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Operator: Greetings, and welcome to the Shift4 Q3 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. On today's call, we have Taylor Lauber, CEO; and Christopher N. Cruz, CFO. It is now my pleasure to introduce your host, Tom McCrohan, Head of Investor Relations. Thank you, Tom. You may begin. Thomas McCrohan: Thank you, operator, and good morning, everyone, and welcome to Shift4's Third Quarter 2025 Earnings Conference Call. With me on the call today are Taylor Lauber, our CEO; and Chris Cruz, our Chief Financial Officer. This call is being webcast on the Investor Relations section of our website, which can be found at investors.shift4.com. Today's call is also being simulcast on X Spaces, which can be accessed through our corporate X account at Shift4. Our quarterly shareholder letter, quarterly financial results and other materials related to our quarterly results have all been posted to our IR website. Our call and earnings materials today include forward-looking statements. These statements are not guarantees of future performance, and our actual results could differ materially as a result of certain risks, uncertainties and many important factors. Additional information concerning those factors is available in our most recent reports on Forms 10-K and 10-Q, which you can find on the SEC's website and the Investor Relations section of our corporate website. For any non-GAAP financial information discussed on this call, the related GAAP measures and reconciliations are available in today's quarterly shareholder letter. With that, let me turn the call over to Taylor. Taylor? David Lauber: Good morning, everyone. Thanks for joining the call. Starting with our quarterly performance, we delivered results in line with our Q3 guidance. Gross revenue less network fees were $589 million, and adjusted EBITDA was $292 million. Each of these was up 61% and 56%, respectively. When excluding the impact of Global Blue, gross revenue less network fees grew 19% year-over-year. You will find in our shareholder letter that we also highlight the organic growth of the business, that is to say excluding the impact of recent M&A. Chris will go into more detail here, but that growth was 18% year-over-year. Volumes were in line with our expectations at roughly $55 billion. Each of these growth scenarios can be compared with the medium-term guidance we set forth in our Investor Day in February, and we've also done so in our shareholder letter. You will note that the high teens sit on our hands case compares favorably with 19% delivered in this quarter, while the inclusion of Global Blue obviously brings things notably higher. Furthermore, we continue to find attractive capital allocation opportunities, which supports our most likely case of 30%-plus gross revenue less network fee growth over the medium term. Chris will walk you through our adjusted free cash flow, but while early, we're also feeling ahead of pace for our $1 billion target. Some notable puts and takes in the quarter. Our blended spreads on payment volume were stable at 62 basis points, and we expect them to remain so through the end of the year. Tax-free shopping had some tough comparables, particularly in Asia as a result of a particularly weak Japanese yen last summer. Sales in Store were negative 11% in Asia during Q3, but recovered throughout the quarter and were positive in October. Separately, in the U.S., the last 2 weeks of September and the subsequent weeks of October presented more same-store sales volatility than we've seen in prior periods. While not consistent across verticals, same-store sales have generally skewed negative to our expectations. To put a finer point on it, we saw same-store sales, whether that be restaurants or hospitality, range from positive 1% to negative 4% with meaningful volatility week to week. While not immune from the broader economy, our deliberate and balanced transformation over the past several years does mean we are more diversified and scale, both geographically and by industry than at any point in our history. We also continue to add lots of high-quality customers, as I mentioned above. And we continue to complement our growth with massive payments cross-sell funnel, which becomes increasingly attractive during times of economic uncertainty. The competitive landscape has been a topic of serious debate among investors throughout the last few months. While I can imagine it's tricky to aggregate all of the various data, we would like to reiterate that the competitive landscape from our perspective has been unchanged for quite some time. We are the #1 in hotels in the U.S., we are the #1 in stadiums, and we are the #2 in restaurants but with a large TAM and a clear differentiation in both our strategy and product focus. We are only just beginning to bring these products all over the world where there isn't a clear market leader for any of these verticals. Global Blue also puts us as an undisputed category leader in luxury retail global. And with regard to Global Blue, this is our first quarter since closing the transaction in early July. This business brings both an industry-leading product for luxury retail and also an extensive two-sided network consisting of the best luxury brands around the globe and the high net worth shoppers that frequent them. They are also deeply embedded in the commerce experience at the store, presenting natural synergies for payments. Sales in Store at Global Blue were 5% above the prior year, with Europe growing 13% and Asia being negative 11% for the reasons that I mentioned earlier. We're reasonably happy with these results considering the negative impact currency has played throughout the year. These results are also before any synergies from business combination. You will find the detailed summary of Global Blue's performance in our shareholder letter. And from an integration perspective, we are on track with previously discussed plants. Our 3-in-1 payment terminal for payments, currency conversion and VAT refund eligibility detection is in beta. We also highlighted several Australian hotel payment wins in our shareholder letter distributed this morning. Of note, all the hotels mentioned are owned by Accor, the largest hotel operator in Australia and New Zealand, and also a very large hotel operator globally. The Australian hotel wins represent an early proof point to our strategy to take our industry-leading products into new geographies and markets around the world is working. In Restaurants, we're proud to welcome Nobu, but also signed thousands of other restaurants this quarter across Canada, the U.K., Ireland and Germany, with our international production improving to over 1,300 merchants signed each month. In Hospitality, we won Hyatt Vacation Club and will power payments for their over 20 resort properties around the globe. In Sports and Entertainment, we signed the Cincinnati Bengals, Clemson University, North Carolina State, Rutgers University, and Syracuse University, that one was for you, Jordan. Lastly, we'd like to point out the opportunities that can seem unique, but are a function of the platform effect of constantly adding integrations relevant for our other customers. To that end, we signed Hertz and will power payments across 60 of Hertz' rental car locations. Our presence in nonprofits continues to grow as well, evidenced by the dozens of nonprofits attracted to our platform each quarter as well as the on and off-ramp services for many crypto and Stablecoin platforms such as Stellar and Plasma. As has been the case each quarter, these are just a few of what we've highlighted in our material, even a smaller fraction of what we've actually onboarded. We are delivering these impressive wins while relentlessly streamlining our operations. And in that regard, as many of you know, we take the leading part very seriously in our M&A and integration approach. We made multiple small divestitures, most notably acardo, which is a couponing business owned by Vectron, for $34 million. These sales remove noncore business lines and help keep our laser focus on revenue synergy opportunities. We also closed SmartPay this week. As previously mentioned, this provides us with an existing and proven distribution channel to sign restaurants, hotels and stadiums in Australia and New Zealand. By equipping a proven team with industry-leading products like we have, we can be highly confident in the success of their go-to-market. The combination of these 2 events are roughly neutral, meaning the divestitures and the acquisition of SmartPay and their contribution to the remainder of the year, but both were important operational milestones. Lastly, we agreed to acquire Bambora, otherwise known as Worldline North America. While I'm sure many of you would like to see us slow down, the opportunity presented by a $90 billion payment gateway was something we would not ignore. A core competency of our business and team is to constantly seek out interesting technologies, great customers and excellent talent. Those of you who know our track record of executing on gateway conversions and other synergies can appreciate why this makes so much sense. We expect that transaction to close in Q1 of '26 and are encouraged by our pipeline of opportunities. I wouldn't be able to discuss capital allocation without the notable dislocation in our own valuation despite the continued performance and numerous opportunities we see ahead. In short, our own equity is one of the more attractive opportunities we see. And with expanding cash flows and accelerated deleveraging, we simply can't ignore it. To that end, our Board has authorized the new $1 billion stock repurchase program, which is the largest in our history. We will be implementing a plan to purchase at what we view as highly attractive levels right away. And with that, I'll turn it over to Chris for his first earnings call. Welcome aboard. Christopher Cruz: Thank you, Taylor. We delivered another quarter of consistent results that set new third quarter records across all of our key performance indicators. Volume grew 26% year-over-year to $55 billion. Gross revenue less network fees grew 61% to $589 million. Adjusted EBITDA grew 56% to $292 million, and our adjusted free cash flow conversion was 48%, resulting in $141 million of adjusted free cash flow. Our Q3 adjusted EBITDA margins continued to deliver in line with our expectations of approximately 50% in spite of the continued expansion investments we are making to become the most diversified and scaled that the business has ever been in its history. Double-clicking on our revenue categories. Our Q3 blended net spreads remained stable at 62 basis points, and we continue to expect full year spreads to be stronger than the 60 basis points previously communicated. This stability extends across our verticals of Restaurants, Hospitality and Unified Commerce. Subscription and other revenue was $119 million in Q3, up 16% compared to the same period last year. The growth continues to come from our market-leading vertical software solutions. However, as solid as this growth continues to be, we remain focused on deleting the parts and deprecating legacy revenue streams from acquired companies in favor of what we believe to be higher quality of revenue. This dedication to strategy will continue to influence year-over-year growth rates. As Taylor mentioned in his remarks about the medium-term guidance update, Q3 organic growth for gross revenue less network fees was 18%. Organic year-over-year growth of 18% compares the performance of the base business by removing newly acquired revenue from both the Q3 2024 period and the Q3 2025 period. It's also worth noting that these disclosures related to updates about our medium-term guidance would have been done next quarter at year-end. But based on recent industry events, we wanted to be proactive about pulling forward these disclosures, including that of organic growth for you all. Since the third quarter of 2022, we have grown gross revenue less network fees by 3x, expanded adjusted EBITDA margins by 600 basis points and achieved the balanced transformation of becoming a more diversified and globally scaled provider of software integrated payments. Through continued execution on cross-sell value creation and our delete the parts approach, we expect to maintain disciplined focus on margins and benefit from the operating leverage in our business. An example of the Shift4 playbook at work is the deleting of legacy parts through divestitures. Additionally, and although early, we are encouraged by the potential of AI applications to enhance our operating leverage across operations and product development while enhancing our own ability to drive decisions informed by our large data assets. As it relates to Global Blue, we wanted to provide a more clear breakout this quarter given its new inclusion in results. Global Blue contributed $156 million to gross revenue less network fees and $68 million to EBITDA, which were in line with our overall expectations despite headwinds faced by the business in the Asia Pacific market. Additionally, the subcomponents of Global Blue, consisting of: one, tax-free shopping, acquiring and dynamic currency conversion will be reported within payments-based revenue, while the post-purchase solutions subcomponent will be reported in subscription and other. As you can appreciate, we expect these breakouts to be less relevant over time as we cross-sell products to customers and bring on customers using multiple products. Our adjusted free cash flow in the quarter was a record $141 million, which modestly exceeded our expectations given our third quarter, along with our first quarter, are the higher cash interest expense periods in the year. As you get to know me more, it should come as no surprise that I believe that the ultimate measure of business durability is compounding growth in free cash flow per share. So I'm particularly enthused by the progress of this metric, especially as a jumping off point towards our medium-term guidance goal of exiting 2027 with $1 billion of run rate adjusted free cash flow. GAAP net income for the third quarter was approximately $33 million, resulting in diluted EPS of $0.17 per share. Non-GAAP net income for the quarter was approximately $148 million, resulting in a non-GAAP EPS of $1.47 per share. Note that the latter EPS metric uses our non-GAAP share count of 100.7 million shares, which increases share count by 10 million shares to treat the mandatory convertible preferred on an as-converted basis. On debt capital structure, we are in the enviable position of being efficiently tranched with all debt trading above par, resulting in access to attractive cost of capital in multiple deep markets. As of Q3, our net leverage pro forma for the full year effect of Global Blue was 3.2x, with notable deleveraging achieved quarter-over-quarter that resulted in our newly issued term loan already stepping down by 25 basis points of cost. I will take this opportunity to make clear that our leverage guidance remains unchanged with a view that the business should not exceed 3.75x net leverage on a sustained basis. With the company's current share repurchase authorization coming up for expiration at year-end, the Board has authorized a new share repurchase program of $1 billion through year-end 2026. This authorization level is the largest in the company's history and comes at a time when we have ample liquidity and access to capital to execute upon it. As a reminder, our capital allocation framework judiciously assesses relative value across 4 areas: one, customer acquisition; two, product investment; three, acquisitions and investments; and four, share repurchases. As we evaluate how the current market backdrop compares to historical periods of share repurchase execution, we think it notable that valuation multiples at present would be comparable to the lowest we have executed repurchases in the past. Further, as stated before, the company is the most diversified and scaled it has ever been in history and is generating record results across all key performance metrics. At the same time, the business is delivering growing levels of adjusted free cash flow that continue to require reinvestment. Although we believe that any 1 of our 4 categories of capital allocation opportunities would generate accretive returns, it is hard for us to ignore the relative attractiveness of the trading level of our common shares on an absolute basis, but particularly on a growth-adjusted basis. As someone that has invested in this business multiple times over the past decade, I am eager to make immediate progress against this new $1 billion authorization to enhance long-term shareholder value. Now for guidance. For full year 2025, we are reaffirming guidance within a narrowed range. We now expect volume to range from $207 billion to $210 billion, representing 26% to 27% year-over-year growth. For gross revenue less network fees, we now expect the range to be $1.98 billion to $2.02 billion, representing 46% to 49% year-over-year growth. And for adjusted EBITDA, we now expect the range to be $970 million to $985 million, representing 43% to 45% year-over-year growth. We are affirming our adjusted free cash flow conversion expectation of plus 50%. Within this guidance, our view on Global Blue's contribution remains unchanged as the business does have a seasonally higher calendar third quarter versus its fourth quarter. Also, we wanted to point out that even though these are now narrower ranges to our prior guidance, there is an intentional shape to the relative ranges. The implied fourth quarter range in volume is approximately 5% from low to high, while the same range in gross revenue less network fees is slightly less, and in adjusted EBITDA, this range is 4%. The intent here is that we believe a wider range of outcomes is prudent based on the uncertainty we are observing in macro and industry conditions. While at the same time, for a metric like adjusted EBITDA, there is more in our control and demonstrates our commitment to execution. In summary, after taking into consideration an essentially neutral impact from the acquisition of SmartPay and the offsetting reduction from noncore divestitures, our full year 2025 guidance is reaffirmed within a narrowed range. One last item. In response to inquiries about gross revenue, recall that we do not formally guide this metric. However, we expect a gross revenue range of $4.09 billion to $4.15 billion for the full year. Before passing back to Taylor, I did want to take a moment to express my sincere gratitude to my CFO predecessor and now Board member, Nancy Disman, for the transition support, mentorship and fantastic finance foundation she has established. You will be missed by the team, but I'm certainly thankful to continue to have you on speed dial. With that, let me now turn the call back to Taylor. David Lauber: Thanks, Chris. Before we go to Q&A, some of you may have seen the exciting news that our Founder and Chairman, Jared, has been nominated to run NASA. Again, we're going to be updating you as things progress. But just to be clear, we don't expect really anything is going to change from our previously disclosed plans. He intends to remain the largest shareholder of the business. And so we wish him well, and we're really excited for the road ahead. With that, we're going to turn it over to Q&A. But Tom, I think you had a question we were going to address from X. Thomas McCrohan: Yes. So the question from X this quarter comes from [ Dor Barda ]. And his question is, where is the company's primary focus right now? Are you edged down on integrating and cross-selling into the $1 trillion acquisition funnel? Or are you simultaneously investing heavily in net new product development? David Lauber: Yes, it's a great question. And the answer to both of those is yes. So hopefully, you can sense the theme for this quarter is a reminder of what we always do, which is that we take our category-leading products and we find as many customers as possible to get those in the hands of in as capital efficient of a way as possible. And so whether that is leveraging capabilities like the sales force that SmartPay brings us into Australia, or the distribution network and existing customer base that Vectron gives us in Germany, taking our products into these new geographies with an embedded right to win like an established sales force or an existing customer base is always a significant priority for the business. And with that, operator, if you wouldn't mind opening the line up to Q&A. Operator: [Operator Instructions] Our first question comes from the line of Dan Dolev with Mizuho. Dan Dolev: Great results, Taylor, and congrats on the new CFO role. My question is for you, Taylor. What are the implications of Jared getting nominated to NASA? I think a lot of people are interested in that. And great results, again. David Lauber: Yes, sure. Thanks for the question. Good to hear from you. Well, first of all, it's great for the country. The ambition that we've seen inside our walls for 26 years really has always deserved a bigger stage. So I think it's a phenomenal thing for the country. Now with regard to the company specifically, it's likely to simplify our structure quite meaningfully. So if you recall from the ethics agreement that he executed back earlier in the year, he is not required to divest the stock, but he will be relinquishing the super votes associated with his shares. So it likely means to collapse down to a single share class, which I know a lot of investors will appreciate and simplifying our TRA structure. So I want to reiterate, he intends to remain the largest shareholder of the business. This is something he feels passionately about, but I think it will simplify our share structure when it's completed. Operator: Our next question comes from the line of Timothy Chiodo with UBS. Timothy Chiodo: Again, Chris, good to be working with you here. I want to hit 2 things. First one on Bambora, and then if you don't mind, a brief follow-up around Q4 end-to-end volumes. So on Bambora, let's hit that one first. So $90 billion of gateway opportunity. And I just think back to the time of the IPO and the gateway opportunity back then was $200 billion, and it seems so large. And here we go adding another $90 billion. So I was just hoping you could add a little bit more context around that $90 billion and what's in there in terms of verticals and how other parts of Shift4 and some of the learnings from prior gateway conversions might help to make this gateway conversion a very successful one. And then I'll follow up on the numbers after. David Lauber: Sounds great. I'll hit this one. And you hit the nail on the head, Tim, which is this is textbook Shift4. It is a good technology product with a really captive base of customers and $90-odd billion of volume. Now as also is the case, the volume varies from some of the other verticals we serve. There's some business services in there. There's a few different flavors. So it's probably inappropriate to take one gateway and apply it to the next and apply it to the next. But we feel really strongly that this asset, the sticky customers, many of which have been on it for 20-plus years, will benefit from a consolidated payment solution. This has not been a huge priority for that business for a period of time. On top of that, there's a lot of transparency in this one, which I think behooves us all given the skepticism around M&A in our industry. It is widely understood what Ingenico had paid for that business years ago and what we're paying for it now, which is significant fractions of that. It is clearly telegraphed by Worldline what the contribution of the business is, and then we get to take that and enact a bunch of revenue synergies. Now there are also some capabilities. It's like one of the larger ACH providers in the country. So there's some capabilities we're going to get from it as well and more talent, which we always need more of. So very textbook Shift4 and something we literally train ourselves to be on the lookout for opportunities like this all the time. Christopher Cruz: Yes. And one, thanks, Tim, for the congrats. But on Bambora, the other thing that I think is a really interesting way to frame the attractiveness of it is to look at how many of the capital allocation framework boxes it checks on its own. I mean in and of itself, you can think about the gateway volume potential as a large expansion in customer acquisition potential. You can look at the ACH EFT component as product and capabilities enhancement. And then, of course, in and of itself, I think it's a continued reflection of a disciplined approach to making acquisitions and investments. So that's just one other thing that I think is worth noting and is something I'm enthusiastic about with that transaction. Timothy Chiodo: Excellent. And the minor -- the numbers follow-up. So implied for Q4 in terms of the end-to-end volume, you mentioned a range there. But on an absolute dollar basis, it's roughly $57 billion to $60 billion. And just clarifying, there's roughly -- I think it's slightly less than $1 billion or so a quarter in there from Global Blue acquiring business, and then there's another -- something in that range, maybe slightly less than $1 billion as well from the couple of months of SmartPay. But when we add up those numbers on an absolute basis, is it reasonable for investors to think about taking that $57 billion to $60 billion, annualizing it or multiplying by 4, adding on some conversion, some new production, thinking about same-store sales and churn, but reasonable jumping off point to model out 2026 end-to-end volume expectations? Christopher Cruz: Yes. I think from the perspective of is it reflective of a jumping off point, putting aside kind of like minor nuances and seasonality that's changing a little bit in the business, I think it actually is a reasonable jumping off point reflective of kind of the run rate shape of the business. So I think you articulated it well. Operator: Our next question comes from the line of Jason Kupferberg with Wells Fargo. Jason Kupferberg: Thanks for all the new disclosures. And I wanted to just start on organic growth. I know you were 18% there in Q3, obviously, very consistent with the medium-term Investor Day target. But I think we were trending a bit above that in the first half of the year. Maybe you can clarify that. And then just give us a view on Q4 organic top line growth, just trying to piece together how the current year is coming together, because I know we've been targeting 20% plus from a full year perspective. Christopher Cruz: Thanks. So one thing I just wanted to clarify off the top, and hopefully, it didn't get lost in sort of the prepared remarks was that some of the disclosures really are as a result of an update to the medium-term guidance, which we would have realistically planned for the year-end. But we, given industry events, decided it was prudent to be proactive and pull some of these things forward. And so I just wanted to make sure I reiterated that point. Look, I think on the organic growth, the idea that we have a growth that's on a gross revenue less network fee basis in line with our -- I think the way we've articulated it in the past is the sit on our hands case would signal the consistency of the business. From that perspective, I think we're sort of in line with what we had guided to as far as that case and that medium-term guidance. David Lauber: Yes. And just with regard to the full year, I think, and Chris characterized this well in his remarks, there is caution. Our ranges give us an outcome of greater than 20% down to below that. And I think that's just prudent. The same-store sales environment has been quite volatile. And I don't mean that as persistently negative or anything else. Tried to characterize that in my prepared remarks as well. So yes, it's still within our guidance range, but we want to be prudent. We want to give, obviously, the in-quarter disclosure as well. Jason Kupferberg: Okay. No, that's helpful. And then just a follow-up on Global Blue. Those slides were really helpful also. I think you had the volumes up 5% in Q3. Just curious how that's been trending quarter-to-date, what you've assumed for Q4 there? And then anything you can tell us just in terms of what the year-over-year Global Blue growth was in GRLNF as well as adjusted EBITDA. I know you gave us, obviously, the Q3 '25 actuals. David Lauber: Yes, sure. So I'll start with the performance of the business has been strong despite volatility. So that's really encouraging. And Chris can keep you honest here, but the year-over-year growth of their revenue was about 19%. So a phenomenal business. I think we tried to point this out at the time of the acquisition. In terms of the Sales in Store, which is the tax-free shopping segment of their business, what you saw was a combination of reasonable strength in Europe. Now keep in mind, Europe generates more revenue per Sale in Store than Asia, but also a pretty significant headwind in Asia. So there were a confluence of factors back in the summer of '24 that made Chinese shopping in Japan particularly strong. And so comping that was going to be quite difficult, and that's why you have that negative. So the blend of 5 is something we're reasonably content with. Also keep in mind, and we tried to just kind of illustrate this. When the dollar depreciates and the Chinese currency depreciates, that is really hard on the business, because the shoppers spend less. And so while there's a little bit of translation benefit, it is not a positive for the business when the dollar depreciates. I wanted to clarify that point as well. So awesome business dealing with volatility in their end markets and dealing with it quite nicely and growing strong on a year-over-year basis before we enact any synergies, which is phenomenal. Operator: Our next question comes from the line of Darrin Peller with Wolfe Research. Darrin Peller: I know there were some headwinds in the quarter, whether it be the discussion you had around the currency dynamics in Global Blue or same-store sales you called out, or even some faster conversions of software, yet you came in roughly in line with your guide. And so maybe just help us understand what you saw that made up for that shortfall, and if those trends are sustainable going forward or outperformance trends? And then, Chris, first of all, congrats again. But when I think about guidance, there's been a few quarters of volatility around your guide. So just help us understand your philosophy to build up from a guide standpoint going forward, what we should think about from a conservatism, how you think about it that way versus being more in line, or anything else you can provide? David Lauber: Yes. So I'll start with that, and then Chris can hit the guidance philosophy. With regard to things that we were pleased with during the quarter, customer adds is something we're particularly pleased with. The pace of international adds is something we're particularly pleased with. So the shopping trends that I mentioned in reaction to Jason's call was something we were particularly leery of. Quite frankly, predicting where that would land was almost a fool's errand given how strong the success was of Chinese shopping in Japan back in the '24 period. But maybe just to balance it out, and I made this comment in my prepared remarks, growth in SiS in Asia has grown to positive again on a year-over-year basis in the most recent month of October. So things are going well on that front. It remains somewhat tricky to predict where travelers are going to shop, and there are significant countries and weightings to that. So we're going to continue to get better at that. But Chris, do you want to hit the... Christopher Cruz: Yes. Well, actually, I'll just add on to one point around that is, in some of the variables that we saw through the quarter that were changing, I think Taylor in his prepared remarks highlighted the note that if you were to look at some of the week-to-week trends that we were seeing within same-store sales in some of our verticals, you could end up seeing like a plus 1% to a minus 4%. And that kind of volatility was something that we were trying to react to throughout the quarter. You add to that the topic that we've now talked about a couple of times already around balancing out European strength for Global Blue Sales in Store in the tax-free segment, offset by what looked like a pretty tough headwind in Asia Pacific. And you just had a few moving parts that I think warranted caution going into that period. At the same time, the backdrop was one where certainly from a macro data, certainly from an industry data, from data points we were seeing throughout, it was enough to want to make sure that we were expressing caution. So a lot of data points to take in. At the same time, I think we have the most data we've ever had as far as being able to try to inform our decisions around it. So I think that's a positive. Maybe to the second part of your question, Darrin, one, thanks for the congrats. And two, so look, on guidance philosophy, it's a nuanced topic, I'm sure, and especially one that I think will need some evolution over time as I get more comfortable in the seat. The first thing I would say, though, is that from a philosophy standpoint, there really isn't an intent to change the underlying philosophies. I think the frameworks that we use, the way we inform it with data, the underlying approach to the most important drivers within the business, I mean those are things that I think are pretty foundational, not looking to make dramatic changes. I think as we look at this set of macro backdrop, it is just something that, from my perspective, we want to make sure that we're taking in all of the right data sets and that we're making the most informed decisions possible based on the recency of the information. But certainly something that I think will be an evolving topic. And so feel free to keep asking. Operator: Our next question comes from the line of Andrew Jeffrey with Truist Securities (sic) [ William Blair ]. Andrew Jeffrey: Well, so we'll update that. It's been William Blair for about 1.5 years. But Chris, welcome. Look forward to working with you. I want to say that my wife and I happily contributed to Global Blue's third quarter revenue growth. A question on the pace of processing conversion in that business. It's a big opportunity. I think you said somewhere around $550 billion. Can you just update us on your right to win, how you see payment processing cutover or conversion sort of playing out? And what you -- I guess, competitively, there's one sort of callout processor, I think, today for a lot of those Global Blue merchants. How do you sort of manage those relationships, recognizing that the VAT refund business is such a high-value product for merchants? David Lauber: Yes, sure. I'm going to actually cover this one. It's a great question. But I think it's really important to distinguish between the headline customers that everyone knows and the breadth of the Global Blue business. So certainly, in Downtown Paris, everyone knows the Louis Vuittons of the world. But the reality is you can just as easily go to a village on Lake Como in Italy and nearly every merchant is using Global Blue. And these are SMBs. So we see a breadth of conversion opportunity from SMB all the way up to the largest of the enterprises. And if history is a guide, the earliest success comes from all those assets. It is incredibly low friction to switch from an existing bank terminal into what from a product perspective is going to be pretty revolutionary, which is the terminal that they're used to, but it also does currency conversion and it automatically detects that the shopper is eligible. So to the extent you were traveling in Europe and you encountered a store where they didn't present you with the tax-free option, that's likely because the cashier just didn't know or didn't think to ask. And yet our technology is going to sort of prompt that just like it does in the largest enterprise environments that Global Blue has built so successfully. So from a competitive landscape, we see an opportunity to win business from a ton of local banks in that SMB spread. We can win it reasonably quickly. And then, again, history being a guide, enterprises take longer and take more time. Quite frankly, I think you're probably referencing Adyen. They're a phenomenal company. We admire them a lot, and they serve these enterprises quite well. We're an important piece to the commerce puzzle in that environment. So we want to make sure the technology works incredibly well for those customers. But the conversion opportunity goes far beyond the logos that you see. And if you think, what we're really good at is we're really good at getting that mom-and-pop store a much better technology solution that, quite frankly, is much stickier and harder to leave. And owning all these pieces, we can do that in a way that traditionally has only existed for the largest enterprises. Andrew Jeffrey: Okay. That's helpful. And just as a follow-up on SkyTab and sort of the growth in your software revenue, recognizing the divestiture of some legacy software. Can that accelerate? Do you expect that to accelerate? Sort of does it grow in concert with Global Blue volume conversion? Or how do we sort of dimensionalize the software contribution going forward? Christopher Cruz: Yes. This is Chris here. I think we've articulated this in the past as acknowledging that the idea that we have a North Star model that really emphasizes what we view as highest quality of revenue will come from payment processing. From that perspective, I think we are not shy about the statement that we will look to deprecate the legacy revenue streams, deprecate software revenue streams in favor of the higher quality of revenue. And so I think from that perspective, even though our Subscription and Other was an attractive growth, it grew nicely in the quarter for sure, it's an area that I think will be an area that will continue to be an impact on like adverse growth in the future. David Lauber: Yes. Just to pull it back to philosophy here, we prioritize payment volume as the primary source of monetization. We deliver a heck of a lot of technology to these merchants. Carefully weighing the fixed and variable costs that a merchant pays for our product is, I think, something we spend a lot of time on. Most of our competitors have significantly higher fixed costs, which really manifests themselves in that subscription and other revenue stream. So we tend to lean more towards payments even if the technology solution being delivered has a lot of software embedded into it. And to Chris' point, as a byproduct of this acquisition history, there is always some legacy revenue that we're deprecating. So I completely acknowledge this is probably one of the harder lines to model inside the business. But generally, anything we're doing is in pursuit of that payments revenue growth. Operator: Our next question comes from the line of Sanjay Sakhrani with KBW. Sanjay Sakhrani: Congrats, Chris. I guess the share buyback announcement and authorization was a pretty strong statement. Maybe Taylor and Chris, you guys can talk about sort of the cadence of how you expect to take advantage of it. I know you talked, Chris, a little bit about the leverage constraints and stuff. So maybe you could just speak to those as well. And I think it's the right thing to do given where the valuation is. So I would love some color on that. David Lauber: Yes. I'll start with this one. There's been times in our history where we weigh an attractive M&A pipeline against evaluation in our equity and it's a tough decision. In this case, and Chris will comment on our leverage profile, and that comes into this a little bit, but this one isn't a tough decision. So we are trading at levels that we were trading at in December of 2020, and yet there's 12x the EBITDA in the business and accelerating free cash flow and deleveraging at an accelerating pace as well. So the obvious thing to do here is to buy as much of our equity as we're going to be permitted to buy within reasonable price ranges. But to Chris' point, executing at current levels is consistent with the lowest price we've paid for our equity. And we've been pretty aggressive with buybacks. I think M&A kind of gets the headlines, but we've repurchased, I don't know, 12% to 15% of the company in the 5 years that we've been public. This presents an opportunity to do even more than that at the lowest multiples we've seen in the company's history. So incredibly excited to be able to deploy capital into such an obvious opportunity. Chris, do you want to hit the leverage? Christopher Cruz: Yes, sure. So I think I made reference to the fact that on sort of a pro forma LTM basis, we're at 3.2x net leverage. I think the perspective that we have around having ample cash on hand, we have ample liquidity. We are approaching $0.5 billion in adjusted free cash flow generation. So there's probably not been a period in history where the company has had sort of the, we'll call it, availability to capital, but also access to capital across the multiple deep markets. So you take that into consideration, you take into consideration that the free cash flow generated needs to get reinvested. And it's not to say -- and I hope this was clear, it's not to say that we don't think that there are attractive areas within all areas of our 4-part capital allocation framework, but right now, it is really hard to ignore the relative attractiveness of where we're trading today. David Lauber: Yes, that's a good point. These dollars are not coming at the expense of a missed product development opportunity or integration priority or, quite frankly, M&A opportunity, but there's more of them than I think many expected at this point, and the equity is certainly lower. So we have to act on it. Sanjay Sakhrani: Great. And just to follow up on some of the choppiness that you've seen in the Restaurant and Hotel verticals in the third quarter. Could you maybe just explain what you've seen thus far into the fourth quarter and if that's persisted. And I know, Chris, you kind of talked about weighing that as you provided your refreshed outlook. But just how we should think about that? Because like when we look at like cross-border volumes and such, I know it's sort of an overarching number, so it's not specific to your verticals or such, but like how should we think about that as we move through the rest of the year? Christopher Cruz: Yes. Look, I would love to be able to know with precision exactly what the rest of the year is ultimately going to look like. But from a recency data, again, we benefit from being able to see data in a near real-time manner. But from a recency data, here's a for example. I think coming towards the end of the quarter, we were actually starting to see what looked like stabilizing trends in Restaurants, and it created some encouraging signs off of a quarter that had seen some downward skewed negative volatility. But of late, we're starting to see a little bit of a softening again in some of those trends. That would be for example. Now happily, I just want to underscore, because it's an interesting contrast to what you had brought up this idea of cross-border, I think prior to us being as diversified as we are right now, that comment, the impact that cross-border is looking more positive, restaurant might have some softness, that would have been an irrelevant comment a couple of quarters ago. But now actually, from the diversification standpoint, I really think it's important not to lose sight of the fact that because of the positioning of the business, because of the balanced transformation that we've been able to achieve, we actually do have these puts and takes, these offsets. So I think in the grand scheme of things, we do have acknowledged uncertainty in certain areas, but actually some enthusiasm in some other areas. David Lauber: Yes. I would call you back to the revenue diversification that we highlighted in our shareholder letter. And I don't know if this is going to be helpful or further confusing you, but we see all the data points you do about United Airlines having their strongest weeks in their history and Chipotle, no one is buying the burritos. Like we see both of those. And we see them manifest in many ways inside of the cohorts inside of our business, which is Global Blue has got strong shopping and same-store sales in your average restaurant are bouncing week-to-week, but skewed towards that negative volatility. It's confusing, but quite frankly, the scale and diversification of our business is awesome at this point relative to our history. So for us, there are data points that help inform future investment and all these other things and help us, quite frankly, put chips where we think verticals are going to be the most successful over a period of time. But yes, that industry to industry volatility absolutely exists. We're getting both benefit and detriment from that. And this bifurcated consumer, I think, is a real thing. Operator: Our next question comes from the line of Adam Frisch with Evercore ISI. Adam Frisch: It's Adam Frisch. Chris, congrats on the role and great job getting out of the gate pretty hot here this morning. The organic number is really interesting, very welcomed as well. I think you said the number excluded the deals done in both of the third quarters. But is that to say that this quarter included contributions from deals completed in the quarters in between? So maybe just a little color here on the calculation would be great. And then I have a quick follow-up as well. Christopher Cruz: Thanks for the clarifier. Absolutely not. Yes. No, it's meant to be clean of acquisitions for the periods. Adam Frisch: So the 18% does not include any acquisition impact at all from the prior quarters or, I guess, from the prior 4 quarters? David Lauber: Yes. It's the best way to look at the base business, right, which is if you did not have M&A in either of the measurement periods, what would have happened in that base business is great. Adam Frisch: Okay. Okay. Cool. Welcome that very much. And then second, as a follow-up, assuming Jared gets confirmed, I'm getting a bunch of inbounds this morning from investors about whether his shares would create a liquidity event and how that would be handled. So I wanted to give you a chance to address that on this call before it takes on a life of its own potentially. David Lauber: Yes, yes. No, I completely appreciate that, and I addressed this right before the Q&A started. His ethics letter from the first go round is publicly available, not required to divest his shares, and doesn't intend to. He intends to remain the largest shareholder of the business. So we don't anticipate anything there. And in fact, I just want to say he does anticipate converting his shares from the super voting shares down to common. So I think the share class will likely collapse into a single share class and be much easier to understand from the investor standpoint, and quite frankly, open us up to pools of capital that don't invest in multi-share class companies today. So from the company standpoint, it's frustrating not to see them in the halls on a daily basis, but the corporate structure gets a lot cleaner. Christopher Cruz: Yes. And then just -- since we're on the topic, to reiterate a point that also Taylor brought up earlier was the idea that beyond the share class structure potentially changing and collapsing to simplified, you also have what in the last go around, we had talked about the concept that the tax structuring would also attempt to simplify to the ups. Adam Frisch: Great. Okay. Cool. And then just maybe one last one. The merchant conversion progress from prior acquisitions, any color there that you can provide? There were some disclosures in prior quarters, didn't say anything this quarter. So maybe just a little bit there on how you're progressing there from the acquired merchants? David Lauber: Yes, absolutely. Happy to provide color. And this isn't an intentful omission. It's the simple fact that our earnings shareholder letter was, I think, 190 megabytes when I tried to download the public version this morning. So the cross-sell is going quite well. I think that's probably best evidenced by simply the customer adds that I mentioned earlier in response to what I think was probably Darrin's question. So customer adds across the board, whether that be in Germany, whether it be in the U.K., whether it be in Canada, all of those are fueled in some way. buy an M&A asset, whether that's a small sales team or an embedded base of restaurant customers in Germany or Gateway Hotel customers in Canada. So the customer adds are really, really encouraging across the business. It's quite frankly, what helps ballast that same-store sales anxiety that we see in the core base of the business. So it's going well across all of them. This is muscle memory for our business. So if you recall, what happens when we acquire a company is all of the customers inside of that become part of a sales funnel that our team is chipping away at on a daily basis. So the fact that an acquisition occurred doesn't really mean much to the average business development professional inside of Shift4. It just means they've got a lot more customers in their call queue to execute against or in their campaign. So it's going well across the board, quite frankly. Operator: Our next question comes from the line of Will Nance with Goldman Sachs. William Nance: I wanted to follow up, I think, on Tim's earlier question on the volume and approach it a slightly different way. Just look at the kind of low 20s exit rate on volume with a little bit of inorganic contribution, it's kind of roughly in line with where the Street is expecting volume growth in 2026. So I was wondering if you could just talk about the puts and takes off of that run rate and just kind of what would lead you to kind of accelerate or decelerate into next year and just things that we should be keeping in mind as it relates to modeling out to 2026. Christopher Cruz: Yes, sure. Thanks, Will. I would say probably in line with a similar kind of commentary here, and maybe Taylor will have a slightly different nuance to it, but from my perspective, again, it's hard for me to ignore, sort of from a recency standpoint, data that we're seeing. And so I'd say there's a degree of balanced caution within some of the verticals, offset by, obviously, what we're seeing is the diversification effect where we are also seeing some recent strength in other areas like in cross-border, like in luxury. So I would say that the exit rate, which is kind of where Tim's question was at, that annualizes kind of the fourth quarter. I think that's a fine starting point, but we gave the ranges on volume really from a '25 standpoint for a region. And I think that, that range, again, the intentionality of the shape of that range, where the volume range is the widest relative to something more in our control like an adjusted EBITDA, that range is widest because of wanting to acknowledge that there's a complex macro backdrop. David Lauber: Yes. If I had to barbell the 2 items, probably most front and center is we say this volatility of same-store sales is quite real, like it looks bad 1 week and it looks okay the next. It's very confusing, and you want to be cautious about what that could look like over a sustained period of time. Maybe on the other end of the barbell, you've got Global Blue, which is really contributing nothing of substance to that payments growth rate and a massive customer base, lots of geographies, et cetera. So those are kind of -- that's a cylinder that's not firing of any consequence yet and yet will be significantly in 2026. William Nance: Got it. Appreciate that. And that was going to be my second question. Just on some of these logo wins, you had the earlier question, I get it's early and some of the ones on the page are kind of more enterprise in nature, but wondering if you could just speak to the sales process that led to some of these wins. And Taylor, I know you've been doing a lot of traveling over the past couple of months. As you spend time with the Global Blue team, how are you thinking about evolving the go-to-market so that when we see some of the wins on these pages, I'm thinking back to when you put the Hospitality wins and we'd see something indicating it was a gateway conversion. Like how do we think -- how are you thinking about potentially starting to work payments into the selling process of some of these new wins, maybe not some of the logos that we're seeing on the page, but into some of the more SMB sales? David Lauber: Yes. It's an awesome question, and I'll sort of contrast the 2 businesses for you, because this is exactly what we're spending a ton of time on right now. Global Blue is a phenomenal business focused on the highest end of the enterprise, solving the most complex problems and never losing a single customer in that process. They serve the enterprise customer exceptionally well, and they're kind of built to do that. Where if I were to criticize and say there's areas that we can bring strength to the table, it's the service of the really long tail of SMB customers that don't have the best coverage model. They adopt Global Blue because it's a product that the consumer demands and has a lot of traction, and they want to be able to provide that to the shoppers. So it's the village of Bellagio, where it's in Lake Como, right, where there's tons of little mom-and-pop merchants that offer the service, too. So the skill set we're trying to bring to the organization is how do you efficiently serve thousands of SMBs across Europe and the rest of the world. And I think we've got unique skills to bring to that. The skills they are bringing to us are how do you serve the largest and most demanding enterprises within luxury retail. So we're both learning a lot from each other in that regard. And then the only thing I would say is -- and by the way, we're having conversations with every flavor of customer, right? So we're having conversations with SMBs. Those are quick. It's, "Yes, this sounds great. I'll do it." And then we're having conversations with their largest enterprise customers, and they're saying, "Hey, can you help us with this unique problem we have today?" So I'm really encouraged across the board. But the laws of physics are simply those big customers take longer to get those conversations done than the small customers. So I think that's going to be the bulk of the focus. Christopher Cruz: Yes. And I'll add that when you start to look at that customer stratification, it's at a unit economic level, very logical that if you are providing a TFS product to the longer tail of SMBs, the gross profit and revenue density isn't necessarily there to provide the technology and quality of service that you would want if you add to the equation the cross-sell of services that now turn the gross profits and the unit economic model into one that looks a lot more like the SMB that we serve. It makes a ton of sense to be providing all of the service levels, all the support, really starting to elevate the significance of that SMB customer within that segment or within that business is exactly like the benefits of the cross-sell. David Lauber: Yes. And sorry to belabor the answer. I think it's really important, though, where we're going to have to spend a lot of time with you all and the Street is what's the volume pull-through of this. Because to be clear, I think the enterprise customers offer the highest volume opportunity at the lowest spread, but these SMB customers are the inverse of that. And we are quite content with the volume growth that looks lower and a spread that's stable to growing, because that's a fast win cycle. To be clear, all of it is an opportunity, but I think volume growth relative to net revenue growth is something that has undulated inside the business as we skew from time to time more towards enterprise, more towards SMB, et cetera. So that's where we're going to owe you the updates, but my prediction is early success in SMB, and what's going to feed the funnel 2, 3, 5 years from now, it's going to be that enterprise base. Operator: [Operator Instructions] Our last question comes from the line of Dominic Ball with Rothschild. Dominic Ball: Great to hear about Global Blue. On competition, we've seen some turbulence with one of your legacy acquirer peers. Does this present an opportunity to accelerate share gains in the U.S.? And on the enterprise side, we've seen Oracle Payments extend their offering powered by Adyen, but it doesn't seem like it's going to be exclusive going forward. So how do you view that development? And could this open up further partnership opportunities with MICROS? David Lauber: Yes. Awesome question, and congrats on the call, by the way. I think you were the long one. In terms of competition in the United States, I really do want to foot stop this point from my prepared remarks. It's relatively unchanged for our lines of business, which is in Restaurants, we tend to focus on table service. This is not where you see the Clovers and the Squares of the world. We do see Toast. And I know Toast has got wider ambitions to do far more than just table service. But in our kind of slice of the world that is Restaurants in the United States, competition is relatively unchanged. Toast is a great company. We're winning and growing quite nicely in that regard. And we don't see significant pressure from others. Quite frankly, any, let's say, industry chaos tends to be helpful to the extent that big companies are struggling. It will help us, by the way, just as much on the enterprise sale as it will on the SMB sale to have a company that's sort of struggling to redefine its image. Now to go to your point with regard to Oracle, I think they've always had this ambition to try to deliver a simplistic product to their customer base that embeds software payments, et cetera. That's very, very hard to do with the products they serve. And so much -- take yourself out of a point-of-sale system that they sell and put yourself into any other software, it's very enterprise grade and requires a lot of pieces. And this is where Shift4 has found unique success. It's taking what is an otherwise very complicated solution to implement that merchants are dependent on and stitch together all the parts to get it done and do it in a way that feels like an SMB experience, where our team comes in, connects all the dots regardless of the complexity. Again, Yankee Stadium is probably a good example of trying to make an SMB experience delivered in some of the most complex environments. So we don't see really any issue. We partner with Oracle constantly in the Hotel vertical as we have to, to support them. We also activate a lot of restaurants. And we'll be there to the extent any customer needs the help. Thomas McCrohan: Operator? Operator: Thank you. At this time, I'd like to pass the call back to management for any closing remarks. David Lauber: Yes. Thanks to everyone for dialing in this morning and also for the great questions. I look forward to catching up with you all individually as the weeks and quarter progresses. Christopher Cruz: Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the MFA Financial, Inc. Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Hal Schwartz, MFA Financial. Please go ahead. Harold Schwartz: Thank you, Rachelle, and good morning, everyone. The information discussed on this conference call today may contain or refer to forward-looking statements regarding MFA Financial, Inc., which reflect management's beliefs, expectations and assumptions as to MFA's future performance and operations. When used, statements that are not historical in nature, including those containing words such as will, believe, expect, anticipate, estimate, should, could, would or similar expressions are intended to identify forward-looking statements. All forward-looking statements speak only as of the date on which they are made. These types of statements are subject to various known and unknown risks, uncertainties, assumptions and other factors, including those described in MFA's annual report on Form 10-K for the year ended December 31, 2024, and other reports that it may file from time to time with the Securities and Exchange Commission. These risks, uncertainties and other factors could cause MFA's actual results to differ materially from those projected, expressed or implied in any forward-looking statements it makes. For additional information regarding MFA's use of forward-looking statements, please see the relevant disclosure in the press release announcing MFA's third quarter 2025 financial results. Thank you for your time. I would now like to turn this call over to MFA's CEO, Craig Knutson. Craig Knutson: Thank you, Hal. Good morning, everyone, and thank you for joining us for MFA Financial's Third Quarter 2025 Earnings Call. With me today are Bryan Wulfsohn, our President and Chief Investment Officer; Mike Roper, our Chief Financial Officer; and other members of our senior management team. MFA continued to execute on our business objectives during the third quarter and delivered a total economic return of 2.6% to shareholders. After my remarks this morning, Mike will provide details on our financial results, and then Bryan will discuss our portfolio activity, financing and Lima One before we open up the call to questions. For today's call, I will focus on a new slide that we've added to our earnings deck. This is Page 4, which lays out various actions we have taken to increase earnings and grow ROEs over the next year. Although we have previously mentioned some of these plans, we think it is important to highlight these initiatives in the aggregate as we believe that together, these programs will have a meaningful impact on MFA's earnings, returns on equity and dividend generation. The first initiative is higher capital deployment. Over the last several years, we have consistently operated with high levels of liquidity, often with over $300 million of unrestricted cash. This strategy was prudent, particularly during 2022 and 2023 when the bond market experienced extreme volatility against the backdrop of an unprecedented tightening cycle by the Fed and allowed us to capitalize on temporary market dislocations to add assets at attractive yields. During these years, we also executed on a liability strategy to create durable and non-mark-to-market financing for the vast majority of our assets, much of which was through securitizations. Also over this time, we began adding Agency MBS beginning in December of 2022. As we discussed at the time, we saw agencies as an attractive complement to our mortgage credit portfolio. In addition to providing very attractive returns, agencies significantly increased the liquidity of our overall portfolio and helped us manage the cash needs for margin calls on our interest rate swap hedge position. Fast forward to today, with increased clarity on the path of interest rates, lower market volatility, the increased portfolio liquidity provided by our agency portfolio and the predominance of non-mark-to-market financing on our loan portfolios, we have increased confidence to deploy more of our excess liquidity into our target asset classes, including an increased allocation to Agency MBS. Holding nearly 20% of our equity in cash has been a significant drag on earnings. While the 4-ish percent that we earn on cash is certainly better than the 0 we earned in 2021, it's more than 1,000 basis points less than the ROEs we generate in all other asset classes. Investing $100 million of this excess cash will still leave us with substantial liquidity, but the incremental earnings will have a meaningful and immediate impact on earnings and ROE. Finally, our ladder of outstanding securitizations is another potential source of additional capital. Because these securitizations delever over time, calling them and resecuritizing the underlying loan collateral often frees up tens of millions of dollars of capital to deploy into new assets, significantly boosting portfolio ROEs even if the new securitization deal comes with a higher cost of funds. We've shared progress over the last several quarters on our efforts to grow origination volumes at Lima One, and we're happy to report that we are starting to see these efforts bear fruit. We announced on our second quarter earnings call back in 2024 that we've made the decision to pause multifamily transitional lending at Lima One. We used this pause as an opportunity to initiate a comprehensive review of the multifamily underwriting guideline and processes. This review led to some changes, and we have recently hired a new multifamily leadership and underwriting team. In the last 1.5 years, multifamily seems to have found some footing with prices above the lows from early 2024, new construction starts down materially about 50% between 2024 and '25 and supply and demand in more balance. We are confident that the changes we have made have significantly strengthened our product offering, and we expect to resume multifamily lending in early 2026. During 2025, we have also made significant new hires to Lima's sales team, rolled out technology initiatives that materially improve the borrower experience, and we're planning to launch a wholesale origination channel next year as well. These initiatives take time to produce results, but we are confident that we have the right team, the right mindset and the right processes to produce quality loan production that we can now begin to scale. Business purpose loans generate some of the highest ROEs of all of MFA's target asset classes. So growth at Lima One into 2026 will contribute materially to MFA's earnings. Another initiative has been expense reductions. Over the last year, we've taken a hard look across all of our operating expenses, both at MFA and Lima One. While most of the significant reductions have been personnel related, we've also canceled or renegotiated many vendor contracts. As Mike stated on our last earnings call, our goal is to reduce run rate G&A expenses by 7% to 10% versus 2024 levels, which is about $9 million to $13 million a year or $0.02 to $0.04 per share per quarter. While we have realized a significant amount of savings already, we anticipate that additional savings will be realized throughout 2026 as many of these actions take time to be realized. A further initiative has been accelerating the resolution of nonperforming loans. These loans are across MFA's loan portfolio, but many are business purpose loans, including the aforementioned multifamily transitional loans. Our team has over 10 years of on-the-ground experience resolving nonperforming loans, dating back to 2014 and 2015 when we were large buyers of RPLs and NPLs from banks and the GSEs. We've been working closely with Lima One servicing professionals to resolve these loans, whether through loan sales, foreclosure and liquidation or other forms of asset resolution. And we've made significant progress. The multifamily transitional loan portfolio is almost half of what it was a year ago, and delinquent loans are down from $86 million to $47 million so far in 2025. Economically, losses associated with these loans were reflected in fair value marks when they emerged, which in most cases was over a year ago or more when these fair value marks flow through GAAP earnings and book value. But these nonperforming loans tie up a lot of capital. In some cases, these loans or REO properties may be unlevered, in which case, they are funded 100% with equity. In other cases, they may be funded partly with borrowing, but the advance rate on delinquent loans is generally lower than for performing loans. Additionally, we do not -- we generally do not recognize interest income on delinquent loans due to our nonaccrual policy. So the equity that we have tied up in nonperforming loans is a significant drag on our earnings and ROE. As we free up capital by resolving these problem assets, we can invest it in our target asset classes that generate mid- to high-teen ROEs. Finally, during the third quarter, we began a program to modestly modify our capital structure. Under our recently implemented preferred stock ATM program, we have issued additional shares of both our Series B and Series C preferred stock and used the proceeds to repurchase common stock at a significant discount to economic book value. While modest in size thus far, this is very accretive. And importantly, because we are issuing equity in the form of preferred stock, we are not shrinking our equity base despite repurchasing common stock. In the aggregate, we believe we are taking active measures to materially increase earnings and ROEs, and we expect to begin to see these results in 2026. And I'll now turn the call over to Mike to discuss our financial results. Michael Roper: Thanks, Craig, and good morning. At September 30, GAAP book value was $13.13 per share and economic book value was $13.69 per share. Each effectively unchanged from the end of June GAAP earnings of $48.1 million or $0.36 per basic common share. Net interest income was $56.8 million for the quarter, a modest decline driven primarily by the nonrecurring acceleration of discount accretion from the redemption of our MSR-related assets last quarter. As Craig mentioned, we continue to make progress with our expense reduction initiatives. Quarterly G&A expenses totaled $29 million, a $900,000 decline from $29.9 million last quarter and a $4.8 million decline from $33.8 million in the third quarter of 2024. Year-to-date G&A expenses were $92.4 million versus $103.9 million for the same period last year, a decline of approximately 11%. While we're proud of the savings achieved thus far, we continue to make progress on initiatives that we expect will bring additional savings in the back half of 2026. Distributable earnings for the third quarter were approximately $21 million or $0.20 per share, a decline from $0.24 per share in the second quarter. DE was again adversely impacted by credit losses on our loan portfolio, which totaled $0.11 per share for the quarter. DE, excluding these credit losses, declined modestly to $0.32 per share from $0.35 per share last quarter, a decline driven largely by the nonrecurring income in the second quarter on our MSR-related assets. Though we continue to expect some near-term pressure on our distributable earnings, as we made progress on the highly accretive strategic initiatives Craig spoke to earlier, we expect to see growth in our DE in the quarters ahead and continue to believe that our DE will reconverge with the level of our common dividend by mid-2026. Moving to our capital. During the quarter, we sold approximately 70,000 shares of our Series B preferred stock and approximately 125,000 shares of our Series C preferred stock for aggregate proceeds of approximately $4.5 million at a yield well below our common cost of capital. During the quarter, we repurchased approximately 500,000 shares of our common stock at a discount of approximately 27% to our economic book value. As we continue to execute on our strategic initiatives to grow earnings, we find the opportunity in MFA's common stock today to be extraordinarily compelling. Given current market conditions and the trading level of our common stock, we expect to continue to issue preferred shares and repurchase our common shares as a way to enhance returns to our shareholders without sacrificing scale. Finally, subsequent to quarter end, we estimate that our economic book value is up by approximately 1% from the end of the third quarter. I'd now like to turn the call over to Bryan, who will discuss our investment activities in the third quarter and our progress with Lima One. Bryan Wulfsohn: Thanks, Mike. We acquired $1.2 billion of loans and securities in our target asset classes during the third quarter. This included $453 million of non-QM loans, $473 million of agency securities and $260 million of loans originated by Lima One. I'll expand on the latter 2 in a moment. Our non-QM portfolio now exceeds $5 billion in size and remains our largest asset class. The loans we purchased during the quarter carry an average coupon of 7.6% and an LTV of only 68%, which we believe helps insulate us from a softer housing environment. We remain focused on the credit quality and maintain a robust diligence process, utilizing in-house resources in addition to independent third-party reviews. Credit performance in our non-QM book continues to be strong with a delinquency rate just over 4%. We issued our 19th and 20th non-QM securitizations during the quarter, selling $673 million of bonds at an average coupon of 5.4%. We've now securitized over $7 billion of non-QM paper since our first issuance in 2020. I want to thank our many investors who have consistently supported our deals. We grew our Agency MBS position to $2.2 billion during the third quarter, adding almost $500 million of securities. Spreads have tightened, but it remains possible to generate mid-teens ROE with leverage on these investments. We continue to focus on lower pay-up spec pools that provide additional prepayment protection than generic pools. Our portfolio is predominantly comprised of 5.5% purchased at a slight discount to par. Our portfolio interest rate exposure remained stable over the quarter with our duration decreasing slightly just under 1 year. As Craig mentioned earlier, we plan to invest our excess cash into our target assets, which includes agencies. Subsequent to quarter end, we acquired an additional $900 million of Agency securities, and we plan to marginally grow our position further while spreads remain attractive. Given the liquidity of our agency portfolio, we retain the flexibility to opportunistically rotate capital should credit spreads widen from here. Turning to Lima One. Lima originated $260 million of business purpose loans during the quarter, a 20% increase from the second quarter. This included $200 million of single-family transitional loans with an average coupon of over 10% and over $60 million of new rental loans with an average coupon of 7%. During the quarter, we sold $66 million of recently originated rental loans at a premium to third-party investors, generating $1.6 million gain-on-sale income. Lima overall contributed $5.6 million of mortgage banking income to our earnings. During the quarter, we made important progress in positioning Lima for growth. We hired new talent to help expand Lima's product offerings and origination channels, and we've continued adding to our sales team across the country. As Craig mentioned, Lima is planning to reenter the multifamily lending space in addition to opening up a wholesale channel focused on single-family rental lending. We are exploring partnerships with third-party investors interested in these credits to accelerate ROE growth. We believe these hires, along with further technology improvements will help support Lima's origination volume in future quarters. Finally, turning to our credit performance. The delinquency rate for our entire loan portfolio declined by 50 basis points to 6.8% in the third quarter. This was driven by decreases in nearly every asset class, including our multifamily book, where we sold $15 million of delinquent loans at levels in line with our marks from the prior quarter. Over the quarter, we resolved $223 million of nonperforming loans, generating a gain to our prior quarter marks of nearly $15 million. We are excited by the prospect of recycling all of that capital into income-producing assets moving forward. Wrapping up, we're excited about the growth prospects across our business and look forward to sharing our continued progress next quarter. And with that, we'll turn the call over to the operator for questions. Operator: [Operator Instructions] Our first question today will come from Bose George with KBW. Bose George: [ Audio Gap ] run rate EAD. Should the starting point be $0.32 where we just basically pulling out that loss provision? And just to be clear, that loss provision is -- since that was already in the mark, that's not having an impact on your book value. Is that right? Michael Roper: Sorry, Bose, we didn't hear the first part of your question. Can you just repeat the question? Bose George: Sure. Yes, the first part -- actually, the cool question. The first part was the -- when we think about run rate EAD for the company, should the starting point be the $0.32, which is basically the $0.20 after pulling out the loss provision this quarter? And the second part is that loss provision is already reflected in the mark or just confirming that's the case. So there's no book value impact from these loss provisions. Michael Roper: Yes. Thanks, Bose. So I guess a couple of things. We strip out 100% of the losses in that $0.32 number. This is not a 0 loss business. So it's certainly heightened right now, but call it, $0.01 or $0.02 or maybe slightly north of that, certainly not $11. I think if you look at the initiatives Craig spoke to, there's a lot of ROE to be found there, right? And if you look at the lossless DE ROE, it's something like 9-ish percent. And then if you look at our dividend yield on book value, it's about 10%. So there's a lot of upside to be found in some of the initiatives Craig spoke to. And you can very, very cleanly bridge the gap between that sort of lossless DE today and where we think we can take DE to and the earnings potential of the portfolio. Bose George: Okay. Great. That's helpful. And then in terms of incremental capital deployment, you guys -- you noted the $100 million of excess. And how much capital is tied up in the delinquent loans? Like how much could that be in terms of incremental investment? Michael Roper: One sec Bose. So I think that could probably be somewhere in the magnitude of like $40 million to $60 million associated with the delinquent loans. And I think I maybe missed part of your previous question. Just to confirm, the losses that are flowing through DE, they've been reflected in book value, in some cases, years ago. We have about -- I think for the quarter, if you look at where it was marked last quarter and then where the asset resolved today, we had about a $15 million gain for the quarter associated with those resolutions. So these are really old news. And in many cases, they're actually positive to book value when they're being resolved. Bose George: Okay. Great. And yes, just on the incremental capital. So $150 million times whatever teens ROE is kind of the way to think about the incremental contribution -- I guess, net of -- on the $100 million net of the cash that you're earning is kind of the... Michael Roper: That's exactly right. Operator: And next, we'll move to Mikhail Goberman with Citizens JMP Securities. Mikhail Goberman: If I could ask about Lima One, originations were very strong there. What kind of margins are you guys seeing in that portfolio? And do you guys need sort of a higher level of margins to get that mortgage banking income quarterly up from the $5.6 million you did in this quarter to sort of, let's say, a higher single teen million dollar level? Bryan Wulfsohn: Yes. In terms of -- I mean, the margins are pretty healthy. So on the short term, you're collecting sort of 1 point to 2 points on origination and then you're additionally getting a servicing strip on the back end. So I think growth there will lead to increased mortgage banking income. On the loan sales related to the rental loans, those sell at generally, say, a 2 to 3.5 point premium. And then we're also collecting origination fees on those loans. So the margins are pretty healthy. I think there's just -- we just need to increase the volume of origination, which would drive that income growth. Mikhail Goberman: And that's ostensibly what the multifamily -- the move into multifamily is going to do, right? Bryan Wulfsohn: Right. The multifamily plus the wholesale. Mikhail Goberman: Right. Great. Maybe if I could ask one more about your Agency MBS capital allocation, how you guys are thinking about what that level might be going forward, what it might grow to? Bryan Wulfsohn: Yes. I mean in terms of the equity allocation, where we are today, we could see some marginal growth as sort of I stated in the prepared remarks, but we don't see it dramatically changing after this additional purchase of $900 million post quarter end. Operator: [Operator Instructions] Next, we'll move to Eric Hagen with BTIG. Eric Hagen: We thought it was a good quarter. The move to get back into multifamily at Lima One, can you say what the levered returns that you're seeing there are? And when you think about the credit box, I mean, have there been any meaningful changes or kind of like edits or tweaks to the credit box? And how you guys are just thinking about like the sustainability of the credit there? Bryan Wulfsohn: Sure. I mean in terms of ROEs, we think mid-teens ROEs are achievable. And we also said that we would utilize sort of third-party capital partners as well with that. So we don't necessarily need to take all the loans on our balance sheet. So what really it does do efficiently is help grow sort of the mortgage banking income line down at Lima One. And in terms of the types of assets that we're looking at, really, it's moving somewhat up in market and quality and then thinking more about bridge versus value add. Eric Hagen: Okay. That's interesting about the bridge. You guys talked about the agency portfolio. We really like what you guys are doing there. Can you talk about the range for leverage that you guys think you can tolerate in that portfolio? And then on the hedging, I mean, are you using any products which maybe help you better manage the liquidity in that portfolio versus some of the products or the kind of structure that you've operated with in the hedge portfolio in the past? Bryan Wulfsohn: So yes, from a leverage perspective, we're still -- we're not really targeting increasing that leverage. It's still around plus or minus 8. And then in terms of the hedges we use, we use cleared swaps as well as we started using these SOFR futures from ERIS. And they're similar in terms of economics as it relates to the cleared swaps. However, the initial margin is materially lower. So just as an example, we've added almost $300 million notional of hedges, but we moved some cleared swaps into the SOFR futures, and it reduces the initial margin by, say, $16 million, $17 million, and that can then be redeployed into a mid-teens ROE asset. So if you think about sort of unlocking earnings power of the portfolio, that's about, say, $2 million a year, just moving that. So it's pretty attractive. Operator: And at this time, there are no further questions. I would like to turn the floor back to Craig Knutson for additional closing remarks. Craig Knutson: Thank you, and thank you for your interest in MFA Financial. We look forward to speaking with you again in February when we announce fourth quarter and full year results. Operator: Thank you. That does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
Operator: Welcome to SelectQuote's First Quarter Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce Matt Gunter, SelectQuote Investor Relations. Mr. Gunter, you may begin the conference. Matthew Gunter: Thank you, and good morning, everyone. Welcome to SelectQuote's fiscal first quarter earnings call. Before we begin our call, I would like to mention that on our website, we have provided a slide presentation to help guide our discussion. After today's call, a replay will also be available on our website. Joining me from the company, I have our Chief Executive Officer, Tim Danker; and Chief Financial Officer, Ryan Clement. Following Tim and Ryan's comments today, we will have a question-and-answer session. As referenced on Slide 2, during this call, we will be discussing some non-GAAP financial measures. The most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and the non-GAAP financial measures are available in our earnings release and investor presentation on our website. And finally, a reminder that certain statements made today may be forward-looking statements. These statements are made based upon management's current expectations and beliefs concerning future events impacting the company, and therefore, involve a number of uncertainties and risks, including, but not limited to, those described in our earnings release, annual report on Form 10-K for the period ended June 30, 2025, and subsequent filings with the SEC. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in our forward-looking statements. And with that, I'd like to turn the call over to our Chief Executive Officer, Tim Danker. Tim? Timothy Danker: Thank you, Matt, and thanks to our investors and analysts joining us this morning. Picking up from the momentum of a strong fiscal 2025, SelectQuote executed well over the first quarter and is well positioned for a successful fiscal 2026. Beginning with the headline results. We generated consolidated revenue of $329 million, which represents 13% growth over the same period a year ago, driven by strong growth in Healthcare Services. As you saw in our press release, the year-over-year senior revenue compare was unique this period given the changes to beneficiary eligibility requirements during the special election period. Specifically, our senior revenues were $59 million compared to $93 million a year ago. The decline was driven by lower policy production, which was expected given the new SEP parameters we foreshadowed on last quarter's call. Additionally, as also forecasted last quarter, the segment recognized negative EBITDA of $21 million in the first quarter, driven by the combination of lower policy production as well as increased year-over-year investment and new agent hiring in advance of AEP. I'll speak more to our readiness for AEP in a moment, but the high-level takeaway is that our Senior business performed as expected in what was a unique year-over-year compare for SEP. In our Healthcare Services business, our new Kansas facility is ramping as planned, delivering efficiency gains in line with expectations. However, first quarter Healthcare Services EBITDA was impacted by a change in drug reimbursement rates with a SelectRx PBM partner. This is a headwind for our 1Q and 2Q Healthcare Services EBITDA margin. Without providing detail on the contract, it is important to call out from the perspective of the PBM the change in reimbursement rate relates to volume shipped over calendar year 2025, not just fiscal 1Q or 2Q. The change does not impact our prior period results, but instead disproportionately impacts the first half of this fiscal year by approximately $20 million. The majority of that impact will be recognized in our fiscal second quarter. As a result, we now expect second quarter adjusted EBITDA for Healthcare Services to be approximately breakeven. We are actively negotiating a longer-term reimbursement agreement with this carrier that creates better visibility for both parties. We have communicated our need for stability in our financials. The timing of this impact following our initial 2026 outlook is a clear example of that need. We're confident we'll reach a mutually beneficial agreement as this PBM partner recognizes the compelling clinical value provided by SelectRx, which I'll speak to later in my remarks. Regardless of the ongoing negotiation with this PBM, rates per our current contract revert to more normalized levels on January 1, 2026, which underpins our updated fiscal '26 view. While we no longer anticipate reaching our $50 million target for fiscal '26, our confidence and visibility in the long-term economics of Healthcare Services are unchanged. Despite the 2Q impact, we plan to exit the fiscal year at an annualized EBITDA run rate in the $40 million to $50 million range and continue to see SelectRx and Healthcare Services as a meaningful driver of profit and cash flow for SelectQuote. Speaking now at the consolidated level, quarterly EBITDA of negative $32 million was below our guided $25 million to $30 million loss range communicated on the last call due to the SelectRx margin dynamics I just spoke about. Senior EBITDA was within expectations for the quarter and our views on the upcoming AEP season are unchanged. If we turn to Slide 4, I'll detail those views for AEP. Beginning at the top of the page, let me start with our view of the overall industry. As you recall from last year, shifts in planned benefits and structures from carriers drove an elevated amount of policyholder volatility. Looking ahead to this year's selling season, we see a similar backdrop where carriers continue to prioritize Medicare Advantage margins over aggregate policy growth. The importance of a well-fit policy has never been more important to both the carrier and the policyholder. SelectQuote's data-enabled agent-led model is specifically built for that purpose, which we believe is a lasting competitive advantage and one that is especially acute in this environment. Coincidentally, we expect the ongoing strategic shift by carriers to drive another elevated year of policy terminations. As we noted last year, these industry trends drive an increased need for the solutions SelectQuote provides, both for the carrier and certainly for the policyholder. Additionally, we see certain pockets of growth within health plans this season, including HMOs, SNPs and in specific underserved geographies, which our model is uniquely well positioned to help. If we move to the bottom of the slide, let me give our outlook for how SelectQuote is positioned to perform in this Medicare Advantage season. Looking back, the 2025 AEP season exceeded expectations. Our high-touch data-driven model proved its value in a dynamic market, where policyholder questions and confusions were elevated. In that environment, our agile agent-led approach delivered outsized growth per agent and near record margins in the Senior segment. For the 2026 AEP and OEP seasons, we're optimistic that performance will be strong. We entered the season with excellent retention of tenured agents who are about twice as productive as new hires, and had another successful preseason of hiring and training. This positions the platform well for continued growth and improved operating leverage. Moving to our focus on retention. We know carrier plan changes can drive confusion, and we have made a strategic priority to proactively work with policyholders to ensure they understand their plans. This is a differentiated approach that is highly appreciated by policyholders. In the upcoming year, we expect tangible benefits to our results from both keeping policyholders in plans that remain a good fit or helping them find a new plan that best fits their ongoing needs. In fact, we believe there's an opportunity to improve policyholder recapture rates from the 2025 season. We believe our agile sales function and focus on retention positions SelectQuote to once again deliver in what is to be sure another dynamic and disruptive AEP season. On Slide 5, let's add some context on SelectRx and the way our customers and carrier partners benefit. As we've talked about since the inception of the business, there are substantial problems and inefficiencies in how prescription drugs are paid for, distributed and ultimately taken by Americans. SelectQuote, as an efficient healthcare information hub, has significant insight and ability to eliminate inefficiency and improve the experience for all participants in the prescription drug value chain. At the highest level, SelectRx improves lives for Americans, introduces efficiency and cost savings into the system and leads to better health outcomes. Here, we provide a few examples, beginning on the left with improved MA retention. Given medication is a core piece of most treatment regimens, the fit of prescription drugs within a medical coverage plan has a synergistic benefit. We have seen this evidence with SelectRx members, who tend to have lower rapid disenrollment rates and higher retention on the Medicare Advantage plans they select. Next is improved medication adherence in the middle column. Our approach recognizes a fundamental reality of patient care, medications change. Unlike the traditional 90-day bottle-filled approach prevalent elsewhere, we utilize adherence-friendly 30-day packaging with a high-touch service model. This monthly cycle is critical because on average, roughly 10% of our SelectRx members experience a material change to their prescription regimen each month, whether it's adding a new medication, discontinuing an old one or adjusting the dosage. When a patient's therapy changes, a 90-day supply creates a dangerous gap and an unnecessary drug waste. Our 30-day approach more quickly ensures that patients are taking the correct current medications, which is vital. This reduces the risk of patients taking incorrect doses or discontinued medications and lowers the risk of adverse drug reactions. It is well known that taking medication in accordance with the doctor's orders is critical. As we know, especially with American seniors, drug adherence is a tricky and persistent problem, which can lead to worse health outcomes, particularly among the polychronic population we serve, nearly 70% of whom have limited pharmacy access. Nationwide studies suggest that poor medication adherence contributes to around 25% of all hospitalizations, which translates to hundreds of billions of dollars in healthcare costs in the United States each year. Around 40% of our Healthcare Select members have reported either forgetting to take their medications or failing to pick up prescriptions from a pharmacy. We designed SelectRx with this specific problem in mind and have seen clear success in adherence rates. We attribute the success to the convenience and clarity that SelectRx custom drug delivery provides patients. When we enroll patients in SelectRx, we see a meaningful improvement in their active medication adherence over the next 2 years. With our new concierge like program, we call Adherence for All, we are further accelerating and enhancing medication adherence improvement with beneficiaries in the programs improving by roughly 10% within the first year. Finally, the right-hand column is the most rewarding statistic, improvement in health outcomes, which benefits everyone within the ecosystem. By improving adherence, SelectRx members see a reduction in hospital days of around 20%. This directly translates to a better quality of life for the patient, but additionally provides a meaningful cost reduction for the overtaxed healthcare system and similarly for healthcare insurance payers. We provide this color not just because we're proud of the business, but it is important for investors to understand that these numbers matter to our insurance carrier partners. They, like us, see SelectRx and our healthcare services platform as a core value driver for long-term American healthcare improvement. With that, let me turn the call over to our CFO to detail our results. Ryan? Ryan Clement: Thanks, Tim. Beginning on Slide 6, the business executed well in the fiscal first quarter, advancing our strategic priorities across Senior, Healthcare Services and Life, even as we navigated the near-term reimbursement challenge within SelectRx. Consolidated revenue grew 13% to $329 million, driven primarily by our SelectRx and Life Insurance business, which helped offset the unique comparison in Senior related to SEP. The fundamentals of our Senior business are unchanged, where we wrote 32% fewer policies in this year's fiscal first quarter compared to last year. Similarly, first quarter EBITDA is not directly comparable to the prior year due to the new SEP environment and our normal upfront investment to prepare for the upcoming AEP and OEP seasons. If we shift to Slide 7, our Senior financial results again show the impact from SEP. The results were in line with our expectations, and again, are a function of lower policy production because of new eligibility rules and the normal course of investment we make before the AEP and OEP season. I will reiterate that this level of volume was as expected. The impact can be seen primarily in our segment revenue, which declined 37% to $59 million due to the 32% fewer policies. Our Senior EBITDA loss of $21 million was in line with our expectations given the production and investment dynamics I just spoke about. LTVs have remained relatively stable despite increased policyholder volatility in the past year, coming in at an average of 883 for the last 12 months. We are now operating at a revenue to client acquisition cost of 6.4x, which continues to exhibit the synergy of our marketing spend against very attractive and durable cash flow streams for SelectQuote. If we flip to Slide 8, I'll review the dynamics underlying our Healthcare Services results. Members held steady compared to last quarter, in line with expectations, given the first fiscal quarter is typically a slower one for onboarding SelectRx members. We feel well positioned to capitalize on the AEP and OEP enrollment seasons. That being said, we continue to focus on driving profit and cash flow over aggregate member growth. As Tim highlighted, the primary factor impacting first quarter results was a change in the reimbursement structure with one of our SelectRx PBM partners. As a result, fiscal 2026 will ramp more gradually than we initially anticipated. We expect the rate pressure to crest in our fiscal second quarter before we revert to a more normalized rate structure with this PBM starting in January 1, 2026, which is our fiscal third quarter. Despite this near-term pressure, our medium- and long-term outlook for expanding operating leverage and improving margins in Healthcare Services remains intact. To reiterate Tim's point, this partner understands the clinical value our SelectRx solution brings to patients, and as such, we are in constructive discussions to solidify our longer-term rate structure. We believe this new arrangement will provide enhanced visibility and predictability for our growing SelectRx business. Healthcare Services continues to be a highly attractive driver of profit and cash flow for SelectQuote. The value we deliver to customers through SelectRx, combined with strong attachment rates in our Senior Medicare Advantage business, remains central to our strategy. This approach supports increasing cash flows, which benefits shareholders through improved cost of capital and more self-funded growth. Let's shift to Slide 9 to detail our Life Insurance business. The quarter was a strong one for growth as revenues expanded nearly 20%, driven by balanced growth in term life and final expense policies. The lack of pull-through to our EBITDA, as shown at the right, was also driven indirectly by the changes to this year's SEP. As part of our preparations for the season, we shifted agents to our Life business given our expectation for less MA volume during the SEP period. The results for our Life business was a near-term increase in expenses related to production in the quarter. We expect this trend to reverse as the season progresses and agents are reallocated and new agents specifically become more tenured in life. As a whole, the Life business continues to provide another steady stream of profit and efficient cash flow, similar to our Healthcare Services business. In closing, we are pleased with the results from each of our divisions and SelectQuote's overall position for the year ahead. The Senior business is well prepared for AEP, supported by strong agent retention and a successful preseason. Healthcare Services continues on its strong growth trajectory, and our Life division is driving consistent, reliable cash flow. At this time, we are not changing our fiscal 2026 financial outlook of $1.65 billion to $1.75 billion in revenue and the $120 million to $150 million in adjusted EBITDA. While the Healthcare Services adjustment is a headwind, we plan to update our outlook following our fiscal second quarter as we will have additional detail on the AEP period for our Senior business. That said, we remain confident today that we will be operating cash flow positive during fiscal year 2026. With that, I'll turn the call over to the operator for Q&A. Operator: [Operator Instructions] Your first question comes from Ben Hendrix of RBC Capital Markets. Michael Murray: It's Michael Murray on for Ben. On SelectRx, you seem to believe the reimbursement headwind is going to be contained in 2025. What gives you comfort that rates will improve next year? And is there a potential that you'll see a similar reimbursement headwind at the end of next year? Timothy Danker: I appreciate your attendance here. Just to provide a little bit more context on what we mentioned in our prepared remarks. We did have one PBM that made some adjustments to the drug reimbursement rates. Despite this change, the PBM remains profitable. We have a very strong relationship with them. We're in the midst of updating our agreement. As we shared with the market today, they see what we see, an immense amount of clinical value that our SRx solution provides patients. And as such, we're in constructive discussions with them to solidify a longer-term agreement and rate structure. So we are absorbing a short-term impact in Q1, Q2, but the long-term economics remain very attractive. They don't change our perspective on growth or margin profile. As we work towards this new agreement, we will provide enhanced visibility and predictability into the growing business. Michael Murray: Okay. I appreciate that. Just shifting gears a little bit. I appreciate the commentary that SelectRx is improving MA member retention. Could this have a potential positive impact on LTV? And how much data would you need to see before building that into the LTV calculation? Ryan Clement: Yes. I mean we do -- yes, so we do see an improvement in the overall persistency when someone is a member of SelectRx and has a Medicare Advantage plan. So we do see that. We don't actually build that into the lifetime values themselves. So we're not booking that increase, but it's absolutely something we're observing. Timothy Danker: Yes. And really quick to follow that up, just as a reminder, it's not a huge attachment rate, right? It's a very specific cohort of customers. So not a massive overall impact, but a positive. Operator: Question comes from Pat McCann from NOBLE Capital Markets. Patrick McCann: First, I was wondering, with regards to what you mentioned about helping policyholders understand their plans better to focus more on retention, could you talk a little bit more about what that looks like in practice? Timothy Danker: Yes, I'd be happy to -- I'd be happy to start, and maybe I'll ask Bill Grant, our Chief Operating Officer, to expand on it. But obviously, last season was a very disruptive AEP, OEP season. We are really proud of our team's efforts and the service we provided beneficiaries. I mean, just for perspective, this year, nationwide, about 2 million MA beneficiaries are going to be impacted by plan terms -- or planned exits and another several million that are having pullbacks in benefits. So helping beneficiaries, protecting our back book of business is a priority. We've taken several actions, several learnings from last year and feel like we've got a jump start on it. But Bill, maybe you can provide some additional detail on our approach. William Grant: Yes, happy to. So I think that our approach evolves every year. We learn a lot in terms of how we use AI, our center, all the different -- all the data we have in terms of how we approach our book. And then we marry that, right, with how the plans are changing, right, because it's an ever-evolving environment. But we believe that we have a really good strategy to continue to offer our value proposition to consumers as we move along, and that we're targeting or talking to the right folks that need our help. And you can really see that play out in kind of our year-over-year -- in terms of the number of folks that we're recapturing, what it looks like in terms of how that strategy plays out. But we're really using every tool in our arsenal. But I think the biggest thing that we have going for us by far is our long data history along with marrying that with our different AI strategies that allow us to be as cost effective as we can on who we treat, when we treat them, all of those things. Patrick McCann: Excellent. And my next question was regarding the recent research you published on the social determinants of health. And I was wondering if -- how that is informing your strategy in terms of potential new offerings in the Healthcare Services segment, how you are leveraging that data going forward? Timothy Danker: Yes, I'll actually start it, and then I'm going to have [Audio Gap] on what we do to solve those problems. I'd say first and foremost, right, we just want to understand our customer base better and better. That's really informed the products that we've picked from the healthcare side of the house. That's how we found SelectRx, was folks need for a better solution than they were currently on to save them time and money and then ultimately help them adhere better. I think, though, there's also products within the actual SDOH space that we're looking at that would help folks afford their daily needs better and to really look at the actual membership side of the house. So Bill, do you want to speak to the membership side and ultimately kind of what we're trying to do to solve SDOH issues on top of just traditional healthcare issues? Because we kind of break those things apart. William Grant: Yes, sure. So as you know, we have over 2.5 million Healthcare Select members. Healthcare Select membership involves a fairly robust health risk assessment, where we determine through that health risk assessment social determinants of health and what services may be applicable and help with our overall charter with that group, right, which is improving their overall health lives, all those things. So we have a variety of products within that now. It's ever expanding. Again, we use a combination of kind of AI, Next Best Action, our consumer data –- or MarTech tools, right, to be able to talk to those customers. We've now helped over 50,000, taking our services through FindHelp or SDOH. We have a number of products there and we're expanding quickly. But we feel really good about our value proposition of our membership, and that just helps our overall engagement with Healthcare Select. Operator: Question comes from George Sutton from Craig-Hallum Capital Group. Unknown Analyst: This is Logan on for George. I wanted to start with just kind of a high-level one on AEP. You touched on it a little bit kind of talking about the similarities to last year, but I was hoping you could characterize a little bit more kind of anything you're seeing in the market different relative to last year. Timothy Danker: Logan, I'll start and ask Bob Grant, our President, to elaborate as well. Early in the AEP season, but we're pleased with performance thus far. As we've shared before, it is certainly a dynamic AEP season, given some of the profit actions taken by the carriers to get their margins in line. We're seeing that play out. We are seeing a very high level of consumer engagement as MA beneficiaries are out evaluating options. We would share that we think both our new agents as well as our tenured agents are performing very well within expectations. And as Bill shared, we've been spending a lot of time also working on our back book of customers to ensure that they understand all of their options. But thus far, the AEP environment is what we expected. It's still very early, but we feel very prepared in the early days, a lot more innings to play out. Bob, do you want to talk about some of the things you're seeing kind of more broadly in the market? William Grant: Yes. I think we're just seeing another year of kind of pullback from certain carriers, to Tim's point, and push forward from others, which does cause some switching. I think the difference this year, though, is that every carrier pulled back to a certain degree, as you guys have kind of heard them talk about, to really focus on profitability, which does create a lot of calls and education, which we feel really, really good about kind of helping people understand how to use their plan, a lot of the Healthcare Services benefits and things that we're doing. So I'd say it's just a little bit of a unique environment relative to other years, but probably more similar to last year than any year we had seen prior. And we do like some of the simplification of benefits. I think HMOs typically are a really good plan for a customer, easier to understand, easier to cost contain. And then ultimately, sometimes while ancillary benefits can be good, they can be a little bit confusing. So pulling back on those 2 simplifies offerings and I think really helps the payers. So we feel really, really good about where AEP is going and where the plans are, especially from a multiyear view. I do think payers are really, really focused on making sure that's profitable into the long run. Unknown Analyst: Got it. That's helpful. And then maybe switching over to SelectRx. Obviously, you guys have shown the ability to grow that business. You more recently talked about kind of focusing on the profitability. Can you just talk about how you plan to manage the growth or manage the funnel kind of through the busier quarters here where you probably have more opportunities to grow? But it sounds like you're kind of looking for the right members. If you can just talk about that, that would be helpful. Timothy Danker: Maybe you can talk about the -- our member growth, and I'll highlight one other item. Go ahead, Bob. William Grant: Yes, sure. So as far as member growth, we've been very -- I think we've been very measured on that. As we talked about before, we're very focused on profitability and members that need the service the most mixed with PBMs and payers that appreciate the service the most. I know that sounds funny, but just like in value-based care or any other thing, we have a closer partnership with some payers than we do others. And we are very focused on how we expand the clinical aspect of that business. We announced earlier our Adherence for All program. We have quite a few participants that are very curious in that program because it speeds up. Tim alluded to how fast we improve adherence. That speeds it up by multiple months and is a very powerful program from SRx perspective and other things. So we are very focused on that. I do think the market is still massive for us, right? It is a very big need. And I think the more and more we have quality conversations with payers and PBMs, the better and better kind of results we get even with the short-term headwind that we've seen. Ultimately, as Tim alluded to, that's still a great relationship. And we've had a lot of really good discussions about how we can get to a really stable yet powerful contract that really focuses on the clinical aspect of that. Go ahead, Tim. Timothy Danker: Yes. I think it's a great point, Bob. And I would say, again, none of this changes our underlying conviction and the massive opportunity ahead of us. We think this is a very powerful model, certainly for the patients. We shared a lot around the clinical value. It's important to that patient. It's important to the payer. Obviously, we're working through a very short-term reimbursement issue. We have our arms around it. We don't anticipate anything of this magnitude happening again. We're confident in our ability to continue to work with all of our PBM partners given the massive value that we see here. And we're confident in our ability. We feel like we have very strong line of sight into the business and a strong level of conviction around the go forward of this business. Operator: This concludes our Q&A session. I will now turn the conference back over to Tim Danker, CEO, for closing remarks. Timothy Danker: Thank you. We want to thank everybody for joining us today. We're really proud of the start to fiscal '26, the strong execution despite navigating the dynamic SEP environment this past quarter. The entire organization is very well positioned for another successful AEP and OEP season, and we plan to leverage our competitive advantages as a health care ecosystem across the entirety of our business. It's early days, but we're very encouraged by AEP results thus far, and we look forward to sharing more about the season and our strategy on our next earnings call. I want to thank you again. Have a great day. Operator: This concludes today's conference call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the MasterCraft Boat Holdings, Inc. Fiscal First Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Alec Harmon, Director, Strategy and Investor Relations. Please go ahead, sir. Alec Harmon: Thank you, Stephanie, and welcome, everyone. Thank you for joining us today as we discuss MasterCraft's fiscal first quarter performance for 2026. As a reminder, today's call is being webcast live and will also be archived on our website for future listening. With me on this morning's call is Brad Nelson, Chief Executive Officer; and Scott Kent, Chief Financial Officer. Brad will begin with an overview of our operational performance. After that, Scott will discuss our financial performance. Brad will then provide some closing remarks before we open the call for questions. Before we begin, we would like to remind participants that the information contained in this call is current only as of today, November 6, 2025. The company assumes no obligation to update any statements, including forward-looking statements. Statements that are not historical facts are forward-looking statements and subject to the safe harbor disclaimer in today's press release. Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude items not indicative of our ongoing operations. For each non-GAAP measure, we will also provide the most directly comparable GAAP measure in today's press release, which includes a reconciliation of these non-GAAP measures to our GAAP results. There is also a slide deck summarizing our financial results in the Investors section of our website. As a reminder, unless otherwise noted, the following commentary is made on a continuing operations basis, and all references to specific quarters and periods will be on a fiscal basis. With that, I will turn the call over to Brad. Bradley Nelson: Thank you, Alec, and good morning, everyone. We delivered results that exceeded our expectations despite continued geopolitical uncertainty and a dynamic retail environment. Our team continues to execute our key operating initiatives and maintain disciplined cost controls, which contributed to our performance in the quarter. Pipeline inventory levels improved year-over-year, reflecting our balanced approach to dealer health and focus on driving sustainable growth. Q1 net sales increased $3.6 million or 6% year-over-year, and adjusted EBITDA rose nearly $3 million, a margin improvement of 380 basis points. As always, I want to thank each of our team members and dealers for their focus and partnership, which has provided us with a solid foundation from which to build for the rest of our fiscal year. Regarding channel inventory, we maintained the progress made over the past year with pipeline levels ending the quarter 27% improved from prior year. Dealer inventory levels are on track with our expectations, and inventory turns remain aligned with pre-COVID levels at this point in the year, supported by disciplined production planning and proactive pipeline management. From a distribution perspective, we continue to fine-tune our presence in key markets, consistently evolving our network and capitalizing on opportunities to add strong partners globally. While retail variability continues, early industry indicators have not changed our expectations for the year of down between 5% and 10% for our MasterCraft segment. The Pontoon category remains highly competitive with retail softness persisting due to elevated interest rates and promotional activity. Overall, while near-term interest rate cuts provide us with cautious optimism, continued macroeconomic strengthening and sustained breakout in demand would further support meaningful order growth. Our flexible operating model and targeted dealer support programs position us well to respond to evolving retail dynamics and deliver on the full year. Now turning to our brands. We remain encouraged by recent operational and quality trends within our MasterCraft brand, which were echoed by our dealer network during our annual dealer meeting held in late September. The energy and excitement for our brand reinforce confidence in our strategic direction and product road maps. In the quarter, we launched the first model of the all-new X family, the X24 to our dealers, followed by a successful consumer debut. This groundbreaking model ushers in the next generation of premium ski-wake products, featuring advanced technology and elevated design, reinforcing our commitment to differentiated innovation and category leadership. The timing of the X24 launch builds on the momentum of our ultra-premium XStar family and further positions MasterCraft at the forefront of the premium ski-wake segment. Initial dealer and consumer response has been strong, building anticipation for delivery of the full platform of models. We remain disciplined in ramping production throughout the year to ensure quality and demand alignment. In addition to product innovation, we continue to strengthen our brand through strategic partnerships and industry involvement. As an example, our recent partnership with the World Wake Association reflects our standard of delivering premium experiences, welcoming new riders, fostering a vibrant community around water sports while showcasing our latest innovations like the new X24. Turning to our Pontoon segment. Our Pontoon segment delivered meaningful progress with year-over-year improvements in operational execution despite broader market challenges. Crest's model year 2026 lineup was well received at our recent dealer meeting. The refreshed portfolio includes multiple new products, most notably the rebranded Conquest line, which modernizes the offering while honoring Crest's history legacy. We also introduced the Conquest SE, a new model designed to expand our addressable market at a more accessible price point. Combined with the successful addition of several new distribution points in key markets across the U.S., Crest is well positioned to capitalize on growth opportunities as market conditions improve. Our new Balise offering, which now includes the third model in the series, the all-new Halo, launched within the quarter, is garnering excitement and delivering a new level of differentiated consumer experience. While we remain measured in our near-term expectations given broader market dynamics, our focus is on building a foundation of future growth. Our strategy for the Pontoon segment remains centered on delivering differentiated products that elevate the on-water experience, supporting and strengthening our dealer partners and continuing to deliver marked operational improvements. Across the company, our financial position remains strong, and our strategic growth initiatives are fully resourced. Our flexible operating model and consistent cash flow generation are enabling us to invest confidently throughout the cycle. We continue to advance differentiated innovation across our business, returning capital to shareholders through EPS-accretive share repurchases and remain disciplined in evaluating inorganic opportunities. With that, I'll turn it over to Scott to review the financials. Scott Kent: Thank you, Brad. We are pleased with this quarter's performance, delivering results above our expectations for both net sales and earnings due to the strong operating performance of both of our segments. Focusing on the top line, net sales for our fiscal first quarter were $69 million, up $3.6 million or 5.6% year-over-year. The increase was primarily driven by pricing, favorable auction sales, lower dealer incentives and in alignment with our planned production cadence for the first half of the year. Gross margin improved 420 basis points over prior year to 22.3%, a result of strong cost management and operating performance across both segments, pricing and favorable mix. Operating expenses were $11.6 million for the quarter, an increase of $0.8 million when compared to the prior year due to senior leadership transition costs and timing of compensation and commercial activities. We continue to tightly manage discretionary spend and operating expenses remain well controlled. Turning to the bottom line. Adjusted net income for the quarter was $4.5 million or $0.28 per diluted share. This compares to adjusted net income of $1.9 million or $0.12 per share in the prior year, calculated using an effective tax rate of 23% in fiscal '26 compared to 20% for the prior year period. We generated $6.7 million of adjusted EBITDA for the quarter compared to $3.8 million in the prior year. Adjusted EBITDA margin was 9.7% compared to 5.9% in fiscal '25, a 380-basis-point improvement over the prior-year period. We ended the quarter with $67.3 million in cash and short-term investments, no debt and ample liquidity. We expect to deliver positive free cash flow for the year. We believe our debt-free balance sheet remains one of the strongest in the industry and will continue to benefit us as we progress through fiscal '26. We repurchased over 100,000 shares totaling $2.3 million in Q1, reflecting our continued confidence in our long-term outlook. This brings cumulative repurchases to 3.2 million shares and $76.5 million since we started the share repurchase program, a 20% benefit to Q1's adjusted EPS. We continue to prioritize returning capital to shareholders and expect to deliver total repurchases above prior-year levels by the end of the fiscal year. As we look ahead, based on our fiscal Q1 performance and current expectations, we are raising the earnings and adjusted earnings per share ranges of our full year guidance. For fiscal '26, consolidated net sales are expected to be between $295 million and $310 million, with adjusted EBITDA now expected to be between $30 million and $35 million. Adjusted earnings per share between $1.18 and $1.43. We continue to expect capital expenditures to be approximately $9 million for the year. For the second quarter of fiscal '26, consolidated net sales are expected to be approximately $69 million, with adjusted EBITDA of approximately $5 million and adjusted earnings per share of approximately $0.16. Keep in mind, our lower wholesale shipments in the first half remain consistent with our initial production plans for the year as we prioritize the introduction and ramp of our new generation of X family products. In the second half of our fiscal year, we plan to ramp up production as we execute our new product initiatives and maintain readiness for seasonal demand. To that end, our wholesale and financial plan is disciplined and provides us with the ability to deliver year-over-year growth despite continued market uncertainty. I will now turn the call back to Brad for his closing remarks. Bradley Nelson: Thanks, Scott. Our team executed well during the quarter despite retail uncertainty. We delivered solid results supported by disciplined production planning, dealer engagement and the early success of our new product launches, including the X24 and the refreshed Conquest lineup. These innovations reinforce our commitment to quality, performance and delivering the best consumer experiences in our industry. From a capital allocation standpoint, we are in a strong position, fully funded for our strategic initiatives and continuing to return capital to shareholders through our share repurchase program. Our flexible operating model and highly variable cost structure remain key advantages, allowing us to adjust production as needed to support dealer success and align with retail demand. We are managing the business for the long term. And while near-term uncertainty persists, underlying trends continue to move in our favor. As the market stabilizes, we are well positioned to capitalize on any future upswing and drive sustainable growth across our brands and continued value creation for shareholders. Operator, you may now open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Craig Kennison with Baird. Craig Kennison: I wanted to ask about the current marine consumer. Any details you can shed on -- any light you can shed on the retail trends this quarter and into October? And then just I'm really looking for a sense of how the consumer is behaving in this market with rates moving lower, but still a lot of uncertainty in the year. Scott Kent: Yes. You mentioned rates. Obviously, rates, I think, is a positive thing for the industry as we see them go down. We'll obviously have the backdrop of some of the macroeconomic and job growth, et cetera, that we'll have to pay attention to. Early SSI for Q1 has obviously showed the industry a little bit down. I think we performed really well in Q1. Initial views are we are gaining share in that quarter. I think it's a reflection of all of the focus we've had on new product and as well as some of the dealer growth we've had and changes we've made there. So we still are in line for -- assuming that we'll be down in the 5% to 10% range for retail for the full year. So Q1 didn't change any of our opinions about where the full year comes in. And frankly, I just need to kind of perform generally speaking, how we perform in Q1 for the rest of the year to stay within that 5% to 10%. Bradley Nelson: Also, Craig, we're still doing pretty well with premium buyers out there, and we're seeing that in our portfolio demand. And we're just looking for that sustained retail momentum, and we're hearing the same thing from our dealer network. Craig Kennison: Yes. And regarding your dealer network and then your retail outlook, have the additions you've made to that network, will that result in maybe outperforming the industry? And is that embedded in the 5% to 10% decline you expect? Scott Kent: Yes. I would -- yes to all of that. Yes, we certainly believe that the dealer changes we made are helping us gain the share. It's that along with our new products and product innovations, and we do think that should continue. I mean, we have certainly had that as part of our strategy to make those changes, and I think we're finally starting to see some of the results. Bradley Nelson: Dealers remain cautiously optimistic. I don't think that comes as a surprise to anyone. Some of the macroeconomic conditions can dampen sentiment somewhat, but overall, cautiously optimistic remaining. We're not hearing a lot about canceled orders, and we've not seen significant dealer failures to this point. But again, until we see more sustained retail momentum, we expect some continued cautiousness. Operator: Our next question is from Eric Wold of Texas Capital Securities. Eric Wold: A couple of questions. I guess, first question, kind of following up on the last one. Can you just give us kind of update on your sense of kind of the cadence of how you expect kind of retail to progress through your fiscal year? And kind of on the kind of the rate cut question, I recall from the last call, you were not embedding any benefit from rate cuts in your guidance. Is that still the case? And is that kind of based on you kind of want to see the benefits of how those are flowing through to dealers and consumers before you kind of make that assumption or kind of maybe kind of update your thoughts on that? And then I have a follow-up. Scott Kent: On interest rates, we -- obviously, there's a benefit to both us and our dealer on lower interest rate costs from a financial perspective. And we only embed in our forecast and planning the rates that have already happened. So the rate cuts that have already occurred are certainly factored in, but not necessarily future rate cuts. And obviously, the longer in the year those go, the less impactful they'll be for our P&L anyway. Obviously, love that interest rates are coming down. I think it's a great thing for the industry. It's certainly a psychological, I think, benefit to our customers when interest rates go down. But do keep in mind, a lot of the rates that the consumers actually pay are really more based on longer-term rates and will probably take a little longer to come down than the short-term Fed rates. Bradley Nelson: And Eric, on the cadence of the year, we're pleased with the results from the fiscal first quarter, and Q1 is one of our tougher comps year-over-year, so even better. Scott mentioned projecting down, retail being down in the 5% to 10% range. We still see that. But the way our revenue ramps throughout the year, of course, we're in a low seasonal pattern now. And until boat shows, it's a little bit dark in terms of how we're going to sense the market. But in the second half of our fiscal year, we're confident in a nice ramp there, driven by the launch of our new X Series products, starting with the X24. We are in early low-rate production in that model. So far, dealer sentiment and hunger for that product is high, and we anticipate strong consumer demand, which will ramp into our second half, which is embedded into our outlook. Eric Wold: Got it. Appreciate it. And then kind of the last question. You mentioned you're kind of obviously looking at M&A opportunities out there while still pursuing the share repurchase program. Can you talk about your comfort level with leverage now that you've got obviously a clean balance sheet. How high would you be willing to go in the short term to pursue an acquisition? And then how quickly would you need to or kind of want to work that leverage back down? Or would you be willing to kind of keep a certain level of leverage kind of on the balance sheet kind of longer term? Bradley Nelson: Sure. Thanks for the question. We work really hard to keep a balance sheet that gives us flexibility. And of course, we're going to direct capital within our capital allocation framework and our strategy there for the highest returns for shareholders. So that, of course, includes share buyback. That includes maximizing results in our core business. And certainly, it includes evaluating with high scrutiny inorganic M&A. We do have flexibility to do that. We do have open processes there as we evaluate opportunities. In terms of the scale and the trigger points there, that's something we won't comment on, but we do maintain activity in that arena. Operator: At this time, we're not showing any further questions in the queue. [Operator Instructions] Okay. I'm showing no further questions in the queue. This now concludes our question-and-answer session. Thank you for your participation in today's conference call. This does conclude the program. You may now disconnect.
Operator: Greetings, and welcome to the Thermon Earnings conference call fiscal year 2026 quarter 2. [Operator Instructions] As a reminder, this conference is being recorded. And it is now my pleasure to introduce to you, Ivonne Salem, Vice President of FP&A and Investor Relations. Thank you, Ivonne. You may begin. Ivonne Salem: Good morning, and thank you for joining Thermon Group's Second Quarter Fiscal 2026 Results Conference Call. Leading the call today are CEO, Bruce Thames; Chief Financial Officer, Jan Schott; and Chief Operating Officer, Tom Cerovski. Earlier this morning, we issued an earnings press release, which has been filed with the SEC on Form 8-K and is also available on the Investor Relations section of our website. Additionally, the slides for this conference call can be found in our IR website under News & Events, IR Calendar, Earnings Conference Call Q2 2026. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures in the tables at the end of the earnings press release. These non-GAAP measures should be considered in addition to and not as a substitute for measures of financial performance reported in accordance with GAAP. I would like to remind you that during this call, we might make certain forward-looking statements regarding our company. Please refer to our annual report and most recently quarterly report filed with the SEC for more information regarding our forward-looking statements, including the risks and uncertainties that could impact our future results. Our actual results might differ materially from those contemplated by these forward-looking statements, and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments, or otherwise, except as might be required by law. Today's call will begin with remarks from our CEO, Bruce Thames, who will provide a review of our recent business performance, including an update on our strategic initiatives. Following Bruce, our Chief Operating Officer, Tom Cerovski, will share an update on our progress and opportunities in the data center market, which is a key component of our business diversification strategy. After Tom, our CFO, Jan Schott, will provide a financial update and review. Bruce will then wrap up our prepared remarks with an update on our business outlook. At the conclusion of these prepared remarks, we will open the line for questions. With that, I'll turn it over to Bruce. Bruce Thames: Thank you, Ivonne, and good morning to everyone joining us on the call today. I'll begin my commentary with our second quarter highlights, which you can find on Slide 4. As we committed in our Q1 call, the Thermon team delivered exceptional second quarter results with solid incoming orders, strong revenue conversion, and robust profit capture that exceeded expectations across the board. Our reported revenues were up 15% from last year, which combined with our strong margin execution and operating leverage resulted in a 29% increase in adjusted EBITDA. These second quarter results, combined with a backlog that is up 17% year-over-year and improved visibility position us well for the balance of the year. On a trailing 12-month basis, our revenues and adjusted EBITDA have reached records of $509 million and $114.1 million, respectively. We believe our performance reflects the strength of our strategy, the resilience of our business model, and the outstanding execution by our global team despite a volatile macroeconomic backdrop. I'm incredibly proud of our team's ongoing efforts to execute our margin improvement initiatives, including tariff mitigation measures, demonstrating steady progress towards our longer-term EBITDA margin objectives. Together, these actions enabled us to generate 23.2% adjusted EBITDA margins in the second quarter with adjusted EBITDA margins growing to 22.4% on a trailing 12-month basis. While we've been pleased with the steady progress, additional opportunities to drive further EBITDA margin expansion remain. This quarter is illustrative of the earnings power of our business, and we remain committed to driving EBITDA margin expansion over the longer term. Our unwavering commitment to our strategic growth initiatives has us well positioned to benefit from a strengthening macro backdrop and several favorable secular demand trends, including reshoring, electrification, decarbonization, and rising power demand. This is evident when looking at our total bid pipeline, which was up 11% at quarter end with nearly 80% of the opportunities coming from our diversified end markets, including power generation, renewables, commercial, and data centers. I'm also very excited to report that this update will include details of our first order for the new Poseidon liquid load bank. We're seeing extremely strong quoting activity for our data center solutions and expect order activity to accelerate in the coming quarters. Tom Cerovski, our Chief Operating Officer, will provide a more detailed update on the data center market later on this call. The team continued to demonstrate disciplined financial management during the second quarter, and we ended the period with net leverage at 1x with total liquidity of $129 million. Our M&A pipeline remains active, and we're excited by our strong capital position, which provides us with the capacity and flexibility to act decisively on opportunities to deploy capital in alignment with our strategic priorities. We are encouraged by the strengthening trends in our business and anticipate this momentum continuing into the third quarter. During the first half, we've established a new global engineering center in Mexico to handle the increased project workload driven by the backlog growth we experienced coming into this fiscal year. During the second quarter, we saw a 41% increase in large CapEx revenues, driven by 2 large North American LNG projects as these move through the design phase into execution. Based upon these factors, we are well positioned to deliver strong second half results and are pleased to raise our full year 2026 financial guidance, which I will cover in more detail in my closing remarks. Before I turn it over to Tom, I'd like to take some time to provide an update on our strategic growth initiatives, which are centered around our 3D strategy of decarbonization, digitization, and diversification shown here on Slide 5. We believe our focused commitment to our strategic pillars has us well positioned to benefit from several strong secular drivers to generate sustained organic growth moving forward. Turning now to Slide 6. I will begin with an update on our digitization opportunity. Since launching the Genesis Network, we've received extremely positive customer feedback with over 86,000 installed circuits, up from 58,000 at the end of fiscal '25. We are now beginning to leverage our digital technology capabilities across a broad spectrum of Thermon Solutions, including commercial heat tracing, rail and transit, and data center product offerings. Our customers need real-time operational awareness and analytics to more effectively manage their business and provide actionable insights to help unlock predictive maintenance, enhance performance, and energy efficiency. This differentiated hardware and software platform helps create value for customers, which drives growth and improves retention while delivering enhanced returns. Turning now to Slide 7. I'd like to provide an update on an exciting area of growth in the decarbonization space represented by medium voltage heaters. The electrification megatrend is driving momentum to replace hydrocarbon-fired heating systems with electrical solutions, especially in Europe. Medium voltage heaters offer a compelling alternative with higher efficiency, zero emissions, lower initial capital costs, and lower maintenance expenses, all while providing a higher level of control. Our Quantum medium-voltage heater product line was launched in 2024, offering voltages from 3,600 volts to 7,200 volts. Our first 2 orders totaling nearly $10 million are now being produced for customers in the U.S. and the Middle East. This market is estimated to be growing at a 17% compounded annual growth rate to $263 million in 2030 with a very short list of competitors. Given Thermon's differentiated capabilities in heat transfer analysis and design, we are leveraging legacy customer relationships in the chemical, general industrial, oil and gas, and food and beverage end markets to grow share. We are seeing strong order momentum with a solid pipeline of high probability opportunities as we work to scale our capacity in both North America and Europe. I would now like to turn the call over to Tom Cerovski, our newly appointed Chief Operating Officer, who will provide an update on diversification into the data center market. Tom? Thomas Cerovski: Thank you, Bruce, and good morning to everyone. Moving on to Slide 8. I'm excited to share updates on a key end market that is now central to our overall business diversification strategy. As we've discussed on prior calls, the unprecedented investments in data centers driven by AI adoption represent a significant and long-term growth opportunity for Thermon. The recent shift to liquid cooled data centers has created a rapidly accelerated demand for liquid load banks to validate critical cooling systems and power infrastructure. Thermon is uniquely positioned to capture this opportunity, leveraging our legacy solutions. Given the pace of this market, we are proud of how quickly our team has executed. In just 4 months from project kickoff, we completed prototype builds for our Poseidon and Pontus liquid load bank solutions and customer demonstrations are already underway. The response has been outstanding. Our quote log now totals roughly $30 million and continues to grow, and we've secured our first order for 20 Poseidon units. Based on management estimates, the liquid load bank market is projected to grow at a 21% CAGR from $84 million in 2024 to $386 million by 2032. We are targeting a 20% to 25% market share within the next 24 to 36 months, and this early traction gives us confidence in achieving that goal. Customers are excited about our differentiated design, which offers clear advantages over our competitors, including compliance with the ASME pressure vessel code, Canada Registration or CRN number for Canadian customers and industry-leading power density or kilowatt to weight ratio and our pursuit of UL and cUL product certification. The combination of these features and benefits position Thermon well to emerge as the trusted partner for mission-critical data center applications. Beyond liquid load banks, remember that Thermon also has significant pull-through opportunities for our traditional product solutions in data center applications, including electric heat tracing, environmental heaters, immersion heaters, tubing bundles and removable heat blankets. As data center growth accelerates, our commercial team is actively developing channels with owners and operators, HVAC contractors, commissioning firms, and rental houses to ensure Thermon is top of mind for these data center projects. Capitalizing on these opportunities in the data center market is a great example of our strategy in action, creating value for customers and shareholders through innovation and disciplined execution. We look forward to sharing more updates on this exciting growth opportunity in the quarters ahead. With that update, I'll turn it over to Jan for a detailed review of our second quarter results. Jan? Jan Schott: Thank you, Tom, and good morning, everyone. I will review financial results for the quarter, give an update on working capital and free cash flow and conclude with comments on the balance sheet and liquidity. Moving to Slide 9. Revenue for the quarter was $131.7 million, a year-over-year increase of 15%. The growth this quarter reflects more favorable spending patterns following tariff uncertainty, improved trends in large project revenues and continued momentum from F.A.T.I. As expected, we also benefited from backlog conversion in the quarter, stemming from previous supply chain disruptions and delayed projects. Excluding F.A.T.I., organic revenue grew 9% year-over-year. Our OpEx revenues were $107 million during the second quarter, an increase of 10% compared to last year. Excluding the contributions from F.A.T.I., OpEx revenues increased 3% from last year. OpEx revenues represented 81% of total revenues for the quarter. Large project revenue was $24.7 million during the second quarter, up 41% from last year. As we highlighted in last quarter's call, we saw several CapEx projects move from engineering to execution early in the second quarter. We expect this momentum to continue through the balance of the year. Our gross profit was $61 million during the second quarter, an increase of 20% compared to last year. Revenue growth benefiting from pricing, combined with efficient execution and tariff mitigation measures contributed to the increase in gross profit. As a result, gross margin was 46% for the second quarter, up from 44% last year. The gross margin improvement was notable given the higher mix of large project revenue for the quarter. Adjusted EBITDA was $30.6 million for the quarter, up from $23.8 million last year, an increase of 29%. Volume growth, gross margin improvement, and disciplined cost management partially offset continued investments in growth initiatives. Adjusted EBITDA margin was 23.2% during the second quarter, up from 20.8% last year. GAAP earnings per share for the quarter was $0.45, up 61% from $0.28 in the prior year. Adjusted earnings per share was $0.55, up 45% from $0.38 last year. Second quarter orders were flat compared to the same period last year. On an organic basis, bookings declined 4% year-over-year, primarily driven by rail and transit following last year's significant surge. Momentum from F.A.T.I., where we continue to benefit from broader decarbonization trends helped offset the organic decline. Our overall book-to-bill ratio for the quarter was 1.0x, down modestly from the prior year, consistent with timing variability in project awards. Backlog increased 17% on a reported basis and was up 4% organically due to the positive book-to-bill in the quarter, combined with project timing. Turning to performance by geography. Year-over-year sales in USLAM were up 8% compared to the prior year, driven by the ramp in several large CapEx projects. Revenue in Canada increased by 10%. Trends in EMEA remained strong with revenue doubling, driven by solid performance in our organic business and contributions from F.A.T.I. In contrast, APAC experienced a 4% decline, primarily due to ongoing uncertainties surrounding global trade policies with China. Moving to Slide 10 for an update on our balance sheet and liquidity. Working capital increased by 10% to $172 million at the end of the quarter, driven by F.A.T.I. higher inventory in preparation for fall heating season and materials purchased in advance of tariffs. CapEx was $3.1 million during the quarter compared to $1.9 million last year, which includes capital investments to support growth initiatives. Free cash flow during the quarter was $4.4 million, down from $6.7 million last year as we invested working capital in inventory build, increased project activity, and the timing of shipments. We repurchased $6 million in shares during the second quarter, bringing our total shares repurchased since the start of fiscal '25 to $36 million. We currently have $39 million remaining under our current authorization as of the end of the quarter. We ended the quarter with net debt of $110 million and a net leverage ratio of 1.0x. In summary, we continued our financial discipline during the second quarter and remain focused on maintaining a strong balance sheet. We have $129 million in total cash and available liquidity as of quarter end, providing us with ample financial flexibility to execute on our balanced capital allocation strategy, which remains focused on driving growth, both organically and through strategic acquisitions, while balancing opportunistic share repurchases and debt reduction. With that, I will turn the call back over to Bruce. Bruce Thames: Thanks, Jan. We're obviously very encouraged by our second quarter results and the accelerating momentum across our markets, particularly the move of several large projects from engineering to execution. I'm proud of our team's disciplined execution on margin initiatives, including swift and effective actions to mitigate the impact of tariffs, combined with meaningful progress on our margin expansion efforts. With this momentum continuing into our fiscal third quarter, we are on track to deliver a strong second half to our fiscal year. Based upon the improving visibility in our business, we are pleased to raise our full year 2026 financial guidance for both revenue and adjusted EBITDA. As we detail on Slide 11, our revised fiscal 2026 financial guidance calls for revenue in a range of $506 million to $527 million, representing 4% growth at the midpoint. We are raising adjusted EBITDA guidance to a range of $112 million to $119 million, representing 6% growth at the midpoint. Our guidance continues to assume that the current tariff structures remain in place and any future announcements do not have a notable positive or negative impact on input costs or customer sentiment and the improved business trends we've seen are sustained. As I've outlined in the past, we remain highly focused on effectively managing the factors within our control. As you can see here on Slide 12, we've made significant progress in our 3D growth strategy over the last 5 years, driving double-digit top line growth with adjusted EBITDA growing at 2x the rate despite the contraction in large CapEx spending we experienced in fiscal '25. Turning now to Slide 13. We believe we are strategically positioned to benefit from several powerful secular drivers, including reshoring, electrification, decarbonization, power, and data centers. We're in an extremely strong financial position with more than sufficient financial flexibility to continue pursuing our strategic priorities, including the disciplined allocation of capital, all with an ongoing focus on generating long-term value for our shareholders. That completes our prepared remarks. We are now ready for the question-and-answer portion of our call. Operator: [Operator Instructions] And the first question comes from the line of Justin Ages with CJS Securities. Justin Ages: I wanted to start on the large CapEx side, which was a nice surprise there. In the prepared remarks, you mentioned a couple of LNG projects in North America and some momentum. Are you expecting more in the same business, more in LNG there? Or is there some other large CapEx projects that are kind of coming into focus? Bruce Thames: Yes, Justin, last quarter, we spoke about 5 projects we won in LNG. And certainly, that's an area where we're seeing growth. And so we really focused when we came into the year on about -- our backlog was up about 29% year-over-year. We really were -- had a big backlog of work in engineering. Since we've established a global engineering center in Mexico and have staffed that up, and that team has begun has become productive. And what we're seeing there is those projects move from the design phase into execution, and we saw a couple of those move forward in the second quarter of this year, which led to our CapEx -- large CapEx revenues being up 41% year-over-year. So we do expect that flow to continue through the back half of the year. And as we look forward, our LNG pipeline is up 140% year-over-year when we look at those opportunities. So we are seeing some robust activity in the LNG market. Justin Ages: And then shifting to the digitization. Nice update you guys hit that 50% growth that you laid out from the 58,000. Can you just give us a little more detail on what drives those efforts? Is it additional sales? Is it really the tip of the spear that differentiates your product from competitors? Bruce Thames: Yes. So I think it's actually a few things. One is, it is the tip of the spear, and it really helps differentiate us from the competition and improves our win rate so that we can grow the installed base. It also increases really the customer engagement throughout the life cycle of the asset, which really helps us to capture those recurring revenues over time. So that's one of the big benefits that we see from the digitization effort. And the things we highlighted this quarter is we built this platform of both software and hardware, and we're now leveraging that across a wide range of Thermon solutions in the marketplace. So thus far, we've really introduced it into the industrial heat tracing end markets and product lines. It's also now being offered in our commercial line of heat tracing products, which we just launched in the last year with the EVO controller. And then we're also moving that into rail and transit for switch heating, particularly around our Hellfire units. And then our most recent launch of the Pontus and Poseidon load banks include these software and hardware tools in these units as well. So we really see this as being an enabler across a wide range of our solutions in the marketplace. Operator: And the next question comes from the line of Brian Drab with William Blair. Brian Drab: Gross margin is really solid in the quarter, obviously. But that was also in a quarter where you had some of the CapEx projects stepping up. Can you talk about that dynamic, maybe the margins in some of the bigger projects that are coming through? And I mean, is everything else that you're doing offsetting maybe some lower margin big projects? Or do these projects have really good margins? Jan Schott: Brian, this is Jan. I'll take that question. Yes, you're actually spot on. We did have, I guess, large projects, as you know, typically don't have as good a margins as our rest of our projects. And so we did have an unfavorable impact from those. But offsetting that this quarter were just we had increased volumes, so operating leverage from that. We also had our Thermon Business Systems productivity gains that we continue to see really help our margins really be solid. We had pricing that we saw flow through in the quarter. So we did see a benefit from that. Our tariff mitigation efforts are absolutely helping. And obviously, those work in tandem with price and then new product introduction. And so I think you'll continue to see -- we're very focused on, I would say, the adjusted EBITDA margin, not so much the gross margin. And as you saw, I think on Slide 3, our trailing 12 months gross margin is at 45%. We did see higher this quarter, and it was really due to all those contributing factors. But we'll continue to push for continued expansion in our margins. And I think our aspirational goal is to get to 24%. The midpoint of our revised guidance is at 22.4%. Brian Drab: So in terms -- I know you said to focus on EBITDA margin, but can I ask though, for the second half of the year, directionally how to think about gross margin? And I guess the 22.4%, it looks like for EBITDA margin, that means kind of sustaining this -- at least sustaining this 23% level is probably the goal for the second half of the fiscal year? Jan Schott: Yes, absolutely. I think that would be the goal. For gross margins, I think we'll continue to see strong margins. If you look at that historical rate, I think that should be instructive for what we would expect for the balance of the year. Brian Drab: And then maybe I'll just ask one more for now. It's great to see these larger projects releasing or moving to execution in the LNG industry. I think you said 2 moved to execution, but there's 5 in the pipeline. What is the potential timing for the other 3 to move to execution? And then secondly, are there other large projects in the funnel that might release outside of LNG? Bruce Thames: Yes, Brian, I don't want to over-index on LNG. Those were the 2 larger projects we saw move forward this quarter. But if you look, and I would say more broadly, our business was up about 15% year-over-year. Our diverse end markets were up roughly 15% equivalent and oil and gas was up similarly. So this is not an outsized move in oil and gas. And so I'd like to make sure we don't over-index on that. So yes, there are a much broader range of projects that are beginning to move through execution, and they include a whole host of other end markets, whether that's -- we do have some in the chemical, petrochemical. We have some also in power, certainly in other areas around our other end markets as well. So we are seeing -- it's more broad-based move. And when we looked at last year, we did see a contraction in CapEx spending, and that was not in any given sector. It was fairly broad-based. And so the shift we're seeing now is also fairly broad-based when we see these projects coming back and moving to execution in the back half of the year. Brian Drab: And just really quickly, the data center opportunity and the medium voltage center opportunity are really new and building. How much of that impact the second quarter results? Or is that, that's really more just coming in the next few quarters, really? Bruce Thames: Right. That's a great question. There's 0 impact in the second quarter. And these projects -- this -- we're just beginning to book orders, which Tom had noted in the prepared remarks. So we won our -- secured our first order, which we're excited about. We've got a growing quote log that we feel we've got some high probability opportunities there. And then with medium voltage, we've secured our first 2 orders. Those are being built as we speak. And we're working to scale capacity in both North America as well as in Europe, so we can grow that business going into our fiscal '27. So we're excited about both of those areas for growth, and we're really well positioned with a differentiated product offering and a fairly narrow range of competitive -- when we look at the competitive landscape, we're really well positioned. Brian Drab: All right. Congratulations on the great results. Bruce Thames: Thanks, Brian. Jan Schott: Thanks, Brian. One clarifying thing I just want to point out is, obviously, the gross margin going forward will be dependent upon the mix. So that's kind of the -- if there were any headwinds, that would be it. Brian Drab: Understood. Not surprising, yes. Operator: And the final question comes from the line of Chip Moore with ROTH. Alfred Moore: Congrats as well. Bruce, I guess, I think we've addressed most of the key items. I guess for me, just maybe following up on your last comments around scaling capacity for medium voltage heaters and the opportunity in data center. Just how -- it seems like you have a lot of organic opportunity in front of you. How are you thinking about organic investment versus inorganic? And are you still tracking bolt-ons? And just what are your priorities here? Bruce Thames: Well, Chip, great question. First and foremost, our priority is investment in organic growth initiatives, and that has not and will not change. But we are fully funding that really through additions in our SG&A to be able to support the growth in that business as well as through CapEx spending to enable that growth by scaling our capacity in our factories. So that is all embedded in our guidance and underway. As Jan had noted in her prepared remarks, our balance sheet is in a really great position, and we have a strong pipeline of opportunities that we are very focused on really looking for those -- that next inorganic growth opportunity that will augment our 3D strategy going forward. And so we are very focused on really moving forward and looking at those inorganic growth opportunities. So really thinking about the business driving that organic growth, which we've identified these couple of key areas, but also really the inorganic piece is going to be important to continue to drive growth in the business going forward. Alfred Moore: And maybe one last one that just popping my head, Bruce. The government shutdowns out there, is there any risk of delays at all on projects or anything like that or any impact at all? Bruce Thames: Yes. We really don't have any exposure to government contracts. So it's really a nonevent for us. So it's really not a problem. Operator: And ladies and gentlemen, that does conclude the question-and-answer session. I would like to turn the floor back over to Bruce Thames for any closing remarks. Bruce Thames: Thank you all for joining us here today. We appreciate your interest in Thermon and looking forward to giving you an update for our third quarter in the January, February time frame. Thank you. Operator: Thank you. That does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the High Liner Foods Inc. Conference Call for Results of the Third Quarter of 2025. [Operator Instructions] This conference call is being recorded today, Thursday, November 6, 2025, at 10:00 a.m. Eastern Time for replay purposes. I would now like to turn the call over to Jennifer Bell, Vice President of Communications for High Liner Foods. Please go ahead. Jennifer Bell: Good morning, everyone. Thank you for joining the High Liner Foods conference call today to discuss our financial results for the third quarter of 2025. On the call from High Liner Foods are Paul Jewer, Chief Executive Officer; Kimberly Stephens, Chief Financial Officer; and Anthony Rasetta, Chief Commercial Officer. I would like to remind listeners that we use certain non-IFRS measures and ratios when discussing our financial results as we believe these are useful in assessing the company's financial performance. These measures are fully described and reconciled to IFRS measures in our MD&A. Listeners are also reminded that certain statements made on today's call may be forward-looking statements under applicable securities laws. Management may use forward-looking statements when discussing the company's investments in acquisitions, strategy, business and markets in which the company operates as well as operating and financial performance in the future. These statements are based on assumptions that are believed to be reasonable at the time they were made and currently available information. Forward-looking statements are subject to risks and uncertainties. Actual results or events, including operating or financial results could differ materially from those anticipated in these forward-looking statements. High Liner Foods includes a thorough discussion of the risks and other factors that could cause its impacted anticipated outcomes to differ from actual outcomes in its publicly available disclosure documents, including its most recent annual MD&A and annual information form. Please note that High Liner Foods is under no obligation to update any forward-looking statements discussed today. At the close of markets yesterday, November 5, High Liner Foods reported its financial results for the third quarter ended September 27, 2025. That news release, along with the company's MD&A and unaudited condensed interim consolidated financial statements for the third quarter of 2025 have been filed on SEDAR+ and can also be found in the Investors section of the High Liner Foods website. If you'd like to receive our newsletters in news releases in the future, please visit the company's website to register. Lastly, please note that the company reports its financial results in U.S. dollars, and therefore, the results to be discussed today are also stated in U.S. dollars, unless otherwise noted. High Liner Foods' common shares trade on the Toronto Stock Exchange and are quoted in Canadian dollars. I'll now turn the call over to Paul for his opening remarks. Paul Jewer: Thanks, Jen, and thank you all for joining us on today's call to discuss our results for the third quarter. I'm joined today by our Chief Financial Officer, Kimberly Stephens; and our Chief Commercial Officer, Anthony Rasetta. Before I get started, I would like to take a moment to welcome Kimberly to our first earnings call as our newly appointed CFO. Since joining us 3 years ago, Kimberly has been essential to the success of High Liner Foods. She's a demonstrated leader with over 2 decades of financial experience and her qualifications, combined with her deep understanding of our business, position her well to step into this role. Turning now to the quarter. I will start by addressing head on that our financial results for Q3 came in below expectations for what we know our business can deliver and frankly, what we were expecting we would deliver for the third quarter. However, even in a challenging quarter, there were many bright spots as we gained [indiscernible] share, advanced innovation and progressed our strategic initiatives. Our operating momentum was unfortunately overshadowed by macro headwinds. When I spoke to you in August, I highlighted the pressures from rising raw material costs and tariffs as well as challenges associated with shifting and uncertain trade policies. These pressures persisted in the third quarter, during which we worked through difficult but constructive pricing conversations with our customers. Progress has been made but it takes time for higher pricing to flow through, particularly in retail, where pricing adjustments have a longer lead time. As a result, while some cost increases have been successfully passed through, much of the benefit is yet to fully show up in our financial results. Tariffs were a major factor this quarter but they weren't the whole story. Several macro headwinds converged at once, the accelerating inflationary environment plus rising seafood prices, particularly on cod and haddock as well as consumer price sensitivity and a prolonged slowdown in foodservice. I don't want to understate the impact of these macro headwinds. Combined, they put significant pressure on margins as reflected in our results. However, nor do I want to overstate these challenges because these are all temporary market dynamics. The results this quarter are not a reflection of the strong underlying demand for our branded and value-added frozen seafood where some of our most popular products are the fastest-growing SKUs in retail at premium and value price points. They also do not reflect the strength of our customer partnerships, which are resulting in successful promotional campaigns and consistent recognition we received from leading suppliers and operators who continue to seek out the solutions we offer. We have proven our ability to navigate more challenging market conditions in the past, and I don't doubt our ability to do so once again, particularly because in parallel, we are executing on a series of initiatives designed to strengthen our long-term growth opportunity. including innovation, which is a critical growth lever for us and an area where we have been steadily building bench strength, leadership and R&D capabilities to continue to win with near-term innovations with our current brands while exploring the potential to expand into new areas of the market. This includes our upcoming fully cooked product line that will open us up to a largely untapped market for frozen seafood in North America and remove one of the most cited barriers for seafood consumption, convenience. We are excited by the solution our fully cooked line offers. It will make it easier for operators to put seafood on the menu and consumers to choose seafood more often. You'll hear more about this from Anthony shortly. Brand integration of our 2 new brands, Mrs. Paul’s and Van de Kamp's, is going very well, and we are ahead of schedule on our integration plans, having built out our sales team, met with all key new and exciting and existing customers, advanced plans for renewed investment in both brands and continue to identify cross-selling opportunities as we leverage more of our best practices and capitalize on new retailer relationships. And we have also been executing on plans to modernize and automate our plants. During the third quarter, we completed the installation of new packaging technology. And although necessary downtime temporarily reduced efficiencies, we are realizing the benefits of this investment in terms of labor savings and plant performance. The cost of these continuous improvement initiatives across our plants is necessary to optimize efficiencies and enhance our profitability. While we continue to manage through market headwinds, we are taking the right actions to ensure this period of compression is short-lived through continuous improvement initiatives across our supply chain, prudent cost control and ongoing negotiations on pricing with our customers and suppliers. These actions, together with the investments we are making now in automation, innovation and brand positioning are essential to deliver sustainable margin expansion and profitable growth as market conditions normalize. From a capital allocation perspective, we are well positioned and a modest increase to our dividend underscores the Board's confidence in our business and our capacity to return capital to shareholders while investing in our business, balance sheet and future. With that, I will hand the call over to Kimberly to discuss our financial performance. Kimberly Stephens: Thank you, Paul, and hello, everyone. As Paul mentioned, our third quarter results were challenged due both to a combination of macroeconomic factors and a period of intentional investment in our business. We also experienced accounting impacts related to the integration of the 2 brands we recently acquired from Conagra, along with certain nonrecurring expenses and the impact of foreign exchange. Regarding our acquisition of the Conagra brands, the inventory we acquired in the transaction was recorded at fair market value, which is higher than what it cost to produce. As we sold through some of this inventory in Q3, we saw a temporary noncash impact of approximately $2.5 million on our gross margin. It's important to note that this impact is a standard outcome of purchase accounting, and it does not reflect the underlying strength of these brands. We expect margins to normalize once the acquired inventory is fully sold through by the end of the year. Looking at our financial performance for the quarter. Sales volume decreased in the third quarter by 1 million pounds or 1.8% to 55 million pounds compared to 56.8 million pounds in the third quarter of 2024, due mainly to customer and consumer pullback and uncertainty related to the global trade environment as well as the timing of the United States Department of Agriculture USDA contract. Sales increased in the third quarter by $19.7 million or 8.6% to $248.6 million compared to $228.9 million in the same period last year, driven by increased pricing, reflecting the inflationary markets. Gross profit decreased in the third quarter by $2 million or 4.1% to $46.3 million and gross profit as a percentage of net sales decreased by 250 basis points to 18.6% as compared to 21.1% in the third quarter of 2024. The decrease in gross profit is driven by the increased expenses related to the introduction of tariffs on seafood imported into the U.S. and higher raw material pricing on select species as well as targeted promotional activity and the negative impact of foreign exchange. Gross profit was also impacted by the increased cost of inventory related to the Conagra Brands acquisition, resulting in the temporary margin contraction as the company sells through this acquired inventory. Plant utilization was temporarily impacted by lower volumes during the quarter, compounded by planned downtime related to automation upgrades intended to drive further efficiency gains. Adjusted EBITDA decreased in the third quarter by $6.3 million or 29.3% to $15.2 million compared to $21.5 million in the same period in the prior year, and adjusted EBITDA as a percentage of sales decreased to 6.1% compared to 9.4%. The decrease in adjusted EBITDA reflects the decrease in gross profit previously mentioned as well as planned expenses related to the advancement of strategic initiatives and innovations across the business, along with certain corporate level costs tied to termination benefits and foreign exchange losses. Reported net income decreased in the third quarter by $13.5 million or 73.8% to $4.8 million, while diluted earnings per share decreased to $0.16 compared to $0.61 in the prior year. The decrease in net income reflects the decrease in adjusted EBITDA, as previously discussed, as well as the finance income recorded in the third quarter of 2024 as a result of the long-term debt modification as compared to the net expense in 2025. This is partially offset by lower income tax expense. Including the impact of certain nonroutine or noncash expenses that are explained in our MD&A, adjusted net income in the third quarter of 2025 decreased by $1.5 million or 26.8% to $4.1 million. Adjusted diluted earnings per share decreased $0.14 from $0.20 in 2024. With regards to cash flows from operations and the balance sheet, net cash flows from operating activities in the third quarter of 2025 decreased by $38.4 million to an outflow of $25 million compared to an inflow of $13.4 million in the same period in 2024. The decrease is primarily driven by lower cash flows from operations and unfavorable changes in nonworking capital balances, specifically an increase in inventory balances compared to a decrease in the prior year as well as higher taxes paid. Including the $21 million of intangible assets and property, plant and equipment that we acquired as a part of the Conagra Brands acquisition, capital expenditures were $34.5 million in the first 3 quarters of 2025 compared to $17.2 million in the prior year, reflecting the continued investment in our business. Net debt at the end of the third quarter of 2025 increased by $100.2 million to $333.4 million compared to $233.2 million in the end of fiscal 2024, reflecting higher bank loans and a lower cash balance, partially offset by lower long-term debt and lease liabilities at the -- as at September 27, 2025, as compared to December 28, 2024. Net debt to adjusted EBITDA was 3.5x at September 27, 2025, compared to 2.3x at the end of 2024. We expect the ratio to be above the company's long-term target of 3x by the end of the year due to the recently announced Conagra brand acquisition and the higher inventory levels due to opportunistic buying ahead of the increased raw material costs. While a lot of uncertainty remains in the market, we have a proven track record of successfully navigating short-term headwinds. As Paul mentioned, we are taking decisive actions across our business today to improve our performance, and we feel confident that these steps, combined with our balance sheet, strength and diverse global supply chain will help mitigate the short-term challenges and strengthen our position in 2026. I will now pass the call over to Anthony to discuss our operational highlights. Anthony Rasetta: Thanks, Kimberly, and hello, everyone. You've heard from Paul and Kimberly why our financial results this quarter did not reflect the underlying strength of our business. However, from my vantage point, there's a lot to feel good about in terms of the progress we are making. And that's because as I interact with our customers, distributors, suppliers and support my team in the field, I see the strength of our brand performance, the success of our promotional campaigns and the excitement from our customers as we share new innovations and solutions to make seafood consumption more convenient as a consumer, customer or foodservice operator. Turning to highlights of the quarter, starting with retail. In the U.S., we saw strong performance across our branded value-added product portfolio and market share gains driven by successful promotional activations and expanded distribution. Momentum in our premium Sea Cuisine brand accelerated, and we're proud to say that it is now the fastest-growing brand in the category. Our Tortilla Crusted Tilapia and other innovation continue to perform well in the club channel as these products provide restaurant quality seafood to consumers who are seeking value and trading down from dining outside the home. Momentum on Fisher Boy, our value-oriented product line and our Seaworthy line of Atlantic salmon products also continued as we secured new distribution for these brands amid a challenging and highly promotional environment. Shoppers continue to gravitate toward promotional pricing given the impact of high inflation, a trend we expect to continue in the coming quarters. We made good progress integrating Mrs. Paul's and Van de Kamp's brands into our business and the timing positions us to be able to leverage our in-depth expertise around optimized price, packaging and promotional strategies in time for lent. We're also preparing to launch the popular Shark Bites product in the club channel for the first time next year, benefiting from the insights and relationships we have developed as we have significantly expanded club distribution over the past few years. We are developing relationships with a new base of national retailers and are excited to leverage these new connections to expand distribution of our core portfolio in the coming quarters. In Canadian retail, the market remains highly competitive and value-driven. During the third quarter, we grew significant market share in both dollars and pounds across all major segments. This was largely driven by increased demand for our branded value-added products, including growth in our premium Pan-Sear Selects and Signature Cut brands, which provide restaurant-inspired products across species to suit a wide variety of consumer tastes. While we expect the environment in Canada to remain promotionally driven in the near term, we are focused on demonstrating our value proposition to customers and consumers to compete on overall value versus price alone. We are encouraged by our ability to gain share in the quarter, and we're prepared to balance volume and price to support profitable sales growth moving forward. As we look ahead to 2026, we believe sustainable category growth across North America will be driven by a combination of strategic promotional activity and innovation focused on premium and health-conscious meal solutions, and that's exactly where we're focused. Now turning to Foodservice, where inflation-driven headwinds continue to impact demand across the industry, contributing to lower volumes in the quarter. We also faced a tough comparison as we're lapping a meaningful amount of USDA contract manufacturing volume that we produced in Q3 last year, but did not repeat this quarter. That said, we've secured a larger USDA award that will begin supporting volumes in the fourth quarter and throughout 2026. Despite the challenging inflationary environment, our consistent execution allowed us to gain market share on volume during the quarter, and we continue to be the top value-added seafood manufacturer in the category. Our ability to lead the category is grounded in the strong partnerships we've built with major distributors. During the quarter, we were recognized by Sysco Canada as a top 10 supplier Excellence Award recipient this year with more than 500 suppliers evaluated across criteria, including sales growth, innovation, quality and service. This recognition underscores the strength of our partnership and our ongoing focus on delivering reliable value for our customers. We were also awarded the Gordon Food Service Cornerstone Partner Award in the U.S., recognizing us as a top-performing supplier partner, demonstrating excellence and delivering outstanding value to customers. In particular, the quick service restaurant channel continued to be a bright spot during the quarter given consumer continued focus on value. We were once again able to leverage partnerships with key customers to grow our market share driven by growth in value-added Pollock, a locally sourced species offering the best value and strong supply in whitefish. We also saw gains in casual dining, where our products are providing operators with consistent, easy-to-prepare solutions at the right price. Salmon, a key growth species for us, performed well and drove gains in our noncommercial sector, particularly in hospitals. While we expect the foodservice category to remain under pressure in the near term, we're monitoring price gaps, species dynamics and channel bright spots to continue the momentum in our branded value-added portfolio and drive category recovery. As Paul mentioned, there's an exciting market opportunity in the outlook for North American frozen seafood. Global demand for sustainable nutrient-rich protein is rising. However, seafood remains underdeveloped when compared to other proteins such as beef and poultry. Our goal is to grow the category by redefining how seafood shows up on the plate and create a scalable platform for long-term value creation. We are making investments now that we are confident will have long-term benefits, both in terms of our core portfolio and new innovations such as our line of fully cooked products, which have great potential. These investments are grounded in consumer insights and will serve to contemporize the category and appeal to the next generation of consumers. We're very excited to soon bring our fully cooked solutions to market as these products will allow us to deliver easy to execute and prepare solutions to untapped channels with particular focus on convenience stores and new noncommercial channels. With Q1 on the horizon, we're readying for lent by building on what we have learned from our targeted promotional and pricing strategies from the past year, leveraging what worked well and integrating exciting new product lines to drive profitable top line growth and category recovery. With that, I'll hand the call back to Paul for his concluding remarks before opening the call for Q&A. Paul Jewer: Thank you, Anthony. I echo Anthony's sentiment that our teams are executing well, and we are encouraged by the commercial momentum we are seeing across the portfolio despite the current macro pressures. Our priority is to ensure this continues hand-in-hand with appropriate pricing and cost control to regain margin strength over time. I'm confident that you'll start to see improvement in our results in the fourth quarter but unfortunately, not enough to deliver year-over-year adjusted EBITDA growth for the full year. While this is not the way we wanted to close out the year, we are acting now to support stronger performance and renewed momentum as pricing actions take hold, efficiencies build and innovation gains traction. My confidence in the long-term outlook of our business is supported by our over 125-year history as a leader in the North American frozen seafood industry, during which time we have demonstrated our ability to navigate short-term headwinds while maintaining robust free cash flow generation and a strong balance sheet. We are meaningfully investing in our business to drive profitable growth, expand the seafood category and build for the future. As category dynamics normalize, we expect the benefits of these actions to become increasingly visible in our results. With that, operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from Yochim of BMO Capital Markets. Nevan Yochim: Looking to understand the volume decline a little bit better in the quarter. If we exclude the volumes associated with your recent acquisition, how should we be thinking about the organic volume decline in the quarter? And then can you provide some detail on volume growth by retail and foodservice relative to their respective categories? Paul Jewer: Yes. So volume decline in the quarter, as we mentioned earlier, was primarily driven by the decline in our USDA business. So you see that show up in the Foodservice segment, as you mentioned, Nevan. So that really is the -- from a volume perspective, the most significant impact. Still a little softness in foodservice overall, given what we're seeing in terms of the macro environment there. Nothing we would highlight significant on the retail side. Nevan Yochim: And would you be able to parse out the benefit that you received in the quarter from your recent acquisition? Paul Jewer: Yes. Essentially, there was no net P&L benefit from the acquisition because as Kimberly identified, unfortunately, due to the PPA accounting, we weren't able to recognize about $2.5 million of margin on acquired inventory. So it was a nominal P&L impact in the third quarter related to the acquisition as a result. Nevan Yochim: Great. Understood. And then just digging into price and mix a little bit here. If my math is correct, that was around 10% this quarter. Can you parse out those 2 components between the price and the mix? And then maybe talk about your expectations for raw material price inflation as well as your ability to pass through those costs to customers in the fourth quarter? Paul Jewer: Sure. Yes. I mean the biggest impact on margins related to pricing or mix was associated with not being able to fully pass on the tariff and raw material price increases, particularly in cod and haddock quickly enough in the market. As we highlighted, that's more of a challenge in retail than foodservice but it was certainly an impact in the quarter. That impact was approximately $2 million in terms of not being able to -- that's the net impact of not being able to fully pass on the COGS in pricing. Mix would have actually been a slightly positive impact actually on margin because of the fact, as I mentioned earlier, we had lower high-volume USDA business than we had a year ago. And our branded value-added portion of our portfolio performed well. So that actually is positive from a mix perspective, but offset by the volume decline and the pricing net of COGS impact that I just referred to. Operator: Your next question comes from Luke Hannan of Canaccord Genuity. Luke Hannan: Paul, I wanted to go back to the topic of pricing. And you talked about in your prepared remarks during Q3, you had those conversations with retailers, and it's increasingly, it was more difficult to be able to pass along that price. I want to get a better understanding of the trend through Q3 and Q4. So it sounds like you've taken price not enough to fully offset the inflation that you're seeing in raw materials. But is the expectation that eventually there will be a catch-up? Or are you planning on internalizing that, we'll call it the $2 million net impact that you saw during the quarter? Is the plan that you're just going to internalize that impact going forward? Paul Jewer: No. Certainly, our plan is not to internalize that impact. And as we look at the fourth quarter, we expect a better outcome in that regard than what we had in the third. But it will still take more time to fully get it passed through. And our goal is not to have to pass it all through, right? As we also highlighted, we're working hard on efficiency opportunities in the plan and cost-saving opportunities within our business. And we don't just negotiate with our customers in terms of having to pass on price. We also, of course, negotiate with our suppliers to try to avoid where we can some of the raw material cost increases. We also are watching closely the -- what I'll call the bouncing ball on tariffs. We've seen a little bit of relief in some countries over the last number of weeks. So we'll remain hopeful that we may see a bit more relief there as we look forward. But no, I mean, what we've demonstrated over time is our ability to be able to manage margin through passing on price. It's unfortunately, sometimes like this quarter, it can take a little longer for it to materialize, but that is certainly still our intent. Luke Hannan: Okay. And then just following up on that as well. So what is the typical sort of lag when it comes to identifying or announcing that you're going to be doing a price increase before it actually takes place? And is this complicated or lengthened at all because of the holiday period? Anthony Rasetta: Luke, it's Anthony. Yes, I think as Paul mentioned, in foodservice, we price more frequently and have a quicker cycle and our overdevelopment there allows us to pass that on more quickly. We tend to do that monthly. In retail, it tends to be about 90 days that customers are looking for in terms of increase. So with the volatility in costs and tariffs, that can become a bit more challenging. And you're right, as we go into the holiday period, there can be blackout periods at times, which means that some of the pricing will hit kind of later in the first quarter. Luke Hannan: Understood. So on the price increases that you've taken thus far earlier in Q3 before there is that blackout period, has there been a discernible volumetric impact, I guess, associated with that? Really, what I'm trying to get at is the consumer, of course, is under pressure. They've withstood price increases over the course of the last year or even longer than that. But has there been a discernible difference in the volumetric impact from any price increases, more of the recent price increases that you have passed through? Anthony Rasetta: Yes. I think we're starting to see it, Luke. I think the reality of longer inventories in the marketplace and the timing of inventory hitting and the timing of pricing means that we're just starting to see some of those increases, and we are seeing typical elasticity in terms of the consumer reaction on that. So as this price passes through, we do think we'll see some volume impact and hopefully can offset it on top line revenue. And then what we're trying to do, as you would have seen in some of what we talked about on market share gains is smartly reinvesting in some promotional activity so that we can still offer consumers and customers the right value and the opportunities to buy promotionally. Luke Hannan: Okay. Last one for me, and then I'll pass the line here. Just on SG&A, it was mentioned that there was incremental investments in product innovation, specifically consultants as well. I know innovation is clearly key to helping you guys capture market share across channels, across geographies. How should we be thinking about the magnitude of that investment in innovation over the course of, we'll say, the next -- well, the near term, let's say, the next 3, 6 months or up to a year? Paul Jewer: Yes. I think there's a couple of areas where we've been investing on the strategic initiative front. One is innovation, as you've called out. The other we mentioned is investment in efficiency and productivity improvements in the plants. The impact of that in the third quarter was about $1.4 million in total of spend. We'll continue to have some of that spend certainly in our fourth quarter. But the reality is when we plan that spend, we plan to offset it with performance on the top line and margin. And unfortunately, in the third quarter, as you saw, we weren't able to offset it. But as we look to 2026, as we continue to invest in the growth of our business, our plans are to have margin performance that will allow us to cover those costs. Operator: [Operator Instructions] Your next question comes from Michael Glen of Raymond James. Michael Glen: I just want to clarify with the $2.5 million purchase price accounting, that was -- that completely flowed through the P&L within cost of goods sold in the quarter? Kimberly Stephens: Yes, it did, exactly. It is a temporary impact as we work through that inventory that we acquired in the acquisition. So we anticipate that in Q4, we'll probably see an additional $1 million as we work through and sell it all. But by the end of the year, we think we'll be past that. Michael Glen: Okay. So that would be $3.5 million in total then for the year? Kimberly Stephens: Correct. Michael Glen: Okay. And just to get some thoughts on, again, the inflation you're seeing on cod and haddock. Were the exit rates on inflation higher? Like how much higher were the exit rates on inflation versus what you saw in the quarter? I'm just trying to sense is how much additional inflation we should expect to come with the Q4. Paul Jewer: There'll be certainly a bit more on cod and haddock in Q4 as the inventory continues to flow through because that's -- we're not seeing any let up currently on pricing in either of those 2 species just given quota restrictions and therefore, supply availability. So in that case, it's more about effectively pricing for it rather than expecting or building in any anticipation of lower COGS. Michael Glen: And Paul, can you just maybe unpack like where the price inflation? Is it just simply demand related from other markets external to North America? I'm just trying to understand exactly what is driving up the price in those 2 species. Paul Jewer: Yes, sure. No, in cod and haddock, it's actually -- it's entirely supply driven. So those species come from Northern Europe, Norway, Iceland primarily. And Norway, in particular, has had lower quota for those species, particularly on cod, part of the reason that haddock has come up in cost is because haddock is a logical substitute for cod as we've seen higher cod prices. So in the case of haddock, it is a bit demand driven in that regard. We would anticipate at these price levels that we'll see some decline in global demand as we look forward. So hopefully, that will allow supply/demand to rebalance a little. And we've taken a number of actions, as you've heard us talk about before, to help mitigate that. One is we've invested in and continue to believe in farm cod. That will be a small but over time, an important contributor to offsetting some of the wild cod pressure. We're supporting the return of the Newfoundland Cod fishery and are selling that product in our Canadian foodservice business, which is a nice new source of supply for us. And of course, we've been working on promoting alternative species. And that is, in our case, Cape Hake and Southern Blue Whiting. But also the reality is important species to us like Pollock and Tilapia are also in a much more favorable price situation than cod and haddock. So we'll continue with the diversity of our portfolio to where we can drive demand to those species that are more favorably priced. Michael Glen: Okay. And I know there's -- like there is a lot to take into consideration as we look at Q4. Like when we look at that gross margin in Q3, should we just take everything into consideration and expect a similar level in Q4? I'm just trying to gauge where things might drop out. Paul Jewer: Yes. I think at this stage, what we would suggest is we would expect the decline in Q4 year-over-year on the margin front to be less than it was in Q3 because as we've talked about, we have been effective at passing on price. We've invested in some initiatives that will help us on the cost side. But the reality is it will take us until moving into 2026 to be able to get back to the EBITDA growth year-over-year that we've been focused on delivering. Michael Glen: Okay. And then my last one is just -- I just want to understand better the decision on the inventory build in the quarter. How quickly -- is there -- and I guess what I'm trying to figure out for myself, is there any raw material pricing risk with that inventory if market prices suddenly drop or if we see tariff relief, does that put some of the amounts in the inventory at risk as well? Paul Jewer: No. In fact, it would be the opposite. We feel that the investment we've made in inventory as prices have gone up and as tariffs have gone up, position us better on the margin front for 2026. And so we're not anticipating at this stage any risk associated with the higher inventory. In fact, we see it as more of an opportunity, to be honest. And you saw us have to do this when we were building inventory during supply disruptions coming out of COVID, and we were very effective then at moving through the inventory and generating good margin as we move through that inventory. So that's certainly what we'll be working towards doing in 2026 as well. Kimberly Stephens: And Michael, I would just add that the inventory balance at the end of September also includes the acquired inventory and the additional inventory we're building up for the Conagra Brands in addition to the inflationary pricing that we are seeing as well as, as Paul just mentioned, we're building up ahead of raw material prices increasing next year, so more opportunistic buying. So it's a combination of all 3. Michael Glen: And for -- are we at the peak level right now? Or should we expect more inventory build in Q4? Kimberly Stephens: We would expect more inventory in Q4 as we build towards end. And again, both on our core business as well as the acquired business that we just made. Operator: Your next question comes from Ryland Conrad of RBC Capital Markets. Ryland Conrad: Just, I guess, starting off on volumes. Is there any way you could kind of parse out the incremental volume that the Conagra brand contributed in Q3, along with maybe the size of the USDA contract last year? Paul Jewer: I don't have the USDA contract number in front of me. It would be 2 million to 3 million pounds, I think, probably closer to 3 million pounds. And that's a timing issue for us. As you probably saw, we won a USDA bid over the course of the next 12 months that will actually be larger than the previous one. So that's the timing issue. And Kimberly, maybe on the Conagra piece. Kimberly Stephens: Yes. So actually, with the Conagra Brands, we actually saw an increase of volume this quarter, so about 1.5 million of additional pounds. But again, the unfortunate part is as we work through that purchase price adjustment, it had a negative impact to the gross margin. Ryland Conrad: Okay. No, that's helpful. And then I believe last quarter, you were expecting kind of low single-digit volume growth for 2025. So are you still expecting to deliver positive growth this year? Paul Jewer: I would say that the challenge we had in Q3 makes it a little harder to get to volume growth. But as we mentioned, we are anticipating a better performance in Q4 on volume than what we delivered in Q3. So it will be, it will be tight but we're still working on delivering good volume performance in the fourth quarter. Ryland Conrad: Okay. Great. And then just on capital allocation, the kind of 3% dividend growth was below what we've seen in recent years, which I can appreciate given the current macro environment. But -- could you maybe just provide an update on capital allocation priorities? Like should we expect to see more focus on debt repayment rather than capital returns at this stage? Kimberly Stephens: Yes, absolutely. I think our priority is also to -- is always to be in that 3x range. And as I indicated earlier, we are above that. So we'll be working towards getting back to a reasonable range as we look to continue looking for M&A opportunities in the future, we need to make sure that we have that capacity. But as we do that, though, we will always balance it between returning capital to shareholders. So as you indicated, we just increased our dividend just shy of 3% this quarter as well as we will continue our share buyback program. Ryland Conrad: Okay. And then just on the CapEx guidance of $20 million to $24 million this year. It looks like you're certainly trending towards the lower end of that. So is there any step-ups we should expect to see in Q4? And then I guess, more broadly, how sustainable is that kind of CapEx envelope going forward? Kimberly Stephens: Yes. We are a little bit behind in Q3 in comparison to prior year, but we do have a plan of getting closer to total CapEx spend like we did last year. So I think we're anticipating to be anywhere around $21 million to $22 million by the end of the year. And I think as we continue into 2026, I would anticipate similar ranges anywhere between $20 million to $25 million depending on the projects that we are undertaking. Operator: There are no further questions at this time. I will now turn the call back over to Paul Jewer, President and CEO. Please continue. Paul Jewer: Thank you, operator, and thank you for joining our call today. We look forward to updating you with our results for the fourth quarter of 2025 on our next conference call in February. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning. Welcome to Mineros Financial and Operating Results for the Third Quarter of 2025. My name is Juan Camilo and I am the Investor Relations -- Original language will be Spanish. However, if you wish to listen to English, please follow these steps. First, the box that says English. Then to avoid listening to both languages at the same time, identify the box that says media players and click on mute. [Foreign Language] Please remember that this call may include forward-looking information. Actual results may vary due to inherent risks in mining. Several financial metrics -- are Section 10 our MD&A available David Londono, CEO; David Splett, CFO -- and enter finance CEO; Santiago Cardona is a President Colombia. And so Gavilanes, is [Foreign Language] Unknown Executive: Gold production stands at 163,000 ounces for the first 9 months of the year. This represents a 2.5% increase compared with the 159,000 ounces reported for the same period in 2024. We had a record net income, which reached 50 million for the third quarter and accumulated net income year-to-date of $136 million. We generated positive free cash flow of $62 million in the third quarter and a total of $106 million in net free cash flow for the first 9 of 2025. We concluded to the share buyback program that was approved earlier this year by the shareholders' general assembly and subsequently by the Board of Directors. The company repurchased a total of 3.9 million shares at a price of COP 12,000. This operation finished in -- on September 12. Finally, we acquired 80% of La Pepa project from Pan American Silver Corporation. This transaction of $40 million grants us 100% ownership of this gold exploration asset in Chile, providing us full control over its future development plan. As we will detail next, our excellent operating performance directly translates into strong financial results. These achievements reflect our discipline in operational efficiency, the strength of our assets and our ability to consistently and safely generate value. We maintain a very optimistic outlook for the company and remain committed to sustaining this trajectory of growth and success. I will now hand the call over to David, who will discuss the financial performance for the quarter. David Splett: Thank you, David. Good morning. Let us begin with the income statement for the quarter. As a reminder, all figures are expressed in millions of dollars. In the third quarter of 2025, the company achieved significant revenue growth of 39%, reaching a record figure of $196 million. The main driver of this result was a 40% increase in the average realized gold price. Consistent gold production in Colombia and Nicaragua, coupled with our strict cost discipline were fundamental to these results. Our gross profit saw an increase of 49%, reaching a record figure of $82 million and net income stood at $54 million, representing 90% growth. This implies a significant advance versus the $29 million reported in the third quarter of 2024. In terms of liquidity, net free cash flow was approximately $63 million. This result is calculated after covering the payment of $7.5 million in dividends, $7 million in sustaining capital expenditures and $0.4 million in interest payments. The cost of sales increased by 33%, primarily because the higher gold prices are reflected in the greater cost of purchasing ore from artisanal cooperatives in addition to an increase in depreciation and amortization. On this slide, we present a summary of our financial results through the end of September 30, 2025. The company's revenue grew by 39%, totaling $538 million. This sudden increase was primarily driven by a 40% increase in the average realized gold price, coupled with 2.5% growth in gold ounces sold. We achieved significant profitability expansion. The gross profit and adjusted EBITDA registered increases of 70% and 59%, respectively, reaching $221 million and $244 million. Net income experienced 114% growth during the first 9 months of the year, increasing from $63.4 million in the same period of 2024 to a record figure of $136 million at the close of September 2025. The cost of sales increased by 23% during the first 9 months of the year. This is primarily attributed to the higher cost of purchasing material from artisanal miners cooperatives due to the increased gold price in addition to higher taxes and royalties. Let us now look at the adjusted EBITDA. This key indicator reached a record figure of $90.3 million at the end of the quarter, representing an increase of 44% compared to the $62.9 million registered in the Q3 from 2024. This expansion is directly attributable to a strong revenue growth, primarily driven by the favorable increase in gold prices. Finally, let's review the cash position. Net cash flows from operating activities generated $204 million from the sale of gold, silver and electricity. This was after payments to suppliers totaling $103 million, employee salaries and benefits payments for $15 million and tax payments amounting $11 million. Cash flow utilized in investing activities was allocated to purchases of property, plant and equipment totaling $16 million and strategic investments in intangible assets and exploration projects of $45 million. Regarding the cash used in financing activities, the main components were dividend payments of $7 million and the amortization of financial obligations totaling $9 million. Our current credit and loans balance stood at $17.6 million, while the cash and cash equivalents balance was $102.2 million, a highly significant figure despite the capital expenditures incurred during the quarter, including the La Pepa acquisition. With this review, I will now turn the floor over to David and this finalizes our operational indicators, who will present the operational indicators. David Londono: Thank you so much, David. Let us now discuss our operating indicators. This chart summarizes our operating performance over the last 5 quarters. As you can observe, the total production for the third quarter remained stable and consistent compared to previous periods. This is a direct reflection of our strong discipline and operational execution across all our assets. As clearly visible on the green line, the average realized gold price per ounce in the third quarter of 2025 reached $3,464, which represents a significant 40% increase compared to the same period last year. We emphasize that our margins continue to show a positive trend. And here, we can see graphically how the gap between our average realized selling price and our costs continues to widen, indicating continuous margin improvement. On the cost front, we registered an increase of 38% in cash cost and 34% in AISC, which stood in $1,704 and $1,982 per ounce, respectively. This increase is primarily explained by the rise in the cost of sales, largely associated with the purchase of ore from artisanal mining in Nicaragua, as David mentioned that before. I will now turn the floor over to Santiago Cardona, our Vice President of Colombia, who will present the results and details of our Alluvial operation. Following that, we will continue with in Inivaldo Diaz, who recently assumed the Vice Presidency of Nicaragua and who will offer us a comprehensive overview of Hemco operation. Santiago Cardona Munera: Thank you, David. In Colombia, we achieved a production of 23,000 ounces during the third quarter, which represents a 16% increase compared to the same period in 2024. This growth was primarily driven by lower dilution and the optimization of overburden removal and the hydraulic level control of the pit. The AISC per ounce of gold sold increased by 13%, reaching $1,573 per ounce. This is primarily due to the increase in gold prices, which directly impact the cost of operating contracts in our formalization contracts, more taxes and royalties related to this price. Also the increase associated with the year-over-year change. Additionally, during the quarter, we saw the commissioning of the Aurora plant contributing to our growth strategy and technological renewal aimed at optimizing recovery in our operations. Finally, our occupational health and safety indicators continue to report very low values, highlighting our safety performance. This is the result of our robust and effective prevention culture and demonstrate that safety is a core value and a pillar of our operational excellence. With this, I conclude the presentation of our operations in Colombia, and I will now turn the floor over to Inivaldo Diaz, Vice President of Nicaragua. Inivaldo Diaz: Thank you, Santiago. In Nicaragua, Q3 production remained stable, registering 32,000 ounces. This figure is 5.4% below the production from the third quarter of 2024. This variation is primarily due to a 9.5% decrease in tonnes milled, though it was partially offset by a 4.6% increase in the process grades. Of the 32,000 ounces produced, 83% originated from the artisanal production. Consequently, 58% of the total cost for the third quarter is directly associated with this artisanal output. The AISC recorded a 52% increase. 80% of the increase of the AISC is due to higher purchases from artisanal mining, 26% above compared to the same quarter from last year, which is explained by the prioritization given to artisanal mining over the industrial mining. The feed blend shifted from a 55% artisanal, 45% industrial mix in the Q3 of 2024 to a 20% artisanal, 30% industrial mix in the Q3 of 2025. Adding to the higher purchasing volume is the price effect, which is 40% higher in Q3 2025 versus the same period in 2024, leading to a greater volume of purchases in 26% and 40% higher price. Finally, in July, the decision was made to begin stockpiling high-grade ore purchased from artisanal mining for a special processing at the Vesmisa plant. This required upgrades, including replacement of the corn crusher, major repairs to the agitation tanks and other circuit adjustments. The plant was shut down for nearly 1 month, affecting quarterly operational costs and production. By September, we began achieving the anticipated results. The ore inventory generated at the stockpiling pads amounted to 5,604 ounces, of which 4,527 ounces are from the artisanal mining and 1,077 ounces are from industrial mining. The benefit of this initiative to batch process the high-grade material is the increase of metallurgical recovery by enhancing the residence time and reducing the gold content in the leach tails. With this, I conclude the results for Nicaragua, and I turn the floor back to David. David Londono: Thank you very much, Inivaldo. Let us now discuss our opportunities and outlook. I want to start by highlighting the solid progress in near-mine exploration, which is crucial for the future sustainability of our operations. During the third quarter of 2025, we completed a total of 9,806 meters of diamond drilling. This brings our year-to-date cumulative total to 29,252 meters, maintaining an excellent pace of exploration. Moving to the Porvenir project, we continue working to advance on the following key stages. We are proceeding with the update of the pre-feasibility study with -- that will be finished by the end of the fourth quarter. Operating and capital costs within the project's financial model are currently being updated. In parallel, we are in the process of reaching an agreement with the community and authorities to define an environmental compensation plan. This is a fundamental step for the submission of the environmental management plan for the process plant. The greenfield exploration campaign focused on new discoveries began drilling in July 2025. And currently, we have 3 drill rigs operating on site. We have completed 6,688 drilled meters during the year. Finally, regarding the La Pepa project, as we mentioned earlier, we have completed the acquisition of 100% of the project. We are currently focusing our team's efforts on advancing the exploration plans, which we expect to commence next year. 2025 has represented a key period of strategic consolidation for Mineros, characterized by a substantial transformation and the establishment of unprecedented financial milestones. These achievements reaffirm the robustness of our strategy and our unwavering commitment to generating sustainable value for our stakeholders. From a financial perspective, management has demonstrated operational excellence. Productive discipline has ensured a stable and safe operation, driving the achievement of record revenue at the corporate level. This operational efficiency has directly translated into a significant increase in profitability materialized as a record EBITDA, record net income and an outstanding generation of free cash flow. We have maintained a stable dividend program, and we have observed the market validating our execution, which has resulted in a very positive share performance during the year. On the corporate front, we have worked to secure the foundation for future growth. We have successfully completed the redefinition of the corporate strategy, providing a clear framework for the next phase of growth. We executed the share buyback program, thereby returning additional capital to shareholders and significant operational progress has been achieved, highlighted by the commissioning of our Aurora plant. Our geographic expansion strategy is consolidating with the total acquisition of the La Pepa project, integrating a new high potential jurisdiction into our operations. Finally, we continue to invest in our exploration pipeline with important advancements in greenfield exploration and in the development of the Porvenir project, ensuring long-term sustainability of our operations. This concludes our presentation. We would like now to open the floor for questions. Operator: [Operator Instructions] First one comes from Luca Skarbahal. And he asks, why is it possible to have a debt in the company if the most attractive part of the company is a very healthy balance. David Londono: So the opportunity of financing was open, and we decided to try the market for that. We have to have enough cash flow when an opportunity comes. And that opportunity is now. Unfortunately, when we were going to get the market or go to the market, the conditions were not favorable. We obviously have a plan to grow as a company, and we have this journey to grow at 300,000 ounces per year and even more in the next 3 years related to the investment with Porvenir and Alluvial as well, and Hemco as well. And we are going to invest $200 million or $300 million related to this plan for growth organically -- for growing organically. And also, we want to maintain maximum liquidity if there is a chance to buy an asset or to buy a mine or something that is attractive, but we still need to identify that opportunity. Operator: Next question comes from Mr. Simon Londonio. Unknown Analyst: Congratulations for the results. Would you consider the possibility of starting a new buyback program? David Londono: Thank you so much for your question. That's a decision made by the assembly. We are open for this decision from the assembly. And also, there's another perspective from the previous point. We want to grow this company in the gold production. And it is feasible that this growth has more value for the shareholders even more than the dividend. So our preference is to maintain the dividend in about $30 million per year and maximize the growth plan of production. Operator: We have 2 more questions from Mr. Justin Chan. Justin Chan: Could you please inform us the schedule for the final decision about Porvenir. If the pre-feasibility study is presented in the next year, will you have a definite study before approving the pre-project or the feasibility project is enough so the assembly approves that project. David Londono: Thank you, Justin. I would like to start first by saying that we are finishing the pre-feasibility study. We will finish that in December at the end of the fourth quarter. And this will give us the possibility to perform a feasibility study that is going to be quite fast because this pre-feasibility study is the second time it is performed. It has more details. It is almost a feasibility study. We only have to work on a detailed engineering so we can make that decision. I think that those -- that's going -- we're going to make the decision at the -- in the middle of next year. We are applying all. Operator: The next question from Mr. Justin Chan. They ask about this talk of capital. The working capital and the fiscal capital have a significant impact in the fourth quarter. Do you prevent that there is any temporary factor that will affect the cash flow? Or will it be maintained based on the AISC. David Londono: I'm going to respond. We do not do not experience important changes in our balance sheet or in our cash flow answer. There is something that we need to deep dive in this part. The taxes of the company are paid during the whole year as down payments or advanced payments. And when we have this payment related to taxes after liquidations. Operator: Next question from Mr. Lucas Carbajal. With the commissioning of the Aurora plant, how much are you expecting to increase the production? David Londono: I'm going to start responding to this question, and then Santiago will respond, the Colombian VP. I think the commissioning of the Aurora plant is a total success, and it will improve production and the performance in Colombia. So it depends on our mining plans and the management that we will have, but this plant will cover 5,000 cubic meters -- additional cubic meters per day. A production that we are adjusting as a project and that we expect to have this year between 1,000 and 1,500 additional ounces. And next year, we will explain you the plan for the mining process next year. We will inform that. Operator: Next question from Ben Pirie. Ben Pirie: Congratulations for this great quarter. I am highly excited for Q4 as the gold price has risen even further. Can you guide any sort of budget for the La Pepa in 2026 for the exploration program? David Londono: Thank you so much. First in Spanish, I'm going to speak. So La Pepa, we have planned to start the exploration. In this moment, we are working to get the staff that is going to work in La Pepa and we would start exploration next year when all the consultants and all the people are in the site. I think we're going to spend -- we will have an additional budget of $5 million. Operator: Next question from Mr. Juan Soto. Unknown Analyst: What is the forecast of production that you have for 2026. David Londono: Thank you so much, Juan, for that question. In this moment, we are finalizing the budget, and we are internally reviewing how this is going to be. But I think we will see a slight increase in production in both operations. It could be 2% or 3%. Operator: This is from Alejandro Correa. What's the forecast of the company with the gold prices in 2026. What is the contribution in monetary resources are you expecting from Project La Pepa in Chile? And when would you start the exploration phase. David Londono: So the forecast, we don't work with the forecast of the gold prices. We control the costs, but not the price. We assume that for the next year's production, the price should be -- we have this forecast of -- with 15 different banks and the forecast related to 2026, it's in the range of $4,000 per ounce but we are going to use this last forecast from 2025 that could be ready by December. We are going to use that forecast. And in terms of the second part of the question about the La Pepa project in Chile, what is it that we expect. We expect to start exploration and all the studies next year. I think exploitation that will be planned for between 5 and 7 years, while we do all the exploration, we have to do the pre-feasibility study, the feasibility study and that will take a long time and obviously, acquiring or getting all the permits that we need. So we are just starting to do this work. Operator: Next question from Alfonso Maris. Unknown Analyst: What happened with the silver production. David Londono: In terms of silver, that is due to the adjustments that we had in the Vesmisa plant, that was the adaptation to process the high-grade minerals or ore. We processed less tonnes because we are working under dispatch processing modality because hybrids increased substantially during this quarter. So this led us to process less tonnes and focus in the recovery of gold, and we run the test of recovery and the amount of silver has also decreased. Operator: Next question from Mr. Exon. Unknown Analyst: We know that you are in pursue for inorganic opportunities across different geographies. I would be grateful if you could give us more color on which countries or jurisdiction you favor over others. David Londono: Thank you for this question. We will always see opportunities in different geographies. Obviously, we prefer to be in the same time zone. But if we see opportunities that are smart opportunities for us, we will study them. Operator: Next question from Mr. Maria. Unknown Analyst: Congratulations for the results. The valuation that the shareholders have received is quite high. What's the reason of the reduction of production and how is Guillermina doing? Inivaldo Diaz: The answer is the same that I've replied before. This thing about the Guillermina plant that we are using for processing the high-grade ore and that reduced the production tonnes. And in terms -- in relation to Guillermina, we continue with the exploration plan. We are doing the drilling, and we are expecting to receive the results, but it's promising. We expect that, that brings more resources to the operation. Operator: Next question. This is from Simon Londonio. Unknown Analyst: Could you please update the guidance in relation to the ounces production and CapEx, considering the -- and CapEx, considering the new projects. David Londono: Thank you for that question. The guidance does not change in this moment. And for 2026, we see the guidance in the Q1 in January, and we will have this guidance for production, exploration and CapEx. Operator: We see this from Pablo Castro. Unknown Analyst: We see an increment in the brownfield exploration. Is this a change in the strategy under the new administration? Do you see any potential in the current mines for this increment in the exploitation. David Londono: Yes, indeed. Thank you for that. We have to increase the brownfield exploration. And the reason for this is that we want to replace the year's production in both jurisdictions. For us, this is very important to have this certainty about the budget that we are making. So this is a change in the strategy, increase those expenses in exploration because in the end, this gives a lot of profitability. We have always said that Nicaragua has a very good perspective. It's an area with a good perspective, and we expect to have very good results with increase in the exploration. And in Colombia, this has been very consistent and the fact of increasing the exploration. So we are sure about what we are going to produce in the next 5 years. Operator: We have another question. Why the underground production of gold has really been -- has decreased in 44% and what's -- what are the future plans for the underground sector. David Londono: In Hemco, our bottleneck is the capacity for processing. We currently see an increase in the contribution of the artisanal miners that because of their activity, it had -- their grade doubles what we obtain in the industrial mines in our mines. So seeing the plan and the sequences adapted, and we give preference to the ore from the artisanal mining above or on top of our own mining. So we are increasing the processing capacity in our plants. That's part of our growth plan in our capacities. Operator: We have a question from Christian Marasco. Unknown Analyst: Congratulations. Could you please detail your investment plan for the funds that come from a possible bond emission. How is the return on investment in the new mines. Unknown Executive: So we have this growth to 300,000 ounces in relation to the investments in Porvenir, Hemco that should -- we could create a lot of value for our shareholders with this organic growth and to maintain this liquidity in case there is an available... Operator: This question is from Juan Soto. What's the forecast for CapEx and for which type of investments would you destine these funds. David Londono: The answer has just been given by David. But just to repeat that a little bit, it's $170 million or $200 million that we want to invest in the construction of Porvenir and about $45 million that we have for the expansion of the bottleneck in Hemco and the possibility to have more production or improvements in the performance in -- with the acquisition of this plant. Operator: Next question that comes from Santiago Mason. Unknown Analyst: Could you please give us a guidance of the dividend for 2026? David Londono: This is something that is defined in the assembly in March. So we cannot give you a guideline of how much it would be. Well, thank you so much. With this, we close the Q&A session for this call for the results of the third quarter 2025. Thank you so much for your participation, and I will see you in the next quarter's call. Thank you very much. Operator: With this, we finish the today's conference. Thank you so much for your participation. You may disconnect from the call now.
Operator: Good day, and welcome to the Nexstar Media Group's Third Quarter 2025 Conference Call. Today's call is being recorded. I will now turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir. Joseph Jaffoni: Thank you, Kerri, and good morning, everyone. Let me read the safe harbor language, and then we'll get right into the call. All statements and comments made by management during this conference call other than statements of historical fact, may be deemed forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Nexstar cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward-looking statements made during this call. For additional details on these risks and uncertainties, please see Nexstar's annual report on Form 10-K for the year ended December 31, 2024, as filed with the U.S. Securities and Exchange Commission and Nexstar's subsequent public filings with the SEC. Nexstar undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, it's my pleasure to turn the conference over to your host, Nexstar Founder, Chairman and CEO, Perry Sook. Perry, please go ahead. Perry Sook: Thank you, Joseph, and good morning, everyone. Thank you for joining us on our call. Mike Biard, our Chief Operating Officer; and Lee Ann Gliha, our Chief Financial Officer, both with me this morning. During the third quarter, we made the milestone announcement of our definitive agreement to acquire TEGNA in a cash transaction valued at $6.2 billion. The proposed acquisition will strengthen Nexstar's position as the nation's leading local media company with high-quality broadcast stations, award-winning news operations and innovative local programming, all of which collectively demonstrate our commitment to trusted community-focused journalism. Operationally, TEGNA will enhance and expand Nexstar's scale, geographic reach and community impact by adding 64 top-performing stations primarily in the top 75 DMAs and to our growing portfolio of media assets. Financially, on a combined pro forma basis, Nexstar and TEGNA generated over $8 billion in revenue and $2.56 billion of adjusted EBITDA. Taking into account expected after-tax synergies and incremental interest expense, the transaction is projected to be more than 40% accretive to Nexstar's stand-alone adjusted free cash flow and with roughly $300 million in anticipated synergies, we expect only a modest increase in pro forma net leverage. We're making good progress on our path to closing. TEGNA filed its definitive proxy statement and the shareholder vote there will take place on November 18. We submitted our [ HSR ] filing on September 30, and as expected, we received a second request letter from the DOJ on October 30 as well as a handful of inquiries from state AG offices. Our FCC applications are ready to go once the federal government reopens, and our expectations for closing the transaction by the second half of 2026 remain unchanged. In the meantime, as previously announced, we are taking a disciplined approach to capital allocation, conserving cash that would otherwise have been used for share repurchases in order to fund the more accretive TEGNA acquisition. As we enter this next phase of Nexstar's growth, I've never been more confident in our strategy nor more energized about the opportunities ahead. This is a defining moment for our company, our industry, our shareholders and the communities we serve. When I said on our August conference call that I'm deeply committed to seeing this transaction through, I meant that. That's why I was pleased to extend my employment agreement as Chairman and Chief Executive Officer through March 31 of '29. Together with our teams, we will continue our mission to build a stronger, more competitive local media company and expand Nexstar's impressive long-term record of success and shareholder value creation. Turning now to our third quarter financial results. Nexstar delivered another solid quarter of net revenue and adjusted EBITDA, reflecting stable distribution and nonpolitical advertising revenue as well as strong expense management. It's clear that broadcast television remains the bellwether and the most profitable segment of the media ecosystem, delivering the most watched content and most valuable programming. According to Nielsen, time spent watching broadcast TV increased 20% from August to September, representing the largest month-to-month gain since 2021 and more time spent watching television on broadcast than the entire universe of cable networks. September's results were driven by a strong start to the NFL season as well as college football. Through Week 6, the NFL averaged 18 million viewers per game, the highest average viewership since a record 2015 season. And similarly, the average total audience for the first 2 games of the NBA season, newly launched on Broadcast Network NBC reflected a 36% improvement versus the first 2 games on TNT last year and double the total audience of the games on ESPN and 3.6x the average total audience of the games on Prime Video first week of the season last year. And of course, November started with a bang with Game 7 of the World Series delivering over 25 million viewers, the highest number for baseball in nearly a decade. These results underscore the enduring power and reach of broadcast and our consistent ability to aggregate mass audiences in real time, something other platforms just can't replicate. Major sports franchises continue to value the unmatched reach and advantage of broadcast television and sports programming continues to complement Nexstar's popular local news programming, which accounts for almost half of our total household viewership. In terms of the CW, Nexstar's own broadcast network, CW Sports delivered record performance with the best quarter since the launch of live sports programming in Q1 of 2023, driven by continued strong viewership of the NASCAR Xfinity Series as well as a strong start to the ACC and Pac-12 college football season. In fact, last Saturday night, our final Xfinity race of the season on broadcast in primetime beat college football on CBS in total viewers, adults 25 to 54 and adults 18 to 49. In addition, solid results from our entertainment programming lineup drove the CW's sixth consecutive quarter of primetime ratings growth. Year-to-date, the CW has surpassed competitive Big 4 primetime telecast 250x across total viewers among the 18 to 49 and 25 to 54 demos. That's an impressive increase over the 45 times we accomplished that for the full year of 2024. The continued success of our long-term strategic growth on high-impact news and sports programming, further validated by the performance of NewsNation, which ranked as the #1 basic cable network for year-over-year growth in the third quarter, continuing its trend from Q2. On a year-to-date basis, NewsNation surpassed MSNBC 57x and CNN 39x in head-to-head telecasts across total viewers and in the adult 25 to 54 demo. That compares to 2024 when NewsNation surpassed MSNBC 4x and CNN 2x in the head-to-head telecasts. These results reflect the fact that NewsNation's programming and unique fact-based reporting is resonating with viewers who are looking for a refreshingly balanced and impartial reporting and analysis. In summary, the continued strength and consistency of Nexstar's financial performance reflects our stable diversified revenue and operating base, our disciplined expense management and continued execution across our portfolio. Our proposed acquisition of TEGNA meets the deregulatory moment where it is and sets the stage for an incredibly bright future ahead for Nexstar, our industry, our shareholders and the communities we serve. With all of that said, let me turn the call over to Mike Biard. Mike? Michael Biard: Thanks, Perry, and good morning, everyone. Nexstar delivered third quarter net revenue of $1.2 billion, a decline of 12.3% compared to the prior year, primarily reflecting the year-over-year reduction in political advertising. Third quarter distribution revenue of $709 million was flattish compared to the prior year quarter, down 1.4% and primarily reflects MVPD subscriber attrition and the resolution of a nonrecurring disputed customer claim offset in part by increased rates and other contractual commitments, growth in vMVPD subscribers and the addition of CW affiliations on certain of our stations. Without the impact of the resolution of a legacy customer dispute, distribution revenue would have been slightly up. Advertising revenue of $476 million decreased $146 million or 23.5% over the comparable prior year quarter, primarily reflecting a $145 million year-over-year decrease in political advertising. However, nonpolitical advertising was essentially flat and better than our expectation of a low single-digit decline. Growth in national advertising, including at the CW and NewsNation, strong growth in local digital advertising and the absence of political crowd out that impacted last year's third quarter offset soft local advertising driven by the absence of the Olympics in the third quarter this year. No advertising category materially moved the needle in the quarter, and we have not observed any negative impact on the pharmaceutical category from recently introduced regulations. As a reminder, the pharmaceutical category represents less than 3% of our total nonpolitical advertising. Speaking of political, we generated approximately $10 million in political advertising revenue during the quarter, primarily driven by spending related to state-wide elections in Virginia, including the Governor's race as well as California's redistricting ballot initiative. Looking ahead to the fourth quarter, nonpolitical advertising is currently forecast to decline in the very low single-digit area on a year-over-year basis, benefiting in part from the absence of political crowd out in the quarter, but offset by advertising revenue softness and tougher year-over-year programming comps at the CW and our national digital business. Political advertising is expected to be consistent with 2021 fourth quarter levels. Turning to the CW. We are consistently delivering favorable results from our programming investments, especially from sports, which continues to account for more than 40% of the CW's programming hours. And we continue to build our CW Sports portfolio. During the third quarter, we expanded our relationship with the Pac-12 conference through the 2030-31 season to include 66 annual events, including 13 regular season football games, 35 regular season men's basketball games, 15 regular season women's basketball games and the semifinal and championship games of the new Pac-12 women's basketball tournament. During the quarter, we also completed a new multiyear agreement with the Professional Bull Riders to be the exclusive live broadcast partner of the PBR teams series on Saturdays and Sundays, which began airing this last August. The NASCAR Xfinity Series, transitioning to the NASCAR O'Reilly Auto Parts series next season is now firmly established exclusively on CW Sports, delivering strong momentum and benefiting from the scale and audience engagement of our broadcast model. Xfinity races delivered an 11% year-over-year increase in viewership for the first 30 races of the season with more than 1 million viewers for 20 of those races. By comparison to last season, only 8 of the first 30 races broke the 1 million viewer mark in 2024. Audiences are consistently showing up for our live sports lineup. Ratings for ACC and Pac-12 college football games in the CW have more than doubled year-over-year among adults 25 to 54, while WWE NXT continues to climb since moving to the CW from USA Network, up 12% year-to-date. That momentum is translating into progress toward our financial targets. In the third quarter, we reduced losses at the CW by $5 million or 24% year-over-year. In the quarter, growth in distribution and advertising revenue virtually offset lower licensing revenue and lower operating expenses, net of a small increase in programming amortization drove the improvement in losses. Our outlook for the year for the CW remains unchanged as we continue to project 2025 losses to be lower than 2024 by about 25%. And our expectation of achieving breakeven sometime in 2026 also remains unchanged. To close, I want to reiterate our confidence in our long-term outlook and the enduring strength of Nexstar's business model. Our programming strategy anchored by live news and sports continues to deliver results for the CW and NewsNation, and we remain committed to unlocking even greater value from these assets as our audiences grow. Our local programming strategy is similarly anchored by our unrivaled live news product, and the proposed TEGNA acquisition will create substantial and immediate value for shareholders while advancing the public interest by strengthening local broadcast journalism and providing an expanded range of competitive broadcast and digital advertising solutions across our portfolio of local and national assets. With that, it's my pleasure to turn the call over to Lee Ann for the remainder of the financial review. Lee Ann? Lee Gliha: Thank you, Mike, and good morning, everyone. Mike gave you most of the details on the revenue side and on the CW, so I'll provide you a review of expenses, adjusted EBITDA and free cash flow along with a review of our capital allocation activities. Together, third quarter direct operating and SG&A expenses, excluding depreciation and amortization and corporate expenses, declined by $23 million or 3%, primarily driven by our operational restructuring initiatives taken last year. Q3 2025 total corporate expense was $68 million including noncash compensation expense of $19 million compared to $53 million including noncash compensation expense of $19 million in the third quarter of 2024. The $15 million increase is primarily due to onetime expenses associated with the expense portion of a nonrecurring settlement of a disputed customer claim and the proposed acquisition of TEGNA, offset in part by the release of certain reserves. Q3 2025 depreciation and amortization was $190 million, matching the amount in the third quarter of 2024. Of these amounts included in our definition of adjusted EBITDA is $72 million related to the amortization of broadcast rights for Q3 2025 compared to $70 million for Q3 2024. The increase in amortization of broadcast rights by $2 million was primarily due to slightly higher programming costs at the CW versus the comparable prior year quarter given the mix of programming. Q3 2025 income from equity method investments, which primarily reflects our 31% ownership in the TV Food Network declined by $12 million versus the comparable prior year quarter, primarily related to TV Food Network lower revenue. On a consolidated basis, third quarter adjusted EBITDA was $358 million, representing a 29.9% margin and a decrease of $152 million from the third quarter of 2024 of $510 million due primarily to the election cycle. Moving to the components of free cash flow and adjusted free cash flow. Third quarter CapEx, together with payments for capitalized software cost net of proceeds from asset disposals were $34 million, an increase from $31 million in the third quarter of last year. Third quarter net interest expense was $94 million, a reduction of $19 million from the third quarter of 2024. On a cash basis, this compares to $93 million in the third quarter of 2025 versus $110 million in Q3 2024. The reduction in interest expense was primarily related to a reduction in SOFR and Nexstar's reduced debt balances. Third quarter operating cash taxes were $33 million compared to $10 million last year. As expected, our cash tax payments primarily in Q3 2025 and expected in Q4 '25 benefit from the One Big Beautiful Bill Act through the [ Marinne ] statement of bonus depreciation on CapEx and the ability to deduct amortization of internally developed software. The low cash tax in the third quarter of last year was due to the change of the timing of our tax payments using the annualization method. Cash distributions from the Food Network were $6 million in the third quarter, which amount is still captured in our free cash flow and adjusted free cash flow definition. This amount reflects our pro rata share of distributions to cover tax from our proportionate share of the income of the JV. Included in the third quarter's adjusted EBITDA, but excluded from adjusted free cash flow is $22 million of income before amortization from equity method investments, which is primarily our pro rata share of Food Network net income in the third quarter of 2025. In Q3, programming amortization costs were lower than cash payments by $17 million as certain deferred programming payments were paid and certain future programming was paid prior to [ airing ]. As a result, consolidated third quarter 2025 adjusted free cash flow was $166 million compared to $327 million in last year's third quarter. A few additional points of guidance with respect to adjusted free cash flow, we are currently projecting CapEx in the $32 million range in capitalized software payments in the $6 million range in Q4. In addition, we will acquire one of our buildings subject to a long-term lease for $21 million. Based on the current yield curve and our mandatory amortization payment, Q4 interest expense is expected to be in the $88 million range. Q4 2025 cash taxes are expected to be in the $45 million range. In Q4 '25, cash distributions from the Food Network are expected to be in the low single-digit million-dollar range compared to our share of adjusted EBITDA in the low teens millions and payments for programming are expected to be in excess of amortization by about $30 million due primarily to prepayment of future programming payments and payment of deferred programming. Turning to capital allocation in our balance sheet. Together with cash from operations generated in the third quarter and cash on hand, we returned $56 million to shareholders in dividends, repaid $25 million in mandatory debt repayments and did not repurchase any shares as we are conserving cash for our acquisition of TEGNA, which we expect will be more accretive than a stand-alone share repurchase strategy. Our cash balance at the quarter end was $236 million, including $13 million of cash related to the CW, our debt balance was $6.4 billion. Because we designate the CW as an unrestricted subsidiary, the losses associated with the CW are not accounted for in the calculation of leverage for purposes of our credit agreement. As such, our net first lien covenant ratio for Nexstar as of September 30, 2025, which is now calculated on the last 8 quarters annualized basis was 1.73x, which was well below our first lien and only covenant of 4.25x. Total net leverage for Nexstar was 3.09x at quarter end. These leverage statistics are calculated pursuant to the description in our credit agreement. With that, I'll open up the call for questions. Operator, can you go to our first question? Operator: [Operator Instructions] And our first question will come from Dan Kurnos with Benchmark. Daniel Kurnos: Two for me. Perry, I appreciate the update on the deal timing. It was implied yesterday that the SEC might address the cap in early '26. And I appreciate all of the color you gave us around what you guys are doing behind the scenes. So I just wanted to give you the floor to maybe talk about why you're confident that the deal will close and close on time as you proposed it? And then for Mike, just a housekeeping question on the Q3 distribution stuff. I appreciate the color. Any more granularity you could give us? And is that onetime in nature? Is there any flow-through into Q4? Perry Sook: I think as it relates to the timing, I mean, the pieces are falling in place. The Eighth Circuit mandate was issued on October 21. That eliminates the top 4 ownership rule, that will go into effect as soon as that order is published in the federal register and it's effective 30 days later. So we need the government to reopen for that to happen. We have prepared 37 applications seeking approval of the transfer of control of TEGNA's licenses to Nexstar as well as the request for waivers unless they are rendered moot by other rulemaking. And we, again, continue to believe that this administration, the Trump administration and Brendan Carr at the FCC are focused on deregulating business, allowing businesses to breathe, allowing businesses to compete and that we've been spending a lot of time in Washington to reinforce at the regulatory agencies and on the hill that we are indeed here to help meet the regulatory moment, where it is, which all of -- which continues to point toward the regulatory rulemakings happening in the first half of next year, concurrent with the processing of our application. I will add that while there's a lot of work ahead of us in complying with the DOJ request, and I've read our FCC applications. I think they're very good and make very good public interest showing as to why this transaction is in the public interest which is, by the way, the standard at which the FCC will hold it to. But I can also tell you that internally here with several meetings over the last week in conjunction with our Board meeting, in conjunction with the integration plans here, there is genuine enthusiasm in this building for this acquisition for the opportunity it creates to grow our business, for the opportunity it creates to make sure that we secure a future for our business and the opportunities that we see downstream with 3.0 and spectrum, additional local content distributed across multiple platforms and allowing us to compete on a much more level playing field with big tech. And all you have to do is look in the news that things going on around us to see indeed why these -- why deregulation and further consolidation to preserve local journalism and our industry is necessary. So there's a lot of work to be done on our end, but people are -- we have a coalition of the willing that is really pitching in to comply with all the regulatory requests and to make sure it's done in a timely fashion. Michael Biard: To your second question on the distribution item, no, Dan, that was truly a nonrecurring onetime only anomaly that will not linger into the fourth quarter at all. Operator: We'll go next to Benjamin Soff with Deutsche Bank. Benjamin Soff: So you obviously already have your big transaction in place, but I'm curious if you have any thoughts on what the rest of the industry might look like a few years down the line. in particular, are there any implications for Nexstar if the rest of the industry goes through consolidation or not? And then I have a follow-up. Perry Sook: I'll start from the end of your question back. I mean I think you -- a good, strong industry needs to have good, strong companies comprising it. So we think that we will be the poster company for not only what the future of the industry will look like, but also the strength of our balance sheet, management team, financial profile and the amount of local content that we deliver as well as leading on innovation for the industry. But we can't do it all by ourselves. And so we're very much in favor of having good and strong companies in our industry. And if that means they're good and strong competitors to us, well, hopefully, that will just make us that much sharper. So Mike, I don't know if you want to add more to that? Michael Biard: No, I think you've covered it. I think we're not afraid of competition by any stretch of the imagination. And I think as Perry says, dealing with all of the forces around us, whether that's dealing with big tech on the advertising side, dealing with big media, whether that's the networks or other big media having others in the broadcast space that are good, healthy companies is something that we absolutely support. Benjamin Soff: Great. And then I'm just curious to get your thoughts on the outlook for the next political cycle. And in general, how do you view the dollars and how they might flow between broadcast and CTV in the future? Perry Sook: Well, we've already done our way too early 2026 political forecast internally here. And suffice it to say, we think that our company, based on our geography, even before the integration of TEGNA -- the TEGNA acquisition will produce a prodigious amount of political revenue in 2026. And again, it's all based on our geography, the states that we're in, where we see toss-up races, ballot propositions, redistricting, all the things that will cause money to flow. Our, again, way too early take is that broadcast will continue to be the dominant repository for political advertising. However, the fastest growing will probably continue to be CTV advertising as it was in 2024. So no change thematically, and we do project that we will have substantial political revenue in 2026. And to those that follow the company, that should be no surprise. Operator: Moving on to Steven Cahall with Wells Fargo. Steven Cahall: I have a couple of strategic questions. So first, Perry, I made the mistake once of writing that you might be nearing retirement. That's clearly not the case. So as you think out to the end of the decade, we'll be in a different administration. We'll be in some different NFL contracts. What are some of your biggest priorities sort of post TEGNA that you still have in mind for the company as you look forward? And then pro forma for TEGNA, I think Nexstar will have local news in something like 80% of the country. We've seen your network partners not be shy about going into the streaming market where there's a lot of households that just aren't on linear. How do you think about your ability to be in the CTV market at that level of scale, whether that's working with a big platform provider or doing something on your own? Perry Sook: Sure. Well, let me speak to what we see post TEGNA. First of all, our eyes are on the prize in getting the TEGNA acquisition to and through the finish line, and we're going to run through the tape. So that is our total focus now. But I will say, I don't think that, that means that we are forever done with acquisitions. We will continue to look opportunistically for acquisitions that make good industrial logic and, most importantly, are substantially accretive to the company. I think we've got a pretty good track record of finding those, and we will continue that quest. I think also with the combined entity, we will have spectrum holdings reaching approximately 80% of the country. And I think that's the next big frontier for the industry and certainly for Nexstar, who will have more spectrum assets than any other company in our space and the opportunity to develop monetization of the non-video uses of our ATSC 3.0 spectrum continue, in my view, to be the biggest value creation lever in our business as we know it today. And so that's -- we'll spend a lot of time on that. And then probably more to the mundane, but we need as an industry and Nexstar will need to lead this, need to be much more sharp around our business processes, how you buy and sell television time. It is inefficient from a cost and process standpoint for agencies to do business in linear television, yet look at the linear television revenue that is generated in this country, but it's not growing anywhere near the digital alternatives, which are much easier and cheaper to buy from a process perspective. We need to compete on a level playing field with the buying and selling of advertising with the rest of the industry. And I think if we can get to that point, which will require enhanced and better measurement, it will require enhanced and better processes. But we've got some very big goals in that regard and see opportunity in the future. What if the World Series was going into the 11th inning and you had a chance to bid for inventory at the next break, like you can in digital, whether it's in real time or on some sort of a delay for those additional inventory spots that came available, why can't we vision that and then make it happen in linear television. It's hard, but it's not impossible, but that's where the future is. So business processes, acquisitions and ATSC 3.0 will be our focus post the successful acquisition and integration of TEGNA. I think your second question related to CTV inventory. It's interesting. I mean we are and have rolled out CTV applications in the vast majority of our marketplaces as -- and are producing alternative programming to fill the hours on those apps, and that will still be an emphasis and a growth area for the company. But by the same token, why does anyone go into streaming? It's because they can't ubiquitously reach consumers outside of the pay-TV ecosystem. Well, we do every day. It's called over-the-air television. And so while streaming and CTV will all be a part of our product offerings, our core tenet is people are trying to get what we've had all along, which is a direct-to-consumer relationship with our content and with our advertising messages. And by the way, we don't have to lose billions and billions of dollars to ramp that effort up. It already exists. So I don't mean to be Pollyanna about it, but if you look at -- and I think we gave the example of what sports looks like on Amazon and what sports looks like on broadcast and what sports looks like on cable, you can put a lot of money into streaming, but you won't achieve the same results as you can one-to-many with broadcast television, which is kind of our definition. So I hope that's responsive to your question, but we don't see that as doom and gloom. It will be an additional competitive factor. But at this point, people are trying to duplicate what we already have. Operator: [Operator Instructions]. We'll go next to Craig Huber with Huber Research Partners. Craig Huber: Perry, my first question is you talked about $300 million of synergies with TEGNA. I would think, if anything, that's conservative. Can you talk a little bit about how you get to that number? Just repeat that, if you would. And then with all those synergies here, once this deal supposedly closes, I would imagine it's going to free up a lot of money on your end, if you wanted to enhance the news programming, for example, at TEGNA. I've always viewed TEGNA as one of the better run companies in the group, but nothing is perfect, and I think you could potentially increase maybe the number of hours on the news programming side for local, but also the quality of it even further. Maybe just touch on that, please. And to talk about what's better for the public. I mean, that would certainly be appealing, right? That's my first question. Perry Sook: It would, Craig. And we have, just through our desk review, identified 9 markets where we can create additional local news broadcast on stations that either have a de minimis presence or no local news presence using the combined power of the 2 stations in the marketplace. Dallas is a perfect example. WFAA does a fine job producing local news in the marketplace. We have a CW affiliate that has a half hour kind of news magazine type program, but not a serious, credible local news effort. We can use the newsroom of WFAA and their people and maybe some additional resources to create a news presence on our CW affiliate here in the marketplace, which is right down the road from where I'm speaking to you from. But there are at least 9 markets where we have those kinds of opportunities, and we are now in our discovery phase or Diligence 2.0, if you will, which we'll do a deeper dive into the operating and financials of each of the operating business units as we continue to look for additional opportunities and additional synergies. But at this point, we feel very good about the number and about the enhanced operating opportunity we'll have by virtue of making this acquisition, all of which you'll read about in our FCC filing once it's made. I'll let Lee Ann talk a little bit more about the synergies. Lee Gliha: Yes. Craig, so I think as we've talked about on our call when we announced the transaction, there's about $300 million of synergies. It breaks out very similarly to how the synergies broke out on the Tribune deal, which was about 45% from net retrans and the remainder coming from operations. And then on the operations side of things, that's really a combination of things. It's looking at corporate overhead. You don't need duplicative corporate overhead. We have a number of hubs that we use that we can expand to help service the larger station footprint. And then it's looking kind of within the operations for efficiencies. We look at how we operate our stations versus how TEGNA operates theirs, and there are many areas where we do things a little bit differently that generates synergy. And then there's obviously the significant amount of 35 or 51 markets that are the overlap markets that we can really operate 2 stations off of 1 infrastructure. And so that's an area where there's a significant portion of those synergies are coming out of that. As Perry said, this has been our initial analysis. We did a very deep analysis in terms of looking at line by line, person by person, what these costs could be. We're going to be in the market and doing a little bit more work and looking to see what else is there. I think as we also mentioned on a prior call, this really was reflective of the near-term synergies. What can we generate kind of in the next 1 to 2 years after the close. I think there are some medium-term synergies because there is so much overlap, there will be an ability for facilities consolidation, but that takes a little bit longer time, right? You have to move people, move equipment, sell a business or sell a piece of real estate and then benefit from those synergies. So we think there will be more over time. But for right now, we're feeling good about that number and look forward to providing you some updates as we kind of move forward. Craig Huber: I have one final just housekeeping question, Lee Ann. Are you guys still expecting gross and net retrans revenue this year to be flat versus a year ago for the full year? Lee Gliha: We don't reupdate our guidance. That was our guidance for the year. As you know, in this quarter, we did have a onetime impact of an old dispute that got resolved in this quarter, and that impacted our revenue for the quarter. If we didn't have that, our actual distribution revenue would be up. And so you can start to see for the first 3 quarters of the year, that was flattish. And so you can kind of extrapolate from there. Operator: And Patrick Sholl with Barrington Research has our next question. Patrick Sholl: I was wondering if you could talk a little bit more about the ad trends expectations that you laid out for the fourth quarter. I was wondering if there was like any specific like weaknesses in local markets or any category drivers of what you kind of called out? Lee Gliha: I'll take that. We're not anticipating any sort of particular changes in the category. I think we're getting a little bit of sports betting money because of Missouri which is nice. But from a local perspective, I don't think there's going to be a whole heck of a lot of change in sort of the trajectory in terms of the trends for the third quarter versus the fourth quarter. I think where we're coming in the fourth quarter that's putting a little bit of pressure on the numbers is just we're lapping NASCAR at the CW, which we had in the fourth quarter last year, we had in the fourth quarter of this year. And there's just some other kind of onetime items in our national digital business that have -- that are putting a little bit of pressure on that number. Operator: And we'll go next to Aaron Watts with Deutsche Bank. Aaron Watts: Clearly, there's optimism that 2026 will be a strong year of political spending. Typically, with that setup, we're used to seeing pressure on core advertising growth due to the crowd out effect. That said, you'll have more sports on the air notably with NBC, broadcasting the NBA as well as other big sporting events next year. With the benefit of those incremental sports, curious if you think core advertising could be stable or even grow next year compared to '25 or at least perform better than it has in election years in the past. Perry Sook: That's really technical, Aaron. I think that as far as the Olympics go, it's the Winter Olympics, so it will be earlier in the year, which is further away from the peak political activity. So we ought to be able to monetize that pretty well with core advertising. I think it's hard when you look at the kind of political revenue that we'll run through the system next year to expect that you'll see core advertising revenue grow because the displacement will be substantial. We're not issuing guidance at this point. But listen, I think that if interest rates continue to come down and confidence continues to grow. We have resolution on tariffs and all of those things go into confidence and eliminating uncertainty, all of which I think is good for people's confidence in spending money on advertising. So I think we'll have more tailwinds than headwinds in 2026 overall, but it's too early to quantify the way that you'd like us to. Aaron Watts: Okay. And if I could ask you one follow-up around sports, Perry. There's been reports that the NFL may look to open up negotiations on its media rights as early as next year. I think there's clear benefits to that for local TV broadcasters, but also some concerns. Would be curious to hear how you're thinking about that potential and whether it is actually a good thing for you and the universe. Michael Biard: Yes. I'll take that one. I think on balance, we're optimistic about that. I think when you look at the trends that Perry talked about in his opening remarks, on broadcast, there really is a very sort of clarifying view of the ecosystem that broadcast brings more eyeballs, more viewers, bigger events than any other platform by far, right? You've seen that happen in the NBA with the move of some incremental games to broadcast from cable. We expect that will probably happen around Major League Baseball as well. You can see it on other sports. So we think the NFL, given its traditional conviction around the importance of local broadcast will not be any kind of principle that they move away from as part of an early discussion. Certainly, I think an early discussion leaves the networks in a position, probably a stronger position than they would be at the end of that deal. And to the extent that the NFL is moving any games to streaming, we really think that will be at the margin, may be part of increasing the overall schedule to an 18th game and largely around potentially, I would think, producing a package of international games. So on the whole, we think that's actually a strong thing, and we think broadcast is going from strength to strength at this moment. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to Perry Sook for closing comments. Perry Sook: Thank you very much. I'll just say quickly in closing that Nexstar's strong third quarter financial results extended our long-term operational track record, and we plan to put that expertise to work in our pending acquisition of TEGNA. We couldn't be more excited nor more energized about our prospects here at Nexstar. In the near term, we see a decreasing interest rate environment, the reset of the majority of our distribution contracts at the end of this year, the acquisition of TEGNA and an election year in 2026, all of which we expect to drive shareholder value. Longer term, we expect to accelerate our CW and NewsNation network growth strategies, our deployment of applications for ATSC 3.0 and innovation around how we go to market and the products and services we bring to benefit our viewers and our advertisers. Thank you for joining us. We look forward to updating you on our year-end results in February of next year. Happy holidays, and have a good day. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Hello, and welcome to the National Fuel Gas Company Fourth Quarter and Full Year Fiscal 2025 Earnings Call. My name is Harry, and I'll be your operator today. [Operator Instructions] I would now like to hand the conference over to Natalie Fischer, Director of Investor Relations. Please go ahead. Natalie Fischer: Thank you, Harry, and good morning. We appreciate you joining us on today's conference call for a discussion of last evening's earnings release. With us on the call from National Fuel Gas Company are Dave Bauer, President and Chief Executive Officer; Tim Silverstein, Treasurer and Chief Financial Officer; and Justin Loweth, President of Seneca Resources and National Fuel Midstream. At the end of today's prepared remarks, we will open the discussion to questions. The fourth quarter and full year fiscal 2025 earnings release and November investor presentation have been posted on our Investor Relations website. We may refer to these materials during today's call. We'd like to remind you that today's teleconference will contain forward-looking statements. While National Fuel's expectations, beliefs and projections are made in good faith and are believed to have a reasonable basis, actual results may differ materially. These statements speak only as of the date on which they are made, and you may refer to last evening's earnings release for a listing of certain specific risk factors. With that, I'll turn it over to Dave. David Bauer: Thank you, Natalie. Good morning, everyone. As we reported in last night's release, National Fuel had a great fourth quarter with adjusted earnings per share of $1.22, an increase of 58% from last year. The quarter capped an excellent fiscal year where each of our segments delivered meaningful growth. On a consolidated basis, adjusted earnings per share increased 38% compared to fiscal 2024. At our integrated Upstream and Gathering businesses, we continued our impressive trend in capital efficiency, a trend that is unmatched by our Appalachian peers and perhaps across the industry. Since we began our EDA transition in mid-2023, we've grown production by approximately 20% while reducing our overall capital spending by 15%, which is a testament to both the quality of our Tioga County assets and our team's dedication to operational improvement and execution. Given the productivity of our acreage and the depth of our inventory, I fully expect our capital efficiency will continue to improve in the coming years. To that end, last night, we announced a significant expansion of our Tioga County inventory, adding approximately 220 prospective well locations in the Upper Utica formation. Over the past few years, we've been testing this horizon across our Tioga acreage and the strong performance from the 4 highly productive wells turned in line to date in the Upper Utica give us the confidence to increase our inventory in this area. The addition of Upper Utica locations nearly doubles our inventory in the EDA. At our current pace, we now have almost 20 years of development locations that are economic at NYMEX prices below $2 per MMBtu. As we've discussed in the past, another key driver for future growth at Seneca is additional firm transportation and firm sales to ensure we have an end market for our production. Consistent with that objective, in September, we signed a proceeding agreement with a third-party pipeline that will provide us with an additional 250 million a day of takeaway capacity out of Tioga County starting in late 2028. This new capacity, along with the Tioga Pathway project that should come online in late 2026, underpins the mid-single-digit production growth we've been signaling for the past year or so. Justin will have a full update on Seneca later in the call. Turning to our regulated operations. Momentum continues to build at Supply Corporation, which has 2 great growth opportunities in progress. First is the Tioga Pathway project for Seneca that I just mentioned. Development of that project remains on schedule. We received our certificate in May and are on track for a spring construction start. Second is the Shipping Port lateral off of our Line N system in Western Pennsylvania. Supply Corp made its prior notice filing in late August, and we expect to receive FERC authorization in the coming weeks. In addition, we recently ordered the key materials and awarded the construction contract for the project, keeping us on schedule for a fall 2026 in-service date. As a reminder, this $57 million data center-driven project will create 205 million a day of new delivery capacity and generate $15 million in annual revenue. As I've said on prior calls, I'm optimistic that we can provide additional transportation capacity to the Shipping Port site as it advances its development. The potential for pipeline expansion doesn't end with shipping port. We're in dialogue with multiple parties on expansion projects across our system. Our unique portfolio of pipelines in the Appalachian producing region are well positioned to provide speed to market for potential data centers. Our interconnectivity with numerous long-haul pipelines and our significant experience in developing and constructing infrastructure in the region are competitive advantages that position us well to deliver projects on an accelerated time frame. I'm confident we'll have additional such projects in the years to come. Switching to our utility business. As we announced a few weeks ago, we've entered into a definitive agreement with CenterPoint to acquire their Ohio Gas LDC. At closing, this highly strategic acquisition will double our utility rate base, add significant customers in a state that is supportive of natural gas and provide us with another opportunity to recycle the substantial free cash flow from our Upstream and Gathering businesses into an enterprise that adds both scale and future earnings. We're excited about this transaction and the value creation potential that it offers. The assets are high quality and have a strong outlook for continued rate base growth. Further, they're operated by a talented workforce that will be a great fit with National Fuel. We had the chance to meet most of the Ohio team last week, and it was clear that they share our dedication to safe and reliable natural gas service. We look forward to working with CenterPoint to ensure a seamless integration of the Ohio assets into the National Fuel organization. Before closing, a quick word on energy policy in New York State, where the momentum towards an all-of-the-above approach to energy continues to build. In both public statements and publications like the draft State Energy Plan, elected officials and policymakers are at last beginning to acknowledge the importance of natural gas as a reliable and affordable source of energy that supports economic development in the state. They readily admit New York won't meet the Climate Act goals on the time frame originally required and have even seen fit to suggest that lawmakers modify the Climate Act in the months to come. From the beginning, we've advocated an all of-the-above approach to energy, and I'm confident that policymakers will ultimately reach that conclusion as well. In closing, fiscal 2025 was a terrific year for National Fuel. Our financial results were the best in the company's history. And perhaps more importantly, we took actions across each of our businesses that lay the foundation for long-term growth and continued operational excellence. The outlook for the company is as strong as it's ever been, and I'm excited to execute upon our strategy in the years to come. With that, I'll turn the call over to Tim. Timothy Silverstein: Thanks, Dave, and good morning, everyone. We ended fiscal 2025 with a strong fourth quarter. As Dave highlighted, adjusted earnings per share increased 58% from the prior year, driven primarily by excellent results in our Upstream and Gathering operations. For the quarter, production increased 21% from the prior year as Tioga Utica well performance exceeded our expectations. In addition, our realized price after hedging increased by 9% on the back of improved commodity prices, while total per unit operating expenses were lower. Altogether, adjusted earnings per share in our integrated Upstream and Gathering business increased 70% year-over-year. These great results were also supported by continued operational excellence in our regulated businesses, where lower-than-expected expenses led us to beat our projections. Before I discuss our outlook for the business, I want to highlight a change in our segment reporting structure. Historically, we've reported our Exploration and Production and Gathering segments separately. We've streamlined our financial reporting by combining those 2 segments into one, which we are calling our Integrated Upstream and Gathering segment. We believe this approach best aligns with how we make capital allocation decisions, how we think about the integrated cost structure benefits and how we will continue to manage the businesses going forward. Shifting to fiscal 2026. All of our underlying operating assumptions and capital spending ranges remain consistent with last quarter's guidance initiation. Over the past few weeks, NYMEX prices have averaged approximately $3.75. So we are using that assumption to initiate formal guidance. At that price, adjusted earnings are expected to be within the range of $7.60 to $8.10 per share. As you may recall, with the natural gas price volatility we saw over the summer, we provided preliminary EPS guidance at various NYMEX prices. Volatility on the front end of the curve remains, so we're sticking with the same approach. While prices move around in the near term, the long-term outlook remains strong, and we've continued to lock in additional hedges to protect earnings and cash flows at prices that are highly economic for our development program. We've modestly added to our fiscal 2026 position and now sit at 65% hedged with a base of NYMEX swaps at an average price of approximately $4 and a similar level of collars with an average floor of $3.60 and cap of $4.80. More recently, we've been focused on fiscal 2027 and 2028, where we've added a number of swaps north of $4 and collars with floors in the mid- to high $3 area. At these prices, we generate strong returns and free cash flow, while the collars allow us to capture upside potential to prices. Sticking with free cash flow, at our current NYMEX assumption, we expect to generate $300 million to $350 million in fiscal 2026. This is well in excess of what we generated last year. In addition to fully covering our dividend, the additional cash will be directed to further strengthen our balance sheet as we move towards the closing of our Ohio Gas utility acquisition in the fourth quarter of calendar 2026. Notably, we are able to generate this level of free cash flow while increasing the amount of growth spending during the year. As a reminder, capital expenditures are expected to increase approximately 10% from fiscal 2025, driven principally by growth-related spending on our Tioga Pathway and Shipping Port lateral pipeline projects. In addition to the revenue from these projects, which is expected to total approximately $30 million annually starting in early fiscal '27, we also expect to see an increase in earnings from rate cases that we plan to file. First, Supply Corporation is targeting a FERC rate case in the second half of the fiscal year. As you may recall, we reached a settlement on our last rate case and new rates went into effect in February 2024. We did not agree to any stay-out provision as part of the settlement. We've seen a continued need to invest in modernization to maintain the safety and reliability of our system and have also seen the ongoing impacts of inflation. This puts us in a position to seek an increase in our rates to account for those impacts and ensure we earn an adequate return for our shareholders. We are also likely to file a rate case in our Pennsylvania utility division this fiscal year. Our last rate settlement was in 2023, and we've done a good job over the past 2 years controlling costs and deploying capital in line with our modernization tracker. However, we expect to exceed the revenue cap on this tracker in early fiscal 2027, and therefore, plan to file for a base rate increase in advance of that to achieve timely rate relief. Looking at this in total, our 2026 consolidated earnings per share guidance represents a solid 14% growth at the midpoint. With additional growth expected in fiscal '27, we remain on track to comfortably exceed our multiyear earnings guidance we initiated last year. While our outlook for organic growth remains strong, we expect a further benefit when we close on the acquisition of CenterPoint's Ohio Gas utility. The significant scale provided by this acquisition will enhance our long-term outlook for regulated earnings growth. We're excited about this opportunity and in the near term, are focused on working through the regulatory approval process, which we expect to kick off early next year. Over the past few weeks, we've also made progress on the financing front with the successful syndication of our bridge facility. We had overwhelming support from our bank group. As a result, we bifurcated the initial bridge into 2 components. The first is a 364-day term loan commitment and an amount equivalent to the proceeds due at closing. Funds, if needed, wouldn't be received until closing, and we would have 364 days from that point to repay. Relative to a traditional bridge facility, this structure reduces our costs and provides additional optionality around the execution of our permanent financing strategy. Second, we will also maintain the traditional bridge facility that aligns with the size and maturity of the promissory note that will be issued to CenterPoint. With the syndication process behind us, we will move into executing our permanent financing strategy, which we expect to commence in the spring. Bringing it all together, this is an exciting time for National Fuel. Our underlying business is very strong. Our industry is flourishing, which creates great opportunities across each of our businesses. Our balance sheet is in great shape and the acquisition of CenterPoint's Ohio Gas utility provides an additional avenue to reinvest free cash flow into rate base growth. We expect to be able to drive meaningful growth in earnings per share over the long term, supporting our commitment to returning capital to shareholders via our growing dividend. We are excited about the future of our industry and the growing role National Fuel will play within it. With that, I'll turn the call over to Justin. Justin Loweth: Thank you, Tim, and good morning, everyone. As Dave mentioned earlier, fiscal '25 marked another year of strong operational and financial performance for our integrated Upstream and Gathering business. We grew our [indiscernible] reserve base to nearly 5 Tcfe and achieved record net production of 427 Bcfe, surpassing the high end of guidance and growing 9% year-over-year. This meaningful growth was achieved with capital expenditures of $605 million. A reduction of approximately $35 million from the prior year. Since 2023, we've achieved a 30% improvement in capital efficiency, highlighting the strength of our asset base, the effectiveness of our development strategy and our strong operational execution. And we expect this capital efficiency trend to continue to improve in the years ahead. Beyond capital efficiency improvements, over the past year, we've made substantial strides in further increasing our peer-leading inventory depth. As noted in last evening's earnings release and our updated investor presentation, we've significantly increased our core Tioga Utica development inventory. Our delineation efforts have unlocked additional resource potential in the Upper Utica, a distinct zone separated by a large frac barrier from the Lower Utica. We currently have 4 producing Upper Utica wells, each of which was codeveloped on a pad with lower Utica development wells, which allowed us to delineate a large swath of acreage over a multiyear period. As such, we have significant production history and all wells have demonstrated productivity on par with our Gen 3 Lower Utica wells. This successful appraisal campaign more than doubles our Tioga Utica inventory to approximately 400 future development locations. We estimate net recoverable gas from the future Tioga Utica development of over 10 Tcf, underpinned by an approximately 300-foot Utica resource column. In addition, we have approximately 60 Marcellus locations in Tioga and Lycoming counties. Combined, we now have almost 2 decades of core EDA development inventory with breakevens below $2 NYMEX, a depth of high-quality core inventory that is unmatched by our peers in Appalachia. Looking ahead to fiscal '26, we expect continued improvement in well results and resource recovery, driven by key well design tests on 3 upcoming pads. These tests will include higher-intensity fracs, wider inter-well spacing, upsized gas processing units and co-development of the upper and lower Utica zones, all aimed at enhancing capital efficiency and maximizing long-term value. Turning to guidance. We are maintaining forecasted production between 440 and 455 Bcfe, representing a 5% increase at the midpoint year-over-year. Operationally, we plan to run 1 to 2-rig program and a dedicated frac crew throughout the year. Regarding capital, integrated Upstream and Gathering segment expenditures are expected to be $550 million to $610 million this year, down 3% at the midpoint compared to fiscal '25 and more than $100 million lower versus fiscal '23. Longer term, we anticipate capital further decreasing to $500 million to $575 million per year for this segment with average annual production growth in the mid-single digits. Pivoting to the natural gas market, we anticipate a constructive pricing environment in 2026, supported by a tightening supply-demand balance. Production growth has been slowing across key gas-producing regions, while deferred volumes have been absorbed amid accelerating demand from LNG exports and power generation. Weather remains one of the most unpredictable impactful variables, driving continued volatility in the forward natural gas strip. Seneca is well positioned to manage these pricing fluctuations through our marketing and hedging strategy, which offers price stability while maintaining upside exposure. Approximately 85% of our expected fiscal '26 volumes are covered by physical firm sales and/or firm transportation, leaving only a minimal amount of our production exposed to spot pricing. Where possible, we have also sculpted our spot exposure to capture higher expected in-basin pricing during winter and summer months when in-basin demand is strongest. To further strengthen our long-term access to premium markets and support Seneca's growing production and core inventory, in September, we entered into a preceding agreement for new firm transportation. This capacity expected to be in service in late calendar 2028 provides an incremental 250 million a day of new takeaway from our core Tioga producing area to advantaged markets elsewhere in Pennsylvania, giving us access to growing data center-driven demand areas and additional connectivity to long-haul pipes that reach back to the Gulf. This is yet another great step forward in securing access to premium markets for our growing production and something we've been working towards for well over a year. I'm optimistic we'll find additional opportunities to expand our marketing portfolio through additional firm transport and/or long-term firm sales in the quarters ahead. Switching gears, we remain focused on developing gathering infrastructure to support our growth while pursuing incremental third-party opportunities. In fiscal '25, we executed an amendment with a third-party shipper to gather production from 2 additional pads. This amendment will add an expected 40 Bcf of throughput and approximately $15 million in revenue over the next 5 years. We also remain focused on enhancing system reliability and capacity and have completed and placed into service a number of pipeline projects as well as commissioned the first compressor unit at our [indiscernible] station. 2025 also marked a significant year with respect to sustainability. NFG Midstream improved its Equitable Origin rating from A- to A, while Seneca maintained its Equitable Origin rating of A and also maintained its MiQ certification of an A grade. These results reflect our unwavering dedication to environmental stewardship and responsible practices and provide an opportunity to capture additional margin through our responsibly sourced gas sales. In conclusion, fiscal '25 was a transformative year for our integrated Upstream and Gathering business. We achieved record production and throughput while driving meaningful improvements in capital efficiency and significantly expanding our core inventory. These operational gains were complemented by a strong and growing marketing portfolio that provides reliable long-term access to premium markets. Underlying these results is our large-scale integrated asset base, which enables a differentiated low-cost structure and reinforces our ability to realize strong returns across commodity cycles. As we enter fiscal '26, we are energized by the opportunities ahead and remain focused on executing with discipline, innovating across our operations and delivering strong results. With that, I'll turn the call back to Natalie. Natalie Fischer: You may open the line for questions. Operator: [Operator Instructions] Our first question will be from the line of Greta Drefke with Goldman Sachs. Margaret Drefke: I first wanted to touch on the incremental core inventory and the economics of the Upper Utica. Can you provide more details on how long you've been examining the Upper Utica zone and what was the process like that has given you confidence that these 220 locations are competitive with the rest of the portfolio? Timothy Silverstein: Greta, thanks for your question. This has been something we've been working on for years. Our team saw this opportunity early on in our initial integration of the Shell acquisition and frankly, our prior results. So it's something we've seen the possibility of for a long time. We really began delineating it and getting a better understanding starting within the last 3 years. And so over a period of time, we were able to drill test wells while drilling lower Utica development pads. And so the opportunity we had in front of us was to test this, do it very efficiently and very effectively from a capital efficiency perspective and then bring these wells on at the same time as we were bringing on the balance of the production from these pads. So we've had a lot of opportunity to cover both a large swath of our acreage position and also to have a significant production history. And what we see is outstanding results. The other thing just to note about this that's very exciting to us is we're developing these and going to co-develop them in the future exactly where we're developing the Lower Utica now. So as an integrated Upstream and Gathering company, we will also capture additional margin and efficiencies by reutilizing our midstream infrastructure. So this is yet another step forward in our driving lower capital and increasing production over the long term. Margaret Drefke: Great. And I also wanted to ask on your outlook for in-basin demand a little bit more broadly. Beyond the Shipping Port project, are you continuing to see interest from other potential project partners for opportunities in basin? And how beneficial would you characterize NFG's fully integrated operations in these discussions relative to producers that might just have Upstream supply? David Bauer: Yes, Greta, we've had some really good interest from other data center developers, from other entities pursuing power projects, we're really excited about it. The momentum really continues to build behind it. As I said in my remarks, I think we -- our integration gives us a big advantage because we can offer a whole suite of alternatives, ranging from basic plain [indiscernible] pipeline service to gas supply to any combination of those things. So we're real optimistic about the future and I think we'll have multiple opportunities going forward. Operator: The next question today will be from the line of Noah Hungness with Bank of America. Noah Hungness: For my first question here, this is maybe for you, Justin. How can we think about when the Upper Utica will become a larger part of the NFG program? Timothy Silverstein: Yes. Noah, thanks. We are already incorporating some Upper Utica into our 4 plants. And so I think what you should expect is that we're really going to continue to do what we've been doing with our lower Utica development, which is trying to optimize our operational planning to allocate capital that we deem to be the highest integrated returns between Seneca and Gathering. We're going to look at the Upper Utica and that same -- through that same prism. -- where we're going to focus on the balance of uppers and lowers that optimize both the land use in terms of the pads we're building, the midstream infrastructure we're building and optimize our development plan along that. So while our program to date has been certainly focused on a lower Utica, we will start having more uppers in our plan as we move forward. Noah Hungness: Well, I guess my question was, if you guys are going to pill 26 wells this year and let's say, 25 are the Tioga Utica, what percent of that would be uppers? And is that a good number to assume moving forward into '27 and beyond? Timothy Silverstein: Yes. So we will have a number of Upper Utica wells over the course of '26. It will be a much smaller percentage relative to the lowers. And then as we go into '27 and '28, I would expect the team to continue to optimize to figure out the right mix. I think near term, you should expect that we'll certainly have more lowers, but then over time, that may become more balanced between uppers and lowers. Hopefully, that answers your question more and certainly know over time, we can dig into that more with you and others. Noah Hungness: Yes. No, that's very helpful. And then the next question here is just on debt. I mean with the CenterPoint deal, you guys are obviously going to be taking on a large amount of debt. The utility can only handle so much. So how are you thinking about allocating the remainder of that debt across the rest of your business? Timothy Silverstein: That's a good question. I mean the reality is we do all of our financing at the parent company. So the credit rating agencies look at the total debt at the holding company level relative to the entire cash flows of the system. So we'll look across the system as to where those cash flows are being generated, and we'll issue intercompany promissory notes. But at the end of the day, all of that debt is fungible amongst the segments. And so it's a bit of a balancing act looking at cash flows, looking at capital structures at the various segments as it relates to ratemaking and a whole bunch of considerations. But I'd really stay focused on the capital or the debt being at the parent company and looking at the aggregate cash flows of the entire NFG system. Operator: [Operator Instructions] And our next question will be from the line of Timothy Winter with Gabelli & Company. Timothy Winter: Congrats on another strong update. A couple -- one real quick one though, Tim. The Supply Corp going in for a rate case, what are the returns you're earning currently on the Supply Corp? Timothy Silverstein: Yes. I mean, typically, think of a rate-making return there and recognizing everything is a black box settlement in kind of the low double digits is a typical ratemaking return. So north of the utility ratemaking ROEs, but in that general ZIP code. Timothy Winter: Under an assumption of a 50-50 structure equity? Timothy Silverstein: Yes. Yes, 50-50, you have the ability to earn a little bit higher there. And given where our cap structure is north of 50-50, we believe we can earn on that. But again, it's all black stock settlement. So you typically lose the identity of the individual components. Timothy Winter: Okay. And then with the update and new numbers in, are you still looking at $300 million to $400 million of equity for the CenterPoint, Ohio? And any more thinking on the timing or how you're going to go about that? Timothy Silverstein: Yes. I mean if you look at the outlook for the business, which commodity prices being the bigger near-term driver, they're still pretty consistent with where we were a couple of weeks ago when we announced the transaction. So I'd expect that sizing to be similar to what we talked about. And as I mentioned on the call, around the acquisition, we will need pro forma financial statements for the offerings. And so that will take a little bit of time to put together. So we're still looking towards later in the first quarter or spring time frame for accessing the capital markets. Timothy Winter: Okay. Okay. And that assumes the free cash flow, I guess, what you're talking about the $300 million to $350 million generated. Is there any more thought on like a creative way to finance it? As I think I mentioned in the last call, maybe like sell a portion of Seneca or any assets that are less core that you could consider to use as equity? David Bauer: Yes. Tim, this is Dave. I don't think we have much in the way of noncore assets anymore to consider selling. And in terms of, call it, alternative or creative ways to finance things, I think given the amount of equity that we're looking at in this transaction, it's probably a little small to really change the -- our whole approach to financing it. But that's today. As we go through time, if other opportunities come along, we're certainly going to do the -- we're going to finance them in the way that shareholders will get the best answer. Operator: With no further questions on the line at this time. I would now hand the call back to Natalie Fischer for closing remarks. Natalie Fischer: Thank you, Harry. We'd like to thank everyone for taking the time to be with us today. A replay of this call will be available this afternoon on both our website and by telephone and will run through the close of business on Thursday, November 13. Please feel free to reach out if you have any follow-up questions. Otherwise, we look forward to speaking with you again next quarter. Thank you, and have a nice day. Operator: This will conclude the National Fuel Gas Company Fourth Quarter and Full Year Fiscal 2025 Earnings Call. You may now disconnect your lines.
Operator: Hello, and good morning, everyone. And welcome to the VerticalScope Holdings Inc. Q3 2025 Earnings Call. My name is Emily, and I'll be coordinating your call today. [Operator Instructions] I would now like to turn the call over to Diane Yu, Chief Legal Officer, to begin. Diane, please go ahead. Diane Yu: Thank you, operator. Good morning, everyone. And welcome to VerticalScope Holdings Third Quarter 2025 Earnings Call. I'm joined by Chris Goodridge, our Chief Executive Officer; and Vince Bellissimo, our Chief Financial Officer. We'll begin with commentary on the quarter before opening the floor to questions. Before we begin, I'd like to remind everyone that today's presentation contains forward-looking information that involves known and unknown risks and uncertainties and other factors that could cause actual events to differ materially from current expectations. These statements should not be read as assurances of future performance or results. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements. A more complete discussion of the risks and uncertainties facing the company appears in the company's management discussion and analysis for the 3 and 9 month period ended September 30, 2025, which is available under the company's profile on SEDAR+ as well as on the company's website. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. The company disclaims any intention or obligation, except to the extent required by law, to update and revise any forward-looking statements as a result of new information, future events or for any other reason. Our discussion today will include references to adjusted financial measures, including adjusted EBITDA, free cash flow, free cash flow conversion and MAU, which are non-IFRS measures. All references to currency in this presentation shall refer to USD unless otherwise specified. Now I will turn the call over to Chris Goodridge, CEO of VerticalScope. Chris? Christopher Goodridge: Thanks, Diane, and good morning, everyone. It's a fast-moving environment. And despite some short-term volatility in our monthly active user base, I'm really encouraged by how our teams are navigating this change and focusing our efforts on growth. The strategy that we articulated on our last call is our blueprint for driving organic growth and continuing to build our platform and cash flow. We're building stronger direct relationships with our users, making their experience richer and more useful with AI and turning that direct engagement into diversified revenue streams. And we'll use our free cash flow and financial capacity to pursue growth opportunities that further our strategy and positioning in a more AI-centric web. We believe that the most enduring and successful online experiences will be protected spaces with micro communities of trusted users. This has been the core of our business model for years and will continue to be the foundation of our long-term success. Turning to our results. I'll start with some observations on our MAUs and the trends we're seeing. We averaged 83 million monthly active users in Q3, which was down from the record levels we experienced last year as a result of a surge in search-based traffic. However, Q4 started on a much stronger note with MAUs surpassing 90 million in October and we saw gains across all major traffic sources and most importantly, with direct users, which were up nearly 60% over last year. With the majority of our MAU now coming from non-Google sources, we think the worst is behind us and expect to see MAU growth going forward from direct and other sources. Beyond direct and search, we're also seeing opportunities to grow our paid sources of traffic and to efficiently acquire new users who will be members of one or more of our communities for years to come. Paid channels have historically been a minor source of users for VerticalScope, but we believe this is an important channel to drive additional user growth in the years ahead as search experiences become more fragmented and people increasingly seek out authentic perspectives from real users to validate information they receive from AI. When you combine our efforts to grow direct users with paid channels, we're well positioned to grow our total user base from here. Vince will go through our financials in detail shortly, but I wanted to offer up a few observations. First, our revenue improved modestly on a sequential basis in Q3 and came in at $14.7 million. When we compare back to last year, revenue was 17% lower, essentially all as a results of programmatic ads tied to search traffic. Second, aside from programmatic, all major sources of revenue were either flat or up in Q3. Direct advertising has been very resilient and was up 3% year-over-year as we saw a nice pick up with some key auto, powersports and insurance customers in the quarter, driven in part by new immersive experiences we're making available to brands. E-commerce grew by 40%, mainly as a result of the Ritual acquisition with the rest of our subscription and transaction revenue sources remaining stable. We're still seeing plenty of opportunity to build up commerce, both in our core community experience but also with Ritual. When you combine our solid direct advertising results with e-commerce gains, ARPU pushed up 21% over last year and reaching its highest level that we've seen in 3 years, and demonstrates our ability to generate more value even with volatility in MAU. I think most impressively in the quarter, though, was adjusted EBITDA improving by 45% over Q2, margins exceeding 40% and our free cash flow conversion growing to 94%. This result clearly demonstrates the strength of our business model and the adaptability of our team. Turning to product initiatives. AI continues to open up completely new experiences for our users and is increasingly providing us with operational gains. Machine translations are introducing our communities to new audiences speaking German, Spanish, Portuguese, Dutch, Polish and French and AI summaries are making it easier for new users to find what they're looking for in threads. We're most excited about the potential of our AI community assistant, Fora Frank. We introduced Fora Frank last quarter, and we've continued to roll it out across our communities. Its main purpose initially was to encourage posting activity from our users and help them ask better questions to elicit higher quality responses. We're taking a lot of inspiration from how other platforms have successfully used conversational AI to drive engagement, including the X platform and how it's deployed Rock. Our early results suggest that thread engagement increases by over 3 times when Fora Frank is mentioned. So we're looking for more ways to grow Fora Frank's visibility and distribution within the communities while continuing to improve its capabilities. Our goal is to have AI enhance the human experience within our communities, not to replace it. There are so many interesting applications we see for the technology. For example, with our SMB subscription product, Fora Frank can help our customers post and drive more engagement with their content, adding value and improving retention. We've also built an AI prospecting tool for our sales team that identifies new potential customers and incorporates relevant community content into our outreach messaging. We see this as a game-changing capability that we believe will boost the efficiency and close rates of our sales team. Beyond the work to improve our community experience and grow direct sales with AI. We're starting to envision completely new AI-driven services powered by our rich data sets and that can leverage our distribution to millions of users. It's very early but we're excited about these opportunities, and we'll have a lot more to say in the quarters ahead. Turning to our data license efforts. I'm keenly aware that we've been discussing this opportunity for several quarters. This space is evolving very quickly and I believe our patient approach will pay off. We're at the very beginning of a major shift with how content on the web is both created and consumed and how consumer decisions will be made. We know that users like the experience of engaging with an AI chatbot and we expect that they will also start to transact more within those experiences. But for that to happen to be a great user experience, the AI must have access to the best data available. Over the past several months, we're starting to see a shift in market conditions as the lack of a real value exchange between LLMs and content owners becomes an increasing source of friction. For example, major lawsuits have been filed against the LM companies, including Reddit's recent lawsuits against Anthropic, Perplexity and a host of other data scrapers for the alleged unauthorized use of Reddit user content. In parallel, industry efforts are underway to establish standards for data licensing and compensation through the RSL Collective, a nonprofit organization that is using the music industry as a model and which is supported by a number of significant platforms, including Reddit, Internet Brands and VerticalScope. And finally, we're seeing key players powering the infrastructure of the web, taking steps to close off access by AI companies. Cloudflare, which is approximately 20% of total Internet traffic flowing through its network, has been particularly active on this front and is now blocking AI scraping by default. Base model training is obviously still relevant for LLMs but we see bigger potential opportunities with AI companies requiring access to the most up-to-date information through retrieval augmented generation. We expect this need to accelerate as more and more AI services are launched and scaled. As this happens, we believe that access to accurate, up-to-date information will be critical. Data quality will be the currency. Our communities contain the authentic, high-intent human context that AI agents need to understand what people actually want to do, and we believe this positions VerticalScope as part of the foundational data layer for this new agentic web. So where are we at with all of this? We've taken steps over the past several quarters to block all known AI scrapers at the CDN level. We have very clear terms of use that prohibit scraping outside of a licensed relationship, and we're regularly updating our robots.txt to disallow AI scraping. Another big step forward on this front is our recent partnership with TollBit. TollBit's technology integrates with our CDN to intercept AI scraper traffic and redirect it to a paywall. From there, the AI company can either pay our set rate to start scraping or contact us to license access to a richer structured data feed through our API that would come at a premium. We've been working through the process of onboarding TollBit across our network of communities over the past few weeks and are close to completion. TollBit's analytics suite gives us a detailed view of AI bot activity we can detect across our communities. And early data highlights just how aggressively AI systems are trying to access our content. To illustrate the point, TollBit data from the past week detected scrape attempts, which we're actively blocking, outnumbering real users in some cases by up to 13 times. While this reflects only the activity we can observe, it underscores the scale of AI demand for our data. We're actively monitoring this changing landscape and continue to evaluate how regulatory, legal and commercial developments may affect our strategy. At the same time, our capabilities are improving, our sense of demand and value is growing. We intend to service that value in a way that best serves our communities and shareholders for the long-term. Finally, before passing it over to Vince, I'll offer a few comments on capital allocation and M&A. We've made 4 small acquisitions so far this year and we expect to complete a couple more small ones before the year-end. We continue to see higher inbound activity, which we think is tied to how smaller companies are navigating the broader industry change. Again, we think our shareholders will be best served by a patient approach and so we expect to continue to accumulate cash and build capacity to pursue larger opportunities that will accelerate our long-term growth strategy. And with that, I'll turn it over to Vince to walk through the numbers. Vincenzo Bellissimo: Great. Thanks, Chris, and good morning, everyone. I'll walk you through our third quarter results and share how we are executing against our financial and strategic priorities. Overall, this was a solid quarter for our business, underpinned by our disciplined and hyper-focused approach to execution. We delivered improved performance sequentially, including expanded adjusted EBITDA margins and stronger free cash flow conversion while continuing to strengthen our balance sheet. Our growing cash position provides flexibility to reinvest in growth, both organically and through strategic M&A when the opportunity is right. Our focus on audience quality, ARPU growth, operational efficiency and liquidity continues to position us well in a rapidly changing environment of AI content discovery. Now turning to our results. Total revenue in the quarter increased 1% sequentially to $14.7 million, reflecting stability of our core audience but declined 17% year-over-year, primarily on a 32% decline in MAU compared to all-time highs in the prior year, led by lower value search traffic. This led to a correlated decline in digital advertising revenue, which finished the quarter at $11.7 million, down 25% year-over-year. The decrease was driven by a $4.1 million decline in programmatic advertising revenue, which contributed just over $7 million in the quarter on lower display impression volumes compared to the prior year. Despite the declines in programmatic, we saw a return to growth in both our higher-value direct and video advertising channels, supported by strong demand for custom content campaigns and ongoing optimizations with our video ad unit. Direct advertising grew 3% to $4.6 million, representing 40% of overall digital advertising revenue compared to a 29% share in the prior year. The growing share of direct revenue highlights the strength of our relationships with advertisers and brands across our core categories and a rising demand for customized high-intent campaigns that reach our enthusiast audiences. In an era of AI-driven content discovery, this audience is becoming increasingly scarce and valuable, a combination that will drive growth opportunities in the periods ahead. Turning to e-commerce. Revenue grew 40% year-over-year to $3 million, primarily from contributions from our April 2025 acquisition of Ritual, a local food pick up and ordering app that connects users with restaurants in Canada, the U.S. and Australia and stable performance across our other e-commerce offerings. Excluding Ritual, approximately 60% of our e-commerce activity continues to come from subscriptions, underscoring the stability and loyalty of our user base. We continue to view e-commerce as an important long-term growth driver, supported by ongoing product innovation and the use of AI to enhance discovery and personalization across our communities. Overall, ARPU increased 21% year-over-year, including a 10% increase in digital advertising ARPU and a 106% increase in e-commerce ARPU. ARPU remains a key metric for us and a reflection of our ability to grow and monetize a high-value direct user base, capitalize on premium advertising and commerce opportunities and unlock new monetization opportunities that are powered by data and AI. Turning to our profitability and free cash flow generation, both key highlights of the quarter. Adjusted EBITDA for the quarter increased 45% sequentially to $6.2 million, driven by cost efficiencies but declined 16% year-over-year due to lower revenue, partially offset by cost savings realized in the period, including the benefits of headcount and operational changes made in the first half of the year. The quarter also included a benefit from -- the quarter also benefited from $600,000 in tax incentives under the Canada Revenue Agency’s SRED (sic) [ SR&ED ] program, which we apply for annually as part of our ongoing investment in technology on the Fora platform, and are recognized as a reduction in wages on the P&L. Historically, these incentives have been approved and recognized in the fourth quarter but timing can vary year-to-year. Together, these factors contributed to adjusted EBITDA margin expanding 12 percentage points sequentially to 42% compared to 30% in Q2 and consistent with 42% margins in the prior year. This improvement highlights the impact of operating with smaller, more focused teams that are leveraging automation and AI tools to deliver on key growth strategies. Our profitability this quarter also demonstrates the resilience of our business model even as MAU levels remain well below last year's record highs. This reflects a more diversified revenue base and the growth of a higher-value direct audience that increasingly insulates our results from search volatility. Net loss for the quarter was $400,000 compared to net income of $1.2 million in the prior year, primarily reflecting lower revenue and partially offset by lower operating and income tax expense recognized in the period. The net loss for the period included noncash depreciation and amortization expense, primarily related to acquired intangibles of $4.8 million compared to $4.4 million in the prior year. Turning to cash flow and liquidity. We once again delivered strong cash generation in the quarter. Operating cash flow was $4.7 million and free cash flow increased 56% sequentially to $5.9 million, representing a 94% conversion from adjusted EBITDA, up from 86% in the prior year. We ended the period with $68.4 million in total liquidity, including $12.4 million in unrestricted cash and $56 million in undrawn revolver capacity. Our balance sheet remains a key strength with net leverage of 1.24x as defined by our credit agreement, providing ample flexibility to invest in growth initiatives and pursue opportunistic M&A, particularly in areas that accelerate our progress in AI and direct traffic initiatives. Maintaining a strong liquidity position remains our priority. From a capital allocation standpoint, we continue to believe that reinvesting in growth, expanding our audience, data capabilities and AI-driven monetization will create greater long-term value for our shareholders. In closing, there is no change to the full year guidance that was published in April of this year. Our third quarter results demonstrate the impact of the actions we've taken in a short period of time to streamline operations and focus on strategic priorities that drive direct audience growth and higher ARPU across our platform. The world of AI content discovery depends on high-quality human-generated content that's exactly what the Fora platform provides. Our users and the authentic content they create are our most valuable assets and we will continue to do everything possible to protect these assets and unlock opportunities that are sustainable. With a strong balance sheet, differentiated data and a disciplined approach to execution, we are well positioned to create long-term value for our shareholders and employees in this new phase of the agentic web. And with that, I'll pass it back to Chris to close things off. Christopher Goodridge: Thanks, Vince. With that, we'll open the floor to questions. Operator: [Operator Instructions] Our first question today comes from Gabriel Leung with Beacon Securities. Gabriel Leung: Just a couple of things. First, just on the cost side of the equation, Chris or Vince, how are you feeling about the current structure right now of your roughly 170 full-time equivalents? Do you feel that's the current -- the right cost structure to drive the growth you're planning on implementing over the next 12 to 24 months? Christopher Goodridge: Yes. Thanks, Gabe. Thanks for the question. So yes, for the most part, we feel pretty good about where the headcount is. There'll be -- we'll be adding selective roles here and there. What's really changed for us and something we're really trying to push within the organization is using AI tools to become more efficient, right? So we're rolling that out really across all of our teams, not as a means of reducing headcount further, but really to drive more productivity out of the team that we've got. But we do think there's opportunities to add certain skilled positions to the business over time. It won't materially change the headcount over the next, call it, year or so. But we expect headcount certainly not to go down from here. Gabriel Leung: And then just secondly, on the data licensing. I know you're, I guess, in the tail end of deploying TollBit and their tech across your community. So I'm curious beyond the initial observations, do you or TollBit, have you thought about how the revenue side of it might play out over the next 12 months or so? Or have you had early discussions with any of the -- some of the AI companies in terms of either licensing or paying a fee on the scraping? Christopher Goodridge: Yes. Thanks, Gabe. There's absolutely discussions that are ongoing with the major players. TollBit's monetization, that part of the platform is relatively nascent to be fair. And the marketplace opportunity that they see, they think is quite big, and it really doesn't apply to just the major players. It's meant to be really anyone who's built an AI service and requires access to kind of fresh data to power it. So they see that as many, many players in the space over the long-term. So I think that is more of a long-term play for us from a monetization side. Like I said, though, what it does is it really empowers us with a lot of great data that helps us articulate the value proposition of our underlying data asset. And so I think the bigger players in the space that are building models that are building kind of chat experiences where they require RAG to offer up fresh information to what the core model offers, that's where I think it's more likely that you'll see direct deals over time. With respect to financial impact, we're not at a stage where we're going to provide a forecast with respect to how that's going to play out over the next period of time. But as that unfolds, you guys will have a lot more information. Operator: At this time, we do not have any further questions registered. [Operator Instructions] We have not received any further questions, and so I will turn the call back over to Chris for closing comments. Christopher Goodridge: Well, thanks, everyone, again, for joining us today. I hope the rest of your year goes quite well, and we look forward to getting back together with everyone again in March to review our year. Thanks again, and take care. Operator: Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.
Operator: Good morning, and welcome to Acorn Energy's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I'll now turn the call over to Tracy Clifford, CFO of Acorn Energy and CEO of its OmniMetrix subsidiary. Tracy Clifford: Thank you, operator, and thank you all for joining our call today. Before we begin, I'd like to remind everyone that today's remarks, including responses to questions contain forward-looking statements. Such statements involve a number of risks and uncertainties that could cause actual results to differ materially from those projected. Factors that may impact our future operating results and financial performance include general risks such as potential disruptions to business operations or changes in consumer or customer demand as well as specific risks related to our ability to execute our operating plan, maintain strong customer renewal rates and expand our customer base. Additional risks may arise from changes in technology, competition or shifts in the macroeconomic and financial environment. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are based on management's current beliefs, assumptions and information available as of today. There can be no assurances that the company will meet its growth targets or other strategic goals or objectives. The company undertakes no obligation to update or revise forward-looking statements to reflect future events or circumstances that occur after today's call. For a more detailed discussion of the risks and uncertainties that may affect our business, please refer to the Risk Factors section of our most recently filed Form 10-K available online at www.sec.gov or on our own website. Now I'll turn the call over to Jan Loeb, CEO of Acorn and OmniMetrix for further remarks. Jan? Jan Loeb: Thanks, Tracy, and thank you, everyone, for joining this call. First, let me start by acknowledging that although monitoring and hardware revenue each grew over 20% for the first 9 months driving a 35% increase in net income, our Q3 '25 revenue was significantly lower than in Q3 2024 due to lower hardware revenue. The Q3 2025 revenue variance is largely due to the timing of hardware revenue from our large cell phone provider contract. Given the size and nature of our business, a contract of this magnitude, while highly beneficial to both our short-term and long-term cash generation and create variability in our quarterly reporting primarily due to the timing of hardware revenue. This contract was originally expected to roll out over 2 years, but the customer desire faster deliveries, which were largely fulfilled over the first 12 months. Final deliveries that we had expected to record in Q3 2025 have been pushed into Q4 2025 and possibly Q1 2026, resulting in no hardware revenue from this contract in Q3 2025 versus revenue of $724,000 from initial hardware deliveries in Q3 2024. Additionally, we recognized $215,000 of deferred hardware revenue in Q3 2025 versus $436,000 in Q3 2024, a difference of $221,000. Deferred hardware revenue reflects the noncash amortization of hardware sales prior to September of 2023, which were deferred and amortized over 3 years. The amount of revenue recognized from the amortization of deferred revenue will continue to decrease as we have not deferred revenue from hardware sales since September 1, 2023. We when we began selling hardware units that can be sold independently from our monitoring services. Hardware sales are recognized to revenue upon shipment or transfer of title. We expect all deferred hardware revenues to be fully amortized by August of 2026. Adding the $221,000 difference in Q3 hardware amortization plus the $724,000 of hardware revenue results in the delta of $945,000 or approximately 95% of the hardware revenue variance between Q3 '25 and Q3 '24. An additional factor is the reality that new hardware sales have been soft on the residential side of the business, but stronger in the commercial and industrial segment. Echoing this residential trend, last week, a leading generator OEM reported Q3 revenue below expectations in the home market which they attributed to reduced incidence of power outages, one of the lowest rates in 10 years due in part to fewer U.S. hurricane impact this season. As you can imagine, power outages from any source are a major driver of backup generator demand. We also believe ongoing economic conditions, including high interest rates, slowing job growth and other financial uncertainties have slowed deployment of backup generators, which range between $7,000 and $24,000 to purchase and install depending on the home sizes. It is our sense that these economic challenges have tempered residential demand for several quarters. Longer term, we expect residential demand will rebound as economic conditions moderate, root uncertainty builds and power outage incidents grow in frequency and duration. In terms of our large cell phone contract, since inception, we have realized $3.9 million of hardware revenue and $343,000 in monitoring revenue totaling roughly $4.2 million. We are told that there will be additional purchase orders under this contract, but as of right now, we have shipped all the initial hardware order. We will continue to recognize monitoring revenue under this contract that was deferred at the point of sale over the 12-month period commencing on the installed date. Total deferred monitoring revenue at September 30, 2025, under this contract was $290,000. Of course, we fully expect this customer to renew our monitoring services given the customers over $4 million hardware investment. We expect them to be a long-term and happy customer. This is supported by the value and cost savings of our service and cost prohibitive nature of switching to a competing offering, all of which are reflected in our history of greater than 90% annual renewal rates. Looking forward, the big question for shareholders is what is our strategy to build on our scalable, high-margin, cash-generating business to achieve our long-term growth goals. The answer is that we are pursuing a number of initiatives across commercial, industrial and residential markets that fall into 5 distinct buckets. One large commercial and industrial opportunities being pursued by our direct sales team; two, strategic OEM relationships in which we partner to provide our industry-leading technology and services; three, expanding our penetration of the residential market through our over 600 generator dealers; four developing new products and expanding the capabilities and value of existing products; and five, through accretive M&A transactions. I'll briefly touch on each of these growth initiatives. Larger commercial and industrial opportunities are being pursued via our internal sales team across sectors, including health care, telecom, real estate management retail and the military. We have a range of ongoing discussions with many of the organizations are larger and more complex, resulting in sales cycles that are longer and the timing outcome is hard to predict. We see meaningful long-term growth potential from C&I customers because of their regional and national scale and our proven ability to deliver a compelling return on investment in terms of cost savings, improved data and analytics as well as reduced operational risk. Strategic OEM relationships in which we to provide our industry-leading technology and services. We continue to advance discussions with OEMs regarding potential strategic relationships where monitors would be bundled and installed by the manufacturer rather than in the aftermarket. We believe OmniMetrix technology and service leadership, combined with our ability to support all generator brands puts us in a very strong position to partner with OEMs. This will allow an OEM to focus on their core business while delivering a superior total solution across their customer universe. Of course, these initiatives require discussion, research, testing and planning yet there's no guarantee of success, but we believe the concept makes good sense for both sides, and we'll continue to pursue this avenue, which could be an important growth driver for us. Expanding our penetration on the residential market through our over 600 generated dealers, while retail adoption of generators has been slow due to a number of factors, we expect the pace to pick up moving forward. We go to market in the residential space through our network of over 600 generator dealers, and so our primary drivers are working to support them in their outreach. New product development is another area of long-term importance that Tracy will touch on in her remarks. M&A transactions remain a priority in our growth efforts. We are evaluating several complementary M&A prospects with monitoring components to their business. Negotiations with 2 of these are progressing, though it's too early to predict if or when they might happen. We are very motivated to execute on one or more transactions to accelerate our growth and drive further operating leverage. But we remain disciplined on managing risk and the price we relate to pay to ensure we are building value for our shareholders. As we have new investors on today's call, I'll just touch on some of the long-term secular trends supporting our growth. First, remote asset monitoring is projected to grow approximately 23% annually through 2032 and driven by the increasing adoption of IoT connected devices, real-time data collection, demand for predictive maintenance and data analysis as well as compliance and reporting obligations. Given some of you on today's call are probably monitoring things you probably didn't or couldn't just 5 years ago, like home thermostat, lighting, door bell, HVAC systems, appliances, et cetera. Newer cars allow you to monitor the car's location, fuel efficiency, fluid levels and other measures or you may use your remote start, remote climate control or door locks. The same thing is happening within businesses. Remote monitoring is increasingly being seen as a necessary and cost-effective tool to enhance operational performance and reduce the risk of disruption, providing reliability, cost savings and convenience and OmniMetrix is ideally positioned to meet this growing demand. We all read a growing energy demand from AI and data centers, which is taxing the U.S. energy grid and reducing the reliability of electricity access. Though the hurricane season has spared in the U.S., the prevailing trend has been more frequent and severe weather and other natural disasters increasingly disrupting the grid. Electrification demands across the economy are compounding a fragile grid and creating a supply and demand imbalance for electricity. The point is CMI customers and residential customers increasingly need reliable backup power, and that's the key driver of our business. We expect as these major secular trends will continue to support our long-term growth. Based on the trends in our growth initiatives, we continue to believe 20% average annual revenue growth is an achievable target over the next 3 to 5 years. It won't be straight line, and it will require that we execute on one or more of our larger growth initiatives in coming periods, but we feel the scope of opportunity and the strength of our position makes this very achievable. With that, I'll turn the call back to Tracy to go over our financials and for her perspectives on our operations. Tracy? Tracy Clifford: Thanks, Jan. As Jan noted, the primary driver of our year-over-year performance in Q3 and through September relates to the timing of orders under our sell-in provider contract. Focusing on third quarter performance, for '25 versus '24. We realized $148,000 in monitoring revenue related to the contract in Q3 '25 and 0 hardware revenue versus $724,000 of hardware revenue and no monitoring revenue in Q3 '24, an aggregate difference of $576,000. Q3 '25 total revenue was $2,478 million versus $3.050 million, a difference of $572,000. High-margin recurring monitoring revenue grew $422,000 to a record $1.560 million in Q3 2025. Our Q3 '25 gross margin expanding to 78.5% from 71.7%, driven by a significantly higher proportion of monitoring revenue relative to hardware revenue. Operating expenses increased 24.8% to $1.786 million from $1.431 million in Q3 '24 due to higher SG&A and R&D expenses. Increases included $110,000 in nonrecurring corporate expenses related to our NASDAQ uplisting a $60,000 increase in tax professional fees, of which approximately 50% is not recurring as it related to our 382 study that was completed in October, a $40,000 increase in our other public company expenses and stock compensation and $33,000 of higher R&D investments. Q3 '25 net income to stockholders fell to $252,000 or $0.10 per diluted share versus $725,000 or $0.29 per diluted share in Q3 '24. A function of lower revenue and higher operating costs. The year-to-date highlights include revenue of $9,101 billion, which is a 22% year-over-year increase. The first 9 months gross margin improved to 75.9% versus 73%, reflecting the benefit of adding revenue on a largely fixed cost structure and progress we are making in our hardware product margins. EPS of $0.57, an increase of 36% year-over-year even after consideration of income tax expense of $331,000 in the current year period, compared to $67,000 of income tax expense in the prior year-to-date period. Cash flow from operations was $1,795 million, which is 143% year-over-year increase. Quarter end available cash of $4.167 million which increased to $4.372 million as of November 4, 2025, and we continue to be debt free. As a leader in remote generator and pipeline monitoring, we maintain our competitive edge through ongoing investment in product development. Q3 was the beta launch of our next-generation monitors, Omni for residential and on the OmniPro for commercial and industrial use. These next-generation monitor offer smaller size and quicker processing speed, other new features that reduce installation time and service costs and enhanced reliability, such as over-the-air updates, and they offer remote exercise programming and enhanced compliance reporting. These features and upgrades increase the value of our offering relative to our competition. Also in Q3, we began testing a redesigned version of our remote AC mitigation disconnect or RAD for our pipeline segment. Without getting too technical, the RAD product allows remote disconnection and reconnection of alternating current or AC mitigation tools for enhanced employee safety and lower cost versus manual field disconnections, which are required for maintenance. The new RAD EX design adds pipeline measurement capability in addition to the disconnect feature combining 2 important pipeline maintenance requirements into a single product. We also continued to improve our OmniView 2, our OV2-user interface in response to customer requests and suggestions, and we routinely review and update our cybersecurity protocols to mitigate constantly changing risks. Many of our ideas for improvements come from listening to our customers and being proactive in addressing customer concerns and needs in our future offerings and updates. This requires close relationships and partnerships with our customers, which we are very proud of it on the metrics. Our customers sincerely value that our products improve reliability, reduce costs and assist in their compliance and operational reporting. Based on feedback, we're excited about the opportunities ahead, and we look forward to updating you in the coming quarters. Operator, you may now prepare the line for questions. Operator: [Operator Instructions] The first question comes from Kris Tuttle with Blue Caterpillar. Kris Tuttle: Actually, I have a couple. Let's start with the positives. Your recurring revenue on the software monitoring side was up nicely. And I'm curious is -- is that something you see as being sustainable? Are we going to experience kind of ongoing some level of sequential growth in category? Jan Loeb: It is sustainable. It is recurring. So we expect consistent growth in that number. I'm not saying you're going to see 37% every quarter. But systems, we amortized first years. So it comes in over time. And you should see consistent growth. And we view that as the core value builder of our business. Kris Tuttle: Okay. I mean, unless something unusual happens like a customer cancels or something, there should be some as more units come online, the number will go up at least a little bit over time. In other words, this quarter should be at least marginally higher than last quarter. Jan Loeb: At 100% and hopefully better than that. Kris Tuttle: Yes. Got it. Perfect. Now my other question is just turning to hardware for a moment. Obviously, a little bit weaker than maybe people were expecting. And I just want to make sure I understand what you said. It sounds like there's still a few more deliveries on these long term, the big contract that kind of propelled you guys in Q -- in this quarter and in Q1. Do I have that right? Jan Loeb: So the -- basically, we finished the majority of our deliveries to this customer in Q2 of 2025. So we started Q3 of 2024. We ended Q2 of 2025, so over a 1-year period. However, there's we'll call it other stuff that they have told us that we're going to be getting, they haven't given us a date yet. So there's still, I'll call it, the tail end of the contract is still to come. And hopefully, it will be Q4 or maybe it will be Q1 of 2026. And that's -- again, that's not equipment. Kris Tuttle: Right. That's on the hardware line, right, additional deployments. And so with the last question kind of with respect to this contract. And obviously, customer is a large customer, they move to their own beef. They own the football. Do you still believe that there is a possibility you might get? Do they have additional coverage that they want to implement? And could that mean additional purchase orders for you at some point in the future along the same lines of what you had with them? Jan Loeb: The answer to that is yes, but they have given us no indication that that's forthcoming. Kris Tuttle: Okay. And then the last question. Tracy talked about some things on the new product side and you guys got to show me the -- at least the new box that you were putting out. And it looks like a real step forward. And this time, you talked a little bit more about AC power and just -- I mean maybe you could help me understand. I mean, I get it at a high level, but is there a specific kind of market use case customer type that you think about when you look at the AC-based some of the things that Tracy talked about. Jan Loeb: So I believe what you're referring to was AC mitigation, which is in our corrosion protection side of our business. So as I'm sure you know, about 90% of our revenue comes from power generation and about 10% comes from corrosion protection. So this is a product that we've been beta testing in corrosion protection and has seemed to have gotten some industry attention. And so we're hopefully going to roll that out in the fourth quarter, and we'll see what happens. So that's in our corrosion protection side of our business versus our power generation side of our business. Operator: [Operator Instructions] The next question comes from [ Jason Mollin Camp ], Private Investor. Unknown Attendee: I have a more timeless question here, perhaps. So I'm a bit curious if you could discuss -- you guys have always been good about reinvesting in the business and moving the product forward. What I don't have a sense for -- would love to hear from you is when you launch a new product, what -- kind of what percentage of those are to existing customers. I'd imagine some customers' upgrades don't. Can you just discuss that a little bit for folks? Jan Loeb: Sure. So in the case of the Omni and OmniPro, those are products that are replacing existing products. So we have TrueGuard and TrueGuard PRO as existing products, and we're now replacing them with Omni and OmniPro. And as Tracy discussed, all the benefits ties all the benefits, but some of the benefits of the new product versus the old product. In the case of the RAD EX, that would be a totally brand-new product. We don't have an existing product like that in the marketplace. Our product corrosion protection is the hero. So that would be a brand-new line for us. Does that answer your question? Tracy Clifford: Actually, I think, Jason, let me add to that for you. So when we introduced the new generation of TG and TG PRO, our existing customers would not typically replace the units that they currently have. Certainly, moving forward, as you know, we have customers that order on a repetitive basis, and dealers that order on a competitive basis. So their orders -- their new orders would then be fulfilled with the new generation of products. So we will essentially as our inventory depletes on our existing older generation that will be entirely replaced with the new generation inventory. So anyone who orders from that point forward will receive the new generation of products. But it would not -- it's not our expectation that anyone would replace an existing unit that is functioning properly to replace it with our new generation product. I think that was more what you were asking, correct? Unknown Attendee: Yes, correct. That's very helpful. And so the growth there is generally tied to your existing customers or dealers having growth in their business essentially? Is that true? Tracy Clifford: Yes or consistency in their business, yes. Consistent demand. Operator: [Operator Instructions] The next question comes from Joe Stein with Oppenheimer. Jan Loeb: Let's move on, operator. Operator: No problem. We can move on. Joe Stein: Can you hear me? It's the machine. It's Joe Stein. I'm sorry. I got on a little late, but I was -- my question was, was the problem not having the inventory in a receiving product or a lack of demand, where you got no revenue in this quarter on the telephone side. Did I misread that? Jan Loeb: No, it's -- we did not have the order. And we did not have a PO to ship anything. And we don't have an inventory. We have whatever our customers need, we're very good about that. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jan Loeb for any closing remarks. Jan Loeb: Thank you all for joining today's call. We appreciate your continued support. If you have any follow-up questions, please reach out to our IR team listed on today's press release or to Tracy or myself, we look forward to updating you again on our next conference call. Take care. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the Iovance Biotherapeutics Third Quarter and Year-to-Date 2025 Conference Call. My name is Daniel, and I will be your operator for today's call. [Operator Instructions] Please note that this conference call is being recorded. I will now turn the call over to Sara Pellegrino, Senior Vice President, Investor Relations and Corporate Communications at Iovance. Sara, you may begin. Sara Pellegrino: Thank you, operator. Good morning, and welcome to the Iovance webcast to discuss our business achievements, pipeline milestones and third quarter 2025 results. Members of our executive leadership team speaking on today's call include Dr. Fred Vogt, Interim CEO and President; Corleen Roche, Chief Financial Officer; Dan Kirby, Chief Commercial Officer; Dr. Igor Bilinsky, Chief Operating Officer; and Dr. Friedrich Finckenstein, Chief Medical Officer. During the question-and-answer session, we will also welcome Dr. Raj Puri and Mark Theoret from our Regulatory Affairs executive leadership team; and Dr. Brian Gastman, Executive Vice President of Translational Medicine and Research. This morning, we issued a press release that is available on our corporate website at iovance.com. I would like to remind everyone that this conference call will include forward-looking statements regarding Iovance's goals, business focus, business plans and transactions, revenue and revenue guidance, commercial activities, clinical trials and results, regulatory approvals and interactions, plans and strategies, research and preclinical activities, potential future applications of our technologies, manufacturing capabilities, regulatory feedback and guidance, payer interactions, restructuring, licenses and collaborations, cash position and expense guidance and future updates. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected during today's call. We undertake no obligation to publicly update any forward-looking statements. I will now like to turn the call over to Fred. Frederick Vogt: Thank you, Sara. I will start by sharing our continued progress to increase revenue and margins, advance our pipeline, reduce expenses and improve operational execution. Third quarter revenue grew 13% over the prior quarter and notably, gross margin improved and was 43% following the initial results of our strategic restructuring and cost optimization. More improvements are coming, including today's announcement of our centralization of manufacturing at our internal manufacturing facility. Our highest priority is to accelerate revenue growth to increase Amtagvi adoption across our network of academic and community authorized treatment centers or ATCs. We have expanded to include new academic ATCs and multiple community ATCs. Initial patients are being treated in the community and are generally earlier in their melanoma treatment journey. As we educate community oncologists across our ATCs, including the major academic centers, we are seeing earlier and more frequent patient referrals to drive growth. Real-world data showed response rates of 60% in the second-line treatment setting, which has provided a strong foundation to amplify our compelling story to the melanoma community for the power of TIL therapy in melanoma. We are on track to achieve our revenue guidance range of $250 million to $300 million for the full year 2025. With robust current demand, we expect a strong fourth quarter for Amtagvi alongside increasing Proleukin sales as we saw in late 2024. We continue to project Amtagvi peak sales of more than $1 billion in the U.S. and melanoma with larger additional opportunities in international markets and in future indications. For example, our interim clinical data in previously treated non-squamous non-small cell lung cancer showed a best-in-class -- apologies for technical difficulty here for one second. For the -- for example, our interim clinical data in previously treated non-squamous non-small lung cancer showed a best-in-class profile and unprecedented durability compared to standard of care in this population, including an objective response rate of 26% and a median duration of response not reached at more than 25 months of follow-up. There is a significant market opportunity in this lung cancer indication, which is about 7x greater than our current advanced melanoma indication. We expect to quickly complete enrollment in our LUN-202 registrational trial in 2026 with approximately 80 patients. This sample size will support an accelerated approval given the unmet need in non-small cell lung cancer, precedent of the Amtagvi approval in 73 melanoma patients and recent accelerated approvals based on 70 to 80 patients from defined non-small cell lung cancer population. The U.S. FDA previously provided positive feedback on our trial design, which aligns with FDA guidance for single-arm trials to support accelerated approvals for single agents in conditions with unmet medical need. We look forward to advancing toward a supplemental biologics license application in non-squamous non-small cell lung cancer and a potential launch in the second half of 2027. As we increase revenue and advance our pipeline, we are laser-focused on expense management and profitability. Following our third quarter reorganization, we are refining our operating plan to ensure we are appropriately investing in our commercial launch and high-value programs. Again, cost of sales and gross margin will improve significantly as we transition manufacturing to our internal facility in early 2026. During this call and our future quarterly updates, we will highlight our ongoing efforts toward further expense reductions and resource allocation. Corleen will now highlight our third quarter financials in further detail. Corleen Roche: Thanks, Fred. Good morning, everyone. During my first quarter as Chief Financial Officer, I want to emphasize our focus on driving the company towards sustained profitability. Our strategy included prioritizing top line growth, significantly improving margin and controlling costs with a disciplined approach. In the third quarter, our top line revenue remained strong. Total product revenue increased approximately 13% over the prior quarter to about $68 million. This included Amtagvi sales of approximately $58 million and global Proleukin revenue of nearly $10 million. As expected and consistent with prior quarters, overall gross to net was less than 2% and is expected to remain minimal. As Fred mentioned, we are on track to achieve our revenue guidance in the first full calendar year of Amtagvi sales. Next, I am pleased to highlight initial improvements in expenses and gross margin from the corporate restructuring and continued cost optimization initiatives implemented in the third quarter. We reduced total costs and expenses by approximately 10% over the prior quarter, excluding restructuring charges of approximately $5 million. We lowered cost of sales by approximately 21% over the prior quarter, resulting in improved gross margin of approximately 43%. Importantly, costs associated with patient drop-off and manufacturing results continue to decline as our revenue continues to grow. Gross margin will improve over time as we accrue benefits from our recent restructuring, implement additional cost savings initiatives and centralize manufacturing at our internal facility. Our cash position of approximately $307 million as of September 30 was bolstered by expense reductions and is expected to fund operations into the second quarter of 2027. I will now turn the call to Dan Kirby, our Chief Commercial Officer. Daniel Kirby: Thanks, Corleen. Our ultimate goal is to establish Amtagvi as the preferred option for all eligible patients. Patients deserve a onetime cell therapy with curative intent, and we are steadfast in delivering on that promise. My conversations with patients and caregivers remind us of the commitment to the Iovance mission, pioneering a new treatment paradigm for patients with solid tumor cancers. At the recent Melanoma Research Foundation Gala in Denver, Iovance received the Corporate Leadership Award in recognition of our efforts to advance care for melanoma patients. In my first 8 months at Iovance, we have made notable progress to lay the foundation for revenue growth by driving adoption across our ATCs. I'll highlight 3 key areas of focus. First, new ATCs are driving growth. In the third quarter, we added community ATCs alongside new high-volume academic ATCs. These new ATCs contributed to the highest number of patient starts with better capture in the third quarter. Our first community ATCs are beginning to treat patients with Amtagvi in this setting. New ATCs continue to come online and will drive further growth in the fourth quarter and beyond. Second, penetrating the community market is key to unlocking Amtagvi's tremendous potential as we increase the frequency, speed and efficiency of community referrals to ATCs. Health care professional and patient-focused campaigns are having a positive impact. Under our specialty pharmacy agreement with Biologics by McKesson, patients have broader access to Amtagvi. Hospitals now have flexibility to obtain Amtagvi directly or through a specialty pharmacy, giving their finance teams confidence to place more orders. Our third focus area is to drive earlier treatment with Amtagvi. This will increase penetration in our academic centers. We are educating medical oncologists on the advantages of cell treatment with Amtagvi when it has the greatest benefit. Earlier shifts in referral patterns are supported by our first real-world data that shows 60% of patients respond in the second-line setting. In addition, new initiatives in academic ATCs will address earlier tissue procurement for patient types, such as BRAF mutations, so they can be treated before their health status declines. Proleukin revenue also grew in the third quarter. Our main revenue channel for Proleukin is use with Amtagvi. Two U.S. wholesalers ordered in the third quarter, and all 3 wholesalers are expected to order significant volume in the fourth quarter. Proleukin will continue to grow through this main revenue channel in addition to the 2 other revenue channels for clinical and manufacturing use. Like other companies, we are evaluating our Proleukin pricing strategy outside of the United States based on the current environment, which may help drive future revenue growth. Amtagvi has the potential to reach more than 30,000 patients with advanced melanoma globally. Canada became the first new market to approve Amtagvi and approvals are pending in 3 additional markets. The United Kingdom and Australia in the first half of 2026 and Switzerland in early 2027. In the European Union, we are confident in our planned strategy. We are seeking scientific advice from the European Medicines Agency and intend to resubmit for regulatory approval shortly thereafter. Looking at the broader potential of lung cancer, our interim data demonstrates that onetime treatment with Lifileucel represents a true game changer and potential cure for patients with non-squamous advanced non-small cell lung cancer. With approximately 50,000 addressable patients in the U.S. alone, the market opportunity is about 7x larger than our current melanoma opportunity and represents potential U.S. peak sales of $10 billion. U.S. academic and community practices are enthusiastic about our lung cancer program. All of our current and future ATCs are expected to launch in non-small cell lung cancer. A significant portion of them already treat patients in our LUN-202 trial. The ATC footprint for lung cancer is essentially the same as our melanoma treatment network. ATCs are eager to leverage their current TIL infrastructure to quickly adopt Lifileucel in lung cancer upon approval. I will now pass the call to Igor. Igor Bilinsky: Thank you, Dan. I will provide a brief manufacturing update. We have streamlined our manufacturing organization while reducing costs and improving our manufacturing success rate as reflected in our third quarter gross margin. Importantly, we are finalizing an expansion at our internal facility, the Iovance Cell Therapy Center, or iCTC, that will enable us to support anticipated demand without the need for a contract manufacturer. All Amtagvi and clinical manufacturing will transition to iCTC in early 2026 to maximize capacity utilization, lower cost of sales and drive future gross margin growth. We will complete a key step in this facility expansion during routine annual maintenance around the end of this year. During this time, our contract manufacturer will provide continued access for patients to meet demand before we transition all manufacturing to iCTC. We will also boost capacity immediately prior and following the maintenance period to provide additional manufacturing slots for patients, allowing smooth supply through the next 2 quarters. Bringing all manufacturing internally will be an important milestone for us as a company. In addition to the cost benefits, we will maintain uninterrupted supply during routine maintenance in the future using internal capabilities. We can also scale up within the existing facility to support future markets globally and indications, including lung cancer. I will now pass the call to Friedrich. Friedrich Graf Finckenstein: Earlier this week, we reported interim data from our registrational IOV-LUN-202 clinical trial of Lifileucel. The data demonstrated a potentially best-in-class clinical profile and meaningful improvement over current standard of care in previously treated patients with non-squamous non-small cell lung cancer. Following onetime treatment with Lifileucel monotherapy, the objective response rate was an impressive 26%. An objective response was observed in 10 out of 39 patients, which included 2 complete responses. The disease control rate was 72%, showing a meaningful benefit for many patients with stable disease. Importantly, median duration of response was not reached at more than 25 months of follow-up, which is unprecedented durability for non-small cell lung cancer therapy in the post-chemo and immune checkpoint inhibitor setting. Standard of care docetaxel monotherapy recently showed an objective response rate of only 13% and a median duration of response of only 5.6 months without any complete responses in the same patient population. We are on track to quickly complete enrollment of approximately 80 patients in 2026. We have seen a strong increase in enrollment this year, driven by the positive reception of the efficacy data among trial investigators. In addition to the 39 patients in the data set, a double-digit number of patients are awaiting or have recently received TIL infusions and more patients have entered the trial as of today. We plan to share more data from LUN-202 at a medical meeting next year, including a meaningful number of additional patients and longer follow-up. We also look forward to advancing towards a supplemental biologic license application for Lifileucel in non-squamous non-small cell lung cancer and a potential launch in the second half of 2027. We also continue to make progress across the rest of our pipeline, which I am happy to discuss during the Q&A session. Thank you. Operator: [Operator Instructions] Our first question comes from Andrew Tsai with Jefferies. Lin Tsai: Nice execution this quarter. Great to see various dynamics improving. Good job. So my question this quarter is on the lung cancer data update that you had. It's interesting that the signal did not necessarily degrade compared to the prior data cut. In fact, maybe the efficacy on DOR seemed to get better. So for the remaining batch of patients, would you expect the third data cut to be also similar or even better than what we're seeing in this interim that you just had? Or would you expect some kind of efficacy degradation on a larger sample size? Frederick Vogt: Thanks, Andrew. I can start and then maybe Friedrich can chime in here. I don't -- we don't expect any degradation in the efficacy signal. We're getting very good within the LUN-202 trial at making sure our investigators identify the right patients for the trial. And we are obviously going to be cutting the data with longer and longer follow-ups. And with ongoing responders, as you can see in the swimmers plot from that data cut, we would expect to see that durability improve even beyond what we have today. I'll let Friedrich comment a little bit on the details of how we think that study is going to play out, but that's the big picture view. Friedrich Graf Finckenstein: Yes, I agree with Fred. Not much to add there. I think the study now has reached that phase where folks know what they're doing. They're familiar with the therapy. They know how to identify patients. We are able to communicate best practices. So I think this is all in a very stable place. What is noticeable is that we saw a true uptick in enrollment, which is really driven by the positive data that we were able to share with the investigators lately. That's also fairly typical. It's kind of an inflection point where then things just take off because folks see and believe in the therapy and things are working really well. Operator: Our next question comes from Yanan Zhu with Wells Fargo. Yanan Zhu: Congrats on the quarter. Just a quick one on the lung cancer. Can you talk about when did you touch base with FDA regarding the path and the regulatory path? And you did mention 80 patients. I wanted to hear your confidence that 80 patients is enough for the lung cancer filing. Then on Amtagvi in melanoma, can you talk about infusion growth into fourth quarter and into 2026, your confidence for inflection point in the patient infused? And lastly, sorry, if I may, on the improved gross margin, great to see that result. Can you comment on how much of it is coming from patient dropout and manufacturing success rate improvements versus how much is coming from cost reduction measures? Frederick Vogt: Thanks, Yanan. Why don't I start on the FDA point and then Raj Puri will jump in, and I'll ask Dan and Corleen to help out with the Amtagvi, the inflection point as well as the gross margin questions here. We've engaged heavily with FDA on the LUN-202 trial and gotten guidance from them, feedback on the trial design, patient population, CMC, things like the potency assay. We feel very comfortable that we're on the right track here. Obviously, engagement with FDA is a continuous process during the trial. As I'm sure investors know, we have to engage frequently and we do engage frequently. A lot of it doesn't get talked about. So we'll continue to do that on this trial, but we're very comfortable with where we stand right now in the trial design and what we need to do to get a supplemental BLA submitted on time. On the sample size for the patient -- for the 80 patients, we pointed out during a lot of our calls earlier this week as well as during our prepared remarks here that we think 80 patients will be sufficient based on the precedent of Amtagvi with 73 patients which led to the approvals on label in melanoma as well as a lot of recent FDA meeting the last couple of months, FDA approvals in non-small cell lung. So I'll let Raj and maybe Mark comment on that on what they've seen with the FDA and why they think that's reasonable. Raj Puri: In addition to what Fred said that we in continuous interaction with the FDA, we plan to apply for many different priority designations such as Fast Track designation, RMAT designation, et cetera. And as Fred mentioned that 80 patients also based on the 73 melanoma patients that we got Amtagvi approval on. And recently, Mark will elaborate further that the FDA has approved about 4 non-small cell lung cancer trials based on accelerated approval of patients list to 70 to 80 patients. Unknown Executive: I agree with what you had said, Raj. I think there's recent precedent for this number of patients in patients with non-small cell lung cancer and very high unmet medical needs with the response rate and particularly this unprecedented duration of response, we feel based on the precedent and the data thus far, patient data set would be sufficient and compelling. Frederick Vogt: All right. So on the inflection question and fourth quarter growth, obviously, we feel very confident having a strong fourth quarter, but I'll let Dan talk about some of the details there. Daniel Kirby: Thank you. And thanks, Fred, and thanks, Yanan, for the question. First, the answer is yes, we expect continued growth in the fourth quarter and beyond into 2026. The reasons behind that are -- I'm going to separate this from academic and community. In the academic setting, we've launched field efforts, including a disease awareness campaign in Q3 to educate medical oncologists for earlier referral into those centers. We're seeing some results from that right now that will continue moving forward. We also are launching in the academic setting initiatives to increase penetration, which would have to do with addressing certain patient types that we haven't been able to capture such as BRAF mutations I mentioned, where we have opportunities to get tissue earlier. So we do see growth in the academic setting. Moving to community. I mentioned that we're onboarding now and we've started to treat at the first community sites. We have several large ones that are coming on in this quarter that will drive significant growth in Q4 and beyond in 2026, and that also sets the table for... Corleen Roche: Gross margin, let me just focus you on 2 areas, and I think you mentioned them, one, which is patient drop-off and manufacturing results. So if you think about the dollars that are written off from out specs since the beginning of the year, they have decreased by 40%. They're about $9 million this quarter. And we are now seeing the initial benefit of the restructuring that we announced in Q3. So those are 2 key areas that are driving revenue improvement or margin improvement. Operator: Our next question comes from Salim Syed with Mizuho. Salim Syed: Congrats on the progress. I guess one for me on the guidance here. I know you're reiterating the guidance quarterly. And I guess, is there any scenario here in your mind where you're going to actually hit closer to the top end here? I'm just curious why at this point, 2 months left in the year, why we haven't narrowed it down the top end of the range to a lower number that seems more reasonable. Frederick Vogt: Yes, Salim, we reiterated our guidance range of $250 million to $300 million, which is a pretty narrow range to begin with. It's our first full calendar year on the market, as you know, and we're on track right now towards that guidance. Fourth quarter, as Dan was just mentioning a minute ago, we have a large influx of new ATCs. We've got Proleukin sales to contend with, which we think will be very strong in the quarter, especially based on fourth quarter last year. You can go back and look at those numbers. And we have got this ATC growth both in the community and in the academic setting. So I think at this point, we're just comfortable with the guide that we put out, $250 million to $300 million, and we'll be in that range, and that's what we're comfortable saying right now. Operator: Our next question comes from Tyler Van Buren with TD Cowen. Nicholas Lorusso: This is Nick on for Tyler. Just one for me. Can you let us know how many Amtagvi patients were treated this quarter? And then also, how will the CTC maintenance this quarter impact Amtagvi infusions and sales? Frederick Vogt: Yes. Nick, we're not going to -- we're not talking about infusions anymore. We're just going to use revenue going forward, as you can see from our press release. We think that's the ultimate story here, and we hope investors appreciate that we're focusing on the dollars, and that's what matters at the end of the day. On the iCTC maintenance, I'll pass it to Igor for that question. I think he had covered it in his prepared remarks, maybe you can highlight it again, Igor. Igor Bilinsky: Yes, of course. Thanks for the question, Nick. So as I mentioned, as part of the routine maintenance this year, we'll complete the expansion part of the facility that's important for centralizing manufacturing at iCTC and also kind of continue providing uninterrupted capacity from iCTC during future maintenance periods. And this year, we've learned from our experience in Q1 2025. So we made several improvements. We will boost manufacturing capacity immediately and prior to the iCTC maintenance that will provide additional manufacturing slots for patients, and that will allow essentially smooth supply through the next 2 quarters. Operator: Our next question comes from David Dai with UBS. Xiaochuan Dai: A couple of questions from me. So just on the ATC ramp, you're seeing early community initiatives in there. I'm just curious in terms of what are the timeline for the community activation to actually see patients treated. That's the first question. And the second question is just around the margin improvement. You said you're planning to have more margin improvement over the next few quarters. So I'm just curious what is sort of like the margin we should be expecting over the next quarters, essentially, one should be expecting the plateauing of the margin over time? Igor Bilinsky: So I'll take the ATC one first and look at the ramp for that. So you mentioned specifically community. Our first community centers are starting to treat now. Typically, with centers, they treat a few patients, they make sure the insurance goes through, they get comfortable with it and they start ramping patients after that. That is expected to continue with our community ones that are just starting to treat now. The newer ones coming on with the volume will start slow in -- with a few patients in there for it, but then will start to ramp up. The key with the community is that the referral patterns are already there to get those patients in earlier. So as we discuss with those larger entities opening them, we also have robust discussions regarding referral patterns and patients lining up. So we will see a ramp there a little faster than you'll see with the academics, but it should be coming over in the next quarter and 2, and then we'll get to full peak probably by mid next year. Corleen Roche: David, on the gross margin, yes, we mentioned that it will continue to improve. So that will be further benefit from the restructuring, but also a number of initiatives across operational efficiency in the manufacturing plant as well as cost savings initiatives to run the organization as efficiently as possible. Frederick Vogt: And just to finish off, we did announce one of those things today, David, by transitioning all manufacturing to internal as Igor and Corleen and others have discussed, we expect this to have additional margin improvements on the back of that. That's not something that's reflected in the 43% that we reported today. Operator: Our next question comes from Colleen Kusy with Baird. Colleen Hanley: Congrats on the progress. On the community ATCs that you're seeing come online, can you just speak to the capacity that you see at those centers versus what the capacity is that you're seeing at the academic centers? Frederick Vogt: Sure. So thank you very much, Colleen, for the question. The capacity with community centers, they are hospitals. They do have the bed space comparable to the academics. What we do see with them, though, is less of a clinical trial allocation and other competing priorities for those beds and more of a priority in the solid tumor space than we see in the academics for it because they do split beds in the academics with the hematology space, where the CAR-Ts are, et cetera. So we do see an opportunity to have a larger percent of their capacity in the community setting. Operator: And our final question comes from Reni Benjamin with Citizens. Reni Benjamin: I'm sorry, I jumped on the call a little late. So you may have answered this already, so just indulge me. I'd like to understand a little bit more about the global expansion that you highlighted. How do you envision these programs or the expansion without a partner? Should we really be -- should we be thinking about any sort of a meaningful contribution in terms of revenues going forward or at least in 2026? Or is this something that goes out much further? And just a follow-up question regarding both TILVANCE and the LUN-202 study. It seems like enrollment will slow at least from the 202 study. Can you just give us a better sense as to how enrollment is progressing in each of those studies? That would be great. Frederick Vogt: Yes, Ren. So first, on the global expansion, we're not thinking right now really about partnership. TIL technology and the science of delivering TILs to patients, the medicine behind it is complicated. We're not really sure there's a partner out there that would give us any kind of advantage. And we're always really cautious about asset dilution and giving anybody rights to anything that we do because we think that TILs are going to be extremely powerful in the future, and we would like to own all of that. That said, we may work with distributors in certain markets. We may work with people that can help enter markets for us. We tend to staff very light and lean in those markets while we wait for revenue to appear. In 2026, I don't expect a significant amount of revenue from those markets. However, we'll start to see that business grow. And then over time, I think it will become a major component of our business in the future. And since Dan heads those teams, I'll let him give some color and maybe just highlight the markets that we're going to go back into, include the U.K. and we're going to be entering for the first time in the U.K. and Australia and other places where there's a significant number of melanoma patients in need. Daniel Kirby: Sure. And so Reni, one of the things we've always said about our global expansion, if you look at the history of cell therapies globally, this has been more of a long-term strategy to produce revenue in 2027 and beyond, but you needed to get the filing and approvals in place because reimbursement does take a while in those regions, you want to make sure you do it in the proper sequence. So where we are right now with it, we are ramping up in Canada with our first ATC. We have pending approvals in the U.K. as well as Australia. We're in discussion right now in the U.K. about getting an NHS support on which ATCs will go up and running there. So we're getting the process in place as well as within Switzerland and then refiling in the EU. So this has been a long-term strategy with it and something that we will see, if you look at Kite, who did a great job with Yescarta globally, it took them several years from the approvals to get revenue in there. So we follow that model, knowing it would take 2027 would be our first year to have any appreciable revenues. Not saying we won't get any next year, but really appreciable revenues in 2027 from ex U.S. Frederick Vogt: And then on the enrollment question, I'll focus on LUN-202, Reni, because TILVANCE, we really haven't said anything publicly about the enrollment there beyond that it's going well, and we think that's on track right now. But on LUN-202, enrollment has really picked up lately. And if you heard on the calls earlier this week, we have double-digit patients right now waiting for infusions, and we have a lot of activity there. I'll let Friedrich comment in a second here, but we think we can easily hit the time line that we gave for the launch of Lifileucel in non-small cell lung in the second half of 2027 based on our current enrollment timings in the LUN-202 trial. Friedrich, do you want to add to that? Friedrich Graf Finckenstein: Yes. Just really quick, Reni. Since I don't know when you joined, I described that before earlier in the call. I think in the lung study, we've now reached this point where, number one, we have stability and familiarity of the investigators and the sites with the therapy. They know how to pick patients. And important, we have a data set that has the size and the quality and the data that are driving investigator engagement. They see the potential for this therapy, they see the benefit in the patients, and they now are enrolling at the speed of what is typical for a trial that has shown data like this. So I share Fred's confidence in us being on track here with our goals. Reni Benjamin: Got it. And just as a quick follow-up, maybe, Fred, to your comments about TILVANCE that enrollment is going well and things are on schedule. Can you just remind me when do you think ultimately enrollment would be complete or when you might be filing the BLA? Have you provided any of that guidance before? Frederick Vogt: Not yet. We're still pretty early in this trial here. This is a longer-term study. We do have the ability to read at an interim time point for ORR and seek an accelerated approval in first-line melanoma in the study. And that's not too far off. We have not guided anything publicly, and there's obviously a first 670-patient trial, at least 600 patients on the main population. That's tough to predict accurately right now. But we should be in touch pretty soon with some more updates on that as that starts to crystallize for us. Operator: This concludes the question-and-answer session. I would now like to turn it back to Fred Vogt for closing remarks. Frederick Vogt: Thank you again for joining the Iovance Biotherapeutics Third Quarter 2025 Conference Call. We look forward to providing future updates on our commercial launch and pipeline as well as our cost optimization initiatives to drive towards profitability. We are motivated by the stories we continue to hear about the patients who benefit from Iovance TIL cell therapies. I'm confident that Iovance will remain the global leader in innovating, developing and delivering current and future generations of TIL cell therapies for patients with cancer. As always, we are thankful to our patients, the health care and advocacy communities, our partners and our exceptional Iovance team. I would also like to thank our dedicated shareholders and covering analysts for their support. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, everyone. Welcome to BeOne Medicine's Q3 2025 Earnings Call Webcast. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. At this time, I would like to turn the call over to the company. Daniel Maller: Hello and welcome. Thanks for joining us today. I'm Dan Maller, Head of Investor Relations at BeOne Medicines. Before we begin, please note that you can find additional materials, including a replay of today's webcast and presentation on the Investor Relations section of our website, ir.beonemedicines.com. I would like to remind all participants that during this call, we may make forward-looking statements regarding, among other things, the company's future prospects and business strategy. Actual results may differ materially from those indicated in the forward-looking statements as a result of various factors, including those risks discussed in our most recent periodic report filed with the SEC. Please also carefully review the forward-looking statements disclaimer in the slide deck that accompanies this presentation. Reconciliations between GAAP and non-GAAP financial measures discussed on this call are provided in the appendix to our presentation, which is posted to our Investor Relations website along with the earnings release. All information in this presentation is as of the date of this presentation, and we undertake no duty to update such information unless required by law. Now turning to today's call as outlined on Slide 3. John Oyler, our Co-Founder, Chairman and CEO, will provide a business update; Aaron Rosenberg, CFO, will provide an update on our third quarter financial results and financial guidance; and Lai Wang, our Global Head of R&D, will discuss our R&D and pipeline progress. We will then open the call to questions. And joining the team for the Q&A portion of the call will be Xiaobin Wu, President and Chief Operating Officer; Matt Shaulis, our General Manager of North America; and Mark Lanasa, our Chief Medical Officer for solid tumors. I'll now pass the call over to John. John? John Oyler: Thanks, Dan, and thank you, everyone, for joining us today. The third quarter marked another strong quarter of execution. From a financial perspective, revenue reached $1.4 billion, which represents 41% year-on-year growth. GAAP earnings per ADS were $1.09, which represents growth of more than $2 over Q3 of last year. And we generated over $350 million of free cash flow during the quarter. As Aaron will touch on, we strengthened our balance sheet and ended the quarter with over $4 billion in cash. BRUKINSA has continued its momentum with sustained U.S. leadership, and it's now the #1 BTK inhibitor globally. Sonro, our next-generation BCL2 inhibitor recently received FDA breakthrough designation in relapsed/refractory mantle cell lymphoma. And we're really excited about the totality of data emerging from that molecule, some of which we're going to highlight today. BRUKINSA, Sonro and our BTK CDAC are the core elements of our leadership in B-cell malignancies, and they'll be on display next month at ASH where we'll present 47 abstracts from across our heme portfolio. The quarter also yielded multiple developments across our growing solid tumor pipeline, including clinical proof-of-concept for multiple early-stage assets, which Lai's going to discuss in more detail later. So let me start with BRUKINSA, the backbone of our heme franchise. BRUKINSA continued to perform exceptionally well in the third quarter, growing 51% and exceeding $1 billion in quarterly global revenue for the first time. As a result and also for the first time, BRUKINSA is now the global value share leader amongst the growing BTK market. This, of course, is a major milestone for BRUKINSA and for our company. As I discussed in detail on our Q2 earnings call, the commercial success of BRUKINSA is not by chance. It's the direct result of an overwhelming body of evidence that has accumulated over more than a decade. It's evidence that spans preclinical human pharmacokinetics, head-to-head clinical trials real-world data sets and patient physician preference in the market. The evidence is remarkable for both its strength as well as its consistency, and this evidence continues to build with each new piece of data, both reconfirming and further strengthening our initial therapeutic hypothesis that BRUKINSA is the best BTK inhibitor. At BeOne, we're relentlessly focused on our goal of discovering and developing innovative medicines that deliver long-term outcomes for patients. At ASH, we're presenting a 74% landmark PFS at 6 years for BRUKINSA in first-line CLL. This is from our Phase III SEQUOIA trial. We believe that these data have set the bar for what monotherapy BTK can and should be, what they should achieve in CLL. With all the caveats of cross-trial comparisons, this is double digit better than what has been reported for other single-agent BTKis at 72 months. Interestingly, this level of sustained PFS at 6 years is in the same ballpark as other recent data from BTK van fixturation regimens at only 3 years. Long-term follow-up from years 3 through 6 when patients are not on active therapy will be critically important to inform the future relevance of these regimens within the CLL treatment paradigm. And I think along those lines, what's also relevant about this year's ASH is what you're not seeing. Given what I've just said about the importance of our long-term BRUKINSA data in CLL the absence of other long-term follow-up data from many other relevant CLL trials, such as AMPLIFY with the last data cut off April 30, 2024, CAPTIVATE and ELEVATE where data hasn't been reported for a couple of years. Long-term data are the gold standard in CLL for a reason because CLL is an indolent disease, and it takes time to fully and truly understand how these regimens perform. BRUKINSA delivers the level of progression-free survival that patients and physicians should expect and should demand. We believe in the promise of fixed duration, but we also feel that the current van-based options fall far short of that promise. In our view, the current options fail to satisfy the 4 key criteria that you see on this slide, depth of response, sustained PFS, safety and convenience. Specifically, we have concerns related to the low MRD negativity rates and sustained PFS for AV combinations, the cardiac safety, uveitis and general tolerability for IV combinations. The long-term effects on the immune system and the related additional hospitalizations due to infections of obinutuzumab use and the overall treatment burden and feasibility of use with all of the van-based regimens. Our goal in fixed duration is simple. We aim to develop a more efficacious time-limited regimen that does not come with caveats or accommodations. And based on the data we've generated to date, we believe that the combination of zanu and sonro is well on its way to achieving just that. Our confidence in ZS is based on the totality of clinical data to date, but there are a couple of key aspects in the data that we find exceptionally compelling. Here, you can see the uMRD rates and the time to blood MRD from our Phase I trial. This was presented at our R&D Day in June, and we'll provide a further update on these curves at ASH. Of all the data our heme franchise is generating, these might be the most compelling to the KOLs that we meet. So let me explain. First, the combination of zanu and sonro can drive very high rates of deep response. Secondly, and perhaps more impressingly, it does so exceptionally quickly with kinetics previously unseen in other trials of drugs targeting similar mechanisms. This slide is so important that we're going to show it to you twice today, once now and once in live section. This is the type of deep response that we're looking for in a fixed duration regimen to give physicians and patients the confidence to stop therapy and to achieve positive long-term outcomes. BeOne stands out as the only company with fully owned potentially best-in-class assets across the 3 foundational MOAs and CLL, BRUKINSA, sonro and our BTK CDAC. All 3 are anchored in differentiated design hypotheses and bolstered by an ever-growing body of evidence. All 3 of the potential for the broadest utility in the class. And all 3, whether as monotherapy or in combination, represent significant opportunities for patients, physicians and for our shareholders. Together, BRUKINSA, sonro and our BTK CDA are driving the future treatment paradigm and the $12 billion and growing global CLL market. Before I close, I'd like to introduce what we're calling our development global super highway. For those of you that are newer to our story, BeOne was built different. Early on, we recognized the vast majority of the time and cost to develop and deliver a medicine was in clinical trials. We felt that such a critical component of the biopharma supply chain should be a core competency rather than something that is outsourced to a CRO. We saw the synergies that were possible by vertically integrating manufacturing with an industry-leading clinical organization. And we know from experience how hard this can be for a small company. So fast forward 15 years, and we're proud to have built a global organization of nearly 6,000 colleagues across these 2 areas: clinical development and manufacturing. And in today's hypercompetitive costly and complicated era of drug development we really believe that this global super highway is unique to BeOne, and it's critical to generating superior returns on R&D investment. To close, we're in the midst of an exciting milestone-rich period for both our heme franchise and our solid tumor pipeline. By the end of '26 we expect the initial global approval and launch of sonro and potentially pivotal data for our BTK CDAC. Our internal clinical team will be running more than 20 Phase III trials we anticipate more than 10 proof-of-concept data readouts and our research organization will advance around 10 new molecular entities into the clinic, 3 of which will be a heme and not just in CLL, but broadening our portfolio to help patients in other areas. Now I'll pass it over to Aaron to provide the financial update. Aaron Rosenberg: Thanks, John. In the third quarter, we sustained business momentum across our product portfolio with another quarter of solid execution by our global commercial teams. Product revenue reached $1.4 billion in the second quarter, representing 40% year-over-year growth. BRUKINSA global revenues eclipsed $1 billion for the first time in a quarter growing 51% driven by strong performance across all geographies. As John mentioned, BRUKINSA is now the leading BTK globally. In the U.S., we grew BRUKINSA volume by approximately 40% versus Q3 2024, driven by the quality and differentiation of our long-term clinical data across all patient types. The pricing dynamics in the United States were consistent with commentary provided last quarter with a mid-single-digit pricing benefit on a year-over-year basis. Meanwhile, TEVIMBRA reported a 17% increase reflecting continued market leadership in China, albeit in an increasingly competitive market environment. This growth was supplemented by early contributions from launch markets. Our in-licensed products also showed continued strength, growing 17% year-over-year, driven by growth of 31% from the Amgen in-licensed asset portfolio. We continue to see solid execution as we look at revenue from a geographic dimension. The U.S. remains our largest market, generating $743 million with year-over-year growth of 47%. China revenue totaled $435 million, a 17% increase supported by TEVIMBRA and BRUKINSA market leadership and growth from our in-license assets. Europe contributed $167 million, with 71% year-over growth as we continue our launch trajectory of BRUKINSA with increased share across all major markets. And rest of world markets grew 133% and driven by market expansions and new launches. Now turning to the other components of our GAAP P&L. Gross margin improved to 86% from approximately 83% in the prior year. This improvement reflects the benefit from favorable product mix, price and product cost efficiencies, offset by period costs related to repositioning of our manufacturing capacity. Operating expenses grew by 11% and totaling $1.1 billion as we are investing with discipline to support our commercial growth and rapidly advance our innovative pipeline. I thought it's worth noting that the Q3 2024 base for R&D has higher expenses for both business development milestones plus approximately $25 million in accelerated depreciation charges. Together, this has the effect of depressing the year-over-year growth rates in our Q3 2025 R&D expense, which you can observe to a degree on the non-GAAP P&L slide, which excludes depreciation. We continue to invest assertively to advance our most promising development candidates. Income tax expense totaled $22 million for the quarter. And altogether, net income reached $125 million, representing diluted earnings per ADS of $1.09. Our non-GAAP P&L includes adjustments for typical items with a full reconciliation provided in the appendix. Non-GAAP net income reached $304 million, reflecting an increase of $252 million compared to the previous year. This performance translates to diluted non-GAAP earnings per ADS of $2.65 for the third quarter. The third quarter saw a notable progress in our priority of balance sheet strength as a competitive advantage. In August, we entered into a transaction to monetize our global IMDELLTRA royalty rights, generating $885 million in cash in the quarter while allowing us to participate in the potential upside with the asset. The Royalty Pharma agreement is accounted for as a liability, and therefore, we will continue to recognize the full IMDELLTRA royalty in other revenue as it is earned while simultaneously amortizing the financing liability and interest expense, please see our 10-Q for a full description of the accounting for this transaction. And with our meaningful top line growth with margin expansion, we've seen a notable increase in free cash flow generation to $354 million in this quarter. Cash generation is the key metric of business sustainability, and we are very pleased with our progress on this dimension. All in, Q3 ending cash and cash equivalents totaled $4.1 billion, an increase of $1.3 billion versus Q2. Moving to our 2025 financial guidance. Given our continued execution, we are updating our full year revenue guidance to be between $5.1 billion and $5.3 billion. Our gross margin guidance is unchanged, remaining in the mid- to high 80% range. And we are updating our operating expense guidance to be between $4.1 billion to $4.3 billion. We remain committed to achieving positive GAAP operating income, and we expect to generate positive free cash flow for the year. Overall, we are pleased with our execution through the first 3 quarters of 2025, and we remain focused on full year delivery across all financial performance measures. Now while early and staying away from providing detailed guidance, I'd like to provide some perspectives on 2026. As you consider your models for the fourth quarter of 2025 and into the first quarter of 2026, I thought it would be useful to remind you of the seasonality patterns in the U.S. of the BTK class. This includes factors such as typical inventory increases at the end of the year, followed by normal drawdowns in January. Also, just like this year, Q1 2026 will have fewer shipment gains versus a typical 13-week quarter. This is simply the nature of the calendar, but it's something that should be considered in quarterly phasing. And while we remain committed to margin expansion across our planning horizon, the pace of improvement will be measured in the near term to ensure we are investing to maximize the value of our late-stage pipeline opportunities. We look forward to providing our detailed 2026 guidance on our Q4 earnings call in February. And with that, it seems like an excellent time to pass it over to Lai who will share more progress about our pipeline. Wang Lai: Thank you, Aaron. Hi, everyone. Thanks for joining us today. Let me start with hematology. We have 50 abstracts, including 6 orals from our hematology portfolio have been accepted for presentation at ASH this year. This is a tremendous validation of the strength and the depth of our signs. I will highlight some of those key data later in my presentation. Importantly, sonro has now received FDA breakthrough therapy designation for mental cell lymphoma. We're actively working on its first filing around the globe and our BTK integrated program has just started the Phase III head-to-head trial versus pirtobrutinib in the last refractory cell patients, a major step towards transforming the space. On the solid tumor side, our momentum continues to build. We have achieved proof-of-concept for several innovative programs, including our CDK4 inhibitor, B7-H4 ADC, PRMT5 inhibitor under GPC3x41BB bispecifics. To be noted, most of these assets have been in the clinic for less than 18 months and some less than 1 year, this is the level of efficiency and the focus we aim to deliver across the portfolio. For CDK4 we aim to initiate a Phase III trial in first-line BC in the first half of 2026. On the non- oncology side, our IRAK4 CDAC program achieved over 95%, IRAK4 [ protein ] degradation in healthy volunteers skin tissue, a clear PD proof-of-concept. We have already initiated a Phase II trial in rheumatoid arthritis. Over the past few years, especially in the last 24 months, we have dramatically increased our output from the discovery engine. In that time, we have advanced 16 new molecule entities into the clinic, including 13 from our internal research team. Among them, all molecules have already achieved clinical proof-of-concept, supporting pivotal study plan. This does not count our 4 degrade program, achieving tissue PD, POC. Across the portfolio, our programs have complete R&D-enabling studies in the medium of just 10 months, well ahead of industry benchmarks. Even more impressively, in 2024 and 2025, we have completed over 170 dose escalation cohorts with a median time of only 7 weeks. This level of speed and the precision is what defines BeOne. Our ability to move fast, execute flawlessly under turn innovation into impact. Moving on to our solid tumor portfolio. An area we are very excited about and where we feel increasingly confident in several programs advance towards registration. This confidence is built on strong evolving clinical data. First, our CDK4 inhibitor program is moving forward quickly. We plan to initiate a Phase III trial in first-line hormone receptor positive breast cancer in the first half of 2026 driven by emerging strong efficacy and the safety data from our expansion cohorts. In addition, we depriotized the Phase III development in the second-line post-CDK4/6 setting due to the evolving competitive landscape. In that context, we decided for competitive reasons to delay the disclosure of our late-line data since it is also relevant to our dose selection in frontline. Second, our B7-H4 ADC program has completed dose escalation, and we are now conducting dose optimization studies with particularly encouraging responses seen Gynecological and Endometrial breast cancers. Third, our PRMT5i Inhibitor stands out with potentially best-in-class features, including potency, selectivity and most importantly, brain penetration. Based on the emerging Phase I data, we are now accelerating this program into frontline lung and frontline pancreatic cancer. And finally, our GPC3 x 4-1BB bispecific has delivered a pleasant spikes, while seeing very exciting signals as monotherapy in its first in-human study in heavily pretreated HCC tumors. Altogether, this is a portfolio that is maturing quickly and backed by early clinical momentum, and we are incredibly energized by what's ahead. For our other solid tumor assets, we'll continue to execute and prioritize programs with the strongest potential. Our CEA ADC, EGFR x MET x MET Trispecific and the FGFR2b ADC programs are all showing encouraging early signals while continuing advancing the CDK2 Inhibitor, EGFR CDAC and the Pan-KRAS Inhibitor programs through Phase I dose aspiration studies. At the same time, based on the current data and the broad competitive landscape, we have made the strategic decision to realign the B7-H3 ADC, and Pro-IL15 programs within the portfolio. This really reflects BeOne's disciplined development strategy, focusing our resources on programs with clear differentiation and advancing them quickly to the most important value inflection point clinical POC, where we can make database decisions. This is how we continue to build a high-quality, high-velocity portfolio in solid tumors. Moving on to our hematology portfolio. Our sonro program is shaping up to be a potential best-in-class BCL2 inhibitor, offering greater efficacy improved safety and better convenience compared with the first-generation agents venetoclax. We're now in the process of filing for approval in relapsed/refractory mantle cell lymphoma globally. And then we look forward to sharing good news very soon in this space. The most critical indication for sonro is CLL. We have completed enrollment in our Phase III trial comparing the ZS fixed duration regimen versus VO earlier this year. In addition, we plan to launch another global Phase III study in the first half of 2026. Comparing ZS versus AV and mean to establish ZS as the best oral fixed duration regimen in treatment-naive CLL. And finally, in 2026, we also plan to initiate a Phase III in second-line plus multiple myeloma exploring sonro-based triplet combination. Next, a quick update on the ASH presentation for sonro. What you see on this slide are 2 selected abstracts published early this week on sonro monotherpy, starting with mantle cell lymphoma in 103 relapsed/refractory patients who had [ power ] BTK inhibitor an anti-CD20 therapy. So achieved an overall response rate of 53% with a medium progression-free survival of 6.5 months and a median duration of response of 15.8 months. These results look favorable compared to advanced historical data in a similar population even when [ Van ] was used at 3x of its clinical proven dose. On the CRL side, the table on the right shows the data from a single arm study of 100 patients or post BTK in factor and post-chemoimmunotherapy. Here, sonro achieved a 76% over response rate with 19% compete responses. Both the efficacy and the safety profile look quite favorable relative to advanced previous published data in a similar population. Altogether, this results reinforced sonros strong potential to be the best-in-class BCL2 inhibitor in hematological malignancies. In addition to the sonro monotherapy update, we are also presenting new data on the sonro combinations with Zanu under or with obinutuzumab in CLL at this year's ASH. For the ZS combination, we have more mature data as additional patients have gone through treatment. The 12 months uMRD rate has reached 92% and the most impressively with a median follow-up of 27 months to date, no patients have progressed in the 320-milligram cohort, which is truly remarkable. For the ASH presentation, we have another data cut with additional months of follow-up showing consistent results. In terms of the safety, the profile continues to show a clear advantage compared to other fixed duration regimens. And in terms of convenience, we're very optimistic that for the vast majority of patients, only 1 clinical visit during the ramp up will be required for -- after [indiscernible]. This is a meaningful improvement for both patients and the physicians. What's most exciting about this combination is the kinetics of the uMRD achievements, which John showed you earlier. As shown on the left, the medium time to uMRD with the ZS combination was only around 4 months after starting the combo and importantly, this is independent of IGHV mutation status by about 1 year of combination therapy. That's the dashed line on the graph, the vast majority of patients achieved uMRD in contrast with the IV combination on the right, the medium time to uMRD is 16 months for IGHV mutated and 10 months for unmutated patients. And at the 1-year mark of combo treatments, many still remain MRD positive. So overall, we believe that combining 2 potentially best-in-class agents, anu and sonro may provide the only true fixed duration options that delivers optimal efficacy safety and the convenience for patients with CLL in a reasonable time frame. Now the update on our BTK CDAC, BGB-16673,16673 is the most advanced program of its kind in the clinic with clear best-In-class potential. We have initiated a head-to-head Phase III trial against the pirtobrutinib in the potentially pivotal Phase II study in [indiscernible] is expected to have a data readout in the first half of 2026. We're also planning a fixed duration combination Phase III study with sonro in relapsed/refractory CLL and potentially pivotal II in Waldenström's Macroglobulinemia has been initiated. We will also show new BTK CDAC data at this year's ASH meeting. The table on that showed the CLL results published in the abstract. 16673 demonstrated an over response rate of 86.4% and with medium 18 months follow-up, the 12-month progression-free survival is now mature at 79%, a very favorable profile compared with pirtobrutinib in the similar patient population. We also reported new data in Richter's transformation on the Waldenström's Macroglobulinemia in Richter's The OR was 52% with nearly 10% complete responses. In Waldenström's, we saw 83% ORR with a 26% VGPR risk. Altogether, this data further strengthens CDAC's position as a potentially best-in-class BTK degrader across multiple B-cell malignancies. The robust clinical activity we observed is consistent with the preclinical data package with regard to the potency as shown on the left, we observed similar DC50 and DC90 values for 16673 and the [ Nurex ] molecule in head-to-head BTK-degraded assays in both human whole block cells and B-cells. And we believe 16673 holds a clear mechanistic advantage in terms of BTK mutation coverage as shown on the right, except for the A42AD mutation, 16673 can cover all other BTK mutants, whereas we observe the [ nurex ] molecule to 2 resistant hotspot at Methionine 477 and Glycerine 480 [ resumes ]. The broad mutation coverage of 1673 further reinforces its best-in-class potential. And its ability to deliver potentially more durable responses for patients. Together, sonro and 16673 highlighted the depths, quality and the momentum of our hematology portfolio advancing rapidly towards multiple late-stage milestones and the transformation opportunities in the years ahead. Finally, I'd like to share a few key milestones we are tracking for the remainder of this year and into 2026, focusing on the ones I have not mentioned earlier. First, for BRUKINSA, the Phase III in term analysis readout for the MAMRO study in treatment-naive mantle cell lymphoma has been delayed from the second half of this year to the first half of next year due to the slower-than-anticipated event rate. In addition, we are anticipating accelerated approval for sonrotoclax in relapse/refractory mantle cell lymphoma and the CRO in China early next year. Important milestones as we continue to broaden access for patients globally. Turning to our early stage pipeline. We're anticipating POCs for CDAC before the year-end and the other assets in 2026. We look forward to sharing more data in future updates. And with that, I will turn the call back to John. John Oyler: Thanks, Lai. We'll now open the call to Q&A. [Operator Instructions] Operator, please go ahead. Operator: [Operator Instructions] Our first question will come from Yaron Werber with Cowen and Company. Yaron Werber: Hopefully, you can hear me. John Oyler: Yes. Yaron Werber: Congrats, really nice quarter. I'm going to violate the rule right away. Just 2 quick questions. Number one, BRUKINSA's the global leader. You're obviously a little bit behind in Europe in terms of when you launched any sense and when new territories are coming in to accelerate that? And then secondly, Life for the CDAC data in the first half next year in CLL for the potentially support accelerated approval, can you give us a sense of what to expect there? And sort of how mature is the PFS is going to be? John Oyler: Right. So Xiaobin, do you want to start? Xiaobin Wu: Yes. In Europe, we grow for BRUKINSA are tremendously, so close to 70%. And we notified in Europe in some country like Germany, Austria, AMPLIFY launched. And we don't see much excitement among the [indiscernible] and the company may actively switch the mono acala to AMPLIFY. But so far, we have not -- we see some prescription, but not extremely a lot prescription. Therefore, the total acala in Europe, if you see the number, is flattening. Wang Lai: So regarding to the CDAC data, and this is a single-arm study, so likely to be based on the ORR as well as the DOL. So depending on the first discussion with the agency, as usually, it will be probably about 12 months after the last patient. Operator: Our next question comes from Reni Benjamin with Citizens Bank. Reni Benjamin: Congratulations on another amazing quarter. Would love to just focus on the earlier stage pipeline a little bit. You had mentioned proof-of-concept data. Can you maybe provide a little bit more color as to what you're seeing with some of these other assets? And should we be thinking that all these would likely progress to Phase III trials moving forward? And if I can sneak one in, is there a teaser you could provide regarding the 10 new molecular entities that you're filing next year? Is there a novel target that you're most excited about? John Oyler: We wish that science worked in a way where everything worked. But Lai, why don't you answer that question? Wang Lai: I'll probably refer to Mark because he is in the frontline for all this data, Mark? Mark Lanasa: Thank you, Lai. Thank you, [ Reni ] what I would say is that for all of our early programs, we established very clear criteria of what success looks like based upon the preclinical data what are we looking for in terms of PK, PD, safety and ultimately, efficacy? If you think back to the slide that Lai showed where he talked about where the different programs stand. I think you can think about that as some of those programs are meeting all of those criteria, the 4 of CDK4, PRMT5, B7-H4, GPC3, and therefore, we're actively planning acceleration to Phase III studies and program growth. Others, we continue to wait for data. And we believe that we'll have the data to make the final determination for both of the programs in the first half of '26. Xiaobin Wu: Yes. Then in terms of the new [ molecular ] entities we are going to bring to clinic next year. I'm going to use the GPC3 4-1BB as an example. To be honest, among the program we took into the clinic last year, that certainly was not the most exciting one for us based on the preclinical data. But certainly, we are very pleased with what we have seen in the clinic today. So I'm not going to say which one is the most exciting one for us in the next year, but we're certainly looking forward to bring more. Just want to emphasize one more thing. What you have seen from BeOne is really just the beginning, what you can see from our really prolific discovery engine. Operator: Next question comes from Andrew Berens with Leerink Partners. Andrew Berens: Let me give my congratulations on the progress and execution for the quarter. I think with Aaron's question, you answered one of the ones I had because Astra in their earnings release today did highlight the fixed duration AMPLIFY regimen getting traction in Europe, but it sounds like you guys have not seen a lot of that yet. So I just wanted to confirm that that's what you said. And then a question on the PRMT5 program. It's still expected by year-end. Just wondering, I know you mentioned the first-line PDAC and non-small cell lung cancer opportunity. Just wondering how you think of combination partners for those settings? Aaron Rosenberg: Yes. I confirm and the -- so Ocala market share and also the revenue in the last 3 months are pretty stable in Germany and not increasing -- of course, with AMPLIFY approval and the fixed duration of AMPLIFY will be added to the respective guideline. This may give some plus for [ Ocala ]. But overall, in Europe and also in Germany, the [ Ocala ] total data flattening. John Oyler: Mark, do you want to take the second part? Mark Lanasa: So we, as you heard, are very excited about our PRMT5 molecule. That's only been in the clinic since January of this year. But given its high potency and CNS penetration, we're now seeing objective responses across multiple tumor types, including both lung and pancreatic cancer as well as additional tumor types. And critically, given its high selectivity, we're also seeing a very favorable safety profile that we think will enable combinations, which will be key to unlocking the potential of this mechanism. And therefore, we're advancing into frontline to combine with current standards of care. We do not yet have the data, but it is our expectation that we'll be able to combine with chemotherapy and PD-1 in non-small cell lung cancer and standard of care chemotherapy in frontline pancreatic cancer, and we'll look for similar development opportunities in early lines of other tumor types with frequent MTAP deletion. Andrew Berens: Okay. Any belief that maybe combining with some of the selective agents might work in certain mutations like RAS mutations. Mark Lanasa: So we are very interested in RAS biology. Our pan-KRAS molecule is advancing through Phase I. We discussed at R&D Day a commitment to bring multiple additional RAS targeting molecules into the clinic. So certainly, in pancreatic cancer, for example, we will ultimately look to combine PRMT5 with KRAS. So again, the aspiration given potency and selectivity is that we should be able to combine with whatever is the appropriate additional therapies for that patient given the disease state and any other concurrent mutations. Operator: Our next question comes from Yigal Nochomovitz with Citigroup. Yigal Nochomovitz: Okay. Great. This one is for Lai or Mark. Maybe. Could you give a little more detail on the design of the CDK4, Phase III in terms of what you can say at this point about the control arm, the size of the study, anything on the powering? And also what are the doses that are the final contenders for that study? John Oyler: Please go ahead, Mark. Mark Lanasa: So at R&D Day, we talked about the 3 dose levels that are being explored in our expansion phase, 240, 400 and 600. We've completed enrollment of our frontline cohorts. And we're very excited with the data as they're coming in. We are seeing a high response rate that we think will justify as initiation of a Phase III study the core hypothesis with the molecule is that having a more selective CDK4 inhibitor will be superior to currently available CDK4/6 inhibitors. And therefore, we're intending a head-to-head study we're still waiting for data to make final decisions around study size and powering, but we certainly should be able to share those details in the near future as we move towards a Phase III study start by the end of the first half of next year. Yigal Nochomovitz: Okay. And then I think Lai mentioned the new Phase III ZS versus AV. I was just wondering regarding the rationale around that. I was under the impression you kind of already knew the conclusion there that ZS was better? So I'm just curious as to the rationale for that additional investment to further prove that point. John Oyler: Please go ahead. Wang Lai: Yes. Thank you for the question, and we agree with your comments. But we felt this is important to establish ZS as really the best oral fixed duration regimen. So we picked the one which likely will be approved soon by FDA, the AV regimen. We do have a lot of confidence in term for this particular study. John Oyler: Yes. I think if I just elaborate a little bit on that, we encourage everyone to look frequently at the CLL data, especially the long-term data that we've presented but still people will say, well, there's no head-to-head study against [ Ocala ] versus [indiscernible]. And still, people will discount the body and wealth of information that's there. And I think when you look at the data and you talk to the top KOLs, I think at this point, with this long-term data, it's very clear. But nonetheless, there's always someone who says there's not direct head-to-head. And I think this commercially is helpful, and it's helpful to bridge that information gap help educate people more quickly. I mean just when we're looking at that space, the long-term data, it's meaningfully different with all the cross trial comparison. As we said, it's double-digit different. look at the PFS, look at the OS data. It's impressive, but we still get that comment in a small portion of the population around the globe. So we just think, it's important to do this so we can ensure that everyone is getting the best medicine and the best regimen. So we're committed to doing it. Operator: Our next question comes from Leonid Timashev with RBC. Leonid Timashev: I just want to ask maybe on some of the commercial dynamics you're seeing outside of the early line setting in CLL and maybe more in the relapsed/refractory setting is how is BRUKINSA share holding up or growing there? And then ultimately, how do you expect the mix of a degrader BRUKINSA and covalent inhibitors to play in the future there? John Oyler: Sure. Matt, please. Matt Shaulis: Sure, happy to address that. Yes, we continue to see strong new patient start share across the lines of therapy, including in that relapse setting. And then as we've discussed in the past, we're really confident in our overall CLL franchise leadership strategy. You made reference to the multiple mechanisms that are in our portfolio. And as you've heard from John, we continue to have confidence in our BTK mono due to our head-to-head superiority with another BTK and our best-in-class profile. Including PFS, safety and tolerability in the long-term setting that John mentioned. We also see an opportunity for therapy that will include zanu plus sonro. We've spoken before about the requirements for therapy there. And we're confident in a really strong MRD PFS safety and tolerability profile, but also in the convenience that sonro can bring to that regimen. So of course, we see the future opportunity for fixed duration with zanu plus sonro. But right now, we're confident in monotherapy. Of course, when it comes to the degrader we see a clear opportunity there in later lines of therapy. I'm sure you're familiar with resistance mutations that can happen in those earlier lines, and we have the confidence to do a head-to-head superiority study for the degrader versus pure dose. So we see a strong opportunity across patient types in the cross lines of therapy in CLL. Operator: Our next question comes from Sean Laaman with Morgan Stanley. Sean Laaman: Just to go back on the CDK4 inhibitor, just to maybe throw some meat on the bones around the decision not to pursue later lines and to go for first line. And then also just to confirm, are we still going to see some data at San Antonio and what do you hope to present at that forum? Mark Lanasa: Thank you very much, Sean. Yes. So again, what we're seeing in our expansion cohorts is a very strong emerging response rate. We are waiting for data maturity. Now in the context of the strength of that data and also importantly, the context of emerging data externally, so there are a number of new agents that are leading to both fragmentation in the second-line as well as an increasing bar for success in second-line. We always view the second-line opportunity as a transitional opportunity for this molecule and the key study as the frontline study. So given this external dynamic and our strong internal data, we made the decision to deprioritize second-line and to accelerate frontline. And again, we're very much looking forward to that study. Currently, we then subsequently made the decision that we would not share the second-line data this year San Antonio. We think those data are relevant to our dose level selection for Phase III in frontline and we, therefore, will not have data for this molecule at the San Antonio, but look forward to sharing data at a future venue that will -- should we say substantiate our plans for the Phase III study in frontline. Sean Laaman: Great. And one quick follow-up just on zani plus sonro versus [V plus O]. So Phase IIIs are recruited earlier this year. What's sort of the signpost pathway or the map going forward in terms of future announcements around that trial? John Oyler: Lai, do you want to answer that, please? Wang Lai: Yes. So to me, in that particular study is a PFS events-driven studies, as you can imagine, with the control arm using the vial, it's really good therapy as well. So it would take a little bit of time to get into the PFS readout at the same time, we are also monitoring the uMRD rate, this will be something we can probably take an earlier look at. Operator: Our next question comes from Jess Fye with JPMorgan. Jessica Fye: I have one on the EGFR targeted assets. I guess what in particular makes you say that the EGFR cMET product goes in the promising bucket, whereas the EGFR CDAC is in the still exploring bucket. Is that based on clinical data? Or if not, can you just elaborate on kind of how you segment of those. John Oyler: Sure, Mark. Please go ahead. Mark Lanasa: Sure. Thank you, Jess. So we have a number of different EGFR targeted therapies that are moving forward. And as I mentioned earlier, for each program based upon the preclinical evidence, we have expectations of what we would like to see for the molecule initially in terms of PK and safety, but ultimately in terms of efficacy. So what we're seeing from the EGFR MET-MET Trispecific, though it's very early days in dose escalation is that we are seeing clinically meaningful responses with that agent. With the EGFR degrader, we continue through dose escalation. We've had some tumor regressions. We're happy with the PK and the safety profile. We simply need more data maturity. It's important to highlight that these are 2 totally different mechanisms of action, and therefore, our expectations for what we would expect from each molecule are somewhat different. Operator: Our next question comes from Clara Dong with Jefferies. Yuxi Dong: Can you hear me? John Oyler: Yes. Yuxi Dong: Congrats on the quarter. So you talked about the seasonality for the entire BTKi class. So just wonder how the seasonality dynamics differ across key regions in the U.S., Europe and the rest of the world as well. And then just looking at the time line for sonro and the BTK CDAC entering the market, sonro expected to file for MCL in the U.S. this year and BTK CDAC could have a pivotal readout next year in CRL. So is this the right understanding that potentially BTK CDAC that can be approved first in CLL in the U.S.? And how do you anticipate this influencing physician sequencing strategy across B-cell malignancies special in CLL? John Oyler: So Aaron, going to lock. Aaron Rosenberg: Great. Thanks for the questions, Clara. So as I said in my prepared remarks, I just wanted to reinforce as you think about your models, the seasonality patterns, this is really a focus in the U.S. where we typically do see inventory builds across the sector in the fourth quarter and then that unwinds to a degree in the first quarter. And then we did reference back to the same calendar issues that we experienced in '25 also in '26. Globally, you see that to a lesser effect in our business in China, Q4 is typically a relatively lighter quarter by comparison. But given the magnitude and import in terms of percentage of revenue, for BRUKINSA in the U.S., we thought it was really important to highlight as you think about rolling over your models from '25 to '26. So I can hand it over to Lai. Wang Lai: Aaron, you're correct. In terms of in the U.S. as well as probably use out of that -- CDAC is likely to get the CLL approval probably ahead of the sonro, but that's not the case in China. In China, we already filed the [ someone ] for the CLL, which we're also anticipating approval early next year. In terms of sequence of the therapy, we view that CDAC can provide a really broad coverage in terms of patients who had BTK inhibitor. As shown actually in one of the slide in today's presentation, this really covers pretty much everything except maybe one mutation. So we do believe this is probably at this moment based the level evidence is positioned very well in the later line therapies after the COVID and BTK inhibitor. Operator: Our next question comes from Michael Schmidt with Guggenheim Partners. Michael Schmidt: I just had another bigger picture question around the CLL market. As you noted in the slides, I mean it sounds like the AMPLIFY regimen has moderate uptake. But fixed duration treatment will clearly be part of the CLL treatment landscape longer term, including your own combination. And so I was just wondering how you think about how that might impact the overall size of the CLL market, the BTK inhibitor market longer term? And then just a clarification on seasonality, Aaron. I know you made some comments around inventory in stocking at the end of the year. But then when I look at guidance, it seems like the top line the higher end, the top end of the range for revenue could be achieved with almost only flat Q-on-Q growth. And so was just wondering if there's anything else going on in 4Q that we should be aware of? John Oyler: So maybe I'll start with a quick answer around that. As I laid out earlier in this long-term PFS really matters. You have 6 years of follow-up for data matters. These are cancer patients and you don't want progression there's no area outside of CLL I've seen where people talk about, let's take a regimen where you give up years of milestone PFS. You just don't see that. Whether it's van-based fixturation treatments or other BTKs or [Porto], really all options beside chemo, they look pretty decent at 2 to 3 years. And there just isn't enough time to understand the durability and the outcome for patients. BRUKINSA consistently shows best long-term patient outcomes in CLL. It's why it's the standard of care, and it's why it's the global leader. The more follow-up we show as we're doing at ASH, the more differentiated it looks. The 6-year data in CLL in first-line and second-line and in all high-risk subgroups, the story is the same, the best long-term outcomes for patients. It's 6 years follow-up, 74% PFS rate for BRUKINSA in first-line CLL. When you COVID-adjust this at 77%, our OS is 84%, 88% COVID-adjusted. In ELEVATE TN, Acalus PFS is 62%, and their OS is 76% at the same time period. In second-line and deletion 17p, it's the same story. Unparalleled median PFS from Alpine and our SEQUOIA Deletion 17P data shows that BRUKINSA works very well in high-risk patients. It's just not the case with the other options. And we're still reporting our follow-up data because it tells the story. Where is the other data? Where is the long-term data from ELEVATE? Where is it from CAPTIVATE. Where is it from AMPLIFY. It's very noticeable, it's not being reported. And with respect to [Porto] it's 18 months of follow-up in second-line CLL it's not even close to being long enough. And as we've mentioned, 2 to 3 years, you just can't differentiate yet. And I think from that perspective, we're extremely confident in both the short term. And when we talk about long term, the really exciting thing is this desire to have fixed duration treatments. It's a great thing if you can get there. And so far, it does look like SC is going to be unlike anything we've seen yet. It's too early to be sure. There's not enough long-term follow-up data for that either, but the early data looks noticeably different than anything we've seen before. So we're really, really excited about that. Now maybe I'll jump to Aaron to answer some of the other parts of that question. Aaron Rosenberg: Yes, thanks. Obviously, there's tremendous opportunity across the franchise as we think about where we're participating today in a $12 billion in growing market, whether you look at it from either a BTK space or an overall CLL space. To your question on the guidance, we did reinforce the seasonality really to make sure we support dialing in your modeling in that regard, given the history. We feel really confident on our execution over the course of the year. As you referenced, we've taken up the bottom of our range from where we started we started the year at 4.9% to 5.3%, and now we're at 5.1% to 5.3%, showing increased confidence and really the great execution from our global teams. As you said, if you annualize the current quarter run rate and you think about the next quarter, we feel that the range that we provided is certainly within our expectations. The import of the seasonality common is really specific to the United States, and we want to make sure that, that perspective is really incorporate. Thank you. Operator: There are no further questions at this time. I will turn the call over to John Oyler for closing remarks. John Oyler: All right. Thank you all. I would like to point out that a few weeks ago, BeOne celebrated our 15th anniversary as a company. It's very hard to believe that in this relatively short period of time we've been able to become one of the leading oncology companies in the world. I'd really like to think that this is because, as you heard today, were driven by scientific excellence, exceptional speed, and a relentless drive to provide the best long-term outcomes for patients. And on behalf of everyone here at BeOne, I'd really like to thank the broader oncology community including the patients, their families, the clinicians, our employees and all of you who have been with us for the journey. We truly believe that together, we are how the world stops cancer, and we're just getting started. So thank you again for your time today and your thoughtful questions. Have a great day.
Operator: Good day, and thank you for standing by. Welcome to the HighPeak Energy Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steven Tholen, Chief Financial Officer. Please go ahead. Steven Tholen: Good morning, everyone, and welcome to HighPeak Energy's Third Quarter 2025 Earnings Call. Representing HighPeak today are President and CEO, Michael Hollis; Executive Vice President, Ryan Hightower; Executive Vice President, Daniel Silver; Senior Vice President, Chris Munday; and I am Steven Tholen, the Chief Financial Officer. During today's call, we may refer to our November investor presentation and our third quarter earnings release, which can be found on HighPeak's website. Today's call participants may make certain forward-looking statements relating to the company's financial condition, results of operations, expectations, plans, goals, assumptions and future performance. So please refer to the cautionary information regarding forward-looking statements and related risks in the company's SEC filings, including the fact that actual results may differ materially from our expectations due to a variety of reasons, many of which are beyond our control. We will also refer to certain non-GAAP financial measures on today's call, so please see the reconciliations in the earnings release and in our November investor presentation. I will now turn the call over to our President and CEO, Mike Hollis. Michael Hollis: Thank you, Steve. Good morning, everyone, and thank you for joining us today for HighPeak's third quarter conference call. I'm going to start today's call with a brief overview of our third quarter results and a quick update of our current development activity, after which and more importantly, I want to use this opportunity to give you a glimpse into our company road map looking forward. With that said, before we start talking about HighPeak's future, I'm proud to report that we delivered a solid third quarter results, which tracked our internal expectations. Production levels were consistent with the second quarter despite our reduced level of development activity. We only ran 1 rig through the entirety of the third quarter, drilled 6 wells and turned in line only 9 wells. That's roughly 2/3 of our tills that we had in Q1 and Q2. Our CapEx was down 30% from Q2 as a result of our deliberate reduction of development activity and was spot on with our internal estimates. We held our LOE per BOE consistent with our first half 2025 levels. And as we discussed on last quarter's call, we successfully amended and extended our term loan, pushed out debt maturities until 2028 and materially increased our liquidity. Now turning to current operations. Due to continued weakness in commodity prices and overall market volatility, we delayed picking our second rig back up until mid-October, a roughly 1.5-month delay from our original plan. Now we plan to run both rigs throughout the fourth quarter before making a determination as to what the appropriate level of activity should be for 2026, which will be heavily dependent on oil prices, D&C cost and overall market conditions. And we recently finished our second successful simul-frac completion on a 6-well pad with 15,000-foot average lateral lengths. This operation went smoothly with HighPeak recognizing cost savings per well of over $400,000 compared with our traditional zipper frac technique, and we were even able to increase some efficiencies compared to our first simul-frac job, more lateral footage completed per day. We utilize continuous pumping operations and averaged over 4,700 feet of completed lateral footage per day. The operations team keeps delivering. We are very encouraged by the results that we've achieved to date utilizing the simul-frac ops, and we plan to tailor our 2026 development program to incorporate this completion technique more. Suffice it to say, HighPeak's operations and well performance are a well-oiled machine. That said, we will always find new innovative optimization opportunities. As we have always done, our operations department will maintain a laser focus on low-cost operations. Now let's turn our focus to the future. I know you've all have heard from me and the other HighPeak senior team members on these calls in the past, but this is the first time I've had a chance to speak with you as the CEO, and I will very clearly lay out our vision for HighPeak moving forward. With our new Chairman of the Board and the entire team pulling in the same direction, we are moving forward with purpose and a sense of urgency. We're getting back to the basics, running a tight, disciplined operation built on focus, efficiency and sound business sense. Our assets are strong, our people are capable and our commitment to managing cash flow and capital is steadfast. Now I won't sugarcoat it. Our debt is high, and the market has told us exactly what it thinks about that. For a while, we drifted without a clear long-term plan, and it showed. That changes now. We're rolling up our sleeves to strengthen the balance sheet and rebuild the trust the only way that works through steady, consistent results. We know talk doesn't cut it in this business, results do, and we will deliver. Now the first step in figuring out where you're heading is being very honest about where you stand and how you got there. Now we've done a lot of things right, and I want to tip my hat to the team for the hard work and follow through, but we also have some issues we need to face head on, no sense pretending otherwise. At the end of the day, the management, the Board and every one of us at HighPeak own the results we have delivered to date, the good, the bad and everything in between. It's ours to fix and to build upon. So let's reflect on what we have done well over the past 5 years and also what needs improvement. You can refer to Page 6 of our investor presentation. So what have we done right over the past 5 years? Well, we've assembled a high-quality asset base in one of the most desired basins in the world composed of 2 highly contiguous acreage positions with oil-rich inventory, allowing for cost-effective extended lateral development and strong IRRs. We've done a great job operationally, maximizing efficiencies and developing a lean cost structure to drive enhanced economics. I would put our operational efficiency against any public company in the E&P space. We've also delineated a long runway of highly economic multi-bench oily inventory that is primed for full-scale capital-efficient development. These are all great attributes, and I want to commend the HighPeak employees, management and even our investors for believing in the team in this area. But now let's look at some areas where we have misstepped and now need to improve. We are a controlled company, which has led to poor governance quality scores and high risk potential from the likes of ISS, Glass Lewis and some notable rating agencies. At times, we had a growth at all cost mentality even in the face of commodity price weakness. This ends now. This last view of cash management led us to overusing leverage and resulted in high cost of capital. Finally, what we've heard loud and clear from our investors is that our short-term focus on the business has eroded market confidence. We own these weaknesses, plain and simple, and we have a plan to set them right. So what does that look like? Well, some of these fixes we can tackle right now, and we've already started. Others are going to take a little time and patience. This isn't something that happens overnight. We see it like climbing a set of stairs, one solid step leads to the next. The first one is already behind us. We have reset our governance and put the right structure in place. That gives us the footing to run this company the correct way with discipline, accountability and good old-fashioned business sense. We're not trying to reinvent the wheel here. Our focus is simple: Generate steady, sustainable cash flow; pay down our debt the smart way and keep our financial house in order. Lucky for us, we've got a solid asset base that gives us the horsepower to get it done. And as we follow through step by step, I believe we will earn back the market's confidence the right way by doing exactly what we said we would do and sticking to our long-term plan. Now let's talk a little bit more about each of these areas needing improvement. If you take a step back and look at any public company, there are 3 levels of control. First, you have the Board of Directors providing direction and oversight. Second, you have management team directing the day-to-day operations. And finally, you have the shareholders who bring accountability and real-time feedback to the organization. Previously, all 3 of these control groups were effectively consolidated or led by a single individual. Again, this has led to poor governance scores by proxy advisory firms and credit agencies. However, over the last few months, we have made key changes in each of these areas. First, as most of you know, we've had a change at the top. Effective immediately, I have accepted the role of permanent President and CEO of HighPeak Energy. And I've got to say I'm proud of how this team has stepped up. Several folks in senior management have really grabbed the reins and leaned into the vision. It's been all hands on deck, and I couldn't ask for a stronger group to work alongside. We have made several changes to the senior management levels, and I want to congratulate several of these employees on their new roles and titles. Second, we are pleased to welcome our new independent Chairman, Jason Edgeworth. It's been a genuine pleasure working alongside him. Jason brings strong leadership, clear perspective and a shared passion for the company's long-term success. I am confident with full alignment between the Board, management and shareholders; we will drive HighPeak forward with focus and alignment to shareholder value. Third, unlike in recent past, we now have a fully independent Board committees in place consistent with best practices for noncontrolled companies. These include the Compensation Committee, the Nominating and Governance Committee and of course, the Audit Committee. This structure strengthens oversight and reinforces our commitment to transparency, accountability and integrity in everything we do. I want to emphasize again that both management and the board are completely aligned in our priorities. We share one clear goal, driving long-term success and sustainable value creation for HighPeak and its shareholders. Now regarding the shareholders, there are some major changes planned. As you may know, HighPeak, the public company, is majority owned by 2 private equity partnerships, HighPeak Energy Partners I and HighPeak Energy Partners II. These 2 partnerships own and control over 75 million of our 125 million outstanding common shares. As was recently disclosed, these partnerships plan to begin methodically distributing shares over the next 2 years, with HighPeak II being distributed first in 2026 and HighPeak I in 2027. It is important to note, most of the limited partners have a long-term investment mindset. While we anticipate most of these shares will continue to be held by the limited partners, it will potentially provide an opportunity for some larger institutions and investors to be able to invest in HighPeak stock, which should assist our low float issue. With all these changes, we plan to effectively split the 3 forms of control; management, the Board and the shareholder base into independent but fully aligned groups. Now continuing on the topic of accountability. Management will operate under clearly defined measurable goals, and our compensation will be directly tied to our performance against those objectives. We are in the process of finalizing our 2026 road map, which will outline these performance metrics and align our incentives with long-term value creation. You can expect this framework to be in place and active in early 2026. Now let's talk a little more about sound business principles. As you know, commodity prices have a very direct effect on profitability. So despite improvements in operational efficiencies and cost structure, commodity prices are the single biggest factor in changes to our cash flow. So how are we going to navigate this volatile commodity market? In our slide deck, on Page 9, we have laid out a very simple yet common sense approach. And I want to point out that the oil price laid out on the slide are long-term pricing. Again, we are taking a long-term approach to capital discipline. All that to say, we will not have a knee-jerk reaction to very short-term swings in pricing. We will take a methodical and disciplined approach. Let's start with the bear case scenario, which we are currently close to right now. In the event long-term oil prices are below $60 a barrel, our focus will be exclusively on operating within cash flow. This means on the CapEx front that we will be operating less than a 2-rig development program. This level of activity would lead to a moderate decline in overall production volumes, but this goes without saying there's absolutely no need to focus on growing production in an oversupplied or weak market. Again, we have a long-term view on value creation, and there is no reason to overdevelop or accelerate in drilling our high-value inventory in a low commodity price environment. Now as far as liquidity is concerned, in the face of sustained low oil price environment, anything is on the table. We will preserve liquidity. Now moving to the base case scenario of long-term oil prices in the $60 to $70 a barrel range. Our focus will be on free cash flow generation and prudently paying down our debt. On the CapEx front, this would most likely equate to a 2-rig development program resulting in maintaining current production volumes. Now on the liquidity front, we would maintain our current dividend and use the additional free cash flow for a modest debt paydown strategy. In a bull case scenario of $70-plus oil, our focus will still be on increased free cash flow generation and accelerated debt paydown. On the CapEx program, we would likely be 2 rigs or just slightly more, leading to moderate production growth. And on the liquidity front, it would allow us to accelerate debt paydown. But let me be clear, we would have to be in this bull case scenario for quite some time and reach a reasonable leverage ratio before we would ever consider additional shareholder value initiatives. We will get our financial house in order first. As I said earlier, these are basic business principles, but I wanted to lay them out in a very clear and concise manner. This will be the framework for our high-level road map for 2026 and beyond. Now we have listened to our constituents, shareholders, creditors, rating agencies and peers in the industry. And we have compiled some of these comments that we've heard and hear often, and we've laid them out on Slide 10 of our company presentation. Now we're fully aware of the challenges in front of us from geographical positioning of our assets, to cost of capital, to questions surrounding the company's potential strategic options. Now the key question is how to begin to rebuild and sustain market confidence. We're not ignoring the realities of our situation. Instead, we're facing them head on. And I want to take a moment to address several of the most common concerns we often hear. I want to do that openly and directly. Number one, Eastern Midland Basin is unproven. HighPeak has drilled over 350 horizontal wells and have produced over 90 million BOEs from those wells, and third-party organizations are now recognizing well performance, cost differences, i.e., profitability and inventory quality and scale. HighPeak's and offset operators' track records over the last several years have dispelled this comment. Number two, you guys have a growth at all cost mentality. As I previously said, there were many times in our history that may have been the focus. But I think HighPeak has been consistent over the last couple of years in trying to maintain our current level of production and show the market that we are going to operate within cash flow. Number three, HighPeak is overlevered. That is a true statement. We are overlevered for the size of company we are today, and this is one of our primary focuses moving forward. We are working to address this issue in a thoughtful and methodical way. Hopefully, you've gotten that sense through this call that operating within cash flow and paying down debt are absolutely top of our list and major areas of focus. Number four, you're starting to have GOR issues as your percentage gas production is increasing. We have seen increases in gas and NGL production. However, this is primarily due to historical takeaway issues that have been solved. As our gas midstream partners increase their takeaway capacity, and we have connected all of our central tank batteries to our gathering system and our gatherers have lowered field-wide pressures, has allowed more oil and gas -- or more gas and liquids to flow to sales. I would also like to remind everybody that our percent oil production will fluctuate from quarter-to-quarter at times due to where our completion operations are taking place and the timing associated with turning online new pads. But at any reasonable cadence, our oil percentage should trend closer to 70%. Number five, HighPeak has no float in their stock. Now I hear this one a lot. Typically, I own it in my personal account, but I can't own it in my fund. Now this has been a serious issue that we have faced for some time now, and we have done some things in the past that may have exacerbated the problem. However, we are working to fix this issue as it is extremely important moving forward. I've already discussed the methodical distribution plan for the 2 HighPeak partnerships. We are going to be measured and deliberate in how we solve this problem. It cannot be fixed overnight. Number six, HighPeak has been for sale for years. HighPeak is a publicly traded company. And as such, we are always open to evaluating value-enhancing opportunities. That said, again, I want to be very clear, the Board and management are fully aligned and unwavering in our commitment to long-term strategy of operating within cash flow, exercising disciplined decision-making and maintaining measured controlled execution. Our focus remains on building sustainable value for our shareholders over the long term. Final one, HighPeak is a controlled company, and there is no oversight. As I've highlighted earlier in the call today, we're very encouraged by the progress we've made over the last few months. We have established fully independent Board committees, appointed an independent chairman and put in place a clear plan starting in 2026 to transition away from being a controlled company. These steps strengthen oversight, enhance accountability and position HighPeak for long-term sustainable value creation. Now in conclusion, our company is in the midst of a meaningful transformation, one centered on stronger governance and accountability and a long-term focus on creating value for our shareholders. We're allocating capital with discipline, managing costs with precision and maintaining relentless focus on efficiency. Our asset base gives us the flexibility to operate within cash flow, generate sustainable free cash, reduce debt and continue building value the right way. We are not in the business of chasing production for short-term gains. We are here to build a durable, well-run enterprise, one that applies sound business principles and puts every dollar to work where it drives the greatest return. Through disciplined execution, clear direction and a unified team; we're positioning this company to perform in any environment. We are proud of what we have built, confident in where we are headed and focused on delivering lasting value for our shareholders, employees and partners. Thank you. And with my comments now complete, we'll open the call up for questions. Operator: [Operator Instructions] Our first question comes from the line of Jeff Robertson with Water Tower Research. Jeffrey Robertson: Mike, can you talk in the context of your leverage plan, how you think that unfolds over 2026 under, say, your $65 scenario and how much flexibility that might give you or give the company to address the term loan? Michael Hollis: Absolutely, Jeff. No, great question. Obviously, the free cash flow generation is going to be dictated mostly by the oil price that we garner from the market. HighPeak is doing all the things we can control from cost management to capital deployment. But again, as you've pointed out, in that kind of base case scenario, we can generate significant free cash flow. Our term loan debt that we have today, we can pay down debt at par with no penalty. So as we generate free cash flow in that scenario, look for us to do that again, which will reduce absolute debt as well as reduce our leverage ratio. Now if you look further into the future, again, could be a year, could be more as we continue to delever the company and as we continue to progress and our production base ages, what you'll see is our corporate decline rate will come down, call it, 1.5% to 2% a year. Today, we sit kind of mid- to high 30% decline rate. That changes your credit profile and again, opens you up to potentially more normal way financing into the future. But again, Jeff, today and into the very near future, our goal is capital management and paying down debt. Jeffrey Robertson: How do hedges fit into those goals, Mike? I know you've got, I think, an average swap price on some of your production for '26 at about $63 a barrel. Michael Hollis: Yes. And could you repeat that? Our speaker was cutting out a little bit there, Jeff, I'm sorry. Jeffrey Robertson: Sure. Just basically, how do you think about hedging in the context of managing cash flows in a $60, $65 per barrel price environment to work towards your leverage goals? I know you have some, I think, minimum requirements, but I'm just curious how you think about that as you go forward. Michael Hollis: You bet. No, great question, Jeff. We want to be very -- what you will see from HighPeak is a much more systematic and methodical hedging program. Obviously, we do have some minimum requirements and we will continue to have to hedge a little bit into the future each quarter, but those are small pieces. Now we'll always be opportunistic if that opportunity were to come along. You'll notice that we layered on some gas hedges a couple of quarters back that were fantastic prices in the $4.43 range. We've also hedged some basis differentials. But I think what you'll see in the -- as prices continue to stay in this lower range, it will be very methodical and small slices that we will layer on. Again, you tend to see less when prices are low. And then when prices move up a little bit, I think you're going to see us layer on a little bit more. We want to protect our capital budget. We want to protect the dividend as it sits today, again, in this kind of base case $60 to $70 range. But I think looking forward to think somewhere in the 55% to 65% hedged at these kind of prices are probably what you would see HighPeak move towards. Obviously, if we had a spike in commodity prices, you may see us push that above that hedge percentage going forward. Operator: Our next question comes from the line of Noah Hungness with Bank of America. Our next question comes from the line of Nicholas Pope with ROTH Capital. Nicholas Pope: Curious, as you kind of look at this plan and you look at the flex that you have with different -- at different oil kind of environments, you brought that second rig back. Curious if there's changes in how you're thinking about where kind of within the acreage footprint you're going to be drilling or what you're going to be drilling? And if the focus changes in those different scenarios, maybe between Flat Top, Single Peak or even in the different formations, like how much flexibility is there? And how much does the pricing affect what and where you're drilling these different scenarios? Michael Hollis: No. Great question, Nick. The good thing is we're drilling Wolfcamp A, Lower Spraberry codeveloped. I think 5% to 10% that we will drill in the Middle Spraberry zone, whether we run 1.5 rigs or 2 rigs, that split will not change in what we drill. Now where we drill, if you look at the split of the capital deployment that we've had in the recent kind of year or so, it's about 70% up at Flat Top and 25%, 30% in Signal Peak. That also fits with what our inventory in each one of those zones are between Flat Top and Signal Peak. Returns are very similar between the 2 areas in all these zones. So again, we approach it as a co-development program and the split between Flat Top and Signal Peak is more based on the split of inventory, which is about 70-30. Nicholas Pope: Got it. That makes sense. As you kind of look at the base, I mean, the lease operating expenses have been, I mean, almost flat the last 6 quarters. I'm curious if there's opportunities for going back into wells, seeing an uptick in workovers, field maintenance type work as you're maybe shifting a little bit away from a more active drilling program, the field optimization kind of you talked about 350 wells that have been drilled in this Eastern extension of the Midland. Curious how that might change with kind of maybe a slower development program. Michael Hollis: No. Great question, and we're ahead of you on that. So if you look at the last kind of 2 quarters, you'll see some expense workover spend that was a little higher than what it had been kind of Q1 of this year or Q4 of the previous year. So where we were normally running kind of $0.80 per BOE, somewhere in that range, we've been $1 or a little bit more in the last 2 quarters. So as we pulled back on that capital program, now there are some capital workovers that we have done as well, but think very, very high rate of return work. So we've gone into some of our wells and done some expense workovers and have seen some really good results from that. So again, while we've pulled back activity on the drilling complete side, we have gone back and optimized our production base. And we'll continue at a little bit lower pace going forward because we hit all of the large items that we had on our list in the last quarter or so. But there will be additional work every quarter that we will continue to focus on to keep that efficiency high. Nicholas Pope: And those expense workovers that you kind of highlighted, I know you break out somewhat, is that production optimization? Or is that kind of remediation type work? Is the -- what's the kind of mix of... Michael Hollis: So the answer there, Nick, will be yes and yes. So usually, what you have is you'll have a well that may be struggling with a pump that's 2 years old. And again, the fact that we are able to get run lives of 2-plus years out of these pumps is almost unheard of in the Permian Basin. But for instance, when that will happen, we -- obviously, you would have an expense cost to go replace that or change the artificial lift. We'll take the opportunity at that point to go in, do a little bit of cleanout on the well, maybe a little bit of what I call small pump job, nothing like a frac job, a little asset and things like that to be able to optimize that production. And then we typically lower where we pump the well from. So we will move down in the hole so that we can pull down the pressure we're pumping these wells at to a lower point, i.e., giving more drive from the reservoir into our well, and we're seeing great results from that. Some of these wells we're actually pumping deep into the curve, lowering our point that we're drawing that fluid from by as much as 250 to 300 feet. And with the reservoir we have with a little bit higher permeability, we're seeing great results from that. So you don't see it day 1. It takes time, but you're going to start seeing better and better recoveries from these wells. Operator: [Operator Instructions] Our next question comes from the line of Jeff Robertson with Water Tower Research. Jeffrey Robertson: Just a follow-up, you said you're going to keep the second rig at least through the end of December. Can you just talk about how the carryover inventory will impact production at least in the first half or maybe first 3 quarters of 2026? Michael Hollis: Yes, sir, absolutely. So we picked up the second rig October 15. Just kind of a rule of thumb for where we're at in the basin, we typically drill 2 wells a month per rig. So that will get us an additional 5 to 6 wells that we've drilled a little more than 2 per month now. So call it, 5 to 6 wells that we will have drilled in the fourth quarter in addition to the 1 rig program that will carry into 2026. Again, we're not talking about 2026 activity per se. Obviously, we laid out in the prepared remarks, a kind of high-level overview bear, base and bull case that will flow through our decisions on how we guide for 2026. Again, it's a little early. We'd like to see where oil prices kind of level out over the next month or so. But to your point, bringing over those 5 wells because, again, anything you drill in the fourth quarter typically doesn't come online until the first quarter or early second quarter. So as we look into 2026, we will have somewhere in the range of 16 to 18 DUCs are wells in some form of completion that roll into 2026, again, supporting that kind of Q1 and Q2 production forecast. Operator: Our next question comes from the line of Noah Hungness with Bank of America. Noah Hungness: For my first question here, you guys yesterday filed an S-3. Could you maybe just talk about what the reasoning behind that was and if you had any plans with that moving forward? Ryan Hightower: Yes. Noah, this is Ryan. Great question. The sole reason for filing the S-3, our previous shelf registration statement that we had on file went stale and expired. So all we were doing was refreshing it. We have absolutely no intention of issuing any new shares anytime soon. Noah Hungness: Great. And then given that we're kind of on the border here of your base and bear case. How long do you need to see prices kind of either sub-60 to drop activity or between that $60 to $70 to move into that base case? Is it a month? Is it a few weeks? Just how are you thinking about that? Michael Hollis: So a couple of ways we're thinking about it, Noah. And obviously, there's -- it's a multivariate problem. Obviously, you can have a couple of days. You can even have a month. When you look at this year, we've probably averaged, I don't know, $63, $64 for the whole year. That would put you pretty squarely in between the bear and base case. Again, these aren't hard lines. There's going to be some squish between them. But if I look into 2026, even if you were in the bear case, something less than 2 rigs, again, remember, you pick up, it's kind of like -- they call it a dip switch, on or off, right? So you pick a rig up, it's on, lay it down, it's off. So in order to get something that's less than 2 kind of infers something more than 1, so call it 1.5. The way you would do that is drill with 2 rigs for a portion of the year and then lay it down. Now kind of when I answered the question for Jeff on timing, when you drill these wells and when you bring them on are important for production throughout the quarters of the year. So in reality, I would foresee if we drill -- and with Board approval, obviously, if we chose to do more than 1 rig and we're in kind of the 1.5 to 1.7 rigs for next year based on whatever the oil prices look like toward the end of the year, we would most likely have that second rig going for the first portion of the year. So you may see us keep the second rig for some months into 2026. And then it would be determined by kind of oil price and long-term outlook as well as just the whole macro environment that we're in. It's very volatile right now. So I want to make sure that we keep that kind of long-term prudent look of what's going on in the market. Noah Hungness: Got you. And just one more question. Could you maybe add some details around the distribution plan for '26 just regarding HighPeak Energy Partners II. Is this going to be just a single drop down to the LPs in one go? And then just a rough idea on timing within the year, if you could give that. Ryan Hightower: Yes. Noah, this is Ryan again. Really good question. At this point, I don't think we're prepared to lay out the exact plan, but the plan, like Mike said during his prepared remarks, is to be very methodical, which most likely translates to us slowly metering them out to the different LPs throughout the calendar year. Again, most of the limited partners have a very long-term investment mindset here. So it's nothing that causes us any concern from any kind of share overhang. We don't expect anybody to rush to sell by any means, especially at current share prices. But we will be very strategic and methodical about it. And it will most likely start early in the year, but will last throughout the calendar year. Operator: And I'm currently showing no further questions at this time. This does conclude today's call. Thank you all for your participation, and you may now disconnect.
Kevin Miller: Good morning, and thank you for joining us. This is Kevin Miller, Chief Financial Officer of RCM Technologies. I am joined today by Brad Vizi, RCM's Executive Chairman. Our presentation in this call will contain forward-looking statements. The information contained in the forward-looking statements is based on our beliefs, estimates, assumptions and information currently available to us, and these matters may materially change in the future. Many of these beliefs, estimates and assumptions are subject to rapid changes. For more information on our forward-looking statements and the risks, uncertainties and other factors to which they are subject, please see the periodic reports on Forms 10-K, 10-Q and 8-K that we file with the SEC as well as our press releases that we issue from time to time. I will now turn the call over to Brad Vizi, Executive Chairman, to provide an overview of RCM's operating performance during the quarter. Bradley Vizi: Thanks, Kevin. Good morning, everyone. As we exit our seasonal third quarter, we are entering Q4 from a position of strength, demonstrating record 2026 engineering backlog as of the end of October and continued momentum in health care. Penetration of existing clients continues to increase, while commercial discussions start to crystallize with future flagship clients. I attribute increased traction to growing brand awareness in our end markets, fortified by our employees' commitment to quality and reliable delivery. Also of note, as our visibility increases, so is the strength of our talent pool. We have seen a noticeable change in the number of highly qualified candidates reaching out to RCM, providing further fuel for the flywheel. We will continue to invest behind the business, while many of our peers remain on their heels. Despite excess medical costs to the tune of approximately $1.8 million year-to-date, with Q3 hit particularly hard, our financial results remain resilient. Kevin will provide more granularity into our financial performance later in the call, giving further visibility into our fundamental strength led by healthcare and engineering. I will now provide an update on the progress of each of our business units, starting with Healthcare. We entered the 2025, 2026 school year with momentum, seeing strong growth across our portfolio, driven by our commitment to quality, innovation and client satisfaction. Our roster of new school partners is expanding, and we are equally encouraged by the commitments from our existing clients to broaden our role in staffing their schools. Though competition in certain markets has increased, it simply has not mattered. Our share in these same markets increased regardless, a testament to the commitment of our team and the trust we have built as a preferred provider in the K-12 end market. To put it differently, doubling down on caring is good for business. Despite tracking to close 2025 with our strongest financial performance outside of COVID, we already have an eye toward 2026 as we anticipate seeing the benefits of a record foreign recruitment pipeline that we have invested heavily in the last several years. The future of RCM Healthcare remains bright. Now I will transition to Life Sciences Data and Solutions. In Life Sciences, the industry is seeing a significant shift as it deals with a variety of changes due to tariffs, favored nation drug pricing and process automation. Each have caused momentum shifts with many of our clients from the negative of workforce reductions to the positive of capital investment in manufacturing. Structural industry shifts often present opportunity for RCM. We are capitalizing by partnering with an AI-driven computer software validation and equipment qualification company that has allowed us to streamline compliance protocols and reduce turnaround times across manufacturing sites. The creation of a dedicated life sciences engineering group will further differentiate RCM in the market. As it pertains to data and solutions, meaningful progress has been made in AI and analytics, particularly as applied to Life Sciences. These efforts continue to unlock actionable insights from predictive forecasting to real-time monitoring. The updates reflect how technology is being leveraged not just to optimize operation, but to fuel innovation at the core of the business. As we move into Q4, we feel that our efforts are positioning us for growth. Life Sciences will benefit from ongoing digital transformation, further integration of AI-driven compliance and scaling of the new engineering group. These efforts are expected to drive efficiency and enhance our value proposition to pharma partners. Data and Solutions will continue to expand our managed service offering. We are building the use of AI analytics into our process with a focus on generating deeper insights and supporting innovation across the enterprise. The emphasis will be on predictive capabilities and real-time data to support operational excellence and strategic decision-making. HCM will see growth beyond our foundational managed service efforts in building our direct and BPO business as our pipeline continues to mature. Transitioning to engineering, starting with Energy Services. Energy Services delivered another strong quarter in Q3 in addition to securing record backlog for 2026, reinforcing RCM's leadership in modern grid infrastructure and advanced energy solutions. Our integrated engineering and EPC model continues to gain momentum as utilities and data center developers seek partners with the technical depth, safety, culture and scalability to execute complex multidisciplinary projects and tangible client outcomes. We advanced major programs in substation modernization and energy resilient infrastructure with significant contributions from our civil, structural, mechanical and protection and control teams. We have made great strides growing within our core utility client base, each project reinforcing our reputation for technical precision and execution reliability, solidifying our position as engineer of choice and Tier 1 preferred partner. The business continues to outpace expectations, reflecting the strength of our integrated strategy and increasing market demand. Our engineering teams are designing and executing major programs across North America and internationally, while deepening strategic partnerships with OEMs to strengthen procurement agility and mitigate equipment lead time constraints. In a market challenged by labor availability and resource bottlenecks, RCM leverages our hybrid resourcing model, combining domestic expertise with global engineering design excellence centers. Best-in-class digitalization and 3D BIM to ensure continuity, scalability and cost-effective execution. This flexible approach enables the company to mobilize skilled manpower quickly for time-sensitive and mission-critical infrastructure projects. RCM's combination of specialized expertise, digital innovation and operational discipline is positioning the business for sustained growth. Our teams are designing and delivering infrastructure that enhances grid reliability, integrates renewables and build resilience into the critical systems powering our communities. Our guiding philosophy remains constant, engineering excellence that sets the standard in energy infrastructure. Aerospace and Defense continues to gain momentum in existing program support and increased demand across new clients, primarily in engineering, manufacturing and supply chain areas. When compared to Q3 2024 year-to-date, revenue has grown almost 45%, gross profit by approximately 49% and EBITDA by 110%. Though the third quarter is historically slower when compared to other quarters due to increased PTO and headcount continued to increase through Q3 2025. As projected, we have realized an increase in gross margin and EBITDA in Q3 2025 and subsequently quarter-over-quarter throughout the entire year. Our vertical lift and technology innovator customers doing business with the U.S. government continue to spearhead our progress thus far in 2025 with multiple opportunities on the horizon in 2026 and beyond. As anticipated, success in our new service areas and expertise in supply chain manufacturing and quality engineering with current and new clients has impacted 2025 with a positive outlook for 2026. The awards in our aftermarket arena with 2 existing customers at the start of 2025 continue to contribute to our success in delivering to our aftermarket clients. RCM Aerospace and Defense attributes our latest award as Bell Flight's Best New Supplier in 2025 to our sales and recruitment team, which continues to build trusted valued relationships throughout the client and candidate base. Our investment in new schools and technologies continues to keep our team at the forefront as the go-to stated publicly by many of our clients when they are having challenges with quality resources. Credit to our operations team for helping build a client we added to the portfolio in 2024 into one of our largest clients in 2025. This is just one example of our ability to land and expand quickly, leveraging our core capabilities within RCM. We anticipate growth to continue as we close 2025 and more opportunities are realized with the aerospace and defense environment buying for American companies who can hold clearances up to the secret and top secret level. Where we sit today, we believe many of the aerospace and defense programs are in their infancy, and we look forward to setting a new baseline in 2026. Now I will return the call to Kevin to discuss the Q3 2025 financial results in more detail. Kevin Miller: Thanks, Brad. Regarding our consolidated results, consolidated gross profit for the third quarter of 2025 was $19.4 million, which grew 8.8% over Q3 2024. Adjusted EBITDA for Q3 '25 was $5.5 million as compared to $5.6 million for Q3 '24 for a slight decline of 1.4%. Adjusted EPS was $0.42 for both comparable quarters. As for our segment performance in the third quarter of 2025, in Healthcare, gross profit for Q3 '25 was $9.0 million compared to $8.3 million for Q3 2024, growing 8.5%. Gross margin for Q3 '25 was 30.0% as compared to 31.2% for Q3 2024. School revenue for Q3 '25 was $24.4 million compared to $20.2 million for Q3 '24, growing 20.7%. Non-school revenue for Q3 '25 was $5.6 million compared to $6.4 million for Q3 '24, declining 11.3%. Our Healthcare group experienced a slow start to Q3 due to lower summer session revenue than we normally see. However, our September gross profit for all of healthcare grew over 20% September versus September 2025 versus 2024. Furthermore, billable hours for the first 4 weeks of October 2025 increased by 18% as compared to the same period in 2024. So we're off to a nice start in Q4, and we're excited to see how those results come in. In engineering, gross profit for Q3 '25 was $6.9 million compared to $5.9 million for Q3 '24, growing 17.3% and our best engineering gross profit in quarter in our history. Gross margin for Q3 '25 was 22.0% compared to 24.4% for Q3 '24. We are very excited about where our Energy Services backlog stands. At this time, last year in 2024, our backlog for 2025 was $21 million. Our backlog today for 2026 is just over $70 million. While we are still growing our 2026 backlog, we are now very focused on 2027 and beyond. In our IT, Life Sciences and Data Solutions group, gross profit for Q3 2025 was $3.5 million compared to $3.7 million for Q3 '24, decreasing by 4.2%. Gross margin for Q3 '25 was 39.5% compared to 38.0% for Q3 2024. It is worth noting that our SG&A expense includes $800,000 of costs for medical claims over budget in the third quarter alone and $1.8 million year-to-date. Regarding our balance sheet, frankly, we were disappointed with cash flow from operations in Q3 '25. We again experienced administrative collection issues with 2 of our large school clients. We are optimistic we will see good cash flow in Q4 and expect the cash flow from operations for fiscal '25 will approximate net income. We reiterate that we expect Q4 to yield our highest quarterly gross profit and our highest adjusted EBITDA in fiscal 2025. We believe we have strong momentum heading into 2026. This concludes our prepared remarks. At this time, we will open the call for questions. Operator: [Operator Instructions] And first up, we do have Bill Sutherland of The Benchmark Company. William Sutherland: Curious about the candidates, the foreign candidates that are building in the healthcare group. What -- can you just kind of give us an order of magnitude and maybe timing on that on their impact? Kevin Miller: Well, we certainly can't predict the timing, Bill. It's all dependent on visa retrogression. There have -- according to some things that we've heard, we believe the dates are going to be moved sometime in the fourth quarter. Even if they move a couple of months, we probably have 50 to 60 nurses we can bring over if they move, let's say, 3 or 4 months. That may or may not happen, right? But we have at least 300 nurses in our pipeline that have passed all exams and are ready to come over if we can get them visas, right? And we have a lot more than that in our pipeline that are in the process of passing various exams to be able to come over. It's something that we make a pretty heavy investment in. We know a lot of our competitors have kind of scaled back in that area a little bit because of the difficulty with getting nurses into this country right now, but we believe that the pendulum will swing the other way at some point, and we'll be ready for it. William Sutherland: Okay. I guess there's no way to predict excess medical costs. Do you feel like this is kind of a level that we should just pencil in for 4Q? Kevin Miller: Yes, probably because I don't expect anything radically different in Q4. We have taken some measures long term to try to reduce those costs a little bit, but that's probably not going to impact us too much until 2026, hopefully. It's just been -- it's been a crazy year for medical costs. We had 3 or 4 great years in a row and then '24 and '25 was just terrible. William Sutherland: You can't predict it, I know, it's... Kevin Miller: It's hard to predict. And there's obviously a lot of headwinds with what's going on with a lot of inflationary pressures and hospitals and insurance companies driving up costs. Our insurance for -- all of our insurance is up a lot in '25 versus '24. But at least you know where that is heading into the year and you can budget for it, right? But in the medical claims, you really -- you budget for it, you make your best budget and then it can get wiped out pretty quickly, unfortunately. William Sutherland: So last one for me, Brad, when you were going through the engineering groups, on Industrial Process, I wasn't clear kind of how that's doing and kind of how that's booking for next year. Bradley Vizi: Yes. Part of Industrial Process continues to motor along pretty strong. We're hiring. Demand is robust. And the second unit, it's work in progress. Some changes are being made to strategy, personnel. And the good news is it's our smallest unit, right? There's potential upside there for sure. But whether it's a pretty good year or a very mediocre year, it's unlikely to move the needle. Either way, it has our attention. And I'd say out of all of our businesses, it's the one that it just needs to -- it needs to be on a different trajectory, right now, but it has -- it is stable. Kevin Miller: Yes, it's pretty small, as you know, Bill. But I will say this, I believe we have some pretty exciting projects in our pipeline that we're pretty bullish on, particularly along our next campaign. And we just got to close them. And we think that group will have a good 2026, but we don't have the backlog that we have at our 2 other engineering businesses. And I'm talking relative to the size, but it has good potential, and we're excited to realize some of this pipeline. So hopefully, on our next call, we'll have some good news for you around our P&I business. Operator: Next up, we have William Duberstein of Stone Oak Capital. William Duberstein: I wanted to touch on Energy Services. It seems like it's growing the fastest, probably the largest growth opportunity. Everything we're reading is just pointing to increased utility growth, power -- independent power producer growth. There's behind-the-meter deals happening with data centers. Just wondering if you could touch on how you see the market evolving for you guys, if you're sticking with traditional utility partners, if you're seeing any new entries into the business or if you're exploring new partnerships. And I think you talked about some of your digital capabilities, which -- if you could just elaborate on what you're seeing there, I guess, in general, that would be great. Bradley Vizi: Yes. Our strategy in that business has been to really kind of focus and go all in on our strengths or we can establish a point of differentiation and a reputation with really the Tier 1 clients. In other words, the largest utilities in the country. And so there are certainly a broad list of vendors out there, right? In terms of that Tier 1 list, it's relatively narrow. Those go-to players that kind of get to the final line pretty quickly and are in contention for being the preferred choice. And it's -- the investments we've made in the last several years, they're starting to pay off. We're dialing that in, in terms of being able to really roll out our success and to the market broadly. And we're very pleased with the direction that we're headed. Look, that being said, we want to continue to be thoughtful. There is no shortage of activity out there. We are very cognizant about getting caught up and sticking our nose where we shouldn't be and risk management. But we are at a point where we feel like the group is -- we're taking that to the next level. Inevitably, there are investments you make along the way. It's a different set of infrastructure as you go through that process, you dial in personnel, right? But I'd say it's a very positive story there going forward. With respect to data center activity, when you look at that the investment in the grid right now, right, kind of our stronghold is the utility market. So as far as direct data center activity, that's really kind of incremental to us. Just there is no shortage of opportunity with our core client base. So we continue to remain focused on that. And as you know, it's a very stable client base to serve, and we are protecting that and we're growing within it. And we're riding the wave in that regard. But also we see opportunities to get more involved on the data center front selectively. And I think probably the most obvious opportunity is the interconnect aspect of it because the reality is each of these major data centers you see, they require substations, right, to be built, and that's obviously directly in our wheelhouse. So the way I would describe it to you in general, Bill, is it continue to maintain the quality and build on our reputation. And it really gets to the point where you're following your client, you're following that demand, right? So in terms of adding like even just adding 1 or 2 incremental core clients a year, it can really move the needle from our vantage point because, again, you can take any major utility, have a look at it, right? I mean, historically, their CapEx spend might be -- have been $2 billion or $3 billion. Now it's at maybe $5 billion or $6 billion. And then some of them are $8 billion to $10 billion are moving up another level to, call it, $8 billion to $10 billion a year. And the lion's share of that is going towards hardening the grid. So it's an exciting time for sure. But at the same time, it's also a time you don't want to get too far over your skis. So we're being thoughtful about it, but suffice to say, we're pretty excited about where we're headed there. William Duberstein: That's great. And you mentioned you're attracting sort of a new level of talent or you're liking what you're seeing in terms of pulling talent or talent coming to you, I guess, not pulling talent. Would that -- would these -- is that in this energy services area? And is it -- are these people in your points of differentiation? Or are they more of an opportunity to expand, I would say, maybe horizontally or with complementary services, if that makes sense? Bradley Vizi: Yes, that's a good question. Like, look, I mean, one of the nice things about services is to the extent that you meet -- it could even be one person, but you come across a set of very talented folks that you can bolt on, right, to your platform, the opportunity to grow within adjacencies is it's pretty clear. So the answer to your question is it's really both. And I attribute that to is we made a very conscious effort to get behind just investing in our brand in general. I mean, starting at the most fundamental level, it would be the website, our digital presence, LinkedIn, et cetera. I mean, it's a night and day difference if you look, call it, 18, 24 months ago. And one of the nice things about the times we live in right now is the ability to reach like folks in a relatively targeted manner, it's very cost effective. If you have somebody that's very talented about the techniques associated with that, I mean, the costs are relatively de minimis. So it's really, again, some of the investments we've made over the last several years with respect to that technical foundation, really building a substantial reputation in the market, not just as an emerging player. I think it's very fair to say at this point, we're firmly in that Tier 1 bucket and just making sure you're front and center with respect to that target candidate pool and that digital presence in particular. William Duberstein: Great. That's all good stuff. And then just a couple of small housekeeping items. I guess you mentioned the summer was a little slow for healthcare. You always see the seasonality down with school. So with the slow start, which has since recovered, would that be in -- was that in the non-healthcare portion of the business? Or was it schools sort of taking their time ramping up to seeing what they need for the new year? Kevin Miller: Bill, it has more to do with -- so when schools go into the summer session, right, they have kids in the schools, right, obviously, at a much, much lower rate than the primary school year. So our business doesn't go to 0 in July, which all of our schools are closed. And then some start to open up in early to mid-August and some closed in early May all the way through late June, right? So you see softness in June, July and August relative to the other 9 months. But the schools still use our services. But it just depends on how many of our kids are doing summer session. And it's pretty hard to predict. We see a lot of randomness in it from year-to-year. And for the level that we're at today in terms of the number of people and the number of contracts and all that, we expected to see more revenue coming from our school clients in July and August than we actually got. And I don't attribute that to anything but sort of randomness, right? Because once the school year started to kick in, in mid-August and really kick in, in September, we saw great results. So the results for Q3 for healthcare a little -- overall are a little bit lower than what we expected to see because we did expect to see some nice growth in September, which we got. We just expected revenue to be a little bit higher in July and August than it actually was. Does that make sense? William Duberstein: Yes. Got it. So there are basically fewer students than you thought in your client schools over the summer. Kevin Miller: Fewer of our students and our schools just needed less people than we thought. It's a combination of fewer of our students that we had the previous year and maybe fewer people taking off of the summer at the schools, but it just wasn't as great as we thought it would be. William Duberstein: Got it. That makes sense. And then final thing, just back to the healthcare costs. Are you guys self-insuring now? And just given the last 2 years, would you think of maybe changing strategies just given the size of the company? I think you're looking to maybe change something with the strategy there. So I just wasn't sure. Kevin Miller: Yes, we're always looking to tweak our medical plans to bring those overall costs down, not only because we want lower cost for the company, but we -- more importantly, we want lower cost for our employees. And we can attract more people when we have lower cost options available. But to answer your question, yes, we are self-insured. And I think you were asking me if we would consider going fully insured and the answer to that question is no. Because as bad as our medical costs were the last 2 years, they would be even higher if we went fully insured. Because when you go fully insured is -- there aren't many companies -- we're not a big company, obviously, Bill, but we're plenty big enough to -- where the decision is pretty easy, self-insured versus insured. And as you can probably imagine, when you go self-insured, insurance companies, they're building all that risk into that premium and all that profit. So it just -- it doesn't make any sense to go self-insured at our size. If you have like maybe like 100 covered lives, then the fully insured model makes a lot of sense if you're a smaller company, right? But when you have like 800 or more, which is what we have, it's really a no-brainer to go with a self-insured plan. Operator: All right. Next up, we have Liam Burke of B. Riley Securities. Liam Burke: On engineering, the gross margins were well within your stated range, but down lower year-over-year. Is that just a larger contribution of engineering where you have lower gross margin, but you make it up on the SG&A line? Or is there anything else in there? Kevin Miller: Well, like we discussed on previous calls, you're going to see a fair amount of variation to our gross margin in our engineering group. And it has to do with revenue mix and it has to do with how much of our activity is conducted by our subs in a given quarter, right? So we don't make the same profit margin -- the same gross profit margin on our subs that we do on our salaried employees. And then our Aerospace is a little bit lower gross margin than, say, Energy Services or Industrial Processing. And then Industrial Processing has had some randomness to their revenue, which impacts the gross margin as well because we have a sort of a fixed direct cost base there. So there's just a bunch of factors that contribute to the randomness, which is why, at the end of the day, we focus on gross profit dollars. I mean, obviously, there's a correlation -- and obviously, we want to maximize gross margin. But for us, it's focusing on driving and growing gross profit dollars for our engineering group. Liam Burke: And on Specialty Healthcare, you're getting further penetration with your existing schools. You're acquiring new customers. Is that -- are there other areas you can replicate that business model? Or does it look like schools seem to be to fit your skill set here? Kevin Miller: The answer to that question is yes. There are other areas that we can replicate that model, and that's something we spend a lot of time thinking about. Obviously, our -- at our core, we're a school business, right? And we're really, really good at it. We think we're as good as any company, if not better. So we don't want to lose the focus that we have on schools because we're driving nice growth there. And what's great about the school business is it tends to be pretty repetitive, right? We very rarely lose clients, school clients. So we're going to continue that focus. But there are other areas that we're looking at. And Bill Sullivan earlier asked about some of our foreign nurses that are coming over. when they eventually get here, most of them are not going to go to schools. They're going to go to hospitals. Some will go to the schools, but a lot will go to hospitals because there's such a screening need for them. And that's an area where we have a little bit of advantage over the competition because we've been recruiting overseas for 25 years. I mean, we're experts at it, right? And we have a great reputation, and we have a great following in some of these countries that we recruit in. So to answer your question, we're always going to be focused on schools. We are looking at adjacencies. One of the things we've been kicking around, and this is just in a discussion level is possibly supplying substitute teachers to schools, even though that's not healthcare, but it's obviously not that big of a leap and the model isn't that different. We look at things like substitute teaching. We're in the -- we have a significant presence in the Philippines right now, and we're looking at -- and that's largely driven by our healthcare group, although our other groups are in the Philippines as well. We are looking at doing some potential outsourcing in the Philippines for clients in the U.S. for healthcare positions and other positions. So we're always looking for other avenues of growth when one of them becomes meaningful, we will certainly let you know about it. Liam Burke: Great. And just really quickly on capital allocation. You've got the revolver in place. You've got plenty of capacity. It provides you great financial flexibility. How do you balance available debt with your buyback program? Bradley Vizi: Yes. No, it's something -- it's front and center we talk about it a lot. I mean, as you see the last few years, I mean, we weren't at all shy about repurchasing shares. And with respect to valuation of our stock price, I mean, I think it's probably hard to make the argument that we're anything but undervalued materially, and that will take care of itself. I think just -- we're in a really good position right now where when you've taken out 45% of your outstanding, you have like 7.4 million shares outstanding. There's an argument for a baseline level of shares, especially when you have strong insider ownership float to be able to be freely traded and where institutions can get in and out and so on. And we're thoughtful about that. So it's just another dimension you weigh against just simply the valuation of your shares. So I mean, it's kind of a hindsight situation when you take out 45% of your shares and average cost of around $850. And when you're sitting around and sure you have a little bit of debt, right, from a capital allocation perspective. But you have the ability to delever relatively quickly and have no debt and maybe some cash. So I mean, I think really, we're in one of the best positions you can be from a capital allocation perspective is where you're always looking, right, but you really don't have to do anything. So open-minded with respect to a dividend. I've spent a very long time dealing with small cap companies and microcap companies I think there are good arguments against the dividend in certain segments of the market that might not exist in a much larger company. So it's something we think about. We haven't shut the door on it at all. But in the meantime, we can delever. And again, like we think about every aspect of that business is make sure we're prudent about our decision-making process. Operator: All right. At this time, there are no further questions in queue. Bradley Vizi: Thank you for attending our Q3 conference call. We look forward to our next update in March. Operator: And with that, ladies and gentlemen, this does conclude your call. You may now disconnect your lines, and thank you again for joining us today.
Operator: Ladies and gentlemen, thank you for standing by. I'm Constantino, your Chorus Call operator. Welcome, and thank you for joining the Turkcell's conference call and live webcast to present and discuss the Turkcell's Third Quarter 202 Financial Results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Ozlem Yardim, Investor Relations and Corporate Finance Director. Ms. Yardim, you may now proceed. Ozlem Yardim: Thank you, Constantino. Hello, everyone, and welcome to Turkcell's 2025 Third Quarter Earnings Call. On the call today, we have our CEO, Ali Taha Koc; and CFO, Kamil Kalyon. They will provide an overview of our financial and operational results for the quarter, followed by a Q&A session. Before we begin, I would like to kindly remind you to review our safe harbor statement, which is available at the end of our presentation. With that, I will now turn the call over to Mr. Ali Taha. Ali Koç: Thank you, Ozlem. Good afternoon, everyone, and thank you all for joining us today. This quarter once again demonstrated Turkcell's strong momentum powered by disciplined operations, sharp execution and the strength of our growth engines. We delivered 11% revenue growth, reaching TRY 60 billion, driven primarily by our core telecommunication business. Strong ARPU performance, a growing subscriber base and rising data center revenues all contributed to this outstanding performance. Group EBITDA increased 11% to TRY 26 billion, achieving a solid 43.9% margin, a clear reflection of our continued cost discipline. In addition to our operational success, prudent financial management strengthened our bottom line. Lifting net income from continuing operations up by 31.8% to TRY 5.4 billion. Competition remained intense this quarter. Even so, we added 569,000 net postpaid subscribers. Through targeted pricing and upselling, mobile ARPU rose 12%, once again proving our ability to deliver double-digit growth in a highly competitive environment. Residential fiber ARPU also grew by 17.3% year-on-year in the third quarter. Our strategic growth areas also continued to perform strongly. Data center and cloud revenues grew 51%, and our renewable energy capacity from solar fields across 4 cities in Turkiye has reached 37.5 megawatt. Next page, please. We are proud to reinforce our leadership with the successful outcome of the 5G spectrum tender, a defining milestone for Turkiye's digital future. The results were exactly in line with our expectations and reaffirm our leadership position. We secured 160 megahertz of spectrum, the maximum capacity available to a single operator in this tender. This allocation enabled us to deliver speeds exceeding 1,000 megabit per second while paving the lowest cost per megahertz per subscriber among all operators. 5G will be commercially launched in April 2026, marking the beginning of a new chapter in Turkiye's digital transformation. It will empower industries such as manufacturing, transport, health care and education with high-speed connectivity to regions that currently lack fiber access. Once 5G officially launches, these customers will be among the first to experience 5G speeds. And just as we have done over the past 30 years, we will continue to lead in this new era of connectivity. We are fully ready to shape Turkiye's 5G future and drive the next wave of digital transformation. Next page, please. Let's take a closer look at the key operational highlights from the third quarter. Competition in the mobile market was strong as we expected, maintaining our dynamic and customer-centric approach, we continue to expand our customer base. We recorded 569,000 net postpaid additions, bringing our total net gains to 2 million over the past 12 months. As a result, our mobile subscriber base exceeded 39 million. Leveraging our AI-driven dynamic micro segmentation approach, we executed our upsell strategies with precision. We offered customers precisely targeted offers, moving the vast majority of our base to higher tier plan. In addition, the share of postpaid subscribers, a key driver of revenue growth, rose by 4.6 percentage points year-on-year to 79%. These efforts, together with higher seasonality, delivered double-digit mobile ARPU growth of 12%, reflecting our continued focus on value-driven growth. Our mobile churn rate was 2.6%, primarily reflecting the ongoing competition and high activity in the number portability market. Next page, please. Now let's move on to our fixed broadband operations. With a focus on fiber customers, we had a net add of 33,000 this quarter, bringing our Turkcell fiber base to over 2.5 million. Including sales over other operators' infrastructure, we introduced 55,000 new customers to high-quality fiber services. Our fiber strategy is best described by a simple principle, high quality and high speed. With this approach, since last year, we remain committed to offering 1,000 megabit per second speeds and delivering greater value to our customers. Year-on-year, the number of subscribers on these plans more than tripled. With effective pricing adjustments, a higher proportion of customers on 100 megabit per second plus plans and 88% commitment rate to 12-month contracts, our residential fiber ARPU grew 17.3% year-on-year in the third quarter. As we continue to strengthen our fiber network, we expanded our footprint with 107,000 new home passes, reaching 6.2 million households. Our 42.6% take-up rate is a clear indication that our fiber investments are effectively planned. Next page, please. Let me now turn on to our strategic areas, beginning with Digital Business Services. Digital Business Services delivered robust 97% revenue growth, reaching TRY 4.9 billion, supported by recurring service income and stronger hardware sales. The backlog from system integration projects reached a remarkable TRY 5 billion. Data center and cloud revenues continued their strong momentum, increasing 51% year-on-year in real terms. We had targeted an 8.4 megawatt capacity expansion at the beginning of 2025, guided by our vision of keeping Turkiye's data within Turkiye, and we successfully activated that capacity in this quarter. Thanks to our early-stage investment, we have established a strong market position, becoming the leading player in the enterprise colocation market. We are preparing for our next strategic move in data centers and cloud businesses, which will further strengthen our leadership. Next page, please. Now moving on to another of our strategic pillars, techfin. Our techfin ecosystem, representing 6% of consolidated revenues achieved 20% year-on-year growth in the third quarter, outpacing the group's overall performance. This growth was mainly driven by our digital payment company, Paycell, which achieved a 42% increase in revenues. Within Paycell, POS and Pay Later services were the key contributors supported by favorable regulatory revisions in mobile payment limits and broader adoption of POS solutions. Our Financell brand, providing customers with fast and flexible financing solutions continued to expand its loan portfolio, reaching TRY 7.5 billion despite the high interest rate environment. The net interest margin improved to 5%, driven by more favorable funding costs. Financell continued to support the sales of Samsung A26, locally manufactured 5G smartphone exclusive for Turkcell with a total of 54,000 contracted sales since its launch in April. Next page, please. Despite global geopolitical and macroeconomic headwinds, we delivered performance that exceed our expectations over the first 9 months of the year. In line with these strong results and the revised CPI outlook, we are upgrading our 2025 guidance. Reflecting our solid momentum and confidence in the sustainability of our results, we are revising our revenue growth expectations upwards to around 10% and raising our EBITDA margin target to 42% to 43% range. Even as we continue our intensive investment cycle, we are revising our operational CapEx to sales target to around 23%, mainly driven by the acceleration in revenue recognition. As for our data center and cloud revenues, we are also revising our growth guidance upwards to around 43%. With that, I will now hand over to our CFO, Mr. Kamil Kalyon, to walk us through the financial highlights. Kamil Kalyon: Thank you very much, Ali Taha. We had a solid quarter driven by continued momentum in our core business and techfin expansion. We achieved 11.2% year-on-year revenue growth, fueled by strong execution across our key business lines. Turkcell Turkiye remained the main top line driver, contributing TRY 5.5 billion of additional revenue. This was supported by double-digit real ARPU growth, a larger postpaid base and solid performance from digital business services. Techfin added TRY 569 million in revenue, driven by solid growth at Paycell, particularly across POS and mobile payment verticals. On profitability, margins reflected our ongoing investments to enable 5G rollout and to capture the strong growth momentum in Paycell transaction volumes. At the same time, personnel and energy costs contributed positively to our overall performance. Overall, we maintained a solid profitability level, demonstrating the strength of our operating leverage and disciplined cost management. Next slide, please. Profit from continuing operations increased 31.8% year-on-year to TRY 5.4 billion, reflecting focused execution and effective cash management. EBITDA contribution totaled TRY 2.5 billion for the quarter, remaining the key driver of profit growth. Despite persistent competition, Turkcell sustained its leadership through a clear strategic focus and efficient execution. We prudently managed our net finance income and expenses this quarter, resulting in a year-on-year contribution of TRY 1.5 billion. With FX depreciation decreased to nearly half of last year's level, we recorded a positive FX impact of TRY 912 million. Despite a higher nominal debt level versus Q3 2024, our strong financial discipline and proactive funding strategy led to a decline in interest expenses to TRY 677 million. Meanwhile, although interest income remained limited, returns were supported by a well-diversified and efficiently managed investment portfolio. Our strong cash position, together with the slower inflation growth year-on-year resulted in a monetary loss this quarter. Next slide, please. Turning to our investment strategy with a clear focus on 5G readiness. CapEx intensity was 17.4% this quarter, reflecting our continued commitment to strengthening network infrastructure and preparing for next-generation technologies. With the largest spectrum allocation secured from the 5G tender, we are maintaining our investment momentum at full speed. This quarter, approximately 80% of CapEx was directed towards our core businesses, mobile and fixed broadband. Our base station fiberization rate surpassed 45% this quarter, laying the groundwork for a seamless and efficient 5G transition. In our data centers, we activated an additional 8.4 megawatts of IT capacity, bringing the total to 50 megawatts. On the renewables side, solar capacity reached 37.5 megawatts with further expansion expected in Q4. We have started to see savings from renewable energy investments this year with a more visible impact expected in 2026. Given the expected ramp-up in 5G investments and seasonal factors in Q4, we continue to manage our CapEx with a disciplined and value-focused approach. Our revised guidance reflects both the progress of our investment programs and our commitment to efficient capital allocation. Next slide, please. Moving now to our balance sheet. Our cash position reached TRY 122 billion in Q3. The second dividend installment will be paid in Q4, while under the 5G tender, the first 2 installments are scheduled for 2026. We consider our current liquidity as strong, sufficient to cover upcoming 5G payments and debt service over the next 2.5 years. We are well prepared, having issued a Eurobond earlier this year and secured Murabaha fundings on favorable terms in the first half. Our net leverage ratio increased slightly to 0.2x, but remains comfortably within healthy levels, reflecting our continued financial discipline. Given the 5G payment schedule, we expect leverage to remain below 1x in the upcoming periods. Debt repayments of around USD 1 billion are expected to be completed by year-end, of which USD 800 million is denominated in foreign currency. Next slide, please. Finally, a brief update on our FX risk management, 81%. As of Q3, we held USD 3.9 billion FX debt and USD 3 billion FX-denominated financial assets and USD 800 million derivatives portfolio. We maintain a dynamic FX risk management strategy. We actively manage a short-term derivatives portfolio to mitigate potential FX volatility while accounting for higher hedging costs. We closed the quarter in a neutral FX position. Following the acquisition of the 5G license, our net foreign exchange position is expected to increase. We will closely monitor market conditions and proactively manage this position over the next 1.5 years until the full 5G license payments are completed. Therefore, during this period, we will not apply our neutral position definition. That concludes our presentation. We look forward to addressing your questions. Thank you very much. Operator: [Operator Instructions] The first question comes from the line of Singh Maddy with HSBC. Madhvendra Singh: My first question is on your CapEx and dividend outlook, especially given the recent 5G auction win. I wonder -- for this year, you have given the guidance for CapEx, so that's fine. But I was wondering whether next year, we should expect a significant jump in the CapEx to sales intensity and whether this spectrum payment is going to affect the dividend payments at all? So that's the first question. And then the second question is on your pricing action during the quarter? Did you increase any prices? And how was the competitive response to that? Are you comfortable around the pricing environment? So that's the second one. And then the final one, actually on your final comment about the net short FX position, you said the definition will not be applicable going forward. So can you please explain what do you mean by that? And how should we think about the FX losses going forward, yes? Kamil Kalyon: Thank you very much, Maddy, for the questions. First question and third question will be responded by me. First of all, -- for the next year, CapEx intensity, we are not expecting higher jumps. As you know, starting of this year, we declared 24% CapEx sales ratio for this year. Now we revised it to 23%. For the next year period, we do not -- we will not be in a position exceeding the 24% around the CapEx intensity levels will be around this 24%. We will see the budget figures that will come from the business lines. The other one, as you know, our dividend policy is distributing our 50% net income of the year. We are proposing to the general assembly and general assembly decided. As you know, we have -- as [indiscernible] said, we are a very dividend-friendly company. And if you chase our company, we will be -- we have been distributing dividends for many years period. Therefore, for the 2026, our AGM has not been decided about this issue, but our dividend policy is still distributing the 50% of the net income. For the third question, as you know, we are declaring our FX position as minus -- plus USD 200 million. And when we look at the 5G tender, the results and officially, the tender results will be ratified by the governmental bodies approximately in January 2026. Therefore, the FX position -- net FX position or this liability will be in our balance sheet starting from 2026. Therefore, we will look at the position at that time. But as Ali mentioned, the 5G tender price will be paid within 3 installments. In the first installment will be in January 2026. Therefore, it means that 1/3 of the tender price plus 20% VAT amount, which corresponds 44% or 45% of the total amount will be paid in January 2026. Therefore, we will look at the -- our FX position in January 2026, and we will decide how we will manage this FX position starting from 2026. As you know, the decision will be taken under the scope of the macroeconomical conditions, hedging costs and Turkish internal macroeconomic conditions. Therefore, we will see it in January 2026. I will hand over the mic for the second question to Mr. Ali. Ali Koç: Regarding the price adjust, I will divide this question into two different parts, mobile side and the fixed side. For the -- as the leading mobile operator and the leader and the biggest operator, mobile operator in Turkiye, we have adjusted our prices in almost every quarter between 2021 and 2024 to reflect the inflationary environment. Considering the slowing pace of inflation and competition conditions in the market, we updated our prices in January and July into 2024. Following 14% price increases implemented in January 2025, we carried out further price adjustments on our micro segmented packages such as youth and regional offers in June and August. On top of price adjustments, thanks to our successful upsell performance, we registered above inflation mobile ARPU growth of 12%. With respect to fixed broadband market, following the competition, we increased prices in December 2023, August 2024, March and October 2025. We are driving ARPU growth by increasing the share of customers within a 12-month commitment, boosting transition to high-speed packages and also widening the price gap between our TV+ bundled offers and data-only packages. This successful efforts and initiatives enables us to outperform inflation and achieve at the fixed market -- fixed broadband market, 17% real growth performance in our residential fiber ARPU. As Turkcell, we continue to focus on value as the main differentiation point from the competition. Hence, rather than competing on price, we focus on creating additional value for our customers. And we will continue to closely monitor market conditions and the competition in the upcoming quarters as well. Madhvendra Singh: If I may ask a follow-up on the spectrum part. So the payment is in hard currency. I was wondering whether the asset itself will be recognized in hard currency as well. Kamil Kalyon: Normally, as you mentioned, the payments will be done in U.S. dollar terms. Therefore, we will -- our liquidity position is fair enough to make all the payments in both in TL side and the U.S. dollar side. Therefore, starting from the January 2026, we will look at the macroeconomical conditions, FX rates, TL rates and the most important one, the hedging rates, for example, hedging costs are very important in order to decide. But as I said, we have enough TL and the U.S. dollar money in our hands. Therefore, we will decide it in January 2026 by taking into consideration the macroeconomical conditions on that date. It's a little bit early to give a guarantee or to give a color how we will make the payments. We can prefer to make dollar payments or maybe we can prefer to make TL payments. But at TL, we will be keeping our U.S. dollar money in our hands, and it will not create additional problem from our perspective. Madhvendra Singh: My question was more on the balance sheet entry on the asset side. So you will recognize the spectrum as an asset, right? But the value, I'm not sure whether that will be put in a lira number or a dollar number. Kamil Kalyon: Normally, it will be included into our balance sheet in 2026, and we will make this capitalization in the TL terms. And as you mentioned -- as you imagine, that starting from 2026, this asset will generate an inflation profit starting from the depreciation in the income side starting from 2026. Operator: The next question comes from the line of [indiscernible] with Barclays. Unknown Analyst: Congrats on the results. I have just a couple of questions. So my first one is on your 2026 outlook. Do you think that the revenue growth that you've delivered in 2025 or planning to deliver is sustainable going forward given the 5G regime coming? And also -- and also on your profitability, do you think like current margin -- EBITDA margin levels are sustainable for next years? And second question is also on your -- do you have any long-term target for your net leverage? Or maybe where do you see the net leverage ratio next year and going forward after the 5G payments are done? Ali Koç: I can start with the first one. Let me talk a little bit about the current year, the great year and a great quarter. So we had another solid operational and financial results this quarter and which was actually beyond our initial plans. We continue to expand our subscriber base in both mobile and fixed segments, while delivering a real ARPU growth in each quarter of 2025 through our dynamic tariff and pricing management, higher postpaid share, also successful upselling actions and rising demand for high-speed connection also supported our ARPU performance. So consequently, in the first 9 months, our consolidated revenue grew by 12% year-over-year. And also techfin, if you talk about the techfin in the first 9 months, delivered a 25% year-over-year growth, making a very meaningful contribution to our top line. Also, our strategic investments, data center and cloud services also achieved robust revenue growth of 51% compared to the same period last year and significantly exceeding our previous full year 2025 guidance. EBITDA grew by 15%, leading to a 43.7% EBITDA margins. Building on our strong 9-month performance, we have revised our full year both revenue growth and as well as the EBITDA margin expectation and guidance. So to remain prudent while revising our guidance, we also considered the reduced magnitude of price adjustments compared to last year. And we are expecting a very competitive environment in the following years on 2026 expectation as we are in the planning process. It is too early to comment. However, our goal is to maintain our micro segment management strategy, along with our AI-driven technologies, along with our revenue growth initiatives and continue growing above the inflation rate. Kamil Kalyon: For the second question, as I mentioned in my presentation, at the end of this year, we will be paying the second installment of our dividend payment, and we have some additional repayment of debt for 2025. And in January, as I mentioned, we will be paying the 44% of the total tender price for the 5G side. Therefore, our expectation is this leverage ratio would be around 0.7 or 8x. And as I mentioned in my presentation, again, our aim is to keep this level lower than the 1x. Operator: [Operator Instructions] The next question comes from the line of [indiscernible] with [indiscernible]. Unknown Analyst: Good results. Actually, all of my questions have been answered. Operator: The next question comes from the line of Demirtas Cemal with Ata Invest. Cemal Demirtas: Congratulations for the good results. My question is rather some technical issues in the income statement. We see monetary loss in third quarter versus like the monetary gain in the previous quarters. Could you just tell us more about the changes that lead to monetary losses in this quarter because it offsets a portion of the higher-than-expected operating profit when we go to the bottom line? And the other question is again about the TOGG participation side, we see lower losses unlike the previous 2 quarters. Do you think it's going to be the permanent? Should we expect lower the losses contribution from the TOGG, your subsidiary side? That's my second question. And again, could you just give any direction about 2026 from your side? And again, I would like to ask what kind of value-added -- the things that could come into surface in 2026 as now the 5G is done, please, in terms of licensing. What are the opportunities rather than the organic growth of the company? What could be changing in 2026 from your perspective? Kamil Kalyon: Cemal, thank you very much for your technical questions. First question regarding the first question, yes, you're right. Our monetary gain declined by TRY 2.4 billion compared to Q3 of 2024. There are certain reasons. One of them is the slowdown in inflation rates. As you know, last year, inflation was in the same period around 8.9%. Now currently, it's declined to 7.5%. Therefore, this is the first reason for the lower monetary gain. The second one and the most important one, as you know, we sold our Ukraine business in 2024. It means that you are taking a significant portion from your balance sheet, especially generating inflationary income in your balance sheet. Therefore, due to this effect, Ukraine subsidiary sale led to a negative composition against nonmonetary assets. And furthermore, the capital reduction executed in our Netherlands company subsidiary in Q4 in 2024 indirectly led to a monetary loss due to indexation in Q3 2025. Therefore, this is the reasons of this one starting... Cemal Demirtas: Sorry for interrupting, but before passing to the next question, when I look at the -- my question is rather compared to second quarter, what -- I know that there might be changes from quarter-to-quarter, but even what changed from second quarter to third quarter? The inflation is higher, the quarter-over-quarter change. I don't know if you have any justification for the Q-over-Q comparison, the year-over comparison fair. Just if you have any comments before answering the next question. Kamil Kalyon: Normally, from Q3 -- Q2 to Q3, you're asking in 2025. Am I right? Cemal Demirtas: Yes, yes, yes. Kamil Kalyon: As far as I remember, we do not have a significant change regarding the year-over-year side. Yes, the Ukraine business is very important for this one. But Q2, Q3, we do not have a significant change in the inflationary side. But as you know, this -- some of the -- how can I say, in the CapEx side, there are some CapEx amounts are eliminated, as you know, for the 5G side and the 4G side. Therefore, this might affect the inflationary accounting side. But in Q2 and Q3, I do not remember the significant result. But starting from Q2 or Q3, we have started to generate inflationary loss for this year. But for -- starting from 2026, our 5G license amounts and the additional CapEx amounts will be included in our balance sheet, and we will be starting to see significant amount of monetary gain in our balance sheet starting from 2026. But for this year, as I mentioned, the main loss item is coming from the Ukraine sale asset and the inflation rates. The second question is regarding the TOGG. As we mentioned in our previous calls, there are some problems, especially in the market -- electric vehicle market in 2025. And starting from the Q2, TOGG started to take the necessary actions for the cost optimization. And as you might remember, there are certain changes in the special consumption tax base in third quarter. And this change led to an increase in vehicle prices, which was also supported by the launch of the new model. Therefore, TOGG recorded a moderate improvement in its performance during this quarter. Most probably this improvement will continue in Q4. Therefore, starting from -- we hope that Q3 2025 would be a significant milestone for the TOGG side. In the coming periods, we are expecting more performance from the TOGG side. But as you know, this is a production investment and there are heavy EBITDA -- amortization expenses of the company. But we are -- we can observe the positive impacts of the precautions that are taken by the TOGG company for this quarter. We hope that this performance will continue in Q4 because you know the new model is also in the markets right now. And there are some extra models are presented to the market, especially 4x for electric vehicles. There are important demand for these cars. Therefore, we will see the positive impact of these actions in the Q4 also. Ali Koç: Regarding the 5G, Cemal, thank you very much for the great question. Yes, 5G era is starting. So starting from April 1, 2026, we are going to launch 5G all over the Turkiye, and it's going to create new value-added services and opportunities. Especially with 5G, a new era of flexible and personalized tariff is the beginning. The age of one-size-fits-all plans is coming to an end. And today, for example, Turkcell serves more than 39 million mobile subscribers, which means 39 million unique tariff possibilities. In this environment, our goal is to maintain the highest level of customer satisfaction by offering plans tailored to each individual's need. We also aim to accelerate 5G adoption because 5G is going to bring high speeds, lower latency, but we need to -- our customers to have 5G phones. So we also aim to accelerate 5G adoption by supporting device financing and establishing new partnerships with smartphone manufacturers. Following our recent collaboration with Samsung, for example, we have already bought 100,000 5G-enabled devices. We plan to -- which are built in Turkiye, domestically produced A26 phones, Samsung phones. We plan to form similar partnership to further increase the number of 5G-ready phones in the market. Through these initiatives, we will make the next-generation devices more accessible as well as drive broader 5G usage across our customer base. So in order to give you a brief information about what is the difference between 4G and 5G, 4G technology was designed primarily for people, but 5G opens the door to a world where machines communicate with each other, enabling smart cities, connected factories, smart factories, industrial automation. And as a new value-added services over the next 5 years, we anticipated that the autonomous driving and connected car sectors will gain momentum in Turkiye. During this period, data consumptions and speed requirements are expected to rise significantly. And additionally, similar increases in data demand, speed requirements will emerge across government services as well as logistics, supply chain, smart manufacturing, the energy sector and smart city ecosystem, driven by the adoption of hybrid and private 5G networks. So stay true that 5G will unlock new revenue opportunities across not only the automotive industry, but also the government services and logistics and energy and smart cities. So as new technologies mature, Turkcell is positioned to be a leading operator, enabling Turkiye digital transformation through 5G and delivering the best and the greatest 5G technology to our customers. So how we are going to do it is the tender is a solid proof for it. So by securing large-scale 5G frequency resources, we gain a significant competitive advantage in both capacity and the quality because we got the highest frequency spectrum. The wider the spectrum will allow us to deliver superior customer experience in densely populated areas, ensuring high speed, low latency connectivity even under heavy network loads. It also enables us to serve a much larger number of people. So we are going to bring this fixed wireless access customers. We call it Superbox 5G, fiber-like performance. Even if you don't have a fiber, we are going to provide you 1,000 megabit per second speeds with our Superbox 5G-enabled boxes. So even if you don't have your fiber in your house in anywhere you go, we are going to provide the best speeds within a wireless domain, and it's going to give you a huge flexibility and then it's going to come up with a huge efficiency. Operator: [Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turkcell management for any closing comments. Thank you. Ali Koç: Thank you very much for joining us, and I hope to see you in the next quarterly meetings. Thank you very much for attending. Ozlem Yardim: Thank you for joining us. Hope to see you for the year-end results. Thank you. Kamil Kalyon: Thank you. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.
Operator: Good morning, and welcome to the Service Properties Trust Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Kevin Barry, Senior Director of Investor Relations. Please go ahead. Kevin Barry: Thank you for joining us today. With me on the call are Chris Bilotto, President and Chief Executive Officer; Jesse Abair, Vice President; and Brian Donley, Treasurer and Chief Financial Officer. In just a moment, they will provide details about our business and our performance for the third quarter of 2025, followed by a question-and-answer session with sell-side analysts. I would like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Also note that today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on SEC's beliefs and expectations as of today, November 6, 2025, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, which can be accessed from our website at svcreit.com or the SEC's website. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, this call may contain non-GAAP financial measures, including normalized funds from operations or normalized FFO and adjusted EBITDAre. A reconciliation of these non-GAAP figures to net income is available in SVC's earnings release presentation that we issued last night, which can be found on our website. And finally, we are providing guidance on this call, including adjusted hotel EBITDA. We are not providing a reconciliation of this non-GAAP measure as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts or at all. With that, I will turn the call over to Chris. Christopher Bilotto: Thank you, Kevin. Good morning, everyone, and thank you for joining the call today. Last night, we announced our third quarter earnings results, which reflect continued momentum on our strategic objectives. I will begin today's call with a brief update on our key initiatives and share operating highlights from both our hotel and net lease businesses. Jesse will provide further details on our net lease platform and recent acquisitions. Brian will then discuss our financial performance, balance sheet and quarterly guidance. Starting with our strategic priorities. We had another productive quarter, completing previously announced hotel sales, advancing our capital recycling initiatives and taking decisive steps to strengthen SVC's balance sheet. Since our last earnings call, we have been active in the capital markets, raising over $850 million in proceeds, including $295 million from asset sales during the quarter, $67 million in asset sales in the months of October and November, and approximately $490 million from the issuance of our new zero-coupon bonds. The proceeds were used to fully repay our revolving credit facility and retire all of our 2026 senior notes. Each of these steps further improved SVC's debt maturity profile, enhanced our financial flexibility and strengthened our covenant position. Turning to current dispositions. Earlier this year, we committed to exiting 121 hotels totaling nearly 16,000 keys for gross proceeds of $959 million. We remain on track to complete the balance of these sales, including 6 hotels that sold in October for $66.5 million and 69 hotel sales expected to close in November and December for $567.5 million. Proceeds from these remaining sales will primarily be used to initiate the repayment of our February 2027 senior unsecured notes. With respect to acquisitions, we continue to advance modest growth supporting our net lease portfolio, which Jesse will expand upon. This is intended to improve our net lease portfolio fundamentals, provide optionality with financing sources and support our business model transitioning toward a net lease company. Turning to our hotel performance. At the macro level, the U.S. travel market continues to face headwinds with demand trends remaining uneven amid persistent economic uncertainty. Domestic leisure travel has declined to its lowest point in several years, reflecting heightened price sensitivity and a shift towards shorter booking windows. These behaviors suggest a more cautious consumer mindset in the current environment. SVC's portfolio continues to deliver steady top line growth with RevPAR increasing 20 basis points year-over-year, outpacing the broader industry by 160 basis points and representing the fourth consecutive quarter of outperformance. This growth was primarily driven by occupancy gains, while ADR declined modestly. Excluding the hotels we are exiting, our remaining 84 hotels delivered stronger third quarter performance with RevPAR increasing 60 basis points year-over-year, driven by occupancy gains of 140 basis points. Across the broader portfolio, contract business, particularly airline-related demand, remained a key growth driver and was partially offset by softer group demand and a decline in government bookings. Transient revenues were flat year-over-year, reflecting stable but subdued discretionary travel activity. Hotel EBITDA declined compared to last year, primarily reflecting elevated labor costs, insurance deductibles and broader expense pressures. The scale and timing of hotel dispositions during the quarter introduced operational disruption that weighed on performance, which we view as largely transitional. As the disposition pipeline normalizes, we expect this shift will support stability and margin improvement as we move into 2026. In recent years, we have also made significant capital investments to elevate the quality and performance of our hotels, having undergone major renovations at close to 45% of our retained hotel portfolio. We see positive indications of increasing performance, and we expect these renovated hotels to deliver incremental growth over the next year as they capture additional market share. Within the retained hotel portfolio, approximately 15 hotels generated a combined EBITDA loss of over $20 million over the trailing 12 months. While several of these assets are in the midst of the performance ramp-ups following the noted renovations or undergoing operational turnarounds, others are identified candidates for disposition. The reduction in cash drags combined with proceeds with these 2026 hotel sales serves as a meaningful catalyst for further deleveraging. These actions enhance our financial flexibility and support our long-term strategic objectives. We expect to provide additional detail on these disposition plans and future updates as execution progresses. Turning to our triple net lease segment. Our portfolio continues to deliver steady performance, highlighted by rent growth over 2%, stable rent coverage and occupancy over 97%. The triple net lease market continues to demonstrate resilience and growth driven by supportive consumer behavior. Operators are capitalizing on consumer preferences for convenience, affordability and accessibility, driving continued demand for QSRs, express car washes and discount stores, industries in which SVC currently maintains or is increasing its exposure. Following the balance sheet initiatives executed during the quarter, we believe SVC is well positioned to advance both its hotel and net lease strategies. These efforts are expected to support sustained cash flow growth and enhance long-term value creation for shareholders. I will now turn it over to Jesse to discuss the net lease portfolio. Jesse Abair: Thanks, Chris. In support of SVC's strategic shift toward the net lease space, during the quarter we continued to focus on portfolio growth and curation, driven largely by our acquisition platform. Although they will remain relatively modest in the near term, our acquisitions are intended to scale our net lease business, optimize portfolio composition and unlock value through accretive financing opportunities. Our investment thesis continues to revolve around necessity-based e-commerce-resistant retail assets that offer strong rent coverage and require minimal capital investment. During the third quarter, we acquired 13 net lease properties for a total of $24.8 million. Accounting for closings subsequent to quarter end, year-to-date investments totaled $70.6 million. These deals have been funded with a combination of cash on hand and proceeds from net lease dispositions. Our 2025 transactions to date have a weighted average lease term of 14.2 years, average rent coverage of 2.6x and an average going-in cash cap rate of 7.4%. Consistent with our investment criteria, the acquisitions include a balanced mix of quick service and casual dining restaurants, automotive services, fitness and value retailers. At quarter end, SVC's net lease portfolio consisted of 752 properties with annual minimum rents of $389 million. The portfolio was more than 97% leased with a weighted average lease term of 7.5 years. We have 178 tenants operating under 139 brands across 21 distinct industries. Aggregate rent coverage was just over 2x for the trailing 12 months, unchanged compared to the prior quarter. From a credit quality perspective, 2/3 of our annual minimum rents come from TA Travel centers backed by investment-grade rated BP. Rent coverage at these assets was also stable compared to the prior quarter. Annualized base rent increased 2.3% and NOI increased 50 basis points year-over-year, largely a function of our recent acquisition activity. Our asset management team executed 10 leases this quarter, totaling 187,000 square feet and averaging over 10 years of term. Looking ahead, we have a robust pipeline of investment opportunities aimed at further enhancing portfolio metrics with respect to tenant and geographic diversity, weighted average lease term and coverage ratios. To that end, we are currently under agreement to acquire 5 additional properties totaling $25 million, which we expect to close in the fourth quarter. Incremental disciplined growth will continue to be the focus for the net lease side of the business, generating reliable cash flows designed to endure throughout economic cycles. And with that, I'll turn it over to Brian to discuss our financial results. Brian Donley: Thank you, Jesse, and good morning. Starting with our consolidated financial results for the third quarter of 2025, normalized FFO was $33.9 million or $0.20 per share versus $0.32 per share in the prior year quarter. Adjusted EBITDAre decreased $10 million year-over-year to $145 million. Overall financial results this quarter as compared to the prior year quarter were primarily impacted by a $13.1 million decline in adjusted hotel EBITDA and an $8.7 million increase in interest expense. For our 160 comparable hotels this quarter, RevPAR increased by 20 basis points, gross operating profit margin percentage declined by 330 basis points to 24.4%. Below the GOP line, costs at our comparable hotels increased 7.6% from the prior year, driven by insurance claims at certain hotels. Our hotel portfolio generated adjusted hotel EBITDA of $44.3 million, a decline of 18.9% from the prior year as a result of softer demand and expense pressures. These results came in below the low end of our hotel EBITDA guidance range by $9.7 million, primarily due to a $6.6 million impact from hotels sold prior to September 30 and a $2.9 million impact from fire-related disruption at 2 full-service hotels. The 76 Sonesta exit hotels not yet sold as of quarter end generated RevPAR of $72, a decline of 1%, and adjusted hotel EBITDA of $8.3 million, a decline of $3.2 million year-over-year. The 84 hotels in our retained portfolio generated RevPAR of $114, an increase of 60 basis points year-over-year, and adjusted hotel EBITDA of $36 million during the quarter, a decrease of $7 million year-over-year. Most of the decline year-over-year in the retained portfolio is related to elevated labor costs, repairs and insurance expenses. Turning to our expectations for Q4. We are currently projecting fourth quarter RevPAR of $86 to $89 and adjusted hotel EBITDA in the $20 million to $25 million range. This guidance considers a sequential decline due to seasonality in the fourth quarter as well as recent headwinds in the travel and lodging industries. This guidance does not include the impact of completing any of the remaining 76 Sonesta hotel dispositions expected to close in Q4. Turning to the balance sheet. We currently have $5.5 billion of debt outstanding with a weighted average interest rate of 5.9%. As discussed last quarter, we fully drew down on our $650 million revolving credit facility in July to protect liquidity as our 1.5x debt service coverage covenant was projected to be below the minimum requirement when we filed our second quarter earnings. Since then, we have taken several actions to strengthen SVC's balance sheet and improve our credit metrics. Using the proceeds from asset sales and our new $580 million of zero-coupon senior secured notes, we have repaid all $700 million of senior notes that were scheduled to mature in 2026. I'm pleased to report we have also repaid all amounts outstanding on our $650 million revolving credit facility and are currently in compliance with all of our debt covenants. We currently project interest expense for the fourth quarter will be approximately $102 million and includes approximately $84 million of cash interest expense and $18 million of noncash amortization of discounts and financing fees. Our next debt maturity is $400 million of 4.95% unsecured senior notes due February of 2027, which we currently expect to redeem from the proceeds of the remaining hotel asset sales we expect to close this quarter. Turning to our capital expenditure activity. During the third quarter, we invested $47 million in capital improvements. Notable activity this quarter includes projects at our Sonesta Atlanta Airport hotel, preliminary project expenses for the Nautilus in South Beach and our Sonesta ES Suites in Anaheim. As it relates to our capital spending, we are updating our full year 2025 guidance to reflect a shift in the pace of deployment and the timing of our planned renovation and brand transition at the Nautilus hotel. We originally planned to begin this project in the fourth quarter of this year, but we have deferred the project to commence during the first quarter of 2026 with completion expected next fall. For the full year 2025, we are lowering our full year CapEx projection from $250 million to approximately $200 million. Last quarter, we provided initial 2026 CapEx guidance at $150 million for the year and expect the deferral of the Nautilus project will result in $20 million to $30 million of CapEx shifting to 2026. In closing, our third quarter results reflect continued progress in transforming SVC and strengthening its financial position, highlighted by successful capital markets activity and strategic asset sales. Looking ahead, our focus remains on driving EBITDA growth and optimizing our portfolio to enhance long-term shareholder value. That concludes our prepared remarks. We're ready to open the line for questions. Operator: [Operator Instructions] Our first question comes from Jack Armstrong of Wells Fargo. Jackson Armstrong: We're coming up on the halfway point in Q4 and there's still 69 hotels left to get done by year-end. How realistic is it that all these are going to close in time? Based on our prior conversations, the operators that are picking them up can only handle so much at a time from an operational perspective there. So curious your thoughts on the actual execution there. Christopher Bilotto: Yes. Thanks for the question. This is Chris. I think as we've talked about historically, with respect to these sales, there was a phased negotiation or a rolling close with an outside date in December, meaning kind of the last close would occur across all the assets in December. And so I think the best way to look at it is right now, based on information we have, we're tracking to close 40% to 50% of the remaining balance in November. And then the rest will be in December, no later than the outside closing date. So everything planned for 2025. Jackson Armstrong: Okay. And if they don't close by the closing date, kind of what's the procedure there? What should we expect? Christopher Bilotto: Well, contractually, they're obligated to close. And so if for some reason, they don't close, then there's deposits and other remedies at risk. So again, I think that's -- at this stage, just given where we are and the work we've done, I think that I would view that as highly unlikely. Jackson Armstrong: Okay. And then you took a $27 million impairment in the quarter. Can you talk about what that was in relation to and the likelihood of further impairments as we get through the rest of these sales? Brian Donley: Jack, this is Brian. That was more shifting of the purchase price allocations amongst the portfolios. I wouldn't read too much into it. Overall, we're still on track to produce a significant book gain on these sales. Most of it -- all of the rest of it will be a gain in the fourth quarter. Again, a lot of these contracts and the way the sales were phased in with the individual purchase prices and how those are allocated amongst the portfolio ended up resulting in that impairment. But it's -- again, I think it's more noise than anything. Jackson Armstrong: Okay. And then last one for me. Rent coverage continues to decline in the travel center portfolio. Do you have an expectation of when or if that might improve? And at what level of coverage would you say it's concerning to you, acknowledging that it's guaranteed by BT? Jesse Abair: Yes. Jack, this is Jesse. I'll take that. I mean, certainly we're seeing a couple of sequential quarters of degradation in the TA coverage. I think some of that is just kind of we're rolling off that kind of post-COVID high with respect to the freight demand driving a lot of their business. It does seem to be moderating that decline and kind of flattening out, particularly within the last couple of quarters. So given the BT credit backing of those leases, I don't think we're particularly concerned at this point. We're in regular contact with TA. We continue to see them invest in the sites and continue to make them more competitive. So I think it's something we're watching, but I don't think anything above one, it doesn't drive us towards any particular degree of concern at this point. Operator: [Operator Instructions] The next question comes from Tyler Batory of Oppenheimer. Tyler Batory: A couple on the hotel portfolio first. And I'm just trying to evaluate the performance during Q3. I know lots of moving pieces with asset sales and whatnot. So just talk about how the EBITDA specifically came in versus your expectations internally. I know it was a little bit below the guidance, but I'm not sure perhaps how much of that was driven by asset sales and some of the other moving pieces you have going on right now. Brian Donley: Tyler, it's Brian. Thank you for the question. I think from the disposition standpoint, the timing of those sales and when they close was the biggest driver. When we provide the guidance and the guidance I provided today for the fourth quarter, doesn't assume asset sales because we can't always predict the exact timing and how much earnings will come off the plate. So about, just call it, $7 million, I think, is the number for sales from what we had guided for Q3. There were some other onetime impacts in the quarter. We had a couple of insuranceable events, fires at a couple of properties in New Orleans. There was an electrical fire that caused significant disruption. We also had a fire on Silicon Valley, same story. It took -- the hotel was closed for days. And then there's just been general disruption from reopening and some other renovation disruption. Some softness in Cambridge, for example, was a big driver this quarter at our Royal Sonesta. So there's different stories within the story. But I think to Chris' point in his remarks, there is definitely a softness in the industry and the travel industry in general. We continue to see cost pressures. So put all of that together is where we landed. Tyler Batory: Okay. And then just to follow up that in terms of the guide for Q4, helpful to hear that that doesn't assume any asset sales. But when I just look at the sequential progression Q4 versus Q3, the seasonality is a little bit worse than normal. If I'm doing my math right, it implies about a high single-digit EBITDA margin there. Just talk a little bit about kind of what's going on in Q4 and just what you're seeing in terms of travel trends, costs, et cetera, moving into the fourth quarter that's informing that guide. Christopher Bilotto: Yes. I mean I think at a very high level, from the travel trends, things have generally moderated quite a bit. Where we are seeing kind of some pockets are with respect to kind of the group pace. I think overall, we expect that to be up 3% for the year, give or take $5 million. And then we're also starting to kind of see some opportunities with contract business, more specifically at a lot of the renovated hotels. And so that's providing additional lift. But I think we -- a lot of our business comes from the OTA market. That market too is getting a little bit more competitive, which is putting pressure on rates just given as travel demand has lessened more broadly, there's just a lot more brands exercising that market. So there's disruption on that front, let alone just kind of with the broader industry. And again, with the bright spots being progress we're seeing from the renovated hotels and then more specifically on group and contract business. And then on the EBITDA side, Brian, I don't know if you want to add any more color there. Brian Donley: No. I mean I think it's really the combination of what we've been seeing in the last few quarters with continued cost pressures lower demands, the seasonality in Q4, we're also taking out our focused service hotels, which had much more of a smoother trend, if you will, across all 4 quarters. It's a little more steeper bell curve for our full-service hotels coming into Q4, and that's a typical pattern for our portfolio as we sell these hotels. And then the impact of the rest of the dispositions, as we talked about, as Chris mentioned, that most of these properties are going to close in November and December. So how much EBITDA we retain versus leaving the system still remains to be determined based on timing. But there will be a similar impact to Q4's EBITDA removing hotels and raising those proceeds for us. Tyler Batory: Okay. Great. And then moving on, could you talk a little bit more about some of the recent movements on the debt side, just the rationale behind doing the zero-coupon bonds. And I know it's a little while until you have upcoming maturities, but it's always something that people are focused on. So just kind of talk about how you're thinking about strategically handling those in the future. Brian Donley: Sure, Tyler. The zero-coupon bond, the primary goal there was to give us some headroom with our covenants, specifically the 1.5x interest coverage, the minimum coverage. So we get the benefit of having zero-coupon interest to that covenant. So we got an immediate lift. And we drew down the revolver in July to protect liquidity because if we're below that 1.5x, we can't use the revolver. It's an incurrence test, incurrence of debt, including borrowing from the line of credit. So we had drawn down the line defensively in July. We started working through the strategies as we saw hotel EBITDA slipping further as the quarter moved on, executed on the zero-coupon transaction. We've repaid our '26 notes and we brought ourselves back in check. So those are the primary drivers. The zero-coupon bond basically gives us 2 years of runway on our debt maturities, our next debt maturity. Once we complete the rest of these asset sales, we're paying off the early '27 notes that are coming due in February '27. So our next debt maturity will be those zero-coupons in September of 2027. Operator: The next question comes from John Massocca of B. Riley Securities. John Massocca: Maybe just a quick clarifying question on the guidance. Does that include the impact of host health sales closed quarter-to-date? Brian Donley: No. We just -- the projection is based on the portfolio as of September 30. So the few hotels shouldn't make a big difference, the ones we've closed so far, but it just assumes all 76 that haven't sold are still in those numbers. John Massocca: Okay. And then as you think of kind of the pro rata impact of sales in 4Q and maybe even the final impact coming into 2026, is the overall amount of hotel EBITDA you expect to kind of lose in these sales still at the $53 million or so mark you laid out in August? Brian Donley: Roughly. I mean, yes, I mean, it's hard to predict what those would have done without the sales process impacting those properties. But generally speaking, around $50 million is the right number for the whole portfolio. John Massocca: And then in terms of hotel sales, it sounds like everything is expected to be wrapped up by the end of this year. What's the outlook for potential further dispositions in 2026, particularly given you're not going to have debt repayment needs until '27? Could we expect another strategic process maybe as you look at the zero-coupon bonds? I know they're secured by net lease assets, but just kind of curious as to the opportunity set for more hotel dispositions. Could it be structural like it was this year? Or is it going to be more opportunistic going forward? Christopher Bilotto: Yes. So the short answer is we are planning to continue with dispositions in 2026. As I mentioned kind of in my prepared remarks, we have a quantum of hotels that are negative EBITDA drags and these are on the full service side. And our initial plan is just to focus on a portion of those for launch of a sale earlier in the year. And we're going to kind of take a more incremental approach to kind of how we think about layering in the sales. I think it's important just to note, I mean, selling negative EBITDA hotels in itself takes time. And given kind of the overall backdrop of where the hotel kind of performance is going more kind of sector related, we just want to strike the right balance of timing to be focused on transactions. So it will be very much incremental in next year, but with the caveat that we will be selling hotels. And our plan is to really provide more definitive information as we round out the year, likely with our NAREIT presentation update on kind of the hotels themselves, how much in proceeds we expect, how much negative EBITDA in the cases for the initial round, we expect to see come off the books when these transact and other details supporting that initiative. John Massocca: Okay. I appreciate that detail. And then one last kind of one on the hotel front, purely the hotel front. The margin decline kind of quarter-over-quarter obviously, but even year-over-year, was that just driven by some of the fire disruption and insurance issues you talked about earlier on the call? Or were there other kind of factors going into that? Brian Donley: Yes, that's part of it. I think labor continues to be a big headline number for us and for every hotel company, frankly, continued growth in wages and benefit costs, market impacts, the availability of labor has a bigger outsized recurring impact to the portfolio and some of these other things. These insurance items were definitely an impact this quarter, but eventually, we'll get some business interruption proceeds, but that process takes a long time to offset. So there are other costs within the portfolio that continue to weigh on margins as revenues have been relatively flat. John Massocca: Okay. And then on the CapEx guidance, I appreciate all the detail. It still feels like the 2025 CapEx guidance is calling for a pretty significant ramp in 4Q versus what you've done in the last 3 quarters. Is there something driving that, particularly now that the Nautilus renovations are going to move to 2026 purely? Brian Donley: Yes. There's a significant amount of stuff that we have in the pipeline at various hotels that will have an outsized impact, including one of our large Royal Sonestas in Cambridge. We're starting a renovation project there that will carry through into next year. Same thing down in New Orleans. The Nautilus, the biggest part and the actual swinging of hammers and doing the rooms and the public space will happen next year, but there's still a significant amount of dollars going out the door in fourth quarter by FF&E releases and that sort of thing as well as other maintenance type capital that we're working through across the portfolio. So yes, it is outsized compared to the trend and -- but that's part of the rationale why we brought the guidance way down. John Massocca: And diversely kind of on a 2-year stack, I think the way guidance kind of changed is calling for overall CapEx to decline. Is that just a product of hotel sales? Or is there something else going on there where you're thinking you need less CapEx spend? Christopher Bilotto: Certainly, having less hotels, there will be less overall capital. But I think generally speaking, we have less kind of renovations planned during the year and just bringing down kind of the overall capital spend. So I think net-net, it's focused on just trying to kind of be more strategic about the deployment of capital going into the year. So this is -- Brian kind of alluded to the numbers going into 2026, and we'll continue to evaluate that with the goal that we can kind of see further reductions in out years as well. John Massocca: Okay. And just to be clear, the CapEx spend guidance does take into account the asset sales, correct? Brian Donley: Correct. We're not projecting anything related to those sale of hotels. John Massocca: No, no, I meant -- so I guess the number for 2026 includes assets that are planned to be sold. Or is that -- are you factoring in the fact you're going to sell these assets before you need to spend CapEx on them? Christopher Bilotto: Yes, correct. Yes. So it's -- I guess we'll answer it in 2 parts. For the '25 dispositions and the capital guidance, that's all factored in. There's no capital with -- specifically tied to what we're selling at this stage, just given where we are in the process. The capital guide for 2026, it's going to have some capital for the hotels we're selling. I mean, by the time we transact on those hotels, we're going to have to continue to make sure we're taking care of any mission-critical work. So there's going to be some numbers in there. But as we dial into the timing of the sales, then we would kind of rightsize that number. But I wouldn't view that as kind of an outsized amount that would fall off given some of those initial sales. John Massocca: Okay. And then maybe as we think about '26, bigger picture, is there a leverage target you kind of have in mind post some of these continued hotel dispositions? Brian Donley: Yes. I think with the completion of the 113 Sonesta sales, we've been quoting one full turn off of leverage when the dust settles, and that's still where we expect things to shake out. On the flip side, as you've seen in these numbers, EBITDA has eroded a little bit and really depends on where we come in next year, short of any other sales. So from a leverage target standpoint, we're going to -- when we get more specific as far as what we might sell in '26 in some of the full-service hotels and what the EBITDA impact is to the portfolio, we'll have more clarity on that. But at this time, the full turn of leverage from what we've done this year is sort of the benchmark in the short term. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Chris Bilotto, President and Chief Executive Officer, for any closing remarks. Christopher Bilotto: Thank you, everybody, for joining the call today. We look forward to seeing many of you at NAREIT in December. Please reach out to our Investor Relations team if you're interested in scheduling a meeting with SVC. That concludes our call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to APA Corporation's Third Quarter Financial and Operational Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, [ Stephane Aka ], Managing Director of Investor Relations. Please go ahead. Unknown Executive: Good morning, and thank you for joining us on APA Corporation's Third Quarter 2025 Financial and Operational Results Conference Call. We will begin the call with an overview by CEO, John Christmann. Ben Rodgers, CFO, will then provide further color on our results and outlook. Steve Riney, President; and Tracey Henderson, Executive Vice President of Exploration, are also on the call and available to answer questions. We will start with prepared remarks and allocate the remainder of time to Q&A. In conjunction with yesterday's press release, I hope you've had the opportunity to review our financial and operational supplement, which can be found on our Investor Relations website at investor.apacorp.com. Please note that we may discuss certain non-GAAP financial measures. A reconciliation of the differences between these measures and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website. Consistent with previous reporting practices, adjusted production numbers cited in today's call are adjusted to exclude noncontrolling interest in Egypt and Egypt tax barrels. I'd like to remind everyone that today's discussion will contain forward-looking estimates and assumptions based on our current views and reasonable expectations. However, a number of factors could cause actual results to differ materially from what we discuss on today's call. A full disclaimer is located with the supplemental information on our website. And with that, I will turn the call over to John. John Christmann: Good morning, and thank you for joining us. On today's call, I will review our third quarter results, outline our continued progress across key strategic initiatives and discuss our outlook for the fourth quarter and our preliminary plans for 2026. This year's macro environment has remained challenging, characterized by heightened volatility and uncertainty in commodity prices, largely driven by shifting trade policies and geopolitical tensions. While these external factors have created headwinds for the industry, they also underscore the progress that we've made at APA over the past 2 years. At the core of these efforts is a strong focus on lowering our controllable spend, which is delivering meaningful and sustainable improvements in our cost structure. Additionally, through disciplined capital allocation, a reshaped and more resilient portfolio and a sharper operational focus, we've built a stronger, more adaptable organization, one that can perform through cycles and respond quickly to changing market conditions. Our strategy is working, and the benefits are increasingly evident across both our operations and financial performance. With a stronger foundation in place, APA is well positioned to navigate any oil price environment for 2026. Turning to the third quarter. Results were once again very strong across the board. We have exceeded our production guidance in each of our operating areas, while capital investment and operating costs were below guidance. In the Permian, continued strong operational execution resulted in oil production above guidance, while capital investment and operating costs were in line with expectations. Moving to Egypt. In addition to the significant acreage award we previously discussed, we also received substantial payments during the third quarter, nearly eliminating our past due receivables. This progress reflects the strength of our partnership with the Egyptian government. Operationally, once again, gross BOEs grew sequentially in Egypt, underpinned by the ongoing success of our gas program. This reflects both strong well performance and continued optimization of infrastructure. On the oil side, our waterflood and recompletions programs are moderating our base decline and flattening our near-term gross oil production. In the North Sea, our continued focus on operating efficiency and cost management drove higher production and lower costs compared to our guidance. We remain focused on optimizing our late-life operations and are preparing to decommission our assets in a safe, efficient and environmentally responsible manner. Finally, in Suriname, progress at GranMorgu continues at pace and first oil remains on track for mid-2028. Moving to our outlook for the fourth quarter. In the Permian, following another strong quarter of operational execution, we are raising our guidance for oil production while maintaining our outlook for capital spend. On the gas side, with the recent dislocation in Waha pricing, we are adjusting our guidance to reflect temporary curtailments in the field. Although this slightly reduces our BOE volumes, the impact to free cash flow will be minimal. In Egypt, we are slightly increasing our fourth quarter production estimates in line with the ongoing momentum from our gas program. We are also drilling several high-potential exploration wells, including on our newly acquired acreage. The Western Desert presents a vast and highly prospective opportunity set. And although we are early in our gas exploration program, success here could be impactful for our portfolio. Turning now to our cost reduction initiatives. Our commitment to reducing every aspect of our controllable spend has been evident all year, and I want to recognize the diligence of our teams and the strong alignment among leaders across the organization. Through their collective efforts, we've made significant changes to our operations and driven meaningful improvements in both capital and operational efficiency. We are now on track to realize $300 million in savings this year and are also positioned to reach our run rate savings target of $350 million by the end of 2025, 2 full years ahead of the original goal of year-end 2027. Looking ahead, we see significant opportunity to build on this momentum, driving additional efficiency gains and further simplifying how we work. Through these efforts, we aim to deliver an additional $50 million to $100 million in combined run rate savings across G&A, capital and LOE by the end of next year. Moving to our preliminary plans for 2026. With the recent volatility in oil prices, we are evaluating multiple capital allocation scenarios with a focus on free cash flow generation. While we have significantly improved our cost structure and reduced breakevens across our asset base in the last 18 months, we believe a flexible approach to capital investment is warranted in the current price environment. In the Permian, at our current pace of 5 rigs, we expect to deliver consistent year-over-year oil production of approximately 120,000 barrels per day, with capital investment of around $1.3 billion. However, if oil prices move lower, we have the operational flexibility to moderate activity to reduce capital further with minimal expected impact on 2026 oil volumes. In Egypt, we plan to maintain consistent activity levels and capital spend with a similar allocation between oil and gas drilling as this year. This would allow us to grow gas volumes on a gross basis year-over-year, gross oil production will remain on a modest decline. We will continue to monitor commodity prices over the coming months, and we'll provide formal guidance for 2026 in February. In closing, our third quarter results underscored the strong operational performance and consistent execution across all operating areas. Through the rigorous focus of our teams, we are driving significant cost savings ahead of schedule and increasing our targets for the future. As we head into 2026, we will remain disciplined in our capital allocation and continue prioritizing free cash flow generation. With that, I will turn it over to Ben. Ben Rodgers: Thank you, John. For the third quarter, under generally accepted accounting principles, APA reported consolidated net income of $205 million or $0.57 per diluted common share. As usual, these results include items that are outside of core earnings, the most significant of which was $148 million unrealized loss on derivatives. Excluding this and other smaller items, adjusted net income for the third quarter was $332 million or $0.93 per share. LOE came in below guidance, largely due to ongoing cost savings, primarily in the North Sea. G&A was in line with guidance despite a larger-than-expected impact from mark-to-market adjustments related to stock compensation. On an underlying basis, G&A was approximately $15 million below guidance. We continue to progress multiple initiatives across all categories of G&A and expect this momentum to carry into 2026. Current income tax expense was lower than anticipated, primarily due to a change in our projected 2025 corporate alternative minimum tax. New guidelines issued by the U.S. Treasury late in the quarter clarified the treatment of net operating losses and depreciation deductions under the minimum tax framework. As a result, we now expect to owe little to no U.S. taxes in 2025 and 2026. Overall, this was an excellent quarter during which APA generated $339 million of free cash flow and returned $154 million to investors through dividends and share buybacks. During the quarter, net debt was reduced by approximately $430 million through a combination of free cash flow generation and payments from Egypt. This balance sheet progress has enabled us to realize net financing cost savings, excluding gains on the extinguishment of debt of $75 million so far in 2025 when compared to the same period in 2024. We ended the quarter with $475 million in cash, providing financial flexibility as we enter 2026. This gives us the ability to opportunistically repurchase debt, address upcoming maturities and thoughtfully manage the timing and execution of our decommissioning and asset retirement obligations. Turning now to our cost reduction initiatives. John already covered our progress to date and outlined the targets we've set for 2026. So I'll focus on the key movements in our 2025 guidance for controllable spend items relative to the $300 million of savings we expect to achieve this year. While these savings are reflected in our guidance for LOE and G&A, there are a few offsetting effects within capital. Since issuing our initial 2025 capital guidance in February, our teams have identified and implemented an additional $210 million in cost reduction opportunities, primarily in the Permian. Over the same time frame, our capital budget has been reduced by $150 million. This results in a $60 million difference between the change in our full year capital guidance and the change in capital cost savings since the beginning of the year. The largest portion of this variance is attributable to capital investments and LOE reduction initiatives. As highlighted last quarter, we identified several high-impact projects aimed at sustainably lowering future Permian operating costs, such as building saltwater disposal systems, consolidating field compression and other facility optimization projects. Capital is being directed toward these efforts, which are expected to generate strong returns with short payback periods and position us for structural operating cost improvements in 2026 and beyond. Another component of this difference is activity related, which primarily relates to the completion of 2 DUCs at Alpine High this quarter. Shifting to our oil and gas trading portfolio, which has been a meaningful and relatively steady contributor to free cash flow generation this year. Based on current strip pricing, we expect $630 million in pretax income from our trading activities for 2025. To enhance cash flow certainty heading into next year, we have added to our 2026 hedge positions. Currently, about 1/3 of next year's gas transport position is hedged, locking in roughly $140 million of cash flow. Turning to our asset retirement and decommissioning obligations. Our goal is to reduce these liabilities through a prudent approach that balances operational efficiency with financial discipline. As an example, during the third quarter, we identified a well at one of the fields in the Gulf of America that required decommissioning. Rather than mobilizing a vessel for a single well and returning later to complete the remaining work, we chose to decommission the entire field of 5 wells in a single campaign. This enabled us to capture meaningful operational efficiencies and reduce the total cost that would have been incurred over time. We have identified similar opportunities to execute during the fourth quarter, which led us to increase our full year 2025 ARO and decommissioning spend guidance by $20 million. Going forward, we will continue to pursue similar initiatives, proactively managing these liabilities in a way that is both operationally efficient and financially sound. For 2026, we expect our combined ARO and decommissioning spend to increase, reflecting a decline in spending in the Gulf of America, offset by higher planned activity in the North Sea. As a reminder, APA receives a 40% tax benefit on all decommissioning spend incurred in the North Sea. Therefore, on an after-tax basis, our total spend will increase year-over-year by roughly $55 million. In closing, as we enter 2026, our priorities remain centered on disciplined capital allocation, further cost reductions and continuing to strengthen the balance sheet. Our development capital, inclusive of approximately $250 million for Suriname development is expected to be 10% lower than 2025, reflecting improved capital efficiency across our portfolio. This preliminary plan positions APA to sustain Permian oil production, deliver continued gas growth in Egypt and advance the world-class opportunity we're developing in Suriname Block 58. Together with our ongoing focus on reducing controllable spend, these actions further strengthen our foundation for durable free cash flow generation and long-term value creation. With that, I will turn the call back to the operator for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: So the capital guide is, I think, puts you below street for next year. But I'm curious, John, if you could offer a little bit of color on the flexibility you suggested. I mean we'll see if oil -- where oil ends up, but what's the nature of the flexibility you have? Because I think a few years ago, when oil prices collapsed, you allowed your Permian production to decline. It sounds like that's not the case this time. So is that a DUC manipulation? Is it drilling but not completing? Or can you walk us through where the flexibility is against what looks like a kind of sub-$2.2 billion CapEx number now for next year? John Christmann: Yes. Great question, Doug. I'll just start out with just in general, our mindset going into '26 is focused on capital discipline. So -- and as you point out, we've got flexibility if oil prices move lower. Today, we envision a plan that's going to maintain Permian oil at about 120,000 while we're growing our BOEs in Egypt, driven by gas and still funding our Suriname and other exploration as well as our decom and our ARO. Development CapEx is down 10%. It's mainly in Egypt with CapEx -- or mainly in the U.S. Permian with CapEx in Egypt being flat. So I think the other factor is we're going to continue to focus on the cost savings. Clearly, if things soften, as we've mentioned, there is room. We could always decide to drop more rigs in Permian or Egypt if need be. But I think we're in a good place with a pretty good range and a pretty good cushion right now on oil price. So -- but there is flexibility. Douglas George Blyth Leggate: Okay. I appreciate that. My follow-up is actually on Egypt. I mean, obviously, you continue -- it's almost like a beat and raise on your gas guidance. But there is some -- I guess there's been some discussions from certainly questions we've been getting about the legacy accelerated cost recovery from when you re-signed the contract. And what happens to -- how big a delta that could be on cash flow in 2026 as those legacy costs roll over? So I don't know if there's any way, Ben, to -- I know it's complicated. There are a lot of moving parts, but is there any way to kind of summarize what the potential delta could be on that in the context of your rising gas production? Ben Rodgers: Sure. So when we modernized the contract about 4 years ago, we negotiated a recovery of a backlog of costs, and that was around $900 million. So per quarter, we've had the benefit of about $45 million. When that rolls off after the first quarter of next year, that $45 million, let me break it down, is the total number. We don't lose all of that, though, because of the way the PSC works. We only lose about 70% of it with the other 30% being picked up on the profit oil side. So that $45 million is actually on a 3/3 basis closer to about $30 million. So net to our 2/3 interest, the cash flow impact on a quarterly basis is about $20 million. So for next year, again, since we still have it through the first quarter, so for 3 quarters next year, it's roughly $60 million in Egypt. But we think with -- there's a number of different factors that we're working on to offset that, whether it's continued capital efficiencies in Egypt because we have seen those this year. A lot of the discussion this year has been on the Permian, but Egypt has made great strides on the capital front. So there's potential for that to continue next year on the cost side for both capital and LOE. We've got expected continued success and performance on the gas side. And then other oil projects, too. We shouldn't look past what we've been able to do in the second half of this year on the oil program and the potential for some of that to carry next year. So a number of different factors, Doug, I think, are going to offset that $60 million -- had the potential to offset that $60 million free cash flow impact in Egypt. John Christmann: Yes. And the only thing I'd add, Doug, if you step back and think about it, removing that backlog now is a good thing financially. We've got our past dues down, lowest they've been. It really underscores the investment environment we have in Egypt, just how good things are because we've been able to capture basically the PDRs and the backlog now and shows the success in the modernization process. Douglas George Blyth Leggate: And the balance sheet has seen the benefit of that, guys. Operator: Your next question comes from the line of John Freeman with Raymond James. John Freeman: I was just following up on Doug's question on 2026 capital. I appreciate all the color you all are providing on the call. It seems like the other kind of lever you all got depending on commodity prices on the budget would be the exploration capital. And unless I missed it, I didn't hear any sort of commentary on that. Just how we should think about that relative to the $65 million you're spending this year? John Christmann: Yes, John, I think going in, just by nature of the way the program is setting up, '26 is going to be a pretty light year exploration-wise for us. We could get into building some ice roads in Alaska late next winter as you prep for what would be really more in '27 as well as timing of the Suriname potential exploration wells that could pop into late next year. But in general, '26 is likely going to be a fairly light year exploration-wise for us. John Freeman: Got it. And then my other question, obviously, you all continue to increase the realized and projected savings and also an accelerated time line. And when I just look at how much progress you all made from the update with 2Q results, I'm just looking for any more that you all could sort of give specifics on just to see that big of an improvement, both on the realized savings as well as the sort of run rate targets for that much to happen since 2Q. Just any specifics you all can point to, to drive that? John Christmann: Yes. I'll just say if you step back from where we were in February and you look at the progress, 2 places, right? G&A, we've been able to do more than we thought. Obviously, that's something we directly control. But the other place has been the capital side, and that's been driven mainly by Permian. So to think where we are, we started out in February, thinking we'd realized in calendar year '25, $60 million. And to now know we're at $300 million. And obviously, we set out a 3-year target of the $350 million by the end of '27 to get there by the end of '25. Very, very proud of the entire organization because we've just been razor-focused on what do we do on the cost side, and you're seeing that show up. But I'll let Ben provide a little bit of color. We've added by year-end '26 now another $50 million to $100 million to that. But I'll let Ben jump in and give some more color. Ben Rodgers: Sure. So John, when you think about the -- what we've done this year, as you can see, huge strides made on the capital front, followed by G&A. That's in both what we're capturing this year as well as in that $350 million run rate. Most of that is in capital and in G&A with some expected in the run rate on LOE. For that incremental $50 million to $100 million, it -- actually, the bulk of that is going to come from G&A and LOE. I think capital is going to contribute some. But because capital contributed to so much in 2025, as you look to that $50 million to $100 million incremental by the end of next year, a lot of that's going to come on G&A initiatives as well as on the LOE front. Operator: Your next question comes from the line of Scott Hanold with RBC Capital Markets. Scott Hanold: I'm interested in Egypt gas. Obviously, it's going well for you all. And I think you're running, if I'm not mistaken, around 8 rigs on the gas side. And just -- with respect to the new terms that you have on the gas pricing, is there any unconstrained level on gas growth? And could you give us some sense of where you think gas production could go here over the next, say, year or 2? John Christmann: Yes, Scott, I mean, if you step back and look where we are, we're actually running 12 rigs in Egypt and 3 of them right now are on gas, so -- instead of 8. So just 1/4 of the program. But if you look at where we are and you go back, I mean, we signed this contract a year ago. And so to look at the progress and just see where we are, we've exceeded all of our internal expectations, and it's been really the success of the program, the delivery of the wells. And most importantly, the ability to get things tied in and not back out some lower pressure gas. So the team has done a phenomenal job. We're going to continue on this trend well into next year. Longer term, it's going to be dictated by the success of the exploration program, and that's something we really -- we've been exploring for oil in the Western Desert for 3 decades. We've now been exploring for gas for really 1 year and kind of just getting started on the exploration side. So a lot of that's going to hinge on our exploration program. But we've got good momentum. We're going to grow year-over-year on gas. And we do have processing capacity that we might need to pipe into depending on where we have success. But we're really just getting started, and we're excited long term about the gas potential. Scott Hanold: Yes. But specifically, I think your agreement on the pricing is basically everything over above a predetermined PDP. And I'm just kind of curious, is there any upper limit to that? Or is it all premium priced over and above that going forward? John Christmann: Everything that we bring on new gas gets new gas price. And so I mean, even if we were just to hold gas flat, our gas price is going to grow as that the old PDP decline curve kicks in. So we're sitting in a good place price-wise. And quite frankly, we're excited about the inventory, but we just need to drill some exploration wells. Scott Hanold: Got it. And then if I could turn to a question on the Permian. I think you all are working on a potential inventory update assessment, hopefully, by early next year. Can you give us a sense of like what are you thinking as well about some of the deeper potential? There's been a number of like Barnett and Woodford being targeted by some of your peers in the Midland. Is there a good amount of overlap with that with you all? John Christmann: Yes. I mean if you step back, I mean, we were drilling Barnett and Woodford wells back as early as 2016, 2017, right? So I mean, we've got a good view on that. There is overlap into our positions. The plan at this point, as we've said, when we've done an updated characterization and Steve can add some color on all the nuances as we -- it becomes a very iterative process. But I mean, we are planning to come back to the market first quarter of '26 with an update. But today, we strongly believe in terms of core development opportunity and development inventory, consistent with what we're drilling today and into the next several years, we can do that well into the early 2030s. Ben Rodgers: Yes. With the significant capital efficiency gains that we've been able to capture this year in the Permian. That's obviously having an iterative effect, as John would say, on the quantum of inventory, and it's really requiring us to go back and -- we came into the year kind of rethinking a bit about our spacing and frac size philosophy. And with the efficiency gains that just causes us to rethink all of that all over again. And so we're coming through every bit of our inventory. So it's not just a case of looking at what's in addition to what we already know. We're also going back and relooking and reexamining everything that we had in inventory to begin with and also all of the Callon acreage as well and other acreage that we've acquired over the years. So every single undrilled landing zone and even new potential landing zones are being reviewed pretty extensively because of the significant efficiency gains. The lower you can drill and complete a well cost-wise, the more resource you can access. And that's a really important aspect of the quantum of inventory. So there's a huge amount of work going on around that. Operator: Your next question comes from the line of Michael Scialla with Stephens. Michael Scialla: John, it sounds like you're fairly cautious on the oil macro like a lot of your peers. I want to get your thoughts on the dynamics there. And you mentioned you're hedging more gas. I just want to get your updated thoughts on potentially hedging oil. John Christmann: Yes. I just think, Mike, going in with all the progress we've made on the cost structure and clearly, we've got a WTI price that's been sitting around $60, it's prudent to be cautious. And so we're going into '26 with a disciplined mindset. And like always, we've set ourselves up with the improvements in the controllable spend and the cost structure and the balance sheet, we're in a really, really good place. And the last thing you want to be trying to do is accelerate inventory into an oil market like we sit in today. So in terms of the hedging, not really hedging gas, Ben can jump in at some of the transport and locking in some of those gains there, but I'll let Ben make a few comments on the gas transport hedges. Ben Rodgers: Sure. Yes. So we -- just like we did this year, looking to lock in cash flow associated with the Waha to Houston Ship Channel and Waha to NYMEX, Henry Hub differential, carried that through into next year. As you know, there's a contango curve on the NYMEX side, but still a pretty wide differential between both Ship Channel and Henry Hub and Waha. And so locking that in gives us surety of cash. We've only got 1/3 of it hedged right now. So should that continue to widen, we would make it on the unhedged volumes. But just getting that certainty of a certain amount of cash flow is -- we thought was prudent. We did it this year. And when you compare that to hedging on the oil side and either a flat to backwardated market, just felt like more prudent to capture cash flow for the corporation on the transport side versus on the crude side when we've got a lot more optionality in our portfolio to manage versus locking in any type of oil hedges. But should the opportunity come up on the oil side, we could do that just more opportunistic on the gas side. Michael Scialla: Makes sense. Appreciate that detail. I think you said last quarter, you breakeven now in the Delaware is kind of in the low 50s. Is that where you would kind of pull the trigger and pull back on Permian activity? What would that look like? Would you just build DUCs through that? Or would you actually drop rigs? John Christmann: I think a lot of it -- we've got a lot of flexibility, Mike. It will just depend on where we found ourselves, right? I mean if you look at Delaware breakevens, yes, low 50s, Midland is in the mid- to low 30s. So a lot of that would just hinge on where we found ourselves and what we thought made the most sense. But the key message there is lots of flexibility in terms of with the program. Michael Scialla: So you could actually potentially -- is there room for you to move rigs if prices did go there that you would move them over to the Midland and kind of pause on the... John Christmann: Move or drop if needed to be, right? Yes, move or drop. Operator: Your next question comes from the line of Charles Meade with Johnson Rice. Charles Meade: I want to go back to Egypt, if I may. The 2 million acres that you guys picked up most recently, I think I heard you say in your prepared comments, you're actually drilling some exploratory wells on that new position. But could you add to the picture about what's available on these 2 million acres? And I'm thinking how much of it do you have seismic over? How much of their other more simple things like how much do you have road access to midstream, that sort of thing. And all with an aim of when that's going to start to be able to work into your capital budget and delivering for you guys? John Christmann: No, it's a great question. I mean if you look back in the -- we've shown that 2 million acres sits kind of across a lot of the desert and it fits in nicely with our existing footprint. So we do have access to it. It can be tied into infrastructure for the most part. I would say there is both oil and gas prospectivity, and we're kind of already getting after that. So we're very excited about it. I think there's some low-hanging fruit on that acreage that we're getting after. A lot of it is just going to hinge on, Charles, what we find and where it is and then what do we need to do to tie it in. Some of it we might need to build some jumper lines or things to our facilities, but not all of it. A lot of it is pretty short arms reach away from our existing operations. So it fits nicely. I'd say it's highly prospective, and we're getting after it and look forward to updating in the future. Anything you want to add, Steve? Stephen Riney: Yes. I think we've actually published a map of that, of the old acreage with the new acreage on the same map with the infrastructure overlaying that. And I think if you -- I think that might have been in the second quarter supplement even. So if you take a look at that, you'll see that 2 things. Number one is that the acreage is actually -- it's not like one big chunk of acreage. It's spread out all over the place. And there's some acreage in there that I would say -- I would kind of classify that as just a simple step-out type of stuff relative to what we're doing on the acreage right next door. And then the -- and it ranges all the way to some chunks of acreage that is even new play concepts that we're looking at. And so the exploration that's going to go through all of that acreage is going to span the full span of this full range of types of exploration from kind of lower risk step out to kind of new concept play opening. The other thing is that you'll see that there's not much of a gap anywhere in that acreage from nearby infrastructure or nearby activity, except for very few places, there's current Apache activity going on near all of that acreage. Charles Meade: Got it. And then for the follow-up, still on Egypt gas. On Slide 3, you guys have a bullet point saying that with the new pricing arrangement that gas development is at parity with mid-cycle Brent. I wonder if you could just elaborate a little bit more on what the assumptions are there? I mean what mid-cycle Brent, what your assumption there is and also what the -- what parity means, whether that's IRR or what else goes into that statement? Stephen Riney: Yes. So what we have is an arrangement. We sell all of our -- the gas that we produced to Egypt, and we have a fixed price on this new tranche of gas. We have a fixed price on the old tranche of gas. We have a fixed higher price on the new tranches of gas. And the way that, that will work is that you end up getting a mix of different of price as you go forward as the PDP declines on the old price of gas and new volumes come on, you get a rising price as you go through time. Sorry, the mid-cycle -- so with that price, sorry, on the new volumes, with that new price, gas is effectively equivalent to a $75 to $80 Brent price on oil drilling in Permian -- I mean in Egypt. So you've got -- we can drill for gas that's equivalent at a fixed price that's equivalent to $75 to $80 Brent oil on acreage that would be right next door or nearby where we could drill oil wells. John Christmann: We included infrastructure. Stephen Riney: Yes. We included the potential for new infrastructure requirements in that analysis. Operator: Your next question comes from the line of David Deckelbaum with TD Cowen. David Deckelbaum: John or Ben, curious when you talk about the program for '26 and holding 120,000 barrels a day flat with 5 rigs. Are you still -- are you assuming any incremental benefits on D&C costs and ask that in the context of you guys have made some significant headway. Is there any reason why you can't have a D&C target sort of that rivals the best peers in the Delaware for next year? John Christmann: And I think we're making great progress. And if you look, part of the carry-through into '26 is the savings that we think are real in the progress we're making. So as Ben said, we're going to add another $50 million to $100 million of savings in '26. Some of that's going to be on capital. But I'll let Steve jump in a little bit in terms of the progress we're making on the capital side and where we think we sit. Stephen Riney: Yes. I would say, and I think we said this on the second quarter earnings call. In the Midland Basin, we feel like in many ways, we're getting to be pretty close to best-in-class on the drilling and completion side. In the Delaware Basin, we're probably around peer average. And so there's still room to go there. So just in terms of reconciling the 5 rigs holding volumes flat relative to 2025, 120,000 barrels of oil a day. There are some things that are benefiting us being able to go to 5 rigs. We're not saying that we've said in the past that 6 rigs will hold Permian relatively flat around 120,000. We're not saying that's 5 now. We still believe that's probably closer to 6 at this point in time. But there are some things that are benefiting us in 2026, where we've made some good strides recently around base uptime, base volume uptime kind of reducing the underlying decline rate a bit, which will help as we roll into 2026. There are some facilities where we're facility constrained now. So we brought on wells. The wells are actually constrained a bit in their producibility and that will resolve itself as we go into 2026. That helps a bit. There is a small reduction in DUC count. It's about 5. So we'll exit '26 right now based on current planning with about 5 less DUCs, fewer DUCs than we enter '26 with, not a significant amount, but just being transparent, there is a slight reduction in DUC count. And with all of that, our development capital in the Permian this year on a like-for-like basis, eliminating stuff that we've sold is about $1.45 billion. Next year, that will be $1.3 billion. The $1.45 billion actually includes about $200 million of savings that we've talked about that we actually captured in the current year in 2025. And so there's another $150 million of savings as we roll through 2026. That does -- it benefits from kind of the run rate of what we've done so far. It does have some additional savings planned in there as we go forward. Much of that would probably come in the Delaware Basin versus the Midland Basin, but we still believe there's room to run in the Midland Basin as well. And that does include running 5 rigs instead of -- and we're down to 5 rigs today, but we had been running 6 earlier. So that includes all of that. David Deckelbaum: I appreciate all the additional color, Steve. My follow-up is just on the North Sea. I think you guys highlighted the tax benefits, in particular, in '26. I guess as you -- are you accelerating the ARO activity in the North Sea? And what are the, I guess, results or consequences as you see on the production side of that asset over the next couple of years? Ben Rodgers: Yes. So on the production side, just like we mentioned earlier this year with little to no investment in the asset, which was expected after all the different changes through the government there, we'll expect production to continue to decline from '25 into '26. I think we'd said 15% to 20%. And so that's probably a reasonable assumption from a production standpoint. But on the tax side, a lot of that's price dependent depending on if there's taxable income in the U.K., but there will be tax savings because of the increase in the ARO spend that we have next year, again, because the government pays 40% of that ARO. And so we've talked about that before in terms of the increasing profile when we announced COP last year. And so that will increase next year. But again, the cash flow impact of all ARO and decom spend year-over-year after-tax cash flow impact is only $55 million. So very manageable when you look at the total corporate profile from everything else that we have going on there. So all in all, there's -- the taxable net income from the U.K. is price dependent, but there's going to be savings from ARO spend. Stephen Riney: Yes. And we are -- just to be really clear, we are not accelerating activity in 2026. We've had this plan for quite some time. It's primarily a well abandonment program at Beryl Bravo and initiating a subsea well abandonment program as well that will run for several years. So not an acceleration of any activity. Operator: Your next question comes from the line of Betty Jiang with Barclays. Wei Jiang: I want to ask about non-D&C CapEx. Ben, you talked about repurposing some of the CapEx savings this year into infrastructure investment and LOE reduction initiatives. Are there other opportunities along that line? And how should we be thinking about the benefit of these investments? Ben Rodgers: Sure. So for this year, I mentioned in my prepared remarks, the $60 million difference between captured savings and our capital guidance. Roughly 1/3 of that was investment in these LOE projects that we started this year. We do expect that to continue into next year as we identified different opportunities. And again, most of it's around facilities and compression and other items that I've mentioned before. And we will continue to invest capital into those projects that will have ongoing LOE savings. So it's not a big capital number when you think of -- Steve mentioned the $1.45 billion for Permian this year and the $1.3 billion next year. If you're talking $20 million on that $1.3 billion base, it's not a big piece, but it does help us on LOE. I will say that the teams are working across all different aspects within LOE, not just trying to find ways to lower it through capital investment, but through really all different areas that make up our operating expenses there in the field. And that's not also just in the Permian. Clearly, we've done it this year in the North Sea and in Egypt as well. So there's not going to outline a per barrel metric for that for the savings, but do expect savings, and they'll be staggered throughout '26 and into '27 as well. Stephen Riney: Yes. If I could just add a bit to that. Obviously, on LOE for 2025, we didn't capture the savings that we had hoped to capture this year at the corporate level. But there's some real success underneath that, that I think is worth mentioning. Most of the struggle has actually been in the Permian, and that's where most of the investment that Ben is talking about around consolidating compression and rationalizing that and around produced water disposal wells and things like that. That's going to be targeting LOE primarily, not entirely, but primarily in the Permian Basin. And those are investments that we're going to be beginning this year. There will be more in next year, and you'll see the benefit of those probably showing up in the second half of next year. But I did want to highlight, in particular, the North Sea, significant progress in reducing offshore operating costs this year, and that's kind of hidden in what's going on in LOE and some very good progress in Egypt as well without any meaningful amount of capital spend. Wei Jiang: Got it. No, that's really helpful color. My follow-up is on -- back on the ARO. Is -- so the net $50 million delta would imply roughly the headline ARO is up close to $100 million. It does seem a bit higher than where we were thinking for 2026. So can you just speak to how we're tracking on ARO spend just over the next several years? Should we be holding at that level in North Sea beyond 2026? Ben Rodgers: Yes. So for -- we'll probably wait, Betty, for a multiyear outlook and do that at some point next year, most likely in the first quarter if we do a portfolio update. We've talked about the ramp of the ARO, particularly in the North Sea. And so -- and we also talked about this year that the Gulf of America was going to be higher than prior years and also higher than what we expect moving forward. So the moving pieces for next year is that you see Gulf of America come down pretty significantly back to the kind of $100 million, $120 million range, which is typical for the legacy assets that -- the non-op assets that we own as well as the old Fieldwood assets. So that normalizes, and I would expect that to stay pretty steady even after '26. And then for the shape of the North Sea, it really -- I'll just go back to what Steve said originally when we outlined that. Starting in '25, it was pretty de minimis. It was about $30 million this year. But that grows about $600 million of our after-tax ARO is between now and 2030. And then the other $600 million is between 2031 and ramps down to 2038. So we'll provide more details potentially about what '27 and '28 are, but that increase next year, you're right. So about -- in the high 100s this year. So it would be kind of in the mid- to high 200s next year, but it just shouldn't go without saying that the after-tax impact to us is only $55 million. Stephen Riney: Yes. I just -- and Ben commented on some -- an outline of the shape of ARO spend in the North Sea that I talked about on an earlier earnings call. That outlined that shape of spend starting in 2026 and going into the 2030s, that shape has not changed. It's still basically the same. It grows to 2030 peaks around there and then starts declining. Mostly well abandonment in the first half of that and facility platform and subsea infrastructure in the back half, mostly. Wei Jiang: Got it. Just -- and just to confirm, that $55 million already includes the normalization of the lower Gulf of Goa decommissioning spend? Stephen Riney: That's correct. Operator: Your next question comes from the line of Paul Cheng with Scotiabank. Paul Cheng: Ben, you said the cash tax -- U.S. cash tax will be 0 for this year and next year. Do you have any rough idea then how that look like in 2027 to 2030? Ben Rodgers: Yes. Right now, Paul, our focus has been for this year and next year. We've made significant progress on the tax front and have seen some significant savings. I think with -- when you get past 2026 because a lot of the changes this year and next year that we saw we outlined this quarter were specific to the corporate alternative minimum tax guidelines that came out and less so with the OBBB impact that we outlined in August. As we get into '27 and '28, there's still some guidelines that we'll need for the interpretation of the OBBB. But again, the intention of that was that we get the full benefit of IDCs and bonus depreciation. And so it should take U.S. taxes pretty close to 0. There's still some work that we're going into that with our tax team, but that's the full intention of the legislation and where we think it could lead past '26. So we think that there's continued benefits, but what we've outlined are the benefits for just this year and next year. Paul Cheng: Okay. Great. And maybe this is for John. For Alaska, you're saying that next year is going to be pretty minimum spending. So how should we look at the program and you have the Sockeye discovery and you guys seems like you have very big -- maybe pretty optimistic on that. So what's the game plan that how should we look at over the next 2 or 3 years? And when that we will see maybe a little bit more data out or the -- more news about what the development may look like if that's one. John Christmann: Yes. No, it's a good question. And what we said, Paul, was we're in the process right now literally of reprocessing multiple surveys to come back with what is the next steps in terms of appraisal at Sockeye and exploration. So right now, we're doing technical work. The teams are working away, and we're reprocessing the seismic. We've got 2 really nice discoveries, and we're kind of stitching together a lot of the seismic surveys so we can come back with the next steps. So we'll come back at some point. But right now, we just said actually next year, there won't be any winter drilling this year. Obviously, we'd be getting ready for that now, but it will likely be next winter, which is why late next year, we're likely to be building some ice roads as we bring a rig back. But we'll update you once we've kind of worked through what are the next steps in terms of appraisal and exploration, but we are excited about Alaska. Operator: Your next question comes from the line of Leo Mariani with ROTH. Leo Mariani: Just on the exploration front, it sounds like not a lot of capital next year. Can you give us kind of an update on Uruguay? And then also just curious on the decision to bring some DUCs on in Alpine High and what seems like a bit of a challenged to Waha market here of late. John Christmann: Yes. So just 2 things, Leo. Number one, in Uruguay, we actually have a data room open. We've been showing that externally. There's been a lot of industry interest in our Uruguay program. And so we'll have an update at some point, but don't have anything to announce today on that. And then the 2 completions, the 2 DUCs we completed at Alpine were purely acreage retention. There were wells we drilled. We needed to go ahead and complete those. We've actually got a better Waha price now. So the economics look really good. But it's about preserving optionality and holding acreage in the future. Ben Rodgers: Yes. Just as you look at the timing, Leo, real quick, the timing of when we bring those DUCs on, you get that flush production December, January, February, Waha is well above $2. And so the timing feels right to bring them on. But again, the main reason for doing that to what John said is to retain some acreage there. So it just seemed -- you get the flush production, the economics line up and you get to retain the acreage for optionality. Leo Mariani: Okay. And just on the capital for '26, I just wanted to kind of square everything in the circle here. So it sounds like development CapEx down 10% year-over-year, exploration CapEx down a little bit. ARO spend, you talked about up kind of $55 million after tax. Is there anything else like infrastructure or anything like that, that might kind of be a final moving part? And just any kind of thoughts on changes for that next year? Ben Rodgers: That really captures the big items. So -- because any infrastructure spend would be captured in the development capital. So that really captures all of it. The only other piece is the marketing book right now is kind of in the low to mid-400s as we look at next year at strip. So another very solid year from our marketing book. Again, that's both transport as well as LNG. But other than that, I think we've captured most of the big items. Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to John Christmann for closing remarks. John Christmann: Thank you. Our strong results year-to-date have been underpinned by remarkable performance across our entire business. This underscores confidence in our plan and creates positive momentum going into 2026. The capture of meaningful cost savings has improved our free cash flow profile, enhanced our investment opportunities and added inventory to our portfolio. Our efforts to rigorously improve our cost structure will continue, and we are now targeting an additional $50 million to $100 million in run rate savings by the end of 2026. We continue to benefit from our diversified portfolio with a step change in capital efficiency in the Permian, strong momentum with Egypt gas and the GranMorgu project in Suriname progressing on schedule. Lastly, we remain very optimistic on the impact our exploration portfolio can have on our future. With that, I will turn the call back over to the operator, and thank you very much for joining us today. Operator: Yes. Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Hello, and welcome to today's Ingevity Third Quarter 2025 Earnings Call and Webcast. My name is Bailey, and I will be your moderator for today. [Operator Instructions] I'd now like to pass the conference over to John Nypaver. So please go ahead when you're ready. John Nypaver: Thank you, Bailey. Good morning, and welcome to Ingevity's Third Quarter 2025 Earnings Call. Earlier this morning, we posted a presentation on our investor site that you can use to follow today's discussion. It can be found on ir.ingevity.com under Events and Presentations. Also throughout this call, we may refer to non-GAAP financial measures, which are intended to supplement, not substitute for comparable GAAP measures. For example, we are presenting the pending divestiture of our Industrial Specialties business for the first time within discontinued operations. In the appendix to our slides, we provide details that reconcile the total operations. Definitions of these non-GAAP financial measures and reconciliations to comparable GAAP measures are included in our earnings release and are also in our most recent Form 10-K. We may also make forward-looking statements regarding future events and future financial performance of the company during this call, and we caution you that these statements are just projections and actual results or events may differ materially from those projections as further described in our earnings release. Our agenda is on Slide 3. Our speakers today are: David Li, our CEO; and Mary Dean Hall, our CFO. Dave will provide introductory comments. Mary will follow with a review of our consolidated financial performance and the business segment results for the quarter. Dave will then provide closing comments and discuss 2025 guidance. With that, over to you, Dave. David Li: Thanks, John, and good morning, everyone. It was a highly productive quarter of strong execution for Ingevity. First, we achieved an important milestone in our strategic portfolio review with the announcement of the sale of our Industrial Specialties business for $110 million. We expect this transaction to close in early 2026 and will likely use the majority of the proceeds towards further debt reduction. Second, we were pleased with our business segment results. Performance Materials delivered another strong quarter within a dynamic global auto environment. Going forward, we are encouraged by the adoption of hybrids and fuel-efficient ICE platforms, which should drive demand for advanced Ingevity solutions and content. Road Technologies also had a great quarter, highlighted by record sales for our pavement business in North America. Finally, APT delivered strong margins as the team prioritized operational improvements against the backdrop of continued weak end market demand. Overall, these contributions reflect our team's disciplined execution as well as strategic repositioning actions, which drove best-in-class EBITDA margins of 33% reflecting our sixth consecutive quarter of year-over-year margin expansion. Strong cash flow generation and disciplined capital allocation enabled us to reduce debt, achieve our leverage target ahead of plan and return capital to shareholders through share repurchases. And third, I'm very excited to announce we hired Ruth Castillo to lead our Performance Materials business. Ruth is a strategic and experienced leader with a deep understanding of how to navigate complex businesses and unlock new growth opportunities. I look forward to her leadership in guiding Performance Materials into its next phase of profitable growth. Before I turn it over to Mary for more details on the financials, I'm pleased to share that we will host an Investor Update on December 8. This will be a virtual event where we'll share the results of the strategic portfolio review and provide an assessment on what we believe the company will look like over the next 2 years. More details on how to register for the event will be forthcoming. And now I'll turn it over to Mary. Mary Hall: Thanks, Dave, and good morning all. It's nice to have some good news to share in this unsettled economic environment. Our Q3 results reflected continued growth in adjusted EBITDA, margins and free cash flow despite pressure on the top line, affirming the resilience of our businesses and the successful execution of our repositioning actions in Performance Chemicals. As previously noted, with the announced sale of Industrial Specialties, we're now reporting the results of that business as discontinued operations, with the sale expected to close by early 2026. Given our close proximity to year-end and the full year guidance is based on total company performance, I'll focus my comments on total company results so that comparisons to prior periods are apples-to-apples. I'll provide more color on continuing and discontinued operations when we discuss the Performance Chemicals results. Please refer to Slide 5. Total company sales of $362 million in Q3 were down about 4% as increased sales in Performance Materials and Road Technologies were more than offset by decreases in Industrial Specialties and APT. Gross margin improved over 600 basis points, reflecting significantly lower raw material costs, primarily in Industrial Specialties and the successful execution of our repositioning actions. SG&A increased due primarily to higher variable compensation expense on improved business results. Adjusted earnings improved significantly, up almost 500 basis points to $56.3 million, driving adjusted EBITDA margin to 33.5%. Please turn to Slide 6. As a result of strong earnings and disciplined capital management, our free cash flow of $118 million enabled us to repurchase $25 million of shares in the quarter and accelerate deleveraging. We ended the quarter with net leverage of 2.7x, already beating our previous year-end target of 2.8x. We now expect net leverage to be approximately 2.6x by year-end. This does not include the benefit of any proceeds from the sale of Industrial Specialties, which is expected to close by early 2026, as I mentioned earlier. Turning to Slide 7. Performance Materials sales increased 3%, primarily due to volume growth, reflecting improved global auto production. Segment EBITDA and EBITDA margin were down a bit as the benefit from increased volumes and price was more than offset by increased variable compensation expense and a negative impact from foreign exchange. Q4 is looking solid, but we do expect Q4 to be a bit softer coming off of a strong Q2 and Q3. So on a full year basis, we expect PM revenue to be flat to slightly down year-over-year with EBITDA margins over 50%. Our results demonstrate the resilience of this business in the face of unprecedented uncertainty caused by the dynamic tariff environment. Please turn to Slide 8 for APT results. Sales in APT declined year-over-year for many of the same reasons we discussed last quarter. The indirect impact of tariffs continues to weigh on already weak end market demand, especially in footwear and apparel, delaying the upturn we otherwise expected to see. In addition, competitive dynamics in China are continuing to impact sales in the paint protective film markets. The team did a great job holding on to price where possible and managing costs and posted an EBITDA margin of 26% for the quarter, which also reflected a tailwind from foreign exchange. Near term, we see no indications that the current market conditions or competitive dynamics will improve. We now expect full year revenue for APT to be down by mid-teens on a percentage basis with full year EBITDA margin of 15% to 20%, down from their more typical 20% area margins due to the extended plant outage in Q2. On Slide 9, Performance Chemicals. The left side presents a combined view of Performance Chemicals results, including continuing operations and discontinued operations. As I mentioned earlier, with the announced sale of Industrial Specialties, accounting rules require that we separate results of the product lines being divested into discontinued operations. However, because the sale is not yet completed and our guidance is for full company results, we're showing the Q3 results on a combined basis. As you can see, combined sales were down almost 5% due to Industrial Specialties and our repositioning actions in that business. Road Technologies posted sales up 5% as the pavement business delivered a record Q3 in North America, which is our largest and most profitable region. Road Technologies as part of continuing operations includes the lignin-based dispersants business previously included in Industrial Specialties. Combined segment EBITDA and EBITDA margins improved significantly year-over-year due to lower raw material costs in Industrial Specialties and the successful execution of repositioning actions. On a continuing operations basis, Performance Chemicals EBITDA margins were down slightly, primarily as a result of pricing decisions made in the road markings business to maintain volumes. Please refer to Slide 27 in the appendix of the slide deck for a reconciliation of Performance Chemicals segment EBITDA on a continuing operations basis to the combined segment EBITDA, inclusive of discontinued operations. On the right-hand side of Slide 9, we've added some detail regarding the impact of the divestiture on the combined results. There is noise in the Q3 numbers, so we believe it's most useful to look at the estimated impact on a full year basis. As you can see, we expect the divestiture to contribute approximately $130 million in sales for the full year with an EBITDA margin of approximately 6%, inclusive of indirect costs. Please note that these indirect costs related to the divestiture, often referred to as stranded costs are included in continuing operations for reporting purposes. On a full year basis, we estimate these indirect costs will be approximately $15 million, which we expect to eliminate by the end of 2026. In addition, the divestiture is expected to contribute approximately $40 million to free cash flow on a full year basis, primarily due to lower working capital. In summary, we continue to focus on delivering results in a very challenging environment and are proud to report our sixth consecutive quarter of year-over-year adjusted EBITDA margin expansion. In addition, with our strong free cash flow, we have strengthened the balance sheet and resumed share repurchases. I'll now turn the call back over to you, Dave, for update on guidance. David Li: Thanks, Mary. Please turn to Slide 10. We are very pleased with our third quarter results and are on track for a strong finish to the year. Our results reflect sustained execution, the durability of our business model and our leadership in the industries we serve. We are raising full year free cash flow guidance and now expect net leverage to be around 2.6x by year-end. We will continue to be disciplined in how we allocate capital and look forward to closing the sale of our Industrial Specialties business soon. Lastly, given the ongoing tariff uncertainty and slower industrial demand primarily impacting APT, we're adjusting our full year outlook to narrow the top end of our sales and EBITDA range. In closing, we look forward to hosting everyone virtually on December 8 for our investor update when we will provide the results of our strategic portfolio review and our expectations for the future. 0With that, I'll turn it over for questions. Operator: [Operator Instructions] Our first question today comes from the line of Jon Tanwanteng from CJS Securities. Jonathan Tanwanteng: Nice job in the quarter. My first question is just regarding the full year outlook. I noticed that you're taking down the top line for APT, which makes sense. I was wondering if you could actually speak to the Performance Materials segment and to the publicized aluminum plant fires in North America, the chip shortages that are going on in China and just how that's impacting your outlook there and what's implied in the guidance and if you've accounted for that? David Li: Yes. Thanks, Jon. Yes, with respect to those challenges you mentioned, obviously, if you zoom out, it's been a pretty dynamic year for the industry. I think it actually speaks to the resilience of the auto industry in general. I mean, we've been through tariffs, some macro uncertainty. And as you mentioned, some more recent supply chain challenges. And our results and outlook would reflect any impact from those. But I think overall, if you look at the results we've delivered for Performance Materials, it demonstrates the -- also the durability of our business, the continued leadership we have in that space. And I think quarter-over-quarter, we've continued to deliver strong results. But to answer your question, on those 2 supply chain challenges, our results and outlook do reflect any impact to those going forward. Jonathan Tanwanteng: Got it. That's helpful. And then just on the discontinued ops, you mentioned -- or I guess you gave metrics for what you expect from the year in the [ Inspect ] business. Could you kind of tell us what's implied in the Q4 just because we don't have the first half results in there and then you broke out the Q3 in terms of EBITDA contribution? John Nypaver: [Indiscernible] this is John. We do show full year for that discontinued ops. It should be easy for you to get to that, I would think. But we can talk offline if you need help on that. David Li: Yes. And Jon, I kind of just in terms of sizing the business, on an annualized basis, think of it as about a kind of mid-single-digit EBITDA business. And so we've reported 3 quarters of it. So kind of extrapolating that out to the fourth quarter, I think, would make sense. Operator: Our next question today comes from the line of Daniel Rizzo from Jefferies. Daniel Rizzo: You mentioned working capital and free cash flow. I was just thinking -- wondering how we should think about working capital post the divestiture as maybe as a percent of sales or just how you plan to kind of manage that? Mary Hall: So you're really thinking looking forward into 2026, Dan? Daniel Rizzo: Right. Well, just -- I mean, not for just 2026, but just how it changes at all once the business is divested. Phillip Platt: Yes. Dan, this is Phil. I think if you look at our balance sheet, which is included in the press release schedules, we broke out the impact of the discontinued ops on the balance sheet and pulled them out as separate line items. So it will give you a really good clear indication for what we're thinking working capital looks like for the business going forward. Daniel Rizzo: Okay. And then you mentioned that I think net debt-to-EBITDA is going to be about 2.7x at the end of the year. And then you get $110 million roughly from the sale. I mean, that's going to be used towards debt. So I guess my question is, what is the net debt-to-EBITDA target? Because that seems like you would be relatively low. Mary Hall: So Dan, just for clarity, we finished the quarter at 2.7x. And as a result of beating our year-end target already, we're reducing our target for year-end to 2.6. (sic) [ 2.6x ] David Li: Right. And then in terms of use of proceeds, Dan, we mentioned or I mentioned in my comments, we'd likely use the majority of the proceeds when received to further pay down debt. I want to hold off a little bit because we'll also talk more about capital allocation as one of the major topics on December 8. But obviously, if you look at primary use of the proceeds as debt reduction, you can do that trajectory down. But we're really pleased with our achievements so far ahead of plan. We had targeted 2.8x or below by end of year. So we finished the quarter, as Mary mentioned, at 2.7x, and we think we've got a glide path to 2.6x without any proceeds -- use of proceeds to pay down further debt. Operator: [Operator Instructions] We have no additional questions waiting at this time. So I'd like to pass the call back over to John Nypaver for any closing remarks. John Nypaver: Actually, Bailey, I believe someone is in the queue, if you wouldn't mind, double checking. Operator: Perfect. Yes, we will take our next question, apologies, from John McNulty from BMO Capital Markets. John McNulty: Yes. Sorry about the last second question there. So I guess I just wanted to understand Performance Materials a little bit better for the full year sales to be kind of flat to slightly down. I mean when we look at kind of the overall auto forecast out there, they're roughly in line with that. But I assume normally, you're getting some reasonable amount of price. So I guess, is it -- is there some negative mix that we should be thinking about on the auto builds that may be contributing to this type of a result? Or is pricing maybe more modest than it's been where maybe it's taken a little bit of a pause after the last few years? I guess, can you help us to think about that? David Li: Yes, John. So as we mentioned earlier in the year, we've taken pricing as we typically do. I think there's -- when you look at the auto forecast as we do as well, they're calling for sort of flattish to slightly down. That's similar to our PM business. But in terms of the overall mix of those vehicles -- obviously, we've had a lot of volatility, for example, for EVs throughout the year. So when you look at the overall trend for automobiles may not reflect just ICE and hybrids. We think we have a very strong position in that market. Market continues to be healthy. Actually, still inventory levels are pretty low and the fleet remains pretty aged. So we're thinking that we're even not back to a healthy level of production. But given that, I think that's how sort of the math would shake out for us. It's just not taking into account the portion that's EVs. But Mary, what else would you add? Mary Hall: Yes. Maybe just another little point of clarity. focusing on North American production, which, as you know, John, is where we're most profitable, while the forecast has improved again, actually for the full year for North America, in particular, it's still down. So it's the latest forecast information we have is that even North America is still down a couple of percent year-over-year, albeit an improvement over the prior forecast. So I think that, in combination with some of the noise that we're also, as we mentioned, factoring in the fire at Ford, chip issues, et cetera, that are making noise in the supply chain system of automotive, we feel comfortable with our current guide. John McNulty: Got it. Okay. Fair enough. So it sounds like it's really a mix thing more than anything else. And then I guess the other question is just any update on the Nexeon platform and that venture and how things may be going there? David Li: Yes. So as we mentioned, with Nexeon, that's kind of a far out R&D type of initiative. We do expect their plant to be up and running in the next few months. As a reminder, that's not using our activated carbon for this first generation, but continues to be a strong partnership and an exciting space that we look forward to participating in with them. Operator: Thank you. [Operator Instructions] As we have no additional questions waiting at this time, I would now like to pass it back over to John Nypaver for any closing remarks. John Nypaver: Thanks, Bailey. That concludes our call. Registration for the strategic portfolio update is now open on our investor website under Events. We will also issue a press release with more details later today. If there are any questions, please feel free to reach out to me directly. My contact information can be found in the earnings release and slide deck. Thank you for your interest in Ingevity. Operator: This concludes today's call. Thank you all for your participation. You may now disconnect your lines.
Operator: Hello, ladies and gentlemen. Welcome to Himax Technologies, Incorporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Karen Tiao, Head of IR/PR at Himax. Ms. Tiao, please go ahead. Karen Tiao: Welcome, everyone, to the Himax Third Quarter 2025 Earnings Call. My name is Karen Tiao, Head of IR/PR at Himax. Joining me today are Jordan Wu, President and Chief Executive Officer; and Jessica Pan, Chief Financial Officer. After the company’s prepared comments, we have allocated time for questions in the Q&A section. If you have not yet received a copy of today’s results release, please e-mail hx_ir@himax.com.tw or himx@mzgroup.us, access the press release on financial portals or download a copy from Himax website at www.himax.com.tw. Before we begin the formal remarks, I would like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and industry growth and forward-looking statements that involve a number of risks and uncertainties that could cause actual events or results to differ materially from those described in this conference call. A list of risk factors can be found in the company’s SEC filings, Form 20-F for the year ended December 31, 2024, in the section entitled Risk Factors as may be amended. Except for the company’s full year of 2024 financials which were provided in the company’s 20-F and filed with the SEC on April 2, 2025. The financial information included in this conference call is unaudited and consolidated and prepared in accordance with IFRS accounting. Such financial information is generated internally and has not been subjected to the same review and scrutiny, including internal auditing procedures and external audits by independent auditors, to which we subject our annual consolidated financial statements and may vary materially from audited consolidated financial information for the same period. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. On today’s call, I will first review the Himax consolidated financial performance for the third quarter 2025, followed by our fourth quarter outlook. Jordan will then give an update on the status of our business, after which we will take questions. You can submit your questions online through the webcast or by phone. We will review our financials on an IFRS basis. During the quarter, U.S. tariff measures continue to see [indiscernible] global trade dynamics, adding to the macroeconomic and [indiscernible] uncertainty. [indiscernible] we are pleased to report that our third quarter revenue and profit both significantly exceeded the guidance range announced on August 7, 2025, while gross margin came in within guidance. Third quarter revenue registered $199.2 million, representing a sequential decline of 7.3%, which significantly outperformed our guidance range of 12.0% to 7.0% decline, primarily driven by better-than-expected sales from automotive IC and Tcon product lines. Our gross margin was 30.2%, in line with our guidance of around 30%. Q3 profit per diluted ADS was $0.06, substantially exceeding the guidance range of a loss of $0.02 to $0.04 attributable to the stronger-than-guided revenues. Revenues from large display drivers came in at $9.0 million, representing a decline of 23.6% on the previous quarters. All three product lines within the large panel driver IC segment declined primarily due to the absence of the traditional seasonal shopping momentum amid a volatile macroeconomic environment as well as the customers pulling forward purchases in prior quarters. Sales of large panel driver IC accounted for 9.5% of total revenues for the quarter compared to 11.6% last quarter and 13.8% a year ago. Revenue from the small- and medium-sized display driver segment totaled $141.0 million, reflecting a slight decline of 2.4%. Q3 automotive driver sales, including both the traditional DDIC and TDDI increased single digit quarter-over-quarter, outperforming our guidance of a slight sequential decline, indicating resilient underlying demand despite global softness in automotive sales. The sequential growth was mainly driven by replenishment in both TDDI and DDIC products with customers adhering to a make-to-order model and keeping inventory lean in view of an uncertain demand outlook. Our automotive business comprising DDIC, TDDI, Tcon and OLED IC sales remain the largest revenue contributor in the third quarter, representing over 15% of the total revenue. Meanwhile, revenue for both smartphone and tablet IC segments declined quarter-over-quarter as customers pull forward purchases in prior quarters. The small and medium-sized display driver IC segment accounted for 17.8% of total sales for the quarter compared to 67.3% in the previous quarter and 69.9% a year ago. Q3 non-driver sales reached $39.2 million, a 13.7% decrease from the previous quarter but outperforming our guidance range, primarily attributable to increased shipment of Tcon for automotive application. Himax continued to hold an undisputed leadership position with a dominant market share in automotive Tcon. Tcon business accounted for around 12% of total sales with notable contributions from automotive Tcon. Non-driver products accounted for 19.7% of total sales as compared to 21.1% in the previous quarter and 16.3% a year ago. Third quarter operating expenses were $60.7 million, an increase of 24.2% from previous quarter and roughly flat compared to the same period last year. The sequential annual bonus compensation, which we award employees at the end of September each year, typically resulting in much higher Q3 employee compensation expense compared to our quarters of the year. Increased tape-out expenses, salary expenses as well as the appreciation of NT dollar against the U.S. dollar in Q3 were also factors behind the sequential increase. Our annual bonus compensation grant for 2025 was $7.7 million, slightly higher than the guidance of $7.5 million as the bonus amount determined based on the expected full year profit was revised upward following a much improved Q3 financial performance. Of the $7.7 million, $7.5 million was immediately invested in expenses in the third quarter. Including the portion of the awards granted in prior year, the total bonus expenses for Q3 2025 amounts to $8.1 million, significantly lower than $13.9 million recorded in Q3 2024. For reference, the annual bonuses granted for 2024 and 2023 were $12.5 million and $10.4 million respectively, of which $11.2 million and $9.7 million were vested and expensed immediately. Amid ongoing macroeconomic challenges, we continue to exercise strict budget and expense controls. Third quarter operating loss was $0.6 million, representing a negative operating margin of 0.3%, compared to 8.4% in the previous quarter and 2.6% for the same period last year. The sequential decline was primarily attributable to higher employee bonus which, as stated earlier was $8.1 million, compared to $0.8 million last quarter, coupled with lower revenues and gross margin. The year-over-year decrease was mainly due to the reduced sales. Q3 after-tax profit was $1.1 million, or $0.006 per diluted ADS, compared to $16.5 million, or $0.095 per diluted ADS last quarter, and down from $13.0 million, or $0.074 in the same period last year. Now, turning to the balance sheet, we had $278.2 million of cash, cash equivalents and other financial assets as of September 30, 2025. This compares to $206.5 million at the same time last year and $332.8 million a quarter ago. The sequential decline in cash balance mainly reflected the $64.5 million dividend and $13.1 million employee bonus payout. Q3 operating cash inflow was $6.7 million, compared to an inflow of $60.5 million in the prior quarter. The sequential decrease mainly reflected higher accounts payable payments in Q3 for inventory procured in prior quarters to support customer demand, along with employee bonus payment mentioned above. The employee bonus paid out this year included $7.3 million for the immediately vested portion of this year’s award and $5.8 million for vested awards granted over the past three years. We had $30.0 million of long-term unsecured loans at the end of Q3, of which $6.0 million was the current portion. Our quarter end inventories were $137.4 million, a slight increase from $134.6 million last quarter and lower than $192.5 million a year ago. After several quarters of inventory decline from its peak during the industry-wide supply shortage, Q3 inventory slightly increased but remained at a healthy level. As macroeconomic uncertainty limits visibility across the ecosystem, we will continue to manage our inventory conservatively. Accounts receivable at the end of September 2025 was $200.7 million, decreased from $219.0 million last quarter and down from $224.6 million a year ago. DSO was 87 days at the quarter end, as compared to 92 days last quarter and a year ago. Third quarter capital expenditures were $6.3 million, versus $4.6 million last quarter and $2.6 million a year ago. Third quarter capex was mainly for R&D related equipment for IC design business and the construction in progress for the new preschool near Himax’s headquarters built for employees’ children. As of September 30, 2025, Himax had 174.5 million ADS outstanding, little changed from last quarter. On a fully diluted basis, the total number of ADS outstanding for the third quarter was 174.4 million. Now turning to our fourth quarter 2025 guidance. We expect Q4 revenues to be flat sequentially. Gross margin is expected to be flat to slightly up depending on product mix. Q4 profit attributable to shareholders is estimated to be in the range of $0.02 to $0.04 per fully diluted ADS. I will now turn the call over to Jordan to discuss our Q4 2025 outlook. Jordan, the floor is yours. Jordan Wu: Thank you, Karen. The U.S.-China tariff negotiations recently reached a preliminary framework, sending a positive signal to the market. Yet most panel customers continue to adopt a make-to-order model and maintain low inventory levels. In the automotive display IC business, Himax's most important market accounting for over 50% of total revenues, demand visibility remains low as customers continue to act conservatively and sustain lean inventory levels. Despite the limited short-term visibility in the automotive market, remains optimistic about our automotive business outlook for the next few years, backed by our leading new technology offerings and comprehensive customer coverage. Meanwhile, we continue to focus on the expansion into emerging areas beyond display ICs, including ultralow power AI, CPO, and smart glasses, all novel applications characterized by high growth potential, high added value, and high technological barriers that are well-positioned to become new growth drivers for Himax soon. Before I [ leverage ] on those [ new ] business areas let me touch base on the Automotive IC business. Himax has been deeply engaged in the automotive display market for nearly two decades, offering a comprehensive range of display IC technologies spanning from the LCD to OLED. Amid intense industry competition, Himax holds a solid leadership position with #1 global market share across all segments of automotive display ICs and an overwhelming lead over competitors. As smart interiors advance, demand for automotive displays continues to grow, shifting toward larger, higher resolution and more innovative displays, including the adoption of OLED displays for high-end vehicles. Himax is well-positioned to benefit from this trend. Looking ahead, we expect further growth in automotive TDDI and Tcon technologies, driven by continued adoption from global panel makers, Tier 1 suppliers, and automakers. Both TDDI and Tcon are advanced display solutions for vehicles and have already been successfully designed into hundreds of projects worldwide. Meanwhile, in the traditional DDIC segment, shipments remain relatively stable due to long product life cycles and the nature of many applications such as dashboards, head-up displays, and rear- and side-view mirrors that do not require touch functionality, thereby continuing to generate long-term and stable DDIC revenues for Himax. In addition, Himax has been deeply engaged in automotive OLED technology development for many years. With a continuously expanding product portfolio and an increasing number of leading global automakers accelerating adoption of OLED technology in new vehicle models, we expect OLED display adoption in the automotive sector to grow rapidly starting in 2027. Despite lingering economic uncertainty, Himax continues to actively expand its business beyond display ICs, focusing on ultralow power AI, CPO, and smart glasses. Through years of dedicated investment and R&D, Himax has established a solid technological foundation and a strong patent portfolio in these areas, while closely collaborating with partners to drive products toward mass production and real-world applications. As these emerging businesses gradually materialize, they are poised to become key growth engines for Himax, reduce our reliance on the display IC market and further enhance both profitability and long-term competitiveness. First, on the WiseEye AI domain; WiseEye enables battery-powered endpoint devices with real-time analysis, precise recognition, and environmental awareness at ultralow power consumption of merely a few milliwatts. Leveraging these core strengths, WiseEye has been successfully adopted by multiple leading global notebook brands with ongoing collaborations with customers to integrate more AI features into next-generation laptops. WiseEye has also been widely deployed across various domains such as smart door locks, palm vein authentication, and smart home appliances, partnering with top-tier global customers to co-develop a range of innovative applications. Our WiseEye module business features a simple design and ease of integration, making it highly suitable for diverse AIoT applications. It has already been adopted in applications such as smart parking systems, access control, palm vein authentication, smart offices, and smart home, with the number of design-in projects fast expanding. Further, a recent major application addition is in smart glasses, a new product category characterized by extremely demanding low power. WiseEye enables real-time AI functionality at industry-leading ultralow power consumption while supporting always-on sensing for surroundings and event-based eye-tracking to deliver a natural and intuitive human–machine interaction. It has been adopted by numerous major tech giants, traditional ODMs, brands, and startups to integrate into their new smart glasses projects. Looking ahead, the WiseEye business is entering a phase of rapid growth, becoming one of the [indiscernible] key growth engines. In the field of Co-Packaged Optics or CPO, Himax leverages its proprietary WLO advanced nano-imprinting technology. Together with our partner, FOCI, we have achieved significant breakthroughs in silicon photonics technology, with the first-generation solution being validated by customers and partners [indiscernible] towards mass production readiness in 2026. In parallel, joint development efforts with leading customers and partners are underway, focusing on future-generation high-speed optical transmission technologies to meet the explosive bandwidth demands of HPC and AI applications, while addressing the critical challenge of overheating in high-speed transmission. Himax expects CPO to become a major revenue and profit contributor in the years ahead. Last but not least let me touch base on the status of our Smart Glasses businesses. Driven by generative AI and Large Language Models, the smart glasses market is experiencing a resurgence and is seen as the next high-growth, high-volume market opportunity. Smart glasses has been one of Himax's long-term strategic focus areas where we are among the few in the industry that possess three critical enabling technologies for smart glasses, namely ultralow power intelligent image sensing, micro-display, and nano-optics, giving Himax a unique opportunity to take advantage of the potentially explosive growth of smart glasses. In intelligent sensing, Himax's WiseEye AI delivers always-on, ultralow power contextual awareness with average power consumption of just a few milliwatts. It significantly enhances the interactivity and perception of smart glasses while preserving battery life of the smart glasses device. In micro-display, Himax's latest Front-lit LCoS micro-display specifically tailored for AR glasses has attracted strong market attention since its debut. It achieves an optimal combination of form factor, weight, power consumption, and cost, while delivering high brightness and high color saturation in full-color display performance, all key attributes for AR glasses. With over a decade of mass production experience with leading tech names and a proven record of reliable delivery, Himax's new LCoS product, now in sampling stage, has attracted the attention of numerous AR glasses players worldwide. In the field of nano-optics, Himax offers proprietary WLO technology for advanced nano-optical foundry service to selected customers to develop waveguide solutions which, when bundled with micro-display, forms the display system required of AR glasses. Looking ahead, we expect revenues from AR and AI glasses related applications to grow substantially over the next few years. With that I will now [indiscernible] with an update on the Large [ Panel ] Driver IC Businesses LDDIC. In Q4, large display driver IC sales are expected to increase single-digit sequentially, driven by new notebook TDDI projects entering mass production, along with customers' restocking of monitor IC products following several subdued quarters. Despite a challenging market environment, we continue to advance our technology roadmap for next-generation displays to achieve faster data transmission, lower latency, improved power efficiency, and high-speed interface for next generation premium and gaming displays. In the Notebook sector, we continue to focus on the growing adoption of OLED displays and advanced touch features in premium models, driven by the rise of AI PCs and demand for more interactive, productivity-enhancing experiences. Himax is well-positioned to capitalize on opportunities with a comprehensive range of ICs for both LCD and OLED notebooks, including DDIC, Tcon, touch controllers, and TDDI. Multiple projects for OLED displays, as well as gaming monitors and notebooks, are currently underway in collaboration with leading panel makers in Korea and China. Turning to the Small and Medium-sized Display Driver IC business. In Q4 small and medium-sized display driver IC business is expected to slightly decline from last quarter. However, Q4 automotive driver IC sales, including TDDI and traditional DDIC, are set to increase single digit quarter-over-quarter, largely driven by the continued adoption of TDDI technology among major customers across all continents. Despite the challenging macro environment, our automotive driver IC sales for the full year 2025 are projected to grow single-digit year-over-year, with total volume projected to outgrow the global automotive shipment. Himax remains the leader in this market, with a market share well above 50%, far outpacing those of competitors. Traditional automotive DDIC demand remains solid despite partial replacement by TDDI. The transition continues to be gradual, as many automotive displays, such as dashboards, HUDs, and rear- and side-view mirrors, do not require touch functionality and typically have long product lifecycles. Himax holds a solid 40% market share in traditional DDIC and remains the go-to supplier for both legacy and next-generation automotive display applications. Himax also continues to lead in automotive display IC innovation by pioneering solutions across a wide range of panel types while addressing diverse design needs and cost considerations. For example, in ultra-large touch displays, we led the industry by introducing LTDI solution which began mass production in Q3 2023. LTDI has been gaining traction, driven by increasing popularity of larger in-vehicle displays that demand higher performance, improved signal integrity, and simplified system design. Additional LTDI projects with multiple leading global brands are on track to enter mass production as move into 2026. For smaller displays with form factor and budget constraints, we provide single-chip designs that combine TDDI and local dimming Tcon. This enables advanced local dimming in small-size displays, reduces overall system cost, and improves power efficiency, making it an attractive choice for customers. For high end displays, during the recent SID Vehicle Displays and Interfaces Symposium, one of the industry's leading events for automotive display and HMI technologies, Himax showcased the industry’s first OLED touch IC that supports both tactile knobs and capacitive touch keys, enabling flexible design options and delivering a safer, more intuitive control experience for OLED automotive displays. Himax continues to advance interactive display technologies that enhance driver safety and cabin ergonomics. Looking ahead, OLED panel adoption in automotive displays is expected to accelerate starting in 2027. This presents an attractive opportunity to further solidify our leadership in the automotive display market where we already has a dominant market share position across DDIC, TDDI, and local dimming Tcon for LCD displays. We provide ASIC OLED driver and Tcon solutions that entered mass production a few years back, and now we also provide standard ICs ready for broader deployment. In parallel, we are collaborating with major panel makers on new custom ASIC developments to address diverse customer requirements. Additionally, our advanced OLED on-cell touch control technology delivers an industry-leading signal-to-noise ratio, ensuring reliable performance even under challenging conditions such as glove or wet-finger operation. These OLED on-cell touch ICs entered mass production in 2024 and are being increasingly adopted by major global automotive brands for their upcoming car models. As the industry transitions to next-generation OLED display for high-end vehicles, Himax is uniquely positioned to capture the accelerating adoption of OLED in future automotive displays, replicating our success in the LCD by leveraging nearly two decades of automotive display expertise, strategic partnerships established with leading panel makers across China, Korea, and Japan, and a proven record in mass production and product quality that adheres to the world's most stringent global standards for quality, reliability, and safety. Moving to smartphone and tablet IC sales for LCD panel, we expects revenues for both segments to decline quarter-over-quarter, as customers pulled forward purchases in prior quarters. However, in the smartphone OLED market, we are making solid progress in collaborations with customers in Korea and China, with mass production set to ramp in Q4 this year and volume to increase further in the following quarters. Meanwhile, for OLED tablets, several new projects with top-tier brands are expected to enter mass production heading into 2026. In parallel, we are developing new technologies that enable value-added features such as active stylus, ultra-slim bezel designs, and higher frame rate to further differentiate our products and reinforce its competitive edge. I would like to now turn to our Non-Driver IC business update [indiscernible] we expect Q4 revenues to increase single digit sequentially. First for an update on our Tcon business. We anticipate Q4 Tcon sales to be flat sequentially. However, Q4 automotive Tcon sales are well-positioned to grow single digit sequentially, fueled by a strong pipeline of more than 200 design-win projects gradually entering mass production. Many of these projects feature local dimming functionality, an area where Himax maintains a dominant market position. Our full year 2025 automotive Tcon sales are set to grow by approximately 50% year-over-year, laying a solid foundation for sustained growth as we move into 2026. In contrast, Tcon for monitor, notebook and TV products are expected to decline sequentially, primarily a result of customers pulling forward inventory purchases early this year. We continue to lead in automotive Tcon innovation. Our new generation local dimming Tcons offer advanced features such as edge sharpness and high dynamic range, ideal for customers looking to upgrade their displays for better panel performance. Meanwhile, head-up displays are rapidly emerging, evolving beyond simple text and symbols to deliver high-brightness, high-contrast, AR-enhanced visuals within automotive displays, fueling demand for advanced Tcon solutions. To address this trend, we launched an integrated Tcon that features the industry's first full-area selectable local de-warping function, combined with Himax's market-leading local dimming and on-screen display technologies. The newly introduced multifunctional Tcon offers industry-first full-area selectable local de-warping capability, a major advancement over existing solutions that typically offer only full screen or limited split-screen de-warping. Built on Himax's dominant local dimming technology, the new de-warping Tcon solution continues to deliver exceptional contrast performance and effectively eliminates the undesired postcard effect commonly seen in HUDs, caused by backlight leakage typical of conventional TFT-LCD panels. Our industry-leading OSD function is also integrated within the new Tcon, allowing critical safety information to remain visible on the display even when the main system is shut down, thereby enhancing overall driver safety. The new Tcon solution supports a broad range of HUD architectures, including Windshield HUD, Augmented Reality HUD, and Panoramic HUD systems, [Audio Gap] design and cost requirements. Several customer projects are already underway, reflecting strong market recognition of our advanced HUD Tcon technology. Switching gears to the WiseEye Ultralow Power AI Sensing Solution, a cutting-edge endpoint Ultralow Power AI processor, always-on CMOS image sensor, and CNN-based AI algorithm at its core. As AI continues to advance at an unprecedented pace, WiseEye is uniquely positioned with context-aware, on-device AI inferencing that delivers industry-leading power efficiency of just a few milliwatts with a compact form factor while fortified by industrial-grade security. This combination enables advanced AI capabilities in endpoint devices that were once constrained by power and size limitations, driving expanding adoption across a wide range of applications, including notebooks, tablets, surveillance systems, access control devices, smart home solutions, and, more recently, AI and AR glasses. This growing momentum highlights WiseEye's role as a trusted on-device AI sensing enabler, powering smarter and more power-efficient solutions across everyday devices and AIoT applications. In notebooks, WiseEye's human presence detection has seen expanding adoption across leading global brands, driven by its ultralow power consumption of merely a few milliwatts, instant responsiveness, and privacy-centric design, perfectly aligned with the industry's transition toward always-aware, AI-driven PCs. More notebook models are scheduled to enter mass production starting in 2026. Meanwhile, additional feature upgrades are being developed with our notebook customers to tackle more complex real-world scenarios and deliver greater user experience, all while maintaining exceptional power efficiency. One such feature is gesture recognition that mimics keyboard input, allowing page scrolling or volume adjustment without keyboard. With large language model AI driving a shift from predefined command inputs to natural language human–machine interaction, another advanced feature currently under development is the voice-activated keyword-spotting function, in which WiseEye serves as an ultralow power front end that performs wake-word detection, activating the CPU only when a specific trigger phrase is detected, enabling continuous audio monitoring while consuming very little power. In the surveillance domain, WiseEye AI enhances security systems by combining accurate human-object distinction with event-driven activation, significantly reducing false triggers. In addition to the China market, where shipments to leading smart door lock vendors are already underway, we are now partnering with world-leading door lock manufacturers to introduce novel on-device AI features such as palm vein biometric access, parcel recognition, and anti-pinch protection. Recently, we introduced a state-of-the-art bimodal solution combining palm vein and facial authentication to meet customer demand for greater flexibility and reliability in smart door lock. The dual-authentication approach enhances both security and user experience, marking a significant advancement in biometric technology while still consuming extreme low power, making it ideal for door lock application which is extremely demanding for power consumption. Several of the projects are slated for mass production starting in 2026. Notably, Himax solution complies with Europe's General Data Protection Regulation or GDPR, one of the world's strictest data privacy laws. Our recent exhibitions at Sectech Sweden 2025 illustrate Himax's proactive expansion into Europe's security and access control market, one of the most privacy-regulated and innovation-driven markets globally. Himax demonstrated its technological readiness and credibility to European system integrators, OEMs, and customers seeking secure, contactless, and power-efficient authentication solutions. Next for an update on our WiseEye Module business, which integrates [Audio Gap] image sensor, AI processor, and pre-trained no-code/low-code AI algorithm. It's designed to make AI simple and accessible, helping developers accelerate innovation and scale their products from prototype to commercial deployment. Thanks to its broad applicability, the WiseEye Module has been adopted across a wide range of domains, including leading brands' upcoming smart home appliances and various security applications. Notably, our Palm Vein module has attracted strong interest across multiple industries, rapidly securing design wins in smart access, workforce management, smart door locks, and more. Many of our WiseEye Module projects are scheduled to enter mass production in 2026. In the AI sensing domain for AR and AI glasses, WiseEye AI processors continue to build strong momentum, being adopted and integrated into next-generation smart glasses by a growing number of customers, while deepening collaborations with major tech companies, brands, and startups worldwide. Smart glasses makers are leveraging WiseEye to deliver instant responsiveness for a wide range of AI applications while maintaining extended battery life. The increasing number of design-in activities reflects broad recognition of WiseEye's unique ability to bring intelligent, context-aware vision sensing to next-generation wearable and AR devices, specifically to empower both outward and inward vision sensing. Outward vision sensing supports surrounding perception, object recognition, and spatial awareness, while inward sensing tracks eye movements, gaze direction, and pupil dynamics to enable natural and intuitive user interactions. Together, these capabilities redefine how users engage with both digital and physical environments, paving the way for more immersive, power-efficient, and personalized AR experiences. Moving on to our latest advancement in LCoS micro-display technology; following years of dedicated R&D and close collaboration with leading industry players, our proprietary Dual-Edge Front-lit LCoS micro-display has achieved a breakthrough, delivering an optimal combination of form factor, weight, power efficiency, performance, and cost, while offering ultra-high luminance and vibrant RGB display that meets the industry's stringent specifications for next-generation see-through AR glasses. This breakthrough is showcased in our industry-leading Front-lit LCoS micro-display, which combines the illumination optics and LCoS panel into an ultra-compact form factor of just 0.09 c.c. and 0.2 grams, delivering up to 350,000 nits of brightness and 1 lumen output with a maximum power consumption of just 250 megawatts. This exceptional luminance performance ensures outstanding user visibility even under bright sunlight, while the ultra-compact design enables sleek and lightweight AR glasses suitable for everyday use. Samples of our Front-lit LCoS were released early this quarter and are now being actively evaluated by several leading global tech companies and specialized smart glasses makers, with joint development efforts progressing steadily. We will announce further progress in due course. That concludes my report for this quarter. Thank you for your interest in Himax. We appreciate you joining today’s call and are now ready to take questions Operator: [Operator Instructions] Now we'll have the first question, Donnie Teng, Nomura. Donnie Teng: My first question is regarding to your fourth quarter guidance. So it looks like the revenue and gross margin can sequentially improve from third quarter. But just curious why we have a little bit conservative EPS guidance for the fourth quarter? And the second question is that for the CPO progress, I noticed that I think in the past couple of quarters, you indicated some breakthrough on the CPO business. And it looks like we have another progress in the revenue. So just wondering if you can elaborate more on [Technical Difficulty] we can deliver meaningful revenue from the CPO business into 2026. Jordan Wu: Thank you, Donnie. For your first question about our seemingly better top line and gross margin guidance compared to bottom line. Well thank you for pointing that out. One of the key reasons is income tax adjustment. We -- as a standard practice, we estimate our quarterly income tax based on our assessment of full year total income. And in Q3, as you know, we actually underestimated the Q3 profit in our guidance, right? And therefore, we have a major [ bit ] in our guidance. And so we underestimated Q3 profit and therefore, also the income tax expense. So [indiscernible] at the time we provided our guidance last quarter. Therefore, we have to kind of [indiscernible] income tax that we accrued in Q3 into Q4 and that turned out to be rather significant given that compared to our current level of income. So we have to add back the income tax expense in the fourth quarter. Another major reason is higher R&D expenses during Q4. So in addition to a few relatively expensive [indiscernible] scheduled for Q4, which is just the timing issue, right? It's not -- I mean we don't necessarily plan it that way, but it just happened that way. So we have a few more expensive tape-out schedule for Q4. And also in addition to that, we have recently been awarded the major R&D grant by Taiwan Government's so-called -- I don’t know what is called IC innovation program, [indiscernible] IC innovation program. The government actually announced that publicly so I'm allow to talk about it. The schedule of the grant is such that we are kind of [indiscernible] R&D spending related to that project, which by the way, is about our WiseEye product line. So we are kind of requested to speed up the spending. We are also getting a speed up in our grant but as you know, our spending has to be much higher than the grant and that's how the [ game ] is made, right? So we have to kind of speed up the R&D spending related to that project in Q4 as well. So these are the reasons. So you are right. If I take a longer term view, there is no particular reason why our expense in Q4 are higher than those of the other three quarters of the year, but it just happened a few factors together. And again, thank you for pointing that out. And in regard to the CPO progress, your second question, together with our partner [indiscernible] our focus right now is getting the first generation product validation completed and at the same time, finalizing the development for the second generation product, which, by the way, is in a very advanced stage, i.e., the second generation product, which is targeting CPO or GPU product line, customer GPU product line. So to recap this year, 2024 -- 2025, sorry, 2025 has been a year for engineering validation with small quantity sample shipments. So in all likelihood, we will be fully ready for volume production in 2026. Now, as for the timing of the customers' mass production and also the revenue contribution for us in 2026 next year, it is much harder for us to comment. And again, the main goal of 2026 is to complete the validation of our product and manufacturing process by key customer/partner. And we believe conservatively, there could be revenue contribution, but we don't really estimate the revenue contribution to be significant compared to our overall revenue. Rather, we believe it will be [ still ] limited because the switch to CPO involves a pretty complex ecosystem which requires long lead time, right? So we -- our technology may be ready and our immediate customer may be ready, but then the repercussion of the switch throughout the whole ecosystem all the way down to the data center operators can be quite complex. So that is why we are not -- we don't necessarily hold a very aggressive view on that timing. However, we believe we can potentially see rather meaningful top line and bottom line contribution starting in 2027. When we expect shipments for engineering runs, that is actually, by the way, based on our assessment, it is still [indiscernible] that is only engineering loss. But that again, [indiscernible] contribution we believe can already contribute rather meaningfully to our top line and bottom line. And after that, after 2027, we should enter official [indiscernible] when the growth will likely be explosive. But again, I want to emphasize all this -- everything I said about timetable and contribution and all that are just our own best estimate for now. Ultimately, when and how the ramp will take place is a call to be made by the customers. Actually related to this we are seeing offline a question about potential market penetration of the CPO technology. So I will address the question online as well. Naturally, a bit on the timetable, our best estimate is 2028, it will be full blown mass production. And again, the growth will be explosive. And naturally, as the technology becomes proven and more mature CPO adoption, we believe will rise for AI data center application. So we believe with all the obvious benefits like substantially [indiscernible] transmission bandwidth and reducing power consumption and all that right of data transmission we all know the drill and all at a relatively low cost compared to the overall cost of a complex AI system. The CPO technology has the potential of very, very high market penetration of data center eventually. And we are not just saying this as our own opinion. We actually got opinions from across the board, our direct customer or end customer. Everybody seems to be holding that view. So everybody is like holding the breath and watching our step by step for validation to engineering up to mass production. And so it's very exciting times for us, we certainly under a lot of pressure, but we are quite confident we should be able to achieve what I just mentioned. But again, the ultimate timetable will be a call to be made by the customer. Operator: [Operator Instructions] Jordan Wu: There's one of the question about our outlook for -- particularly for automotive market products 2026. I guess the question is because we do hold a very significant market share in the automotive display market. So Display IC market, Automotive Display IC market. So I guess is probably meaningful for investors. We believe the auto market seems to be showing signs of bottoming out or bottoming out judging by the customers' low inventory levels and strong rush orders over the last few quarters, and that is also actually the main reason for our exceeding our guidance last quarter. Having said that, the automotive market is quite sensitive to the overall economic condition and tariff. And therefore, we don't really anticipate a very strong recovery next year. And in our view, and in our internal business projection, we are budgeting for a mild recovery only next year. So our strategy is to maintain the technology leadership and we start to further deepen customer engagement. And a very important focus for us next year is to continue to diversify our supply chain, and this is in response to the customers' request, some customers' request or need for our geographical diversification of our supply chain and our production. So we have very strong confidence of our overall dominant market share right now, backed by leading technology offerings and strong design win pipelines, numbering hundreds of programs across a very diverse customer base. So we feel we are probably reaching the bottom, but next year, if there's a rebound, we don't anticipate a very, very strong rebound. We believe it's a mild recovery. That's our [indiscernible]. Another question is what is driving your confidence in AI revenue growth? Is this a design win with a single customer or [ much ] smaller ones? Presumably you are talking about smart glasses. In our prepared remarks, we have three things for smart glasses; WiseEye for [indiscernible] application, both looking outward and inward for smart glasses that covers both AR glasses and AI glasses. And the second thing is our LCoS micro-display, which is only applicable to AR see through glasses, right? And the third one is our WLO [indiscernible] technology where we are holding what we call optical foundry service business model targeting only a very selective small number of customers. So the third one, evolving rather complex design [indiscernible] development. So it is going to be a few years away, although we are talking about some of the most significant customers, the biggest names, some of the biggest names in the industry. So we still feel obligated to mention that as a business potential in our prepared remarks. But in terms of revenue contribution the third thing with WLO as a foundry service for [indiscernible] very big name customers, I think it's still a few years away. WiseEye AI is an ongoing, very active ongoing progress. Customers big and small across not just U.S. major names, but also Chinese, even Koreans and Japanese are coming to us. And also there are also major customers who are offering a platform of AI or smart glasses solution. And we have been working very closely with them for WiseEye solution and our solution, our technology has been taken as the standard offering part of the standard offering. So that platform solution based into -- more production, which is anticipated to take place starting next year. I think we will see revenue contribution from our WiseEye product line. And for [indiscernible] display, which is for AR see-through glasses only, not AI glasses, you need to have glasses with display to meet our [indiscernible] solution. We -- again, in our prepared remarks, we believe we are offering a combination of factors with a real product, which is quite very promising, and we believe it's something that is fully addressing the very difficult requirements of AI gasses for now. However, that product we are only in sampling stage. So from sampling stage to ultimate mass production, it is going to take some time. So I don't really anticipate [indiscernible] sales contribution from [indiscernible] next year and hopefully the year after because again, we are only in sampling stage and customers need to take our [indiscernible] solution to match [indiscernible] and then we start as a display solution that develop the full set of smart glasses products. So that is still going to take some time, although our solution has been anticipated by a lot of customers, big and small across the board. But this is very new, and we are in sampling stage so it's going to be quite an effort for us to mass production to [indiscernible] our customers. Could you give us an update on the second generation [indiscernible]? Do you expect higher revenue number with second gen? I cannot comment on specifics, but the key difference of first gen and second gen is the number of channels, right? And basically, we are more than doubling up from first gen to second gen. And actually, the technical challenge is tremendous. And that also involves a pretty fundamental revision of our optical design to achieve that goal. And customers have made it very specific that they -- customers are very hopeful for the success of our second gen because with the success of our second gen, it will be a very good product idea for GPU, which as you know is something requiring high bandwidth transmission. So upon the success and mass production of second gen, we believe certainly the revenue contribution will be significant. However, as I mentioned in my earlier Q&A we think -- I think to our timetable for next year, the year after, 2028. So we don’t want to overpromise and make people feel that it is going to be immediate revenue contribution. But second is a big deal, is a huge deal for us, for our partner, and our customer. Operator: Okay then thank you for all your questions. I think that will be the end of the Q&A session. And I'll pass the call back to Mr. Jordan Wu. Thank you. Jordan Wu: Thank you, operator. As a final note, Karen Tiao, our Head of IR/PR, will maintain investor marketing activities and continue to attend investor conferences, and we will announce the details as they come about. Thank you and have a nice day. Operator: Thank you, Jordan. And ladies and gentlemen, this concludes third quarter 2025 Earnings Conference. You may now disconnect. Thank you again. Goodbye.