strong contributions this quarter, attendance was down versus last year as last August had the record-breaking performance of Deadpool and Wolverine. We reported a third quarter box office per patron of $13.23, increasing by $0.04, supported by sustained demand for premium-priced products. Concession per patron was $9.65, down 2%, primarily due to the Labor Day weekend promotion, which included discounted offers on tickets and popcorn. Taking a closer look at content in Q3, there were standout performances across a variety of genres, including action, horror and anime. Franchise titles like Superman, The Fantastic Four: First Steps and The Conjuring: Last Rites delivered record-breaking results, all becoming the highest grossing titles within their franchise. Beyond franchises and sequels, the third quarter had a nice blend of original content that performed exceptionally well. Standout original horror film, Weapons exceeded expectations and topped the box office for 4 consecutive weeks in 2025. And F1, The Movie, continued its strong theatrical run into Q3, making it the biggest Apple original film ever. Our alternative content offering continues to demonstrate solid results, driving audience engagement and diversifying our programming slate in ways that resonate with evolving consumer preferences. Anime Call Classic Demon Slayer: Kimetsu no Yaiba Infinity Castle became the highest grossing foreign language film in history, both domestically and at Cineplex. Its massive fan following and deeply loyal global audience made it a strategic win for our alternative content portfolio, driven in large part by our ability to engage a varied and diverse audience. International cinema accounted for 13.6% of our box office in Q3, up from 9.3% last year, a testament to our growing ability to find and attract the right audiences for these films. Punjabi language comedy, Chal Mera Putt 4 delivered impressive results, becoming one of the highest grossing Punjabi films in Cineplex history with approximately 80% of its domestic box office attributable to our circuit. This reflects our industry-leading approach to film scheduling and our success in attracting high-value audience segments. International cinema also draws key retail demographics sought by advertisers, which is becoming a growing and unique offering for our cinema media team. In addition to the variety of content drawing moviegoers to theaters, consumers are also choosing a more immersive experience. We're using predictive analytics in our marketing efforts to match a moviegoer to a premium experience while also leveraging our loyalty program to reward moviegoers who choose an enhanced experience for the first time. Nearly 45% of our third quarter box office came from premium experiences, highlighted by the fact that our 3 highest grossing films in the quarter generated over 60% of their respective box office performance from these formats. We started the fourth quarter with Taylor Swift: The Official Release Party of a Showgirl, which energized the typically quieter period and reinforces the power of varied programming to bring audiences into theaters. Artists are increasingly turning to the theatrical experience as a way to unite fans and create shared cultural moments, positioning our theaters as dynamic venues for more than just movies. Our LBE business continues to play a part in our broader entertainment strategy, offering guests fun full social experiences in our venues nationwide. In Q3, LBE revenue reached a third quarter record of $34.6 million, up 11.3% year-over-year, driven by the addition of 3 new locations. Macroeconomic headwinds impacted food and beverage spending, resulting in same-store revenue declining 3.3% and same-store location margins delivering 21%. These locations are demonstrating resiliency in a more challenging environment while new venues are continuing to ramp up. Despite Q3 results being below our expectations, we remain optimistic as we enter our typically busier fourth quarter. With the heightened demand for groups and events activity in Q4, we are focused on building momentum and driving performance across our Palladium and the Rec Room locations. As we look at our cinema media business in the quarter, despite a softer advertising market, it continues to perform well. Cinema Media Q3 revenues increased by 6.1% to $19.2 million despite the decrease in attendance. This growth was primarily driven by an increase in Showtime revenues, which continues to be a key driver of advertiser engagement. Cinema media per patron reached $1.59, a 16.1% increase over the prior year, reflecting the diversity of the film slate during the quarter and strong sales despite a challenging media environment. Titles with broad appeal to key consumer demographics helped to track incremental advertising spend even in a relatively slower market. We also continue to leverage our expertise in data and analytics to optimize campaign performance and drive revenue growth. Last month, we announced we have entered into a definitive agreement to sell Cineplex Digital Media to Creative Realities, Inc. for gross cash proceeds of $70 million, subject to customary closing adjustments. This strategic transaction unlocks meaningful value for shareholders and immediately strengthens our balance sheet, providing capital for opportunistic share buybacks, debt reduction and general corporate purposes. Importantly, Cineplex Media will continue as CDN's exclusive advertising sales agent for its digital out-of-home networks across Canada, ensuring continuity for our partners and clients. CDM has grown into an industry-leading digital solutions company over the past 16 years, and this transaction reflects our commitment to optimizing our portfolio and delivering long-term value. Before I close, I'd like to provide a brief update on our appeal of the Competition Tribunal decision regarding our online booking fee. We filed our notice of appeal in 2023. At that time and with consent of the Competition Bureau, the Federal Court of Appeal granted us a stay of the administrative monetary penalty imposed against us. This stay will remain in effect until the Federal Court of Appeal has made a decision in our case. Our appeal was heard by the Federal Court of Appeal on October 8, 2025. We continue to believe that we complied with the letter and spirit of the law, and we anticipate a decision sometime in the first half of next year. Looking forward from April through September, box office revenues reached 110% of the same period in 2024. While August faced a tough year-over-year comparison due to the exceptional performance of Deadpool and Wolverine, July 2025 emerged as the second highest box office month since the pandemic, trailing only the Barbenheimer phenomenon. This signals positive momentum as we enter the fourth quarter. Looking ahead, the remainder of 2025 looks promising. While October is typically a slower month in the theatrical calendar, November and December are shaping up to be strong with a robust slate of highly anticipated titles, including Predator: Badlands, The Running Man, Wicked: For Good, the sequel to last year's Austin-nominated Wicked, which is already generating early buzz and fan anticipation with very strong presales. Zootopia 2, Five Nights at Freddy's 2, Avatar, Fire and Ash, the third chapter in James Cameron Epic Saga and The SpongeBob Movie: Search for SquarePants. We are also seeing increased interest in theatrical releases from streaming platforms with Netflix announcing that multiple titles will have an exclusive theatrical run before they hit their service. Some of these titles include K-pop Demon Hunters, Frankenstein, Jake Kelly and the latest from the Knives Out franchise Wake Up Dead Man and Knives Out Mystery. Cineplex Pictures is contributing to this momentum with the fourth quarter lineup that includes the Housemaid starring Sydney Sweeney and Amanda Seyfried and the third film in the Now You See Me franchise. Our diversified business model and commitment to delivering premium entertainment experiences and the strong film slate ahead positions us well for continued success into the fourth quarter. Before I close, I'd like to announce that Kevin Johnson, CEO of WPP Media Canada and President of WPP Canada has been appointed to the Board of Directors. Mr. Johnson is a recognized leader in the Canadian media and advertising industry and has more than 2 decades of experience driving growth and innovation with his deep expertise in marketing strategy and new business development. I will now turn the call over to Gord Nelson, our Chief Financial Officer, to walk you through the financials in more detail. Gord Nelson: Thank you, Ellis. I am pleased to present a condensed summary of the third quarter results for Cineplex Inc. For further reference, our financial statements and MD&A have been filed on SEDAR+ and are available on our Investor Relations website at cineplex.com. Our MD&A and earnings press release include a complete narrative on the operational results. So I'll focus on select highlights as well as providing commentary on liquidity, capital allocation priorities and our outlook. Before commenting on the financial results, I want to remind you that with the announced sale of CDM last month, its results are presented retroactively as discontinued operations. There is significant disclosure in our financial statements and MD&A related to this retroactive presentation and all amounts following will be from continuing operations unless otherwise stated. As Ellis mentioned, we were pleased to see continued consistency in box office performance during the third quarter, supported by a diverse mix of film content. This momentum reflects the enduring appeal of the theatrical experience and the strength of our premium offerings. Total revenue for the quarter was $348.9 million, an 8.7% decrease from the prior year. Adjusted EBITDA was $33.3 million compared to $47.9 million in Q3 2024. Our consolidated adjusted EBITDA margin was 9.6%, down from the 12.5% in the prior year. All of these metrics were impacted by the attendance decline as a result of the record-breaking performance of Deadpool and Wolverine in 2024. So let's take a closer look at our segments. Box office revenue in the Film Entertainment and Content segment was $159.5 million, down 8.8% from the prior year. Attendance for the quarter reached 12.1 million guests, were $0.5 million or 5% higher than Q2 2025. This represented a decline of 9.1% compared to Q3 2024, again, primarily impacted by the highest grossing R-rated film of all time, Deadpool and Wolverine, which drove exceptional results last year. Box office per patron or BPP, reached $13.23, supported by sustained demand for premium-priced products, which accounted for 44.7% of total box office. Concession per patron or CPP was $9.65, down 2% -- both the BPP and CPP metrics were impacted by a $5 promotional pricing offer during the Labor Day weekend on tickets and popcorn. While these programs drove incremental attendance and a positive net contribution over a typically quiet Labor Day weekend, the impact on BPP and CPP was approximately negative $0.32 and negative $0.12, respectively, as we did not have this program in 2024. So to reiterate, these programs drove incremental visitation and were a net positive contributor. The year-over-year BPP and CPP change for Q3 should not be read as an indicator of any future trends. During Q2, we saw our first quarter with CPP over $10, and we continue to see opportunity for growth in both these metrics. I also want to speak briefly about our other revenue line, which is comprised of many items attributable to our Film Entertainment and Content segment. During the quarter, other revenue was down approximately $7.9 million as compared to the prior year. The major contributors to this decrease include the following: at the end of 2024, we sold our online business, Cineplex Store. Other revenue included approximately $2.4 million related to this business in Q3 2024 and obviously, nil in 2025. Next, revenue related to our Cineplex Pictures business is based on their films released in any given quarter, and they typically have a limited number of films released in any given year. This quarter, revenue from this business was $1.5 million below the prior year. But looking back to Q2, as an example, revenue from this business was $1.5 million above the prior year. And as Ellis mentioned, we have a number of films being released in Q4 and would expect the revenue to be above 2024's level in Q4. For both the Cineplex Store business and Cineplex Pictures, these revenue declines are also offset by other operating expense reductions. And finally, breakage on our gift card and certificate programs was down approximately $3 million as compared to the prior year, primarily related to true-ups reflected in the prior year comparatives. These 3 items account for $6.9 million of the decrease. Segment adjusted EBITDA was $33.8 million with a margin of 11.4% compared to 14.7% in the prior year. The decline reflects lower attendance compared to the prior year. Importantly, through the end of Q3, Cineplex has exceeded prior year box office revenues of every month of 2025, except 2, reflecting a positive trend in both the consistency of film product and consumer demand for the theatrical experience. Cinema Media revenue for the quarter was $19.2 million, an increase of 6.1% compared to the prior year. Growth was driven primarily by increased demand for Showtime advertising. Our ability to deliver targeted impressions through premium content and audience analytics continues to differentiate our offerings in a competitive media landscape. Segment adjusted EBITDA was $15.2 million with a margin of 79.7%. As a reminder, the Media segment results now only include the results from the Cinema Media business and exclude the Cineplex Digital Media business. While the broader advertising market has been challenged this year, we are encouraged by our growth this quarter alongside longer-term interest from brands seeking high-impact audience-driven placements. Revenue in our location-based entertainment segment was $34.6 million, an increase of 11.3% compared to the prior year, driven by the addition of 3 new venues that opened in late 2024. Same-store revenue declined 3.3%, consistent with our full year expectations of a 3% to 5% decline as previously communicated. Given this revenue decline, same-store level EBITDA margin came in at 21%. Total portfolio store level EBITDA for the quarter was $5.8 million with a margin of 16.7%, down from the 24.4% in the prior year. The decline reflects the lower same-store revenue levels due to macroeconomic headwinds, consistent with the broader LBE landscape, alongside muted operating results from the 3 new build locations, which continue to optimize their operations. Looking ahead, we remain focused on optimizing performance across the portfolio and are encouraged by corporate event bookings heading into the traditionally strong fourth quarter. We have one remaining committed new location, which we expect to open in the first half of 2026. General and administrative expenses for the quarter were $20.2 million, representing a decline of approximately 2% from the prior year. Within this, LTIP costs totaled $2.7 million, reflecting a $1.4 million decrease from the prior year due to increased forfeitures associated with organizational changes. Subsequent to the quarter end, we announced the sale of Cineplex Digital Media for gross cash proceeds of $70 million, subject to customary closing adjustments. As mentioned previously, this reflects an approximate 10x multiple on 2025 estimated earnings and was highly accretive for us. Importantly, Cineplex Media will remain the exclusive advertising sales agent for all CDM operated digital out-of-home networks across Canada, ensuring continuity and value in our media business. We ended the quarter with $38.7 million in cash, a modest decrease from $42.1 million in Q2, reflecting seasonal working capital movements and capital expenditures. We continue to maintain full availability under our $100 million covenant-like credit facility with no drawings as of quarter end. Net cash capital expenditures for the quarter were $4.3 million, primarily allocated to maintenance and premium format upgrades. We continue to expect full year net CapEx to be in the range of $40 million to $50 million, consistent with prior guidance. Our capital allocation priorities remain disciplined and unchanged maintaining appropriate levels of maintenance capital expenditures, strengthening the balance sheet to achieve our target leverage range of 2.5 to 3x, making strategic investments to support long-term growth and providing shareholder returns over time. With respect to the CDM sales proceeds, we intend to allocate up to $18.5 million for opportunistic share repurchases under the recently extended NCIB, consistent with indenture limits and hold the remaining funds for potential debt repayment, pursuing additional buybacks or other corporate purposes. There was no activity under the NCIB during the quarter as we balanced our capital priorities and were restricted with the CDM transaction. With the proceeds from the upcoming sale, we are well positioned to act opportunistically in the quarters ahead. The past several months have demonstrated continued momentum in theatrical exhibition with box office revenues exceeding prior year levels in nearly every month in 2025. This trend reflects not only the strength and diversity of film content, but also the continued enthusiasm of audiences for the theatrical experience. The sale of CDM provides us with additional financial flexibility and our continued role as exclusive advertising agent for CDM's out-of-home networks ensures continuity in our media business. With a strong foundation, a clear strategy and a disciplined approach to capital, we are well positioned to deliver long-term value for our shareholders. We're excited about the path ahead and remain focused on executing our strategy. And with that, I'll turn things over to the conference operator for questions. Operator: [Operator Instructions]. Your first question comes from the line of Ryan Neal with TD Securities. Ryan Neal: This is Ryan in for Derek. So first, I'm just curious how you guys are expecting the 2026 slate to evolve. Do you think it's going to be sort of similar chunkier to 2025 or more balanced throughout the year? Ellis Jacob: 2026, we look upon it being a strong year, and there's a lot of distribution of product. We are excited because of Amazon who've committed to releasing close to a dozen movies. So overall, the big quarters are always the summer quarters and the December period. But I think you'll see it a bit more spread out than it was in 2025. Ryan Neal: Okay. Great. And given the strong slate next year in '26, has that translated into any increased conversations you've had with advertisers maybe looking to increase their cinema media spend? Ellis Jacob: Yes. And as the attendance goes up and as we know, when it comes to the advertisers, they are very focused on the awareness and the attention matrix. And to me, it's one of the few places left where you can basically get total attention for the audiences. So it will continue to get stronger and continue to grow. Gord Nelson: Yes. And Ryan, as we see it and we look at the landscape, when you look at the total media spend in Canada and you exclude digital spend, so all the sort of more traditional forms of advertising spending, cinema was up. So we were up year-over-year, where basically all other forms of advertising, the more traditional spend was down. So it's sort of evident of the kind of the compelling nature and what we provide to advertisers for a very effective campaign. Operator: [Operator Instructions]. There are no further -- apologies. We have a follow-up from Ryan Neal with TD. Ryan Neal: Yes. Just in terms of modeling and for modeling purposes, how do you think we should sort of record or think about depreciation moving forward following the sale? Gord Nelson: Yes. So depreciation -- so depreciation, really, I would say the latest quarter is the best indicator for going forward. We have restated the financial statements to include CDM as a discontinued operations. So the fourth quarter number would be the best indicator on a go-forward basis. Operator: [Operator Instructions]. There are no further questions at this time. I will now turn the call back to Ellis Jacob for closing remarks. Ellis Jacob: Thank you all again for joining us today. We look forward to sharing our fourth quarter results in early 2026 and hope to see you at the movies. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the BSR REIT Third Quarter 2025 Fiscal Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Spencer Andrews, Vice President of Investor Relations and Marketing. Please go ahead, sir. Spencer Andrews: Thank you, Tina, and good morning, everyone. Welcome to BSR REIT's conference call to discuss our financial results for the third quarter ending September 30, 2025. I'm joined on the call today by our CEO, Dan Oberste; our Chief Financial Officer, Tom Cirbus; and our Chief Operating Officer, Susie Rosenbaum, who are all available to answer your questions after our prepared remarks. Before we begin, I want to remind listeners that certain statements made on this conference call about future events are forward-looking in nature. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially. In addition, we will reference certain non-GAAP financial measures that we believe are useful supplemental information about our financial performance. For more information, please refer to the cautionary statements on forward-looking information and a description of our non-GAAP financial measures in our news release and MD&A dated November 5, 2025. Dan, over to you. Daniel Oberste: Thanks, Spencer. The third quarter represented a significant inflection point for BSR as the REIT completed its redeployment of capital midway through the quarter, continued the integration of our newly acquired assets and, frankly, powered through a softer leasing environment than most anticipated. Despite some continued challenges in the macro level operational backdrop, the REIT's capital allocation and stewardship has positioned our unitholders for upcoming growth. The results will speak for themselves as they have many times in the past when we have executed similar capital allocation decisions. The most recent example being our cancellation of approximately 20 million units or 39% of the outstanding units in the REIT since 2022. To that end, in the third quarter, same-community NOI increased 2.7% compared to Q3 last year. Same-community weighted average occupancy was 94.3%. Our retention rate was 58.2% at quarter end, a further 80 basis point expansion from 57.4% at the end of Q2. Leasing momentum at Austin lease-up Aura 35Fifty continued with occupancy reaching 86.6% at quarter end, up from 59.7% at the end of Q2. We also experienced continued green shoots on the rate front. Blended same community rental rates increased 0.4% over prior leases, representing the first time that blended rental rates have increased since the third quarter of 2024. And we acquired The Ownsby for $87.5 million during the quarter. The Ownsby, which comprises 368 apartment units, is located in the Dallas suburb of Celina, which was the fastest-growing city in the U.S. in 2023 and grew by a further 19% in the 12 months ending July of 2024. The fundamentals of our business are undeniable, though continuing to percolate a little longer than originally anticipated, supply will materially exit the picture in the relative near term. As I highlighted last quarter, CoStar and several other data providers have adjusted their expectations for new deliveries from Q4 '25 through '27, which should ultimately yield additional elasticity and pricing power for our apartment units. Therefore, we believe that this is just the beginning of a period of consistent growth in rental rates. Above and beyond rental rates, we have significant internal growth opportunities in front of us, given the going-in occupancy of the assets we acquired in 2025. As our team stabilizes these new properties and optimizes our existing best-in-class Texas portfolio, unitholders stand to benefit. I'll now invite Tom to review our third quarter financial results in more detail. Tom? Thomas Cirbus: Thanks, Dan. Our operational performance in the third quarter was in line with management's expectations as our blended trade-outs continued to improve and as Dan highlighted, turned positive in the quarter. Blended rates increased 40 basis points in the third quarter, which follows a 3.2% and 0.7% decline in Q1 and Q2, respectively. Clearly, we are seeing the results of the market absorption of previous deliveries. More broadly, the REIT's same-community revenue was $26.5 million in Q3 2025, a decline of 1% from last year. This was primarily driven by the negative trade-outs we have experienced up to the third quarter, which resulted in a 1.2% year-over-year decline in average monthly in-place leases. That decline was partially offset by an increase in other property income driven by enhanced resident participation in our credit building service, an increase in utility reimbursements and an increase in properties receiving valet trash service over the prior year. We're thrilled to see these internalization activities help drive results and believe it is a case study of the value-add potential embedded in our portfolio. It's worth noting that there are several of these internalization activities, including expansions of our valet trash and bulk Internet initiatives, which will provide meaningful acceleration to expected organic growth and will begin to materialize in 2026 and beyond. Same community NOI for Q3 2025 was $14.4 million, a 2.7% increase from Q3 2024. Our acceleration in same-community NOI was mainly driven by a 5% decline in same-community expenses, the primary drivers of which were a $0.6 million decrease in real estate taxes and a $0.2 million decrease in property insurance. Below NOI, G&A improved by approximately $0.1 million or approximately 5% and net finance costs declined 2.7%, largely due to our net paydown of debt following our 2025 disposition and acquisitions activities. In total, FFO in Q3 was $0.19 per unit compared to $0.23 per unit last year. On an AFFO basis, total AFFO per unit was $0.17 per unit compared to $0.21 per unit last year. The year-over-year declines in FFO and AFFO per unit are primarily driven by: one, the time lapse in redeploying our disposition proceeds into new acquisitions; and two, the occupancy concentration of our development and new acquisitions, which we expect to stabilize to similar levels of our same community properties in the coming quarters. In addition, during the third quarter, the REIT declared cash distributions totaling $0.14 per unit, a 2.5% year-over-year increase. Turning to our balance sheet. The REIT's debt to gross book value as of September 30, 2025, was 51.3%. This amounts to $726.6 million of debt outstanding with a weighted average interest rate of 4.0%, 99% of which is either fixed or economically hedged to fixed rates. On the liquidity front, total liquidity was $63.4 million as of September 30, including cash and cash equivalents of $6.6 million and $56.8 million available under our revolving credit facility. As usual, we have the ability to obtain additional liquidity by adding properties to the current borrowing base of the facility. During the quarter, we amended our 3.27% $105 million interest rate swap to lower the fixed interest rate to 3.1% and extend the counterparty optional termination date to January 1, 2027. Note that, as I highlighted last quarter, we have undergone some material changes to our derivative book this year as we were called out of in-the-money swaps. Accordingly, ongoing finance costs will reflect the higher cost replacement of these derivative instruments, particularly evident when viewed on a per unit basis. However, as a reminder, our use of swaps to hedge our interest rate exposure was laddered by design when we initiated this program. We continuously monitor and adjust various hedges with the goal of achieving the best cost of capital for the REIT. Finally, our financial and operating results continue to be affected by very recent property acquisitions, lease-ups and the replacements of swaps. So with so many moving pieces, we are continuing our suspension of more detailed annual guidance at this time. I will now turn it back to Dan for his closing remarks. Daniel Oberste: Thanks, Tom. As we quickly approach the holiday season, I will remind everyone that 2025 has been a transformative year for the REIT. We've sold 10 fully stabilized apartment communities at extremely attractive pricing to best-in-class buyers, once again, underlining the veracity of our NAV. In turn, we have traded those 10 stabilized communities for recently developed assets with higher embedded growth potential while increasing our relative concentration to Houston. With the acquisitions of the Ownsby and Venue Craig Ranch in Dallas, Forayna Vintage Park and Botanic Living in Houston and the lease-up of Aura 35Fifty in Austin, we have now added a tremendous new cohort of assets to the REIT. These new communities will help us capitalize on the improving market fundamentals and generate sustained cash flow growth that results in increased value for unitholders. While we have now redeployed our 2025 disposition proceeds, it doesn't mean we're out of the acquisition business. We continue, as always, to examine acquisition opportunities in markets where the external growth environment is improving. However, we're not in the business of taking unnecessary risks with our investors' capital. To that end, we want to see a future return profile in excess of our weighted average cost of capital. Before wrapping up, I would like to call your attention to the fact that BSR was recently named one of the best places to work in multifamily for the fourth consecutive year. This is a tremendous achievement and speaks to the culture and team we have built at BSR as we approach our 70th year in the real estate business. We're proud of our management platform and firmly believe that it represents the secret sauce that brings us the best team in the business. That concludes our prepared remarks this morning. Tom, Susie and I would now be pleased to answer your questions. Operator, please open the line for questions. Operator: [Operator Instructions] The first question will come from Tom Callaghan from BMO Capital Markets. Tom Callaghan: Maybe just to start, nice to see the blended lease spreads turn positive there this quarter. Just wondering if you can add some color in terms of the cadence of those spreads and what you saw in the market really over the course of the quarter, just given I think it does imply a bit of a slowdown from the July levels that you talked about last call. Susan Koehn: Sure. Yes, I'm happy to answer. So as you're aware, we've got 2 levers that we can pull when it comes to maximizing cash flow for the portfolio. And what we did is we -- those levers are obviously occupancy and rate. And what you saw was we pushed rates in both July and August. And then we saw occupancy slightly drop in September, which made sense because the kids have gone back to school and you have less people looking for an apartment. So you've got some seasonality blended in, which is completely normal. We're still in that 94% to 96% occupancy, which I've said before is our sweet spot. Tom Callaghan: Got it. That's helpful. And that was actually going be my next question there just in terms of kind of those -- that push versus pull on occupancy and rate. How are you thinking about that into Q4 and 2026? Thomas Cirbus: Yes. I mean, I'll jump in, and we're thinking through all the budgeting things real time here, Tom. And so let me say, it's one of those things where the data providers, we could sit here and quote it to you are all over the map. And I don't know that, that's a productive exercise. We have our best data providers of our in-house team working through it real time. So not -- we don't have a great forward-look answer there. What I'd tell you is at our Analyst Day here in December, we're looking to give you more color there. So let me punt to then. Tom Callaghan: Okay. That sounds good. I look forward to that. Maybe one last one for me is just on capital allocation. Dan, you did mention in the press release, you're now fully redeployed in terms of the 2025 disposition capital. So I guess just in that vein, how should investors think about your approach to really capital allocation over the next 12 months? And part and parcel of that is just balance sheet leverage. Are you comfortable with where that is right now? Or do you have kind of a target in mind? Daniel Oberste: Yes, Tom, we like the players we got on the field in our portfolio right now. We bought the 5 assets that we've talked about in our prepared remarks, and you're seeing the performance and the lease-up expectations in some cases, in Austin, exceeding our lease-up velocity expectations. And in others, pretty much leasing up as we underwrote and expected. I think the team should focus right now on the occupancy potential from here on out and its potential to generate revenue. That's priority #1. And our investors are in luck because that's something we've been doing going on 70 years. So we feel pretty confident that we'll be able to obtain the revenue generated from those lease-ups. When we think about additional acquisitions, step one is we always underwrite our properties on their return on fair market value, and we rank them from 1 to 26%. If we see a rotation opportunity, I think you've seen us take advantage of those opportunities in the past. Number two, if we see there's an opportunity to deploy capital through leverage, equity or other creative means to drive a higher return for our investors. I think you've seen us work in creative and predictable patterns in the past to deliver those returns. But back to our current portfolio, we like the team we have on the field. We like the 5 new players that we put on our team this year. Operationally, I think we do what we're equipped to do, which is be a manager, and I think that's how we can maximize returns. We don't have any near-term plans to use credit to acquire nor do we have near-term plans to rotate, I would say, through the end of the year. As the year approaches or if anything changes in our portfolio, we certainly take advantage of rotation acquisition opportunities as well as other opportunities fueled by one or all means of capital. Operator: Kyle Stanley from Desjardins has the next question. Kyle Stanley: Just going back to the leasing spread front. It was encouraging to see the improvement on the new leasing side in Austin. Could you just speak to maybe what's driving that improvement in Austin? Is it the mix of leases? Is it may be less competition in the market today? Just love your thoughts on that. Susan Koehn: Sure, Kyle. So exactly, Austin, for the first time in a while, we saw the total percentage of properties offering concessions drop slightly. That -- and so that certainly would account for the fact that we were able to push rates a little more in Austin than we have in the past. Dallas-Fort Worth and Houston were the exact opposite. We saw concessions actually tick up slightly in Dallas and in Houston as far as properties go that are offering these. Kyle Stanley: Okay. Perfect. Next, so I think Tom mentioned the kind of look forward and maybe updating us at the Investor Day. Can we expect annual guidance for '26 provided at that point or at least getting back to providing annual guidance for the year ahead? Thomas Cirbus: Yes, Kyle, I think we have every intention of bringing back annual guidance in the future. I think we'll give some forward looks in December, TBD on to what extent, but we're moving in that direction for sure. Kyle Stanley: Okay. Perfect. And then just the last one for me. Dan, you've mentioned the lease-up opportunity of your recently acquired assets and that being a key focus today. On average, where would the in-place occupancy at those 5 newly acquired assets or the 5 new assets in the portfolio, where would that be today? And how quickly do you expect stabilization to occur over the next several months or quarters? Daniel Oberste: Yes. So I'll take a first stab on it and then invite Susie to add some more color and details. Typically, when we underwrite -- well, first of all, where are they ending today? The occupancy on each of those 5 assets is going to be higher today than it was at September 30 when we reported those numbers. We see the upside opportunity in occupancy from here on out, we can value that at about $4.5 million of revenue in 2026. Now what margin that revenue falls on, it's naturally going to be higher. I mean it makes sense that the top end of your stack is at a significantly higher margin than the first lease you get. Whether it's 65%, 75%, 80% margin is what we're working through right now incrementally as you can understand the challenges of rotating and then providing guidance on lease-ups. Some -- well, all of them are exceeding our expectations on occupancy and leasing velocity. Did that answer the first part of your question? Kyle Stanley: It did. I guess the one just clarification. The $4.5 million of revenue, that's incremental to what's already being generated today upon lease-up, correct? Daniel Oberste: Yes, that's incremental to what we're probably depicting for September numbers. I mean we see that as the occupancy. I'm not going to say low-hanging fruit because it's difficult to lease apartments. That's a specialized task. But to our people, they consider that low-hanging fruit because that's what they do every day. Occupancy is something that comes when, as Susie mentioned earlier, you have the product. Susie, are there any other details that you'd like to add on to that? Susan Koehn: Yes. Just -- yes, as you pointed out, so they were 90% occupied at the end of the quarter. But as Dan pointed out, that doesn't mean that, that was 90% the entire time. So we do have a lot of room to pick up there. I'd like to point out, though, that we would expect 3 of these assets to be stabilized from an occupancy standpoint by the end of the year, and the other 2 would be in the first half of next year. But we get 2 bites at the apple. Here's the thing that's important to remember, occupancy is number one, but then we still have to or get to burn off concessions, which will also raise rental revenue. Operator: Up next, we'll hear from Sairam Srinivas, Cormark Securities. Sairam Srinivas: Just looking at the acquisition market, and you guys have obviously been active in that. Are you seeing additional participants now actually come into these assets versus what you would probably see 6 to 8 months before? Thomas Cirbus: So I think the acquisition market is relatively healthy. I think the same participants are happening as were happening 6 to 8 months ago. I think it's a confluence of all the typical parties. I don't think that there's been a material change in the type of buyer over the course of the last 6 months, but I welcome Dan's thoughts as well. Daniel Oberste: No, I think Tom summarized it very well. I mean the acquisition market continues to present opportunities. And as we see the movement of the interest rate curve from a historically flat curve over the last year or 18 months or 5 years, depending on if you're counting, to some volatility on a look forward in the interest rate curve, the volatility creates opportunities to finance a risk against a desired return. We think there's an improved outlook next year, the following year and the following year, all the way into '28 for just the fundamentals of the cash flow, the ability of properties to deliver cash flow in our business. We don't think -- and I know our investors can share our opinion. We don't think the markets are accurately underwriting the revenue potential and the upside in net operating income that the sector is probably going to drive, and we empathize with that. Our partners in the market that are private that are attempting to sell their projects right now. For the most part, people that are selling have a difficulty and they have a little bit higher leverage, well, significantly higher leverage than us and other public REIT participants have. And that higher leverage and that higher interest burden certainly creates challenges in that private developer earning the cash flow that they had underwritten. Now above leverage, I think the operations, if I was -- I think many of our operating partners, when you remove interest rate and when you remove cap rate from their underwriting in '21 are experiencing pro forma net operating incomes in line with what they expected their developments to achieve. I think the difficulty that our private sellers are seeing right now is the cap rate placed on that cash flow stream, that net operating income that they underwrote. It's not that the cap rates have risen beyond -- I think our NAV is a great depiction of the market cap rate for the market. It's that the expectations in '21 and '22 for those private developers who raised private capital were not a 5.1% or a 5.2% exit cap. They probably align more closely to a sub-4 cap. And so when you build a property and it operates and the trains come in on time and the revenue and occupancy and the net operating income matches your pro forma, but your reversion cap for your investment went from a 3.9% cap to perhaps a 5% cap, that's a significant deterioration in your sales proceeds. As we discussed in prior quarters, those developers face challenges, and they've decided to, in some cases, sell their properties. Some of our good partners have sold properties to us that we are totally excited about from a purchase price standpoint and from an operational standpoint. Other potential sellers and developers have decided to refinance that risk and wait for better days, which I'm in their camp on because we just bought 5 properties, and we're looking at the same fundamental economics in our markets that those developers are. They might just be willing to take a substantial amount of risk with their private capital investment dollars that maybe in the public markets, we're not comfortable with from a leverage standpoint. Sairam Srinivas: That makes sense, Dan. And maybe we've spoken about that cliff of supply earlier and how essentially once that runs out, it actually just plummets all the way down. When you look at the market right now and what you're seeing post quarter, how much time do you think it actually takes for all that supply to eventually get absorbed and for you to actually come to that precipice where you could probably see rents start jumping again? Daniel Oberste: Yes, sure. So if the supply that has occurred in the past is met with the same relative absorption that we've seen this year so far, not very long, Sai. And I want to reiterate that the first 9 months of 2024 was the best first 3 quarters for apartment absorption in history outside of a little blip in the post-COVID era. So if we see that same pace of absorption, then you can count the supply problem being a problem, you could count that on your watch. I. think that -- and I think most people think that with population growth muting a little bit driven by perhaps a lack of international immigration nationally, that absorption may taper down a little bit in the future, though it will still well outpace in our markets and many others, the demand and absorption is going to top supply in these markets for the foreseeable future. So I think you can probably continue to see a pace of absorption in line relative with deliveries that you've seen in the first 9 months. As you see deliveries drop by 50% next year and 40% the year after that, you may also see absorption drop just a tad next year and just a tad the year after that from a gross standpoint. But from a net standpoint, that's an extremely healthy indicator as absorption is set to outpace supply for the foreseeable future. Sairam Srinivas: That makes sense, Dan. And my last question is, when you look at October last year versus what you've seen in the past month, how would you characterize the leasing trends at? And do you -- like is there a sustained improvement that you're seeing? Susan Koehn: I think October looks pretty similar right now to what Q3 looks like. Operator: Himanshu Gupta from Scotiabank has the next question. Himanshu Gupta: So if I look at occupancy, a bit softer in Q3, and I know you did mention some seasonality. And when I look at rental spreads, I think they were a bit better. So just wondering, is there like a shift in focus maybe a bit more on rents than defending occupancy in the near term? Susan Koehn: Yes. Like I was saying earlier, we did start pushing rents in July and August intentionally, right? And then we started to see occupancy slightly drop off in September, which is normal with seasonality, but also probably has to do with the fact that we were more aggressive on rates. We have these 2 levers that we use to balance our cash flow, which we believe the team is really good at doing. And as long as we're staying in between what we call our sweet spot, 94% to 96% occupancy, we think we're doing the right thing. Himanshu Gupta: Got it. And then Houston, and I think Dallas as well, you mentioned concessions have picked up a bit. Can you elaborate? I mean, is that a function of like job growth being slower than expected or some still lingering impact from supply? Susan Koehn: So with Dallas, that's mostly -- it's the North Dallas market, and that's a supply issue right now. But there are still a lot of people moving into these North Dallas markets as well. So we know it's going to be absorbed. The question as everybody is asking is just when is that over. But that certainly has to do with the slight uptick in the number of properties offering concessions there. Himanshu Gupta: Okay. Okay. Fair enough. And maybe my last question would be, I mean, Houston is your largest market, biggest market. Are you comfortable keeping this as your highest exposure market in the medium term? And I know Houston has less supply pressures for now, but can Houston outperform rent growth compared to the other markets in the near term or in the medium term, rather? Daniel Oberste: Yes, certainly, Sai. Houston this year and next year, we're very comfortable with our market concentration in Houston. And then our viewpoint that we've made in the past on future rotations as evidenced in our future acquisitions as evidenced in Q3 is that we plan to backfill and grow probably in Dallas to be in shape to take advantage of some mid-market economics and in the latter half of '26 moving into '27, '28. So the answer -- the short answer is absolutely 100% yes, incredibly comfortable with Houston right now for this setup. And then again, as you've heard us say before, we get right in the path of growth and thus rent increases relative to other markets and occupancy and potential residents, and we'll always keep our investors' money in that path. Operator: Your next question comes from Jonathan Kelcher, TD Cowen. Jonathan Kelcher: Just going back to the 5 new assets. I just want to -- like stabilized occupancy, is that that's 94% to 96%, correct? Thomas Cirbus: Correct. Jonathan Kelcher: Okay. And then what -- in order to get there, what are you currently offering on concessions that will hopefully start to burn off next year as you hit the occupancy? Susan Koehn: Sure. Yes. So I'm happy to say that in October, we're not offering concessions anymore on the Aura 35Fifty development in Austin. In Dallas, it's still 10 weeks free. Jonathan Kelcher: Okay. That is helpful. And then just lastly, the decrease in same property taxes this quarter, was there any -- were there any onetime property tax rebates in there? Or was it just lower assessed values that drove that? Daniel Oberste: It's a combination of both, Jonathan. We saw some opportunities to settle some tax rebate appeals in the quarter, and we accelerated some of those settlements. And I think you've seen us do that in the past. We try to smooth out those settlements for earnings, but we don't let that tail wag the dog. If we see an opportunity to settle sooner than later, we certainly take advantage of that. I'd put that in the tune of a couple of hundred thousand dollars or $0.0025, $0.005 for the quarter. We talked about that in the past. So it comes and goes, but it's generally not incredibly disruptive to the performance kind of on an FFO basis. Operator: [Operator Instructions] We'll go next to Jimmy Shan, RBC Capital Markets. Khing Shan: So just a follow-up on the revenue contributions from the 5 new assets acquired. The $4.5 million of incremental revenue, so is that relative to the Q3 run rate revenue? Or is that relative to their 2024 contributions when they were acquired? Daniel Oberste: Yes, I see it as relative to the Q3 revenue. We tried -- we thought that there would be some questions about the acquisition impact on a run rate. And we do empathize with the choppiness of the return that we generated in the third quarter. And so we really wanted to communicate our -- the revenue upside from Q3. So that's about $4.5 million. And then I'll finish that with, I'd rather take a choppy $15 million than a smooth $10 million, Jimmy. Khing Shan: Sure, sure. And the concessions. Can you quantify those as well on those 5 assets? I guess, as they burn off, would that be in addition to the $4.5 million? Thomas Cirbus: Yes. The $4.5 million just assumes that we put people in vacant units today. So there's a bunch of upside, which we're not ready to quantify sitting here today in addition to the $4.5 million for all the ancillary things that Susie's team does really well, including but not limited to, the burn-off of concessions that is the second bite at the apple in whatever, 8 to 16 months or whatever the numbers are. Khing Shan: So if I heard correctly, in Dallas, you're offering about 2.5 months free rent. So we could ballpark it from that standpoint. Daniel Oberste: Yes, I think that's fair, Jimmy. Khing Shan: Yes. Okay. And then the leasing spreads, the softer leasing environment, I don't think you're the only one seeing that. So can you -- yes, there's some seasonality, some rate push. But what do you think that is attributable to this softer leasing environment? Daniel Oberste: We think it's entirely attributable to macroeconomic volatility, which is why we didn't acquire until, I'll say, after the end of April when you think about when we started closing on these assets. So I think the tepid response by the customer right now, driven by volatility in the macroeconomic environment, whether it's tariffs, whether it's Federal Reserve banking policy, has a whole lot to do with politics and global politics and United States politics. I think we've all seen that. We were cautious when we decided to acquire assets coming out of the AvalonBay transaction. We're very cautious with our investors' monies. We underwrote in a very cautious manner. So I think that might be what's driving the overall macro environment, but it doesn't necessarily surprise us from our underwritten -- our returns against our expectations. Khing Shan: Okay. And sorry, last question. Tom, you mentioned all these swaps. And so what is -- how should we model the interest expense going forward? Thomas Cirbus: Yes. So similar to what Dan was saying earlier, I'll emphasize that it's a little bit challenging to do because the third quarter numbers do have some relative uncomparability there in the sense of -- don't forget that we have 2 really -- our '25 acquisition class are all in some form of stabilization that are carrying the full expense load and thereby being a little bit of a drag on earnings. Now that said, as it relates to the swap book more generally, we've continued to monitor that. And we just saw us this quarter increase our -- the tenor on one of the cancellation options out another year and to the REIT holders benefit by a lower rate. Khing Shan: So if I read that, this quarter looks about right for the next quarter or 2? Daniel Oberste: Yes. I think that's fair, Jimmy. But with that said, our REIT has historically taken the view of about 80% hedged to fixed rates and 20% exposure to the short end of the curve. That's been what we've discussed with our investors since our IPO. Now as you know, in the month of -- in March of '22 and that quarter right after that second quarter of '22, we began increasing our fixed debt to 100% of hedging. Now our investors have enjoyed the cash flow benefit of this decision for the last 3 years. Now we kind of see the opportunity in the interest climate moderating, and that affords us the opportunity to accretively decrease our hedging exposure back to what we think is fair, which is about 80% from its current position at 99%. Now this is -- this may create a little bit of complexity in the forecasting of interest expense in Q4 and Q1, but we think any disruption is to the benefit of our investors. And we believe that the decision is going to -- what to do with $102 million of call options in January and February will impact Q4 in the positive, if possible, and Q1 and Q2 in the positive. But I think I would model a little bit more short-term exposure to our hedges. And I see -- we see the opportunity to do so. And by short term, I mean 0 to 2 years, not 30 days. Operator: And everyone, at this time, there are no further questions. I'll hand the call back to Dan Oberste for any additional or closing remarks. Daniel Oberste: Thank you for listening, everyone, and we hope you enjoyed the call. If you have any additional questions, management is available at your convenience to discuss. We look forward to seeing some of you at our Investor and Analyst Presentation Day in early December during NAREIT in Dallas. Otherwise, have a good rest of the month. Thank you very much. Operator: Once again, everyone, this does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the NACCO Industries Third Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Christy Kmetko with Investor Relations. Please go ahead. Christina Kmetko: Good morning, everyone, and thank you for joining us for today's third quarter 2025 earnings call. I'm Christina Kmetko, and I oversee Investor Relations here at NACCO. I'm joined by our President and CEO, J.C. Butler; and our Senior Vice President and Controller, Elizabeth Loveman. Yesterday evening, we released our third quarter results and filed our 10-Q with the SEC. Both are available on our website for your reference. Before we get into the results, let me remind you that today's discussion will include forward-looking statements. As always, actual outcomes could differ materially due to various risks and uncertainties, which are outlined in our earnings release, 10-Q and other filings. We undertake no obligation to update these statements. We'll also be referencing certain non-GAAP metrics to give you a clear picture of how we think about our business. Reconciliations to GAAP can be found in the materials we posted online. Lastly, as a reminder, during the second quarter, we changed the names of our reportable segments. Coal Mining was renamed Utility Coal Mining. North American Mining is now Contract Mining and Minerals Management was renamed Minerals and Royalties. Segment composition and historical reporting are unchanged. With the housekeeping comments complete, I'll turn the call over to J.C. for his opening remarks. J.C.? John Butler: Thanks, Christy, and good morning, everyone. I'm happy to report that our third quarter operating profit of almost $7 million improved sequentially from very disappointing second quarter breakeven results. Our Q3 2025 EBITDA increased to $12.5 million, up from $9.3 million in Q2. This sequential increase was driven by improvements in all segments and demonstrates solid progress in growing our businesses and boosting our profitability. I'm pleased we were able to overcome most of last quarter's temporary operational challenges to deliver these solid third quarter results. Our Utility Coal Mining segment is the foundation of our business, anchored by our long-term mining contracts. We continue to have solid demand in our unconsolidated coal mining operations. However, Mississippi Lignite Mining Company's results continue to be impacted by contractual pricing mechanics that are creating a reduced per ton sales price. The team is working diligently to run the mine as efficiently as possible to meet demand while keeping costs at a minimum, but they cannot outrun the contract mechanics. We anticipate that this contractual pricing anomaly will begin to rectify itself as we move into 2026. In our Contract Mining segment, which is operated by North American Mining, tons delivered grew 20% year-over-year and 3% sequentially. Higher customer demand and improved margins at the mining operations led to substantial improvements in both year-over-year and sequential results. These improved results stem in part from contracts negotiated in recent years and other growth initiatives for this business. Our Contract Mining segment is our growth platform for mining and we continue to add long-term contracts to its expanding portfolio. We provide contract mining services for several of the top 10 U.S. producers of aggregates and our expanding pipeline of potential new deals is strong. We believe this positions our Contract Mining segment as a core driver of future growth. Just last week, North American Mining executed a multiyear contract to provide dragline services for an embankment dam construction project in Palm Beach County, Florida, that is expected to be accretive to earnings beginning in Q2 2026. We are excited about this contract as it advances our growth into large-scale infrastructure projects. It also provides an opportunity to showcase the efficiency and environmental advantages of the new electric drive MTECK draglines, a key factor in our selection for the project. These new MTECK draglines enhance efficiency and uptime for our customers. We're an exclusive dealer for MTECK draglines in all the 2 U.S. states. Turning to our Minerals and Royalties segment. Catapult completed a $4.2 million strategic acquisition in July, which expands our mineral interest in the Midland Basin. The acquisition includes a mix of producing wells as well as additional upside opportunities through future development with existing operators in that region. The Catapult team continues to look for additional investment growth opportunities that will be accretive to earnings. Mitigation resources, a strong reputation and clear competitive strengths are supporting continued expansion into new markets. Although the business continues to be variable in performance due to permit and project timing, it is expected to achieve full year profitability in 2026 and more consistent results over time as new projects are secured. Overall, I believe we are well positioned for meaningful growth. Our business model is built on long-term contracts and investments, delivering strong earnings and steady cash flows that will help us deliver compounding annuity-like returns over time. We followed this approach over the last decade and momentum continues to build. That's why I'm confident in these businesses and our ability to deliver solid 2025 fourth quarter operating results with continued progress into 2026 and beyond. Our long-term strategy is laid out in our latest investor presentation. A copy of that presentation is on our website, along with recording from the end of August when we attended an investor conference in Chicago. In this presentation, we explained how we have built a portfolio of strong businesses focused on compounding growth and we describe our strategies for achieving our long-term target of $150 million of annual EBITDA in the next 5 to 7 years. If you've not seen that presentation, I encourage you to review it after this call. With that, I'll turn the call over to Liz to provide a more detailed view of our financial results and outlook. Elizabeth Loveman: Thank you, J.C. I'll start with some high-level comments about our consolidated third quarter financial results compared to 2024. Then I'll discuss the results at our individual segments. Consolidated revenues were $76.6 million, up 24% year-over-year, while gross profit of $10 million improved 38%. While consolidated earnings improved sequentially, as J.C. mentioned, they decreased compared with the prior year third quarter due to the 2024 $13.6 million benefit from business interruption insurance recoveries. Our third quarter 2025 operating profit was $6.8 million, down from $19.7 million last year. Excluding the insurance recovery income, the underlying consolidated operational performance overall was stronger with a net improvement in operating results. Substantial year-over-year operating profit improvements in our Contract Mining and Minerals and Royalties segments more than offset lower results in the Utility Coal Mining segment and an increase in unallocated expenses. We reported third quarter 2025 net income of $13.3 million or $1.78 per share versus $15.6 million or $2.14 per share in 2024. Significant favorable tax effects in the current quarter helped minimize the decline in net income. EBITDA was $12.5 million versus $25.7 million for the same period last year. Moving to the individual segments. At the Utility Coal Mining segment, the decline in operating profit and segment adjusted EBITDA was primarily driven by the 2024 insurance recoveries that I've just mentioned. The underlying Mississippi Lignite Mining Company business results were also affected by a reduced contractually determined per ton sales price in 2025. Looking ahead, we anticipate steady customer demand for the remainder of 2025 and in 2026 at our unconsolidated mining operations. At Mississippi Lignite Mining Company, fourth quarter 2025 results are expected to improve over 2024 due to operational efficiencies. However, this improvement is not expected to offset the effect of the reduction in the 2025 contractually determined per ton sales price, causing Mississippi Lignite Mining Company and the Utility Coal Mining segment's 2025 full year results to decline compared with 2024. We expect improving profitability in 2026, driven by anticipated improvements at Mississippi Lignite Mining Company in both sales price and cost per ton delivered, particularly as the customers' power plant is able to operate more consistently and formula-based pricing improves as expected. In the Contract Mining segment, revenues net of reimbursed costs rose 22%, driven by higher customer demand and increased parts sales. Improved margins at the mining operations and increase of part sales and lower operating expenses led to significant increases in both operating profit and segment adjusted EBITDA. Operational efficiencies, partly offset by elevated operating expenses are expected to lead to improved 2025 fourth quarter profits in the Contract Mining segment with momentum accelerating into 2026. These factors, combined with earnings from the new contract J.C. mentioned, are expected to lead to a significant increase in year-over-year results. At the Minerals and Royalties segment, operating profit and segment adjusted EBITDA increased year-over-year, primarily due to an improvement in earnings from an equity investment and increased royalty revenues, mainly driven by higher natural gas prices. Looking forward, Minerals and Royalties operating profit and segment adjusted EBITDA for the 2025 fourth quarter are expected to decrease compared with 2024, primarily driven by current market expectations for natural gas and oil prices as well as development and production assumptions. While fourth quarter 2025 results are projected to decline, full year operating profit is expected to increase over 2024, excluding a $4.5 million gain on sale recognized in the 2024 second quarter. In 2026, operating profit is expected to increase modestly over 2025 as income from Catapult's newer investments is expected to be mostly offset by reductions in earnings from legacy assets. Overall, we anticipate consolidated operating profit for the 2025 fourth quarter to be comparable to the prior year quarter. Full year operating profit will be lower than 2024 due in part to the 2025 second quarter breakeven results. We're also terminating our pension plan during the fourth quarter, which will simplify our financial structure going forward. While the plan is overfunded, the termination will trigger a noncash settlement charge. The pension settlement charge and lower operating profit are expected to lead to a substantial year-over-year decrease in net income and EBITDA compared with the 2024 fourth quarter and full year. We expect meaningful year-over-year improvements in both operating profit and net income in 2026. From a liquidity standpoint, at September 30, we had total debt outstanding of $80.2 million, down from $95.5 million at June 30 and $99.5 million at December 31, 2024. Our total liquidity was $152 million, which consisted of $52.7 million of cash and $99.3 million of availability under our revolving credit facility. During the quarter, we paid $1.9 million in dividends. And as of September 30, 2025, we had $7.8 million remaining under our $20 million share repurchase program that expires at the end of 2025. We are forecasting up to $44 million in capital spending for the remainder of this year and up to $70 million in 2026. Most of this is earmarked for new business development. As our returns from previous investments start to materialize, we expect cash flows to improve over the prior year. In 2026, we expect cash flows to be comparable to 2025. With that, I'll hand it back to J.C. for closing remarks. John Butler: Thanks, Liz. To wrap up, I have a lot of confidence in our trajectory and our future. We are operating in an increasingly favorable environment. There is strong and growing demand for energy and for the products and services that we provide. Recent government support is also helping to strengthen all of our businesses. I believe the building blocks for durable compounding growth at NACCO are firmly in place. Our team is focused on execution, operational discipline and driving long-term returns for shareholders. We remain confident in our ability to deliver sound fourth quarter 2025 operating results with momentum building as we move into 2026. With that, we'll now turn to any questions you may have. Operator: [Operator Instructions] Our first question comes from the line of Doug Weiss with DSW Investments. Douglas Weiss: So congrats on a good quarter. I guess starting with the Contract Mining segment. If I just look in your financial filings, you ascribed about $200 million of asset value to that segment. So it looks like at the moment, the ROIC is a little below your targets of mid-teens ROIC. I'm just curious, is that a function of how the contracts were priced historically? And going forward, you think you've made changes that will address that? Or are there other factors you would point to? John Butler: Yes. Good question. I would say that there's a little bit of I guess I'd call it timing. There's both past and future in there. You've got assets that are attributed to projects that we're working on contracts we've got that are fully operational and delivering full levels of profitability. There's also assets in that segment with respect to things that are yet to deliver. We've talked about the long-term nature of these projects and they tend to be invest and then harvest kind of projects where if we do put capital upfront, it's because we're going to earn returns later. I guess that one place I would point in the Contract Mining segment is the Sawtooth mine in Northern Nevada, where we've agreed to commit some of the initial capital for equipment. We get repaid for that over time. But that project isn't going to really fire up and start delivering full levels of profitability until, I think, end of 2027 is when we expect to start delivering lithium. '28, '29, beyond that, I mean, this thing -- this is going to be a great project for us. So some of the capital that you're seeing in that total asset number includes things like that. I mentioned Sawtooth. It's not the only one. I guess the other one I'd point out is we just -- yesterday, was it yesterday we released the announcement about the [ FAO ] project? Elizabeth Loveman: Tuesday. John Butler: Tuesday. Two days ago already. We announced -- we issued a press release for a new project that we signed up in Florida, which we mentioned in our comments. We've got some capital committed there as well and that's going to start delivering profitability early next year. So it's a bit of a mismatch between the assets that are there and the current profitability of the business. In all honesty, I think that's -- given the way we're growing the business and continuing to grow the business with these long-term projects, I think there will probably always be a bit of this mismatch in those metrics when you look at them purely on a period basis. Liz, do you have anything you'd add to that? Elizabeth Loveman: No, I think that is a good description. John Butler: Does that make sense? Douglas Weiss: Okay. It does, it does. And then you've traditionally done dragline work, but you've -- Sawtooth, I believe, is surface work. And I'm curious, are the economics any different as you move outside of dragline? And do you have a desire to -- do you have a preference between those types of projects? John Butler: Well, let me get to the preference piece at the end because I've got to think about that. So the Contract Mining segment is really mining services for things that are not coal or not coal related to energy generation. And you're right, there's one piece of the business. 15 years ago, we called it Florida dragline operations and it was using draglines to mine aggregates that were underwater for aggregates producers. Over the last 10 years, we've been expanding that. But really, we can kind of do any kind of mining. When you think about the very comprehensive scope of what we do in our coal mining operation, we can run draglines. We can do truck shovel operations for people. We run virgin surface miners. And as you get to Sawtooth, we're going to run the entire mine. Now there's no dragline at Sawtooth and there won't be. But it's much more akin to one of our surface mines where we're doing everything from start to finish with respect to the mining. That's different than the dragline operations where we are just running a single piece of equipment. We're really happy to deliver whatever kind of services a customer needs. Really, our preference is that we find a partner that's a good long-term partner where we can really be an integrated part of their operations. When you think of all of those things that we do in the Contract Mining segment, we're part and parcel of what happens with each customer's project. And if that's running a dragline, that's fine. If it's running lots of equipment, that's fine, too. I would say that the more work we do at a given location, the more opportunities we have to get paid for our service since we really are, at the end of the day, a service company. But it's really more about finding the right partners and the right projects than having a strong preference for one model over the other. Happy to grow in any way. Elizabeth Loveman: I would also add that our fee would be commensurate. If we bring capital to the table, we would structure our fee to cover the cost of that capital. John Butler: Yes, that's fair. If we're operating somebody else's equipment, we're going to have a lower fee there. If we bring capital, obviously, we need to be compensated for the capital we're bringing. Good point, Liz. Douglas Weiss: Right. I mean, in terms of your new business development, do you have a sales force that -- like your typical person out there in the field, are they -- do you have people who are entirely focused on aggregate and people who are focused on non-aggregate opportunities? Or does everyone sort of cover everything? John Butler: We operate with sort of a one-team approach, very much a one-team approach. So anybody that's out in a business development effort knows that they have specific things that they can offer as well as comprehensive things they can offer because as a good example, the [indiscernible] project we just signed up in Florida, we're going to be operating draglines there to build this embankment. But to the extent that that project needs assistance or wants advice from any other part of the business, we'll be there in a heartbeat no matter whether they're in the environmental part of the business, Mitigation Resources or an expert from North American coal. So our business development people really are very well informed and well educated about the range of capabilities that we have. And we approach each project and each potential customer with kind of a -- it can be specific or it can be very broad in terms of what they need. Douglas Weiss: Okay. In the Utility Coal segment... John Butler: Sorry, just one more thing I would add. We think that that approach helps us identify and secure more projects than if we're very specific. If you're -- I don't really think of any of our people as salesmen given the long-term nature of it. I think it's more like business development. But we believe that if they're focusing broadly on solutions that we can provide for potential customers, we're more likely to come up with success as opposed to having somebody focused on one specific area, they might not be addressing the larger opportunities that might reside with that potential customer. Douglas Weiss: I mean, so if you were to just look out 5 years from today, I mean, I think today, you're predominantly aggregate mining plus Sawtooth and then you had the phosphate opportunity and this new opportunity. And maybe there are others that I'm not aware of. But if you look 5 to 10 years from now, would you see the business as more diversified? Or would you still see aggregates as the predominant end customer? John Butler: Well, you're really talking about the pie chart of what's the mix of business. I think 5, 10 years from now, the pie chart is going to be a lot bigger. We're going to have a lot more projects given the opportunities that we're seeing on the horizon. And I would just add that as we expand the areas of the country where we operate and we expand the range of equipment and the customers we have, well, that just creates more opportunities to touch people and get to know people in various areas. So I think we're going to see an increasing range of opportunities just because we're operating in more areas. I think that the aggregates piece is going to continue to be a substantial part of the business. We operate equipment for some of the very largest aggregates producers in the United States and we continue to find new business for them. So I think that's going to continue to grow. I also think that we're going to continue to find more opportunities, perhaps even an increasing pace of new opportunities that are broader than just mining aggregates for aggregates production. You look at the [ Fail ] contract, I mean, it's kind of got one foot in both camps because in one respect, we're going to use a dragline to excavate aggregates, but the aggregate is going to be used to build this embankment dam. And it's really more of a civil earthworks project than it is delivering aggregates to an aggregates producer that's selling them for construction and cement and other things. So I think that's introducing a new market to us that we're very excited about. This happens to be a similar force project that we use as a dragline, but we now have our toe in a market where we could put the full range of skills that we have to work and find new opportunities. So I think -- I mean, I've got actually a fair amount of confidence that 5 to 10 years from now, you're going to see a lot more things inside this contract mining business than we're doing today. But I still think the limestone business is going to be a very important piece of that, given the strength of the customers that we work with. Douglas Weiss: Okay. Sounds good. Let's see. On the Utility Coal segment, you've had this pricing agreement that has pressured this year's results. In the K, you describes what sounds like a similar contractual structure in the unconsolidated operations. I'm just curious, obviously, those are doing well. So I'm just curious how those 2 contracts differ and if there's any risk on the unconsolidated? John Butler: You're asking about the difference between the unconsolidated mines and Red Hills? Yes. Douglas Weiss: [Indiscernible]. Yes. John Butler: Entirely different contract structures. The unconsolidated mines are purely fee-for-service. The customers pay 100% of the cost at a mine and they provide all the capital in one form or another, either through guaranteeing loans or funding us directly. And we collect a fee for every ton of coal that we deliver. So it's purely a service business. At the MLMC, Mississippi Lignite Mine Company Red Hills mine, that is a -- that's a more traditional contract generally. We own all the capital. We pay all the costs. Where it's a little different than a typical mining contract is the price that we sell the coal for is not market price. It's a price that's determined by a contractual formula. And this formula was devised in 1994, '95, long before any of us were involved. It's got very particular mechanics with respect to how we are able to charge for the coal that we deliver related to the change in indices, a basket of indices over time that reflect inputs that are used in mining. Think about things like diesel fuel and tires and labor. And so it's this set of indices that match those things and you look how those change over time, both over a 1-year and 5-year period. And then you do a bunch of math. And we're going through a period right now where if you think about 5 years ago, right, 5 years ago was November of 2020, we were going through all the whipsaws of index indices related to COVID. And so we're seeing the 5-year lookback piece of the formula sort of jerking us around. At the same time, you've got lower diesel prices. So it's an entirely different contract structure. I guess I would point out that, look, the operating profit can get beat up by this. I tend to look at EBITDA for this contract because even though we've spent a lot of capital in the past, that contract expires in 2032. So we're really kind of putting a lot more capital in there. So I think the EBITDA with respect to that mine and actually the whole segment is a better metric for me to watch. Douglas Weiss: Right. No, that makes sense. I guess what I was curious about is it sounds like the unconsolidated is just a fairly straightforward inflation adjuster. In other words, you just -- in terms of what fees you pay. John Butler: It's CPI and PPI for the most part. Maybe there's some other indices, but it's -- fee basically goes up by CPI and PPI. Douglas Weiss: Okay. Got it. Got it. You had a little bit of a larger-than-normal unallocated expense line this quarter. Could you say why that was up? Elizabeth Loveman: Yes. There's a few things in there that are causing that increase, mainly employee-related and there's 2 components to that. We had higher medical expenses. And we also had our share-based compensation. We had an increase in our share price if you look year-over-year. So when you include that component into our incentive compensation calculation, purely because of the increase in share price, we're going to have a higher incentive compensation expense. And we also had higher business development expenses running through the quarter. Douglas Weiss: Okay. Okay. Are you still moving ahead with your solar project? John Butler: Yes. Yes. We are working pretty diligently right now on getting those projects that are in the pipeline safe harbored for tax credit purposes. But yes, we're working on those very diligently. Douglas Weiss: And so it sounds like you're looking at multiple locations now for those? John Butler: Yes. Douglas Weiss: Okay. Let's see. That might be all I have. Well, I appreciate all the good work and it really seems like things are moving in the right direction. John Butler: Well, we appreciate your continuing interest and your great questions. Operator: There are no further questions in queue. I'll turn the call back over to Christina. Christina Kmetko: All right. With that, we'll conclude. Before we do, I'd like to provide a few reminders. A replay of our call will be available online later this morning. We'll also post a transcript on our website when it becomes available. If you do have any questions, please reach out to me. My number is in our press release, and I hope you enjoy the rest of your day. I'll turn it back to Tina to conclude the call. Operator: As Christina said, an audio recording of this event will be available later this evening via the Echo replay platform. To access the platform by phone, playback ID is 728-4609 followed by the # key. This replay will expire on Thursday, November 13, at 11:59 p.m. Thank you for joining us today. This does conclude today's conference call. You may now disconnect.
Operator: Greetings, and welcome to Interparfums Inc.'s 2025 Third Quarter Conference Call and Webcast. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I'd like to turn the call over to Karin Daly, Vice President at The Equity Group and Interparfums' Investor Relations representative. Thank you. You may begin. Karin Daly: Thank you, operator. Joining us on the call today will be Chairman and Chief Executive Officer, Jean Madar; and Chief Financial Officer, Michel Atwood. As a reminder, this conference call may contain forward-looking statements which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from projected results. These factors may be found in the company's filings with the Securities and Exchange Commission under the headings Forward-Looking Statements and Risk Factors. Forward-looking statements speak only as of the date on which they are made, and Interparfums undertakes no obligation to update the information discussed. Interparfums' consolidated results include two business segments: European-based operations through Interparfums SA, the company's 72% owned French subsidiary; and United States-based operations. It's now my pleasure to turn the call over to Jean Madar. Jean? Jean Madar: Thank you, Karin. Good morning, everyone. Consistent with what we started to see in the second quarter, sales continued to moderate in the third quarter as macroeconomic conditions remain uncertain. We are leaning further into innovation across our portfolio, focusing on product enhancement and new launches that better meet the dynamic preferences of consumers around the world. These efforts are backed by compelling advertising and promotional support, increase brand awareness, drive consumer penetration and strengthen our overall competitive position. As announced last month, third quarter and year-to-date sales were up 1% for both periods, with European-based operations sales rising 5% for the first quarter, building on top of last year's momentum, plus a stronger euro compared to the dollar, while U.S.-based operations sales declined 5% for the third quarter, excluding Dunhill. For our largest brand, Jimmy Choo Fragrance sales surged 16% during the quarter, largely driven by the I Want Choo fragrance family and also Jimmy Choo Man. In addition, the 6% quarter-over-quarter growth in Coach fragrance sales was fueled by its established lines and the launch of Coach Gold, while Montblanc fragrance sales dipped slightly due to innovation phasing, and Lacoste fragrances are on track for $100 million in sales this year. I would like to note that in the first 9 months of 2024, sales by U.S.-based operations rose 11% with the addition of Roberto Cavalli into our brand portfolio, setting a high bar for this year. In 2025, we are further capitalizing on this newer brand through the successful launch of Serpentine, the new feminine fragrance from Cavalli. Additionally, we are seeing increasing consumer demand in Donna Karan fragrance adjacencies such as the very popular deodorants. We also had new products roll out late in the third quarter that will mostly support fourth quarter sales in our U.S.-based operation, which include La Mia Bella Vita for GUESS, Sublime Leather from Ferragamo, two new extensions for DKNY, a new subcollection of Roberto Cavalli called Marbleous, plus the Just Cavalli duo, Give Me Magic, and Abercrombie & Fitch Fierce Reserve. We started Phase 3 of the distribution of Fierce rollout in May to additional countries, including the U.K., and launched Fierce and Fierce Reserve together at nearly 50 different points of sale. We see the momentum accelerating and look to further the brand's reach. The third quarter was also a milestone for us with the introduction of our first ultra-luxury direct-to-consumer offering, the [ 10-tank ] Solférino collection. Our flagship boutique opened in the heart of Paris' luxury district, and we are now selectively building relationships with approximately 40 retail stores, rolling out the brand thoughtfully. By next September, we have set our sights on 100 doors with the goal of product placement in 500 stores by the end of 2030. As we refine our craft in luxury and artisanal fragrance, we will leverage the insights we gain to elevate and better serve the other brands within our portfolio. We invite you to discover the passion behind Solférino that you can see it in our website, our first fully owned, direct-to-consumer e-commerce channel. So fragrance sales are accelerating across digital platforms as e-commerce has firmly established itself. In fact, according to Euromonitor, fragrance has roughly 50% market share within the beauty category on Amazon. We are seeing similar trends as e-commerce platform continues to be a bright spot for us. Our business on Amazon is strong. Divabox and TikTok Shop allow us to market and transact smaller sized products, increasing our visibility to consumers looking to play in prestige and luxury with more affordability. All told, the influencer magic of social media plays a powerful role in driving both traffic and purchases on Amazon. Another important but relatively small channel for us is travel retail, which grew 13% in the third quarter compared to last year, driven by Lacoste, Jimmy Choo, Coach and GUESS, as well as others in our portfolio. The popularity of our products across traveling consumer is helping us in securing more shelf space and expand SKU presence at duty-free venues. We anticipate incremental growth in our travel retail business going forward. Turning to other key operational updates. We are always looking for ways to improve efficiencies and streamline our supply chain to help manage cost pressure and support long-term growth. We are confident in the steps we have recently taken, including transitioning to 100% third-party providers for packing, shipping, warehousing, and order fulfillment. We expect this to be completed by the end of the year. We are also actively shifting our manufacturing closer to the point of sale for certain U.S. products produced SKU sold primarily in Europe and other regions. These operational improvements will help us navigate the ongoing geopolitical or macroeconomic uncertainties with more agility while allowing us to maintain strong service levels. Regarding tariffs, our view remains largely consistent with that of 3 months ago. We have successfully implemented many of the interventions we had previously identified to limit the expected impact for imports into the United States. Our immediate actions and strategic supply chain initiatives have proven effective, and our last remaining step is to implement a more cost-effective approach, leveraging the first sale rule for the finished goods that we've brought into the U.S. that are made in Europe by our European-based operations. This will require additional IT development, which we expect to have implemented by the second quarter of 2026. As noted previously, we also began implementing pricing actions in August, and we are now starting to see the effects. Early indicators show that these higher prices will help offset higher input cost in dollars, but will still likely result in some gross margin erosion. We are also being more pricing -- we're also seeing more pricing in the fragrance and cosmetic market, namely in the U.S., where we saw unit prices increase during the third quarter by an average of 5.9%, up from 1.2% at the end of June. During the month of September, unit price increases averaged 7.2% for the industry, indicating 5% to 6% pricing mix making its way to the consumer, which will likely slow overall growth. Of note, we have only taken pricing on select brands, mostly prestige and luxury, as lifestyle brand consumers tend to be more sensitive to price increase. At the company level, our 2% average price increase will continue to take effect through year-end and into 2026. At this time, we do not plan to implement any further pricing actions unless a significant change in the market occurs. On the inventory front, some retailers are using AI and other tools to optimize their inventory levels. While store level sales have been growing, we are not yet seeing the same strength in new orders as sell-through outpaces sell-in. That said, we are ready to move quickly to make sure retailers have our products on their shelves, should they choose to replenish. Before I turn things over to Michel, I am proud to share some great news. Women's Wear Daily has named Interparfums the Beauty Company of the Year in the Public Company category. This recognition is truly rewarding and reflects the strength of our brands, the creativity of our teams and the enduring partnership we have built with fashion houses, distributors and retailers around the world. So I was at this event to accept the award on behalf of our talented team and leadership, and I look forward to continuing to explore new ideas and help shape the world of fragrance together with each of you. So with that, I will turn it over to Michel. Michel? Michel Atwood: Thank you, Jean, and good morning, everyone. As reported, we delivered net sales of $430 million for the third quarter, resulting in a 1% increase for both the 3 and 9 months ended September 30, 2025. The impact of foreign exchange aided our top line performance, contributing to 2 points of growth in the third quarter and 1% on a year-to-date basis. But the stronger euro also increased our cost base in the rest of the P&L and our balance sheet. Organic sales, excluding FX and Dunhill, declined 1% in the third quarter but rose 1% for the first 9 months of the year. Gross margin for the first 9 months expanded by 80 basis points to 64.4% from 63.6% during the prior year period. This was driven by favorable segment, brand and channel mix in the first 9 months of 2025. In the third quarter, however, gross margins declined by 40 basis points to 63.5%, as these favorable tailwinds were more than offset by the impact of higher tariffs on our U.S. imports, which represented about $6 million for the quarter. Although we implemented price increases and also tariff interventions, these price increases happened later in the quarter and only had a minor benefit on the results for the quarter. If we exclude the tariffs, gross margins would have improved by 100 basis points. SG&A expenses as a percentage of net sales were 38.2% and 42.4%, respectively, for the third quarter and first 9 months of 2025 as compared to 38.9% and 41.8% for the prior year periods. The decrease during the quarter and increase year-to-date reflect a more even distribution of A&P activities over the course of 2025, which totaled $66 million or 15.3% of third quarter sales and $186 million or 16.9% of year-to-date net sales, respectively. We continue to invest in A&P activities ahead of our growth and in line with our expected sellout trends, and we will continue to do so in the fourth quarter. Overall, consolidated operating income and margin improved for both the quarter and year-to-date compared to prior year periods. Operating income was $109 million for the quarter, a 2% increase, resulting in an operating margin of 25.3% or a 30 basis points expansion from prior year. On a year-to-date basis, operating income increased by 2% to $243 million, with an operating margin of 22% or 10 basis points improvement versus prior year. Now looking below the operating line. We reported a loss of $7.7 million for the first 9 months of 2025. And this is pretty close to what we had last year, where we had a loss of $7.1 million. The year-over-year change primarily reflects a couple of factors. First, we have higher losses on foreign currency. We lost $4.6 million compared to $3.1 million in the prior year period. And as you know, the significant swings in the euro exchange rate throughout the year have helped our top line, but have led to larger than usual FX losses. The second factor was the impact on marketable securities, where we recorded a loss of $2.5 million in the first 9 months of 2025 compared to a loss of $800,000 in the first 9 months of 2024. Conversely, and thanks to the strengthening cash positions, changes in interest expenses and interest income were favorable year-over-year with net interest expenses of $1.8 million during the first 9 months of this year as compared to a net interest expense of $2.9 million in the prior year period. Our consolidated effective tax rate on a year-to-date basis was 23.5%, down 20 basis points from 23.7% in the prior year period as we benefited from a onetime favorable tax gain of $2 million in the quarter following a positive outcome from prior year tax assessments. And essentially, it was a mutual agreement procedure that we successfully got through. These factors, combined with our disciplined execution and cost management, led to third quarter net income of $66 million or $2.05 per diluted share, which is a 6% increase over last year's third quarter. And for the first 9 months of the year, net income is consistent at $140 million, with diluted earnings up modestly $0.02 to $4.36. Moving to our two business segments, starting with European-based operations. As Jean pointed out, net sales rose 5% and 6% on a reported basis and 1% and 4% on an organic basis for the first 3 and 9 months ended in September. Gross margin was 66% for the quarter and 66.6% year-to-date compared to prior year periods of 66.2% and 66.3%. The slight quarterly decline reflects tariff impacts on our European operations, which were partially offset by pricing gains in the United States and favorable brand and channel mix. While SG&A expenses increased 1% and 5% for the quarter and year-to-date, respectively, SG&A as a percentage of net sales declined by 110 basis points and 40 basis points, respectively. A&P expenses totaled $44 million for the quarter and $133 million on a year-to-date basis, representing 15% and 17% of net sales. Overall, net income attributable to European operations as a percentage of net sales exhibited strong growth, with net income margin expanding 230 basis points for the quarter and 50 basis points for the year. Turning to our United States-based operations. Net sales declined by 5% and 6%, excluding the phaseout of Dunhill for the 3- and 9-month period. The phaseout of Dunhill Fragrances was completed in August 2024. So at this point in time, we've completely lapped that event. Gross margin declined by 110 basis points in the third quarter due to transitional tariff impacts and brand and channel mix, but expanded by 80 basis points to 59%, largely due to the discontinuation of the low-margin Dunhill sales that impacted the prior year period. On the SG&A side, SG&A decreased 4% for the quarter and 2% for the year as we put in place strong cost containment measures. However, SG&A as a percentage of net sales rose to 39.7% and 44% for the first 3- and 9-month period, reflecting really, the lower sales. A&P expenses represented 16% of net sales for the quarter and year-to-date basis, representing $21 million and $53 million, respectively. Overall, net income attributable to United States operations declined 14% to $21 million for the quarter and 20% to $39 million year-to-date, primarily reflecting these lower sell-in. At September 30, our balance sheet remains strong with $188 million in cash and cash equivalents and short-term investments and working capital of $688 million. Accounts receivable was up 3% from last year's third quarter, slightly ahead of growth, driven by channel mix and foreign exchange. We continue to have a strong collection activity. We've also made meaningful progress on inventory management this quarter. Inventory levels as of September 30, 2025 decreased 6% from 2024 third quarter as we remain focused on executing on inventory reduction strategy. The composition of our inventory has also improved with a higher mix of finished goods relative to components. This shift positions us well to continue to drive inventory efficiencies as we get into the year-end. By effectively managing our working capital in line with sales, year-to-date operating cash flow increased $68 million, up $18 million from prior year period, reflecting 38% of net income compared to $50 million or 28% of net income in the same period last year. Obviously, the cash always is higher in the run up until the last quarter of the year and should get better at the end of the year. We also took advantage of our stronger cash position and the recent drop in the stock price to continue our share repurchase program. Year-to-date, we have repurchased $7.5 million in shares and will continue to evaluate additional share repurchases if the stock price remains below what is believed -- what we believe is the intrinsic value. As we have communicated in the past, our fully owned French subsidiary, Inter Parfums Holding SA, essentially an empty shell, will merge into our French subsidiary, Interparfums SA, which is a public entity. Since IPH hasn't conducted any business, we do not expect this merger to have any material impact on our shareholders. Following the completion of the merger next month, our company, Interparfums Inc., will continue to own roughly 72% of Interparfums SA, but this will now be a direct ownership as opposed to an indirect ownership and will supply -- simplify our corporate structure. Moving to our current year guidance. And as per our earnings release yesterday evening and reflective of current market dynamics and year-to-date trends through September, we are refining our full year 2025 outlook. We now expect sales of approximately $1.47 billion, representing 1% year-over-year growth, and diluted earnings per share of $5.12, which is in line with 2024. Additionally, while we will provide more formal full year 2026 guidance on Tuesday, November 18, we currently anticipate moderate top and bottom line growth in that year, generally in line with what we are seeing this year. We anticipate a return to stronger growth in 2027, driven by enhanced innovation, including the development and distribution of our newest licenses, Off-White, Longchamp, as well as Goutal. While demand has moderated in several international markets, our core business and fundamentals remain strong. We have a robust pipeline of innovation, enduring partnerships with global distributors and retailers and a resilient consumer base. Overall, we remain confident in the strength of our business model and our ability to deliver sustainable performance and long-term value, as we have for more than 4 decades. Jean Madar: Okay. Operator: [Operator Instructions] Our first question comes from the line of Ashley Helgans with Jefferies. Sydney Wagner: This is Sydney on for Ashley. Just curious if you can share a little bit more about what you're seeing heading into holiday maybe that gives you confidence or caution there? And then in terms of the price increase, I would love to hear what feedback you guys received from retailers as well as the consumers. Any extra color there would be helpful. Jean Madar: I can try to answer on the holiday, what do we see for the holiday. We had a strong October. We continue to sell gift sets in October. Gift sets will arrive in stores in November or December. And our forecast for November is also quite strong. So it means that retailers are continuing to buy. The inventory at store level is not high. Iwas -- we are monitoring this in department store on a daily basis. Amazon sales are starting to pick up. But of course, this type of purchase will be done in the last 2 weeks of the year. So this year, we are not worried for the holiday season. Pricing, the second part of your question is about pricing. We took a very modest pricing compared to other companies. And it was, I will say, quite well accepted. We didn't increase prices across all our brands. We selected the most prestige, the most elevated. This is where we think there is more elasticity. And we did not increase prices on the more democratic lines that we have or the more lifestyle brands that we have in the portfolio. But we didn't see too much resistance, neither from retailers, nor our consumers. Michel Atwood: Yes. Maybe just to build on Jean. I mean, ultimately, I think everybody was expecting that with the impact of tariffs, there were going to be inevitably, some of that was going to be passed on to the consumer. I think clearly, we've seen this across the board and particularly in the U.S. in the third quarter. As I was saying before, we're seeing before year-to-date June, unit pricing, which reflects, obviously, pricing, mix and other factors was up by about 1.2% versus prior year. And we've clearly seen an acceleration in the third quarter. Our unit pricing is up close to 6% and if you really zoom into September, it's close to 7%. So definitely, there's been a lot of pricing that's been taken. It's not -- it is very selective from brand to brand, but generally speaking, we are seeing that acceleration. And it hasn't really significantly impacted units. Unit sales are roughly growing about 1%. So the market growth is driven by pricing again in this third quarter. Sydney Wagner: That's helpful. If I can maybe just poke one more in there. And apologies if I missed, but there was some talk last quarter about just shipment timing maybe shifting between Q3 and Q4. Maybe I missed if you guys mentioned kind of where that ended up shaking out? Jean Madar: Michel? Michel Atwood: I mean, we've certainly seen a little bit less holiday sets being sold into the third quarter relative to what we normally see. And we have seen some of that pick up during the month of October, but it isn't significant. I think the main thing here, really, Ashley, is -- Sydney, sorry, is that we continue to see a bit of a disconnect between sell-in and sell-out there. There is -- continues to be a couple of points difference. The markets are still up. The market actually in the U.S. for the third quarter was up 7% and is up 4% on a year-to-date basis. So consumption remains very, very healthy. We're just seeing -- continuing to see a small disconnect of a couple of points between sell-in and sell-out. And not only for us, but also for our competitors. I'm sure you've all seen all of our competitors have now published their earnings. And pretty much everybody, with the exception of maybe Coty, which was an outlier on the way down, and [ Lauder ], an outlier on the way up. Everybody has been hovering around 2%, which is pretty consistent in what we posted. So overall, I think we are seeing at a macro level, this continued destocking that's impacting us. By the way, this isn't any different than what we're doing as well because if you look at our inventories, our inventories are also down as we're trying to get more efficient with our inventory. And of course, everybody is basically doing that. Operator: Our next question comes from the line of Susan Anderson with Canaccord Genuity. Susan Anderson: I guess maybe if you could just talk about kind of looking out over the next 2 years, you have a number of new brands rolling out. I guess, how should we think about just that growth profile in terms of what will be driving the growth? Do you think that the combination of these new brands, I guess, how much growth are you expecting them to drive as well as just continuing to grow your existing brands, whether that be the smaller ones or the larger ones? Jean Madar: Yes. I can try to answer. So when you look at the portfolio today, we have added two -- excuse me, three important license or purchase of trademark. One is Off-White, and we will see sales of Off-White in 2027. We bought also the business of Annick Goutal, which is a prestige line of fragrance. And you will start seeing some business in '26, but more in '27. And more important, I think the largest potential is with the license that we signed with Longchamp. Longchamp is a great bag manufacturer. As you know, we have a great journey with Coach. And we think that Longchamp has a great brand territory that we can exploit for fragrances. Longchamp will be -- can be 3 to 5 years, $100 million business. And that's what we are doing. So 2026 will be, I will say, modest because -- the growth will be modest because we will be working for the important launch at the end of '26, beginning of '27. Michel? Michel Atwood: Yes, I would just also say that we have also added quite a lot of brands, quite a lot of large brands over the last couple of years with Cavalli, Donna Karan, Lacoste, and [ the year before ], Ferragamo. At this point in time, if we look at the portfolio that we've added these are large brands, and they're growing -- but obviously, the smaller brands in our portfolio are kind of pulling us down. So there is going to continue to be some work on cleaning up the portfolio and -- so that we can really focus on the largest brands that will drive the business more sustainably going forward. Susan Anderson: Okay. Great. And then... Jean Madar: We're still seeing that GUESS, Coach, Jimmy Choo and Montblanc can go at a good pace. Susan Anderson: And maybe if I could just add one more on the model. I guess for fourth quarter, how should we think about gross margin now that the price increases have flowed through? I think you said if it wasn't for the tariff, third quarter would have been better by 100 bps. So I guess should we expect that to be fully offset now in fourth quarter on the gross margin front? Michel Atwood: Look, it's a great question. The reality is we've done a really great job in realigning our supply chain and looking at tariffs. There is one big item that is -- takes a lot of time to do, which is all the U.S. stuff -- all the European stuff that we import into the U.S. It's a pretty sizable business. And we've been hit not only with 10% tariff, but it's been up to 15%. It's going to take us a bit of time to basically get the cost of those tariffs down with the first sale rule, as Jean pointed out in the prepared remarks. That's going to, I think, continue to impact us in the first -- in the fourth quarter and in the first quarter of next year. It should get better in the second quarter. So no, I am expecting gross margins to slightly erode I'd say probably about 50 bps, something similar to what we saw in the third quarter. Operator: We've reached the end of our question-and-answer session. I'd like to turn the call back over to Mr. Atwood for any closing remarks. Michel Atwood: All right. Thank you very much, and thank you, all, for joining our call today. With this being our final conference call of the year, Jean and I extend our warmest wishes for a safe and joyful holiday season and healthy and fulfilling new year. I would like to mention that we will be hosting the Canaccord Genuity team at our corporate headquarters on December 4 for their annual [ Beauty Bus ] Tour. If you would like to participate, please feel free to reach out to the Canaccord Genuity team. If you have any additional questions, please contact Karin Daly from The Equity Group, our Investor Relations representative. And thank you, and have a great day. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Greetings, and welcome to the Primerica Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Nicole Russell, Senior Vice President, Investor Relations. Please go ahead. Nicole Russell: Thank you, Melissa, and good morning, everyone. Welcome to Primerica's third quarter earnings call. A copy of our press release issued last night, along with other materials relevant to today's call are posted on the Investor Relations section of our website. Joining our call today are our Chief Executive Officer, Glenn Williams; and our Chief Financial Officer, Tracy Tan. Our comments this morning may contain forward-looking statements in accordance with the safe harbor provisions of the Securities Litigation Reform Act. We assume no obligation to update these statements to reflect new information and refer you to our most recent Form 10-K filing as may be modified by subsequent Forms 10-Q for a list of risks and uncertainties that could cause actual results to materially differ from those expressed or implied. We will also reference certain non-GAAP measures, which we believe provide additional insight into the company's financial results. Reconciliations of non-GAAP measures to their respective GAAP numbers are included in our earnings press release. I would now like to turn the call over to Glenn. Glenn Williams: Thank you, Nicole, and good morning, everyone. Primerica delivered solid earnings growth and generated strong cash flows during the third quarter of 2025, underscoring the resilience of our business model and consistent execution as our clients gradually adapt to economic headwinds. Our complementary product lines have proven to be a key advantage and powerful differentiator, while our sales force's commitment to serving middle-income families continues to set us apart. Starting with a snapshot of third quarter financial results. Adjusted net operating income was $206 million, up 7% year-over-year, while diluted adjusted operating EPS increased 11% to $6.33. We remain disciplined in our capital deployment strategy and returned a total of $163 million to stockholders through a combination of $129 million in share repurchases and $34 million in regular dividends during the quarter for a total of $479 million returned year-to-date. Looking more closely at our distribution results, both recruiting and licensing were down compared to the prior year period, which benefited from elevated post-convention activity. However, current levels remain healthy relative to historical trends in nonconvention years. During the quarter, more than 101,000 recruits became part of Primerica and nearly 12,500 people obtained a new life license, positioning us to end the year at around 153,000 life license representatives. This projection is slightly above last year's record level. Looking at our life sales results. During the quarter, we issued 79,379 new Term Life policies, down 15% year-over-year compared to record performance in the prior year period. Those policies contributed $27 billion in new protection for our clients for a total of $967 billion of in-force coverage. Productivity at 0.17 policies per rep per month was below our historical range, driven by a combination of lower life sales and continued growth of our life sales force over the last 12 months. As we close out the year, we project the total number of policies issued in 2025 to decline around 10% compared to 2024's record-setting pace. Lower life sales are largely driven by cost of living pressures in the middle market. However, our conviction in the future potential for our life business remains unchanged. Primerica is well positioned to reach and serve middle-income families, one of the largest and most underserved market segments. We're working toward improving productivity on several fronts. First, we continue to improve the accessibility and appeal of our Term Life products. Our next generation of products recently received approval for sale in the state of New York. For all U.S. states in Canada, we continue to work toward more convenient and faster underwriting and issue processes to make sales simpler for our reps and clients. In addition, we've introduced improved life product training for newer representatives with the goal of positively impacting their productivity. In the coming months, we will evaluate the effectiveness on productivity of this training alongside increased focus by field leadership with expectations of a positive impact. Moving to our ISP segment, where results continue to outpace our guidance. Sales grew 28% year-over-year to a record $3.7 billion during the third quarter of 2025. We continue to see strong demand for all product categories, including managed accounts, variable annuities and U.S. and Canadian mutual funds. Net inflows for the quarter were $363 million, comparing favorably to $255 million in the prior year period, while client asset values ended the quarter at $127 billion, up 14% year-over-year. Over the last few years, we've made meaningful improvements to our platform and fund offering, including the addition of over 50 new investment portfolios. In Canada, the principal distributor model continues to be well received and is driving strong sales. We believe demand for investment solutions will continue to benefit from inflows as the baby boomer and Gen X populations prepare for retirement. Given the strength in the equity markets and continued momentum, we expect full year ISP sales to grow around 20% in 2025. Through our mortgage business, supported by more than 3,450 licensed representatives, we remain well positioned to help middle-income families obtain a new mortgage or refinance to consolidate consumer debt. We're now licensed to do business in 37 states with the recent addition of South Carolina. Year-to-date, we've closed nearly $370 million in U.S. mortgage volume, up 34% compared to the first 9 months of 2024. We also have a mortgage referral program in Canada, bringing refinancing and new mortgages to our clients there. As 2026 approaches, we're laying the foundation for strong momentum by launching a series of major regional field events in the spring. Our goal is to build excitement and field engagement as we move toward our 50th anniversary convention in 2027, a milestone we're proud to share with our sales force. We remain focused as we close 2025 and look forward to the exciting opportunities ahead. With that, I'll hand it over to Tracy for the financial results. Tracy Tan: Thank you, Glenn, and good morning, everyone. Our third quarter financial results were strong across all segments, giving us confidence that we're well positioned to end 2025 with solid year-over-year growth in both revenues and earnings. Starting with Term Life segment. Third quarter revenues of $463 million rose 3% year-over-year, driven by a 5% increase in adjusted direct premiums. Pretax income was $173 million compared to $178 million in the prior year period, down 3% year-over-year. Results during the quarter included a $23 million remeasurement gain compared to a $28 million gain in the prior year period. Excluding the impact of these remeasurement gains, pretax income remains largely unchanged. As required under LDTI accounting, we completed our annual review of actuarial assumptions and made certain changes to our long-term assumptions, which resulted in a $23 million remeasurement gain in the current period. And the largest portion of the gain was from mortality assumption change, reflecting favorable trends observed since the pandemic in addition to a positive experience variance from the quarter. As a reminder, the prior year period included a remeasurement gain of $28 million, primarily driven by an adjustment to our best estimate assumptions for the disability incident rate under our waiver of premium rider. Persistency remained stable on a year-over-year basis in aggregate, although lapses remained above our long-term LDTI assumptions. We believe that our clients are resilient over the long term and value our services and products. Based on historical trends, we expect persistency to normalize as clients adapt to the evolving economic environment. As a result, we did not make a change to our long-term lapse assumptions during the recent review cycle. Turning next to our key financial ratios. Excluding the impact of the remeasurement gain, the Term Life margin at 22% and the benefits and claims ratio at 58.3% remains consistent with our guidance. Our other key financial ratios also remained stable with the DAC amortization and insurance commissions ratio at 12.2% and the insurance expense ratio at 7.5%. Given the size of our in-force block and the stable nature of our Term Life business, we maintain our full year guidance to the ADP growth at around 5%. After revising our updated mortality assumptions, we expect the benefits and claims ratio to remain stable at around 58% in the fourth quarter. Guidance for the DAC amortization and insurance commissions ratio remains unchanged at around 12% and the operating margin at around 21% for the quarter with expectation for some accelerated technology investments to support growth. This will result in full year operating margin above 22%. I will provide full year guidance for 2026 in February. Turning next to the results of our Investment and Savings Products segment, which continued to perform well on the strength of robust sales momentum and increasing client asset values. Third quarter operating revenues of $319 million increased 20% from prior year period, while pretax income rose 18% to $94 million. Sales-based revenues increased 23%, slightly outpacing the 20% increase in commissionable sales, primarily driven by strong demand for variable annuities. Asset-based revenues increased 21% year-over-year compared to a 14% increase in average client asset values as we continue to benefit from a mix shift due to customer demand for products on which we earn higher asset-based commissions, namely U.S. managed accounts and Canadian mutual funds sold under the principal distributor model. Sales commissions for both sales and asset-based products increased relatively in line with revenues. In the Corporate and Other Distributed Products segment, we recorded pretax adjusted operating income of $3.8 million during the quarter compared to a pretax loss of $5.7 million in the prior year period. The year-over-year change is due to higher net investment income, primarily from growth in the size of the portfolio and a $5.2 million remeasurement loss on the closed block of business in the prior year period. Finally, consolidated insurance and other operating expenses were $151 million during the quarter, up 4% year-over-year. The growth in expenses was driven by a combination of higher variable growth-related costs in the ISP segment and to a lesser degree, in the Term Life segment as well as higher employee-related costs. We continue to see year-over-year growth in technology investments and anticipate some acceleration as we move towards the fourth quarter. We expect fourth quarter expenses to grow around 6% to 8%, resulting in full year growth towards the lower end of our original guidance of 6% to 8% as we have realized expense savings that offset some of the investments we made this year. Our invested asset portfolio remains well diversified with a duration of 5.4% up -- 5.4 years and an average quality of A. The average rate on new investment purchases in our life companies was 5.25% for the quarter with an average rating of A plus. The net unrealized loss in our portfolio continued to improve, ending the September quarter with a net unrealized loss of $116 million. We believe that the remaining unrealized loss is a function of interest rates and not due to underlying credit concerns, and we have the intent and ability to hold these investments until maturity. We continue to generate strong cash driven by the superior growth of our fee-based ISP business and the steady premium contribution from our large in-force block of insurance policies. Our holding company ended the quarter with $370 million in cash and invested assets. Primerica Life's estimated RBC ratio was 515%. We have plans to increase capital release from our insurance companies in the fourth quarter and to continue our effective capital conversion for the long run. We are confident in our strong capital position to fund growth initiatives, absorb economic volatility and to provide superior return on equity to our stockholders. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Joel Hurwitz with Dowling & Partners. Joel Hurwitz: Tracy, I just wanted to start with your last comments there on the planned capital drawdown from the insurance entity. Just can you elaborate on what you're expecting in the fourth quarter and then maybe going forward? Tracy Tan: Yes. Good morning, Joel. Our capital position remains a very strong, particularly because of the excellent cash generation from our in-force block. And in the third quarter, we also had a really nice improvement on profitability from our statutory entities, and that's part of the reason why the RBC got higher. And from a cash generation standpoint, the continued strength of our profitability on the Term Life being consistent and being resilient is a big part of why the RBC ratio continued to be very strong. And as you know, that our ability to take the cash out of the life business is really based on the regulatory conditions as a limitation of how much you can take out as a percent of or limited by the prior fiscal year income. So we are taking maximum amount out as we speak. However, in the fourth quarter, we do have plans to increase that conversion from our insurance entities. The specific plan clearly will help us reduce that RBC ratio and while keeping a strong enough ratio above 400% to help support the growth. And as we continue to anticipate a growth for the long run for life insurance business, we know when the growth pace start to pick up, it's going to consume more cash because of how the cash flow is more front-loaded for a policy issuance. So that is part of our long-term plan. But for the fourth quarter, we have actions in place that could possibly include in the long run, looking at how dividend can be converted out, not excluding special dividend, but also including some other actions that we are putting in place to certainly increase that conversion rate. I hope that helps answer your question. Joel Hurwitz: Yes. No, that's helpful. I look forward to seeing what you do in Q4. Maybe shifting for my second one, shifting to the term sales. Can you just help unpack, I guess, sort of what you're seeing and what you think the drivers of the weaker sales relative to your prior expectations? Is this all cost of living? Or are you starting to see other headwinds emerge that are impacting sales? Glenn Williams: Joel, we think it's primarily cost of living and other general uncertainties. It seems like every day, there's something new about the future that's unknown that you thought you do the day before. And so it's -- as far as we can tell, it's all external. As I said in my prepared remarks. Obviously, we don't want to just be victims of the environment. We want to push back as hard as we can. So as we look at making our processes easier and faster, I had some conversations with some of our reps yesterday about the difficulties in the marketplace. And they're saying the conversations are taking longer. Clients are having to dig deeper into their budgets to reprioritize because their budgets are tighter. And so the discussions take longer. The decisions are harder for clients and we want to be able to work through that with them. We're not going to just say, okay, thanks, we'll check with you when things get better. And so that's part of the training process we were talking about earlier is to help our reps have those conversations with clients that can get them deeper into their budgets for prioritization, understanding the importance of protection in their family of putting in force and keeping in force. But there's still that uncertainty out there that has people in a wait-and-see mode in general. And I pulled our kind of an informal poll of a number of our reps that were in yesterday for a training session and said, how many feel like it's harder to make a life insurance sale this year than last year because of the economic and social circumstances around they all raised their hand. They said, life has gotten harder, investments for those clients that have money has gotten easier. And so I think what we're seeing is the result of the path of least resistance. And we've seen that before in our business when one line of business goes up and another one struggles a little bit, and then it turns around in future years. Operator: Our next question comes from the line of Jack Matten with BMO Capital Markets. Francis Matten: First one on the ISP business. Just wondering if you could talk about the sustainability of these kind of strong sales growth levels. And certainly, the VA or RILA market has been a tailwind. But I also do think of you all is having some structural advantages given your kind of built-in customer base. I know you've been adding new products and funds. So just curious, bringing it all together, whether there's kind of like an underlying kind of growth rate we should think about over time? Glenn Williams: Yes. As we look forward, Jack, we do -- we are pleased that we see the growth across the product lines. So we've seen strong growth of mutual funds, variable annuities, managed accounts, Canadian business and that breadth gives us -- adds to our confidence that this is a trend that probably has some legs. That said, a sudden turn in the market, a lot of discussion out there about is the market higher than it should be? Is the correction out on the horizon. Those are the types of things that can really turn this momentum around, again, far beyond our ability to control them. But the fundamentals of the breadth, the fundamentals that I mentioned in my prepared remarks of the demographics long term, we think there's true growth opportunities here. It might be a little choppier than it's been in 2025 if the market starts to reverse direction on us in a significant way or for an extended period of time. So I think we just have to keep that in mind, but the fundamentals are sound in that business. Francis Matten: Got it. Makes sense. And just a follow up on the cash flow outlook. I guess, are you suggesting that there is like the potential to have maybe like a structural improvement in your cash flow conversion ratio over time? Or were your comments more related just to this year where you've had better experience and so maybe more cash flow coming out and then it normalizes heading into next year? Tracy Tan: Jack, so on cash performance, what I would comment about is the question in terms of cash conversion was more specific about cash conversion out of life insurance business to the holdco, where the RBC ratio is. I think we have plans in the fourth quarter to improve that conversion, even though that conversion is largely limited by the statutory requirement. We do have plans that could help improve that conversion. Now in terms of a long-term cash flow generation, I think we're very confident of the ability to generate very positive cash flow. First and foremost, is that our fee business has been really outperforming in terms of the ability to generate cash and that conversion continues to be very strong. And we have very good momentum on those fee business growth beyond just what the market normal growth rate is. And as we look at our growth rate on these businesses, we've been outperforming the market in the comparatives. So that generation has been very strong, and that gives us a very good long-term potential from the fee business cash generation when I look at -- in the longer term, when I'm looking at more 4, 5 year out. At the same time, our Term Life is an extraordinarily important business that produces very consistent strong cash flow because of how big the in-force block is and how consistent that business performs. If you look at the margins, it doesn't really vary all that much more than 200 basis points. So combined, our total business profitability is very, very sound at over 20%, if you look at the overall profitability. So the consistency, the resilience and our ability to just convert the cash from subs into holdco and our ability to return from holdco to the stockholders. I mean, we've been performing at around 79% -- 80% capital return to stockholders, which really is superior to the health and life performance. And you look at our conversion from our subs of insurance to our holdco is around 80% and some years higher possibly, and that's also superior to our peers. So overall, our cash performance has been fantastic. And that's why that's also part of -- in the long run, look at our ROE performance at $0.30 return on $1 of investment, that's also superior to many peers as well. So overall, we're confident about our ability to generate cash and our ability to return good amount of cash back to the stockholders in various ways. Operator: Our next question comes from the line of Ryan Krueger with KBW. Ryan Krueger: I had a question on the 21% margin in the fourth quarter in Term Life. You had mentioned some higher investments. Can you elaborate on what you're doing there to start? Tracy Tan: Yes, Ryan. So our -- yes, our Term Life performance has been relatively consistent. Really, when we look at the ratios, they don't really vary more than 50 basis points much at all. Some quarters, there is a little bit of a pattern, maybe higher than the other quarters due to just the spending patterns. So in terms of looking at the fourth quarter, we do have some activities of accelerated technology investments that will be continuously supporting our growth potential from the front end. And if you look at the overall ratio on the Term Life business, it's pretty steady. If I look at the benefit, I look at the DAC ratio and look at the expense ratio, they're very consistent overall on a total year basis to our guidance. And the margin for the year is going to be well over 22% as well for the total year. Now in terms of fourth quarter, we do believe that some of this acceleration is specifically targeted addressing our front-end productivity side of the improvement purposes that makes the rep journey easier, and that will continue to be a focus of ours to support the technology side of the improvement and the digital marketing and then the reps and the clients' experience. I hope that answers your question, Ryan. Ryan Krueger: Yes, it does. And then the follow-up was in the ISP business, your net fee rate has been kind of gradually trending up for the last several quarters. Is there any specific thing that's driving that? I know you are growing the managed account platform more, which I wonder if maybe that has slightly higher revenue rates. But is that -- can you give any color on what's driving that and if this trend may continue going forward? Tracy Tan: Yes, Ryan, this is a great observation. I think certainly, on the ISP side, we do have a mix shift because of the client demand. And this is particularly driven by where the highest growth rates are. If you look at our -- the growth rate on managed account, it significantly outpaces most of the other categories and then variable annuity, as an example, also outpaces the other categories. All of those on a relatively basis, compared to mutual fund, they have higher from a margin and the variable side of the story, it's a little bit of a higher ending trend that pushes some of the improvement you see on the ISP business. Now again, as we talked about from previously when Jack even talked about the variable annuities there on the tailwind, I will say that some of this certainly has the impact of where the interest rate is that pushes people to try to capitalize on the opportunity to lock in higher rates. But secondarily, more importantly, is the demographic shift of people to Glenn's point, preparing for retirement as well as certain need to avoid the volatility possibly from equity market standpoint. All of those help push our good performance on the ISP rates and margins. Operator: Our next question comes from the line of Wilma Burdis with Raymond James. Wilma Jackson Burdis: Do you guys expect any forward impact from the assumption review? And maybe you can just walk me through this a little bit, but how is the assumption review so outsized given the 90% mortality reinsurance? Tracy Tan: Wilma, our assumption review in the third quarter generated $23 million of remeasurement gain. In relative terms, it is still a small percent when we consider reinsurance. And that's actually on the comparative speaking terms of size, if we didn't have reinsurance, this would have been several times bigger of an adjustment number. So looking at our overall mortality performance, we've been experiencing very good mortality for several years since middle of 2022. So we took a portion of that profit -- of that improvement and adjusted our long-term best assumptions. Now to your point, what the size would have been, well, without the reinsurance treaties and the size of that 90% YRT that we reinsure, this would have been several times larger of a number. So this $23 million total remeasurement gain in the third quarter is a very, very small percent in terms of what the size could have been. Hopefully, that helps answer the question. Wilma Jackson Burdis: Yes. And I realize you guys have given quite a bit of color on the Term Life sales. But I guess I'm just wondering what might change the trajectory of those sales. I've been looking at your recent surveys on households, and I'm not seeing that the trends appear sharply worse than they have in some of the recent results. So I'm just wondering if there's anything else that might contribute to the pressure that could potentially run off nearer term? Glenn Williams: Yes, Wilma, you're right. Fortunately, we have seen kind of some flattening of the increases in cost of living. As we talk to our reps and our clients and survey them, we find that the cumulative effect is still causing some struggles. So while it's not getting worse as fast, it's not getting better very fast either. But we do believe that clients are adapting. Over time, people become accustomed to where they are. I'm not going to say they like it, but they become accustomed to it and learn to deal with it. And that's where we've often seen these types of pressures start to ebb some is after a period of time. But clearly, it's better if we can have household incomes really start to gain some ground. The prices aren't going to come down significantly, I don't think, but it's household income catching up that will help us get out of this. We are seeing some of that begin to happen. I think it just takes time to get some traction. And fortunately, we've seen this kind of dynamic in the past. So we believe, number one, it is a temporary situation and that we can take some actions to help clients work their way through it because we've seen it before. If you look at our history as an almost 16-year-old public company, we've had a number of years where we see this exact dynamic that recruiting and life insurances down and investments is up. We've seen other years where recruiting and life insurance is up and investments is down, and we've seen a lot of years, which is what we strive for, where everything is up at the same time. So it's not unprecedented by any means. It's probably a little more severe than we've seen in probably 15 years or so and taking a little longer to get out of it. And then I would say there are also what we've termed government policy uncertainties that other things in life that aren't directly financial, there's everything from the government shutdown. And we've got federal employees on furlough right now that are saying, well, let's wait until this is over before we make a buying decision. So there's just an unusual amount of uncertainty to add to the financial pressure. But again, we think it's temporary, and we eventually will get out of it, and we think we can take some actions to work through it and sort of turn the tide along the way. Wilma Jackson Burdis: Can I squeeze one more? Glenn Williams: Go ahead. Wilma Jackson Burdis: Okay. Is there anything that you think is going to change near term for your customer base? So I know that there's some different tax impacts that are coming in next year. Is there anything like that, that you see on the horizon that could provide some relief? Glenn Williams: Wilma, not anything that we have enough confidence in to count on. I mean we always keep our ear to the ground on the types of decisions that might be made at government policy level or taxation level that will be helpful for the middle market. And you're right, there are some discussions out there that might provide some relief and that kind of thing. We want to build a plan about what we can control. And then if we get some breaks that are beyond our control, it will just be icing on the cake. So we're not counting on those to turn the direction, but we do know there are all types of discussions going on because I think everyone recognizes the pressure that middle-income families are under. There's a universal agreement, I think, among all the divisions in our 2 countries where we do business right now is that middle-income families are under a significant amount of pressure. So hopefully, there would be some relief that would give us a tailwind. Operator: Our next question comes from the line of John Barnidge with Piper Sandler. John Barnidge: Cost of living headwinds, I think the competition is clearly with space in your core customers' wallet. It's been talked about that rates are going lower -- it's also been talked about rates are going lower for seemingly longer time as well. But with the refinancing of a mortgage, when that does occur, how much on average do you save the consumer versus the average life policy premium? Glenn Williams: I can give you some directional answers, John. I don't have the averages at my fingertips. We can maybe follow up with you on that. But you're exactly right. Another area of uncertainty is the direction of interest rates. I think the entire mortgage industry has been struggling with that for a while. We assume for a long time they were going to come down and then they did and they actually went the other direction. And I think that's common among all in that business. When we help a family refinance in addition to their mortgage, we are also looking at their consumer debt, which is generally at a much higher rate -- interest rate than their mortgage and trying to bring all that in together to maximize their savings. When we're able to do that, we also can adjust the term as needed to make things affordable or to accelerate, which is what we'd rather do, accelerate their payment. But generally, when we help a family on the mortgage side, it frees up more than the cost of a life insurance policy. And it actually can, where appropriate, not only provide them the funding for that, but also to get a systematic investment plan started. And that's the reason that we like that business. I've said many times, we get approached all the time by people product providers wanting us to load additional products into our distribution system and more products tend to cannibalize existing products. And so we're very resistant to that. I think the product that doesn't do that is a refinance of a mortgage where we can lower the average interest rate and pull in those consumer debts that are at high interest rates and high payments, and then we can get the clients on better financial ground. So that's one of the reasons that we think that business is important. As you know, it's a highly regulated business. So we've got a significant licensing process to take people through to enter the business. And then it's also highly regulated as you transact the business. So it's a more complicated and sophisticated business. And so it will move at a slower pace in our growth than us being able to add on Term Life Insurance representatives. But you've hit directly on why we love that business is because it does free up money for clients to get on a better financial footing. John Barnidge: My follow-up question, do you track the amount of sales maybe on Term Life in any given year to government employees? I'm just trying to get a size of how much your total addressable market is directly impacted by the shutdown in 4Q as the revised or the Term Life guidance for the year suggests acceleration in the decline of Term Life policies issued? Glenn Williams: Yes, John, I wouldn't attribute the government shutdown specifically to a change or magnifying a change in the fourth quarter. I just use it as another level of uncertainty that we're dealing with. I mean we don't target government employees, but we cover a slice of the middle market that includes everything that's out there. And so there are government employees included in that. And it's just one more level of uncertainty that our reps have to deal with to get around. So I don't think it's the difference maker. It's just one more issue that I would add to the list. Again, I don't have the percentage of our clients that are government employees at my fingertips either. But I wouldn't attribute everything that happened in the fourth quarter to that. I would just say the uncertainty continues to be a headwind for us. Operator: Our next question comes from the line of Dan Bergman with TD Cowen. Daniel Bergman: To start, I guess, it sounds like with the 50th year anniversary coming up, the next convention was pushed out to 2027 instead of the typical biannual pattern. In the prepared remarks, I believe you mentioned a number of field events next year instead. So just given that the convention typically drives outsized sales force and new business momentum, I was just hoping you could provide more color on your plans for next year and whether the events are expected to offset the lack of a convention. Just -- and I guess just with the -- will the timing of these events drive any change in your typical seasonal pattern of sales and recruiting as we look into next year? Glenn Williams: Sure. You've read that exactly right. We moved the convention out for 2 reasons. One was it does coincide with our 50th anniversary being in '27. The other reason was because of the World Cup in 2026, you can't rent a stadium in the U.S. or Canada. And so it was convenient that it gave us a reason to push it out and have a payoff there that it does sync up with our 50th anniversary. But we do recognize the importance of those events and generating momentum and excitement and casting a vision for our business. So we certainly didn't want to go for another year in '26 without big events, but we also didn't want to compete with the '27 convention. It had to be big enough a plan to make a difference, small enough not to take anything away from the drive we have going already to the '27 convention. So working with our field leaders, we ran a play that we've run in the past. It's probably been more than a decade. But it's regional events, 5 locations, 3 in the U.S., 2 in Canada that will run in the spring, starting at the end of April for the first one, and we have one every week or every other week through the first week in June. So it's during the second quarter, it's a little earlier than our convention. That was intentional to give us more benefit during the year by getting them out there a little earlier. We wanted to avoid the kickoff of the year because we still do encourage all of our teams to have a big kickoff and engage quickly at the beginning of the year. We didn't want to step on that. We wanted to get beyond bad weather for travel. And so that's the reason we chose the spring. It was really early in the year as possible. So these will not be the size of our convention, but if you add them all together, they should be as big as our convention, is the thinking in attendance. And so we'll treat them differently. It will not be as long an event. It's a Friday afternoon, evening, Saturday event as opposed to a 4-day event, so people can get in and out more easily. Geographically being closer, we think it makes it more convenient and less expensive for people to attend. And we have another events that we've consolidated to offset the expense of doing these. So we're doing it kind of virtually an expense-neutral plan for our events budget next year by doing it this way. We're going virtual with some of our other events to make these live events possible. So we're excited about it. It's something that hasn't been done in a while. It should have the type of the impact we would expect around the convention. Remember, the convention is not just the event itself that drives momentum. It's the incentives that we announce and use around the convention. We use the convention as a platform to announce those incentives, and it's the combination of those 2. So we'll be doing a slightly smaller version of that. We'll have some incentives in play around these 5 events. We'll use this big stage as a recognition platform. We have people competing right now to be recognized on those stages. That's always an important driver of our business. And so we think in combination, this gives us an opportunity to really come off of what has been a slow year compared to the previous year in our distribution and life business, add some momentum to those 2 businesses and continue to maximize the momentum in our ISP business as we head into '26. Daniel Bergman: Got it. Very, very helpful. And then maybe just following up on the earlier questions around the rise in your RBC ratio so far this year. Is there any way to break down the drivers further? I guess, specifically, how much of the improved capital generation has been due to strong in-force earnings versus less capital strains from the lower level of life sales? I guess what I'm trying to understand is if life sales do remain somewhat subdued for a period of time, could this allow for an ongoing outsized level of dividends for the holding company and ultimately, share repurchases to help offset this slower sales trends for a period of time. So any way to size that or how you're thinking about that would be great. Tracy Tan: Dan, in terms of the RBC ratio being higher, obviously, one of the reasons is the higher profitability and income generated from the statutory side. Clearly, the statutory side of the cash impact is one of the reasons why RBC ratios are higher, but still primarily the reason is the overall ability to convert the cash out based on the regulatory restrictions of the 12-month rolling combined cash you can take out as an example, not exceeding prior statutory income. So as our income gets to be higher in the future period than the prior period combined, and you're limited to how much you can take out. So just by continually improving profitability on the statutory basis, as an example, there is a possibility of cash generating more than what your prior profitability combined would allow you to take out. That being part of the reason, we clearly are looking at the plans that we're going to putting in action in fourth quarter to help us be able to convert more cash out. And you will see when we get into the fourth quarter, how those actions take place. And to your point, the faster growth of the Term Life business will consume more cash than when it's at a slower pace. And that's part of the reason why when we look at the future rates that we want to keep for RBC, we always want to have a little bit of a cushion should when we get towards the 50th anniversary as the excitement starts to build and the momentum start to get stronger, we wanted to make sure that there is sufficient cash in place to capture that growth potential. Currently, we're on relatively lower growth speed compared to prior year because it was at such a record pace. But if you look at it on the longer 20-year term, 30-year term, our growth is still at pretty consistently good levels. Just the fact that last year was higher doesn't necessarily say the current growth is somewhat really unseen in the past. So that being said, that's part of what's driving our decisions on how much we keep in those entities and how much we take out. But in the long run, I think we have anticipation of keeping at relatively high historical level conversion. Some periods could even possibly exceed what we've seen historical ratios. But overall, I think we're confident and to keep at that very high-end performance in all the peer -- compared to all the peer sectors being able to continue that relatively predictable trend in terms of the ratios that we predict and use. Operator: Our next question comes from the line of Mark Hughes with Truist Securities. Mark Hughes: Excellent. The asset-based revenue, you point out that has been growing faster than the underlying [Technical Difficulty]. Operator: Mr. Hughes, it seems like... Mark Hughes: Different categories. But is that -- should that sustain a positive trend? Glenn Williams: Mark, we lost you for the entire middle part of your question. Would you mind restating? Mark Hughes: Trend continue. Glenn Williams: Mark, we're only getting 2 or 3 words out of that. I apologize. I don't know if you've got a bad speaker or what, but we're only hearing every other word or so of your question, so it's not coming through. Mark Hughes: Yes. Can you hear me now, Glenn? Is this... Glenn Williams: Yes, that's much better. Much better, much better. Mark Hughes: Okay. All right. Appreciate that. Be a faster growth in asset-based revenue relative to assets, is there any reason that should -- that trend should not continue? Glenn Williams: I think, as Tracy said, it's driven by product mix and our managed account business and then also the principal distributor model in Canada, which has similar dynamics. Both are kind of our -- some of our fastest-growing product lines. They're smaller. And so on a percentage basis, they tend to grow faster, but they're also beginning to catch up in the overall mix. So we would expect, barring some unforeseen disturbance that, that should have some legs and should continue. You're right. That direction is not something we anticipate would change. Mark Hughes: Yes. And then, Tracy, the YRT ceded premiums, if you look at those relative to adjusted direct premiums, those have been moving up, that ratio has been moving up. What is the update on how that should trend over the next year or so? Will it just continue that upward drift? And again, this is YRT ceded premiums as a percentage of adjusted direct premiums in Term Life? Tracy Tan: Mark, I think the YRT ceded premium as compared to the adjusted direct premium is because for those life policies, as the insured age, the ceded premium start to creep up to cover for the higher mortality risk. So when you look at it, you actually don't want to look at it in its silo. You want to add it to the -- actually the benefit cost. So when you combine those as a percent of ADP's relatively steady. That's how you want to look at it. Operator: Our next question comes from the line of Suneet Kamath with Jefferies. Suneet Kamath: First question, just on the assumption update. Tracy, you had mentioned that you took a portion of the mortality or favorable mortality that you're seeing and put it through your assumptions. I'm not expecting a specific answer, but can you give a rough sense of like what proportion of the favorable mortality you put inside? Was it half? Was it 20%? Just a rough estimate would be helpful. Tracy Tan: Suneet, so our mortality performance since 2024, middle of that year has been consistently favorable. We had thought that it was possibly a pull forward from the pandemic increased unfavorable mortality experience and that it would end at some point, but we continue to see that consistently. It's been reasonably good size of favorability. So we took a portion of it. In terms of what the proportion is, I think the theory really is that we believe our best estimate assumption is that we've taken the portion that we think for the long run, it's the best estimate on what the mortality experience would be in the long-term trend. So if we had thought that it needs to be higher, we would have taken it in our assumption review. So this is our -- truly our best estimate. In terms of what we could expect for the future, I would say that because we have had favorable experience possibly bigger than what we've taken, so it wouldn't be unlikely that we might have some favorable period claims and mortality favorable experiences from period to period. But long-term trend, we have taken our best estimate on what that trend would be. Suneet Kamath: Got it. And just -- again, I don't want to box you into a corner, but is it like 20%, 25% of what you'd expect -- what you think just more than half? Just trying to get a sense of size. Tracy Tan: Yes. So that's a great question. The challenge really is there's a lot of complications of really deciphering the mortality performance on the cohorts and what that predictable trend, what cohort is a predictable trend for the long run. So I think that what our combined study looking at our experience really tells us this truly is the best estimate. So the future is uncertain. We believe that the portion we've taken truly represent what the long-term trend would be given our best estimate. So the period variance that we will experience, we'll continue to monitor and size that if that continue to be a pattern that we think becomes a long-term trend at that point, then we will recognize that if that were to come true. Suneet Kamath: Okay. That's fair. And I guess my second question, just on the annuity sales. So we've seen sales volumes increase for both you and the industry. Now some of that could be driven by just higher markets as essentially 401(k) rollover -- 401(k) asset balances are higher and so the rollovers are higher. So another way to think about growth would be growth in the number of contracts that you write. So I'm just wondering if you have any data on that. And then sort of relatedly, Glenn, do you think you're increasing the total addressable market for the annuity business? Or are you effectively selling products to the existing customer base, so you're seeing a lot of exchange activity? Any color on that would be helpful. Glenn Williams: Sure. Don't have specific stats, but I can give you some directional answers on that, Suneet. The annuity business is attractive. Again, some of it is a demographic change. I think Tracy mentioned it in an earlier answer. The demographic direction, the aging demographics, people have accumulated some amount of money, and they are looking for ways to preserve that in uncertain times or expecting volatile markets down the road. And so the guarantees within variable annuities, the floors that are created and the guaranteed income coming out of them are what makes them attractive. And as we've said before, our product providers have done a great job in making those products as attractive as actuarially possible. So they've done well there. Changes in interest rates and their ability to provide those guarantees may be adjusted. So it's -- nothing is forever, but I think the product providers have done a good job of making their products attractive. I think our salespeople have used that to both help existing clients as well as be referred out to other clients. So we are seeing not only larger transactions, but increasing transaction volume. And we believe that's coming not only from our existing clients where we would be able to see a move if it was out of one of our products into a variable annuity, but we have existing clients who have assets elsewhere outside of Primerica that bring them to Primerica to join the other assets that we already have with them. We see some of that. And we see brand-new clients as well as those satisfied clients as happens throughout the industry refer us to others. So we're getting some of all of what you described, Suneet, that's driving that business. Operator: Thank you. Ladies and gentlemen, this concludes our Q&A session and will conclude our call today. We thank you for your interest and participation. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to the DRI Healthcare Q3 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Ali Hedayat. Please go ahead. Ali Hedayat: Thank you, operator, and good morning, everyone, and thank you for taking the time to join us today. With me are Navin Jacob, Chief Investment Officer; and Zaheed Mawani, Chief Financial Officer. I will begin the call by providing an overview of our operating highlights. Navin will then discuss our portfolio assets with an update on the market outlook and provide more insights on our recently announced acquisition of the Veligrotug and VRDN-003 royalties. Finally, Zaheed will discuss our key financial highlights before moving on to Q&A. We are pleased with our third quarter results, which reflect the continued strength and resilience of our portfolio, solid execution across our business and the early benefits of our transition to an internalized structure. The third quarter represented our first full quarter operating as an internalized company. I am pleased with the performance in the quarter as we delivered strong performance across all our key financial metrics. Our portfolio delivered double-digit cash receipt growth led by the Orserdu, Xolair and Rydapt franchises, partially offset by lower Omidria performance and the persisting headwinds from Vonjo. Given the continued underperformance of Vonjo relative to our forecast, we have taken the appropriate steps and have booked an impairment to reflect our new expectations for the asset's performance. We expect Vonjo to continue to grow off current levels, both in units and in revenue, but net pricing trends have impacted our forecast relative to our underwriting, which is reflected in our fair value adjustment. While this is disappointing to us, I want to highlight that the revenues to date for Vonjo plus our expected future receipts remain in excess of our original cost, a fact that speaks to our conservatism in underwriting and the intrinsically attractive risk characteristics of our asset class. In addition to strong cash receipt performance, we delivered solid operating margin performance with adjusted EBITDA of $36.7 million or 17% growth over the same period last year. When we embarked on the internalization process, we outlined our view that the management company costs that we were bringing on to the income statement would roughly offset the management fees at the current scale of the business and leave margins at the same level as they had been in the past. I'm happy to say we have demonstrated that in our first quarter as an internalized entity with adjusted EBITDA margins of 84%. With this achieved, the road to higher operating leverage as the business grows should be fairly evident. As we continue to optimize our internal platform, you should expect our cost to come down a bit further in the near-term, after which we will start reinvesting in growth to position the trust for long-term value creation, both on the top line and in our margin structure. The quarter also marked an exciting milestone with the approval of Ekterly on July 7, for which we have begun earning royalties on a 1-quarter lag. With the approval, Calvista exercised its option to receive a onetime $22 million payment, which increased our royalty rate on the first year of sales and also increases the sales-based milestone amount. Ekterly represents a meaningful long-duration asset for DRI with expected cash receipts extending through at least 2041. It's an excellent example of our ability to structure creative and mutually beneficial transactions that deliver long-term value for unitholders and our partners. Navin will provide more detail on our asset performance shortly. Turning now to our latest royalty transaction. On October 20, we were pleased to announce a transaction with Viridian Therapeutics to acquire synthetic royalty streams on a pair of very promising treatments for thyroid eye disease, Veligrotug and VRDN-003. We acquired the royalties for an upfront fee of $55 million, and our total investment is expected to be up to $300 million. Veligrotug has been granted a breakthrough therapy designation from the FDA, and we believe the product will be approved and come to market in the second half of next year. VRDN-003 has a pair of ongoing Phase III clinical trials for the same condition with the top line results expected in the first half of 2026. Together, these therapies represent meaningful progress in treating a disease that affects about 300,000 people in the United States and has a current market size of about $2 billion. I would like to take a moment to lay out the strategic and financial fundamentals of this deal and why it is a very attractive and accretive addition to our portfolio. First and foremost, we believe these therapies, once approved, will provide a meaningful improvement in the quality of life for those affected with the condition. This is core to our mission, and we are pleased to enter into a strategic partnership with Viridian to bring these innovative therapies to market. Second, this transaction illustrates our competitive niche and our ability to structure innovative deal structures to meet the bespoke needs of the counterparty while also providing us with a strong risk-adjusted return profile, meaningful upside optionality and attractive capital efficiency characteristics. Investing in pre-approval drugs inherently carries some level of risk due to the potential for clinical trial failure. While our extensive diligence leaves us with a high confidence in the approval of both therapies, we've approached this transaction with a structure that gives us a lot of downside protection around those approval risks and is in keeping with our overall enterprise risk framework. Navin will share more on the royalty tier structure shortly. In addition to closing the transaction, we took further steps to optimize our capital structure during the quarter. We continue to execute on our normal course issuer bid and acquired and canceled about 394,000 units, bringing our total for the first 9 months of the year to roughly 1.35 million units. In addition, we amended our credit lines to allow greater flexibility and to unlock the remaining gap between our effective capacity and the headline size of the overall facility. We are well-positioned to capitalize on the opportunity ahead of us and to continue to drive value for unitholders. I will now turn the call over to Navin Jacob, our Chief Investment Officer. Navin Jacob: Thank you, Ali. Regarding our existing portfolio performance, the table on Slide 7 shows the individual royalty receipts for the third quarter of 2025 compared to Q3 of last year and the previous quarter. Summarize, Orserdu continues to experience strong growth in the U.S. and internationally. Orserdu royalty receipts were up 51% year-over-year at $16.9 million versus $11.2 million in Q3 2024, driven by sales growth and the removal of certain deductions in Orserdu2, where we are now experiencing a higher royalty rate on a go-forward basis. We continue to monitor the ongoing clinical trials of Orserdu in early breast cancer indications as well as in the metastatic setting in combination with other therapies. These trials, if positive, could potentially expand Orserdu's label, which would represent upside to our acquisition forecast. Offsetting Orserdu strength were our Omidria royalty receipts, which decreased 13% from the previous year as a result of continued impact from the Merit-based Incentive Payment Systems program, or MIPS. Omidria royalties are received with a 60-day lag and thus Q3 2025 receipts reflect sales from May 2025 to July 2025. As mentioned previously, we are now observing stabilization in demand as physicians refine their usage patterns to avoid potential penalties tied to overutilization. We continue to anticipate a gradual recovery in Omidria sales heading into 2026. Turning to Vonjo. Royalty receipts for the quarter decreased 5% compared to the previous year due mainly to changes in U.S. reimbursement impacting gross to net adjustments with the IRA impact to Part D Medicare discounts that came into effect in 2025, as previously discussed. During the quarter, we recorded an impairment to our Vonjo royalty asset in the amount of $13.7 million, which was consistent with Sobi's decision to write down its Vonjo rights. Our impairment reflects negative competitive pressures in the U.S. myelofibrosis market and increased Part D discounts relating to the Inflation Reduction Act. Our adjustment aligns with Sobi's revised outlook. We remain encouraged by Sobi's ongoing life cycle management efforts, including the Phase III PACIFICA study expected to read out in 2027. Ekterly received approval in July. And while the first cash flows won't be received until the fourth quarter, leading indicators are suggesting a launch that is ahead of our acquisition forecast. It is important to note that by design, our portfolio of royalties is diversified across a broad range of therapeutic areas and mechanisms, which helps mitigate the impact of challenges in any single asset. This diversification supports the stability of our cash flows and enables us to continue deploying capital with limited exposure to any one investment. Turning to Slide 8 and our recent acquisition of a synthetic royalty in both Veligrotug and VRDN-003. We are thrilled with the opportunity to make this investment in the franchise and partner with the team at Viridian. Our deep research expertise supports our conviction that these products have the potential to be a treatment of choice for patients living with thyroid eye disease or TED. TED is a serious rare autoimmune disease that causes ocular inflammation and results in bulging of the eyes, redness, swelling, pain, double vision and can even be vision-threatening. In the United States, between 15,000 to 20,000 patients are newly diagnosed each year. In 2024, the TED market was approximately $2 billion with only a single approved product currently on the market. We expect the TED market to grow to over $3 billion and the Viridian products to capture a meaningful share of the total market. Once approved, Veligrotug will be the second approved biologic treatment for TED in the marketplace. It has the potential to improve patients' quality of life by requiring fewer doses and significantly less time for a full course of treatment. Veligrotug has met all primary and key secondary endpoints in its Phase III trials. This week, Viridian announced that it has submitted the biologic license application or BLA for Veligrotug to the FDA. Veligrotug has been granted FDA breakthrough therapy designation, which may accelerate the review process. Pending approval, we are optimistic for a potential U.S. launch in 2026. VRDN-003 is a monoclonal antibody very similar to Veligrotug, but with some modifications to its sequence that can provide novel convenience benefits such as self-administration via low-volume subcutaneous auto-injector. VRDN-003 is being studied in active and chronic TED in 2 Phase III trials, which are anticipated to read out top line results in the first half of 2026. Subject to positive outcomes and subsequent regulatory review, Viridian plans to submit a biologic license application by the end of 2026. Under the terms of the agreement, Viridian is entitled to receive up to $270 million of committed capital, which included an upfront payment of $55 million, followed by a series of stage gate milestone payments. In the near term, upon achievement of such conditional milestones, DRI would fund an additional $115 million. The balance of the funding, specifically $100 million is tied to longer-term milestones coupled with a $30 million funding opportunity to invest in future partnership opportunities as mutually agreed. We have a tiered royalty agreement, which applies equally on annual U.S. net sales of both Veligrotug and VRDN-003. We're entitled to 7.5% of net sales up to $600 million, an incremental 0.8% on sales above $600 million to $900 million and a further incremental 0.25% on sales above $900 million up to $2 billion. We have a soft cap at $2 billion, above which we did not receive any royalties. Following the first commercial sale of Veligrotug in the U.S., we will collect royalty receipts quarterly with a 1 quarter lag. During the third quarter of 2025, we tracked at least 6 royalty transactions totaling approximately $1.7 billion in aggregate value. In the same period, there were more than 40 equity financing completed by biopharma companies across the United States and Europe, raising roughly $6.6 billion. Year-to-date, we have tracked $5.5 billion in royalty transactions across more than 20 deals. This level of activity underscores the strength and breadth of the opportunity set in our market. There is no shortage of investment opportunities. If anything, the pipeline of royalty opportunities continues to expand. What constrains our activity is not deal flow, but our extremely disciplined investment framework, which protected us in a highly uncertain macroeconomic and policy environment in the first half of 2025. As we saw greater clarity in the second half of 2025, our investment framework allowed us to actively pursue the Viridian transaction. In summary, we deliberately pursue a small number of transactions each year, focusing on the ones that meet our highest standards in terms of asset quality and risk-adjusted return potential. We believe that maintaining the selectivity is essential to generating durable value for unitholders, managing portfolio risk and preserving capital for the most compelling opportunities when they arise. I will now turn the call over to our CFO, Zaheed Mawani. Unknown Executive: Thank you, Navin. We are pleased with our financial performance for the third quarter. We recorded $43.6 million in total cash receipts, a 12% increase over the same quarter last year. We recorded $48.7 million in total income, a 17% increase over the same period last year. Adjusted EBITDA was $36.7 million, a 17% increase year-over-year with our adjusted EBITDA margin for the quarter at 84%. Adjusted cash earnings per unit in the quarter were $0.55. For the quarter, we also declared cash distributions of $0.10 per unit. We continue to generate strong cash flow from our assets. Over the last 12 months ending September 30, 2025, we recorded royalty income of $192.7 million, plus the change in the fair value of financial royalty assets, the unrealized gain on marketable securities and other interest income for a total income of $198.4 million. After adjusting for receivables, the unrealized gain on marketable securities and the net change in the financial royalty asset, we achieved normalized total cash receipts of $190.4 million. Our operating expenses, management fees and performance fees totaled $34.7 million, net of performance fees payable, resulting in an adjusted EBITDA of $155.7 million and an adjusted EBITDA margin of 82%. We also generated adjusted cash earnings per unit of $2.25. As of September 30, we had $35.6 million of cash and cash equivalents. We also had $52.9 million of royalties receivable and $265.4 million of credit availability from our bank syndicate. Subsequent to the quarter end and as of October 17, 2025, the remaining credit available was $222 million, which reflects the $50 million drawn to partially fund the upfront payment of $55 million in connection with the Viridian transaction. Our capital capacity positions us well to fund the near-term potential Viridian milestone payments in addition to retaining financial flexibility to fund new deals. We continue to be prudent allocators of capital, and our focus remains on growing our portfolio through the attractive opportunities we are seeing in the market that Navin outlined earlier. In addition, we will continue to pursue all opportunistic capital deployment strategies to maximize value creation for unitholders. This includes continuing to allocate capital to repurchase and retire units through our share buyback program, further reinforcing our commitment to optimizing capital structure and returning value to unitholders. As of September 30, we acquired and canceled over 4.5 million units through our NCIB programs. We will continue to retain discretion in making purchases under the NCIB, if any, and in determining the timing, amount and acceptable price of such purchases subject at all times to applicable TSX and other regulatory requirements. All units purchased by DRI under the NCIB will be canceled. Finally, post-internalization, we will deliberately but thoughtfully seek opportunities to deliver cost efficiencies to contribute to our drive for profitable growth and are pacing well against our expectations on this front. With that, let's open the call for questions. Operator: Thank you so much for that. And before we get to the question-and-answer session, I'd like to remind everyone that we have a disclaimer for this call. Listeners are reminded that certain statements made in this earnings call presentation, including responses to questions, may contain forward-looking statements within the meaning of the safe harbor provisions of Canadian provincial securities laws. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements, please consult the MD&A for this quarter, the Risk Factors section of the Annual Information Form and DRI Healthcare's other filings with Canadian securities regulators. DRI Healthcare does not undertake to update any forward-looking statements. Such statements may speak only as of the date made. Today's presentation also referenced non-GAAP measures. The definitions of these measures and reconciliations to measures recognized under IFRS are included in our earnings press release as well as in our MD&A for this quarter, both of which are available on our website and on SEDAR. Unless otherwise specified, all dollar amounts discussed today are in U.S. dollars. And again, I'll remind you that today, this conference is being recorded, Thursday, November 26, 2025. DRI's quarterly press results release and the slides of today's call will be available on the Investor page of the company's website at drihealthcare.com. Operator: [Operator Instructions] And our first question comes from Michael Freeman with Raymond James. Michael Freeman: Congrats on these results. My first question is on the Viridian transaction and the TED franchise. I wonder how sensitive your assumptions on these assets providing future cash flows to you, how sensitive your assumptions are on the approval of both assets. So, say, Veligrotug gets its approval and then we find that VRDN-003 does not for whatever reason. I wonder if you could just describe the sensitivity of your assumptions to that. Navin Jacob: Yes. It's Navin. So, thanks for the question, Michael. So, the way we structured this deal, which was very interesting for us and why we did it is that regardless of whether one asset or both assets are approved, it will be quite positive for unitholders. Quite frankly, if 003 is not approved, there is potential upside to our returns. And as such, that's why -- that was part of the reason why we felt compelled to construct this deal with Viridian. Ali Hedayat: And Michael, just to give a little bit more color on that, it's Ali. I think the right way to look at that is the whole package of assets are approved, we'll have a certain return on a bigger amount of dollars deployed. And if 003 is not approved, we'll arguably have a higher return, but on less dollars deployed. So, something to that effect. Michael Freeman: And I wonder if you could describe -- you described the landscape of currently approved assets to treat TED with one approved product. What could you tell us about the pipeline headed toward the TED landscape? Navin Jacob: Yes. Great question. In fact, there was -- so Amgen obviously has TEPEZZA on the market, which is roughly $2 billion -- annualizing at roughly $2 billion. They announced their results just last night or 2 days ago, continues to be annualizing at roughly $2 billion. They just launched Europe, which is interesting. But with regards to other mechanisms of action or other pipeline assets, Roche actually recently presented on their IL-6 a couple of days before we completed our transaction. That data looked subpar, substantially subpar to the anti-FGR1 receptor antagonist that we own in the form of the liquid target VRDN-003, both on the primary endpoint and on secondary endpoints, the IL-6 was significantly worse. In fact, one of the Phase III trials that Roche presented technically was -- did not hit statistical significance. So, there is -- there are some questions as to whether it will get approved. We actually had included quite a bit of market share for that asset in our forecast. So, let's see how it plays out. If it does not launch, there is potential upside to our acquisition forecast. With regards to other mechanisms, there is a fair amount of competition coming. There are anti-FcRn products that are coming, a couple of other IL-6s. However, given the weak data from Roche as well as some clinical -- some clinician investigators-initiated studies that were conducted for other IL-6. We're not particularly concerned about the IL-6 class. But despite that, we have included significant market share in our assumptions for future anti-IL-6s and/or FcRn assets. Operator: Your next question comes from Erin Kyle with CIBC. Erin Kyle: I wanted to first ask on Orserdu and maybe if you can just elaborate how we should be thinking about those sales into 2026 with Lilly competing drug receiving FDA approval in September? And then can you just remind us of, again, the competitive landscape there and if there are other competing drugs that will likely enter the market in the next year or so. I believe AstraZeneca and potentially Roche were also running trials for Orserdu. T Navin Jacob: Thanks very much for the question, Erin. So, with regards to Lilly's Imlunestrant, I think the brand name is Inluriyo, it is only approved as a monotherapy for second-line HER2-negative HR-positive ESR1 mutant breast cancer patients, which is the same indication as Orserdu. This is in line with our expectations, but there had been some expectations from others that it would get a broader label because of some of the combination studies that it ran. When that data came out, we felt strongly that it was unlikely to get that, and it did not. That's well within our expectations. From everything we see, Imlunestrant is at best similar to Orserdu. There is a small argument to be made that it is worse than Orserdu. Having said that, it is Lilly and they're a strong marketer. We're not gun shy on that fact. But with that said, Orserdu has a 2-year -- 2.5-year head start, which is very important in this landscape. And given the undifferentiated profile of Imlunestrant, we're not overly concerned with that. We have that built into our acquisition forecast. The other asset that was -- that has been positive is Roche's Giredestrant and other oral SERDs that will compete against Orserdu, and had data from the evERA trial. That Phase III trial was in combination with an older drug called Afinitor, so Giredestrant plus Afinitor versus the standard of care plus Afinitor. It's a very interesting study. Admittedly, the data did look good, and it did look good in both all-comers and ESR1 patients. With that said, when I say it looked good, it's the PFS data, it's not the OS data. But nonetheless, it looked good. However, Afinitor is a very old drug, and it's not really used frequently in second-line breast cancer, especially not for all comers because you have the CDK4/6 drugs that are used there. Furthermore, Orserdu is also testing this Afinitor combination. They're testing -- or rather Menarini is testing this combination of Orserdu plus Afinitor in a Phase II/III study. And so even if that combination starts taking over some market share, we do have some protection in the fact that very likely, the Orserdu plus Afinitor study will also be positive because on a monotherapy basis, we don't see much differentiation between Giredestrant and Orserdu. Erin Kyle: That's really helpful color there. And then I just wanted to ask on the portfolio weighting. So based on our math, after the Veligrotug transaction, we see our portfolio is now weighted a little over 20% to preapproval, which is, I think, a bit above the 15% weighting target we've discussed in the past. So just in terms of appetite for another preapproval deal or what that looks like, should we expect you to defer on any preapproval deals until Veligrotug is approved? Or how are you thinking about that? Ali Hedayat: Yes, Erin, I think the kind of adding in the gross value of Veligrotug, including all the milestones is probably the wrong way to do that weighting in the sense that the upfront payment is preapproval risk, but obviously, the larger payments are sequenced primarily on approval, right? So almost by definition, when we are making those larger payments, it's an approved drug, not a pre-approval drug. So, on our math, I would say the weighting of genuine preapproval risk right now is the $55 million upfront over our net book value of assets, and it's a sort of mid-single-digit number. And in terms of, I think, broader approach to preapproval, we've been doing a lot of work on a risk framework essentially to really categorize and systematize our approach to pre-approval. We are comfortable with exposure in that space, both because of the return characteristics because of the fact that it sort of anchors at higher returns, ultimately on the back-end approval deals, approved deals, if it's structured correctly, and it sort of gives us duration and various other favorable boost to the portfolio. I think we're well progressed on framing that, and I think we feel pretty good about the framework that we have in place. So, you should expect us to continue to be active in the space. I don't think it will go significantly above the parameters that we talked about before, but it's not something we're backing down from either. Operator: Your next question comes from Doug Miehm with RBC. Douglas Miehm: First question just has to do again with these -- I wouldn't call them new type of approach to the marketplace, but one where you're definitely going to have competitive advantage in terms of pre-approval products. And I guess my question is, in your conversations with investors and owners of the shares over the last 6 to 12 months since you've, let's say, started this approach, how would you say that those conversations have gone? Are people comfortable with these types of deals that you're putting in place? Are they starting to recognize that given the duration, the quality of the assets, they're going to be okay with this approach? I'm just trying to get in their heads. Ali Hedayat: Doug, thanks for the question. I think there's a couple of ways to look at the direction of travel of the business. I think broadly speaking, we have been focused on maintaining high risk-adjusted returns. And I think to use a very broad word, what has become evident over the past 18, 24 months is that if you're targeting a point on the graph of risk-adjusted returns, the complexity under that has gone up. And you can define complexity in many different ways. You can define it as the structure of the transaction. You can define it as more synthetics versus traditional. You can define it as pre-approval. But I would say the mix of all of those things is probably higher for a given return than it was 2 or 3 years ago. And I think that is really what we are communicating to our investors. So, we are not saying it's all sales out for solely preapproval or all sales out for solely synthetic or super complex deals. But in general, to sort of achieve the great risk-adjusted returns the team is achieving, we find that we're being much more competitive when we're taking on situations that are complex, that require a lot of structuring that may have aspects of preapproval that may be synthetic. And we've been very transparent about that. I think our investor base is receptive and understands that. But when you look for a reason as to why the business has a competitive niche in what is a sector where many of our competitors are larger and better resourced, I think it is exactly our ability to execute on transactions like the Viridian one, where we have structured it in a way that is extremely well thought out, where we have taken synthetic risk, where we have managed in, I think, a very clever way the pre-approval aspects of the transaction. So, we have to outrun other people by doing a better job of those things, and I feel we're demonstrating that we can do it. Y Douglas Miehm: I just have a follow-up housekeeping item here. So, when you think about the royalty receipts that were generated by Orserdu this quarter relative to the income that was recognized in Q2, it was lower. And I know there can -- and that sort of thing. But I am curious, are we starting to see evidence of the marketplace pointing towards other products now that they're approved? Or was this simply a case of true-ups from quarter-to-quarter? Y Ali Hedayat: Sorry, Doug, one thing to keep in mind here is obviously the dynamic between our cash receipts and our recognized revenues, right? And I think you will see the impact of some of the Orserdu outperformance in the coming quarter in the sense that we've basically accrued that revenue into the receivables, but not put it through the top line yet, which is our traditional accounting. So, on our adjusted cash receipts, adjusted EBITDA, you are not seeing the impact of the performance of the drug right now. Operator: Your next question comes from Tania Armstrong with Canaccord Genuity. Tania Gonsalves: Congrats on a nice quarter. A couple for me. First, on the Viridian assets. I'm wondering if you have any insight into how Viridian might price those in the U.S. I know one of the big pushbacks against TEPEZZA is pricing, which is why it hasn't performed well in other international markets. And maybe just following along that line of thinking, if you can also comment on why you decided to pursue just the U.S. rights and not other international markets. Navin Jacob: I think you answered the question yourself, Tania, it's a very thoughtful question. That's exactly why we only pursue the U.S. just given the pricing power that we have here in the U.S. and our expectation is that it's priced in line with TEPEZZA. Tania Gonsalves: And then on your total income CAGR, I know you've previously given out guidance for this. I think the last update was kind of a mid- to high single digit through 2030. With these new potential assets in your, I guess, however you're baking in that risk adjustment, where do you anticipate that CAGR being? Ali Hedayat: We're going to update that guidance in the fourth quarter. I would say it's probably a fair statement that we're feeling pretty good about that, just given layering on of these new assets and the performance of the back book. Tania Gonsalves: And then lastly, we did see a bit of a tax recovery come this quarter. I'm just wondering if we should be modeling any kind of tax impact going forward now that the internalization is complete. Unknown Executive: I'll take that one, Tania. No, I think at this point, just given it was relatively material over there, Tania, I wouldn't sort of guide you to start putting that into your forecast. But as we know more through the internalization, if there's going to be another sort of provision that we need to make more regularly, then we'll update you accordingly for your models. Operator: Your next question comes from Zachary Evershed with National Capital Bank. Zachary Evershed: Congrats on the quarter. So just another one on the internalization process here. With this being the first quarter, would you be able to give us an idea of what normalized OpEx might look like, including the cost reductions you mentioned at the top of the call? Ali Hedayat: Yes, Zach, I'd point you to a couple of things. So, I think it's Page 18 or 19 of the MD&A. We have a walk-through of what we would consider sort of one-offs related to the quarter. I think it sums up to about $1.1 million. So that's really comprised of some severance and a few other bits and pieces, a transitional service agreement with our prior manager to deal with some issues that they were handling for us, and we have, at this point, internalized into our operations as well as some tail end of costs related to the internalization advisory work itself. And all of that is going to sort of fall out sequentially, I would say we're also, as a result of our restructuring efforts running at a lower run rate of overhead costs in the fourth quarter, both in terms of our headcount and in terms of our office lease. Unfortunately, our beautiful office on the top floor of First Canadian is going to fall prey to our optimization efforts, and we're moving into a new space, which we're excited about, and it's going to be great for the team, but it's also much more economic. So, I think as we go into the fourth quarter, you'll see sort of all of that fall through to costs. What I do want to caution you on is that it's probably the low point of our cost in the sense that our intention is to reinvest some of that back into growth and hires on the investment team and elsewhere in the organization. So, I wouldn't sort of run rate where we're going to come out at the end of the fourth quarter or the first quarter as our cost base. But I do think it's going to be overall a better mix of margins than we originally anticipated when we internalized. And certainly, that will scale as the business scales. Zachary Evershed: That's really good color. And on your Vonjo outlook, you aligned with Sobi's. What kind of hit to pricing or change in competitive environment do you think there would need to be to generate an impairment on Vonjo1? Navin Jacob: Yes. We feel very strong. We feel pretty good about that Vonjo1 acquisition -- and the forecast associated with that. I can never say never about any asset, but we feel pretty confident about where that forecast stands right now for Vonjo1. Operator: Your next question comes from Justin Keywood with Stifel. Justin Keywood: Nice to see the results. Does the FDA move to accelerate biosimilar development impact your view of future opportunities? Or perhaps are there any points of risk within the portfolio, maybe not today, but in the medium or longer-term? Navin Jacob: No. Very frank, very simply, most of our terms expire when the key patent that we believe is the strongest. When that patent expires, most of our -- most terms expire at that standpoint -- at that time point. And so, we don't rely on sort of the post-LOE tail to fund any of our acquisitions. That is not part of our assumptions. Having said that, 1 or 2 assets may go past the LOE, and that's pure upside, but that's not a driver for us. Justin Keywood: And then on the Viridian transaction, there was subsequently a financial raise and the pro forma cash balance is very healthy for that company, almost at $900 million. So, this was subsequent to the royalty transaction. Does that impact the way you're looking at the outlook for the asset given the healthier cash balance to go to market? Navin Jacob: No, that's an excellent question. There's 2 positive impacts from that. Number one, well, 3, I could argue 3. The first is it just creates a much healthier company, right? Viridian as an entity is much healthier and that reduces any tail end risk that we may have or sort of second standard deviation, third standard deviation risk we have around the credit risk of Viridian. So now they're a super healthy company. That's number one. Number 2, from the perspective of having a well-funded launch, Viridian is extremely well funded now and ready to go. We know that team. They're an excellent management team, very good executors and aggressive. So, we're excited to see what they're able to do with the cash that they have raised, and we're happy for them. So that will allow for a well-funded launch. And then the third is, I think that -- and this is a little bit more intangible, but it is our royalty deal allowed them to conduct that equity deal. And so, to the extent that other companies see that, that's a good thing for our pipeline. Operator: There are no further questions at this time. I'll turn the call back over to Ali Hedayat. Ali Hedayat: Thank you, operator. Thank you all for joining us today, and thank you for -- to the DRI team for an enormous effort in bringing these great results to fruition here. We look forward to discussing our Q4 and full year results with you next March, and thank you for your continued commitment to DRI. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Antonia Junelind: Good morning, and a warm welcome to the presentation of Skanska's Third Quarter Report for 2025. For those of you that don't know me, I'm Antonia Junelind. I'm the Senior Vice President for Skanska's Investor Relations. And here on stage in our studio today, I've got President and CEO, Anders Danielsson; and CFO, Jonas Rickberg. We're going to follow the typical structure of these press conferences. We will start by walking through the past quarter to provide you with a business, financial and market development update. And after that initial presentation, we will move over to questions. [Operator Instructions] If you are here in the room with us, then you can, of course, just ask questions by raising your hand. We will bring a microphone to you, and we will take it from there. So yes, I will no longer hold you off. We'll take you through the third quarter. Anders, let's do this. Anders Danielsson: Thank you, Antonia. Good to see everyone. Before we jump into the figures, I want you to look at the picture here on the slide. And that's called The Eight, one of our project development office building in Bellevue, part of Greater Seattle area in the United States. And it's actually a Class A building, one of the biggest or the biggest commercial investment we have had. We're also proud to be able to announce in a couple of years back that we have the greatest, the biggest lease here as well. And this -- today, the office building is leased more than 80%. So it's a great, great building. I'm happy to say that we're going to host the Capital Market Day in a few weeks in the same building. So I look forward to see everyone who will show up there. And we will also have a deep dive, of course, of the U.S. operation at the time, together with the commercial direction forward for the group. But now the third quarter. It's a solid quarter, solid third quarter. The construction is performing very well in all geographies, and we have strong market generated by a solid project portfolio. In Residential Development, we have very strong sales and margin in our Central European business, so a very high performance there. The Nordic market remains weak, which impacts both the sales and the profitability level. Commercial Property Development. We have 2 large lease contracts signed in the quarter, and I will come back to the profitability level here. Investment Properties, stable performance, stable cash flow and stable leasing ratio. Operating margin in Construction is 4.2%, very high level, very high compared to last year, 3.6%, and well above our target, as you know. Return on capital employed in Project Development, 1.4%, and that's on the low level below our target but it's driven by a slow market in different parts of our operation. Return on capital employed in Investment Properties is 4.7%, stable performance there on a rolling 12. Return on equity, 10% on a rolling 12-month basis. And we continue to have a solid performance on the financial position, and that's very important for us, of course, and a competitive advantage going forward. And we also managed to continue to reduce the carbon emission. And now we are at 64% reduction compared to our baseline year in 2015. So I will go into each and every stream, starting with Construction. Revenue increase in local currencies, 7%, which is good. Order bookings is around SEK 40 billion. And we do have a book-to-build ratio over 100% on a rolling 12-month basis. So we have a very good position when it comes to order backlog. I will come back to that. But it is on historically high levels. And operating income close to SEK 1.8 billion, increased from last year, SEK 1.5 billion. And again, the operating margin is very strong here, 4.2%. So strong result and high margin across all geographies, and that's very encouraging and also prove that we have kept our discipline and we have been successful in the strategic direction here. And we have a rolling 12 months group operating margin of 3.9%. Solid order intake for the group and a strong backlog. Moving on to the Residential Development. Revenue is pretty much in line with last year. We have sold 383 homes, and we have increased the started homes mainly driven by the Central European operation, 572 started homes. And we have an operating income of SEK 131 million, representing a return on capital employed 5.9% on a rolling 12. Very strong sales and result in Central Europe. We have started 2 new projects, and we have -- with a very good presale level, which drives, of course, the sales in the quarter. The Nordic housing market remains weaker and Nordic businesses recorded a very small loss there. But overall, it's driven by a weak market. We can see some signs of improvement in the Norwegian operation here, but overall, quite slow. Commercial Property Development. Operating income is minus SEK 397 million, which is driven by write-downs in impairments, write-downs in few projects in the U.S. properties. We'll come back to that. But that gives -- we also have a gain on sale of SEK 377 million in the quarter. Return on capital employed is 0, rolling 12. We do have 15 ongoing projects representing SEK 15 billion in investment upon completion of those projects. And we have 22 completed projects representing SEK 18 billion in total investment. The leasing ratio in those completed projects is fairly good. We are at 77% leased. So we have a good position there, giving us a cash flow -- positive cash flow. Three project divestment and one internal land transfer in the quarter. Result includes these impairment charges, of course, in U.S. And we have 2 large lease contracts signed in the same quarter. Investment Properties, operating income stable, SEK 143 million, and we do have a stable occupancy rate of 83%, it was the same as last quarter. The total property values continue to be on the same level, SEK 8.2 billion. If I go back to the Construction stream now and look at the order bookings. And here, you can see over time for last 5 years, the order backlog, the bars, the blue bars here. You can also see the rolling 12 order bookings, the light gray line and the order bookings per quarter, the orange. And also the revenue, the green, rolling 12, which you can see has had a slow increasing trend the last few years. And that's thanks, of course, that we have been successful in increasing the order backlog, which again is on historically high level. And you can see the yellow line, the book-to-build rates over 12 months. So I think it's important here to look at over the rolling 12 months' trend, because when it comes to order bookings, it can fluctuate quite a lot between a single quarter. And that you can see also when you look at the order intake in the quarter, which is down from SEK 50 billion to around SEK 40 billion. We'll come back to each and every geography here. But we are in a very good position. And if I look at the order bookings per geographies, you can see here that overall, we have a book-to-build ratio of 106%, and we have over well above in the Nordic and European operation slightly below in the U.S. operation on a rolling 12-month basis. But look at the months of production, 19 months in overall, and I'm very confident that we have a very good position. So we can continue to be selective going for projects that we see we have competitive advantage and that we have a good track record as well for the future. So with that, I hand over to Jonas to go through the financials. Jonas Rickberg: Thank you, Anders. And we'll continue here with the Construction side. And as you can see, the revenue is fairly flat here in SEK, but it's actually up then with 7% in local currency. The green line, we're actually then having a gross margin that has increased to 8% in the quarter, which really emphasizes the great quality that we have in the order book. We continue to have a strong and good cost control within the stream, and that is then generating that you can see over the line there, but that is also then showing here with a good result in the operating margin of 4.2%. Operating income of SEK 1.8 billion, an increase with 22% versus last year. Worth mentioning again, I would say, is the rolling 12 of 3.9% in operating margin. Looking here on the geographies, we still see that we have a solid delivery for all the areas, Nordic, Europe and U.S. That sticks out a little bit on the positive side here, it's actually Sweden with 4.9. That is building up from a strong portfolio right now, and it's very clear natural trends within the quarter and so on. So if we summarize the Construction line here, the Construction stream, we can see that we have a strong performance in all geographies right now. We have actually a 5-year track record here on margins that are on or above our target of 3.5%, which is strong. And of course, as you said, Anders, we had SEK 264 billion here in our order book that we can harvest from, and that is a real strength going forward. Moving on then to residential development. Here, we can see the income statement. And of course, you can see that half of the revenue actually come from Central Europe, which is really strength from that delivery point of view. We started 2 new projects in Central Europe in Prague and Kraków, and that had a really good presales level as well. We have reduced S&A significantly over the years. And right now, we have an organization that is set for higher volumes going forward to really get the leverage here on the S&A going forward. Also, please note that we have an upward trend on the rolling 12 operating margin at 8% here, which is strong. Looking at the operating income or income statement by geographies, you can see here very clear that Europe of SEK 159 million, that is really lifting or keeping up the strong -- the performance here in the stream on a margin of 17.5%. Secondly, here, you can see that Nordic is a little bit on the weaker side, and that is mainly driven by low revenue, actually low sales, few units sold. And also it confirms the trend here that we have said before that buyers really would like to buy close to completion and that we are selling mostly from projects that were a little bit weak in margin that is reflected here. Moving on to home started. You can see that we have out of the 572 units, we have 430 that is coming then from Central Europe and then 142 in Nordic here, and that is actually that we have started places here in Oslo and Uppsala and [ Östersund ]. And looking at the homes sold of the 383, you can see that 240 is actually then coming from presales started in Central Europe and 141 from the Nordic areas here. Rolling 12 months, you can see that we are very balanced when it comes to the sold and started homes, I would say. If we turn into our stock situation, you can see that we have -- the homes in production is actually then ticking up to a level of almost 2,900 homes in production, and that is up since Q2. Unsold completed homes is also coming down from Q2 level of 486, which is good as well. If you summarize the Residential Development area, we can see that we have a good performance despite we have a challenging situation in the Nordic, but it's really lifted up from the Central European unit here. And also that we are preparing here good projects within pipeline for start when the market condition is in a better place as well. If we move to Commercial Development, you can see here that revenue side, there are 3 divestments, 1 in Poland and 2 in Sweden. And also, we have the internal sales of land from -- in Europe here. Impacting the operating income is actually the gain from sales mostly related then to -- from a situation of SEK 234 million here in the gain of sales. Also, as we were into, we had an asset impairment in U.S. of SEK 658 million. And as we have mentioned earlier, it's low transaction volume in U.S. and it's very slow there. So it's -- the visibility is hard to compare there. So it's a few units only. The impairment has done, of course, to really ensure that we are having the right balance, the asset value in the balance sheet, and we are doing this continuously over quarters. And it's very clear that it has no cash flow impact, and it's then representing a little bit more than 3% of the book value of total U.S. portfolio. Moving on to unrealized and realized gains. Here, we can see that we had SEK 5 billion in the quarter, and it's an upward trend, which is good. And that is then sign actually of the starting -- of the fact that we are starting to see the positive impact of slowly starting new projects here with profitable and solid business cases. We have a situation. We have a good land bank in attractive locations that we really would like to build and harvest from going forward and actually making sure that we have solid business case for this going forward. In the portfolio, we have unrealized gains of 10% here in Q3. And as we have said many times before, it's very, very quite much in the portfolio between the different regions of started and older -- more new project versus older projects and so on. If we move on here to the completion profile of all the Commercial Development properties that we have, we have SEK 18 billion of already completed and 22 projects. And as we can see here, it's on the purple line, it's up -- it's 77% in leasing, and that is up from 74% last year. So it's a good trend there. Also, if you look into the green dots, and if you are very particular comparing them to the last quarter, they all have moved up, and that is a real strength here that we are leasing more with ongoing projects. And in Q3, we also made sure that we are having a better outlook here for Central Europe and Nordics when it comes to the commercial property. And it's very much based on the fact that we can see that we have -- there's better access to debt as well as the pricing on debt and so on, and that is driving a little bit the market here. And that is, of course, very encouraging to see. Focus even more here when it comes to the leasing part of commercial operation. We can see that we have in the bar there to the blue, last right, you can see 77,000 square meters let, and that is actually then coming from 2 big leases, H2Offices in Budapest as well as Solna Link that we have started there. Also, we can see, I'm very glad also that we have a trend shift here. Average leasing ratio of the ongoing projects is 64% versus then the compared to completion of 55%. And that is a strength, of course, that we are increasing the leasing versus then the completion that we have. To sum up, we have a strong leasing activity in the quarter. And of course, we see the importance here to turning the -- all the completed assets that we have and translate them going forward and also be able to make sure that we have solid business case to start with when the market is ready and so on. We have a lot of things to sell, but we are also very cautious about how -- and we have a very patient and good value for the -- we really would like to capture the good value that we have created over the years. So very good patience here to sell the good things that we have, I would say. When it comes to the Investment Properties, it's stable operational and financial performance within the stream. Operation income is positively impacted by a reassessment of the property value of some units here, and it's actually then SEK 53 million up. And that is also a sign that we can see that we have better outlook here for the Nordic markets real estate as well. Moving into the income statement. We can -- here, I would like to take the focus a little bit on the central items that is SEK 58 million, and that is actually then coming from a positive effect from release of provision on the asset management business related to some milestones in projects there. Also, we can see that cost varies between quarters and so on. And as I said last quarter 2, we are on the level that we are representing more or less the first half year of this year for the full year. And we are seeing a little bit higher cost here due to the fact that we have outsourced IT infrastructure that is impacting this year, but of course, it will be better here going forward once we can see these synergies. Also, looking at the elimination line there, you can see that, that is then connected to the internal transfer, that of SEK 234 million recognized in the commercial development area. And no swings really in the financial net, and we actually then recorded a profit of SEK 1.3 billion and an earnings per share increased by 36% versus last quarter. Moving into group cash flow. We can see that we had a 0 cash flow for the quarter, and that was a result of that we are in a net investment for Residential and Construction stream right now. If we lift ourselves a little bit more and look into the bigger trend of rolling 12, we can see that we have a really good underlying cash flow from the business operation, and we can see good -- and continue to have good level of negative working capital as we will come into soon as well. And also, we can see that we continue being a net divestment cycle that we really would like to be and releasing more cash and so on. Focusing on the construction and the free working capital, you can see it's fairly flat there between the Q2 and Q3. And we are quite comfortable with these levels as we have right now and so on. Also worth mentioning here is that the higher bars here last year, quarter 3 and quarter 4, are not representing really because it was very much connected then to mobilization of some milestones in big projects that we have an advantage of. And of course, we have 18.2% here in relation to revenue, which is strong. Moving on to the investment side. As mentioned, the quarter, we had net investment for the group. But rolling 12 period, we remain on the net divestment territory here. This means that we are taking down the capital employed level within Residential and Commercial Development here, as you can see in the bottom from SEK 64 billion then to SEK 62 billion and so on. Looking ahead, of course, as I said, we have a few assets on the balance sheet that we really would like to transfer and making ready for divestments. We are starting and preparing new products with really good solid business case as well. But the timing of these flows are of essential that the market and the demand and supply are meeting, then, of course, we will shoot off these. For sure, once we see that we are succeeding here with the divestments, we're making sure that we will then invest more going forward. If we look into the liquidity point here, we can see that we have a good liquidity situation of SEK 28.1 billion here. And that is then a super strong position, and we have a loan portfolio that have a balanced maturity profile as well. Finishing off here with the financial position, which is very, very strong, as you know, who has followed us. We have an equity of SEK 60 billion, and that is almost a level of 38% and equity ratio. We have an adjusted net cash of SEK 9.3 billion. And as you were into Anders, it's a good situation to be in and also good for all our customers that are really relying on us and making sure -- and trusting us in the fact that we are here to complete the projects no matter what. So we have the financial strength to do that, I would say. And by that, handing over to you, Anders. Anders Danielsson: Sure. I will go through the market outlook before we summarize and start the Q&A. Market outlook for Construction is pretty much unchanged from the last quarter. We have a strong civil market in the U.S., and we can see we are in a more traditional infrastructure operation in U.S. So we can see a strong pipeline, and we don't see any slowdown here. And there's still existing federal funding programs as running over time here. The civil market in Europe is more stable. It's strong in Sweden due to -- we can see that there's a lot of investments in infrastructure. We can see defense and also wastewater and that kind of facility coming out. So that's a good opportunity for us. And the building market is stable in the U.S., continue to be stable and more weaker, especially in the Nordic due to the slower residential and commercial construction market. But in Central Europe, it's more stable, both on civil and building. Residential Development, good activity, as we've been talking about in Central Europe, great market and driven by a lot of people moving into the capital cities and the largest university cities. And the lower-than-normal market in the Nordic housing market, even though we can see some signs, the underlying need for residential is there in the market we are operating in. The lower interest rates helps, of course, but I think we need to see some economic growth, GDP growth in the different market in the Nordics to really see that people are getting back the confidence and buying homes. But we do have an underlying need. Commercial Property Development, we're increasing the outlook in Central Europe and in the Nordics. We can see higher leasing activity in both Central Europe and Nordic, we can also see that the investor market and transaction market, they are more active, especially in Central Europe, but we can see signs of improvement also in the Nordics. So we are increasing it to a stable market in those geographies. Investment Properties. Here, we can see continue to be stable market outlook. There's a strong demand for high-quality buildings, office building in the right location with good train connection and so on. We can offer that. So we can see it's a polarized market, definitely, but we are in the right location there, and we expect rents to be mostly stable here. So if I summarize the third quarter. Construction, strong margin generated by the solid project portfolio. We had a great performance in Residential Development in Central Europe, weaker in Nordic. Commercial Property Development, 2 large lease contracts signed here in the Nordic and Central Europe. And again, the Investment Property is very stable. And very important, we are maintaining a solid financial position, which is a competitive advantage. So with that, I hand over to Antonia to open up the Q&A. Antonia Junelind: Very good. So yes, now we will open up for your questions. [Operator Instructions] But I will actually start by turning to the room to see if we have any questions here. If you have a question, then just please raise your hand. We will bring a microphone and we'll ask you to please start by stating your name and organization. We have a question here in the front. Stefan Erik Andersson: Stefan from Danske Bank. A couple of quick ones. First, the margins in the Construction division. It's a major jump year-on-year. It looks good quarter-on-quarter as well. We're not really used to that kind of jump up. We can see the drop sometimes, but rarely such jumps up. Could you maybe elaborate on -- 2 questions. What's behind that? Are you getting rid of problem projects, and therefore, the good ones are seen? And second question on that, is this a new level that we could be comfortable calculating also for the future? Anders Danielsson: I can take that question, Stefan. Yes, we have a very strong performance in the Construction stream. And I can say that we have been able to, by this good discipline, avoiding loss-making project. And that's a real key to be successful here. And also, we should not look at the single quarter, I said it before. So you should look more on the rolling 12 months. We don't have any positive one-offs in the quarter. It's a very good performance. And the key here is all geographies performing, and that's also quite unusual even though we have been on a good level for some years now. So right now, everyone is performing. And of course, that boosts up the underlying margin. And I also see that in a single quarter, it can fluctuate because we -- sometimes, we are completing large project, profitable project. And then since we have a conservative profit to take in -- during the construction, we can have a boost in the -- when we complete the project. So look more over time. What we expect of the future? I always expect to reach our targets and be above our targets, which we have been for some time now, and I have no other view on the future, definitely. Stefan Erik Andersson: That's good. That's enough. And then on orders, when listening to you, you're talking a lot about the rolling 12 months and don't look at the quarter above and all that. But 2024 was extremely good in -- with large orders. Should I interpret you as the level in 2024 to be a normal year? Or should I continue to believe that it was a very, very good year, unusually good year? Anders Danielsson: It was an unusually good year. If you look at the third quarter now in U.S. because you can see the Nordic and European is actually increasing the order intake. But the U.S., if you look at the current year, we are on a 5-year, 10 years average. And again, we have a rolling book-to-build of rolling 12, but it's very close to 100% in U.S. So I'm -- so that's how we should look at it. Stefan Erik Andersson: And then the final question on IP. You talked about the stable situation with the occupancy there, 83%. It's 80% in Stockholm, Gothenburg. To me, if you're not [ Kista ] with new stuff, it's actually a low level and it's not improving. So just wondering a little bit, is the specific properties that is a problem? Or is it just a general spread out issue? Anders Danielsson: I would say the leasing market is somewhat impacted by a slow economic growth. So there is -- we see some, as I said, increase in some signs of improvement, but it takes time, and it's a very polarized market. So if you have a Class A building and right location, it's much more attractive. So that's -- but it's -- you're right, it's on the same level for over a couple of quarters. Stefan Erik Andersson: Is there specific properties that are really... Anders Danielsson: No, I wouldn't say so. It's quite even spread. Antonia Junelind: So we're going to continue with a question here in the room. Albin Sandberg: Yes. Albin Sandberg, SB1 Markets. I had a question on the financial position, and you made a comment about a level where the customers are happy and they can trust you. At the same time, you have the financial targets that would allow you for substantially more debt, which I guess also is tied back to the commercial property activities and so forth. But what kind of levels do you need to be in order to have the customers to be sort of happy with you? And is there anything to read into where we are in the cycle now that makes you want to operate with a higher net cash maybe than what you theoretically could? Jonas Rickberg: Albin, of course, I mean, we are in a business that is very cyclical. And of course, we really would like to be able to take advantage of things and be opportunistic when things are possible to do that. So we are not really guiding how much we need and so going forward. But we are comfortable with the situation we are right now, definitely. Albin Sandberg: And my second and final question is, when it comes to your investment, the plans and so forth because obviously, your invested capital has come down a bit now year-to-date. Given what's happening on the office side and so on recently, what would take you to get the investments up now, let's say, over the next 12 months? Jonas Rickberg: No. But as we said, we can see that we have a good leasing traction and so on and also that the market is here in Central Europe as well as in Nordic, it starts to meet and so on. And of course, if we are successful here with the SEK 18 billion that we have in the balance sheet of [ 22 ] ready projects, and if we can make them fly here. And of course, then we are a little bit more appetite for the things that we have prepared, of course. So really looking forward to things to move here. Anders Danielsson: I can add to that, that we will start project and our starting project in geographies that we see that there's more -- better activity, we announced starting in Poland the other day as one example. Antonia Junelind: Very good. So we will then move over to the online audience. And I will ask you, please, operator, can you put through the first caller. Operator: [Operator Instructions] Our first question comes from Graham Hunt with Jefferies. Graham Hunt: I've just got 2 questions, please. First one is on the U.S. commercial impairment. So you only have a handful of assets in the U.S. So I just wondered if you could give any more color on where that impairment has been taken or what kind of assets it's been taken on region-wise, type of building wise. Just any more color on the breakdown of that impairment would be helpful. And then second question also on the U.S. construction business. Last year, you had quite a lot of order intake related to data centers, but that seems to have dropped off quite significantly in 2025. Is there anything that we should read into that as to your offering in data centers? Or is that just typical lumpiness in the market? Any comments around that would be helpful. Anders Danielsson: Sure, Graham. Thank you for the question. If I start with the U.S., we have an operation in 4 cities in U.S., as you know, and we haven't announced where. We have said now it's a few projects. And again, to Jonas' point, the value of this write-down represent just about 3% of the total value. So I don't see any drama in that. And if you look at the U.S. portfolio overall, we have mainly -- the main part is office building in those 4 cities. And we also -- but we also have high-end rental residential in the different cities as well. And we also have some small life science. But the main part is office building. And again, we have a good leasing ratio here. So we do get a good cash flow from them. But we have looked into this internally, external help, and we see due to the slow market, very few transactions. So we have to take this write-down in the single quarter. On the construction data centers, I don't think you should look in a single quarter. It can be quite lumpy. We do -- we have a healthy backlog with data centers, a lot of international -- strong international players, who invest in data centers, and we can see they continue. So we haven't seen any cancellation. And we can see that the strong pipeline will -- our expectation, it will materialize going forward. Operator: Our next question comes from Arnaud Lehmann with Bank of America. Arnaud Lehmann: A couple of questions on my side. Firstly, just following up on U.S. construction. Have you seen any implication from the recent government shutdown? We hear in the press about some projects being potentially canceled. So either in terms of order intakes or delays in payments or anything happening there in U.S. construction, please? That would be helpful. And secondly, I appreciate it's a small part of your business, but coming back on Residential in the Nordics, you mentioned the weakness. Can you give us a bit of color on why that is the case when rates have been coming down a little bit? And do you see at one point potential improvement into 2026? Anders Danielsson: Thank you, Arnaud. If I start with the U.S. civil and the -- U.S. construction operation and the government shut, we haven't seen any impact on our project, and we haven't seen any cancellation either or late payment. The most of our client in U.S. operation are states, cities, institution, large -- as I said, large player on the data center side. So we are having a close look at it, of course. But so far, we haven't seen any impact. And on the Nordics, yes, as I said earlier, the underlying need for homes in the Nordics are there, definitely. And we are on a very low level if you look at the whole market and new units coming out. But -- and the rates helps, of course, interest rates cut, it helps. But we need to see consumer confidence coming back. We saw it dropped quite a lot in the first quarter this year, and we also saw the impact on the sales. So I think we need to see some economic growth in the different geographies. There's a lot of now initiative, Sweden as one example from the government to boost the growth, economic growth. And if that materialize, I'm sure we will see a different outlook in the future. But right now, we think it will take sometime. Operator: [Operator Instructions] Our next question comes from Keivan Shirvanpour with SEB. Keivan Shirvanpour: I have 2 questions on CD. The first is that you lifted your outlook for the Nordics and Europe in Q3. What's your expectations on divestments going forward? Are you maybe optimistic for making some transactions before the end of the year? Jonas Rickberg: Okay. And as you all know, we don't guide here going forward. And right now, of course, we can see signs that, as I said earlier, when it comes to the leasing activities that is coming up and also that the transaction market is a little bit better with international players as well like this coming in and interesting to use the capital, so to say. So that was the main things why we are actually then increasing the outlook for the CD business here in Europe as well as in Nordic, I would say. Keivan Shirvanpour: Okay. And then my second question is related to the unrealized gains. First of all, the complete project that you have, you have unrealized gain, which is at 5%. And then for the ongoing projects, you have unrealized gains, which is up 20%. Could you maybe elaborate the difference? Jonas Rickberg: Sorry, once again, if you said that the unrealized in? Keivan Shirvanpour: Yes. Unrealized gains for the completed project is equivalent to 5%, but the unrealized gains for completed projects or ongoing projects is at 20%. Why is there such a difference? Jonas Rickberg: And that's, as I said, I mean, we had here the average of 10%, and that is then correlated to the fact that you are pointing out that we have a little bit older properties with lower, and then more new ones that is stable when it comes to the business cases and so on that is then generated the higher portfolio value there. Keivan Shirvanpour: Okay. So just -- maybe I'll follow up. So I assume that divestments that may occur from completed projects will potentially have quite low margins, potentially single digits, if I interpret that correctly based on that valuation. Jonas Rickberg: No. And as I said, I mean, we have the average here of 10%, and that is where we are communicating at the level right now. Operator: Our last question over the phone comes from Nicolas Mora with Morgan Stanley. Nicolas Mora: Just a couple of questions coming back on the U.S. First one on the order intake. You still seem to be struggling a little bit with the smaller projects, the one you account for below SEK 300 million. Is the market still soft there? There's just no real pickup in these small projects from either on the private side or the public side? That would be the first question. Second, on margins. So another very strong performance. All your peers are also doing better, especially, for example, in the U.S. civil works, but the Nordics peers as well have reported very strong results. Since everybody is being more disciplined, why not think about increasing the medium-term margin trend? You're getting very close to 4% now. Anders Danielsson: Yes. Thank you for that question. If I start with the U.S. order intake, the average size in the U.S. are larger than compared to Europe. So we would more proportionate more -- communicate more orders there compared to Europe. But I would not -- again, I would not look at a single quarter and compare it to -- last year was significantly higher -- unusually higher. And you should look more over time. And also, we are still on a 5 years average. And I think that's -- we have a very strong order backlog in U.S. as well. So I'm confident in that, and I can also see a strong pipeline. So I'm not worried about the situation. We can continue to be selective and go for projects where we can see a competitive advantage and we can go for higher margin. That's what we've been doing for several years now, and that's paying off, obviously. So that -- and if I look at the margin then, yes, we can see that it's increasing not only in U.S., we can see good margins in Europe as well. And we definitely -- we have been on the target level or above for some time now. And -- but the target is, as you know, 3.5% or above. And of course, I have no other view on it that we should maximize the profit from the operation. So -- but the target is still relevant. Nicolas Mora: Okay. And if I may, just following up on the question on data centers. I mean you -- obviously you said, I mean, these orders are lumpy. We should look at it over at least a 12-month basis. But if we -- indeed, if we look on a 12-month basis, it's been -- it's really been a dearth of projects in the U.S. in your sweet spot regionally and in terms of size, do you have an issue with your main customer? Or it's just basically bad luck on timing and things will pick up? I mean you say strong pipeline, but it's been now 5, 6 quarters with not much in terms of strong order intake. Anders Danielsson: Yes. But we have also communicated the last few quarters that some -- it's coming in new -- this data centers that needs to be cool and require more cooling. So sometimes we need to -- or the client needs to design the facilities to water cooling instead of air cooling and of course, that delays some of the projects. So I don't see any -- I haven't seen any cancellation. I have seen that some clients are postponing some projects due to the need for redesign. So I still -- I'm confident in that. Antonia Junelind: Very good. Then as far as I can see, there are no more questions from our online audience. Can you confirm that, George? Operator: That's correct. We have no more questions. Antonia Junelind: Perfect. And no more raised hands in the audience, or Stefan, you have one more question? Yes, sure. Stefan Erik Andersson: Just a follow-up there on the earlier question from SEB about the margin in the completed. When it comes to the projects that you -- over the last 2 years in the U.S. have written down the value on, I would imagine if you sell them to what you think is the market value, you wouldn't have any margin on those or -- so that's part of the explanation of the low margin or do I misinterpret that? Jonas Rickberg: No. But as I said earlier, sorry to repeat myself, I mean it's a full portfolio view we are looking into here and there is differences here between the older project and the new ones that we started and so on, and we don't give any guidance really for specific markets where we have the profitability, so to say. Stefan Erik Andersson: I fully understand that, but put it this way, when you write down the property value, you write it down, so you don't have any margin if you sell it, what you think you could get for it? I mean you don't write down and get the margin... Jonas Rickberg: Yes, correct. Correct. Antonia Junelind: Very good. So that was then the final question. Thank you, Anders, Jonas, for your presentations and answers here today. And thank you, everyone. Big audience in the room today. Thank you for coming here and joining us here today. And for those of you that have been watching, thank you so much for tuning in for this webcast and press conference. We will naturally be back with a new report in the fourth quarter. And even before then, as Anders mentioned here earlier, we are hosting our Capital Markets Day on November 18. So it will take place in Seattle. And if you can't join us there, we will also live stream part of the day on our web page. So turn into our IR pages there, and you will find the link, or reach out to myself or anyone else in the IR team. Thank you so much for watching. Have a lovely day.
Operator: Apologies for the technical difficulties, and welcome to Mativ's Third Quarter 2025 Earnings Conference Call. On the call today from Mativ are Shruti Singhal, Chief Executive Officer; Greg Weitzel, Chief Financial Officer; and Chris Kuepper, Director of Investor Relations. Today's call is being recorded and will be available for replay later this afternoon. [Operator Instructions] It is now my pleasure to turn the call over to Mr. Chris Kuepper. Sir, you may begin. Chris Kuepper: Good morning, everyone, and thank you for joining us for Mativ's Third Quarter 2025 Earnings Call. Before we begin, I'd like to remind you that comments included in today's conference call include forward-looking statements. Actual results may differ materially from these comments for reasons shown in detail in our Securities and Exchange Commission filings, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. Some financial metrics discussed during this call are non-GAAP financial metrics. Reconciliations of these metrics to the closest GAAP metrics are included in the appendix of the earnings release. Unless stated otherwise, financial and operational metric comparisons are to the prior year period and relate to continuing operations. The earnings release issued yesterday afternoon and the accompanying slide deck are available on our website at ir.mativ.com. With that, I'll turn the call over to Shruti. Shruti Singhal: Thanks, Chris. Good morning, everyone, and thank you for joining our call. I'm pleased to report that we delivered another quarter that exceeded our expectations with overall year-over-year improvement in our top line and bottom line results. On our last earnings call in August, we communicated our expectations for adjusted EBITDA to be 5% to 10% higher in Q3 year-over-year and for Q3 cash flow to be favorable as well versus prior year. As you saw in our Q3 earnings release, adjusted EBITDA came in 10% higher at the top end of that range, and we doubled free cash flow versus last year on a year-to-date basis. As a matter of fact, if you take both Q2 and Q3 together, this has been our strongest 6-month period since the merger on both an adjusted EBITDA and free cash flow basis, demonstrating that the decisions we made earlier this year are working and are delivering a step change to our financials at almost every level. On a consolidated basis, adjusted EBITDA of $66.8 million was up $6 million over Q3 of 2024, while sales of $513 million were up over 5% on an organic basis and 3% higher on a reported basis versus last year. This is a true testament to the strength and effectiveness of our sales force who are finding new and creative solutions to serve our customers with their unmet needs. Free cash flow came in at $66.7 million, which is $42 million higher year-over-year. Q3 free cash flow was also sequentially better by $17 million, making Q3 of 2025 now the second highest cash flow quarter since the merger. I'm very proud and energized by our global team's outstanding performance. While our demand environment continues to be challenging as tariffs and macroeconomic policies constantly change how we operate in the market, our global Mativ team continues to show resilience and a strong commitment to driving commercial and operational excellence. Thank you to the entire Mativ team for embracing these changes and executing to our strategic imperatives. Let me touch briefly on our segment results. SAS Sales continued their strong momentum from the previous quarters and were up 5% on an organic basis, the sixth consecutive quarter of year-over-year improvement in sales. SAS showed solid improvement across all categories with tapes and labels, liners and healthcare up mid-to-high single digits versus last year, and paper and packaging up low single digits. Our SAS commercial teams are driving incremental annual revenue in construction tapes with strategic distributor partners, cable tapes with an energy and telecom company, personal care liners with a global consumer goods company, and incremental holiday display features with a mass retail chain. We also saw strong incremental demand from label converters and also in our consumer tape and healthcare categories. Additionally, we are driving market share gains in cable tapes, commercial print and consumer paper, and we are realizing cross-selling opportunities across our tapes and liners businesses. SAS adjusted EBITDA for the quarter was $48.3 million, up $7 million or over 17% versus prior year, while Q3 also represented our strongest SAS adjusted EBITDA margin since the merger at 15.3%, which was up 200 basis points year-over-year. SAS EBITDA and margin performance drove the majority of the improvement in our consolidated EBITDA and margin this quarter. In our FAM segment, we marked a significant turnaround point. Q3 was the first quarter of growth in sales and adjusted EBITDA since the merger. FAM sales of $198 million increased by more than $8 million or over 4% from last year. This achievement reinforces our confidence in the effectiveness of our proven SAS go-to-market strategy across the FAM segment. We expect FAM to continue to compare favorably on a year-over-year basis in Q4 as well. While overall demand patterns continue to be mixed and challenged in the construction and automotive sectors, we saw continued pockets of growth with filtration up high single digits, driven by water, HVAC and air pollution control. While in films, we are regaining business and continue to make meaningful progress towards closing the year-over-year comparison gap. Our FAM teams have driven 20-plus percent growth in HVAC, air pollution control markets and almost 10% growth in water filtration with significant increases in customer commitments. We also achieved above-market growth for transportation filtration and erosion control as well as growth in medical films. As announced earlier this year, we have had a clear focus on three critical strategic priorities: driving enhanced commercial execution, strengthening our balance sheet, and conducting a strategic review of our portfolio. These priorities are propelling meaningful results in our operations and financial performance, allowing us to stay focused on the areas that we can control. At the same time, we are developing strategies for the prevailing macro uncertainties and have multiple actions underway to enable a more agile operating model, grow our market shares, provide growth opportunities for our employees and deliver long-term value creation for shareholders. A key component of driving enhanced commercial execution is the ability to successfully execute pricing initiatives. We are very focused on maintaining a positive price versus input cost relationship, and our Q3 results show the outcome of that effort. We have formalized our pricing efforts through the development of a pricing process that is governed by a steering committee. The regular cadence of this committee will help ensure pricing structures are in line with prevailing market dynamics as well as input and associated labor costs. Furthermore, our dedicated sales teams are continuing to expand our pipeline by working with our customers to complement current relationships with solutions that address their unmet needs, whether that is via the Mativ integration of another step in their value chain, a geographic supply chain solution or multiple Mativ category solutions across the broader enterprise. Our customers value our localized supply chain and our flexibility to partner with them how and where they go to market, and this ability is reflected in the number of long-term agreements we have been able to renew as well as incremental commitments we were able to book with existing and new customers. When it comes to strengthening our balance sheet, earlier this year, we announced a number of initiatives to reduce our cost structure and capital expenditures and optimize our working capital levels. Those actions have driven quantifiable improvements in our margin and cash flow levels over the past 2 quarters and are materially reducing our leverage. Year-to-date, we have already delivered twice the amount of free cash flow as compared to full year 2024, and we expect our leverage to continue improving over the coming months and quarters. Within our strategic portfolio review, we have executed on initiatives such as optimizing the footprint of our operations support structure and SKU rationalization. Also, over the past quarter, we have been working through an R&D optimization initiative to help allocate the right resources to our most worthwhile projects. We have prioritized our R&D projects towards those that are accretive in the near term while exceeding our ROI benchmarks. In doing so, we lowered our overall R&D spend with limited impact to our commercial pipeline, and we are working to leverage resources more effectively going forward. As part of this portfolio review, in early October, we made the strategic decision to close our Wilson, North Carolina facility. Our intent is to wind down operations over the next couple of months, transition existing customers and employees, and close the facility by the end of Q4. We expect this closure to be accretive to earnings starting in Q1 2026. We now operate a total of 34 sites across the globe versus 48 at the time of the merger, and we will continue to look at opportunities to improve the operational performance of our sites with the lessons learned from our continuous quality and process improvement initiatives. Our strategic review process is still underway with many work streams making good progress over the past 6 months since we kicked it off. It remains a key part of our focus this year, and we look forward to keeping you updated on this effort as we continue to make progress. On the operations front, we have several manufacturing, supply chain excellence and continuous improvement work streams underway. We have enhanced efficiency at multiple sites by increasing machine speeds on key production lines, all while maintaining our high standards of quality. Product quality improvements in many of our sites have also materially reduced scrap byproducts and our continuous process improvement initiatives have reduced changeover times and increased yields and machine uptimes. We will continue rolling out these improvements to other sites throughout Q4 and beyond to leverage the benefits and accelerate improvements. We at Mativ embrace safety as the #1 value. Our safety programs over the past 12 months have successfully lowered injury rates by more than 15% and further removed significant risks across our global operations. We maintain strategic alignment by working directly with each site via our operational leaders through education, guidance and support in setting safety priorities, keeping each site accountable through our safety balanced scorecard indicator. On the supply chain side, we are continuing to streamline our portfolio of products and number of SKUs, and we are cross-sourcing across the globe to minimize our tariff exposures. As a result of these actions, our continued USMCA exemptions and the recent updated tariff announcement, currently, less than 6% of our sales are subject to tariffs. We continue to mitigate and offset any new tariff impact on our business as well. Our distribution expenses have been elevated over the past 2 quarters as we are cross-sourcing certain products across the Atlantic that would otherwise be subject to tariffs. We have a set of operational improvements underway to offset our distribution expenses, which include warehouse footprint optimization, a transportation management system that is now live in several of our U.S. locations and optimized freight quote management with our spot freight providers. As you can see, there is a lot going on here at Mativ to navigate the challenging demand environment, broaden our customer base, and transform us into a more agile entity that is primed for long-term success and value creation. I'll now turn it over to Greg to provide additional color on how these initiatives have impacted our financial performance in Q3 and our expectations for the remainder of the fiscal year. Greg Weitzel: Thanks, Shruti and good morning, everyone. Consolidated net sales from continuing operations for the quarter were $513 million, up 3% compared to $498 million in the prior year on a reported basis and up $25 million or 5% on an organic basis as increases for both segments in volume mix and currency as well as SAS selling prices were partially offset by slightly unfavorable FAM selling prices. Adjusted EBITDA from continuing operations was $66.8 million, up 10% from $60.8 million in the prior year. Favorable net selling price versus input costs, higher organic volume and lower manufacturing costs represented a combined $8 million favorable impact, which was partially offset by a combined $2 million of higher distribution and SG&A costs. Price versus input cost performance turned positive for the quarter as communicated on the Q2 call and is expected to be favorable in Q4 as well. Adjusted EPS were $0.39 a share versus $0.21 a share in the prior year period. Turning to each of our segments. Net sales in our Filtration and Advanced Materials segment of $198 million were up 4% versus Q3 of 2024. The year-over-year increase was produced by higher volume mix and favorable currency translation, partially offset by lower selling prices. FAM adjusted EBITDA of $37 million increased slightly year-over-year, reflecting the effects of higher volume mix, partially offset by higher manufacturing costs. In our Sustainable and Adhesive Solutions segment, net sales of $315 million were up more than $16 million or 5% on an organic basis and increased by just over $6 million or 2% from last year on a reported basis. Organic growth was driven by higher volumes across key categories and higher selling prices across the segment, along with favorable currency translation. SAS adjusted EBITDA performance of $48 million increased 17% year-over-year from $41 million in the prior year. The year-over-year performance resulted from favorable net selling price versus input cost performance, lower manufacturing costs and lower SG&A expenses, partially offset by unfavorable mix and higher distribution costs. Turning to a few of the corporate items. Unallocated corporate adjusted EBITDA expense of $18 million increased by just under $2 million versus the prior year due to the timing of employee-related expenses. Interest expense of just under $18 million decreased slightly versus the prior year. When taking hedges into account, over 80% of our debt is at a fixed rate and matures on a staggered basis between 2027 and 2029. Other expense was $3.9 million in the current period and decreased over $8 million with the impact from losses on asset sales and unfavorable foreign currency being more prominent in the prior year period. Our tax rate was a 43% benefit in the quarter, driven by a onetime adjustment and mix of earnings. At the end of the quarter, net debt was $932 million, a reduction of more than $60 million versus last quarter and available liquidity was $517 million. Our net leverage ratio, as defined in our credit agreement has been reduced to 4.2x, and we expect to be even closer to 4x level by the end of the year. Deleveraging will continue to be our highest priority for cash flow utilization. With that in mind, as discussed on previous earnings calls, we have strategic initiatives underway to materially improve cash flow generation, and we'll continue this focus as we head into 2026. As a reminder, those initiatives are comprised of pricing actions as well as cost optimization initiatives. We are targeting $35 million to $40 million of cost savings by year-end 2026, with $15 million to $20 million realized and flowing through the P&L in 2025. We are on track to manage our capital expenditures to $40 million in 2025 and continue to work to reduce our year-end inventory levels by $20 million in 2025 versus 2024. Working capital is expected to remain a source of cash of approximately $10 million for the full year 2025. Taken together, all of these efforts and initiatives have made Q2 and Q3 of 2025, two of our highest cash flow quarters since the merger. Free cash flow for Q3 was $66 million, more than twice the amount we generated in Q3 of 2024. Our year-to-date free cash flow of $85 million is also more than twice the amount we generated year-to-date in 2024 and early realization of our expectations for the full year cash flow to double our 2024 levels. As a reminder, our Q4 cash flow levels are generally much lower due to our usual year-end seasonality, and we expect Q4 cash flow to be similar to prior year. We do, however, expect our working capital initiatives to contribute to strong free cash flow generation in 2026 and beyond. As we look ahead, we acknowledge that market demand remains uncertain with additional impacts from tariffs and macroeconomic policy in the market impacting our levels of sales and operating leverage. However, with the positive momentum we have seen through early November across key categories in FAM and SAS, combined with our strategic initiatives, we expect our Q4 adjusted EBITDA to increase by at least 10% versus last year. This step-up will be driven by a year-over-year increase in volume, particularly on the SAS side, favorable relative net selling price versus input cost, operational improvements and cost savings. For modeling purposes, for the full year 2025 on the tariff front, with all the recent announcements throughout the quarter, we are updating our guidance to now state that less than 6% of our annual sales are currently subject to tariffs. The previous guidance covered 7% of our annual sales. With that, Shruti, I'll hand it back to you for your closing remarks. Shruti Singhal: Thank you, Greg. What everyone should take away from this call is that we are proud of the progress we have made and the results we have delivered in Q3. The strength of our sales adjusted EBITDA and free cash flow performance, particularly over the past 6 months, demonstrates the effectiveness of our strategic decisions and the resilience of our business model. Our teams continue to execute with discipline and agility, driving commercial and operational excellence across both segments. While the macro environment remains dynamic, we are focused on the factors within our control, and we are taking proactive steps to position Mativ for long-term success. Our strategic priorities, as communicated last quarter, driving enhanced commercial execution, sharpening efforts to delever the balance sheet and conducting a strategic portfolio review have not changed and are front and center. Our company-wide pivot towards a higher sense of urgency and faster pace of execution are yielding measurable results and are solidifying the foundation for generating continued value for our customers, employees and shareholders. Thank you for joining us this morning. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Daniel Harriman with Sidoti. Daniel Harriman: Congrats on the quarter. I'll start out with two and then get back into the queue. But first, it's clear recently that the commercial actions within SAS are having a great effect on FAM and benefiting results there. And I'm just curious to hear more about the time line there and how long you think it will be until we see the full benefit of that commercial initiative? And then secondly, just curious, but I'm wondering if you can provide any additional updates or commentary on the ongoing portfolio review other than what you just mentioned in your prepared remarks. Shruti Singhal: Thanks, Dan, for your question and kind words. I really appreciate that. Regarding your first question on the actions against regarding FAM, we are starting to see the impact on those financials now. As you heard, year-on-year, quarter-on-quarter, we already have a 4% increase. This was the first quarter of growth in sales and adjusted EBITDA since the merger. So I'm really pleased with the progress we are making in FAM. Keep in mind that FAM is much more exposed to Europe and the automotive and transportation sectors there, which is, as you know, going through major demand challenges. But what the team has done as commercial actions, looking at our HVAC, air pollution segments as well as the water filtration segment, we have seen a great pipeline build and very good commercial execution with 20-plus percent growth in HVAC and air pollution, and 10% growth in water filtration. And we are also making meaningful progress overall in our films business towards -- and really starting to close the year-on-year comparison gap. We're regaining share back. We -- our customers for our premium segment are coming back. Our Asia business is very strong. So the change is already materializing, and we expect FAM to perform favorably in Q4 as well. In your second question regarding the strategic portfolio review. So as I said in my remarks, we are evaluating opportunities and constantly evaluate those opportunities to strengthen our go-to-market positioning. And as you know, we have been evaluating our portfolio ever since the merger, case in point, the EP divestiture about 1.5 years ago or so. I will certainly keep you updated on the progress and how we are doing. But be assured that the review is fully encompassing, meaning I talked about footprint rationalization. As a result, we closed our Wilson, North Carolina facility. That will be accretive to our EBITDA in 2026. I talked about reviewing our entire R&D portfolio. We optimized the portfolio and have repositioned our resources as well as our portfolio for near-term gains. We reduced complexity by our SKU rationalization, and we're delayering and making our business more effective and efficient. So this review remains a key part of my and the team's focus and the Board's focus, and we will absolutely keep you updated as we make further progress. Operator: Our next question comes from Massimiliano Pilato from Stifel. Massimiliano Pilato: Congrats on the quarter. And part of them have already been answered during the prepared remarks, but could you please provide more detail on the relative organic performance in terms of volumes and pricing within the subsegments? And how do you see those growth rates evolve into Q4 and 2026 and level of visibility of demand into next year? And the second question is on the closure of North Carolina facility. I would like to understand if there are any associated costs with the closure? And if you could quantify the cost improvement into Q1 '26. Shruti Singhal: Maybe I'll kick it off first. Thank you, Massi, for that question -- those questions. Regarding the demand, what we saw in Q3, for example, our cable tapes business, especially with our -- again, with the end user markets and the Big Beautiful Bill helping us there, that demand was up. We saw our commercial print segment. We -- as I mentioned, with some of the -- with the massive retail chain, we got an increase there. We -- I already touched upon the water filtration, HVAC piece with the data centers growth, talked about released liners. If you -- the personal care and hygiene segment there has seen a good demand in Q3. And we also saw in our erosion control netting business, we're rewinning some of the volume back there. So those areas and some of the segments as examples where we've seen some good improvement in demand through the Q3. And on the Wilson closure, as I said, the -- it will be accretive to our EBITDA. And regarding the cost, maybe I'll let Greg take that one. Greg Weitzel: Yes. Yes. Overall, it represents less than 1% in sales overall. At the time of the closure, there will be -- we've already recognized some non-cash impairment charges in the current financials. There will be some onetime cash costs with the closure. But overall, yes, accretive to EBITDA and accretive to margins, and we should be seeing that flow through at the beginning of 2026. Operator: Our next question comes from Lars Kjellberg with Stifel. Lars Kjellberg: Great to see the good progress you're making. I'm curious about -- I mean you have obviously the new sort of commercial approach that is driving the best price cost relationship. But at the same time, you seem to be gaining share in the market, which is quite interesting because the market is generally quite soft. So can you sort of describe the mechanics here. What is making you win share in the market given the pricing policies that is driving the margin accretion that will be of interest and how those discussions go with your customers. The other thing with all the various things you're now doing and we're starting to see clearly the benefit of margin accretion, et cetera, coming through, how should you have us look on '26 as a whole in terms of compensating for underlying inflation, et cetera? And with the progress you've seen, should we see a continuation of that towards 25 -- sorry, towards your 15% ultimate target for margins into '26 and beyond? Shruti Singhal: Thank you, Lars, for those questions. Let me take the first one. Our commercial execution, I'm really proud of what our sales force is doing. We have really prioritized and focused on our growth initiatives. We have delayered for faster decision-making. And we're really focusing -- the sales force is really focused on the growth segments, some of those which I mentioned. And while having -- we've talked about in the past about cross-selling opportunities, and these are all being well supported by our operations excellence and supply chain excellence initiatives with better lead times, better service, our on-time shipment percentages are better. So when you take that full approach, we are -- that's how we are able to win in the marketplace and maintain pricing discipline. On the -- Greg, if you want to take the... Greg Weitzel: Yes, Lars, maybe I'll try to take the question on the margins and volume. Overall, as we're heading into the fourth quarter, we're expecting -- if you take out the currency impact because we're expecting to see a positive currency tailwind in sales again. Outside of that, I'd mentioned we would expect to see SAS volumes up some. But I do think we'll see much flatter volumes in Q4 year-over-year. But with what I shared in terms of expecting the bottom line EBITDA to be up by at least 10%, yes, it does play right into the increasing margins. The path to 15%, we still believe that is -- that we're in businesses that are -- that's the right target, the 15%. But the path there is somewhat gradual. We've seen the improvement from '23 to '24 to '25. We've definitely seen the improvement here in Q2 and Q3, but it will be a gradual path to the 15%. We'd expect margins in '26. We're not providing any specific guidance at this point, but we would expect to see a continuation of that trend of the improved margins in 2026. Operator: We currently have no further questions. So I will hand back over to the management team for any closing remarks. Shruti Singhal: Thank you. First, I want to express my sincere gratitude to all the Mativ employees for their dedication and hard work in delivering our Q3 results. Thank you very much. And finally, thanks to all of you for joining us this morning for our earnings call. We look forward to staying connected in the coming months and to welcoming you to our next earnings call in February. Have a great day, everybody, and thank you for dialing in. Operator: Thank you very much, everyone, for joining. That concludes today's call. You may now disconnect your lines.
Operator: Good morning, and welcome to Permian Resources conference call to discuss its third quarter 2025 earnings. Today's call is being recorded. A replay of the call will be accessible until November 20, 2025, by dialing (888) 660-6264 and entering the replay access code 91750 or by visiting the company's website at www.permianres.com. At this time, I will now turn the call over to Hays Mabry, Permian Resources Vice President of Investor Relations, for some opening remarks. Please go ahead. Hays Mabry: Thank you, Jimmy, and thank you all for joining us. On the call today are Will Hickey and James Walter, our Chief Executive Officers; and Guy Oliphint, our Chief Financial Officer. Many of the comments during this call are forward-looking statements that involve risks and uncertainties that could affect our actual results and are discussed in more detail in our filings with the SEC. We may also refer to non-GAAP financial measures. For any non-GAAP measure we use, a reconciliation to the nearest corresponding GAAP measure can be found in our earnings release or presentation. With that, I will turn the call over to Will Hickey, Co-CEO. William Hickey: Thanks, Hays. We're excited to discuss our third quarter results this morning. This marks the 12th consecutive quarter of strong operational performance by the PR team, culminating in our highest quarterly free cash flow per share since inception despite a suppressed commodity environment. Our business is firing on all cylinders as we are able to deliver strong execution in the field, progress our accretive acquisition strategy, improve our balance sheet and continue delivering strong returns to our shareholders. We think this performance is a testament to both the quality of our people and the quality of our assets and should continue to set PR up for strong and growing free cash flow going forward. In Q3, production exceeded expectations with oil production of 187,000 barrels of oil per day, up 6% from Q2 and total production of 410,000 barrels of oil equivalent per day. Our production outperformance was driven by continued strong execution, particularly from a large-scale Texas development that was brought online in the quarter. On the cost side, our operations team continues to set the standard in the Delaware Basin. We reduced controllable cash costs by 6% quarter-over-quarter, primarily driven by reducing LOE approximately $0.30 to $5.07 per Boe and D&C cost by 3%, averaging $7.25 per foot in the quarter. Both metrics were below full year guidance, and we see additional room for improvement on the D&C side as we head into next year. The combination of strong production and lower costs drove adjusted operating cash flow of $949 million and record adjusted free cash flow of $469 million with $480 million of cash CapEx. Our outstanding operating performance and conservative financial strategy further enhance our fortress balance sheet. During the third quarter, we called our 2026 senior notes and redeemed the legacy Centennial Convert, reducing outstanding debt by over $450 million and further simplifying our capital structure. In July, we received our first investment-grade credit rating from Fitch. And earlier this week, Moody's upgraded us to a positive outlook, bringing us one step closer to investment grade. Our credit metrics have long matched our investment-grade peers, and we appreciate the recognition. Slide 5 highlights our strong Haley production outperformance that underpinned Q3 production results. We frequently talk about our Delaware Basin leading cost structure, but this development is a great example of how our technical team approaches every project to maximize recoveries and value across our position. Our proprietary subsurface characterization dictated how we space, stack, sequence and customize completions for each of these 17 wells. The combination of these technical refinements drove a 45% oil outperformance versus offset wells in the first 90 days. The recipe here is the same one we've used to consistently improve results across our portfolio, data-driven spacing and targeting, interval-specific completions and precise wellbore placement, all supported by PR's cutting-edge technology and long history of technical expertise in the Delaware Basin. Having our entire team based in Midland close to our assets allows us to seamlessly translate technical insights to the field, driving lower costs and superior execution. On the back of our strong well results and stellar operational execution this quarter, we're raising the midpoint of our full year production guidance to 181,500 barrels of oil per day and 394,000 barrels of oil equivalent per day, while keeping our CapEx guidance unchanged. This plan reflects an increase to the original full year production guide of 5%, while lowering the capital budget by 2%, demonstrating continued improvements in capital efficiency. With that, I will turn it over to James. James Walter: Thanks, Will. Turning to Slide 7. We wanted to provide a little more context and background about how we built Permian Resources into the business it is today. When we started Colgate Energy and moved to Midland in 2015, we had no assets and no production. We quickly realized that building a business of quality and scale was not going to be easy. And if we were going to be successful, we would have to focus on doing the hard things that other companies didn't want to do. We built Colgate by working harder and being scrappier than the companies that surrounded us. We were also fortunate that our entire team was in Midland. This allowed us to have great real-time information and to build long-lasting relationships with mineral owners, brokers and legacy operators. It also gave us access to real-time intel on the latest technology, well results and information in a rapidly changing environment. Having our headquarters and entire team in Midland allowed us to truly ingrain ourselves in the Permian Basin ecosystem, which was our first competitive advantage. Today, we are fortunate to have another true competitive advantage, which is our peer-leading cost structure in the Delaware Basin. As you can see in the graph at the top of Slide 7, we're able to drill, complete and operate wells at a cost structure that is meaningfully lower than the companies around us. And the results speak for themselves. We have completed over 2,000 transactions in the past 10 years and have built a track record of driving the highest equity returns in the oil and gas business, both as a private company before and now as a public company. And our momentum and opportunity set is only growing. We are on pace this year to do more transactions than any other year and think the acquisitions we are doing today are as good as any deals we have done in the history of the company. We are proud that our team has continued to maintain the same culture of doing the small things and doing the hard things. This culture is clear in our approach to acquisitions and divestitures, but more importantly, it is deeply ingrained in every department and every part of our business. Doing the hard things not only supports our M&A effort, but leads to the best-in-basin cost structure that allows it all to happen. And all of this shows itself more specifically in what we were able to accomplish in Q3. We closed 250 deals primarily in New Mexico, adding 5,500 net leasehold acres and 2,400 net royalty acres for approximately $180 million. The acreage we bought in Q3 fits like a glove with our existing position and the locations will compete for capital in our high-quality portfolio from day 1. Our acquisition pipeline remains robust, and we feel good about PR's ability to continue to do accretive deals that increase our inventory life and drive long-term value for investors. Slide 9 shows the progress we have made increasing the amount of gas we sell of the basin and improving our netbacks. PR now has agreements to sell approximately 330 million cubic feet per day out of the basin in 2026, increasing to 700 million cubic feet per day in 2028. As a result, at current strip, the volumes associated with these agreements are expected to realize approximately $1 per Mcf higher pricing net of fees in 2026, resulting in a greater than $100 million uplift to free cash flow next year. As a result of these agreements and our existing hedges, the company has reduced its Waha exposure to approximately 25% of total gas volumes in 2026. Longer term, these agreements put PR in a position to benefit from growing natural gas demand and higher realized prices on a larger portion of its natural gas production. Moving to Slide 10. We want to point out that PR is in the fortunate position of having the flexibility to allocate capital to whatever part of our business we think is going to drive the most long-term value. Capital allocation is the most important thing we do, and our strong balance sheet allows the company to pursue an all-of-the-above approach to value creation. We can allocate capital to the highest return opportunities rather than having to focus our efforts on a single capital allocation strategy. Just this year, I've seen opportunities to deploy $800 million into acquisitions, $75 million into buybacks, all while reducing our total debt by $630 million and maintaining one of the highest base dividends in the sector. Having the flexibility to allocate capital to whatever we believe creates the most long-term value has been a key part of our business model for the last 10 years and remain a core part of our strategy going forward. Thank you for tuning in today. And now we will turn it back to the operator for Q&A. Operator: [Operator Instructions] Your first question is from Scott Hanold from RBC. Scott Hanold: I know it's a bit early on 2026, but obviously, it's very topical for investors. So can you just give us a general sense of how you're thinking about the activity pace and what that could just high level mean about oil production and relative CapEx? James Walter: Yes. Sure, Scott. I'd say, look, for our long-standing policy, we're not going to put out a soft guide or anything like that at this time. As we've done in the last few years, we think it makes a lot more sense running this business to wait until February to put out 2026 guidance. I'd say, obviously, 4 months from now, we think we'll know a lot more about the macro, the service cost environment, what we think commodity prices look like heading into the balance of the year. So I think what I'd tell you is, look, we're fortunate that our business continues to have a ton of flexibility next year, and we should be in a position to react to whatever the macro environment looks like. And I think if that's an environment that is supportive of and encouraging to higher reinvestment, quicker paybacks, higher returns and ultimately production growth, we can do that and do that quickly. And if it's an environment that has weaker commodity prices, kind of lower returns, then we're in a position to deliver a really capital-efficient kind of lower or no growth program. That's probably not as much detail as you'd like. But what I can tell you is that 2026 is shaping up to be a really strong year, whichever the various paths we do end up choosing. I think -- we think it's setting up to be the most capital-efficient year we have ever had. Look, we continue to get more efficient on the ops side, as you see this quarter and make substantial and sustainable improvements to really all parts of our cost structure. Our productivity remains strong. We think next year should be just as good as this year, which was just as good as the years before that. And as we talked about a couple of times in this deck and the last deck, our realizations are meaningfully better next year. We talked about on the prior earnings call that we expect to realize $0.50 a barrel higher on the crude side. And we think our gas netback could be $0.20 an Mcf better based on the agreements we've signed in the last couple of months. So all in, I think next year should be a really good strong year for Permian Resources, but we're going to wait and see what the macro brings before we formalize the plan. Scott Hanold: Okay. I appreciate that context. If we could take a look at that Haley kind of that pad you all drilled or at least set of wells. Obviously, fantastic results. But as you step back and look at your acreage holistically, are there any other opportunities like that across your asset base, whether smaller, larger or similar size? And why was that so like uniquely good on a relative basis? William Hickey: Yes. Thanks, Scott. Haley was unique to us in that it was kind of more of like a one-off block that we owned and is not contiguous with the greater PR position. And as such, I think it gave our team an ability to demonstrate what they do so well, both from the cost side and the productivity side as compared to offset results. But if you take a step back, I'd say on an absolute basis, the performance from the Haley pad is kind of right in the middle of performance of PR's overall position. This was a -- it caught us off guard because we built expectations based on offset production and significantly outperformed that over the first 90 days. But if you just look at kind of productivity of that pad, it should fall pretty much in line with our overall portfolio. So it was a nice surprise to the upside, and I think really demonstrate what our team does very well. But it's not a -- the rest of our portfolio will continue to perform as good, if not better, than Haley, which is consistent with previous years. Operator: And your next question is from John Freeman from Raymond James. John Freeman: Nice to see the continued progress on the gas marketing agreements. Obviously, it looks like in a couple of years out, '27, '28, you'll have 90% plus of those gas volumes being priced outside the basin. And I'm just trying to get maybe some color on maybe the optionality that you all have in terms of like the gas that's being moved to kind of the DFW market versus the options to move it to the Gulf Coast. I mean just looking at some of the agreements you've got like the Hugh Brinson line, I know that, that stops in April, South of DFW, I believe it has optionality to go to Katy. You've got Matterhorn that goes directly to Katy. Just trying to get a sense of kind of when I look at DFW versus the Gulf Coast markets, just kind of the optionality you all got with these agreements, if you could? James Walter: Yes. I think we do have quite a bit of flexibility to kind of shift volumes from the Houston Ship Channel to DFW markets. I think what that looks like for us out in '27 or '28 is going to depend on what the market looks like at the time. So I think for us, I do think specifically, most of our gas will go to Houston Ship Channel or DFW and probably somewhere close to 50-50 in a base case with the ability to swing that 10% or 15% either direction depending on what we're seeing in the market. But I do think we've got some flexibility there. But in any case, we'll have gas going to both DFW and the Gulf Coast markets. John Freeman: Got it. And then on the bottom of that Slide 5, we all highlight a number of different leading-edge things you all have been doing to improve recoveries, lower costs. I'm just -- some of those, I think you've all been doing for all year. I'm just trying to get a sense of kind of what you all would characterize as more maybe more recent developments, things that maybe are just starting to flow through operations results. Just anything you all could highlight on that front? William Hickey: Yes. I'd say we are always kind of tinkering and trying new things to both reduce costs and increase recoveries. Not to sound repetitive with kind of other conversations, but I'd say like recent breakthroughs have been on the drill-out side for longer laterals. We've kind of been testing and had a lot of success with a new technique that I'd say has meaningfully reduced drill-out cost. We're going to continue to kind of tinker with it and see exactly how well it fits across our whole portfolio, but I'd say especially on extended reach laterals, it has been a kind of a step change in efficiencies and costs on the drill-out side. I'd say on the recovery side, we are kind of continuing to play with optimal landing targets combined with kind of the right completion design those details change on every well we drill. But this is something that I'd say our team prides ourself on as we are, I think, have been deemed the leader on the cost side in the basin, but we put just as much effort on the recovery side as well to make sure that we are maximizing value of every acre that we own. And I think the team has done a really good job. Operator: And your next question is from Neal Dingmann from William Blair. Neal Dingmann: Nice quarter. James, just jumping right into my first question. I think really notable on that Slide 11, all the above slide. My question is, I can't help see the comment where you mentioned that dividend supported around $40. So my question is sort of on when you book in that, if prices do fall, let's say, in the near term around that, could we see mostly just leaning just that quarterly dividend and the other side of that when prices -- once oil does rebound, do you anticipate sort of again, all of the above where you would look at dividends, buybacks, debt repayment and acquisitions? James Walter: That's a great question. I mean I think that Slide 10 is our favorite slide in the deck. I'm glad you pointed it out. But I'd say, look, like the way we're trying to run this business is that we would be able to deploy this all of the above strategy and really in any commodity price environment, including something as low as $40 or below. I think as you see, like we've got leverage and liquidity in a place where we want to be able to deploy capital to whichever of these acquisitions, buybacks is the most attractive return. And we want to be able to do that even in the darkest days of a down cycle. So I think for us, like the way we positioned our balance sheet, the liquidity, the leverage, like we want to be doing this all-of-the-above strategy at any environment because I think we've seen it at the bottom of these cycles, the best opportunities arise and don't want to have to be on the sidelines at $35, $40, whatever kind of most bearish prices, we probably don't think will happen, but want to make sure we're ready for it. So I'd say this all-of-the above strategy is something we're going to deploy and in any part of the down cycle and as dark as it gets. And just fortunate that the business is in a position that we think we can do that in pretty much any commodity price environment. Neal Dingmann: And then just lastly, sort of bolting on to that, my second question, just on M&A specifically. You guys were very active. I know there's always the rumblings that they can't find any more acreage yet. You not only find it, you find it at a lower cost. And so I guess my question is, are there continue to be small deals out there and your thoughts about -- there was obviously some big prices paid on some of the New Mexico lease sales, and there's another one coming up this month. Just your thoughts on sort of ground game versus other M&A. James Walter: Yes. I mean I think kind of to the beginning of your question, I'd say our ground game and M&A pipeline is as full as it's ever been. You can see in the graph on Slide 7, like we've actually done more transactions through the first 9 months of this year than any other year in company history. So I'd say rather than kind of drying -- opportunity set drying out, it seems to be expanding. And we're having to look harder and turn over more rocks and probably do more deals and more small deals to find the values that you see add up to the really attractive prices you see on Slide 8. Like I'd say, as you mentioned, there have been some big prices paid in New Mexico. It's the best rock in the world and fortunately to be operating in what we think is the best basin and -- but also fortunate that we have, I think, a true differentiated and proprietary access to deal flow that other people don't see. We're on the ground here in Midland. We're kicking over every rock and still willing to do the small and hard stuff, like I said in my introductory remarks. So I think for us, this rock is incredibly valuable, but we're in a fortunate position of having a lot of different ways to find deals and kind of pursuing an all of the above strategy here, too. Operator: And your next question is from Neil Mehta from Goldman Sachs. Neil Mehta: Yes. Great execution, guys, have been multiple quarters of it. And so I guess my first question is beyond just the operational volume improvement, balance sheet is getting better recognized. You went to a positive watch, I believe, at Moody's and you're pretty close to turn an investment grade. So can you talk about what are the next steps there? And what does move into investment grade mean for Permian Resources? Guy Oliphint: Neil, it's Guy. Thanks for the question. Yes, we were happy with both the Fitch and the Moody's outcomes here recently. We think it recognizes what we've communicated to our investors and to the rating agencies, which is we have an investment-grade balance sheet and financial strategy, and we've grown fast and the rating agencies are following that along with us. What do we have to do from here? We're just continuing our dialogue with the agencies who I think really understand our story, and we've got a great shot at getting to investment grade in the near term. I think what it does for us is we continue to think about protecting the balance sheet through the cycle, availability of capital through the cycle and lowering our cost of capital, and this does all of those things. So it's very complementary to all the things that we're doing as a business today and a recognition of how we've grown the business the right way. Neil Mehta: Yes. And then just the follow-up is just on the Permian broadly, we've seen strong growth year-over-year, I think, led by the majors. But I think companies like yourself have also outperformed expectations. There's a big debate out there. Are we at peak Permian or not? It obviously has macro implications. I know you guys spend more time thinking about your operations than trying to predict the oil price, but you got an on-the-ground perspective in Midland. How far away from peak Permian do you think we are? James Walter: Neil, that's a good question. I don't think we pretend to know the answer to that. I think what we do know, though, is activity has definitely been slowing down out here. I mean I think you've seen it in the rig count. You see it in completions activity that there's a lot of kind of slowdown. I'd say it will come. I think we've seen the Permian historically be more resilient than maybe people thought. I think it's kind of TBD if that continues, but it definitely feels like you can feel it on the streets in Midland, there's fewer people, there's fewer rigs, there's fewer completion crews. And eventually, we think that manifests itself in production growth slowing and ultimately flattening and then I think eventually declining. But I think it's kind of too early to tell when exactly that turnover happens. Operator: Your next question is from Kevin MacCurdy from Pickering Partners. Kevin MacCurdy: I wanted to ask on CapEx cadence this year and how that could translate going forward. The first half of this year, you're around $500 million a quarter. The back half is around -- it's closer to $480 million to $485 million given 3Q results and the 4Q guide. And is that just a function of lower well costs throughout the year? Are there any activity changes that affected that CapEx? And how can we kind of think about that quarterly cadence heading forward? William Hickey: No, it's been pretty flat activity. So I'd say well costs and kind of normal ebbs and flows in working interest would drive any kind of quarter-to-quarter differentiation. But well costs being the main driver of what you're seeing in the back half of the year. Kevin MacCurdy: That's helpful. And I wanted to ask again about the ground game and transactions. And just wanted to get your perspective. I mean, we've seen the M&A market kind of heat up and there's an assumption that large operators are hunting big deals. Just kind of curious if this reflects what you're seeing on the ground? And is that making it harder or easier to do kind of these smaller deals that you're known for? James Walter: Honestly, it's easier to do the smaller deals than it's ever been. I think we've always had a good sourcing pipeline, but I think our cost structure advantage is as wide as we see it today as it's ever been. And I think people with our activity levels, our kind of in-basin in Midland, on-the-ground knowledge of everything going on, like it feels like we've got a more sustainable competitive advantage on the small deal side than we've ever had. And I don't think we've seen the kind of pressure at the top. Neil had previously referenced some big prices paid in large-scale auctions, like that tends to not trickle down. I'd say the people who are chasing larger deals aren't chasing the deals at the smaller end of the spectrum. It's just kind of not how the ecosystem has been set up or has worked historically. And we don't see that pressure at the bottom of the day and really don't see it kind of coming down over time. Operator: Your next question is from Paul Diamond from Citi. Paul Diamond: Just a quick one, sticking on the ground game. You guys mentioned the strongest pipeline you've seen. But has any recent volatility kind of shifted the balance of those deals you're looking at between more of the working interest heavy versus those more blockout your acreage? James Walter: No, I don't think so. I'd say -- I think the macro -- the smaller end, the kind of smaller sized deals tend to be more stable and just kind of come at the pace, frankly, that we find them. A lot of those deals are us turning over rocks themselves and kind of finding the deals and drawing them out. So we -- that kind of tends to go as fast as we can go. And I do think that pace has accelerated a little bit with our larger footprint. I'd say, honestly, a renewed focus on the ground game. It's something we talk a lot about in the office today. I think volatility can have a bigger effect on larger deals. I'd say we got an Apache deal done in April, May. But besides that, the large deal pipeline was pretty quiet over that time period. I think people -- but it seems like the kind of the macro environment has settled down a little bit. I think we would expect buyers and sellers of deals in the hundreds of millions of dollars to kind of be able to get there in this environment. I think if you saw oil sharply go to 40 or 80, that might put things on pause again for a little while. But the beat goes on. I think that the deals that are going to come to market, are going to come to market and the rocks that we're going to turn over, we're going to turn over. So I'd say they can have 1 or 2 month slowdowns or accelerations. But by and large, it's pretty steady over here. Paul Diamond: Got it. Makes perfect sense. And then just sticking on the nat gas FT and sales agreements, moving to 50, 25, 25. I guess, over time, where do you guys see the right balance of that? Do you want more in that 75% number in FT and sales agreements? Or is the hedging going to remain a pretty substantial part? James Walter: I think a lot of -- I think we likely continue to hedge as we move forward. I think hedging could look different, right? Like today, our hedges are largely hedges that we have placed at Waha because that's where the gas -- corresponding gas sales are. I think over time, we'll be in a fortunate position that we're selling more and more gas in the downstream market at DFW and along the Gulf Coast. So I think we'll have a different question of do we want to hedge the Houston Ship Channel price and lock that in. I think we're fortunate about that as we'd expect less volatility and less dislocations the further downstream you get from the Permian Basin. So I have more flexibility there. But yes, I think we'll continue to hedge actual financial hedging like we've done. But I think more importantly, what we're doing is it's more of a physical hedge. We're actually physically selling more of our volumes at the end markets that we think will be better markets over the long term. So probably reduces the amount of hedging going forward. But I think that's going to be dependent on the market and the pricing as we see it in the future. Operator: Your next question is from David Deckelbaum from TD Bank. David Deckelbaum: A follow-up just on some of the gas marketing questions. I just wanted to get some color from your perspective, why sign these agreements now versus other periods in the past? And I guess, how should we be thinking about the impact to your cost structure beyond '27? James Walter: I mean I think we probably should have signed a lot of these agreements 3 or 4 years ago. That's probably on. I think a lot of people missed it, too. But I'd say, look, as we've run the business most of the time in the last decade, our #1 focus has been on flow assurance, and we bought a lot of assets that came with legacy contracts that had lots of restrictions on what amount of gas we could take in kind, how we could sell downstream from there. So I'd say we've been pretty transparent that over the last 2 years, maximizing our netbacks on not just crude volumes, which we think we've done an awesome job on the last 10 years, but on gas volumes as well, has been one of, if not the top priority at the company. And we've been making as much progress as we can. And I think it's all kind of coming together this year and the past couple of quarters, but we're convicted it's the right decision. We're convicted that for all your hydrocarbons that selling further downstream, closer to end users is going to get you a higher netback on the average over time. And you're seeing that play out in a big way in 2026. And we think although the kind of futures market doesn't imply as big of an uplift in years beyond that, we think it will continue to outperform and pay dividends for years to come. David Deckelbaum: I appreciate that color. And maybe just to expand a little bit. I know that you said you didn't want to give any self guidance on '26, but I think you did remark you think it's going to be your most capital-efficient year ever. Is that more in reference to the uplift that you see in realizations? Or are there -- it sounds like your expectation is that well productivity is pretty static. I mean what sort of motivates your enthusiasm around capital efficiency next year? William Hickey: I mean in short answer, we think that well productivity will be consistent with the last 2 or 3 years, and our well costs are as low as they've ever been. And I think that we probably have a little bit of room from here to continue to kind of reduce them a little bit from here. And so lowest well cost ever with consistent productivity and better realizations is a recipe for more capital-efficient business. And so I think that what James alluded to earlier is that '26 is going to be a great year. The decision that we ultimately need to make over the next few months is do we let that incremental capital efficiency accrue to more production or less CapEx. And I think that's what we're going to work through over the next few months. Operator: Your next question is from Geoff Jay from Daniel Energy Partners. Geoff Jay: There's a lot to geek out on Slide 5, but kind of wondering about when I see the 6% decline in controllable costs, you call out chlorine dioxide as a treatment to increase base production. I'm kind of wondering what other sort of initiatives you're taking on that side to sort of manage base production and keep lowering your LOEs in particular? William Hickey: I mean those guys are always trying to make the business better. We've had a lot of success in New Mexico where power is terrible on kind of combining well site generation to more central larger scale generation. I think we took 26 generators out of the field in Q3 over the 3 microgrids we put in. I think we've got 1 or 2 more between now and year-end. So that's a step change both in cost of power, but also in run time. I'd say a big part of our production outperformance over the course of this year has been improved run time. And if you can go stack lots of compressor or lots of power generation on one site, you get much better run time than you do when it's spread out over lots of different places. Yes, I'd think the chlorine dioxide is an interesting one, just as older wells have more buildup around the perfs when we have a failure and we're running in, a lot of times, we'll pump some kind of chlorine dioxide and acid to clean up perfs and clean up near wellbore. And we've seen in some places where you have a remarkable increase in production, 5x to 10x where you were temporarily. And ultimately, it kind of declines back to something that is still materially better than you were before. Look, I think that the Permian Basin is a place where innovation is always happening, and we've built a team and a culture of always trying to kind of have our ear to the ground. So we're the fastest follower in places where we are not innovating the new ideas. And in other cases, we are kind of truly pioneering new things. And I think that, that will show up in hopefully better run time, better well cost and better productivity over time. Geoff Jay: Got you. So I mean -- but it still sounds like it's potentially kind of early days for some of these initiatives. Is that fair? James Walter: I'd say it's always early days. Like I don't think the pace of innovation has slowed at all. Like it feels like every day, every month, every year, like the opportunity set to make the business better across all facets, production optimization specifically, but it's always good. I don't think we see it slowing down, and it may be early days on 1 or 2 of these technologies, but there's another technology coming around next year that we're not even talking about today. So I don't think that pace of innovation is slowing by any means. And we Permian Resources, I think, probably on the front end, but the whole industry is finding ways to continue to get better. Operator: Your next question is from John Abbott from Wolfe Research. John Abbott: Guy, maybe just a really quick question. You've had a little bit more time to examine the one big beautiful deal. Anything incremental as far as future cash taxes at this point in time? Guy Oliphint: Nothing different from last quarter. John Abbott: All right. That's helpful. And then the other question is, I mean, you have a very low corporate breakeven with the dividend. How do you think about the pace of future dividend growth at this period of time as you sort of look at what you're doing on and your ability to generate free cash flow? James Walter: Yes. I mean I think kind of -- look, for us, I'd say having a sustainable and growing base dividend is a core part of our strategy of Permian Resources. It's what we view as a core quality of any high-quality business in this sector or really in any sector. So I'd say growing the dividend over time is a priority and something you will see consistently from us year in, year out. I think the pace of what we've done in the last couple of years probably slows from here. It's been pretty exceptional from a CAGR perspective. But I'd say, as the end of next year, that's something we'd expect to finalize alongside our February budget. But I'd say the business is firing all cylinders. The ability to continue to grow the dividend, given the capital efficiency we've referenced on this call is as strong as ever. So you should see it continue to grow next year and for years to come. Operator: Your next question is from Paul Cheng from Scotiabank. Paul Cheng: I was just curious that I think the whole industry and including yourselves that is looking at the vessel length and you are saying that you are seeing some success. If I look at from a land position standpoint, where you see the opportunity set, what percent of your program could be in the 3 miles? And also, have you tested on the alternative shape and whether that you think that will be a good fit for you? That's the first question. James Walter: Yes. Look, I'd say the Haley Pad was a great example of a really successful 3-mile development. I think we drilled quite a few 3 milers this year. I'd say it's become a larger part of our program. And we're very impressed with how well our team has executed on the longer laterals. We mentioned some great technology on the drill-out side we've applied. I think our land position sets up really well. We've got a blocky position in Texas and New Mexico that could set up for long laterals. I think for us, the honest answer is we don't see that much of a capital efficiency step-up in the Delaware Basin today in most of the areas that we operate going from 2 miles to 3 miles. Obviously, 3 miles are better on a D&C per foot basis. But just given how much oil and gas and fluid we make in the Delaware, we often don't see the corresponding one-for-one uplift in initial production. So you drill and complete cheaper, but you make closer to the same amount of oil in the early time. So on a discounted cost of capital rate of return basis, you're not seeing major uplift from going from 2 miles to 3. I think the short answer is anywhere from 2 to 3 is a pretty good place to be. And the vast majority of our position sets up for long laterals in that window and should be the majority of our program going forward. Paul Cheng: How about on the alternative shape? Have you guys ever looked at that or tested out? William Hickey: U-turn wells. James Walter: We -- I think we've drilled 10 U-turns year-to-date. I'd say it's not an important part of our go-forward program. I think there's been some cool examples of us like where you had a legacy 1-mile well on a DSU and the rest of the pads set up for 2-mile laterals perfectly and you had a legacy well that you could do a U-turn or a J-hook around. That's been a really cool tool. It's allowed us to more efficiently drain resource, probably add an extra stick that otherwise wouldn't have been economic. But we're really fortunate our land position sets up for 2- and 3-mile straight wells, so aren't going to have to drill a lot of U-turns going forward. Paul Cheng: Okay. And on the opportunistic buyback, can you share that what kind of criteria or matrix that you guys are using in terms of that decide whether that this is the right time to do buyback or not? James Walter: Yes. I think we've always said we're going to buy back shares when there are material dislocations in the share price. I think most -- more often than not, that's driven by the macro. I think rather than tell everyone our specific criteria, I do think kind of pointing to what we did in April, immediately after "Liberation Day," we saw a material reaction downward in the Permian Resources stock price and had an awesome opportunity to buy shares in the $10 to $11 range and hit that as hard as we could that whole week. I'd say the stock recovered pretty quickly and that opportunity window closed. But I'd say for us, it's going to be a material dislocation is going to be kind of what we use as the criteria. And frankly, we're always going to be weighing that against our other opportunities. I'd say our acquisition pipeline remains robust. So we'll be constantly weighing do we think we'll generate a higher long-term return buying back shares or doing acquisitions or frankly, putting cash on the balance sheet for future opportunities. So I'd say any one of those is on the table at any given time, and we're constantly evaluating the opportunity set more broadly and going to allocate capital to whatever we think generates the highest rate of return and creates the most long-term value for shareholders. Operator: Your next question is from Noah Hungness from Bank of America. Noah Hungness: I'd like to start off on just the maintenance CapEx. Given the D&C efficiencies you've seen, how can we think about maintenance CapEx levels? And then also how your dividend breakeven evolves over time through '26 and beyond? William Hickey: Sorry, I get the first part. Can you repeat the second part of that question? Noah Hungness: Yes. The dividend breakeven, just how that evolves over time, like through 2026 and after. William Hickey: Cool. Maintenance CapEx, I'd say, kind of just generally speaking, we've quoted about $1.8 billion of maintenance CapEx plus or minus. And I think what you've seen transpire this year is we've grown production pretty meaningfully. So the base is a lot bigger, but we've reduced cost and kept well productivity the same. So I think that plus or minus those probably offset each other and you get to something that is in that range or slightly higher, something like that on the maintenance CapEx side. Dividend breakeven. James Walter: Yes, dividend breakeven. The goal is for it to get better over time or stay the same, but there's a proportionate increase in our base dividend. So I think for us, the business is getting better. So that should either lower our dividend breakeven over time or give us greater capacity to pay out the base dividend and lower commodity prices. So I think that's a TBD capital allocation decision, but the business is getting better, so you should be able to pay a larger base dividend with the same level of protection or lower the breakeven. Noah Hungness: Got you. No, that makes a ton of sense. And then for my second question, I know you guys touched on this a little bit, but regarding the additional FT that you guys took on, and you mentioned the strength of Waha kind of in the forward curve and how Waha basis kind of closes in back half of '26 and into '27. What was the advantage of signing up for the FT versus just hedging out the forward curve? James Walter: Yes. I mean, obviously, there's a really large near-term benefit to these FT deals we signed up to the tune of over $100 million uplift from gas alone at strip. I do think it's our expectation and clearly the market expectation that as some of these pipelines come online, the Waha differential should close kind of more or less to the cost of shipping. So for us, I think -- over the long term, I think we've seen trying to hedge gas ultra long term, there's just not the liquidity to do so. And we think you're ultimately better off selling your gas closer to end users and further downstream. I think although the long-term futures market doesn't reflect it, like I said, we do think your kind of downside skew for any regional hub like Waha is worse and more impactful than your upside. So I think the way we think about it is over the long term, we think we will be better off we realize better pricing from '27 and beyond, selling at Houston Ship Channel and DFW than we will at Waha. And I think that may not be every month, but I think the way we think about it is most months, it will be a push. But when you win, you'll win big, just like you've seen historically. Operator: [Operator Instructions] And your next question is from Leo Mariani from ROTH Capital Partners. Leo Mariani: You guys obviously did a good job lowering D&C costs yet again this quarter. You guys commented in some of your prepared remarks that there could be more downside into 2026. Could you provide a little bit more color around that? Are you starting to see leading edge oilfield service costs make another step down here? And maybe it's a combination of that and some other things you're working on the efficiency front? William Hickey: Yes. I think that -- I mean, obviously, with oil price where they are and the amount of activity being shut down and pulled out, we've seen a pretty meaningful reduction in service costs over the last few quarters, and you kind of combine that with the efficiencies we've picked up, and that's what's driven the kind of cost reduction year-to-date down to the $725 a foot level. I'd say my comments on where it could go from here is really just we are continuing to get better in the field, and I don't see at this crude price and based on activity levels of kind of the basin cost snapping back anytime soon. And so if we can maintain kind of this level of service cost and keep picking up efficiencies in the field, which we are, I think there's probably a more upside or lower prices is more likely than higher from here. But I don't know what the tune is a couple of percent, something like that. Leo Mariani: Okay. Helpful. And I guess just on the share buyback, obviously, a number of questions around it. I guess, trying to be opportunistic. If we get in the lower for longer oil environment, hopefully, we don't in 2026, could you guys be a bit more programmatic if oil is kind of consistently in the 50s for a while? Or will you just kind of say, hey, it's a good time in the cycle to buy stock? James Walter: I don't think it'll ever be that programmatic. I think that fails to factor in the other opportunity sets and what are the other things you can do with capital and what's your view on things looking like going forward. I'd say for us, I think if we're in the 50s for a long period of time, you should expect us to buy back more stock than we have historically. I think that's pretty easy from our perspective. But I don't think it will ever be programmatic. We think we are able to create more value for us and our investors by being thoughtful and making each decision to buyback shares, do an acquisition or put cash on the balance sheet as a decision made in that time with all the facts and information we have in that moment. So I think for us, we don't think the programmatic strategy creates the maximum value and going to keep on this kind of -- this path that we've been on. Operator: And your next question is from John Annis from Texas Capital. John Annis: For my first one, on Slide 5, you highlight leveraging AI to expand play boundaries. I wanted to ask if you could expand on this. And then more broadly, how do you see the opportunity for organic inventory expansion through additions of secondary zones from here? William Hickey: Yes. Look, if you look at -- I think Eddy County is a good example of we have been both one of the most active buyers of acreage and also one of the most active drillers in Eddy County over the last few years. And so as such, we have a significant informational advantage over really anyone in Eddy County. We get production information, logs, incremental seismic information faster than anyone else does, just given everything that we drill is there's a 6-month plus lag before it's public. And what our team has been able to do is just kind of the workflows that we had internally, which may have previously taken weeks or months to get incorporated into passing that through to the A&D team or passing that through to the next development package. I'd say a lot of these large language models allow us to do that in minutes. And so really, it's just speeding up the passing of information across our team to something that's kind of more real time, and that allows all the different groups, the land team, the BD team, the drilling team, the completion engineering team, et cetera, to kind of benefit from what truly is an informational advantage that we have, albeit short term. And then with new zones, I'd say that's one that is unique, I'd say, to some degree of -- we are seeing tons of shallow and deep, but newer zones drilled across the New Mexico Delaware. And New Mexico and Delaware has a huge benefit of state and federal leases don't have few clauses when you drill one well, you hold all depths basically forever, which is, I'd say, unique to New Mexico. And given Permian Resources deep inventory position of kind of the same benches we've drilled over the last few years, I'd say that is not a huge part of our program, and we have the benefit of getting to kind of wait, watch and see. And so we've had a, I'd say, a ton of organic inventory expansion via offset operators' drilling programs that it's obviously the cheapest way to go add inventory is to kind of let others do it for you around us. I think you'll see that we'll drill, call it, 5 or 10 wells a year in kind of the more upside or kind of organic inventory expansion benches. But for the most part, we've had the luxury of getting to kind of sit back and let that get proven up by people around us. James Walter: And I think that's one of the things that's so special about being in the Delaware Basin is that the rate of new inventory additions really hasn't slowed over the last decade. Like every year, it seems like PR and offset operators finding a new zone. And not just a new one, I think the zones that we're discovering, the zones that we're delineating actually compete with capital with the best parts of the basin. So it's not like we're finding secondary and tertiary zones that better margin. We're finding new zones that can compete for capital day 1. And we think that's a really big differentiator in what we think is the best and most exciting basin in North American E&P. John Annis: Great color. I appreciate that. For my follow-up, staying on Slide 5, could you expand on the microseismic azimuth analysis? And then maybe more specifically, to what degree are you altering the azimuth to optimize completion efficiency relative to the analysis? William Hickey: Yes. I'd say -- I mean, a lot of this is things we've been doing a long time. I think we've just gotten better, faster and further along in how to leverage it. But I mean, on not a large percentage, but on some amount of our program, we'll go ahead and run microseismic and microphones to really understand where fracs are going. And really, the goal is just to optimize our design. We want to pump more or stimulate more where the rock is good, and we don't want to go waste a bunch of capital in places where recoveries will not be as good. And so I think what you're starting to see is just the incorporation of that in the business, both either increasing recoveries in some instances or just lowering costs in others. I'd say that microseismic has been around a long time, but the use of it and kind of the way that people are using it today is slightly better and more efficient. Operator: There are no further questions at this time. I will now hand the call back to Will Hickey for the closing remarks. William Hickey: Thank you. As you can tell by today's results, the business is firing on all cylinders. Importantly, we can continue to find ways to improve the business each and every day. Given our high-quality asset base and fortress balance sheet, we believe we can continue this execution and value creation going forward in any commodity price environment. Thanks to everyone for joining the call today and following the Permian Resources story. Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by for Autohome's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. If you have any objections, you may disconnect at this time. A live and archived webcast of this earnings conference call will also be available on Autohome's IR website. It is now my pleasure to introduce your host, Mr. Sterling Song, Autohome's IR Director. Mr. Song, please go ahead. Sterling Song: Thank you, operator. Hello, everyone, and welcome to Autohome's Third Quarter 2025 Earnings Conference Call. Earlier today, Autohome distributed its earnings release, which can be found on the company's IR website at ir.autohome.com.cn. Joining me on today's call is our Chief Financial Officer, Mr. Craig Yan Zeng. Management will go through the prepared remarks, which will be followed by a Q&A session, where it is available to answer all your questions. Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange. Autohome doesn't undertake any obligation to update any forward-looking statements, except as required under applicable law. Please also note that, Autohome's earnings press release and this conference call include discussions of certain unaudited non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings release. I'll now turn the call over to Autohome's Chief Financial Officer, Mr. Craig Yan Zeng, for opening remarks. Please go ahead, Craig. Yan Zeng: [Interpreted] Thank you, Sterling. Hello, everyone. This is Craig Zeng. Thank you for joining our earnings conference call today. In the third quarter, we continued to advance our AI and O2O strategies. On AI, we significantly strengthened the integration of AI technologies with our products, fostering business innovation while enhancing both user experience and customer operational efficiency. On O2O, we continuously improved our O2O platform by integrating online and offline resources, optimizing the end-to-end user experience and building a comprehensive closed-loop ecosystem that spans the entire customer journey from initial traffic acquisition to transaction completion to after sales services. In terms of AI technology applications, we completed a comprehensive upgrade of our AI assistant by strengthening model capabilities, integrating user inquiries with specific vehicle models and expanding usage scenarios we achieved precise matching between user queries and car models. This has created a decision-making loop of content drives engagement, engagement lead to action. In addition, we've also introduced 2 new features, the AI car selection system and AI vehicle for diagnostics, providing users with more intuitive and efficient tools for their car-related needs. In September, we launched the first inaugural Global AI Technology Conference. This established a premium platform for technical exchange among leading enterprises, showcased cutting-edge advances in China's intelligent automotive technologies, and elevated the collective image for Chinese auto brands. The conference's success also serves as a testament to Autohome's professional influence as a trusted media platform. The conference received authoritative endorsements from 5 major automotive associations and was strongly supported by 14 key corporate partners. 7 top executives from leading companies in the industry delivered impact keynote speeches. Following the conference, over 30 automotive brands engaged with Autohome's official Weibo account, while more than 60 professional editors, technical experts and PGC creators formed a multidimensional communication matrix that drew widespread attention across the industry. In building our auto ecosystem, we soft launched our Autohome Mall on September 20, marking a major milestone and significant progress in our one-stop online to offline strategy. This initiative further improves our new retail business model through continuous upgrades and makes our model more complete. This strategy extends Autohome's role from being a decision-making hub for car selection and research to the final car purchase and ordering per transaction creating a full digitalized closed loop for the entire car purchase experience and significantly increasing the value of our traffic. Specifically, on content, we strengthened our content matrix by increasing professional depth and expanding the breadth of perspective, while continuously advancing our diversified content ecosystem. For our 2025 series of coverage on domestic and international auto shows, we adopted a dual-track approach to achieve comprehensive reach from global influence to local penetration. At the Munich Auto Show, we took a global perspective, focusing on world's premiers and the Chinese brands going global. We built a professional and exclusive content matrix through intensive bilingual live streaming and video production that leveraged global mainstream media networks to amplify China's automotive innovation and brand recognition worldwide. At the Chengdu Auto Show, we focused on new car launches and purchase guidance, integrating resources from 18 automakers to create Autohome exclusive live streaming sessions. This provided users with an immersive auto show experience. On the first day of the auto show, we achieved 100% coverage of all new car launches. Beyond our professional auto show coverage, we made significant strides in developing a content-centered interactive ecosystem. The newly established Autohome Media MCN is committed to building a multi-category influencer matrix that centers on automotive vertical, while expanding into technology, travel and overseas content. We've also developed a rich and diverse content ecosystem that combines professional and engaging PGC content, in-depth and authoritative OTC insights and authentic user-generated experiences that resonate. To date, we have gathered over 200 high-quality creators across multiple platforms covering professional car reviews, technology, travel and other areas, continuously enhancing Autohome's platform influence. According to QuestMobile, the average mobile DAUs reached 76.56 million in September 2025, up by 5.1% from the same period last year. In NEVs, we continue to focus on user and client needs while building a comprehensive automotive ecosystem. Online centered around our newly soft launched Autohome Mall introduced in late September, provides transaction services, while our offline network of franchise stores, CARtech outlets and used car dealerships is designated to integrate the entire process from online ordering to offline delivery and service. Building on the success of trial, we plan to officially launch the Autohome Mall during the Double 11 shopping festival. By integrating resources from across the industry value chain, we are committed to providing users with more precise, professional and efficient car purchasing experiences. Furthermore, total revenues from NEVs in the third quarter, including those from the new retail business has continued to grow, increasing by 58.6% from last year. On digitalization, our 5 major digital intelligence product lines are leveraging Autohome's platform capabilities of full life cycle data tracking to continuously help clients improve targeting accuracy and service efficiency. Furthermore, at the Global AI Technology Conference, we officially launched the Tianshu Intelligence Service Platform powered by Autohome's proprietary Cangjie Large Language Model, the platform uses an open toolkit and service distribution capabilities to redefine collaboration among users, the platform and the ecosystem partners. This advancement drives Autohome's transformation from an automotive information platform to an industry-wide intelligent hub, further strengthening our field advantages in technology and ecosystem. For our used car business, we continue to advance the standardization of both transactions and services. The AI car inspection expert developed based on historical transaction data and algorithmic models have achieved industry-leading accuracy in vehicle valuation. Meanwhile, our flagship certified used car stores have further expanded its network of partner dealers. In the future, we will continue to uphold integrity and standardization as our foundation, deepen our collaboration with high-quality used car dealers and continuously strive to provide consumers with a more reliable and worry-free used car buying experience. In summary, this year, we focused on AI and O2O to comprehensively accelerate our business expansion. Looking ahead, we will continue driving innovation in both products and business models, building a more efficient automotive ecosystem and service system that creates sustained value for the industry and ensures our long-term stable development. With that, now please let me briefly walk you through the key financials for the third quarter 2025. Please note that, I will reference RMB only in my discussion today, unless otherwise stated. Net revenues for the third quarter reached RMB 1.78 billion. To break it down further, media services revenues contributed RMB 298 million, leads generation services revenues were RMB 664 million and the online marketplace and others revenues increased by 32.1% year-over-year to RMB 816 million. With respect to cost, cost of revenues in the third quarter was RMB 646 million compared to RMB 408 million in the third quarter of 2024. Gross margin in the third quarter was 63.7% compared to 77% during the same period last year. Turning to operating expenses. Sales and marketing expenses in the third quarter were RMB 620 million compared to RMB 877 million in the third quarter of 2024. Product and development expenses were RMB 279 million compared to RMB 339 million in the third quarter of 2024. General and administrative expenses were RMB 125 million compared to RMB 137 million during the same period last year. Overall, we delivered an operating profit of RMB 147 million in the third quarter compared to RMB 83 million for the same period of 2024. Adjusted net income attributable to Autohome was RMB 407 million in the third quarter compared to RMB 497 million in the corresponding period of 2024. Non-GAAP basic and diluted earnings per share in the third quarter was RMB 0.87 and RMB 0.86, respectively, compared to RMB 1.02 for both in the corresponding period of 2024. Non-GAAP basic and diluted earnings per ADS in the third quarter were RMB 3.47 and RMB 3.45 respectively, compared to RMB 4.09 and RMB 4.08, respectively, in the corresponding period of 2024. As of September 30, 2025, our balance sheet remains robust with cash, cash equivalents and short-term investments of RMB 21.89 billion. We generated net operating cash flow of RMB 67 million in the third quarter. On September 4, 2024, our Board of Directors authorized a new share repurchase program under which we are permitted to repurchase up to USD 200 million of Autohome's ADS for a period not to exceed 12 months thereafter. On August 14, 2025, the Board approved an extension of the term of this program through December 31, 2025. As of October 31, 2025, we have repurchased approximately 5.48 million ADS for a total cost of approximately USD 146 million. In addition, in accordance with our dividend policy, our Board of Directors has approved a cash dividend of USD 1.20 per ADS or USD 0.30 per ordinary share payable in U.S. dollars to holders of ADS and ordinary shares of record as of the close of business on December 31, 2025. The aggregate amount of the dividend will be approximately RMB 1 billion and expected to be paid to holders of ordinary shares and ADS of the company on or around February 12, 2026, and February 19, 2026, respectively. On September 30, 2025, the company announced the approval of a cash dividend of approximately RMB 500 million. Overall, the company has fulfilled its commitment to shareholders to distribute no less than RMB 1.5 billion in dividends for the full year of 2025. Looking ahead, we remain committed to maintaining a long-term stable and proactive approach to shareholder returns, and we sincerely thank our shareholders for their continued strong support to the company. So that concludes our financial summary. We are ready to open up Q&A session. Operator? Operator: [Operator Instructions] Our first question comes from the line of Thomas Chong of Jefferies. Thomas Chong: [Interpreted] I have 2 questions. The first question is about the outlook for 2026 auto market. How should we think about the industry trend? And my second question is about AI. We mentioned AI in our prepared remarks. So, I just want to get some more color about the progress of our AI product offerings. Yan Zeng: [Interpreted] Thank you for your question. First, let me share some market recent developments and the future trends with you. First of all, the price war in the auto market has shown some signs of easing and the automakers are accelerating their intelligent technology efforts. In recent months, multiple government agencies have rolled out intensive policies calling for the industry to end devolution and provided policy guidance to ease the ongoing price war in the auto sector. So, all these measures have helped to cool down the price war in the auto market. And we have also observed that over 20 automakers have gradually phased out their fixed price promotions. Since the start of this year, major automakers have successfully announced their plans for intelligent driving technologies, to accelerate the adoption and application of intelligent driving. So, from this, it's quite clear that future industry competition will depend more on the company's comprehensive capabilities in integrating intelligent technology, user scenarios and meeting user needs, et cetera, rather than any single technological advantage. So, for next year, the price competition is expected to shift more towards a battle of technological cost effectiveness. Secondly, the NEV market still remains the core growth driver, even though this year, their growth number is comparatively a little bit slower than last year. But according to the data from the China Passenger Car Association, CPCA, the NEV penetration rate exceeded 50% in 7 out of the first 9 months of this year. So, this was mainly driven by the extension of favorable policies, et cetera. So, we believe for next year, the overall market -- auto market is expected to continue to undergo structural adjustments, which will redefine how consumers to make their purchasing decisions. At the same time, the China's auto industry continues to remain under high pressure, which has been lasted so long. And this pressure includes severe capacity -- overcapacity, declining profit margins and intense or fierce market competition, et cetera. So, we see both traditional automakers or dealers also undergoing such business pressure. So confronted with both price wars and shrinking profit and margin, we see OEMs and dealers alike. So, they have raised their expectations for both online consumer acquisition and offline sales conversion efficiency. Looking ahead to next year, we believe the following few points merit our attention. We believe there are short-term challenges, but it coexists with long-term opportunities because the auto market still face significant short-term pressures, mainly stemming from the shift of the NEV purchase tax exemption policy from full exemption to half exemption and the expiration of tax incentives for the ICEs. So combined with the price war in traditional ICEs, all such factors may further impact the auto market. Despite the above short-term pressures that we just mentioned, there are still upgrades in intelligent technologies, improvements to and recovery in the market order, and if there's further supported by introduction of additional long-term policies, we believe it will still stimulate consumer demand in the auto market and the market is expected to achieve modest and steady growth in 2026. So, for us, for Autohome, we will continue to deepen our AI and auto strategies, as I just mentioned. On one hand, we will keep advancing the product innovation and upgrades, accelerating the application of AI technology across content, intelligent customer services and scenario-based services, et cetera. On the other side, we will continuously explore ways to leverage our online and offline resources to achieve integration, build a closed loop for auto transactions and better serve our users and clients. The second question is our AI product progress. So, in the field of intelligent technologies, we have already completed the strategic layout of multiple products, built a technology product mix. Spans the entire life cycle of auto consumption and continuously we drive improvement in both user experience and customer business efficiency. For our users, our AI smart assistant and the used car AI smart buyer are continuously being upgraded. The new generation of the smart system has moved beyond simple question-and-answer model to proactive understanding and links provision. So, it can automatically identify the car models and series mentioned in the conversation and directly push product links. So, it shortened the users' search process and improve our decision-making efficiency. And for our clients, we have deployed 5 major AI product lines covering core business scenarios such as marketing insights, online customer acquisition, store visit invitation, dealer store operations and used cars, et cetera. So, through the intelligent tools, we can continuously empower our business team members and to realize the full chain digital operations. And for our technology foundation, we have our own proprietary Cangjie large language model. For example, our used car AI smart buyer is powered by this Cangjie engine, and it is -- besides, it is combined with Autohome's unique data assets, so it can deliver highly accurate and efficient recommendations, achieving a high degree of matching between the vehicle sources and the user needs. So currently Autohome is comprehensively and vigorously promoting the AI-driven upgrade of the products, achieving a comprehensive transformation from the underlying architecture to application scenarios. So, in the future, we will continue to deepen the integrated application of AI across multiple scenarios using the technological innovation to drive an efficiency revolution in the auto sector in the industry. Operator: The next question comes from the line of Xiaodan Zhang from CICC. Xiaodan Zhang: [Interpreted] So can management share your outlook on the traditional business for the upcoming quarters? And also, is there any update on the shareholder return plans? Yan Zeng: [Interpreted] Thank you for your question. In the third quarter, we do see that the OEM promotional discount still remains at high level and the price war has been there for so long. And the overall discount for OEMs has already exceeding 23%. So, for the car sales volume and profit, I still remain concentrated among the leading companies. So, the price cutting for volume strategy has made a lot of OEMs to control their marketing budgets. For the media services revenue in Q3 still declined year-over-year, but the decline has narrowed down significantly. And the continued decline is mainly due to the continued pressure from the OEMs price war in the market. And as Q4 approaches to the year-end, and we believe OEMs is expected to maintain high professional discounts to boost their sales revenues and this still put pressure on our media services revenue. So, we do expect we will achieve a slight year-over-year decline. For our lead generation business, because of the market inventory backlog and the inverted pricing, so dealers continue to face operational pressure, and we see that over 50% of dealers operating at a loss in the first half of the year, and it doesn't look very optimistic for their survival for many dealers. So accordingly, our lead generation services also faced some ongoing pressure in the second half of the year. Nevertheless, our customer penetration rate still remains at a good level. As the market -- once the market and customer operating conditions improve, our traditional business can be hit the bottom, rebound and stabilize. As I just mentioned, our media segment, business segment already narrowed down their decrease. And on the other hand, our innovative business developed quite strong, quite well. So, to some extent, our -- it offsets the situation of our traditional businesses. On the shareholder return on dividends today, we just announced a cash dividend of RMB 1 billion for the second half of this year. And combined with RMB 500 million we announced in September, we have fulfilled our commitment to a total annual cash dividend of no less than RMB 1.5 billion for the whole year 2025. Our Board of Directors will continue this stable dividend policy. On the share repurchase program, of the USD 200 million share repurchase program, until today, we have completed over 70% and the overall execution of this program is progressing quite well. So, in the next few months, we will continue to carry out the remaining share repurchase program. For a long time, we have been committed to building a comprehensive shareholder return plan centered on the continuous dividends and the share repurchases, providing shareholders with predictable and stable shareholder returns. So, over the long term, we are very confident in our business operations in the future. So, we will continue to uphold our long-term stable and proactive approach to shareholder returns. We sincerely thank all shareholders for their long-standing strong support to the company. Operator: The next question comes from the line of Ritchie Sun from HSBC. Ritchie Sun: [Interpreted] So I have 2. First of all, the gross profit margin it has been dropping year-on-year and Q-on-Q in first quarter. So why is that? And what is the trend going forward? Secondly, I want to ask about the energy space stores and satellite stores. So, what is the development progress and the 2026 target? Yan Zeng: [Interpreted] Thank you for your question. Since the beginning of 2025 this year, so in order to accelerate the development of our new innovative businesses, we have been actively expanding in -- we have been actively developed our business and so it increased our upfront investment and consequently, it resulted in higher costs. Specifically, our innovative business such as the new retail business has scaled up in the third quarter, as compared to the same period last year. For example, we soft launched Autohome Mall business in September. And although, this model is quite early in its early stage, but we observed where we get quite positive market feedback. And we believe such staged investments is quite necessary to -- for our future development for our -- to explore new avenues of growth and create much greater room for future development. So, the gross margin of our transaction business, it cannot be -- of course, it cannot be compared for our traditional business. For example, the media business and the lead generation business is much lower than our traditional business. So going forward, we will adhere to our consistent practice of the strict cost controls, and we'll hold the prudent principles in managing the scale of our investment. So, we will pay attention to our gross margin change. We will focus on that. The second question is about Autohome space station and satellite stores development. The development of our offline network is always centered on using our digital technology to streamline the car purchasing process and improve the transaction efficiency. So, our advantage is in our ability to cover areas in low-tier markets where OEMs or dealers, they don't reach. So, we can help them to expand their sales network. So, this business model is also being continuously upgraded and iterated. As I just mentioned, we are integrating the online and offline resources, bringing our online technology and the traffic advantages to offline. So, we try to transform from an auto content-oriented platform to a transaction service platform. So, after we complete the controlling shareholder, we will continue to working on combining our online and offline efforts to provide platform services that are more convenient and efficient, and we try to find new ways to grow beyond our traditional business model. Operator: Our final question comes from Brian Gong from Citi. Brian Gong: [Interpreted] I will translate myself. The used car market seems still a little bit weak recently. How does management view the outlook for used car market ahead? Yan Zeng: [Interpreted] Thank you for your question. Since the beginning of this year, the used car market has generally shown a trend of rising transaction volume and the falling prices according to China Automobile Dealers Association, CADA, for the first half, the transaction volume for used cars rose 2% year-over-year, while the average transaction price decreased by 12% year-over-year. At the same time, we see there are 2 notable structural trends emerged in the market. First is the increased cross-regional flows. Second is the rapidly increasing NEV used cars sales. While the transaction volumes are expanding, the operational pressures in the industry continue to intensify due to the impact of price wars in the auto market, we see the proportion of loss-making used car companies has expanded to over 70%, with lengthening average inventory cycles, continued high customer acquisition costs and intensified homogeneous competition, et cetera. But despite this, positive factors still remain. For example, the trade-in policies have stimulated replacement demand and brought more high-quality used cars into the market with the new energy used car becoming a key growth engine. So, the CADA forecast for the full year, the used car transaction volume could exceed 20.5 million units, an increase of 4% to 5% year-over-year. Currently, the used car sector has entered a crucial stage of deep adjustment and value chain reconstruction. The negative impact from the price cutting for volume model are gradually becoming apparent. However, China's large vehicle ownership base and relevant consumer demand provide strong support for the mid-to long-term development of the used car industry. So Autohome will continue to collaborate with industry partners to actively address challenges through refined operations and service upgrades, exploring new business models, unlocking new value to advance the used car industry towards high-quality development. Operator: There are no further questions at this time. I'll turn the conference back to management for closing remarks. Yan Zeng: [Interpreted] Thank you very much for joining us today. We appreciate your support and look forward to updating you on our next quarter's conference call in a few months' time. And in the meantime, please feel free to contact us if you have any further questions or comments. Thank you, everyone. Operator: This concludes the conference for today. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]