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Operator: Welcome to MACOM's Fourth Fiscal Quarter 2025 Conference Call. This call is being recorded today, Thursday, November 6, 2025. [Operator Instructions] I will now turn the call over to Mr. Steve Ferranti, MACOM's Vice President of Corporate Development and Investor Relations. Mr. Ferranti, please go ahead. Stephen Ferranti: Thank you, Olivia. Good morning, and welcome to our call today to discuss MACOM's fourth quarter and year-end financial results for fiscal year 2025. I would like to remind everyone that our discussion today will contain forward-looking statements, which are subject to certain risks and uncertainties as defined in the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. For a more detailed discussion of the risks and uncertainties that could result in those differences, we refer you to MACOM's filings with the SEC. Management's statements during this call will also include discussion of certain adjusted non-GAAP financial information. A reconciliation of GAAP to adjusted non-GAAP results is provided in the company's press release and related Form 8-K, which was filed with the SEC today. With that, I'll turn over the call to Steve Daly, President and CEO of MACOM. Stephen Daly: Thank you, and good morning. I will begin today's call with a general company update. After that, Jack Kober, our Chief Financial Officer, will review our Q4 and full year results for fiscal 2025. When Jack is finished, I will provide revenue and earnings guidance for the first quarter of fiscal 2026, and then we will be happy to take some questions. Revenue for the fourth quarter of fiscal 2025 was $261.2 million and adjusted EPS was $0.94 per diluted share. For the full year, FY '25 revenue was $967 million, more than a 32% increase year-over-year, and EPS was $3.47, more than a 35% increase year-over-year. We generated $193 million in free cash flow, and we finished the year with approximately $786 million in cash and short-term investments on our balance sheet. Q4 book-to-bill ratio was just over 1.0:1. In our turns business, or orders booked and shipped within the quarter was 14.5% of total revenue. For the full fiscal year 2025, our book-to-bill was 1.1:1, and our current backlog remains at a record level. Turning to our recent booking trends and end markets. Q4 revenue performance by end market was as expected, with Industrial & Defense at $115.6 million, Telecom at $66 million and Data Center at $79.6 million. For the quarter, I&D was up approximately 7% sequentially. Data Center was up approximately 5% sequentially and Telecom was slightly down sequentially. Both I&D and Data Center revenues were annual and quarterly records. A few years ago, we set a goal to achieve $1 billion in annual revenues, and I'm pleased to report that with our Q1 '26 guidance, we expect to achieve this goal based on trailing 12-month performance. Congratulations to all our employees as we near this milestone and more importantly, for building upon our strong foundation to enable continued growth and improved profitability. New products are the lifeblood of future growth. In FY '25, we launched over 200 new products, which was a record. In addition, we executed numerous custom design projects across our 3 core markets. Our ability to provide competitive new products in a timely manner ultimately drives our financial performance. Metrics show our new product introductions or products less than 3 years old as a group have outpaced MACOM's overall revenue growth and are accretive to MACOM's gross margins. We continue to focus on technology and product differentiation across our portfolio, which often leads us to the development of IC products that operate at the highest frequency, highest power or highest data rates. The secular growth trends across our end markets, coupled with our expertise in IC design and manufacturing are driving an increased number of revenue opportunities. To capitalize on this, we have been increasing R&D spending, hiring more engineers and acquiring companies that have specialized complementary design capabilities. In keeping with this trend, over the next couple of months, we plan to open 2 additional IC design centers, one in Southern California and the other in Central Europe, where we were able to secure specialized talent and teams. Hiring best-in-class engineers with complementary skills will help enable us to increase our SAM and execute on the growth opportunities ahead. I'll note that we prioritize recruiting designers with advanced silicon design expertise and experience. On Tuesday, we announced an agreement with HRL or Hughes Research Laboratories to transfer their 40-nanometer GaN on Silicon Carbide process known as T3L to MACOM. As part of this agreement, MACOM will be an exclusive licensee with rights to manufacture the T3L process. T3L is an industry-leading high-frequency GaN on Silicon Carbide process, and it was developed with DARPA, DoD and HRL funding. T3L was engineered to achieve exceptional high-power performance at very high frequencies. HRL recently completed long-term reliability studies and qualified the process, and it is now ready to transition to production. The T3L 40-nanometer process perfectly complements our existing GaN portfolio because it allows us to address applications at higher frequencies than our 140-nanometer GaN process. We anticipate that licensing this technology will also accelerate our ability to launch other sub-100-nanometer GaN processes, including 90-nanometer. We believe this transaction is a win-win because HRL, primarily a research organization, will be able to commercialize the process technology they spent years developing and MACOM can industrialize and ramp the process into production. Many of our mutual customers in the defense and space markets want to see T3L process in production -- in a production wafer fab in order to address their volume needs. This strategic transaction supports one of our core tenets, which is to produce the industry's highest frequency semiconductors. We believe this part of the GaN MMIC market is growing, and we are seeing new requirements at Q,V,E and W-band driven by both commercial and defense applications. We believe the T3L process will help us capture significant market share over time. And finally, related to GaN on Silicon Carbide, over the past few quarters, we were awarded several new and add-on development programs for advanced GaN on Silicon Carbide process technologies. Across the DoD agencies, MACOM is recognized as a leader in developing advanced compound semiconductors and our pipeline of funded technology development contracts is growing. I'll note, in the defense, radar and electronic warfare markets, our GaN-based components and products experienced over 50% year-over-year revenue growth. This growth leverages our high-power GaN portfolio, where we maintain a competitive position in low and mid-band applications. Our goal is to expand into the higher frequency airborne radar market, where we believe share gain opportunities exist. To support this strategy, we recently upgraded the RTP Fab's G28V5 150-nanometer GaN on Silicon Carbide process to include atomic layer deposition passivation or ALD. ALD is a hermetic coating process that enables MMIC products to pass moisture and HASS tests. This process is one of the most reliable and rugged processes in the market, and it is ideal for ground-based radar systems and SATCOM links and is now ready for airborne radars. Across the defense market, the trend for new systems is toward higher frequencies, higher power levels, wider bandwidth and higher levels of integrations, factors that all play to MACOM's strengths. We collaborate with most major U.S. defense contractors across a wide range of applications. For example, we have been collaborating with a customer that produces a drone defense system, and we look forward to their expected production ramp-up in 2026, utilizing our high-power GaN technology. We also continue to build new relationships with major European defense contractors who are increasingly focused on securing a European supply of critical semiconductors for their systems. We believe our manufacturing facility in France can play an important role in enabling MACOM to win market share with these customers. Generally speaking, the industrial markets are stable and beginning to improve, although we do not expect significant growth in the near term compared to the data center, defense, 5G and SATCOM sectors. Within the telecom end market, satellite-based broadband access and direct-to-sell opportunities remain robust with numerous LEO networks in the planning or development stages. These networks typically use microwave or millimeter wave frequencies and free space optics or FSO communications for satellite to satellite or satellite to ground communication links. In some cases, the satellite transmitters require analog microwave linearization to boost the transmitted signal and improve link margin. I'll note the number of LEO constellations continues to grow and more companies compete to provide commercial data, voice and video communications by satellite or defense intelligence and functionality. Almost a dozen different companies are now planning to launch LEO constellations supporting direct-to-cell or direct-to-device communications. Again, these LEO constellations have many areas where MACOM can contribute, including direct-to-device links operating at UHF or S-band, backhaul links operating at Ka, Q, V and E-band, high-speed optical links transferring data within the satellite and free space optics for satellite-to-satellite communications and gateway linearization for high-power transmitters. Depending on the customer preferences and capabilities, we position ourselves to support them at any level in the supply chain from foundry services, custom IC design, standard products and even full module and subsystem design and manufacturing. Demand from our cable TV infrastructure market is also improving. Cable networks are in the early days of a transition from DOCSIS 3.1 to DOCSIS 4.0. We've spent the last 2 years releasing new products and working with customers on design wins to support this upgrade. We are beginning to see new orders on our DOCSIS 4.0 products. Our portfolio today includes amplifiers, baluns, couplers and filters for line amplifiers and nodes in these new deployments. We expect the cable TV market to be one of the contributors to our Telecom revenue growth in fiscal year '26. We continue to see strong demand from our Data Center portfolio, particularly within 800G and 1.6T applications. We expect the ramp of 1.6T optical solutions to continue to support both scale-up and scale-out interconnects, and we believe demand is growing rapidly. Within these solutions, MACOM provides drivers and TIAs that support EML and silicon photonic architectures. In addition, over the course of FY '26, we expect year-on-year demand for our photonics semiconductor products to significantly increase. As an example, we are pleased with the growing traction of our 200-gig per lane photodetector products that support advanced 800 and 1.6T optical connectivity. MACOM's 200-gig PD has industry-leading sensitivity and dark current performance, enabling our customers to achieve better manufacturing margin and optical receiver sensitivity performance. We believe we have had a breakthrough where our cloud customers and their supply chain recognize the strategic value of MACOM's proprietary indium phosphide technology and high-volume manufacturing capabilities to produce photonic products. We are pleased to have PD design wins at all major module manufacturers supporting 800G and/or 1.6T applications. A few quarters ago, we initiated a transfer of the 200-gig PD process from our smaller Michigan fab to our larger Massachusetts fab to ensure we could support the forecasted demand. Today, our Ann Arbor fab is approaching maximum capacity and our Massachusetts fab is qualified and ramping volume production. In addition to our focus on ramping PDs, we have intensified our CW laser development efforts as customers and the industry look for strategic suppliers that have CW laser technology and high-volume manufacturing capabilities. We also see a steady adoption of single-mode LPO 100-gig per lane solutions. Today, we have multiple customers in production and we expect to transition more customers into production in fiscal '26. Additionally, we continue to support new architectures, including near-packaged optics or NPO, utilizing non-retimed LPO solutions. As data centers continue to disaggregate memory and compute, we believe the adoption of PCIe 6 solutions will create an opportunity for MACOM. At this year's ECOC trade show in September, we demonstrated our latest linear optical PCIe chipset consisting of a VCSEL driver and TIA that support sideband data streams over fiber. We also continue to expand our portfolio in the area of electrical high-speed connectivity. As data speeds move to 200-gig per lane and beyond, copper-based solutions such as direct attach cables begin to reach their functional limit. MACOM provides a family of linear equalizer products that can help extend the reach of copper interconnects at 1.6T. Over the course of FY '26, as 1.6T deployments expand, we believe these solutions will be of interest to some of the major cloud vendors who are deploying next-generation solutions. Additionally, we are seeing opportunities for these products in backplane applications to enhance onboard signal integrity. As we turn our attention to FY '26, our priorities include: first, taking full advantage of the data center growth opportunity and servicing our customers with differentiated solutions. This includes expanding our portfolio into new product areas such as PDs and lasers where we can add value. In the near term, we will seek to increase market share in 800G and 1.6T high-speed analog solutions, expand our customer base for linear equalizers and PCIe solutions, ramp photonic products and support customer LPO launches. We will also continue the design work to establish a leadership position in 300 and 400-gig per lane connectivity ICs for future 1.6T and 3.2T systems. Second, we will seek to expand our market share in 5G applications by leveraging our new and improved GaN4 process. Our next-generation base station products will be updated with in-sourced IPD and matching circuits to: one, improve performance; and two, lower our manufacturing costs. Third, extending our leadership in A&D and winning market share in microwave and optical RF over fiber applications across all major accounts in the U.S. and working to expand our business across Europe and support new defense and space programs like IRIS2. Fourth, continue to develop advanced semiconductor technologies for high-frequency MMICs, high-power diodes and high-speed optical semiconductors. Our goal in FY '26 is to make meaningful progress on hot-via flip-chip, bump technologies like copper pillar to enable MACOM to lead the industry in advanced chip scale package solutions. Fifth, carefully managing our capital expenses and prioritizing investments that, one, expand our existing manufacturing capabilities; and two, support new technology developments. As an example, we intend to purchase and install a modern MOCVD epi reactor in our European Semiconductor Center, or MESC. This reactor will support our 6-inch production transition and the growing volumes of GaN on Silicon and other gas processes. In summary, our strategy is to build a diversified semiconductor portfolio that enables MACOM to capture a larger share of the markets we serve. Our strong organizational foundation, along with our speed and agility, help us win opportunities and ultimately beat our competitors that are often larger and have more resources. Jack will now provide a more detailed review of our financial results. John Kober: Thank you, Steve, and good morning, everyone. Before getting into our fourth quarter results, I would like to summarize a few items regarding our full fiscal year, which ended on October 3, 2025. We achieved record revenue of $967 million, which grew more than 32% over fiscal 2024. Our annual adjusted operating margin grew by 140 basis points to 25.4%. Adjusted earnings per share grew by more than 35% to $3.47. Cash flow from operations continued to strengthen and increased by 45% to $235.4 million. We refinanced and extended the maturity of the majority of our convertible note debt at favorable rates. Our workforce, which now totals approximately 2,000 employees, grew by 17% over the past year as we have expanded our research and development and production employees to support our growing business. Now on to fourth quarter results as well as some additional commentary on the full fiscal year 2025 and outlook on fiscal year 2026. Q4 revenue again reached record levels with strong financial performance across all 3 end markets and record revenue across Data Center and Industrial & Defense. This sustains a trend of consistent revenue growth, improving operating income and ongoing cash generation. Fiscal Q4 revenue was a new quarterly record of $261.2 million, up 3.6% sequentially and up 30.1% year-over-year, driven by growth across all 3 of our end markets. Our overall book-to-bill for Q4 was 1:1. On a geographic basis, revenue from U.S. domestic customers represented approximately 43% of our fiscal Q4 results. Our full fiscal year 2025 U.S.-based revenue was approximately 44%. Adjusted gross profit for fiscal Q4 was $149.1 million or 57.1% of revenue. Through the hard work and our dedicated operations team, we have continued to increase capacity and improve yields, and we expect to see ongoing incremental progress across all 4 of our fab operations. I'll note, we are seeing an improvement in product demand across our internal fabs, which is driving higher production volumes and associated utilization. As a result, we expect sequential quarterly gross margin improvements of between 25 to 50 basis points as we move through fiscal 2026. These gross margin improvements include any offsets to cost increases, such as gold and other precious metals, depreciation and labor costs. Total adjusted operating expense for our fourth quarter was $82.1 million, consisting of research and development expense of $55.6 million and selling, general and administrative expenses of $26.6 million. The sequential increase in adjusted operating expenses compared to Q3 was primarily driven by ongoing R&D investments and employee-related costs. As we continue to grow our revenue, we will remain very focused on managing our OpEx. Depreciation expense for fiscal Q4 2025 was $8.7 million compared to $6.9 million in Q3 2025. The increase was primarily due to taking control of the RTP Fab during the quarter. As a reminder, since we have taken control of the RTP Fab, we have shifted from purchasing wafers from a third party to manufacturing wafers, resulting in MACOM now incurring all of the associated manufacturing costs, including labor, facilities and depreciation, to mention a few. Adjusted operating income in fiscal Q4 was $67 million, up 5.5% sequentially from $63.5 million in fiscal Q3 2025 and up 32.1% year-over-year. For fiscal Q4, we had adjusted net interest income of $6.6 million, a net decrease of $200,000 sequentially from $6.8 million in Q3, primarily driven by lower interest rates and interest expense associated with new leases. Our adjusted income tax rate in fiscal Q4 was 3% and resulted in an expense of approximately $2.2 million. As of October 3, 2025, our deferred tax asset balances, which includes R&D tax credits, were $208 million as compared to $212 million at the end of fiscal 2024. We anticipate further utilizing our deferred tax asset balances through fiscal 2026 and beyond, helping to keep our cash tax payments relatively low over these periods. We expect our adjusted income tax rate to remain at 3% as we enter fiscal 2026. Depending on the jurisdictional mix of our income, we expect the U.S. government's recent tax legislation to support a low to mid-single-digit adjusted tax rate for the next few fiscal years. Fiscal Q4 adjusted net income increased approximately 4.7% to $71.4 million compared to $68.2 million in fiscal Q3 2025. Adjusted earnings per fully diluted share was $0.94, utilizing a share count of 76.2 million shares compared to $0.90 of adjusted earnings per share in fiscal Q3 2025. Our team continues to optimize the business' performance, which has resulted in sequential increases in our adjusted operating income and EPS over the past 9 quarters. Before moving on to balance sheet items, I would like to note that during the fourth fiscal quarter, in connection with the RTP Fab transfer, we recorded a $10.1 million gain on acquired assets, which is recorded below operating income on our income statement. This gain, which has been excluded from our adjusted operating results, primarily represents the difference between the fair value of inventory we received from the prior fab owner on July 25, 2025 as compared to the estimated value we established in December 2023 at the time of the RF business acquisition. Now on to operational balance sheet and cash flow items. Our Q4 accounts receivable balance was $148.6 million, up from $129.5 million in fiscal Q3 2025. The increase in our accounts receivable balance was driven by revenue growth as well as the timing of customer shipments and payments. Our day sales outstanding averaged 52 days as compared to our previous quarter at 47 days. Inventories were $237.8 million at quarter end, up sequentially from $215.4 million, largely driven by additional work-in-process inventory at the RTP Fab as well as higher balances to support anticipated future demand across the business. Inventory turns decreased to 1.9x from 2.0x in the preceding quarter. Our fiscal Q4 cash flow from operations was approximately $69.6 million, up $9.2 million sequentially and an increase of more than $7.3 million over fiscal Q4 2024. The sequential increase was primarily due to increased net income combined with fluctuations in working capital. Capital expenditures totaled $20.2 million for fiscal Q4, up $11.5 million sequentially. The major driver of this increase was the anticipated purchase of $12 million of surplus equipment at the RTP Fab from the previous owner. We anticipate that the installation of this and other equipment will allow us to expand our RTP Fab capacity and capabilities by up to 30% over the next 12 to 18 months. Our fiscal year 2025 CapEx was $42.6 million, and we estimate fiscal year 2026 CapEx to be $50 million to $55 million as we upgrade and enhance our production equipment, facilities and expand capacity where needed. Next, moving on to other balance sheet items. Cash, cash equivalents and short-term investments for the fourth fiscal quarter were $786 million, up $50.7 million from Q3. We are in a net cash position of more than $285 million as of October 3, 2025, when comparing our cash and short-term investments to the book value of our convertible notes. Over the next couple of quarters, we anticipate paying off the $161 million of principal value of our remaining March 2026 notes as they become due under the terms of the original agreement from 2021. And finally, I'd like to recognize that the results we have achieved during fiscal year 2025 would not have been possible without the contributions from the entire MACOM team. We remain committed to investing in our employees through annual merit increases, promotions, bonuses and stock awards as well as offering competitive healthcare, retirement and other benefits. I will now turn the conversation back over to Steve. Stephen Daly: Thank you, Jack. MACOM expects revenue in fiscal Q1 ending January 2, 2026, to be in the range of $265 million to $273 million. Adjusted gross margin is expected to be in the range of 56.5% to 58.5%, and adjusted earnings per share is expected to be between $0.98 and $1.02, based on 76.6 million fully diluted shares. We expect sequential revenue growth in all our end markets. Data center will lead with approximately 5% sequential growth, followed by Telecom and Industrial & Defense with low single-digit sequential growth. As Jack mentioned, we expect to see increased operating leverage over the course of fiscal '26, through a combination of top line growth and improving gross margins due to increased fab utilization and launching more profitable products. We will maintain operating discipline even as we continue to invest in the growth of the business. Given our talented and experienced team, our core technologies and the secular growth trends in our market, we are confident we will achieve our goals. I would now like to ask the operator to take any questions. Operator: [Operator Instructions] Our first question coming from the line of Tom O'Malley with Barclays. Kyle Bleustein: This is Kyle Bleustein on for Tom O'Malley. I just wanted to start off with the Telecom business. I think through earnings, you've seen a couple of companies point to traditional telecom being better. So I just wanted to kind of get your sense of how you think about that business through the fiscal year kind of the biggest pull factors you're seeing there? Stephen Daly: Thank you for the question. The 2 main pull factors for MACOM this year will be 5G continuing to grow, and that's a core business for MACOM. And second would be the satellite communications and LEO business. If you're referring to the RF-related telecom part of the market, if you're talking about the metro long-haul piece, we are seeing continued growth in that business, and we expect that trend to continue during the year. Kyle Bleustein: And then just for my follow-up, last quarter, I think you talked about broadening some of the ACC engagements. Can we kind of get an update on how that's been progressing over the past 90 days? Have you seen any of those engagements turn into the customers? And just how we should kind of think about that business through the next fiscal year? Stephen Daly: Yes, we continue to be engaged across the industry with all different product lines, including the chipset we put inside the ACC product line. I would say, generally speaking, we have great engagements with the major hyperscalers, and we're certainly excited about some of the potential within that product set. And we'll see how that plays out as we move into the course of the year. We don't generally comment on, let's say, pre-revenue topics. We would always talk about our successes retrospectively, and that would be our approach here as well. Operator: Our next question coming from the line of David Williams with the Benchmark Company. David Williams: Congrats on the $1 billion run rate. Maybe first, just kind of the transition and the demand pull between the 100G and 200-gig that next-gen kind of solution, how are you seeing that? And maybe are the demand trends developing as you would have expected or maybe accelerated a bit? Stephen Daly: Thank you for the question. So our core 100G business, last year, was very stable and actually grew quite nicely. And as we look out into our fiscal '26, we would expect the 100G growth trend to continue. However, the massive growth is really at the higher data rates. So that would be 200 gig per lane servicing primarily 1.6T. And we are very early in the cycle of the rollout of those interconnects. And so that is one of the fastest-growing parts of our Data Center business. It was last year, and we believe it will be as well again in fiscal '26. David Williams: Great. And then just maybe on some of the new capabilities you talked about the acquisition in the quarter, just any color there around the magnitude of that and really the capabilities you think that brings. And you talked about some of them. But just any additional color, I think, would be helpful. Stephen Daly: Yes. You were referring to the HRL IP license agreement. Is that right? David Williams: Yes, yes, I'm sorry. That's correct. Stephen Daly: Yes. So thank you for the question. Very interesting technology, as I highlighted in the script, it very much complements what we're doing with our -- what we call our GSIC140 process, which we launched a couple of years ago. And we're continuing to improve that process even today. The HRL technology was a combination of U.S. government and HRL funding to really develop a technology that would be able to operate at higher power levels at the highest frequency. So this is a technology that really begins to shine above 40 gigahertz. And why we felt this transaction would be important is it allows us to service the higher-frequency SATCOM bands, which are becoming more and more critical for the LEO constellations. And there will be a transition from, what I would consider, pHEMT gas technology at these frequencies to GaN technology, and we will be leading that transition. And the reason why you would want to make that transition is a GaN amplifier on this process will have a higher power density, almost 2x what pHEMT can do, and you'll also get 10 points of higher efficiency on that particular amplifier. So there's a compelling reasons why we believe the LEO constellations will -- and our customers will want to adopt this technology as soon as it's ready in our fab. Operator: Our next question coming from the line of Harsh Kumar with Piper Sandler. Harsh Kumar: Congratulations on some great results. Steve, if I look at your guidance, I think there's a little bit of a step-up in growth. Just at a broad level, I mean you talked about multiple drivers. But if I had to be specifically ask you about what is driving the step-up in growth, how would you characterize that? And I have a follow-up. Stephen Daly: Are you referring to Q1 specifically or in general? Harsh Kumar: Yes, yes, the December quarter. Stephen Daly: Well, I think it's, first and foremost, driven by the continued rollout of 1.6T and 800-gig platforms across various customers with various products. That is absolutely driving the growth. And then I would say the other factor is we're seeing a little bit of a bounce back in Telecom. As you know, going Q3 to Q4, it was sequentially down a little bit, really due to the timing of orders and also just continued strength in our Defense business. And then the other thing I'll add, as we really are at the beginning of our fiscal '26, our October bookings were one of the best months we've had in years. And so we're really excited to start the year with a strong backlog and a lot of momentum. Harsh Kumar: Fair enough. And Steve, you talked a lot about satellite on this call, something you haven't done. You've talked about -- you mentioned satellite, but not to this extent. And you talked a lot about LEO satellites. I guess, could you help us understand the timing of some of these new products, the scale? Where is the business at today? And how big could it be? And also, I was wondering, part 2, the standard question LPO, you started shipping seems like -- could you help us size that market for 2026? Stephen Daly: Yes. Thanks, Harsh. So I would say that the current LEO business is included in the Telecom numbers that we're currently reporting. We don't particularly want to break out that particular submarket within Telecom. So I would say, the timing is now, and it's -- we're ramping. And the LEO business that we have is expected to grow over the next 12 to 18 months. How big could it be? It can be hundreds of millions of dollars in size. This is not a small market, it's a large market. As I mentioned, we support this business at the chip level, the module level and even the subsystem level. And when we talk about LEO constellations, I also have to highlight it includes not only the payload on the satellite, but it also includes the ground gateways and the terminals, which also have very high value-added products. In terms of the LPO question you mentioned -- you asked, we talked about having one customer in production on our last conference call. I can tell you, that number has tripled. So now we have 3 and growing. And so we would expect that number to continue to increase as the industry adopts LPO. We don't necessarily want to size the market. It really depends on what the customers do in terms of their deployments, and that's a very difficult number to put out there. We have our own internal models. But we would rather -- we're sure that there's error associated with those estimates. I will say that our competitive advantage with LPO shines very well because there's no DSP. So the landscape and the competitive dynamics change quite dramatically when you remove the DSP. And then the other thing I'll just highlight, the LPO solutions today are running at 100-gig per lane. Operator: Our next question coming from the line of Karl Ackerman with BNP Paribas. Karl Ackerman: Steve, you spoke of record backlog, but does that include a record backlog for datacom products such as TIAs, drivers and PDs? And as you address that, can you quantify the level of order visibility with your customers, perhaps in terms of quarters as you seek to add capacity to fulfill this customer demand? Stephen Daly: Yes. Thank you. We don't really break the backlog out by product line or market per se. But you can imagine that coming off of a year where we had 50% year-over-year growth in the data center, and there's a lot of momentum that the data center backlog is growing nicely. Some of our other end-markets like defense, they typically have longer lead times and manufacturing cycle time. So we typically would build backlog with our defense customers at the beginning of the year. So overall, a healthy backlog, and we really can't break it out any further than that. Karl Ackerman: Got it. That's fair. Jack, perhaps one for you, if I may. Just on the RF business, any updated thoughts on the timing of yield enhancements and operational performance? Would you anticipate this business going to be margin neutral once these yield enhancements are complete perhaps before you add the planned 30% of wafer capacity? John Kober: Yes, I think what you're referring to, Karl, is some of the gross margin improvements, and we talked about it in our prepared remarks, the sequential improvements that we expect to see on a quarterly basis of anywhere from 25 to 50 basis points. As we've also discussed, we've completed the RTP Fab conveyance. So that's part of the MACOM portfolio. And through a combination of enhancements to our gross profits and cost reductions and yield improvements across all of MACOM, including facilities like Lowell and our other 2 fab manufacturing locations, are going to be helping to contribute to some of those gross margin improvements that we had talked about earlier. So it's more of a global effort that we have as opposed to being focused on any one area of the business. Operator: Our next question coming from the line of Tore Svanberg with Stifel. Tore Svanberg: And let me add my congrats on the record results. Steve, I know you typically don't guide more than a quarter out, but just so many irons in the fire here across all 3 segments. So directionally, how should we think about growth in the 3 segments next year, especially also in light of the more than 40% growth in both Data Center and Telecom this year? Stephen Daly: Thank you for the question, Tore. As you know, we don't typically give full-year guidance. But I'd be happy to make some general comments on our expectations for 2026. And maybe before I do so, I think there's some important trends to highlight, and I think you mentioned a few. Number one, we had very strong growth year-over-year, 32% growth on the top line. And that really represented the 4 out of 6 years in a row, we've had double-digit growth and we're excited about that. Our CAGR over the last 6 years has been in the mid-teens, and we're pleased with that type of performance. As we think about '26, we have various scenarios, we have our base case scenarios and our improved or best case scenarios. But if I just focus on the base case for a minute, we would certainly expect double-digit growth with no less than mid-teens on the top line. We believe the growth will be driven by the Data Center business. It will have -- it will be our strongest market, then followed by Industrial & Defense and Telecom. And it will be a year where you begin to see leverage on -- of our business model and improved operating income and earnings growth. So we're very excited about that as well. Tore Svanberg: Great. And as my follow-up, it sounds like you turned about 14%, 15% of the revenue this quarter. I'm just curious, given the strong momentum, the order rates, are you starting to see some tightness, whether that's with your own fabs or lead times starting to stretch? Because obviously, the growth momentum seems to be accelerating. So I just want to make sure that everything is on track as far as capacity is concerned. Stephen Daly: Yes. Well, we're growing as quickly as we are. There's always stress points throughout our operations and supply chain, and we have an outstanding team that can manage those tactical and strategic issues quite well. So we're very pleased with the team's performance, and we're able to get the things we need and have the capacity available. I highlighted as an example with our 200-gig per lane photodetector. We recognized last year that we were going to have some very strong growth in the next 24 months. And so we took actions to move that product to our large Lowell facility here, where we have really unlimited manufacturing capability to produce PDs to support the industry. So we're taking those steps. A lot of those things you see behind the scenes, where we're making sure we have a front-end, back-end test capacity in place, there's always areas where we need to do more and pinch points. And the team is managing those very well. So yes, it's always a challenge in a high-growth environment, but I think we have it under control. Operator: Our next question coming from the line of Blayne Curtis with Jefferies. Blayne Curtis: I want to ask you, I mean, obviously, very strong comments about growth in fiscal '26. The book-to-bill just over 1, I guess, I think you said maybe there's some function with the Defense business. But I'm just kind of curious, is that the case across all 3 segments? Is there something that's down? Or is that just timing-wise and if that should improve? Stephen Daly: Yes. We track the book-to-bill for each of our markets and submarkets and customers on a very granular level. And every quarter, it's a different setup. And so over the long term, is really what matters. And over fiscal year '25, our book-to-bill ratio was 1.1, to be clear. And that's a very strong number. And we started fiscal '26 in October with one of our best Octobers in as long as I can remember. So we're not -- you have to read through the noise. I wouldn't get too fixated on any particular quarter's book-to-bill. And if you remember a few years ago, we had a quarter where we had 0.5 book-to-bill, and we survived that quite nicely. But -- so that's the nature of the business. Some of our markets are a little volatile. Some of them have different timing of orders, and customers have different schedules, and we just try to blend it all together and report the results. Blayne Curtis: And then I wanted to ask on the gross margin, the 25 to 50 basis points improvement. Obviously, you took over the Wolfspeed fab, and there was some lifting to do there. Maybe you could just talk about the contribution from those improvements versus just what it looks like overall, volumes are going up as well. Stephen Daly: Yes. Thanks for that. And I'll just highlight on a go-forward basis, we don't really want to talk about the gross margins by fab. I think that our business is too complicated than that. I know, before the closing of the fab and during the transition, we were very transparent about the puts and the takes on the RTP site specifically. But now that it's in the MACOM tent and we're changing so many things, including the mix, the customer base, the focus, as I highlighted as an example, we took one of the RTP 150-nanometer GaN on Silicon Carbide processes and we upgraded it by adding an ALD covering and now that's going to open up a new market segment and that will lead to great things; so there's just a lot of moving parts at each one of the fabs. And to get fixated on any particular fabs, near-term performance is -- could be limiting. So I think we take a broader approach and we're not really going to be discussing gross margins by fab because that could be a tell on the profitability of those associated products, which we don't want to disclose. Now the other thing I'll highlight is a big part of our business uses external fabs. And we are working with the leading fabs across the U.S., Europe and Asia to support a lot of our high-speed business, primarily data center centric, as well as various test -- very high-performance test chips or products for broadcast video or other high-speed trading-type chips that are very high-speed matrices that are used in high-speed trading. So we have a lot of high-end chips that we externally source from 4 to 5 different fabs, depending on the technology. And that -- those product lines also contribute quite nicely to our business and can also affect the overall corporate gross margins. Jack, I don't know whether you want to add to that? John Kober: I think just maybe just providing a little bit more color in terms of RTP, right, when we had talked about it last quarter, we had only had it for 2 weeks. So it came in line with our expectations. It allowed us to also derisk the business in terms of being able to take control of that business. So the team has done a fantastic job with everything that's going on there. Operator: And our next question coming from the line of Sean O'Loughlin with TD Cowen. Sean O'Loughlin: Like my peers, I'll congratulate you on the excellent results. I wanted to ask -- two of your, I guess, I'll call them sort of competitors announced a merger last week, a question that we've gotten from investors is whether you anticipate much changing on the competitive landscape following that merger. Obviously, you don't compete in the handset market, but maybe as you think about those companies' respective broad markets businesses coming together, does that change much? Or is it too early to say with any certainty? Stephen Daly: Yes. Thank you for the question, and congratulations to both companies. And you're right, we're not in the handset business, so it shouldn't affect us. Neither companies are customers or suppliers to us, so there's no sort of impact there. So we don't really see a direct impact. We have noticed that each of those companies is closing down their fabs, and I imagine over the course of time, there'll be some restructuring. And so it's possible that, that could create an opportunity for us to maybe win some more sockets or hire some great talent. So we'll see how it goes. And we again, congratulate both companies on that deal. Sean O'Loughlin: Great. And then as a follow-up, I wanted to ask an AI question that is actually not about the data center market, if you can believe that. But in telecom, one of the themes that our colleagues on the comm infrastructure side of the house have been exploring is the potential impact of some of these deployments and the data center builds on access and long-haul networks as bandwidth increases either due to distributed training or more 2-way inference traffic. Are you -- I guess, put simply, are you seeing that at all? Or do you anticipate that in the future? And then maybe how should we be thinking about the puts and takes of those trends as it relates to MACOM? Stephen Daly: Well, we have very good relations with the major RAN manufacturers that are deploying 5G and working on 6G. We also have a very strong understanding of the front-haul network itself because that's a big part of our business. And we're very, very strong with RF over fiber. And in some future generations, there may be more RF over fiber directly to the radio. And so all of these things would contribute to moving high-speed data or large blocks of data faster. And so we are definitely working with customers and trying to keep up with their investigations of different architectures like the ones you mentioned. So we do have -- again, I think the key point here is that trend would most likely be a long-term trend, and we think we have the right technology, given the highest speed, highest data rate, highest frequency. A lot of these applications might also deploy very high frequencies. And so we think we're in a good spot to take advantage of that. Operator: And our next question coming from the line of William Stein with Truist Securities. William Stein: And also congratulations on the strong results and outlook and perhaps especially on the fiscal '26 commentary, which sounds good. Steve, I was hoping that you might reflect on the one hand, relatively light comments about the industrial end market performance, while on the other hand, gross margin sounds like they're going to be tracking better consistently over the coming year. I've historically sort of associated these 2 things together that a lull in the industrial end market has been sort of a weight on gross margins. Is that still the case? Is that part of the thinking behind expanding gross margins next year or recovery in that market? And if any other details you could provide around that thinking, would be helpful. Stephen Daly: Yes. And I think you're thinking about it the right way. And historically, we've had a lot of our industrial revenue was internal fab centric. And that's because it would be servicing markets like test and measurement or medical markets where they use a nonmagnetic high-voltage diodes, which we have a very strong position in the market on, as well as factory automation and other wireless platforms. And so as that market improves, that benefits the loading and can have a benefit on the gross margins. Generally speaking, I would -- with that said, generally speaking, as we look into '26, we think there will be some positive trends in industrial, but more importantly, stronger trends in defense, And that will also be a tailwind on our gross margins. William Stein: That's helpful. Maybe as a follow-up, can you maybe help us understand the diversification in the data center end market? And maybe explore a little bit where the design wins come from. Are they more from module makers, from semiconductor suppliers, from the cloud service providers? And maybe give us an idea of the diversification and the types of customers that you're actually getting design wins from and transacting with. Stephen Daly: Thank you for the question. We address to the back half of your question, all 3 of those customer categories. So that would be the module manufacturers or cable manufacturers, semiconductor companies and the cloud or the hyperscalers directly. So we engage in all of those categories. And so when you take that and add that all up, you'll see that there's a lot of mix of what those different companies would want in terms of product for MACOM. As we look at the market, we break it up into really 3 segments, it would be the multi-mode market itself, which is generally short reach; single mode, which is medium, long reach; and then metro long-haul and coherent. And so as we look down and service these different companies in those different categories you mentioned, depending on what they're focused on, we'll try to be a merchant supplier and sell them chips. It might be a driver, it might be a laser, it might be a photodetector or TIA. And so that is -- there's about a half a dozen primary product lines, let's say, that we service the data center with, and that's how we go to market. Operator: Our next question coming from the line of Peter Pang with JPMorgan. All right. I will go on to the next person in queue, next person in the Q&Q coming from the line of Tim Savageaux with Northland Capital Markets. Timothy Savageaux: Okay, just made it. Congrats on the results. And indeed, we've seen some pretty positive results across this AI optical landscape thus far this week, even with a lot of references to step-function accelerations and demands, I think, both inside and outside the data center. And I think maybe that marries up well with your very strong October bookings commentary, I think. I guess the question is, in that environment, so you're guiding data center to high 20s growth, maybe 28% growth in Q1; and I guess given this environment that we're seeing and what seems to be a bit of a tidal wave of demand, is that type of growth rate sustainable for the year in fiscal '26? Or can it even increase? Stephen Daly: Yes, I think it can increase. And we have a base case, and then we have our sort of best case. And we're setting guidance on it, I would say, our base case are more conservative which even provides strong sequential growth coming off of a very strong Q4. And so we would expect that to continue. There are scenarios, as we model our fiscal '26, where our data center can actually really outperform and have very strong performance similar to last year. But we're not forecasting that now. We know a lot of things have to happen, including various ramps have to occur and things of that nature. So we're not forecasting that sort of super strong growth. We're going to start the year and look at our backlog and plan accordingly. But you're correct, and those trends are there, and it's primarily around 1.6T. That's where the volume is, that's where the demand is, that's where the shortage of supply in some key technologies is. And quite frankly, that's where MACOM can be a strategic partner. Operator: Our next question coming from the line of Quinn Bolton with Needham & Company. Quinn Bolton: I guess maybe, Steve, just coming out of the ECOC optical show a few weeks back, there was some chatter about market share shifts in the TIA and the driver side at 800-gig and 1.6T modules. I just wonder if you could address how do you feel about your relative share position across TIAs drivers? Have you seen any shifts? Do you feel like you're still pretty well holding share or maybe even taking share? But any commentary just how you're doing in the PMDs for optical modules at 800 and 1.6T? Stephen Daly: Thank you for the question. I think we're doing well. I think we have differentiated product, and it's a very competitive landscape. So you have to earn every socket based on performance, timing, price and I think we're bringing our best game to the market. Quinn Bolton: So holding share? Stephen Daly: I'm not going to comment on particular product lines, whether we're gaining or losing market share. Operator: And there are no further questions at this time. I will now turn the call back over to Mr. Steve Daly for any closing remarks. Stephen Daly: Thank you. In closing, Jack and I would like to thank the entire MACOM team for their continued dedication, which made our FY '25 results possible. We will continue to work as a team to meet our customers' needs and execute our strategic plan as we start fiscal year '26. Thank you very much, and have a nice day. Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good day, and welcome to the Vericel Corporation Third Quarter 2025 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Eric Burns, Vericel's Vice President of Finance and Investor Relations. Please go ahead. Eric Burns: Thank you, operator, and good morning, everyone. Joining me on today's call are Vericel's President and Chief Executive Officer, Nick Colangelo; and our Chief Financial Officer, Joe Mara. Before we begin, let me remind you that on today's call, we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to differ materially from expectations and are described more fully in our filings with the SEC. In addition, all forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Please note that a copy of our third quarter financial results, press release and a short presentation with highlights from today's call are available in the Investor Relations section of our website. I will now turn the call over to Nick. Dominick C. Colangelo: Thank you, Eric, and good morning, everyone. The company delivered outstanding financial and business results in the third quarter with strong top line revenue growth and even higher profit growth, a significant inflection in operating cash flow, and continued progress across a number of key business initiatives. The company generated record third quarter total revenue, which exceeded our guidance for the quarter, record third quarter MACI revenue, which increased 25% over last year and the highest quarterly burn care revenue of the year as Epicel had one of its highest revenue quarters to date and NexoBrid had its highest quarterly revenue since launch. The strong revenue performance translated into significant profit growth and cash generation as the company delivered GAAP net income of more than $5 million and adjusted EBITDA margin of 25% for the quarter as well as record third quarter operating cash flow of more than $22 million. MACI's third quarter performance was driven by strong underlying business fundamentals as we continue to expand the MACI surgeon base and drive growth in biopsies with the launch of MACI Arthro. As anticipated, the strong MACI biopsy growth in the first half of the year, which outpaced implant growth to that point, drove an acceleration of implant and revenue growth in the third quarter. MACI also had another quarter of double-digit biopsy growth with record third quarter highs in both MACI biopsies and the number of surgeons taking biopsies. This momentum continued into the fourth quarter as we had the highest number of MACI biopsies and surgeons taking biopsies in any month since launch in October. In addition to the strength of the core MACI fundamentals, the early launch indicators remain very strong for MACI Arthro, which clearly is contributing to MACI's overall biopsy and implant growth. We now have more than 800 MACI Arthro trained surgeons through the end of October, and the biopsy and implant growth rates continue to increase substantially for trained surgeons and remain significantly higher than the growth rates for surgeons that have not yet been trained. In addition, early data indicates that the cohort of surgeons that have completed a MACI Arthro case to date have a markedly higher implant growth rate than biopsy growth rate, suggesting a higher overall conversion rate for MACI Arthro implanting surgeons. We believe that this dynamic may be driven by the fact that MACI Arthro is a less invasive procedure with the potential for improved patient outcomes. To that end, we remain focused on generating clinical data to demonstrate these potential patient benefits, including a shorter rehab period with MACI Arthro administration. Early data from ongoing investigator case series suggests a significant reduction in postsurgical pain, improved range of motion and a meaningful acceleration in the time line to achieving full weight bearing, following MACI Arthro treatment. These initial results suggest very positive outcomes, which could also lead to a shorter overall recovery time line for patients. We expect to see these cases presented at industry meetings in early 2026 as well as in future publications, and we continue to work with additional surgeons as they complete MACI Arthro cases to collect prospective outcomes data in our MACI clinical registry. Finally, the MACI sales force expansion is on track to be completed in the fourth quarter, with the new reps supporting current territories this year and moving into their new territories at the start of next year, which will support our significant fourth quarter volume growth and position MACI for a continued strong performance for the full year in 2026. In terms of our longer-term MACI growth initiatives, we remain on track to initiate the Phase III MACI Ankle clinical study this quarter, which represents a substantial growth opportunity for MACI and would enable the company to expand into other orthopedic markets. We also remain on track to initiate commercial manufacturing for MACI in our new facility next year, which is designed to meet both U.S. and global manufacturing requirements and will allow the company to potentially commercialize MACI outside the United States. To that end, we're initiating a stage approach to our MACI OUS expansion with the first phase targeting a planned MACI launch in the U.K. This is an ideal first step for OUS expansion in that the U.K. has an international mutual recognition procedure that allows for accelerated approval and market access. There's a high level of awareness and surgeon advocacy for MACI given that the product was previously marketed in the U.K. There's an established reimbursement pathway for this technology given a prior positive NICE opinion for MACI, and there are concentrated points of care with a dozen or so centers of excellence for the treatment of cartilage injuries in the U.K. We'd expect to submit a marketing application in the middle of next year and potentially launch MACI in the U.K. in the first half of 2027 as we seek to expand the long-term growth and value creation opportunities for the company. In summary, MACI remains the clear market leader for knee cartilage repair with a significant competitive moat. Based on the strength of its underlying business fundamentals, we believe that MACI is very well positioned for a strong close to 2025 and continued strong growth in 2026 and beyond. The early launch indicators for MACI Arthro remain very strong and clearly are contributing to the overall biopsy and implant growth for MACI. As we move into 2026, we expect to capitalize on having a full year to engage with the current MACI Arthro trained surgeons and to continue to meaningfully expand the number of trained surgeons next year. In addition to increasing the MACI sales force to drive further growth, we're also supporting the expanded MACI sales team with additional investments across our sales operations, marketing and medical functions to enhance our operational excellence and commercial execution and create additional opportunities for surgeons to engage with Vericel. We believe that all of these initiatives will reinforce MACI's leadership position and drive continued strong revenue and profit growth in 2026 and the years ahead. I'll now turn the call over to Joe. Joseph Mara: Thanks, Nick, and good morning, everyone. The company delivered very strong financial results in the third quarter with record total revenue of $67.5 million. MACI had a strong quarter with revenue growing 25% to $55.7 million, which was above the high end of our guidance range for the quarter. Importantly, year-to-date MACI revenue growth is over 20% with its growth rate having increased each quarter during the year. Burn Care also had a strong third quarter with revenue of $11.8 million, which increased 21% sequentially over the second quarter. Epicel revenue of $10.4 million was the highest quarter of the year and one of its highest quarters to date, while NexoBrid revenue of $1.5 million represented its highest quarterly revenue since launch, growing 38% versus the prior year and 26% versus the prior quarter. The company's substantial revenue growth translated into significant margin expansion with gross profit of nearly $50 million or 73.5% of revenue. Company also delivered GAAP net income of $5.1 million and adjusted EBITDA increased nearly 70% to $17 million or 25% of revenue, an increase of nearly 800 basis points versus the prior year as the company's profit growth continues to outpace our strong revenue growth. Finally, the company generated record third quarter operating cash flow of $22.1 million, nearly matching the fourth quarter of last year. And with just $2.6 million of CapEx during the quarter, the company achieved record free cash flow of nearly $20 million, ending the quarter with $185 million in cash and investments as the expected inflection of our cash generation following the completion of our new manufacturing facility is now being realized. Turning to our financial guidance. We expect full year total revenue of approximately $272 million to $276 million. For MACI, we are maintaining our revenue guidance expectations of low 20% growth for the full year and expect full year MACI revenue of approximately $237.5 million to $239.5 million and fourth quarter revenue of approximately $82 million to $84 million. Given MACI's strong third quarter results and expectations for its continued strong performance in Q4, MACI remains on track for a significant acceleration in revenue growth from 18% in the first half of the year to approximately 23% in the second half of the year. For Burn Care, we expect full year revenue of approximately $34.5 million to $36.5 million, with fourth quarter revenue of approximately $6.5 million to $8.5 million as Epicel trends to date in the fourth quarter are similar to Q4 of last year. I would also note that we are not assuming any additional NexoBrid revenue related to the BARDA RFP process initiated in August, although there is potential for incremental NexoBrid BARDA revenue in the fourth quarter. From a profitability perspective, we have reaffirmed our full year profitability guidance of gross margin of 74% and adjusted EBITDA margin of 26%. For the fourth quarter, we expect gross margin of approximately 77%, approximately $50 million of total operating expenses, which includes the investments related to our recent sales force expansion and adjusted EBITDA margin of approximately 40%. Overall, 2025 is set up to be another positive year for the company with strong top line growth as well as significant margin expansion and profit growth. As we look ahead to next year and beyond, we believe that the durable growth of our portfolio positions the company to sustain strong top line growth in the years ahead and supports our midterm profitability targets that we announced earlier this year of gross margin in the high 70% range and adjusted EBITDA margin in the high 30% range by 2029. This now concludes our prepared remarks. We will now open the call to your questions. Operator: [Operator Instructions] We'll move to our first question. Joshua Jennings: This is Josh Jennings from TD Cowen. Is that -- am I coming through okay? Joseph Mara: We can hear you fine. Joshua Jennings: I'm sorry I got operating notice. I didn't hear my name called. So maybe just -- I appreciate your comments. Congratulations on the strong 3Q results. Your comments just a moment ago, Joe, on 2026 continued momentum. Just sorry for the typical question, a little bit too early prior to 2026 guidance, but maybe just for the MACI franchise, just thinking about MACI Arthro contributions in 2026, additive versus cannibalistic of standard MACI and how we should be thinking about the MACI growth as we move into the coming quarters next year? I have one follow-up. Joseph Mara: Yes. So Josh, again, and thanks for the question. So first off, just a reminder, we haven't given any specific '26 commentary as of yet, but happy to give kind of our initial thoughts. Of course, we'll kind of give more formal guidance as we move into next year. I would say -- I'll kind of hit just briefly on both franchises, but certainly cover MACI. So, I would say across the portfolio, our expectations next year are very high. We have a number of impactful initiatives that we're very excited about across both franchises, particularly MACI. But I do think we'll be pretty prudent to start the year from a guidance perspective. So maybe just briefly starting with Burn Care, I think that one is pretty straightforward. So we talked about last quarter this kind of run rate concept, which we think is appropriate. We said we would adjust it kind of as needed on a quarterly basis. But if you look at our run rate over the last several quarters, we've kind of been in that $9 million to $10 million range on burn care. So I think as a starting point for next year, kind of being in that range, call it in the high 30s on a full year basis next year is a good place to start. We do have expectations that NexoBrid will continue to increase. Certainly, there remains a possibility of some potential BARDA-related revenue that could materialize. But just given Epicel's variability, we're just going to be prudent on that, and I think that one is pretty straightforward. So from a MACI perspective, I would say, as we think about the guidance and kind of what next year looks like, if you kind of look at where analysts are, I mean, most analysts are kind of right around 20% on a full year basis, plus or minus. We think that's a good starting point as we think about '26. If you look at where we were on a full year basis last year, MACI was 20%. It's 20% on a year-to-date basis this year. So we're not going to get ahead of ourselves and plan to start the year guiding above the trends of that 20%. So again, that's a good place to start. You can also look at kind of the incremental revenue on a year-over-year basis. That points to something kind of similar in that $40 million plus range. Again, we don't want to get ahead of ourselves. And I guess kind of the last point I will make on the arthro question. I think as we think about '26 and really moving forward, we're not really thinking about this as kind of arthro versus non-arthro. We're thinking about this from a MACI total level. But if you kind of step back and think about the progression during the year, I think we're seeing exactly what we wanted to see as we kind of march through the year. So first off, great foundation in terms of engagement with surgeons. We're up to 800 trained surgeons. I think the majority of those are either new to MACI or new to smaller defects. So that's exactly what we'd want to see. The second point there that we've talked about for a few quarters now is we are seeing higher biopsy and implant growth after surgeons are trained. So that's obviously exactly what we want to see, and we think that could be impactful over time. And then the last point, early days, but when we look at our arthro implanters, so the surgeons that have done arthro implants, we're actually seeing signals of a higher conversion rate. So, I mean, if you kind of look at that collectively, that is a pretty strong data set and consistent to what we hear externally. So good signals on Arthro for sure. But I would say, certainly, we're mindful of that, but we're just not going to get ahead of ourselves in terms of a planning assumption or guidance next year and would rather start the year a bit more prudently, which we think sets us up for success as we move throughout the year. Joshua Jennings: Appreciate that. And it's great to see the conversion rate thesis playing out for MACI Arthro. We've anecdotally kind of gotten back from some surgeons that patient demand for MACI Arthro is increasing. More patients are seeking out ortho surgeons that perform MACI Arthro or coming in requesting MACI Arthro. Just wondering if that -- if what we're picking up is a trend and whether that's helping kind of drive surgeon adoption rates, surgeons hearing from patients and then they're getting more interested or also driving volumes? But anything you can share on that dynamic would be helpful. Dominick C. Colangelo: Josh, it's Nick. Yes, I mean, as we've talked about repeatedly, we've heard and seen the anecdotal feedback since the early days with MACI Arthro. There's a lot of social media activity from top MACI Arthro implanters. That certainly can be one contributing factor to sort of patients' awareness of a MACI Arthro option. So that makes perfect sense to us. And as Joe mentioned, besides the anecdotal kind of feedback we've been getting, which has been very positive. Everything -- the parameters that Joe mentioned just sort of line up with everything we expected to happen, and it's the progression that we've been talking about for the entire year. So yes, really kind of pleased with the trends. And I think there's -- makes a lot of sense that patients would be interested in a less invasive procedure that has potential benefits in terms of faster recovery and potentially overall rehab time lines. And then, of course, the surgeon interest. We're well ahead of where we expected to be on trained surgeons for the year. So that awareness and engagement has been really positive as well. Operator: We'll move to our next question from Richard Newitter with Truist Securities. Richard Newitter: Congrats on the quarter. I just wanted to get a better understanding of where you're potentially seeing MACI Arthro actually potentially getting used where the traditional MACI was not? . Just the cannibalization versus market expansion, anything anecdotal that you can give us there? And then I have a follow-up. Dominick C. Colangelo: Rich, it's Nick. So I think it's kind of continuing the trends that we've talked about on the past quarters. And again, we don't really -- cannibalization is not sort of how we think about this. We look at increasing MACI utilization and whether a surgeon implants MACI through a mini arthrotomy or small open incision or arthroscopically, that all contributes to the strong MACI growth that we are seeing. So as we talked about before and as Joe alluded to, when you think about it from a surgeon perspective, the trained surgeons and now the biopsying and implanting surgeons come from existing MACI users, but also new users who were former open targets or the new arthro-only targets that we added. And the training kind of breaks down, as we talked about before, roughly 1/3 of sort of the former -- the MACI users who were primarily condyle users and then 1/3 from those that did both condyle and femoral condyles and then 1/3 new users, whether they were open targets or the new targets. So good distribution of surgeons, all of whom are taking biopsies and obviously doing implants. And then from a defect location or a patient perspective, we've talked a lot about that we've seen use not only on the femoral condyles, but also in areas of the knee like the trochlea and tibia, even a few patella cases here and there. And that, I think, will continue, especially as we think about the continued innovation with the MACI Arthro instruments where we will work with surgeons, design the next version 2.0 of MACI instruments that will allow access to different portions of the knee and so on. So I think it's pretty broad-based as we've been talking about all year and supports the growth that we've seen in this third quarter. Richard Newitter: Okay. That's really encouraging to hear. I'm just curious, just given where you are in kind of a new product launch here. As we look to next year, understanding you might not want to provide official guidance, totally understand that for '26. But anything that we should be aware of on the cadence on revenue or on the P&L? Just -- it's been a little bit counterintuitive for the last 2 years and just to preempt any surprises as we all calibrate our models into next year? Joseph Mara: So thanks, Rich, for the question. This is Joe. So I would say, as we go into any year, I mean, I think from a MACI perspective, there's always going to be that seasonality. I mean it can certainly ebb and flow a bit on a quarterly basis. I would say one thing as we're thinking about -- we're talking about the full year, but we have tended to see in the last couple of years that the first quarter has tended to be at kind of a lower growth rate for whatever reason coming off Q4. So I mean that, of course, is a dynamic we've seen that I would point out, that was present in the last couple of years. So that's probably one piece. In general, I would say it typically follows a pattern as we've seen. And again, it can vary a bit by quarters, but halves tend to look pretty similar. So nothing I would call out, obviously, on the burn care side, which I don't think you're necessarily getting to. But clearly, there can be variability there. And again, we're going to kind of stick with that run rate framework, and we'll adjust as needed, as we've done in the fourth quarter here just based on what we're seeing because we certainly want to make sure we're not going to get ahead of ourselves in any quarter on burn care. So that's more of a framework question. I would say on the -- maybe just to hit the profitability for next year and kind of the profitability concept. I mean nothing to call out next year quarterly. But I would say, as you're thinking about the year and just going forward, I'd say, first off, I think it's pretty notable if you look back at Q3 that this is -- of course, the fourth quarter, just based on the MACI trajectory is always our highest revenue quarter, highest margin quarter, et cetera. But to be net income positive at a $5 million level, I think, is pretty notable in the third quarter. We achieved 25% adjusted EBITDA margin in the third quarter, which is also pretty notable. And then just on the cash generation for a moment, I mean, whether you look at free cash flow or operating cash flow, you're kind of around $20 million for the quarter. So we talked a few years ago about that P&L inflection that we're starting to really get on the stronger side of. And I think we're just starting that kind of inflection on the cash generation piece. In terms of the fourth quarter, obviously, we would expect a strong quarter there as well, as I talked about in the remarks. Next year, I would say, as you think about next year, I think we would expect on the margin side things to continue to tick up on both the gross margin and the adjusted EBITDA side. Probably want to just be a little bit prudent there to start the year in the sense that the last 2 or 3 years have been really strong and probably a bit ahead of our expectations in terms of how quickly the margin has gotten up the curve. But I certainly think kind of being up, call it, 1 point in gross margin, maybe 1 point or 2 on adjusted EBITDA is a reasonable starting point. We will have to -- there will be investments on the sales force on a full year basis on the Ankle trial ramping up, cost of goods sold will absorb some of the new buildings. So that has to be contemplated next year. Lastly, I would just say, I think from a broader lens, if you kind of look at where the kind of financial trajectory of the company is and our P&L metrics, they are really kind of starting to ramp up pretty significantly. So last year we had $50 million of adjusted EBITDA. This year our guidance is pointing to $70 million. So we're already starting to get into that $100 million zone on adjusted EBITDA level now. And so, if you assume even similar revenue growth over the next few years and a high 30% adjusted EBITDA, I think it's certainly reasonable to be kind of getting close to that $200 million EBITDA range by 2029, call it. So, I think we're pretty excited about, obviously, everything that's going on in the MACI's side and across the business, but we're also very focused on that kind of financial trajectory in '26, but really over the next several years, which could be pretty significant. And again, we think it makes us pretty unique for a company of our size and scale. Operator: We'll take our next question from Ryan Zimmerman with BTIG. Ryan Zimmerman: Can you hear me okay? Nice quarter. Just given the biopsy trends you saw early in the year, the results this quarter, MACI -- the MACI guidance was tightened. And I'm wondering why fourth quarter wouldn't step up maybe relative to your prior guidance given what you're seeing and your commentary about biopsies in the third and into the fourth quarter? Joseph Mara: Yes. So thanks for the question, Ryan. So I'll take that. I mean I think, clearly, a very strong third quarter, as we referenced, the biopsies at the start of the year led to that higher implanted revenue growth, which is great to see. To your point, the leading indicators have been strong. I'd say particularly the biopsies, which is, of course, a key leading indicator for us. I think in terms of the guidance, I would say another dimension there is, with that strong third quarter, it really derisks where we need to be in the fourth quarter to achieve our full year guidance. So, to your point, we're essentially maintaining the full year guide at the same level. It kind of points to about $82 million to $84 million in the fourth quarter, which is right in line with kind of where estimates and consensus are. But I'd also say this kind of points to a pretty strong acceleration still from an H1 to H2 perspective, depending on where you're in the range, it's 18% to call it 22% to 23%. So a pretty significant step-up in the second half. It also gives us, I'd say, a pretty achievable step-up Q3 to Q4. And I'd just say broadly, we just want to be prudent here on Q4. We recognize there certainly remains a wider range given some of the leading indicators. We've got a great foundation of biopsies in place, but Q4 is our largest quarter. December is our highest month because there always can be some variability at quarter end, particularly with the year-end holidays. So we think this is appropriate. It's an achievable step-up. And I would say just we do not want to get ahead of ourselves as we close out the year. Ryan Zimmerman: Yes. Okay. Fair enough. And the other question, and you kind of talked about this, Nick, which is you're seeing adoption in MACI Arthro. But I guess I'm not clear. I mean, what -- how much MACI Arthro sales were in the third quarter? And what are you expecting relative to legacy MACI, if you will, as we convert and move into the -- both the fourth quarter, but then into 2026? I mean, if you were to kind of think about it with broad strokes, I mean, does it entirely convert over this next quarter? Do you convert over the course of 2026? I guess I'm just curious kind of how you think about the rise of MACI Arthro relative to maybe the decline of legacy MACI? Dominick C. Colangelo: Yes. So we kind of don't, like we said earlier, think about a decline of legacy MACI. I mean, legacy MACI was principally focused on patella defects and large defects anywhere in the knee. And I'd say that patella defects is one of the strongest, if not the strongest growth drivers, for core MACI, and that remains the case. So they're not like a decline in the core MACI. And again, you're never going to have full sort of switch over to MACI Arthro because MACI Arthro instruments are designed for the smaller defects. If it's above 4 square centimeters, you're doing an open procedure. If it's a patella case, you're typically going to do an open procedure. And so the small defects were the smaller part. We had lower penetration there. That's the whole thesis for launching the MACI Arthro instruments. And so, as we've seen an increase in biopsies and implants on smaller condyle defects, those are kind of MACI Arthro attributable cases. So, again, we don't think about it as it's got to be blank on the core and then blank on arthro. You can often start intending to do an arthro case and flip to open if the defect got bigger since you did a biopsy. I mean, it's almost like a halo effect on the whole brand. And so, that's how we approach it. But no [ doubt ], as we've talked about that the trends for trained surgeons and how they're behaving is exactly what you want to see and supports the overall growth for the brand. Ryan Zimmerman: Okay. That's very helpful. And if I could sneak one last one in, and I'll hop back in queue. If you go back, some of the insurance carriers and their policies don't restrict lesion size. Some do. Have you had to work through that? And is there any impact or any gating factor there in terms of lesion size as you launch MACI Arthro? Dominick C. Colangelo: Yes. So the answer -- short answer is not at all. As you mentioned, there are some plans that don't have any sort of size restrictions or parameters there. There are some that require that the defect be 1, 1.5 or 2 square centimeters or above. That's again exactly what the MACI Arthro instruments are designed for. They are 2, 3 or 4 square centimeter defects. So really, that has not been an issue at all. And as we've talked about often, every major medical plan has a policy, a medical policy for MACI and our prior approval rates are up in the mid-90% range. So for the appropriate patients, MACI gets approved. Operator: We'll take our next question from Caitlin Roberts with Canaccord Genuity. Caitlin Roberts: Congrats on the quarter. Just to start with Burn Care, can you just walk us through the puts and takes here? You said Epicel you expect similar Q4 dynamics this quarter and last year. And then the BARDA contract, any more color on that and why there could be some BARDA upside to NexoBrid? And also has the new Category III code for NexoBrid helped uptake there? Dominick C. Colangelo: Caitlin, this is Nick. So just on the Epicel trends coming into the quarter that Joe referenced, I mean, what we said was to start the quarter, and again, we're still relative -- we're only 1/3 of the way through the quarter that the trends to date, which essentially is sort of the biopsies that we had coming into the quarter and in the first weeks of the quarter were more like Q4 last year. So that's what we're going to guide to. As you know, we still have a good amount of the quarter to go. The biopsies for patients we're going to treat in December aren't even sort of in-house yet. So we just don't have the visibility on that. So we -- as Joe mentioned, we want to be very prudent in sort of making sure that we don't get ahead of ourselves on Epicel guidance given its variability. On the BARDA opportunity, as you know, the RFP is public and was intended to sort of begin on October 1st. Obviously, we're all aware there's a government shutdown. So things sort of came to a screeching halt. But we are hopeful and expect that when the government reopens, that there's an opportunity to move forward on that RFP and the procurement, et cetera, and advanced development of NexoBrid. So more to come on that. But obviously, until that happens, we can't really kind of share much more about it. And then on the CPT code, I think we have, as we've talked about, had a pretty good number of P&T committee approvals for NexoBrid, up in the 70 range and more than 60 ordering centers. So kind of in the CPT world, I think we feel comfortable. There's pretty widespread utilization. And we would expect that next year we'll pursue a permanent code, which would then become effective in 2027. So that would be our plan right now. So more to come on that as we get into next year. Caitlin Roberts: That's great. And then just maybe touching on the MACI sales force hiring. Where are you now? And you noted you're on track to be completed in Q4. Any changes to the amount that you noted last quarter that you would hire into the year? Dominick C. Colangelo: Yes. No, we said we were going to be adding 25 new territories and 3 new regions, and that is essentially virtually complete, [ onesie, twosies ] left to go on that. So we are extremely pleased with the quality and caliber of the talent we've brought in. If you're in the sports medicine business, this is a great place to be with MACI. So 0 issues in attracting top talent and couldn't be more excited to kind of have this expanded team as we -- again, to support our Q4 volumes, but also as we move into next year. And so really excited about that. And that, quite frankly, is just one piece, as I mentioned, of sort of the overall sort of investments and enthusiasm around MACI, so expanding the sales force. we're really proud to have kind of built this franchise from a $30 million product 10 years ago to close to $0.25 billion now, and we're really focused on the people, the resources, the processes that we have to have in place to take it from $0.25 billion to $0.5 billion product over the next several years. And that's what we're focused on. The sales force expansion is one piece of it. As I alluded to in my prepared remarks, we're also focused on additional marketing, sales ops and other kinds of investments in medical affairs and engagement with our key customers to make sure that we drive and achieve what's clearly right in front of us as we move forward over the next several years. Operator: We'll take our next question from Mike Kratky with Leerink Partners. Michael Kratky: Congrats on a nice quarter. You've continued to show great progress on some of the leading indicators like biopsies and surgeons taking biopsies. Can you just clarify how much of your 3Q growth for MACI is being driven by implant volume versus pricing? Have you seen some of these really positive leading indicators start to materialize in your MACI volume growth? And how has that tracked relative to your expectations? Joseph Mara: Yes. Mike, thanks for the question. So yes, I mean I'd say kind of the acceleration that we're seeing in Q3 in terms of the performance, I mean, that's really volume driven. As we've talked about early in the year, we obviously had some strong biopsy growth. The implant growth was not tracking at the same level. And so what we really saw in the third quarter, which is what we anticipated, was really the volume from an implant perspective really ticked up. And then again, as you kind of think going forward, obviously, the most important indicator as we look forward, or one of the most important, of course, is that biopsy growth. And that's really something that has continued to be strong, and Nick referenced October was really strong as well, I think our highest month ever. So that's -- it's really kind of been driven by that piece, both in Q3. And then again, you think about those volumes as we start Q4, that's what's going to drive us going forward. Operator: We'll take our next question from Mason Carrico with Stephens. Unknown Analyst: This is Ben on for Mason. In terms of the MACI Arthro trained surgeons, you called out that 1/3 split between surgeon types. Could you compare and contrast arthro biopsy growth and maybe arthro procedures across these different groups? Dominick C. Colangelo: Yes. So just to be clear, we talked about the fact that we had former MACI users, about half of whom were condyle-only surgeons or users. And then we had the other half of those prior users that did both femoral condyle and patella cases and then we have new users. And so it kind of splits between those 2, 1/3, 1/3 or 3 and 1/3. And to be honest, we've seen kind of biopsy growth across the board. And I don't think there's any sort of notable sort of groups that are outperforming the others. Obviously, if they were smaller users and they ramp up even a handful, it's a high biopsy growth rate or if you're a new one, it's a really high biopsy growth rate. So I think the rates across those segments are relatively similar. And it's -- as Joe alluded to, it's pretty exciting for us to say between the new users, 1/3 of the surgeons being trained and then another 1/3 coming from Patella only. I mean, that's 2/3 of these trained surgeons who probably didn't think about using MACI or certainly didn't in smaller condyle defects. And so that's, again, exactly what we would have wanted to see this early in the launch. Unknown Analyst: Great. And then you've historically called out mid to high single-digit pricing for MACI. Could you speak to the durability of that pricing moving forward or just the durability of that in light of the current reimbursement environment? Dominick C. Colangelo: Yes. So again, just so everybody understands, MACI is reimbursed under a medical benefit. So it requires prior approval by each plan before a case can move forward. So obviously, the pricing is known when plans include MACI in their medical benefits. They know the appropriate patients are going to be treated because they have to approve them in advance. And that's what leads to sort of these high sort of mid-90% prior approval rates that we've achieved consistently for the last decade since we launched MACI. So some of the other things, we don't have a big, obviously, Medicare business at all. And so a lot of this sort of macro stuff that's circulating out there doesn't really apply to MACI. In terms of the sort of mid to high single-digit price increases that we've sort of routinely taken, I mean, we do a lot of pricing research with plans and hospital administrators. And again, this is viewed as a very sort of high-tech product where -- more like a biologic in the pharma space where mid to high single-digits are pretty routine. So we're pretty comfortable in our pricing practices and our approach. Operator: We'll move to our next question from Jeffrey Cohen with Ladenburg Thalmann. Jeffrey Cohen: Congrats on the quarter. Two specifically. Firstly, Joe, perhaps you could talk about R&D a bit and anticipation for Q4 full year and general commentary there? Joseph Mara: Yes. I mean so we haven't -- from a spend perspective, broadly, I mean we don't typically kind of get into the pieces. But I would say, I think we called out -- as you're thinking about kind of Q4, we called out about $50 million of total OpEx, which I think kind of gets us back to a similar point on a full year basis that we've been talking about all year. And I think as you think about kind of R&D going forward, and really kind of all the buckets, again, I referenced it earlier, but there's sort of 2 key incremental investments on the operating expense side, which are the sales force expansion, and Nick talked about we have some related investments around that, which I think will be important, and that will be incremental next year. And then the Ankle trial, really next year will become much more operational where you're going to see more sites and potentially patients kind of ramping up. So I would expect that to increase particularly next year, but we'll kind of get to where next year's spend is as we get into next year, probably at a somewhat similar rate in terms of growth this year, perhaps a bit higher just with some of those investments. But again, on Q4, we did specifically call out $50 million, just to be clear of kind of what was expected there. Jeffrey Cohen: Okay. Got it. And then secondly, I know, Nick, you brought up postsurgical pain. Could you talk about that a little more detail as far as anything that has been noted or you've noted as far as the medical treatment as well as the weight bearing and some of the [ times ] and some of the medications that you've understood so far? Dominick C. Colangelo: Yes. So this started way back even in the first quarter when we were talking about the fact that surgeons who had done the initial MACI Arthro cases were posting on social media about sort of these immediate positive benefits in terms of postsurgical pain or range of motion or sort of back to full weight bearing. Those are kind of the key early indicators. And as expected, both by us and surgeons through our market research using the product, when you have a less invasive surgery, you have less arthrofibrosis, so the knee is not swollen, you get better range of motion, et cetera. And so it just promotes a faster -- potentially faster healing process. And we've been really focused. We were fortunate to be able to get MACI Arthro instruments on the market quickly through the human factor study pathway, which didn't involve a clinical study. So obviously, we didn't have the clinical data supporting a faster post-surgical recovery. But that's what we've been focused on, and I alluded to in my comments that through case series and through the MACI clinical outcomes registry, we've been gathering that data and would expect in early 2026 that those -- that data will be presented at industry conferences, ultimately, hopefully make its way into publications. And we think in the progression of MACI when you go -- Arthro when you go from high awareness and training, which obviously we've checked that box, to sort of surgical technique demonstrations, which you see, for instance, at the International Cartilage Repair Society meeting that was recently held in Boston, very effective presentation there and then you move into these clinical benefits for patients. That's sort of the progression you would expect to see for MACI Arthro. And -- so that's kind of exactly what we're seeing and sort of why we made those comments in our prepared remarks. Unknown Analyst: Nick and Joe, can you hear me okay? This is Arthur on for RK. So I just had a quick question on the MACI side. So maybe for the MACI Arthro, could you give us more color regarding the timing from the surgeon finished the training to they are taking their first biopsy? How does that compare to the initial MACI launch? And on the conversion-wise, you mentioned there's a high conversion rate in terms of Arthro. But how about the average time to -- for the conversion, how that compared to the open surgery? Dominick C. Colangelo: Yes. So just starting with the training, it's very much like MACI -- core MACI when we launched where training is never really a barrier. You can train online, you can do cadaver labs. We have MACI Arthro synthetic knees they can practice on. And obviously, in the first cases that were done, biopsies were already taken and then they trained and did the MACI Arthro procedure. So there's really no sort of gating item around training. Often, if there's a surgery that a surgeon intends to do arthroscopically, those get trained ahead of the training. So there's really not a connection between whether you take a biopsy first, you get trained first and then take a biopsy, et cetera. So any of those scenarios, MACI Arthro training, we make a lot of different methodologies available to surgeons, and they just kind of do what they feel most comfortable with. In terms of the conversion rate, I think we mentioned on our last call that we haven't seen any sort of differences in the MACI Arthro conversion time lines versus regular. So kind of early days on that, but kind of similar at this point. Unknown Analyst: And last one, could you discuss the timing and scale of the MACI Ankle phase? How should we think about the data read out there? Dominick C. Colangelo: Well, just in terms of the timing, we said we're set to initiate the study in the fourth quarter of this year. We've kind of built a time line very much like the pivotal study -- the summit pivotal study for the indication in the knee, which was 2 years to enroll, 2-year follow-up and then, call it, 18 months plus on the regulatory pathway. So we've always said this is kind of a [ 2030 ]-plus opportunity. That's a very important part of our sort of long-term strategy for MACI with the core business, obviously, with a ton of momentum, MACI Arthro, then MACI OUS expansion opportunities and then MACI Ankle following that. So just kind of this sort of long runway of growth opportunities for MACI, particularly with no like competition on the horizon. Okay. Well, I believe that concludes all of the questions. So I just want to thank everyone for joining us this morning. Obviously, we had an outstanding third quarter and very well positioned for a strong close to the year and to continue to deliver a unique combination of sustained high revenue growth and profitability in 2026 and the years ahead. So we look forward to providing further updates on our progress on our next call. And thanks again, and have a great day. Operator: This concludes today's call. Thank you again for your participation. You may now disconnect and have a great day.
Operator: Thank you for standing by. This is the conference operator. Welcome to B2Gold Corporation's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] The conference is being recorded [Operator Instructions]. I would now like to turn the conference over to Clive Johnson, President and CEO of B2Gold. Please go ahead. Clive Johnson: Thank you, operator. Good morning or afternoon or evening, everyone. Thanks for joining the call. We're here to talk about the financial results of the third quarter of 2025. We had a strong operational and financial quarter. Fekola, Masbate and Otjikoto mines all came in ahead of expectations in the third quarter on the production side, resulting in lower-than-expected cash operating cost per ounce. On October 2 of this year, we announced that we achieved commercial production at our newly constructed Goose mine. This milestone comes just 3 months after the inaugural gold pour, and we look forward to many years of successful operations; in Nunavut in close collaboration with our partner with our partners Kitikmeot Inuit Association. At Goose, third quarter production was impacted by the previous disclosed crushing capacity shortfall and a temporary delay in accessing higher grade from Umwelt underground. We are now in the higher-grade. To ensure a consistent feed of crushed ore to the mill, the company has implemented the use of supplemental mobile crushing capacity. Permanent modification and modifications are in progress and are expected to be implemented in 2026. Continued use of the mobile crusher will assist in operating at higher throughput until these modifications are implemented. We expect to be at design capacity of 4,000 tonnes per day by the end of the year. Underground mining of the Umwelt deposit commenced in late October 2025 and will be a strong contributor of high-grade ore at Goose over the next few years. In Namibia, B2Gold announced a construction decision on the Antelope underground deposit. Production from Antelope is substantial to increase Otjikoto mine gold production, leveraging the low-cost platform and extend the life of the mine into the 2030s. In this strong gold price environment, B2Gold is well positioned to take advantage with annual gold production of approximately 1 million ounces this year with both capital spending at Goose now complete, the company is set up well to add significant shareholder value over the coming years. Before I turn it over to Mike to give us more financial detail, I just want to talk a little bit about the political situation in Mali. We've had some news come out, I think what I think are some responsible headlines from some of the media talking about that it's imminent that a terrorist group organization is going to take over Bamako in the country of Mali. We think that is completely erroneous, and it's a great exaggeration of the situation. Yes, there have been some fuel challenges, particularly in Bamako, but we continue to run the mine as we have for many years now and haven't missed any mining due to any kind of political situation or turmoil associated with that. So the mine continues to run well. We're 500 kilometers from Bamako. And we look at the situation that the government still enjoys popular support from the population. And they see these organizations that are cutting off fuel to Bamako as foreigners. This is not the bad of the people of Mali from our understanding from the intelligence that we have received. So operations continue. It's nice to see some support from other governments in the United States and others. The U.S. came out and posted -- they supported Mali military and said they're looking forward to closer collaboration, working on intelligence together. There's no Western company that wants to see Mali fall into other hands, and there's a lot of international support gathering. So we're very confident of our ability to continue to produce in Mali and work very closely with the Mali government. We're expecting the permit for our regional mining and trucking at the Fekola mill. That's imminent. And we received not that long ago the permit to go underground at Fekola. So we think we're on track there. And once again, we're not impacted by any of the things going on in Mali right now, and we're disappointed to see this irrational or not true headlines that are running around and lasted little while. And clearly, that's hurt the value of B2Gold. With the benefit of time, I think we'll see that this is a situation not impacting the mine. With that, I'll hand it over to Mike to give us a financial summary of the quarter. Michael Cinnamond: Thanks, Clive. As Clive said, financially, it was a strong quarter. I mean GAAP earnings were $0.01 per share, but they were impacted by several noncash derivative mark-to-market adjustments. And after adjusting for those onetime items, the company's earnings per share were $0.14 per share of adjusted earnings. And clearly, you can see that benefiting from the strong average gold sales price that we saw in the Q and continues now. The company recorded revenue of approximately $783 million in Q3, and that included $144 million related to the delivery of just over 66,000 ounces under the company's gold prepay obligations. And by the end of October, we had another delivery into those obligations. So we've now delivered into 1/3 of what we own there, and that leaves us just under 200,000 ounces that we'll need to deliver into by the end of June. So we're in good shape there. Operating cash flows totaled $171 million in the third quarter and or before working capital adjustments, $180 million, which is another strong result, and it highlights the continuing cash-generating potential of our assets and the strong gold price environment. Balance sheet-wise, we continue to remain in a strong financial position with cash and cash equivalents of $367 million at the end of the quarter. During the quarter, we drew down -- as we disclosed last time, we drew down $200 million on the revolver. That just helped us manage through some of the working capital timing differences that we have, especially as we deliver in the prepaid. So we'll continue to do that. But with these gold prices, we expect to repay some or all of it by the year-end. So I'd say, overall, we maintain excellent financial flexibility to deliver to the prepaid, complete our other sustaining growth initiatives, continue to fund the healthy exploration programs that we have and I think continue to return capital under our share buyback plan. So I think that's the summary that I want to touch on in the financial sections. And with that, I'll turn it over to Bill for an operational project update. William Lytle: All right. Thanks, Mike. So at Goose having key commercial production, the focus now moves to steady-state operations and consistent performance at nameplate capacity. We've identified the source of the crushing issues that impacted performance early in Q3 and have made a temporary fix to the use of the mobile crushing unit. Permanent optimization to the primary crusher and secondary grinding circuits and the installation of the surging capacity are being engineered and designed with a finalized study and remediation plan in December '25. Use of the mobile crusher is expected to continue until the modifications are implemented. Due to the shortfall of the crushing capacity and temporary delays in accessing the higher grade ore at Umwelt underground, B2Gold has revised its 2025 gold production guidance for the Goose mine down to between 50,000 and 80,000 ounces. Underground mining of the Umwelt deposit commenced in late October '25, and the company expects underground operations to ramp up quickly through the final months of 2025, setting the operation up well for the first full operating year in 2026. The company reiterates the near-term and gold and long-term gold production estimates at the Goose Mine, which includes a production forecast of approximately 250,000 ounces of gold in 2026 and approximately 330,000 ounces of gold in 2027 and average annual gold production for the initial full 6 years of operation of approximately 300,000 ounces based only on existing mineral resources. Significant construction activities for the first 9 months of 2025 included completion of the mining in the Echo pit and commissioning of the pit as a TSF to include construction of the winter deposition infrastructure. Mining of the Umwelt open pit commenced ahead of schedule with full ramp-up achieved during the second quarter of 2025. Development of the Umwelt underground continued, including development of Fresh Air Raise 1 and 2 to support stope ore production in the fourth quarter of 2025, continued dewatering of the future site of the Llama pit, commissioning of 3 large glycol heating systems, excavation and construction of foundation for the arctic corridor for the camp and construction of mechanically stabilized earth wall for the reclaim tunnel. In Mali, the site continues its strong performance in 2025, exceeding gold production expectations again in the third quarter. Cash costs per ounce were also lower than expected. Of note, Fekola underground is also performing above expectations despite operations commencing earlier in Q3 on July 30, 2025. At Masbate, the operation continues to perform well with a world-class safety record. Mine throughput has significantly outperformed expectations in 2025, and we anticipate consistent production in the fourth quarter. At Otjikoto, open pit and underground mining went very well in the third quarter with production also exceeding expectations. During the third quarter, the company approved a development decision for the Antelope deposit. The company has also completed further optimization and believes preproduction capital costs can reduce from $129 million in the PEA to $105 million. Production from the Antelope has the potential to increase Otjikoto mine gold production to approximately 110,000 ounces over the life of the Antelope underground mine. With that, I'll turn it back over to Clive for an intro to Q&A. Clive Johnson: Thanks, Bill. Operator, we're ready for Q&A. Operator: [Operator Instructions] The first question comes from Ovais Habib with Scotiabank. Ovais Habib: Congrats on a good quarter. A couple of questions from me. Just starting off with Fekola. Fekola underground seems to be ramping up really well. What are the kind of grades you're expecting going into 2026? And is there a target that you have in mind in terms of ore tonnes mined and kind of grade on the Fekola underground? William Lytle: Yes, I don't have what the exact grade is, but I think we were targeting about 4.5 grams is what I remember, 4.5 grams and a throughput of about 1,500 tonnes a day. So you can do the math on what it's going to be. It's something like that. And remember, those are replacement ounces of low grade. Ovais Habib: And Bill, in terms of the development rates into Fekola underground, is that all progressing well and kind of confident in terms of what you guys are going to be producing in 2026 then? William Lytle: Absolutely. So the contractor is Byrnecut, the same contractor we've had in Namibia, very good relationships and the development has actually been on or at schedule really the whole way. Ovais Habib: Good stuff. And then just moving on quickly to Fekola regional permit. I know we are expecting the permit by the end of 2025. In terms of any sort of predevelopment or anything that you guys can do prior to that? Or basically, you guys are just ready as soon as the permit comes in, you start pre-stripping and then start bringing the ore? William Lytle: We are, in fact, pre-stripping some. We've been given approval to go out and do some clearing and grubbing. So all of that is happening. Obviously, we're hiring people, getting the equipment. So really, we're putting a little bit of money at risk, knowing that everything we've been told that the permit is coming. Ovais Habib: Got it. And then just moving quickly to Goose. Underground grades seems to be picking up as kind of we're going into Q4. Are development rates also picking up as well? And again, I think this is kind of a question that has come up in other mining operations as well. Do you have the right people and kind of equipment in place right now? William Lytle: Yes. We have the right people for sure. Remember, this is remote mining, remote stope mining. So it is a specialized skill. And we do have the right people on site now, and we see that it will be coming up as planned. Operator: The next question comes from Anita Soni with CIBC World Markets. Anita Soni: I just wanted to ask a few questions on Goose. And I just want to understand the key drivers of the cost increase into -- obviously -- sorry, into the fourth quarter. Obviously, there's lower tonnes are going to be pushed and that's going to impact the numbers. But how do you expect that to evolve into next year? I mean you maintained the production guide for next year. So I'm just trying to get an understanding on what we should be thinking about on costs? Are they going to be as indicated previously? Or will there will be some impact? Michael Cinnamond: So it's Mike. Just on the cost, Anita, for the fourth quarter, we guided that the per ounce costs are a little higher. You're right, then we had before. We've left the production costs that were in the budget for Q4 there, but we reguided down the ounces to 45,000 ounces just on the basis that we're a little later getting into the higher-grade stopes and the total production for the Q. So I don't think those are reflective of the cost going forward. This is just a function of the continued ramp-up. And then on the cost, as we look forward, the 250,000 that Bill was talking about and beyond into the later years of the mine life. We don't have any change to those right now. We're doing the budget for next year and then also an updated sort of upside like mine case as well that we're looking at. So I think we don't have anything new to put out on those at this point. But certainly, the key message is these Q4 ones are ramp-up ounces. So the cost related to those shouldn't be extrapolated into anything in the future. And we've tried to be relatively conservative in that guidance. We had to re-guide it down just for the fourth quarter. So we've tried to be conservative in that guidance and give a chance to meet or even beat it for the Q. Anita Soni: Okay. And sorry, could you just -- Bill, could you just give me an idea of what's actually going on with the delay accessing on well? Like what was the reason for the delay? William Lytle: The reason for the delay was lack of equipment parts for Sandvik and then operators to run it. And so it's one of those things that you assume in Canada, these things come on a very set schedule, and it just didn't happen. And so we have rectified the situation. We do have the people on site now, and we do have the appropriate drilling media. So it's been solid. Operator: The next question comes from Don DeMarco with National Bank. Don DeMarco: Maybe first off, at Goose, you're looking at some different options regarding the crushing, the optimization of the crushing. Among the options that you're considering, we look forward to the results of your report and so on. But what's the potential magnitude of these range of solutions just to get away from that mobile crushing. William Lytle: Yes. So we talked before. Remember, the initial one when we were in Denver was the concept of really kind of a very small change. Obviously, we've disappointed on it. And so we've got a third-party consultant coming in that will deliver a report in December. So I really don't want to once again tell you a number and then have to walk it back. But it's still a small magnitude compared to fixing it and getting the throughput. Don DeMarco: Okay. And I guess, like whatever you decide, I mean, you got the sea lift coming up and decisions to be made to kind of sequence with that and you'd have things on the ground as needed, I would imagine. William Lytle: That's correct. Don DeMarco: Okay. So in Mali, the regional permits, we're looking forward to year-end to have them. The time frame for getting these permits has been somewhat fluid. What are the reasons behind that? I mean you guys have a good line of communication with the government. You've been out there a number of times. Is it a different priority for the government? I mean from your point of view, what's the reason for the pushing back the schedule multiple times? Clive Johnson: Well, I think we're in the bureaucracy of Mali in terms of winding its way through various approval levels. Our understanding most recently is that it's -- we're in the final stages of approval, and we expect that definitely before the end of the year and maybe quite imminently. Don DeMarco: Okay. Well, we'll look forward to that. And then -- but I see in the report, too, that you're going to start right away with the stripping once you get that and other prep work and look forward to seeing all that production reflected in guidance next year. So that's all for me. Clive Johnson: As Bill said, we've already started some prep work, let's say. Operator: The next question comes from Kerry MacRury with Canaccord Genuity. Carey MacRury: Maybe a question for Mike. You drew down $200 million last quarter, and I see you paid off $50 million. Do you anticipate needing to use the credit facility as you go through these prepay payments? Michael Cinnamond: I think you'll see us -- like you said, I think if gold prices stay where we see them right now for the fourth quarter, then we expect that we'll have paid down a substantial part of that line, if not all of it by year-end. I think you'll see us utilize it a little bit as we move through Q1 and Q2 just to manage the timing of the prepaid deliveries and the fact that we already got the cash for those. But after that, the line be repaid and it's off to the races. So I think we'll use it as a temporary inter-quarter thing and it's a relatively small draws. And then as we move forward, we're into these cash flow harvest years. Carey MacRury: And then just maybe on CapEx at Goose. I mean Q3 CapEx seemed a bit higher than what we were expecting. Maybe that's just seasonality in Nunavut. But any guidance on what we should be expecting for growth capital at Goose for Q4? Michael Cinnamond: Yes. So I'd say if you look at the budget that we put out for half 2, it was $176 million. And we didn't give a split, but it was heavily weighted to Q3. So the budget was roughly $130 million for Q3 and then $45 million, $46 million for Q4. So in Q3, the recorded CapEx in the financials was $157 million, but that includes -- we ended up capitalizing a bunch of site general costs and commissioning costs just because of the timing of the ramp-up, which are -- they were budgeted as operating costs. And so we ended up capitalizing them so they flow through the CapEx line. Like-for-like, the hard assets in the budget, we were $120 million versus the budget of $131 million plus these site G&A costs. So on the capital front, the pure CapEx front that we budgeted we're pretty much on budget. Q4, we did add $15 million to Goose's capital budget. So it's gone from $45 million to $60 million. And that really is to factor in some -- there's still quite a few folks on site that are gradually being wound down, but there are a few more people on site than we thought for a little longer. So we added that $15 million. So the way to think about Q3 is if you look at the capital and operating costs, we were pretty much right on budget. It's just to split how we ended up. We capitalized some of the site G&A and some of the commissioning costs that we didn't expect. But that was just a reallocation of cost from 2 areas of the budget. And then Q4, yes, adding $15 million for CapEx for Q4. So it goes from $45 million to $60 million. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Clive Johnson for any closing remarks. Please go ahead. Clive Johnson: Thanks, operator. As we said at the outset, a strong quarter operationally and financially, and we look forward to progressing ramp-up at Goose and continuing our strong performance at the other operations. So if you have any follow-up questions, feel free to reach out to Michael McDonald, and he can put you in touch with the right party to answer your questions. So thanks for joining us today. Operator: This brings to an end today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good morning, and welcome to the Viatris Q3 2025 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Bill Szablewski, Head of Capital Markets. Please go ahead. William Szablewski: Good morning, everyone. Welcome to our Q3 2025 earnings call. With us today is our CEO, Scott Smith; CFO, Doretta Mistras; Chief R&D Officer, Philippe Martin; and Chief Commercial Officer, Corinne Le Goff. During today's call, we will be making forward-looking statements on a number of matters, including our financial guidance for 2025 and various strategic initiatives. These statements are subject to risks and uncertainties. We will also be referring to certain actual and projected non-GAAP financial measures. Please refer to today's slide presentation and our SEC filings for more information, including reconciliations of those non-GAAP measures to the most directly comparable GAAP measures. When discussing 2025 actual or reported results, we will be making certain comparisons to 2024 actual or reported results on a divestiture adjusted operational basis, which excludes the impact of foreign currency rates and also excludes the proportionate results from the divestitures that closed in 2024 from the 2024 period. We may refer to those as changes on an operational basis. When comparing our 2025 actual reported results to our expectations, we're making comparisons to our 2025 financial guidance. With that, I'll hand the call over to our CEO, Scott Smith. Scott Smith: Good morning, everyone. We delivered another strong quarter by focusing on our 2025 strategic priorities, driving strong commercial execution, advancing our pipeline, returning capital to shareholders through dividends and share repurchases, pursuing in-market business development opportunities and advancing our enterprise-wide strategic review to identify opportunities to deliver meaningful net cost savings, a portion of which we anticipate reinvesting in the business to fund future growth. Our fundamentals remain solid, giving us good momentum as we head into year-end, momentum we expect to carry into 2026. Before we dive into the details of the quarter, let me provide an update on our strategic review. For context, the work we've done over the past 5 years, strengthening our balance sheet, divesting noncore assets and investing in innovation has set the stage for the strategic review as a natural next step in our evolution. We've made significant progress since we announced the initiative in February. We continue to perform a detailed analysis of the totality of our business. As part of our analysis to date, we've identified areas for potential operating efficiencies, including our commercial sales and marketing model and product mix, our R&D, medical and regulatory activities, our sourcing, manufacturing and supply chain, including inventory optimization and how our corporate functions provide support. Looking to the future, we envision a company that delivers sustained profitable growth by focusing on 3 key areas: a global generics business that will continue to evolve towards more profitable, higher-margin complex products, an established brands business that will be strengthened by continuing to add brands that leverage our global capabilities, and an innovative brands business that will be expanded by building a portfolio of late-stage or in-market growth assets sourced both internally and externally. We anticipate being able to deliver meaningful net cost savings over a multiyear period while also being able to reinvest a portion of the savings back into the business to fund future growth opportunities. We look forward to sharing more details, including quantification of the net cost savings and reinvestment opportunities at our planned investor event in the first quarter of 2026. Now let me share a few highlights from the quarter. This quarter's commercial performance was strong across our portfolio, particularly in Europe, emerging markets and the Greater China region. We delivered 1% operational revenue growth, excluding Indore, in line with our expectations, reflecting continued execution across our businesses, primarily driven by the benefit from foreign exchange and supported by our strong operational performance, we are raising our full year guidance range across certain key financial metrics, including total revenues, adjusted EBITDA and adjusted EPS. At our Indore facility, our initial remediation activities are substantially complete. We recently met with the FDA to review progress and discuss potential timing for reinspection. While timing remains at the discretion of the agency, we have built and continue to build operational redundancies by requalifying other sites and adding third-party vendors for products originally manufactured at Indore. Importantly, we continue to make progress on advancing our pipeline. Here are some of the highlights. We are excited about our fast-acting meloxicam. The acute pain market in the U.S. is significant, and we believe we can offer a differentiated alternative for patients seeking non-opioid pain relief. We expect to submit our NDA by the end of the year and are already working on our go-to-market strategy. Our low-dose estrogen weekly patch is now under FDA review following the filing of our NDA late in Q3 with a decision expected in mid-2026 and a launch soon thereafter. For sotagliflozin, we've already made filings in multiple markets around the world and expect to file in more countries by the end of the year. For selatogrel and cenerimod, Phase III enrollment for both programs is progressing well. In addition, we've initiated a Phase III program investigating cenerimod for the treatment of lupus nephritis with enrollment of our first patient anticipated by the end of the year. We continue to view both selatogrel and cenerimod as transformational treatments with blockbuster potential and are beginning to plan for commercialization. We are excited about our recent acquisition of Aculys Pharma in Japan, adding 2 innovative CNS assets, pitolisant and spydia to our portfolio. This strengthens our presence in Japan, a strategically important market for us and leverages our CNS infrastructure and expertise. Business development and M&A remain key strategic levers to accelerate growth, enhance shareholder value and create meaningful impact for patients. Through regional business development, we continue to pursue opportunities to strengthen our generics and established brands portfolios while building our presence in innovative brands that can benefit from our global scale, capabilities and infrastructure. In parallel, we are evaluating targeted strategic M&A opportunities, particularly in the U.S., focused on commercial stage accretive transactions designed to expand our business and further enhance the company's long-term growth profile. We're balancing investment in growth with return of capital to shareholders through dividends and share repurchases. Year-to-date, we've returned more than $920 million to shareholders, including $500 million in share repurchases. This puts us firmly on track to return over $1 billion in capital for the year. Overall, we're very encouraged by the progress we're making, taking bold actions that are intended to strengthen our foundation, expand our capabilities and position Viatris for long-term profitable growth. We believe we're building a company that's more agile, more innovative and better aligned with the opportunities for tomorrow. Now I'll turn it over to Philippe. Philippe Martin: Thank you, Scott. We've had another strong quarter progressing our entire R&D pipeline globally and securing product approval in key markets worldwide. Our late-stage programs are advancing at a very strong pace, beginning with our fast-acting meloxicam. Over the past 2 months, we've participated in the American Society of Anesthesiology and the PAINWeek Medical conferences, generating strong enthusiasm among the pain health care community on our Phase III data. Several important data points from our presentations and KOL discussion underscore the product's distinct clinical profile. First, its pharmacokinetic profile and the speed of onset. This is demonstrated by faster Tmax and higher Cmax compared with Mobic. Specifically, fast-acting meloxicam achieved a Tmax of approximately 45 minutes versus approximately 4 hours for Mobic. Second, its strong and sustained analgesic efficacy with statistically significant pain relief over 48 hours versus placebo, confirming durable pain control in both soft tissue and bony surgical models. In post-hoc analysis, fast-acting meloxicam showed greater overall pain relief over 48 hours and faster pain relief than its opioid comparator, tramadol, across both surgical models. And third, its opioid-sparing effect as demonstrated by a significant reduction in opioid use, and a significantly higher number of opioid-free patients compared to placebo, indicating significantly reduced reliance on opioids for pain management. Our goal, subject to FDA agreement, is to include a reduction in opioid use as part of the product label. We anticipate submitting an NDA by year-end through the 505(b)(2) pathway, bearing any unforeseen delays related to the U.S. government shutdown. Turning to MR-141 in presbyopia. We plan to submit an sNDA by year-end. For MR-142 in dim light disturbances, the second Phase III study is well on its way with full recruitment and top line results expected in the first half of 2026. Our NDA for our low-dose estrogen weekly patch for contraception was submitted in late Q3 ahead of the government shutdown. Approval is expected by mid-2026. In addition, our next-generation norelgestromin-only patch is currently in Phase III with results expected in 2027. We've also submitted additional regulatory application in recent months for sotagliflozin in Canada, Australia and New Zealand with filings in Mexico and Malaysia expected by year-end. Recent data presented at the ESC Congress further highlights sotagliflozin's early benefit in reducing heart failure-related outcomes when initiated before discharge following a hospitalization for heart failure. Compared with selective SGLT2 inhibitor trials, the benefit observed with sotagliflozin in the SOLOIST study cohort distinctly differentiates sotagliflozin with the class. Particularly when it comes to reducing cardiovascular death, worsening heart failure and all-cause mortality. Consistent with this dual SGLT1 and SGLT2 inhibition, sotagliflozin is the first SGLT inhibitor to demonstrate a significant reduction in MI and stroke. In Japan, we have several near-term opportunities as we continue to steadily and strategically build our innovative pipeline. Our JNDA for effexor for general anxiety disorder currently under review by the PMDA is progressing well with approval anticipated in the first half of 2026. The Japanese Phase III data supporting this submission was recently published in the Journal of Psychiatry and Clinical Neurosciences. The recent addition of pitolisant aligns with our strategy to acquire derisked assets supported by positive Phase III data. Pitolisant with its well-established profile has made a meaningful impact for patients in the U.S. and Europe. It is approved for treating excessive daytime sleepiness or cataplexy in adult patients with narcolepsy in the U.S. and Europe. Additionally, it is approved for excessive daytime sleepiness associated with obstructive sleep apnea in Europe. We remain on track to submit 2 JNDAs for OSAS and narcolepsy during Q4 this year. Our Phase III trial of Nefecon for the treatment of IgA nephropathy is fully enrolled with results expected early next year. IgA nephropathy represents a significant unmet medical need in Japan with limited treatment options available. Our Phase II trial of tyrvaya for dry eye disease in Japanese patients was consistent with the global Phase III results. We expect to initiate the Phase II trial in Japan in the very near future. Turning to our complex generics pipeline. We've continued to secure approval for many of our generic products globally. We expect to receive FDA approval soon for octreotide. This will mark our fourth injectable FDA approval this year, joining iron sucrose, paclitaxel and liposomal amphotericin B, underscoring our strategy to expand the generics portfolio with technically complex, high-value products. And finally, let's cover the progress we've made with selatogrel and cenerimod. Selatogrel enrollment continues to accelerate, now approaching 1,000 patients per month, keeping us on track to complete enrollment next year. At the recent ICC Great Wall of China and ESC Congresses, KOLs emphasize the risk associated with patient delay in symptom recognition and the need for early intervention, reinforcing the potential of selatogrel's novel approach in providing early, rapid self-administered treatment for suspected MI. For cenerimod in SLE, patient enrollment in OPUS-2 will close this month, followed shortly by OPUS-1. We anticipate our Phase III readout around year-end 2026. Recent insights from KOL interaction at ACR highlighted the importance of the S1P access in the pathogenesis of SLE and continue to validate cenerimod's differentiated mechanism of action, which acts on B and T cells as well as antigen-presenting cells and dampens both innate and adaptive immunity. In addition, cenerimod's mechanism of action is also highly relevant to lupus nephritis, and we've, therefore, initiated a Phase III program in this indication. Our first patient enroll is anticipated by year-end with full enrollment expected around the end of 2027. Phase III study is the most inclusive lupus nephritis study so far, inclusive of patients with active histological lupus nephritis Class III, IV and V, with eGFR down to 15 milliliter per minute and with a broad background therapy with or without antimalarial or Benlysta. In closing, we've made significant strides advancing our pipeline. We are seeing the results of focused execution and scientific discipline as well as meaningful scientific engagement across our entire R&D pipeline from generics to established brands and innovative assets. Now I'll turn the call over to Corinne. Corinne Le Goff: Thank you, Philippe. Our portfolio strategy is taking shape, fueled by the positive pipeline momentum we have seen this year. Today, I'll highlight a few of the more significant near-term commercial opportunities. As we shared last quarter, we remain excited about our fast-acting meloxicam. The moderate to severe acute pain market is substantial, and there remains a clear unmet need for fast, sustained and meaningful non-opioid pain relief. Let me share more on the broad market opportunity and how it's shaping our commercial strategy. There are approximately 80 million acute pain cases per year in the U.S. And going forward, the incidence is expected to grow at a 2% CAGR due to an aging population and an increased number of surgeries and medical procedures. These patients are predominantly seen in outpatient and ambulatory surgical centers for procedures like gallbladder removal, joint replacements, hernia surgery or bunionectomy or in procedure-focused offices for cosmetic or dental surgeries. Now switching to the evolution of the treatment landscape. Opioids currently account for roughly half of all acute pain prescriptions despite the known risk of dependence and misuse. Tramadol remains one of the most prescribed opioids for acute pain. There is, therefore, a strong demand for safer alternatives, combining strong efficacy with an established safety profile. In fact, current treatment guidelines show a strong consensus to minimize opioid use and prioritize non-opioid multimodal pain management strategies that include acetaminophen and NSAIDs. NSAIDs make up a substantial proportion of the total acute pain prescription volume because of their low addiction risk, short-term tolerability and anti-inflammatory effects. We believe fast-acting oral meloxicam is well positioned as a differentiated option among currently available NSAIDs for moderate to severe acute pain. Since receiving the data in May, our teams have been working hard to further shape our go-to-market strategy. We are progressing well with launch planning, including branding, positioning, prescriber segmentation, channel strategy and pricing and payer dynamics. We are taking a targeted approach to market segmentation, focusing on settings where fast, effective alternatives to opioids are most needed. We plan to leverage our own specialty sales team and are exploring partnerships to expand reach across key prescriber segments, which will enable us to go to market more efficiently and cost effectively. We anticipate being in a ready position to launch pending the FDA review cycle. We are also very focused on launch preparations for our low-dose estrogen contraceptive patch. This weekly patch fills an important need for women seeking a lower dose estrogen option for contraception. It also offers advanced patch technology as demonstrated by potential best-in-class patch adhesion performance observed in our Phase III study. We expect this product will be another meaningful contributor and we are planning towards a launch in the U.S. in the second half of 2026. Outside the U.S., we have made major strides in building out our innovative brand portfolio in Japan with the acquisition of Aculys. The addition of Pitolisant and Spydia further expands our portfolio of innovative CNS products, which will be complemented by Effexor for generalized anxiety disorder. These innovative assets, plus the many others in our late-stage pipeline combined with the strength of our generics and established brands portfolios position us well to positively impact patients' lives and create value for the business. Now I'll turn it over to Doretta. Theodora Mistras: Thank you, Corinne, and good morning, everyone. I am pleased to report that we had another strong quarter, underscoring the continued performance of our broad global portfolio of generics and brands. My remarks this morning will focus on key highlights of our strong financial performance, significant free cash flow generation, capital allocation activities year-to-date and the outlook for the rest of this year. Focusing on our third quarter results, total revenues were $3.76 billion, which were down approximately 1% versus the prior year. Excluding the Indore impact, we delivered operational revenue growth of approximately 1% versus the prior year. In developed markets, net sales were down 5%, primarily driven by the Indore impact. Breaking the segment down further. In Europe, our business continues to deliver consistent and durable performance, growing approximately 1% this quarter. The generics business continues to perform solidly and was up 5% year-over-year. This was primarily driven by new product revenues in key markets such as France and Italy. And within our branded business, solid growth in EpiPen, Creon and our Thrombosis portfolio helped to partially absorb the anticipated competition on Dymista. As anticipated, our North America business decreased 12% versus the prior year, primarily as a result of the Indore impact and competition on certain generic products. However, we continue to see double-digit growth in certain products such as Breyna and Yupelri as well as benefits from new product revenues, such as iron sucrose. In emerging markets, net sales increased approximately 7% versus the prior year. This was primarily driven by continued strength in our established brands across key markets, including Turkey, Mexico and Emerging Asia. And the growth in our generics business was primarily driven by stabilization of supply for certain lower-margin ARV products. In Janz, net sales decreased approximately 9%. Results were primarily driven by expected impact from government price regulations as well as a change in reimbursement policy that impacted off-patent brands in Japan. We also saw competition on certain products in Australia. Lastly, we continue to see positive momentum in Greater China, where net sales exceeded expectations and grew 9%. This was primarily driven by our diversified commercial model and increased demand for our brands that are sensitive to proactive patient choice. Net sales again benefited from the timing of customer purchasing patterns, which we expect to moderate in the fourth quarter. Moving to the remainder of the P&L. Adjusted gross margin of 56% in the quarter was in line with our expectations. As anticipated, margins were impacted versus the prior year due to the Indore impact. Operating expenses were essentially flat versus prior year. This was as a result of increased R&D spending driven by accelerated enrollment in our selatogral and cenerimod clinical trial programs, which was offset by the continued benefit in SG&A from our 2025 cost savings initiatives. We continue to generate strong and durable free cash flow. This quarter, we generated $658 million of cash, which includes the impact of transaction-related costs. Excluding this impact, free cash flow would have been $728 million. Our significant free cash flow has enabled us to execute on our capital allocation plan. Since our Q2 call in August, we have repurchased an additional $150 million of shares, which brings our year-to-date total repurchases to $500 million, achieving the low end of our full year range. Including dividends paid, we have returned more than $920 million of capital this year to our shareholders, and we remain on track to deliver on our commitment of returning over $1 billion of capital this year. With regards to business development, the Aculys transaction highlights our ability to leverage our global infrastructure to strengthen our commercial portfolio in Japan through disciplined business development. The $35 million upfront payment is expected to be expensed as IP R&D in the fourth quarter. Now a few comments on our updated outlook and phasing for the remainder of the year. We are raising and narrowing our 2025 financial guidance ranges across certain metrics, primarily driven by foreign exchange as well as share repurchases completed year-to-date. Our outlook is supported by the continued strength of our underlying business performance. With respect to anticipated phasing in the fourth quarter relative to our third quarter results, total revenues are expected to be lower across all of our segments due to normal product seasonality, resulting in our third quarter revenues being the highest quarter of the year. Gross margins are expected to be stable, and SG&A is expected to increase due to investments in our pipeline and upcoming launches to drive future growth. Lastly, free cash flow is expected to step down due to the timing of interest payments and the normal phasing of capital expenditures. As we close out the year, we expect the underlying positive fundamentals of the business to continue. As normal course, we will provide our outlook for 2026 in the first quarter of next year, along with our Q4 and full year results. However, from where we sit today, there are several dynamics to consider as we think about next year. These include timing of approvals and uptake from recently launched products, competitive dynamics in North America and potential loss of exclusivity for Amitiza in Japan. Investments supporting our pipeline and launch preparedness to drive future growth and the implementation of our enterprise-wide strategic review. In summary, we remain encouraged by the underlying fundamentals of our global business and the continued execution of our disciplined and balanced capital allocation plan. As Scott mentioned, we plan on hosting an investor event during the first quarter of next year, where we expect to provide our strategic and financial outlook, an update on our pipeline and portfolio and details on our enterprise-wide strategic review. With that, I'll hand it back to the operator to begin the Q&A. Operator: [Operator Instructions] And your first question comes from Les Sulewski with Truist. Leszek Sulewski: A couple for me. So first, perhaps maybe give us an update, if you could, on the Indore resolution situation. And then Second, if you look at through the branded portfolio across the regions, specifically 2 products that stand out in 3Q, one being the uptick in Lipitor, are you able to capture some of the share from the recent generic recall? And then second, what's driving the uptick in EpiPen given the options patients now have with the nasal spray and then also some shortages across that board. And then third, are there any key Paragraph IV challenges that you're facing into next year? Scott Smith: Les, let me -- I'll answer the Indore question and then pass it on. So I have to say, we're very pleased with where we are from a remediation perspective. We're largely remediated at this point. We recently had a productive and open meeting with the FDA relative to not only the remediation process but reinspection. Timing of the reinspection is with the FDA. It's not under our control, likely they'll show up unannounced at some point in '26 and reinspect. But I think it's really important to know that we've built redundancies by qualifying other sites and adding third-party vendors to try and decouple revenues from products on the import alert list and the Indore reinspection because the timing is out of our control. So I think the Indore remediation is going very, very well. And we just -- as I said, just recently talked to the FDA and had a very constructive meeting. I'll pass it over to Doretta. Theodora Mistras: Great. Thanks. With respect to our branded regions. Number one, on Lipitor, that's really driven by the strength of our brand outside of the U.S., in particular, in China. We've talked about the strength of our portfolio there, especially in cardiovascular and all the work that we've done in terms of the channels that we operate, the strength of our brand has really continued to drive performance on Lipitor. With respect to EpiPen, we are, to your point, seeing solid performance in this year. I would say our share has remained relatively stable. It's around 24% to 25% in the market. But to call out a couple of areas where we're seeing some strength. Number one, we relaunched EpiPen in Canada. We -- with the shift of commercial rights from Pfizer back to us. And secondly, we're seeing strong growth in Europe, and that's really led to the strength in EpiPen. Scott Smith: We're going to the next question, I just wanted to reemphasize, not only do we have a stated performance Lipitor in China, but the China affiliate in general had very strong third quarter and has a very -- had strong so far year-to-date this year. So we're very pleased with our progress in China. Operator: And your next question comes from Matt Dellatorre with Goldman Sachs. Matthew Dellatorre: Maybe on fast-acting meloxicam first, could you comment on any feedback thus far from the FDA regarding the potential for an opioid-sparing label. And how significant do you guys view that from an access and pricing perspective? And then could you comment on the partnership strategy to reach the broader market, including how do you guys think about the split in value between the channels that you will cover versus other segments that you might partner. And how much you structure a deal like that? And then maybe just quickly on capital allocation. Could you maybe speak to the key priorities next year? Scott, I know you mentioned U.S.-based BD. Just curious, would that be mostly midsized licensing deals? And how should we think about just kind of balance sheet capacity for those potential deals? Scott Smith: I'll kick it over to Philippe to talk a little bit about meloxicam and then I can finish up with not only where the partnership discussions are, but also capital allocation priorities for '26. Philippe Martin: Thanks, Scott. Thanks, Matt, for the question. So on fast-acting meloxicam, opioid-sparing specifically to your question. We've designed the Phase III study in collaboration with the FDA and designed the study in order to be able to get opioid-sparing language in the label. As you know, the data that came out of the 2 Phase III studies in both models in terms of opioid-sparing is very strong. And so we feel very encouraged with our ability to get opioid-sparing language in the label. We have a pre-NDA meeting with the agency over the next few weeks where we'll be discussing this as part of the meeting. It's one of the topics we'll be discussing. But like I said, I think from a labeling standpoint, we've done everything that can be done with very strong data to be able to get opioid-sparing in the label. Scott Smith: In terms of meloxicam partner, you're a little bit ahead of me in terms of segmentation and who covers what. We're involved with some discussions with potential partners, and we're working through that and what that would look like. Those are all sort of individual discussions and the specifics would depend on what partner we land with if we do land with the partner there. So we're actively involved in exploring discussions there. We also feel completely good to take this ourselves and commercialize ourselves. We've got the right people. We've got great data, and we've got resources behind it to make a great launch. So we would only go into a partnership if we thought it was significantly additive to the overall value. And then in terms of our capital allocation priorities going to into '26, let me just -- there's a word that I try and use all the time here, and that's balanced, right? We're going to continue to be balanced in terms of our capital allocation. As I've talked about many times over a 3-, 5-year period, we're going to try and be 50-50 returning capital to shareholders, but also trying to build a portfolio of growth assets. And so we'll be involved in business development as well. I love the deal that we did with Aculys in Japan. Japan is a key strategic priority for us. We put a couple of innovative assets in there to launch in '26. And we're going to continue to look for things for assets that we could be good owners of. I would love to be able to find some in-market accretive U.S.-based innovative products to add to the portfolio. And we're working hard on it. And again, but we're -- overall, we're going to continue to be very balanced in terms of our capital allocation between return to shareholders and also doing business development. And it depends a little bit -- every year is going to be a little bit different. This is the year so far, we've leaned into share buybacks given the uncertainty in the environment, the share price and other things. And other years, we may lean into business development a little bit more, but we want to be able to do both return and also build growth assets to sit on top of the strong base business we have to really return to long-term profitable growth for the company. Operator: And next question comes from Chris Schott with JPMorgan. Christopher Schott: Just 2 for me. Maybe just coming back to the enterprise-wide strategic review. Just any more color you can provide on the quantum of expense reduction we should be thinking about here? And when you mentioned reinvestment, is that a majority of those savings, a small portion? Just any -- just kind of directional color of just how we should think about that flow through? I know we're going to get more color next year, but just anything you can provide today. And maybe, Scott, just building on the comments you just made about the balanced approach to capital deployment. You mentioned this year is more of a capital return year. And just when you look at kind of the range of BD opportunities out there, balancing the stock price, like should we think about '26 looking more like '25, where it is more kind of capital return? Or directionally, does '26 look more like that 50-50 balance that you're targeting over time? Scott Smith: Yes. Thanks, Chris. So in terms of quantum, I don't want to get into quantum of savings at this point in time. We will be very, very clear and transparent relative to the quantum of savings that we get from the enterprise-wide review when we get into Q1, either at the call or through an investor event, but we'll be very, very clear about that. We're working hard on that. We think the quantum of savings is going to be significant. We believe we're going to be able to deliver meaningful cost savings over a multiyear period. And so we expect it to be pretty significant. Right now, we're sort of focused on commercial sales, marketing model, product mix, R&D, medical and regulatory activities, sourcing, manufacturing, supply chain, inventory optimization, corporate support functions. So it's a large project. We're looking at the whole organization, and we expect to be able to deliver meaningful cost savings, and we'll get into the exact quantum of those as we as we get into Q1. And we won't only talk about the quantum, but we'll also talk about phasing. We'll also talk about the magnitude of reinvestment, et cetera, at that event, either with the call or in the investor event. I do not see reinvestment being the majority of savings. I think it will be -- certainly, the minority will be likely putting more into savings and dropping to the bottom line than reinvestment, but there will be some significant reinvestments as well. So this is not about redistributing as much, as it's about finding the savings and then making sure we're looking after the base business and looking after our future growth as well. The last question was balance. So what's '25 going to look like from -- '26, sorry, from a capital allocation perspective, we'll have to wait and see what that year looks like, what opportunities are there, where the stock is trading at. Again, I don't look at it on a yearly basis. I look at it sort of over a longer period, a 3- to 5-year period that we want to be very balanced in returning that capital allocation. As things evolve, again, as we get into guidance for '26, we may talk a little bit more about that. But again, I want to continue to be able to do both, return to shareholders, but also build a portfolio of assets that are going to fuel our growth in the future. Operator: And your next question comes from [ Dennis Ding ] with Jefferies. Unknown Analyst: This is [ Li Wenwen ] for Dennis Ding. Our question is about meloxicam. What is your overall confidence in the self-ramp and peak sales potential? And if there's anything to be learned from competitor journavx [ slow ] launch? Scott Smith: Yes. So I think just let me comment and then maybe Philippe can talk a little bit about the data. But we're very excited about meloxicam. The combination of the data and the people we have on board, I think we can do a very significant launch here. Whether peak sales, $0.5 billion, I think that's in the right sort of range. But we'll be more clear about that again as we get into '26 and get ready for launch. We do not have a label on that yet. So part of that -- I think there's great potential here. We can be more specific what those peak sales look like once we understand what the label looks like once the full plans together. I will say we've got an excellent team on this right now. They've launched multiple blockbusters before. We feel very, very good not only about the data, but our ability to commercialize this asset. We're going to commercialize it as if it's a branded product, it's got -- we think there's significant exclusivity there. We're looking to expand that exclusivity. And we expect meloxicam to be a very meaningful contributor to our portfolio for the rest of this decade at a minimum and maybe longer than that. So we're very excited about it. Operator: And your next question comes from Umer Raffat with Evercore ISI. Unknown Analyst: Congrats on the quarter. This is JP for Umer. A couple of questions on meloxicam and the presbyopia medicine. Meloxicam, as you finalize your planning, what kind of payer guidelines engagement are you thinking? Is it going to be a multimodal pain pathways? Or how does it work versus traditional retail channels. And on presbyopia, is this going to be more of a cash pay optometry play initially? Or do you see a path to broader reimbursement and physician adoption as the category matures? Philippe Martin: Philippe. So let me start with meloxicam. I think what we've experienced both from, I think, a payer, but also from a KOL standpoint is the fact that this is the pain -- the acute pain market has moved to a multimodal approach where, generally speaking, patients are discharged with a couple of medications. And that we believe we'll be able with the data we have to leverage that trend within the market. So our data supports that positioning. And -- I'm not sure what I -- can't recall on the second question was. William Szablewski: Second question on presbyopia. Scott Smith: Prebyopia and payer channels and commercialization. So we'll hand that over to Doretta. Theodora Mistras: Yes. Thank you. And we're still working through both not only our presbyopia but also our dim light disturbance strategy as we get closer to commercialization. But taking a step back, we view this more as a portfolio approach. When you couple that with tyrvaya that's already in the market as well as ryzumvi, we have the opportunity to really create a portfolio of assets that tailor to the front of the eye. But we're ultimately still working through the commercialization strategy. Given the indication, it is natural to assume there will be a large cash pay component to it, but we'll be able to provide more details as we get closer to commercialization. Scott Smith: Yes. We're very pleased with the direction we're going with the Eye Care group. We've got some new leadership on that team. A couple of positive readouts, obviously, this year in presbyopia and dim light. And we'll see what those labels look like. But we're putting -- starting together a portfolio of assets in the eye care area and starting to get some critical mass in terms of that particular group. Operator: And your next question comes from Ash Verma with UBS. Ashwani Verma: Congrats on all the progress. So maybe one for Scott. So for the strategic review, I know you don't want to comment on the quantum of savings. But just in terms of the order of priority here, is that the right way to think about how you spend it out as in thre's more potential for savings from commercial, followed by R&D and then COGS? And then secondly, for Doretta, so as we think about like the top line for 2026 versus 2025, can you talk about the pushes and pulls? I see at this guidance of '25 midpoint, you have $350 million of FX tailwind. So that laps next year? And then in terms of the new product contribution, do you think that you can deliver the sort of the [ reference ] you've been at the $450 million to $550 million. Scott Smith: Yes. So let me take the enterprise-wide strategic review, and then we'll pass it around the table here to answer your question. So Ash, thank you very much for the question. We're not trying to -- we're trying to be as open and honest and transparent as possible with the enterprise strategic review and where we are. We're not trying to be cute with it. The reason we're not giving a quantum is because it's a big project. It's a big company. We're looking at everything. We want to be able to not only identify it, but we want to be able to trace it back and lock it down with the individual groups that we're working with there so that we come with a number that's accurate, sustainable and durable, and we can hold on to that number over a number of years. So we're trying to make sure that not only do we identify things but we understand and map out the activities needed to be able to really realize those savings. In terms of the things that we're looking at, sales and marketing, R&D, operations, corporate support. I think probably the largest quantum can come from our sourcing, manufacturing, supply chain, inventory optimization. There's a significant amount that can come from corporate support as well. And some of the commercialization and the way that we're commercialized and the way that we need to not only sort of prepare for today and be able to continue to deliver today, but we want to be able to understand the functions that we need to be able to commercialize in the future. So we want to be fit for purpose for today and for tomorrow with this. It's not just about realizing cost savings. It's also about evolving our model to be more effective going forward as well. So we really look forward to being in a place to talk exactly about the quantum of exactly where it's coming from, what the phasing is by year, with the reinvestment opportunities on things, and we're going to be able to do that in Q1. But we're not trying to -- again, to be cute here. We're trying to be accurate. We're trying to be thoughtful, and we're trying to make sure that we give numbers that we can deliver on. Theodora Mistras: With respect to your question around 2026 revenue, without getting into specific guidance, our focus this year is really finishing the year strong. We're very happy with the momentum that we're seeing in the business. We remain on track to deliver the 2% to 3% operational revenue growth for the year, excluding Indore. And we expect the underlying positive fundamentals that we're seeing in the business to continue into 2026. And as I think about the pushes and pulls to your point, number one, continued performance in our commercial business, including Europe, China and emerging markets, it's also going to depend on the timing of approvals and uptake of recently launched products as well as the competitive dynamics in North America and the potential loss of exclusivity for amitiza in Japan. But as normal course, we will provide our outlook for 2026 in the first quarter of next year. With respect to your second question around new product revenue and how that ties into 2026. We've talked about the $450 million to $550 million without getting into specifics, we will provide that next year. We are also seeing positive momentum of our new product revenues going into 2026 just based on the number of opportunities not only that have gotten approved like iron sucrose but the ones that are currently under regulatory review, including octreotide. And so we will provide more information next year when we provide our full year. Scott Smith: And I feel -- personally, I feel very good about '26 and the new product revenue. A lot of the approvals this year were back ended in the back half of the year. We've got some more approvals to come. We've got a lot of launches coming in '26 as I went through earlier, that are going to be catalysts. So I feel very, very good about where our new product number is going to be for '26. Operator: And your next question comes from David Amsellem with Piper Sandler. David Amsellem: So just some pipeline questions, brand pipeline questions. So just back to presbyopia, can you talk to how you see differentiation versus the other modalities that have come on the market. So that's number one. Number two, on cenerimod. Just wanted to get more insight into your thought process regarding running the study now in lupus nephritis. Is that informed by any additional analyses of earlier data? Or is it something of potentially a hedge to the extent SLE isn't successful? Just wanted to get your thought process there. And then lastly, on the rapid acting meloxicam, can you just remind us how you're thinking of your IP/exclusivity runway for that product? Scott Smith: So let me hand it to Philippe for presbyopia and cenerimod. Philippe Martin: Yes. So I think for presbyopia in terms of differentiation versus other mechanism of action. I think the miotics in general, do stimulate the ciliary muscle, and that leads to a number of potential issues, including risk of retinal tear or detachment, and a reduction in vision in dim and dark environment, which we certainly don't see with our drug. We actually see the reverse. So we think that from a benefit risk profile, our drug is differentiated. It is both effective and safe. So that's, I think, where we can see the most differentiation from MR-141. The second question about cenerimod. Cenerimod, if you look at the Phase II data, you'll see that cenerimod tends to work better in more severe patients, patients that tend to look like lupus nephritis patients. And so on top of it, the mechanism of action applies to both SLE and lupus nephritis. So I think it's just a natural evolution of the asset leveraging the opportunity we have with the S1P mechanism of action that is pretty broad and can be applied to a number of autoimmune disease, lupus nephritis just makes sense based on the data we have. And like I said, the mechanism of action. So it's -- we're not hedging anything at all. We're just getting -- expanding our opportunity with cenerimod. Scott Smith: I just want to reemphasize the last part that Philippe said there, we are not in any way hedging the SLE trial with a lupus nephritis. We feel very, very good about SLE. We feel good about the molecule. We see an opportunity, as Philippe said, to expand. So we're going to go ahead and start that study and start dosing patients now. So in no way is that a hedge, I think more than anything shows confidence that we have in the molecule going forward. Lastly, I think your third -- your last question was IP around meloxicam. We see right now based on -- we see exclusivity in the 4- to 5-year range right now based on what we have, but we're very actively working on expanding that IP suite to be able to extend that exclusivity very significantly. Again, I sort of look at it as being a very meaningful contributor to the portfolio for this whole decade. And hopefully, we can expand beyond that. So a very important molecule for us. We're working very hard to expand our IP network there and also obviously expand the exclusivity that we have with the molecule. Operator: And your next question comes from Jason Gerberry with Bank of America. Jason Gerberry: A couple for me. A lot of my questions have been answered. But just on the enterprise review and just why not an update today versus giving the update on 1Q '26. Is it that effectively, those efforts are still ongoing or that you need to assess maybe some of the cost of commercial buildouts that need to be offset? Or is it just wanting to have a forum next year that you could really get into the details with investors in 3Q is just not the best forum for that? So that's my first question. And then just as a follow-up on Indore next year, in a scenario where, I guess, the ban isn't lifted, do the price penalties, which I think were $100 million, did they recur in that scenario? Or are they nonrecurring? I just wanted to understand that dynamic a little bit better. Scott Smith: So I'll take the enterprise-wide review question and then kick the Indore over to Doretta to answer for us. She's very deep on Indore and what '26 looks like for that. It's not that we're holding things back. If we were ready to go with the enterprise-wide review, we would certainly give it to you guys right now, we'd be very clear. It's a big company. We're operating in 165 countries. We're looking at everything, commercial, marketing, product mix, R&D, medical, regulatory, sourcing, manufacturing, supply chain, we're looking at it all. It's a very large and complex project that we're engaged in. It's absolutely the right time for us to be doing this now, right? The work we've done over the last 5 years, strengthening the balance sheet, paying down debt, divesting noncore assets, investing in innovation. It's just the right time for us to be doing it. We initiated this project sort of, I would say, late in Q1 of this year. And by the end of the year, we'll have a very good handle on it. And again, to me, it's not just about identifying where the cost savings might be. It's mapping those back to the organizations that are going to give, putting the action plans in place, being credible in terms of living with the number that we give you, and we want to be able to talk not only about the effect of the strategic review in '26 but also '27 and '28. The reason we're doing it then, not now is about accuracy. It's about us having numbers that we can live with. It's about us being transparent and believable. It's got nothing to do with holding it back, so we have something to talk about next year. If it was available, we get it to you, but it's a big project. And we want to be clear, transparent and credible when we put those numbers out, and we want to make sure they're mapped back in the organization. So we're holding ourselves accountable to delivering on those numbers. Theodora Mistras: With respect to your question specifically around penalties, [ Chris. ] So the $100 million incorporates both penalties and supply disruptions a little over, I would say, 50% specifically relates to penalties. Those we do not expect to even independent of Indore, those will not materialize. We don't expect them to materialize again next year. However, I do also would comment that we've been working in the background, not only to remediate Indore, but also to create redundancies within our network and our third parties in order to reestablish supply outside of Indore. And we do expect, regardless of the impact to see some stabilization of that as we move into next year. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Scott Smith, CEO, for any closing remarks. Scott Smith: So first of all, thank you, everybody, on the call for your thoughtful detailed questions. Secondly, some closing remarks here, '25 has been -- is proving to be a really pivotal year for us, one where we're delivering results today while building a stronger, leaner, more innovative Viatris for tomorrow. I'd like to send a sincere thank you to the more than 30,000 employees of Viatris. A lot of good and hard work has been done to get us to this place. We're moving forward with confidence and excitement for the future. We see sustained profitable growth ahead and are actively executing on all key strategic priorities. I believe we are very well positioned to continue to deliver strong results and significant value for our shareholders. Thank you for listening. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings. Welcome to CION Investment Corporation Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Charles Arestia, Managing Director and Head of Investor Relations. Thank you. You may begin. Charles Arestia: Good morning, and welcome to CION Investment Corporation's Third Quarter 2025 Earnings Conference Call. An earnings press release was distributed earlier this morning before market open. A copy of the release, along with the supplemental earnings presentation is available on the company's website at www.cionbdc.com in the Investor Resources section. It should be reviewed in conjunction with the company's Form 10-Q filed with the SEC. As a reminder, this conference call is being recorded for replay purposes. Please note that today's conference call may contain forward-looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described in the company's filings with the SEC. Joining me on today's call will be Michael Reisner, CION Investment Corporation's Co-Chief Executive Officer; Gregg Bresner, President and Chief Investment Officer; and Keith Franz, Chief Financial Officer. With that, I would like to now turn the call over to Michael Reisner. Please go ahead, Michael. Michael Reisner: Thank you, Charles, and good morning, everyone. Overall, we reported a strong third quarter with continued NAV appreciation and significant quarterly earnings. We reported $0.74 a share in net investment income for the third quarter, driven by robust transaction activity involving 20 of our portfolio companies with several fee events, new investments and repayments. As in past quarters, increased transaction activity tends to translate into higher earning quarters through increased transaction-related fees and other yield enhancement measures such as MOICs, exit fees and call protection. During the third quarter, we realized significant transaction-related accretion related to a portfolio company and is part of our opportunistic strategy. As we discussed on our prior call, we expected this transaction to close in the third quarter which contributed meaningfully to our net investment income. Excluding the income from this transaction, we still would have covered our base dividend for the quarter, which we believe reflects the ongoing earnings power of our portfolio. Gregg will discuss this transaction in greater detail later on during the call, but I want to reiterate how we view our opportunistic strategy as a differentiated component of our overall earnings potential. While these contributions can appear episodically, we consider these potential earnings to be a strategic component of our portfolio as we manage the business and the dividend over the longer term. We appreciate that the timing of these contributions can be difficult to predict, which is why we provided the additional context on our prior earnings call. Going forward, we plan to provide comparable guidance on any similar anticipated transactional income to help manage investor expectations in the short term, should conditions allow. As we have mentioned previously, we believe the volatility that these potential returns create tends to skew meaningfully to the upside versus consensus expectations and thus should be evaluated on a longer-term perspective. Our net asset value increased 2.5% quarter-over-quarter to $14.86 up from $14.50 in the prior quarter, driven largely by fair value increases in our equity portfolio with significant increases in Longview Power and Palmetto Solar. Following the upside of our share repurchase program announced in the prior quarter, we were able to take advantage of a meaningful sector-wide sell-off in the BDC space in September to repurchase our shares in the open market, which remains accretive to NAV. Overall, we repurchased approximately 330,000 shares at an average price of $9.86 per share during the quarter and have continued repurchasing shares in the fourth quarter. So far in the fourth quarter through last week, we have repurchased approximately 325,000 shares at an average price of $9.33 per share. The largest contributor to our quarterly NAV growth was Longview Power, which continues to see tailwinds from stronger fundamental performance and broader sector growth from AI-driven digital infrastructure demand. Longview is now our largest equity position, and we are pleased with the underlying asset performance so far. Looking ahead, we believe successful monetization of our equity positions will be a significant driver of the growth potential for our stock, and we are encouraged by recent trends on that front. Despite broader headlines about problematic loans in the credit space, we believe our portfolio continues to perform well. Underlying LTM adjusted EBITDA growth trends in our portfolio companies in our debt portfolio remain in the mid- to high single digits and our portfolio nonaccruals remained relatively low at 1.75% of the portfolio at fair value. We added 2 names to nonaccrual status this quarter, including a relatively small position in one of our very few second lien holdings. Following our quarterly review process, we downgraded 3 loans, including the 2 new nonaccruals I just mentioned, partially offset by upgrading 1 loan that was subsequently repaid at par at quarter end. Overall, investments risk rated 4 or 5 comprise approximately 2.4% of the portfolio at fair value. I'm also excited to announce today a shift in our timing of paying base distributions to our shareholders beginning in January 2026. We will be converting to paying base distributions from quarterly to monthly. We are pleased with the continued performance of our portfolio and believe that shareholders will appreciate the increased frequency of our base distributions going forward. We have also declared a base distribution of $0.36 per share for the fourth quarter of 2025, the same amount as the third quarter, and Keith will discuss this in more detail. In summary, we believe that this was a strong quarter for CION and a reinforcement of our differentiated strategy, which pairs traditional first lien focused direct lending with an opportunistic capability to enhance overall returns over the longer term. We have seen a noticeable pickup in repayment activity in recent quarters, which allows us to redeploy into our active pipeline and allows us to recapture incremental fee income as the portfolio turns over. I'm especially proud of CION's performance amidst a highly competitive operating environment. There is certainly no shortage of press out there today on the headwinds of spread compression, looser lender protections and credit concerns driven by recent high-profile bankruptcies. We have no direct exposure to these names or sectors. We believe that our results today validate the diligent work of our team and continuing to source and execute on differentiated opportunities in a challenging environment. With that, I will now turn the call over to Gregg to discuss our portfolio and investment activity during the quarter. Gregg Bresner: Thank you, Michael, and good morning, everyone. We've remained highly selective with new portfolio company investments in Q3 as we were highly active and focused on transaction opportunities within our portfolio of companies. We were also effectively at full investment during most of the quarter and worked to maintain our targeted net leverage range of 1.25x to 1.3x while simultaneously balancing the timing of expected investment pipeline investments versus repayment amounts. Most of our exiting repayments occurred towards the end of the quarter. During the quarter, we passed on a historically higher percentage of potential investments in new portfolio companies based on credit and pricing considerations as the continued hangover of record 2024 private debt fundraising still translated into lower coupon spreads, higher leverage levels and looser credit documents in the market. As Michael discussed in his remarks, market conditions continued to rebound in Q3 as stronger economic indicators and reduced concerns regarding tariffs have boosted overall economic sentiment in equity markets. We focused our Q3 activities on incremental opportunities with our own portfolio of companies as we had significant transaction and fee events with over 20 of our portfolio companies this quarter. We believe our continued investment selectivity and proportional deployment levels helped us to invest in first lien loans at higher spreads when compared to the overall private and public loan markets during the quarter. The weighted average yield for our funded first lien investments for the quarter based on our investment cost with the equivalent of SOFR plus 7% for our direct strategy and SOFR plus 14% for our opportunistic strategy investments. As we discussed in previous quarters, the majority of our annual PIK income is strategically derived from highly structured first lien investments or where PIK income is incremental to our cash coupon. Together, these categories represented approximately 71% of our total PIK investments in Q3, approximately 67% of our PIK investments are in portfolio companies risk-rated either 1 or 2 and 98% risk-rated 3 or better. As a result, we believe this PIK income may not compare to restructured PIK driven by a deterioration in credit. Turning now to our Q3 investment and portfolio activity. Our Q3 investment activity consisted of a co-lead investment in 1 new portfolio company metric and incremental add-on investments and secondary purchases in existing portfolio companies, including Avison Young, Senex, Community Tree Services, David's Bridal, [ Invincible Boats, I&W ], Ivyhill, LAV Gear, Juice Plus, Precision Medical, STATinMED and Tactical Air Support. During Q3, we made a total of approximately $73 million in investment commitments across 1 new and 12 existing portfolio companies, of which $65 million was funded. We also funded a total of $8 million of previously unfunded commitments. We had sales and repayments totaling $151 million for the quarter, which consisted of the full repayment of the first lien loans for American Family Care, Health e-commerce, HW [ Wachkner ] [ KeyImpact ], Lamons, Nova Compression and Rogers Mechanical. As a result of all these activities, our net funded investments decreased by approximately $69 million during the quarter. As Michael referenced, our NAV increase during the quarter was driven primarily by net increase in the unrealized mark-to-market value of the portfolio as improved market conditions and reduced tariff concerns positively impacted comparable public company valuations and the overall projected macroeconomic outlook. Four notable portfolio companies for the quarter were Longview Power, Palmetto Solar, Juice Plus and Anthem Sports. The value of our equity investments in Longview Power and Palmetto Solar increased due to the strong fundamental performance and projected financial outlook for these companies. As Michael mentioned, CION co-led the consensual restructuring and refinancing of Juice Plus during the quarter, which resulted in significant realized earnings for CION and repositioned Juice Plus the fuel product growth and strategic investments. Our investment in Juice Plus represents an illustrative example of our opportunistic first lien investment strategy where we acquire lightly syndicated first lien loan tranches in quality companies at significant discounts to par due to technical reasons where we expect to have active roles in the processes that drive the refinancing or restructuring of the investments. Historically, we have been able to realize healthy earnings on our first lien restructured and recapitalized transactions as our realized weighted average total recoveries have been in excess of the amortized cost of these investments at the time of the restructuring. Additional examples include our investments in Longview Power, Yak Mat, Heritage Power and Dayton Superior. We experienced a mark-to-market decline in our first lien debt investments in Anthem Sports which were driven primarily by the less-than-expected ramping of the revenue for the quarter. The company continues to transition from a subscription base to an advertising-driven revenue model and is in the process of integrating a recent strategic acquisition completed in the second quarter. From a portfolio credit perspective, our nonaccruals increased from 1.3% of fair value in Q2 to 1.75% in the third quarter. This increase was driven by the addition of 2 new names to nonaccrual, our first lien investment in Trademark Global and second lien investment in Aspira. Trademark Global's operations have been materially impacted by tariffs in 2025 as the company continues to diversify its sourcing away from China. While the company is executing a comprehensive plan to rebuild its earnings we have placed on nonaccrual and will reassess based on the company's execution of that plan. Aspira is rolling out a new generation of subscription products to its customers, which has impacted short-term performance. During the quarter, we sold our second lien investment in Seqirus, which removed the name from nonaccrual. On an absolute basis, nonaccruals continue to be in line with historical experience, and we are pleased with the continued credit performance of our portfolio, particularly in the current interest rate environment. Overall, our portfolio remains defensive in nature with approximately 80% in first lien investments. Approximately 98% of our portfolio remains risk rated 3 or better. Our risk rated 3 investments which are investments where we expect full repayment but are either spending more engagement time or have seen increased risk since the initial asset purchase decrease from approximately 11.6% in Q2 to 10.4% in Q3. I'll now turn the call over to Keith. Keith Franz: Thank you, Gregg, and good morning, everyone. During the third quarter, net investment income was $38.6 million or $0.74 per share compared to $16.9 million or $0.32 per share reported in the second quarter. Total investment income was $78.7 million during the third quarter as compared to $52.2 million reported during the second quarter. This is an increase of $26.5 million or an increase of about 51% quarter-over-quarter. The increase in total investment income was driven primarily by higher interest income earned as a result of certain investments being restructured and other yield-enhancing prepayment fees recorded during the quarter, as well as higher transaction fees earned from originations and amendment activity when compared to the prior quarter. On the expense side, total operating expenses were $40.1 million, compared to $35.3 million reported in the second quarter. The increase in operating expenses was primarily driven by higher advisory fees due to higher investment income earned during the quarter. At September 30, we had total assets of approximately $1.9 billion and total equity or net assets of $773 million, with total debt outstanding of about $1.1 billion and 52 million shares outstanding. Our portfolio at fair value ended the quarter at $1.7 billion, and the weighted average yield on our debt and other income-producing investments and amortized cost was 10.9% at September 30. Our PIK income for the third quarter was largely impacted by one of our portfolio companies in connection with its amended loan facility. The amount capitalized was about $5 million for the quarter. And excluding this transaction, our PIK as a percentage of total income for the third quarter would have been lower and in the mid-teens level. At September 30, our NAV was $14.86 per share as compared to $14.50 per share at the end of June. The increase of $0.36 per share or 2.5% was due to mark-to-market price increases in our portfolio, mostly due to price increases from our equity book and the accretive nature of a share repurchase program during the quarter. We ended the third quarter with a strong and flexible balance sheet with over $1 billion in unencumbered assets, a strong debt servicing capacity and interest coverage ratio of about 2x and solid liquidity. We had over $105 million in cash and short-term investments and another $100 million available under our credit facilities to further finance our investment pipeline and continue to support our existing portfolio companies. At September 30, we continue to have a healthy debt mix with about 63% in unsecured debt and 37% in senior secured bank debt. About 75% of our debt capital is in floating rate, which aligns well and creates a natural hedge with our mostly floating rate investment portfolio. Our well-diversified debt structure is focused on unsecured debt in order to maximize our balance sheet flexibility and at the same time, creates a strong buffer for our financial covenants. At the end of the quarter, our net debt-to-equity ratio decreased to 1.28x from 1.39x at the end of June. And the weighted average cost of our debt capital was about 7.5%, which is unchanged from the second quarter. We currently manage our portfolio and leverage levels on a net of cash basis as all of our outstanding debt is currently noncallable and at their minimums. Now turning to distributions. During the third quarter, we paid a base distribution to our shareholders of $0.36 per share, which is the same as the second quarter distribution. The trailing 12-month distribution yield through the third quarter based on the average NAV was about 10%. And the trailing 12-month distribution yield based on the quarter end market price was about 15.7%. As announced this morning, we declared our fourth quarter base distribution of $0.36 per share, which is the same as the third quarter. The fourth quarter base distribution will be paid on December 15 to shareholders of record as of December 1. And finally, we also announced this morning that we will be changing the timing of paying base distributions to our shareholders from quarterly to monthly beginning in January 2026 to better align with our shareholder base. Monthly base distributions will continue to be declared quarterly in advance. With that, I will now turn the call back to the operator, who will open the line for questions. Operator: [Operator Instructions] Our first question is from Erik Zwick with Lucid Capital Markets. Erik Zwick: First question maybe for Keith, and I appreciate all of the commentary kind of walking through the puts and takes there and interest income for the quarter. Curious if you could kind of break it down either in terms of dollar terms or percentage terms, and what of that $51 million, what came from kind of regular ongoing interest payments? And what was more from the periodic in nonrecurring events? Keith Franz: Yes. I would think that on a baseline basis, we had interest income similar to what we recorded in Q2, maybe slightly up and then the rest of it came from the restructured investments that we experienced during the quarter. Erik Zwick: And maybe a similar line of questioning on the PIK income in the quarter. You noted the $5 million of capitalized costs. So that was more onetime in nature? Is that the correct interpretation that $5 million... Keith Franz: I don't know if I would necessarily use that vernacular, but yes, that was a pick event that occurred uniquely in this quarter. Erik Zwick: And then so the remaining, call it, $12 million or so, could you provide a breakout of that part, what is structured versus kind of credit related because I know you've got a fair amount that's structured by design? Keith Franz: Yes. No different than the pool that Gregg had mentioned on his comments that the majority of that is structured. Erik Zwick: And then just curious, as you seem fairly optimistic about the originations outlook. And just curious if you could provide any commentary on the pipeline in terms of the size relative to maybe 3 months ago? And also just the quality of what you're seeing in terms of structure and in yield as you look forward to future activity? Gregg Bresner: Erik, it's Gregg. Definitely more robust than we've seen this year. More activity, it's broader based. There's definitely been a pickup in M&A, which is different from the first 2 quarters. And I would say, in terms of spreads and things like that, pretty consistent with what we've done in the past. I would say we definitely -- what I would call traditional middle-market type spreads. Operator: This will now conclude our question-and-answer section. I would like to turn the call back over to Michael Reisner for closing remarks. Michael Reisner: We appreciate everyone taking time out of their day to join us, and we look forward to communicating with you early next year. Thank you, everyone. Take care. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Welcome to the Twin Vee Powercats Company Third Quarter 2025 Investor Call. As a reminder, this call is being recorded. [Operator Instructions] Your speakers for today's program are President and CEO, Joseph Visconti and Chief Financial Officer, Scott Searles. Before I turn the call over to Joseph, please remember that certain statements made during this investor call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements on this call, other than statements of historical facts, including statements regarding the company's future operations and financial position, business strategy and plans and objectives of management for future operations are forward-looking statements. In some cases, forward-looking statements can be identified by terminologies such as believes, may, estimates, continue, anticipates, intends, should, plan, expects, predict, potential or the negative of these terms or other similar expressions. The company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks and uncertainties and assumptions described, including those set forth in its filings with the Securities and Exchange Commission, which are available on the company's Investor Relations website at ir.twinvee.com. You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Finally, this conference call is being webcast. The webcast will be available at ir.twinvee.com for at least 90 days. Audiocast quality is subject to your equipment, available bandwidth and Internet traffic. If you experience unsatisfactory audio quality, please use the telephone dial-in option. [Operator Instructions] I will now turn the call over to Joseph Visconti. Joseph Visconti: Good afternoon, everyone, and thank you for joining Twin Vee Powercats Quarterly Investor Call. Today we'll outline how we're navigating current conditions with a clear focus on sales, dealer expansion and customer engagement. As we know, high interest rates, inflation and cautionary consumer spending have slowed new boat sales across the sector. Pressure on new unit demand and higher-than-normal inventory levels across the industry are still a challenge. As a builder of premium Twin Vee and Bahama boats, these headwinds create a complex environment for manufacturers and dealers alike. At Twin Vee, we're addressing these challenges head on by controlling what we can, our costs, our inventory, our relationships with dealers and customers. Our primary focus is driving sales and rebuilding our backlog. We're channeling all resources into sales, marketing and strengthening customer demand. In Q2 and Q3, we added 10 new dealer locations, expanding our reach into regions like the Southeastern Seaboard, the Gulf Coast and a brand-new stocking dealer in Australia. We're working closely with all dealers offering hands-on support through personalized customer consultation, demo events and any guidance required to shorten the sales cycle for customers. Operationally, we've made strategic moves to improve efficiencies. Our Fort Pierce headquarter expansion is complete. This gives us the capacity to produce new models, expand our production and integrate additional brands. We have also completed the installation of our 46-foot 5-axis CNC router, which allows us to handle precision in-house tooling. This reduces our reliance on external vendors, cuts lead times and lower costs on product development. These upgrades are now operational, enabling us to respond to demand without significant further capital investment. On the product front, we're seeing steady progress with our 22-foot BayCat, which continues to resonate with customers for its versatility and value. Production remains efficient with manufacturing output is aligned with dealer orders to avoid overstocking. You can explore this BayCat in other Twin Vee models on twinvee.com using our new 3D configurator, which lets customers build and price their boats and also customize options like upholstery, colors and engines in real time. We also completed integrating the recently acquired Bahama Boat Works known for its premium offshore fishing vessels. We've completed the relocation of all Bahama molds and the tooling into our expanded -- our recently expanded Fort Pierce facility. We are carefully pacing the Bahama rollout to match market demand, ensuring we don't overextend inventory while building excitement for these amazing products. As a public company, our priorities are clear. We're going to drive revenues through sales, marketing, rebuild our backlog and maintain financial disciplines. We're positioning Twin Vee to capitalize as conditions improve. We will continue to expand our dealer network and drive efficient operations. We've taken additional steps to ensure success in this challenging market. One significant decision was the sale of our North Carolina property. This move has further reduced overhead, particularly the insurance and carrying expenses associated with the facility. And more importantly, the proceeds from the sale will bolster our balance sheet. Looking ahead, our strategy is straightforward: stay lean, focus on sales and deepen customer and dealer relationships. We are confident that our disciplined approach positions us to outperform competitors. The sale of the North Carolina property has strengthened our financial foundation. Our expanded product portfolio enhances manufacturing capabilities and our growing digital presence are all aligned to drive revenue and rebuild our backlog. We remain committed to delivering value to our shareholders by focusing on what we do best, building high-quality boats, supporting dealers and engaging directly with customers. The marine industry may be navigating rough waters, but Twin Vee, we are focused on emerging stronger than ever. In closing, our operation, upgrades and strategic acquisitions position us to compete effectively while protecting our financial health. I want to thank you for your support, and I will now hand it over to our interim CFO, Scott Searles. Scott Searles: Thanks, Joseph. Good afternoon, everyone. My name is Scott Searles, I'm the Interim CFO for Twin Vee. This is my first earnings call with Twin Vee, and I want to begin by thanking all the shareholders, employees and dealer partnerships for their warm welcome and for your continued support. It's been great getting to know the business, and I'm excited to be part of Twin Vee's story moving forward. As Joseph mentioned earlier, the boating industry continues to face a challenging environment. High interest rates, inflation and cautious consumer spending has slowed new boat sales across the sector. Inventory levels across the industry remain elevated, creating a complex environment, both for manufacturers and dealers. At Twin Vee, we're tackling these headwinds head on by focusing on what we can control, our costs, our inventory and our dealer relationships. Our approach is simple, stay lean, stay disciplined and keep supporting our dealers to rebuild momentum. For the third quarter, net sales were $3.43 million, up 18% year-over-year from $2.9 million last year. Gross results showed a small gross loss of about $45,000, a meaningful improvement over last year's $146,000 loss reflected better production efficiency and cost control. Selling and general and administration expenses were down roughly 16% from the prior year. Our net loss for the quarter was $2.76 million, an improvement from last year's $3 million loss and consistent with our expectations given the industry backdrop. For the first 9 months of 2025, we generated $11.8 million in sales with a gross margin of 9.6%, up significantly from 2.7% a year ago. These results demonstrate the early benefits of our operational discipline and focus on aligning production with dealer demand. Turning to the balance sheet. We ended the quarter with $2.7 million in cash and equivalents and continue to maintain very low leverage. Our only long-term debt remains the SBA economic injury disaster loan, which carries a fixed 3.75% rate and is fully current. After the quarter end, we completed the sale of our North Carolina property for $4.25 million. That included $500,000 in cash at closing and a $3.75 million secured promissory note earning 5% interest payable in [ installments ] between '26 and '27. This transaction immediately reduces overhead and strengthens our balance sheet. We are managing working capital carefully, producing to order rather than to stock to preserve liquidity and to protect dealer profitability. Operationally, our Fort Pierce expansion is now complete, and our 5-axis CNC router is fully operational. This capability allows us to handle precision tooling in-house, reducing outside vendor costs and shortening development times. It's a good example of what we're doing more with what we have, not spending more to grow but investing smarter. And I wanted to thank all of the operations and finance teams for their hard work in achieving this balance. Looking ahead to the fourth quarter, our priorities are clear: protecting liquidity, support dealers, sell-through and remain ready for the growth when demand improves. We're entering Q4 from a position of stability with a leaner cost base, stronger dealer coverage and healthier balance sheet. Our focus is on rebuilding the backlog and strengthening our relationships with our dealers and customers. The sale of the North Carolina property gives us flexibility to invest in marketing and dealer support without taking on debt. We'll continue to expand our presence in high-potential coastal regions and ensure our dealers have the training and tools and support to succeed. Before we open the call to questions, I want to thank you all for -- and the shareholders and employees and our partners. Your confidence truly motivates our team every day. We're focused on what Twin Vee does best, building high-quality boats, supporting our dealers and engaging directly with customers. The marine industry may face rough waters, but we are steering through them with focus and discipline. Our mission is clear: to whether the storm, emerge stronger and create a lasting value for our shareholders. Thank you for your continued support. With that, I'll turn it over to the operator for questions. Operator: [Operator Instructions] There are no questions at this time. And this concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the U.S. Physical Therapy Third Quarter 2025 and Full Year Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions] I'd now like to turn the call over to Chris Reading, Chairman and CEO. Please go ahead, sir. Christopher Reading: Thank you. Good morning, and welcome, everyone, to U.S. Physical Therapy's third quarter 2025 earnings call. We've got a few of our executive team on the line with me this morning, including Carey Hendrickson, our Chief Financial Officer; Eric Williams, our President and COO of East; Rick Binstein, our Executive VP and General Counsel; Jason Curtis, our Senior Vice President of Accounting and Treasury. Before we begin to discuss our quarter and our year-to-date performance, I know we need to cover a brief disclosure. So Jason, if you would, please. Jason Curtis: Thank you, Chris. The presentation includes forward-looking statements, which involve certain risks and uncertainties. These forward-looking statements are based on the company's current views and assumptions. The company's actual results may vary materially from those anticipated. Please see the company's filings with the Securities and Exchange Commission for more information. This presentation also includes certain non-GAAP measures as defined in Regulation G and the related reconciliations can be found on the company's earnings release and the company's presentations on our website. Christopher Reading: Thanks, Jason. So I'm going to start out, provide a little color on the quarter, also talk about some things that we're working on and how we kind of are looking into next year. I have some prepared comments that I'm going to touch on. I'm also going to go off script a little bit. I came out to my office this morning. I hadn't really thought about it before this morning. And I think if I'm right, this is my 84th earnings call. So this week on my 22nd anniversary with the company, 21 years since I took over in November of 2004. So a bunch of these. I looked at our stock as the market opened. I was a little bit surprised at the reaction, frankly. I want to hit some highlights. I want to talk about what we're working on and how we look at things going forward. So I think we're looking at things maybe a little bit differently. But -- so volume has continued to be strong for us. For the quarter, we're up 18%. But certainly, a bunch of that is Metro, which you know we completed that acquisition in November. I believe it was November of last year. They're doing great. But what I want to point out is we've added a total of 84 PT facilities. So a lot more than just Metro in this last year. And that's 84 net. So we've added actually more than that and that number is net of closures. So this last quarter, visits per clinic per day produced a new record for us for Q3 of 32.2, underscoring our ability to continue to grow. What's driving all that is the care and the service and the amazing connections that our clinical people are making every day, not just the clinical people, the people who greet our patients as they come in the door, patients come in, they're in pain, they're frightened in some cases. They're worried about the ability to do the things they've always done. As I mentioned last earnings call, last quarter, our net promoter score over 90, almost mid-90s with a 95% active promoter score for our -- across our entire company for our patients in our outpatient facilities, just incredible. So look, none of this is perfect at any given point, but we are making a difference in a lot of patients' lives. Those patients recognize the value and the service they're getting from us. They pay their bills, collect their money and then we get them back later when pickleball happens or there's something else that causes their function to be impacted. This quarter, again, maybe it's against the soft quarter a year ago a bit, but gross profit grew 30%. I haven't said those numbers in a long time. Even if you adjust out some of the noise from a year ago, still mid-teens gross profit increase number for PT. And that's in the middle of an inflationary period in a period where staff is more expensive. We impacted our salary and related cost per visit. On a year-over-year basis, it actually went down some. We're working on a number of initiatives, including AI-driven documentation, including what I refer to as the semi-virtualization of our front desk operations and that's rolling out. We have a target for that by year-end of 200 facilities, about halfway there, but we're beginning to see some impact from both of those things. And we've got more to come. We're just on the front end of the number of these things, which take some time. As we look at the year, one of the big headwinds we've been faced with quite honestly now for 5 years is this Medicare headwind. CMS produced a final rule on Friday. It came out as it often does, there were some incorrect tables in our part and that we had to contact CMS about and took them a couple of days. They looked at it. In fact, they were incorrect. They updated those tables. It's gotten a little bit better than last time we talked. I think last time -- and we're not done with our analysis. Last time, we said it was going to be about a 1.5% increase, probably a little better than that right now. This year is more complicated than most because of the significance and the change in the geographic index factors that kind of shuffled all around the country. One of the things that swung for us, it's a net positive manual therapy, which is when we put our hands on our patients, when we mobilize joints, when we restore motion again through that very upfront and close personal contact, very precise ways. We do that on almost every patient that comes in the door. Manual therapy was slated to go down. We challenged their assumptions. And in this final rule, manual therapy will go up slightly. So it reversed from a negative to a slight positive. So that's positive for us as we re-sort the impact of this final rule. The other thing that I think will be meaningfully positive is that in 2024, we went and began to roll out remote therapeutic monitoring, which was a new code for us. And the rules around that code, I'm not going to go through all of it, but it required a lot of visits and a lot of monitoring, which we did with the partner, Limber, great guys and has done a great job. And -- but it was clunky. It took a little while. We had to integrate Limber's tool into our EMR system. That took some considerable time, wasn't within our control, frankly. And by the end of the year, we hadn't gotten the traction with our partnerships that we had hoped. Now what CMS has appreciated, which is what we've appreciated, the patients who go through and have as part of their care remote therapeutic monitoring actually get better outcomes, they're more engaged with their home program and they're more adherent to their total program, which helps in their exiting function. And so CMS, again, with encouragement from groups like APTQI and others, they've reduced significantly the number of visits that it takes in order to get to a billable code. We now have a fully integrated working model through an app, which integrates well with our EMR. And so beginning 2026, this will be kind of a reinitiation of that opportunity for us, which we're just right now scanning the surface of. So for the first time in a while, we're going to see some blue sky in 2026 in terms of -- particularly in terms of Medicare reimbursement. We see additional opportunity around remote therapeutic monitoring. And then we've got these internal initiatives to help with our efficiency and our patient flow and our cost overall. So that's very encouraging. I want to shift gear a minute and talk a little bit about our injury prevention. Both of those teams are doing really well this year. I read a report that one of the reports that injury prevention for the quarter was disappointing. Look, this quarter, we've lapped an acquisition that we had in the last quarter still as part of those numbers, which gave us mid-20s revenue growth. If I remember right, it's 14%, 15%. That's purely organic. Still strong revenue growth. That's where we've been. We've got other injury prevention opportunities in the pipeline. We continue to love this business. Deals happen when we get them done. We don't talk about them and we don't put information out ahead of time. But you're going to continue to see us grow this business because we have high confidence in our teams in both injury prevention partnerships. We have other things in the market that we like that we think are going to be impactful, help us to grow our industry verticals and help us to grow our service opportunities. And we started this in 2017 and we had a great team, but we had a very small company, very narrow service line. That service -- those service lines have broadened significantly over the years. Teams got even stronger and our industry verticals have gotten wider and wider as we've added more programs and services. So you're going to see that continue to be a strong focus for us. So let me just say this in closing. I touched on a number of things. This is a team that doesn't give up. We've had a lot of headwinds over the year. We always find a way. If you look at the Medicare cuts that we've absorbed in these last few years, they aggregate to over 11%. If you look at the impact just in this year, it's $25 million profit impact. And yet we found a way throughout all those years to continue and it's going to be gone. We have some good things in the mix. We still have a great capital structure and we have a very, very strong resolve to take this company forward and do the things that we've said we're going to do. So with that, I'm going to turn it over to Carey to cover the details, and we look forward to your questions. Thank you. Carey Hendrickson: Great. Thank you, Chris. Appreciate it, and good morning, everyone. Let me highlight a few performance metrics that drove our strong results in the third quarter, some of which Chris has covered, but just to emphasize them. Our average visits per clinic per day was 32.2 and that's the highest third quarter volume per clinic per day in our company's history. Our total patient visits increased 18% year-over-year, supported by the 84 net owned clinic additions Chris mentioned, since the third quarter, 2.2% increase in visits in our mature clinics. Our PT salaries and related costs per visit actually decreased this quarter. They decreased $0.40 per visit compared to the prior year. That's the first time we've seen a decline in our salaries and related costs since the fourth quarter of 2023. And then our IIP revenue grew almost 15% and our IIP gross profit was up nearly 11%, which is all organic growth. And then finally, our adjusted EBITDA increased $2.8 million or 13.2% to $23.9 million. Turning to patient visit volumes. We recorded 1,524,070 clinic visits in the third quarter, along with 30,137 home-care visits. Our average visits per clinic per day, as I mentioned, was 32.2. That -- and it was 32.2 in July. It was 31.9 in August and then 32.7 in September, which follows our normal seasonal pattern with volumes typically picking up in September after the summer months. Our home-care visits continue to build nicely. They moved from just under 23,000 in the first quarter to a little above 28,000 in the third quarter and now a little above 30,000 in the third quarter. So those continuing to build. Our net rate per patient visit for the third quarter was $105.54. That was up modestly from the second quarter of this year, down slightly from the third quarter of last year. September was our highest monthly net rate of the year, highest month of the quarter and certainly, the highest month of the year and that exceeded $106 per visit. So the trajectory there is good. As a reminder, we absorbed a 2.9% Medicare rate reduction that took effect at the start of the year and we saw some rate mix shifts a little bit in the third quarter. Most of our year-over-year visit growth came in the commercial and Medicare categories. So by payer category, commercial visits year-over-year and which are about $106 a visit, though slightly above our average rate, were up about 20% in the third quarter compared with last year. Medicare visits, which averaged approximately $94 per visit, so that's below our average rate, increased 18%. And then workers' compensation visits at roughly $145 per visit increased at a lesser rate of 5%, partly because we're cycling some significant increases in our workers' comp business in the prior year. And we're continuing to focus on expanding our higher rate workers' comp business and expect to add several new workers' comp network relationships before the end of this year. Our physical therapy revenues were $168.1 million in the third quarter of 2025, which was an increase of $25.4 million or 17.8% from a year ago. Most of that growth came from acquisitions we completed since last year with Metro and PT in New York, which we acquired last November, contributing $19.5 million to our third quarter revenue. Our PT operating costs totaled $136.9 million. That was an increase of $18.2 million or 15.3% compared to the same quarter last year. Importantly, as I mentioned, we managed cost effectively. As I noted earlier, salaries and related costs per visit decreased year-over-year from $62.47 in the third quarter of '24 to $60.07 in the third quarter of '25. Total operating cost per visit increased just 1%, moving from $86 per visit last year to $86.88 this year, which we view as a strong result given the inflationary environment. Our physical therapy operating margin was 18.6%. As a reference point, we made a small reallocation of amortization between our PT and IIP segments in the third quarter and then we adjusted the prior year amounts to align with the current year presentation. And we'll continue that approach going forward, making a prospective change on that. The change results in a slight increase of about 20 to 30 basis points in our PT margin across all periods and then a decrease of about 170 to 200 basis points in the IIP margin. Speaking of IIP, as Chris mentioned, our IIP delivered another strong performance. In the third quarter IIP net revenues increased $3.7 million or 14.6%, while IIP income rose $546,000 or 10.7%. And again, emphasizing this growth is all organic. We have not made any IIP acquisitions since the third quarter of last year and our IIP margin for the third quarter was 19.6%. Turning to corporate costs. They remained in line with expectations. Our corporate expenses were 8.5% of net revenue compared with 8.6% in the third quarter of 2024. As I mentioned last quarter, we're in the early stages of implementing a new enterprise-wide financial and human resources system. During the third quarter, we incurred about $700,000 in implementation costs related to that project. And consistent with our practice for similar nonrecurring items, we add those costs back to our adjusted EBITDA calculation. Operating results for the third quarter were $10.1 million, down slightly from $10.4 million a year ago. That small decline was mostly due to lower interest income of $1 million. We had excess cash on our balance sheet in the third quarter of last year, but that's now all been deployed into acquisitions. So we didn't get the interest income associated with that. And then we also had higher interest expense of $400,000. That's associated with the higher debt balance this year because we made acquisitions and put a small amount on a revolver, which we didn't have anything on our revolver last year in the third quarter. On a per share basis, operating results were $0.66 compared with $0.69 in the same quarter last year. Our balance sheet remains in excellent shape. We currently have $132 million on our term loan with a swap agreement in place that fixes the interest rate at 4.7% through mid-2027. In addition, we have a $175 million revolving credit facility with $26.5 million drawn on it at September 30, 2025. We ended the quarter with $31.1 million in working capital cash. We've not yet repurchased any shares under the share repurchase program we established in August. We view that as a prudent tool to have at our disposal, but acquisitions will continue to be our primary capital allocation priority, consistent with our long-term growth strategy. Finally, as noted in our release, we reaffirmed our adjusted EBITDA guidance to be in the range of $93 million to $97 million for full year 2025, reflecting our third quarter results and then our current expectations for the remainder of the year. And with that, I'll turn the call back over to Chris. Christopher Reading: Thanks, Carey. Okay, operator, I know we have some questions. So let's go ahead and open up the lines and happy to take those questions. Operator: [Operator Instructions] Our first question comes from Brian Tanquilut with Jefferies. Brian Tanquilut: Maybe, Chris, I'll ask first. I mean, what are you seeing in the demand environment for physiotherapy? And then kind of like the other side of that, how are you seeing or what are you seeing in terms of clinician recruitment and retention? I mean, I know you guys called out the decline in salary per visit. So just curious what are the dynamics that you're seeing there? Christopher Reading: Yes. Demand has, for us, pretty much all year continued to be strong. I would say in the quarter, we had a little bit of a shift between July and August. July was better -- much better than we expected. It actually was very similar to June, which doesn't normally happen. And then August was a little bit softer, concerned us a little bit and then we popped right back up in September. And so I think what happened was we just -- we were busier in July than normal. We probably shifted some summer vacations into August, which impacted us a little bit. These are slight number shifts. Demand pretty much been good everywhere. On the supply side, on the labor side, we made a number of investments over the last year plus in terms of our recruiting, new tracking, applicant tracking platform, new people and resources devoted toward developing more robust school relationships and services and programs, content actually for students that are still in school. And that, we think, is paying dividends. Our time to fill down. Our turnover has been really good, really across all parts of the company. But we're definitely not paying people less. The market is not soft by any stretch. Young therapists still have a lot of debt when they come out of school and plenty of opportunity in terms of employment where they can go. And so it's competitive in that regard. But I think we made some incremental positive strides over the last 12 to 15 months in terms of our infrastructure, our ability and our capability and we're seeing that pay off. Brian Tanquilut: Got it. That makes sense. And then Carey, as I think about your cash generation, I mean, decently good cash flows in the quarter. I know you announced the buyback last quarter, but did not have that. So just curious how you're thinking about opportunities on the M&A side versus weighing share buybacks. And also, I know you and I have had conversations about how IIP is a focus area for M&A. So maybe if you can just touch on that in terms of why that is. Carey Hendrickson: Yes. Sure. On the repurchase side, as I mentioned in my remarks, I mean, we think that's a good tool to have at our disposal and we weigh that versus acquisitions, but certainly acquisitions at this point. We've got a number of them that are in process that we hope to get across the finish line in the relatively near term. But it's just a much better use of our capital at this point or acquisitions because that's their -- the acquisitions we're looking at, to your point, are IIP acquisitions for the most part. We're going to continue to do PT acquisitions, but we are focused on IIP because of the return dynamics. I mean, the growth prospects in that side of the business are just -- are better. And so that's where we're really focusing a lot of our IIP. Our acquisition attention is on that side of the business with better revenue growth, better profit growth there. So -- and we need that segment to get larger. So that's what we're really looking at. Yes. Operator: Our next question comes from Benjamin Rossi with JPMorgan. Benjamin Rossi: So I was hoping you could discuss some of the competitive dynamics that you may be seeing across your markets and physical therapy, just given some of your commentary about the strong demand backdrop. I guess just when we think about existing market competition, your primary end markets in Medicare, commercial and workers' comp, can you just kind of walk through competitive dynamics this year? And maybe if you're seeing any pressure from newer offerings or coverage [ models ] that have kind of changed some of your inbound demand? Christopher Reading: Yes, Ben, it's hard to quantify. And particularly, it's hard to say, well, this year is different than prior years. I can tell you, and again, I'm going to speak in some generalities. I'm not going to call anybody out. But across our market, we typically compete with small practices, mom-and-pops. We compete with hospital-based practices, where PT is often primarily not their top of the list in terms of product lines. And then we compete with other large providers and other consolidators in the market. And really, since, I would say, since the latter part of 2022, some of the larger PE-backed companies have been balance sheet-constrained. And so we're seeing multiples on the acquisition side come down a little bit. That wasn't specifically your question, but we have seen an impact there. In terms of boots on the ground and who gets which patient, really hard to measure. We all have relationships. We're all out there looking to try to get and keep the relationships that we have and expand into new relationships. It's a competitive market, but we're in as good a position as anybody just because our balance sheet is so good. So we have the ability to deploy resources. We have the ability to make long-term investments and make decisions that aren't based upon acuity or crisis or other balance sheet-pressured things. And so I think over time, it's to our benefit, which is one of the reasons our visits per clinic per day continue to move up in spite of the general market challenges overall. Benjamin Rossi: Got it. Okay. Appreciate the comments there. I guess, just thinking about the broader backdrop across your maybe mature cohort and the volume growth there, can you kind of just parse out core growth figures and maybe how that core growth looked across those main segments like Medicare, commercial and workers' comp or at least maybe like directionally, what was up or what was down year-over-year? Carey Hendrickson: Yes. Sure. So within the mature clinic mix, commercial and Medicare were both up. Commercial was up in visits about 2.5% -- 2.5% to 3%. Medicare was up about 4.5%. So those visits both increases on -- to take those 2 together, it was about a 3.5% increase in commercial and Medicare. Similar to our overall business, workers' comp dipped a little bit in their number of visits year-over-year in the third quarter. So that kind of affected the rate a little bit for the mature clinics there in the quarter. So our visit growth was 2.2% and then our rate growth in mature clinics because of that -- a little bit of that mix shift I just talked about and the fact that commercial and Medicare are -- commercial is right at our rate. Medicare is a little bit low rate and that's where we saw the growth, but then workers' comp dipped a little bit, which is a high rate payer category. That rate decreased 2% for -- it was 2.0% for the third quarter in mature clinics. So 2.2% visit growth, 2% revenue growth. So it was up just slightly from a revenue standpoint year-over-year. And that's my category that I'll see. Yes. Operator: Our next question comes from Joanna Gajuk with Bank of America. Joanna Gajuk: So just a very quick follow-up on the final Medicare rate being based on the proposal, you kind of estimated it will be, call it, $1.5 million to $2.5 million to adjusted EBITDA. So based on your, I guess, updated estimate of that impact, it sounds like it's not finally, but where do you land right now in terms of adjusted EBITDA tailwind? Carey Hendrickson: So... Christopher Reading: I don't think we're there yet. Carey Hendrickson: Yes. We're not there yet. Christopher Reading: It doesn't come out until Tuesday. So... Carey Hendrickson: Yes. And it's a pretty complicated calculation. We have to go through by market. But I would say the increase we expect to be, I think, really more of a floor of 1.5% now, whereas we thought that may be kind of right where we ended up, I think that's kind of a floor of 1.5% and there could be -- it could be greater than that. And we'll certainly give more color on that on our next call. But the fact that it's a positive going into 2026 is really, really good. Joanna Gajuk: All right. So I guess, yes, it's going to be a little bit better than that number. So that's, call it, 2% adjusted EBITDA growth next year just for that. I know you're not giving guidance and you said you're finalizing a lot of different things. But anything else we should be thinking about in terms of tailwinds and headwinds into next year? Christopher Reading: Other than what we've talked about, we're working on some cost things. Obviously, those are beginning to come through AI-driven documentation, virtualization at the front desk. We talked about remote therapeutic monitoring being now an update to our high priority work list for 2026, where there's some reimbursement that we're not tapping into right now just because of the complexities historically around how the government set up and funded this program. It's gotten much more logical and much more doable. And so we'll focus on that. And then we got some things that we haven't talked about yet that we're not quite ready to talk about that will be very positive next year that we expect to give an update when we give guidance and talk about our year-end numbers. We think we'll be far enough along then to lay it all out. Carey Hendrickson: Yes. And on the headwinds side, to give anything significant on the headwinds, we've had -- obviously, the big major headwind we've had the last 5 years has been the Medicare rate and we thankfully don't have that headwind going into 2026. So that's why at this point, we'll give the guidance later, but we feel good about kind of how things are shaping up for 2026. Joanna Gajuk: Okay. And if I may, a different topic, different question. I noticed in the release, there's some additional reversals of the payouts from acquisitions. I think you had this in a couple of quarters in a row. So anything in particular? Like what's causing that reversal? Carey Hendrickson: I'm sorry, that's on what, Joanna? Joanna Gajuk: On the payouts from acquisitions. So you said, I think, $11 million this quarter. Carey Hendrickson: Yes. That's really just -- it's a -- it's -- every quarter, we reproject kind of where we think they're going to end up for whatever the earn-out period is and we have to make adjustments based on the Monte Carlo simulation. I just -- so it's really just based on actual performance. But we put lofty targets out there for our acquisitions to achieve and we expect them to achieve that. And if they don't quite get there, then we have to back it off a little bit. Chris, would you -- anything else you'd say about that? Christopher Reading: No. I mean, it's just a quarter-to-quarter adjustment that predicts -- attempts to predict where we'll end up at the end of another period. It's -- to be honest, it's an exercise that I don't think is particularly meaningful, but we have to do it. And so it goes up and down every quarter. Not actually what we're spending at any given time. Operator: [Operator Instructions] We'll go next to Larry Solow with CJS Securities. Lawrence Solow: Congrats on your 84th call. I think if I do the math, this is my 73rd one listening in. It's been a fun ride. I guess just first question, I appreciate all the color on the volumes. Just in terms of the mature clinics, I know they were a little bit flat to last quarter and pretty flat this quarter on both the price and a volume, I guess. So net, just -- and you've discussed the pricing pretty well. You parsed that out pretty well. Just any thoughts on the flatter volumes and how you can maybe -- is that just a timing thing, staffing issue? Any color there? Christopher Reading: Yes. I mean, my sense is that any time you're focused on trying to wring out cost, you probably wring out a little bit of volume. And so you kind of have to pick your poison and we're trying to obviously get it right in each and every situation and there are literally thousands upon thousands of those situations when you look at daily schedules and how many therapists we have and all of it. And I don't look at 2.2% as flat, although it's -- I would rather it have been 3%, let's say, more on our average. And on the flip side, we made a little bit of an impact on the cost side. So I think there's probably some impact there from trying to be as efficient as you can and not have slack resources. Slack resources allows you to take a walk up and have people just show up and be able to deal with them. And when you don't have slack resources, it makes it a little bit harder to do that. And so I think that's part of it probably. Lawrence Solow: And I know, appreciate that. In terms of the ERP, the new ERP system, which is, I guess, a modest headwind in terms of cost today, does that become a benefit, a lot of your other -- your AI virtual notes taking stuff like that, too. So maybe hard to isolate that by itself, but does that end up being an efficiency benefit at some point? Carey Hendrickson: Certainly, Larry. Christopher Reading: Go ahead, Carey. Carey Hendrickson: It'll be a big efficiency positive for us in the finance and accounting area. And with the human resource side, too, so it'll be a really good tool for all of our employees to use for. It'll be a kind of one-stop place they can go and get all their HR information and their financial information too if they have financials that they need to view. So everything will be viewed there is the same. And I think what it does is just provide us more -- provides us quicker and probably more information to manage our business. But that -- from that perspective, it's going to create some efficiencies and positives for sure. Lawrence Solow: Great. If I could just switch gears from one last quickly on the injury prevention. It sounds like really knocking out of the park on the top line, mid-teens growth. I don't know, is that number hard to say sustainable over a multiyear period, but it does feel like you do expect that business to certainly grow faster than the PT business. I guess any color there? And then the follow-up would be, there was a little bit of a gross margin came in a little bit, I guess, year-over-year. Anything we should be concerned about on the IIP side? Christopher Reading: Carey, you take the gross margin one because you touched on that, so maybe reclarify that. Carey Hendrickson: Yes. So gross margin, but when you look at it year-over-year, it did for IIP come down a little bit. It was 20.3% on the properly adjusted basis in 2024 and was 19.6% in the third quarter of this year. So a little bit of dip there, but that margin continues to be really, really strong and near that 20% mark. Part of it is we have added some auto clients, which -- over the last year, which have a little bit lower margin, but that's good business. That's why you see that top line growing at 15%, but not quite as much on the bottom line growth, 11% because it kind of depends on the mix of the business there and what the margins are for those. But nothing really notable to point out related to the margin difference quarter-over-quarter. Christopher Reading: Yes. And Larry, in terms of growth, I don't know if -- I don't pretend to have a perfect crystal ball, but in terms of [ 17% ] -- we've been growing at a pretty good clip. In the early first couple of years, year-over-year growth was more like 30% or 40% for a while. As we get bigger, it gets a little bit harder and I think mid-teens is a pretty good number right now. But as we add these other companies and we pick up more services, it gives us a bigger opportunity to cross-sell. So in that regard, I do think there's a sustainability element, particularly as we've added programs over the years that -- and our team has gotten better at cross-selling. And so I think we can grow certainly at an outsized rate compared to PT when you look at organic growth. Operator: Our next question comes from Constantine Davides with Citizens. Constantine Davides: Chris, just on the home-care visits, can you just talk about directionally how you think that's heading? Are these still largely confined to the Metro asset? Or have you expanded the model out to any of the other logos at this point? Christopher Reading: Yes. Eric, do you want to take -- I'm going to let Eric speak to that. But yes, it's primarily Metro. Eric Williams: Yes. And it's really regional. So it's outside of New York. I mean, we've expanded into the New Jersey market. Michael had the biggest footprint, obviously, in home-care operating out of New York. It's easy to expand as we go to city over and a state over. And so I still think that's going to be the area where we have the biggest expansion opportunity. But we are looking elsewhere within the portfolio around where we can replicate that and make an impact. So we still believe that it can generate growth for us as we continue to grow forward. But right now, most of it will be in the Northeast. Constantine Davides: And can you maybe speak to the relative margin differential between a home-based visit and just kind of historical level of margins on the core PT business? Eric Williams: I'll speak little specifically to New York, New Jersey. I mean, obviously, so it's -- they're -- we're treating Medicare. The Medicare reimbursement up in the Northeast is very, very favorable as compared to other parts of the country. And doing home-care, you do generate pretty decent margins because your only real overhead associated with home-care is labor rates. And you pay a little bit more for home-care staff, but margins are held back and get you a number for you. I don't have that in front of me. It won't be the case everywhere. I mean, there's markets where just based on cost of labor and Medicare rates it won't make as much sense for us. But right now, the Northeast is very, very healthy rate. We're able to find labor and generate economies of scale, which is another big part of the program. I mean, when you bring home-care people on, while they're typically paid on a per visit basis, your ability to attract staff is really based on having the ability to give them a full schedule. And so for us, it's easier to grow off of an existing program and expand as we move into different ZIP. A little bit lower margins, we're just starting up a program for the first time. So I hope that color helps a little bit. Constantine Davides: No, it does. That's great. And then Chris, in your prepared remarks, you highlighted just the really strong growth in the number of facilities. And I guess I'm more focused on de novos here, but it looks like you're going to be pushing probably in the 35 to 40 range this year. So I'm wondering what's the limiting factor on that? And is this kind of a new normal in terms of what you're targeting year in, year out? Or is this just -- is 2025 just a year of just more pronounced de novo growth? Christopher Reading: No. No. So limiting factor first. Limiting factor, really not our ability to get de novos out of the ground. We could do more than we're doing. It's having the right person ready to take over that facility in a leadership position and then being able to backfill that person in the existing clinic. And so that's part of it. And our partners have to be willing to take a near-term dip in distributions and other things, again, to fund that facility and get it up and out of the ground. Having said that, we've got some things that we're working on behind the scenes. Again, this falls into the category of haven't fully lifted the curtain yet that will help us in certain markets accelerate our de novo opportunity and that's something we'll spend some time on, I think, in February when we release our year-end earnings and talk about what we expect to do going forward. That's a general time frame when we're going to be ready to kind of talk about some of these other things. But I think in that 30 to 50 range is likely where we'll be. Operator: [Operator Instructions] We'll go next to Mike Petusky with Barrington Research. Michael Petusky: Okay. Carey, I know that you talked to the year-over-year decline in gross margin in IIP, but I'm actually more confused and you may have addressed this and I missed it, but confused by the sequential decline in that gross margin. Did you talk about that? Or could you talk about that? Carey Hendrickson: Yes. So I mentioned it on the call that we had some amortization that was -- that had been being allocated to the PT segment that really should have been allocated to the IIP segment. So we made that adjustment and we're going to make that on a prospective basis. And so it increased our PT margin a little bit by about 20% [Audio Gap] decreases our IIP margin by 170 to 200 basis points. So when you look -- so there -- so the last quarter that we actually reported is not apples to this third quarter. But as we go along, we'll just prospectively present that in the same manner going forward with that IIP amortization actually squarely placed in IIP. So yes, but if you look at any of that, like the second quarter last -- of this year would have been 170 to 200 basis points less than what we showed in our report. Michael Petusky: Got you. Okay. Perfect. And then in terms of workers' comp, what percentage of overall revenue was workers' comp in this quarter? Carey Hendrickson: Yes, hold on one second. I believe it was -- it's right at 9.6%, I believe is what it was. 9.7%. It was 9.7%. And we did -- overall, we did see workers' comp growth just in visits. It was about a 5% increase in workers' comp visits for our total book of business, just mature clinics. When I was speaking of mature clinics, it was down a little bit in mature clinics, but it is up overall 5%. It just didn't see as big a growth as commercial and Medicare, which were at 20% and about 18%, respectively. So we did see increase in workers' comp visits. Eric Williams: I'm happy to throw a little bit more color on the work comp side here. To Carey's point, the growth wasn't as robust as what we've been seeing over really 2024 and first couple of quarters this year, it was around 5% on the visit side. It was around 5% year-over-year growth on the rate side. And Q3 revenues were up just under 10%, Q3 '25 compared to Q3 '24. On a year-to-date basis, revenues are up 19% in work comp, visits are up about 9% and rate has been up about 9.4%. We signed 11 new contracts in 2025 with work comp, 2 of which came online in Q1, 4 of them Q2, 2 of them late Q3 and 3 of them are coming online in late Q4. So we still have growth opportunity that we're going to see on the work comp side. There's also a concerted effort around volume pull-through and a focus on our PPO contracts which pay a higher rate than some of the work comp specialty networks. So we still foresee good growth on the work comp visit side as we move forward here into 2026. Michael Petusky: Okay. Great. And just a couple more quick ones. The 1.5% is what you guys are calling probably a floor on the Medicare update for '26. I mean, could the ceiling be as high as 2%? Or are we really talking it's 1.5% or it's 1.6% or 1.7%, like pretty close? Christopher Reading: My gut tells me it's going to be pretty close to 1.5%, 1.6%, 1.7% probably. I don't know that it gets to 2%. What could take it to 2% is if we can ramp up remote therapeutic monitoring and get that a meaningful percentage of our Medicare patients, that would pick us up a few dollars per visit over the course of the case. And so that would be a nice lift. That would be a difference maker. But we think on the base -- the reason this is so complicated right now, so many of the geographic index factors, which normally don't move very much, moves a lot. And so we have to model not only kind of the historic look at what the changes would have done, but a prospective look. We have to estimate what we think the migration will be from Medicare Advantage to Medicare. And frankly, it's not entirely precise. It requires some guesstimation. And so that's why we're being a little less precise around this because it's not quite easy to pin the tail on it as it has been in the past. Michael Petusky: Okay. Fantastic. And then just the last thing and I may -- again, I may have missed this as well. July, August, September, did you give the visits per month there? Carey Hendrickson: Yes. So I'll repeat them. Let me get that in front of me here. I know July was 32.2, yes, 32.2 July, 31.9 in August and then 32.7 in September. Michael Petusky: And then just the last sort of second part of that question. As your -- there's a lot of talk in news media and around the elections about sort of affordability, people are getting squeezed by persisting inflation and all the rest of it. Are you guys seeing any evidence of that impacting sort of people later in therapy? Are you hearing anything? Are you picking up anything on that? Christopher Reading: I mean, what we have to look at is our duration of care, right? I mean, that's the one objective measure that we have to look at. And so duration of care hasn't dropped. It's not going backwards. It's been very steady. Eric, I don't know if you want to provide any other color on that. Eric Williams: No, Chris. That's spot on. I mean, even when we went through some of those difficult periods 2 years ago with rapidly rising inflation and a concern that people are going to kind of hang on to the dollars, we saw absolutely no variation in our durations and they continue to be strong and consistent throughout 2025 as well. Carey Hendrickson: And our volumes in October have been really, really good. So that's -- we haven't seen a dip there. Operator: And I'm showing no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks. Christopher Reading: Okay. Well, thank you, everybody. We appreciate your time this morning. We always appreciate your questions. Carey and I are available later today, through the week and into next week, of course, for any follow-up. So I hope you have a great day. Thanks again. Bye-bye. Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Good morning. My name is Aaron, and I'll be your conference operator for today. At this time, I'd like to welcome everyone to the UWM Holdings Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Blake Kolo, you may begin your conference. Thank you. Blake Kolo: Good morning. This is Blake Kolo, Chief Business Officer and Head of Investor Relations. Thank you for joining us, and welcome to the Third Quarter 2025 UWM Holdings Corporation's Earnings Call. Before we start, I would like to remind everyone that this conference call includes forward-looking statements. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the earnings release that we issued this morning. Our commentary today will also include non-GAAP financial measures. For information on our non-GAAP metrics and the reconciliation between the GAAP and non-GAAP metrics for the reported results, please refer to the earnings release issued earlier today as well as our filings with the SEC. I will now turn the call over to Mat Ishbia, Chairman, President and CEO of UWM Holdings Corporation and United Wholesale Mortgage. Mathew Ishbia: Thanks, Blake, and thank you, everyone, for joining. Over the past 3-plus years, we've successfully navigated a higher rate environment with a focus on taking market share, showcasing that we are uniquely capable of both dominating purchase business and investing for the future. While most other lenders scaled back, we invested in our people, our technology and the broker channel, which are all operating at all-time high levels. We've been prepared for a rate reality for years. And the third quarter gave us a little bit of a glimpse of what it would look like, and we delivered on everything we said we would. To give you a more tangible example, showcasing our capabilities, one day in September, we had an all-time record lock day. We locked $4.8 billion, yes, $4.8 billion of locks in 1 day. We handled it all in 1 day along with submissions that followed seamlessly. Now that was only a 3-, 4-, 5-day window of opportunity, and we took advantage of it by handling all the volume all the way through our organization from setup to submission to underwriting to closing to client service priorities and all went pretty close to flawless. We maintained turn times, SLAs, world-class Net Promoter Scores and our submission to critical close times actually got even faster from 12 days to 11 days, which are like record-breaking numbers. It was phenomenal to see across the board the execution because we have been preparing for years when you actually have to do it and execute, you never know how it's going to go, and it went amazing. The investments we have made in technology will continue to solidify our competitive advantage and the gap between UWM and our competitors continues to widen. Back in May at UWM LIVE!, we made headlines introducing Mia, our most intelligent agent, a generative AI loan officer assistant. A lot of people were unsure of what this meant and how it would impact business, but we now have actual results. Mia has made over 400,000 calls on behalf of our mortgage brokers, helping them stay in touch with past clients. Remember, as I told you before, 97% of all borrowers love their experience with the broker and want to work with them in the future and have a great experience, but only 10% remember who their brokers when they want to refinance again. Mia is built to solve that issue, and she's doing it. She made over 400,000 calls starting business conversations with borrowers on behalf of the brokers. These were mostly the rate watch calls. And of these, over 14,000 have already closed. What's interesting is we forecasted a 10% to 15% answer rate, and we've actually seen over 40% answer rate. Mia has been phenomenal. We've been saying from the beginning, our business is tied to AI is based on 3 main issues: enhancing knowledge, which ChatUWM does along with a couple of other things we've done, create efficiency, which Bolt has done. And then the hardest one to solve is growth, which Mia is doing by solving the issue for brokers missing business from their past clients. So having over 14,000 closings from this in the last couple of months is even higher than we expected when we rolled it out, by a wide margin. And that's why we are the biggest and best mortgage company in America. We have been for years, and now we are just accelerating and widening the gap. Separately, Mia also answered about 70,000 inbound calls. Once again, this is actual AI working in our business, not just talking in buzzwords like a lot of other people like to do. She's taking messages, making appointments, helping them succeed. I'd love to see how many of our clients are utilizing Mia and having success. Now let's talk about the third quarter performance. We closed $41.7 billion of production, obviously beating our guidance. It was our best quarter since 2021 back when rates were in the 2.5% to 3% range. We did $25.2 billion of purchase, which is on track, as we said, is consistently doing about $100 billion of purchase every year. We have been doing that consistently at UWM. And then $16.5 billion of refi, which is up significantly. Like I said, we were able to take advantage of a very small window, a couple of week window in there where we were able to execute and close loans fast. And we're excited to be able to prove that we can not only -- we are prepared, but we also executed. Our gain margin was 130 basis points, which is slightly above the gain margin that we provided in guidance. And part of that is market moves in our direction. We were able to take advantage of that for that couple of week window. Because of this window, you can see when rates drop, our volume goes up quickly, our margin goes up quickly, and we can really take advantage of it. And it's just a 3- to 4-week window, like I said, not dissimilar to what we saw last September, but we're even more prepared and we were able to take advantage of it in a bigger way this time. Last year, we had a similar 3- to 4-week window, and the 10-year went to about 3.75, maybe 3.80, and we had a great month. We did about $17 billion, but we didn't have the success we had this time because we have Mia. This time, the rates didn't even get that low. The rates got to about 4 in the 10-year, and it's about the same short window. Mia has helped us grow the business exponentially, and we're clearly prepared to handle that volume and more. Now from an income perspective, we did over $12 million of income. That's inclusive of $160 million decline at fair values. But really the number to focus on is over $211 million of adjusted EBITDA. Once again, a dominant performance from UWM. You heard me say this on every call, year after year, our playbook and recipe remain consistent. We will continue to invest in our people, our technology and dominate this industry with our service and by growing the broker channel. Our operating profile and relentless drive to deliver results provides a consistent message for the investment community. UWM is uniquely positioned to win in any market environment, and we are investing every day to further extend our lead for the benefit of independent mortgage brokers and their consumers. I'll now turn the call over to our CFO, Rami Hasani. Rami Hasani: Thank you, Mat. Q3 was a strong quarter for us. We reported net income of $12.1 million and adjusted EBITDA of $211.1 million, up from both Q2 and Q1 of this year. Loan production volume of $41.7 billion, also up from Q2 and Q1 and gain margin of 130 basis points, again, up from Q2 and Q1. Operationally, our business continues to deliver. We also continue to maintain a healthy MSR portfolio with net servicing income of $135.1 million. As we've said before, to support our growth, we continue to invest in our people, processes and innovative technologies to prepare us and our broker partners for long-term growth. We remain on strategy with our investments, including our investments to bring servicing in-house to be prepared for significant market opportunities for us and our broker partners going forward. We previously said that our business is positioned to handle twice the volume without interruptions or adding significant staffing or fixed costs. In Q3, we demonstrated that as there were several periods throughout the quarter where production more than doubled and it was seamless. From a liquidity perspective, we recently completed a successful offering of $1 billion in unsecured notes. With the proceeds received, we plan to pay off $800 million unsecured notes maturing in mid-November, and we'll utilize the remainder to support our growth. We remain well capitalized with total equity of $1.5 billion and continue to be in a strong liquidity position with total available liquidity of $3 billion and $2.2 billion after paying off the bonds maturing in mid-November. While our liquidity and leverage ratios are slightly higher as of the end of Q3, it was the result of the timing of our bond issuance in September and our proactive liability management with the use of proceeds prior to mid-November maturity. Net of available cash, our leverage ratio as of the end of Q3 remained largely consistent with the prior quarter. Going forward, we expect to continue to maintain our capital, liquidity and leverage ratios within what we believe to be acceptable ranges in the current market conditions. In summary, Q3 was a great quarter with strong production and even stronger gain margin performance, levels we haven't seen in a while. We continue to invest in our people and technologies to be the most prepared mortgage company in the country. We're also prepared from a capital and liquidity perspective and believe that we are well positioned for Q4, 2026 and beyond. I will now turn things back over to our Chairman, President and CEO, Mat Ishbia, for closing remarks. Mathew Ishbia: Thanks, Rami. I'll close with a few points before our Q&A. Our work to bring servicing in-house is on track for the first quarter of 2026. This will have a positive financial impact on our business, and we're excited to bring our world-class approach to the servicing world. This will no doubt strengthen the consumer loyalty to their brokers. It was great to share more details on our partnership with Bilt will deliver best service experience in the history of mortgage, plus a tremendous amount of exclusive benefits for our brokers, including 400,000 to 500,000 leads Bilt renters that convert to purchase every single year exclusively to our mortgage brokers. We're also excited about the mortgage matchup center sponsorship out in Phoenix. We've seen a significant spike in both traffic and success through the mortgagematchup.com website since launching this. So very excited about all those things. Now I don't normally do this because I know you guys are going to ask me a bunch of questions. But before I move to guidance, I'll ask you a question. When rates drop, what mortgage company do you believe is most prepared to handle it with AI, with operational capacity, not with buzzwords, but with actual technology, process and preparation that's already been proven. The 10-year dipped to 4%, and you saw what we did. I've been saying this for years, when the 10-year dips to 3.75%, we're going to double our business. No other lender can do that. Even if they could, were they going to go from $4 billion to $8 billion? Like we're going to go from $30 billion to $40 billion a quarter to $60 billion to $80 billion in a quarter, right, with margin expansion. That's how UWM works. I hope you feel good about what lies ahead for UWM because I do. All right. Now turning to guidance. I expect the fourth quarter production to be between $43 billion and $50 billion of production. And we're going to raise our levels on the gain margin to 105% to 130%, moving it up 1 level. And honestly, if we get another dip like we just saw, those numbers could be even higher. But overall, excited about what UWM is doing. We're going to continue to dominate. Thank you for your time today. Let's flip it over to the Q&A. Operator: [Operator Instructions] And our first question for today comes from the line of Terry Ma with Barclays. Terry Ma: I just wanted to follow up on the effort to bring servicing in-house and specifically with the Bilt partnership. Maybe just talk about what you're seeking to accomplish with that partnership, how widespread the adoption could be? And then like ultimately, like who's going to fund the rewards issued from the Bilt card? Mathew Ishbia: Yes. Thanks for the question. So it's got nothing to do with the Bilt card. So it's every mortgage payment that goes through UWM we are letting them be the front-end servicing app, if you think of it that way, the technology on the front end. The real benefit for us at UWM is, one, we're going to be better than every other servicer out there because we're better than everyone at everything we do and servicing is a joke in our industry. And so we're going to make it really great for the client. So when people call, we're going to actually answer the phone, not 43-minute waiting periods like everybody else does. So we'll be great on servicing from a service perspective for the consumers, so consumers will love it, and then they'll get rewards for making their mortgage payment, which is something that's never been done before. And then obviously, the front-end technology to your point about built will be fantastic. On top of that, as I mentioned, built has 5 million people making their rental payments to they're about 10% go and buy houses every year. Right now, they just leave Bilt and go buy house. Now they're going to have a way to make a mortgage payment through Bilt by working with a mortgage broker. So those turn into great leads and opportunities exclusive to our mortgage brokers. And so it's a win-win-win. Bilt is a great company. They do good things, but UWM and our servicing process is going to be the best-in-class. That's how we do things. And so we're excited about that. Terry Ma: Got it. Just to follow up on the rewards piece. Like will that show up on expenses anywhere on your P&L? Mathew Ishbia: P&L? No. That's a silly question, but no, it's not funded by UWM. There's no expense for it at all. This is all upside. Terry Ma: Okay. Great. And then maybe just a follow-up on me. I appreciate the stats. I think you mentioned 14,000 loans off 400,000 outbound calls. Like any room for improvement as we kind of go forward and you continue to kind of use it? Mathew Ishbia: Everything we do has room for improvement. So yes, Mia has been fantastic. It's been better than we expected. The answer rates are higher. The response has been better. But every day that goes by, she gets better. And every day that goes by, our brokers get more and more comfortable, consumers get more and more comfortable with the AI agents reaching out and it's not a human. Like every day, it's getting better and better, and it's only going to be more and more loans. And so 14,000 was a really big number, surprisingly big number for us, but that's also the market we had that little couple of week blip where the market got really good, and we took advantage of that. But no, Mia has been fantastic. And we spend all of our time and investments internally on AI and investments around AI. Once again, it's not a buzzword for us, it's actually producing business. And so Mia has been great. And so I appreciate that question because she's been better than we expected. Operator: Our next question is from the line of Eric Hagen with BTIG. Eric Hagen: Good quarter. On the guidance for the gain on sale margin, is that a function of lower rates? Or is there another variable or condition in the market, which is supporting that? And how do you feel like the margin compares on refis versus purchased loans at this point? Mathew Ishbia: Yes. So the margin on purchase and refis are -- there's no difference. It's not a different thing. The opportunity is if rates drop a little bit as rates get lower, more volume comes in the market. And anyone that's a good mortgage loan officer or knows how to do business knows that rates are not what drives business because if that was the case, then there will be no retail business because everyone in retail charges 400 basis point gain on sale, takes advantage of consumers, does the wrong thing. If rates really matter, then there would be no retail channel. Since there is 70% of the market goes through retail, rates are not the biggest thing. So margin being up 105%, 130% in that range, that just -- for years, we were at the low end. I always told you different levels, 75 to 100 was the lower. And I keep -- I've kept moving it up strategically and timely, and I control that. Nobody else does. And so that's what's happening, and that's what it will be in that range again this month. And like I said, on the volume and margin guidance is accurate as it was last. But if I get a 2-week blip, we are unable to take advantage of it and margins go up and volume goes up and we crush it, just like we did this quarter, although I don't know if you guys recognize it, but it was a dominant quarter. Eric Hagen: Yes, we recognize it was good stuff. Good color from you as always. I mean the origination numbers look really strong, but what was the driver of the conventional purchase loans being down a little bit quarter-over-quarter? And how much upside do you think there is to the purchase numbers if rates fall? I think you mentioned 3.75% on the 10-year. I mean if that's the level, what is the upside to the purchase segment? Mathew Ishbia: The purchase business is -- the best part about our business, and you understand it pretty well, Eric, is that we're consistently dominant on the purchase. We do $25 billion a quarter, maybe $22 billion, maybe $27 billion. But basically, we're $95 billion to $105 billion of purchase every year. Rates go down to 4%, let's just play that out, just use an example, crazy not to 10-year, just the real rates. Yes, purchases will go up maybe 20% to 30%. It's not like a crazy difference. The real difference is the refi. Purchases are steady, consistent always. And that's why nobody else has that. That's why everyone else is sitting here waiting and they've been dying for the last 4 years, and we've been consistent with purchase. So the real upside is in the refi business that will go up like we saw it can double or triple in a week or a day. And so the purchase business, especially in fourth quarter, first quarter, purchase business, as you know, is that's not the purchase season. Purchase season is second and third quarter in really the summer because that's when people are moving and all that stuff. And so it will be steady. It will be consistent. Yes, there's plus 25%, maybe plus 30%, maybe plus 40% volume on purchase with lower rates because maybe some more people sell their houses and you can get all that stuff, affordability gets better, but people got to go out and buy houses still. So I'm not that focused on -- we will dominate the purchase market no matter what happens and then the refi is where the upside comes in. Operator: Our next question is from the line of Bose George with KBW. Bose George: Can you talk about the volume and margin trends that you've seen so far in October, is that kind of at the midpoint of the guidance range? Mathew Ishbia: Yes. I guided for -- to where I did for a reason. October was a great month and the volume and margins are aligned. Now November is a 19 business day month. And if you take out the Wednesday and Friday after Thanksgiving and before it's really a 17 business day month. So it's a really short month. So this quarter is actually a short quarter tied to the end of the year stuff. But I've just guided that no matter what, I'm going to have the best quarter we've had in 4 years. Maybe you guys will recognize that and realize that we're dominating out here. But either way, $43 billion to $50 billion is very good. It's never been done in 4 years at UWM. The margins are guided to those same places that I just did. And so we will not miss guidance just as I never have, I think, as long as I've been doing this. Bose George: Okay. Great. And then actually, on the servicing side, you noted that you'll be bringing it in-house early '26. Does that happen? And is it staggered? Does it come in over time? Or -- how is that going to work? Mathew Ishbia: Yes. All new loans that close in 2026 will be -- will stay here, so we won't subservice those out to your point, to your question. And then the loans that are currently subserviced out at Cenlar over the year, we'll transition them here. So by the end of 2026, there won't be loans anywhere else outside of default loans and different things that we make decisions on. But for the most part, everything will be here internally, whether I move a big chunk of them in March or April, another chunk in September, October, but all new originations are coming in 2026. And by the end of 2026, 100% of the servicing book will be internal, like I said, outside of the loans that I've chosen to not come in town or come in-house. Operator: Our next question is from the line of Doug Harter with UBS. Douglas Harter: Mat, as we think about your ability to ramp up volumes, how -- you've talked about the scale of the business. How should we think about like what are the incremental costs that -- for funding that new volume and just how to think about the operating leverage that's in the business? Mathew Ishbia: Yes. The operating leverage in the business is substantial right now. So there's -- the cost -- you guys look at cost all the time. A lot of them are investments. You look at how do we invest in technology, how do I continue to invest in everything that we do, the broker channel, all the different pieces to it. But where we're at right now, I don't need to add costs to do -- double my business. I've said that before. And so therefore, you can kind of think of the cost. Like obviously, when you do more volume, there's more commissions that get paid out and there's things like that, but that's a variable cost. From a fixed perspective, I feel really good about where we are right now. And I'd expect over the next year that to stay the same or stay in that range, plus or minus 10% and probably be on the lower end of the minus 10% is how I think about it based on just the AI initiatives and things that we've done. But at the same time, if there's an opportunity to make an investment to build the business and dominate, we will do that without question, without thought. And so the investments we make will continue. But the expenses like if you're looking like fixed costs, like how much more, we don't need anything to do the volumes I just told you guys. We don't need anything. Douglas Harter: And then speaking of investment, can you just remind us on the bringing the servicing in-house? I guess, have those investments already started? So like are those costs kind of already in your cost base? And just how to think about kind of the cost side as servicing comes in-house? Mathew Ishbia: Yes. Those costs -- so I'm getting double hit on it, right, because I'm paying subservicers and I'm also building out a servicing portfolio and servicing people, hiring people to build out the way I want to do it. I told you guys really I'd say between $40 million and $100 million. I think I guess said $60 million to $100 million, probably closer to the high end of these ranges I'm giving you, let's call it $40 million to $100 million to bring servicing in-house, and those numbers are accurate. You won't see that all the way through the income until 2027, right? Because this year is the worst because I'm double dipping, I'm hiring people, building it out, and I'm still subservicing. Next year is a combo of it. In 2027, I'll have all the savings baked into our business, along with the leads, along with the growth, along with the success, along with better retention and all the things that come from it. So yes, so you're correct. There's -- those costs are already in there. And same thing with the technology investments right now, building out some of those things from the AI perspective to make servicing, like I said, the best in the country. I'm not trying to be like all these other guys. Operator: Our next question is from the line of Jeff Adelson with Morgan Stanley. Jeffrey Adelson: Mat, just maybe a quick reminder of the hedging. I think this quarter, the hedge gain against the MSR loss was a little bit smaller than we saw last quarter. Just maybe give us a quick update on the hedging strategy. I know you've been a little bit more opportunistic there. Mathew Ishbia: Yes. No, I appreciate it. We don't hedge our MSRs as you're hopefully aware of. I do look at opportunities and look at interest rates and make decisions. Sometimes we do more of it, sometimes we do less of it. This quarter, we focused less on it because we focused on just the dominating the business. Obviously, the 10-year goes up and down, MBS rates go up and down and how it finishes, depending on how it started, it ties to an MSR loss. Anyone, and I know it's you guys because I love all of you guys, but anyone that f****** focuses on MSRs and the fair value just doesn't understand mortgages, doesn't understand this business. It's got 0 to do with what I'm doing, the operating of the business. The 10-year can literally be at 3.75% for this whole quarter. Let's say if it drops to 3.75% today, I'm go to crush it, just crush it across the board. I'll call you next quarter. I'll say, $60 billion, $70 billion, 135 basis points of margin, we'll crush it. But on December 31, the 10-year goes back up to 4.40%, just to use some crazy number, and I'll have an MSR write-up of another $400 million also. That has 0 to do with my business. And the inverse is accurate, too. So the MSR value stuff means nothing. I don't focus on it. I don't care about it. I'm not going to care about it because it's like why would I focus on since I have 0 control over, 0. you can hedge it, Mat, we'll hedge it. That -- once again, MSR value, I'd be putting costs out there to hedge something that I have 0 control over. I don't care about the MSR values. If you guys write about the MSR values, you don't understand my business. It just doesn't matter. It matters 0. So just like, by the way, and you can go back and listen to the record I told you the same stuff when my -- I got an MSR write-up of $500 million. I'm like, don't give me credit for that. I didn't do anything for that. That means 0. Watch my core business. watch what I do with my production, my gain on sale, my expenses and how we dominate in there. And our adjusted EBITDA of $200-plus million, like that's how you run a business. That's all we focus on. I don't focus on other stuff. I know other people like to talk about it because they just don't understand our business. Jeffrey Adelson: And then just in terms of Mia, it was good to hear the color on the success so far there. Just as I sort of think about that 14,000 transactions closed, do you think about that as mostly refi at this point? And some really rough math, if I sort of think about an average loan size here would suggest there was somewhere in the ballpark of maybe like 10% of your originations this quarter. And if most of it was refi, that would be quite a bit of refi as well. So is that right? Or how should we be thinking about those numbers and the path from here? Mathew Ishbia: Yes. And to be clear, and maybe I should have done a better job of stating it, the 14,000 probably includes loans that have closed in the beginning of October because I think I pulled the data like 2 weeks ago. So it's probably a little runoff. So it's not all 14,000 in the first quarter -- in the second quarter -- excuse me, third quarter. And also was probably a little bit in the second quarter. So it's not like pure, but we really saw a massive pickup in that September little blip that we just talked about. So a lot of that stuff closed in September and a little bit rolled in October. With that being said, I would assume that it's all refinanced. 95% is refi. Yes, there are some that Mia called and they're like, "Oh, I'm looking to buy a house or I want a second home." But the focus on the 400,000-plus calls were rate watch calls, which basically means, hey, you might be in the market for a refinance. You should be in the market for refinance. I've got good news, you're LO at this company. And so maybe at some point, we'll play the call. If you call our Investor Relations team, they'll let you hear a call, like the real live calls and people like, yes, I have Johnny call me, and then that turns into an import, which turns into a loan, which turns into a closing. And so I would say 95% refi in the data I just gave you on the 14,000, but I won't try to put it in the third quarter number because it's not all in the third quarter. I would say a good amount of it was in the third quarter, but some of it trickled into the fourth quarter, and we'll have more in the fourth quarter. We already have some since I pulled that data. Jeffrey Adelson: So a pretty good number though, but appreciate the color, Mat... Operator: [Operator Instructions] Our next question is from the line of Mikhail Goberman with Citizens. Mikhail Goberman: Just a quick question about -- a big picture question about technology and how it's affecting the industry, especially with respect to refi, there's been a lot of talk about the sort of traditional 75 basis point incentive for refis really contracting to much lower level going forward, maybe even as low as 25, 30. Could you talk about that and how technology and specifically AI is affecting that? Mathew Ishbia: Yes. Just to clarify your question, so I understand so I can give you the right answer. You're saying that people are more likely to refinance because it's easier these days. They used to think you have to save more money. Now they're willing to do it quicker. Is that what you're asking? Mikhail Goberman: Correct. Yes. Given that sort of the human element has always been the choke point in the refi experience and technology just collapsing that into a faster process. Mathew Ishbia: Yes. I mean I see that. And I guess your point is will there be -- since there's less cost, less friction and it's easier to refinance because of -- will there be more refinances. And I guess I would say, yes, I see the opportunities there. But you're also assuming that all lenders are actually good at it. You're also assuming that other lenders actually have technology. The friction is still a pain in the butt for -- I mean, I think I said 11 days [ sub the CTC ], and I've refis even faster than that. The industry average are still 40 days. There's still a lot of friction. People are still literally -- you get a mortgage with some of these retail lenders or some of these other lenders, you're literally going and printing out your 12 months bank statement, going and get your pay stubs, calling your tax people and getting your tax returns and setting them up, like it's a complete joke still. So don't get confused that just because we're dominating and doing these things and that a couple of other companies are focused on AI. A lot of AI is buzzwords and bulls*** right now. The truth is we're closing like why don't you check their data, see who is actually pulling the friction out. But you are correct. When you make it faster, easier and cheaper, people are willing to do it because like I was not a pain in the butt to refinance. I'll take $92 of savings. I don't need to wait for $200 of savings. In the old days, it was like, let me wait until $200 because it's not worth my time. I don't want to go get my pay stubs and go to Kinko's and fax, make copies and all that nonsense. But there are still lenders and the majority of lenders are still doing it the old way. So I wouldn't say there's a massive change. You'll see ours go faster from the opportunity because we'll be able to help people, but it's still -- it's not going to be a massive change in the markets yet. In the future, it will be, I think you're actually on to something. But you're still -- the technology that I speak of and we talk about in AI is, I say light years, but we'll call it 3 to 5 years ahead of all these other people. And so yes, there'll be more refinances. But with our servicing bringing it in-house, with our faster, easier process with mortgage brokers being cheaper and lower cost, it's going to be more refis. And that's why we're -- we dominated in September, and we dominated in October, and we'll dominate this fourth quarter. We continue with the volume on refis. And then we don't have to own the servicing book. And a lot of people like to say they own servicing book to get the refis, that isn't the game anymore, although people are spending billions and billions of dollars buying servicing books, that helps and they give you a little bit of a leg up, a little inside track, but that is not driving it. As you saw, I think I said last quarter that we own 2% of the servicing book or 3% of the book, and we did 11% or 12% of the refis in the market. So obviously, that's not the game anymore. So taking the friction out is the game. Technology is the game, and that's why you see me making investments every single day to be prepared to dominate just like we did in the third quarter, and I will get in the fourth quarter and then in 2026. Operator: Ladies and gentlemen, that will conclude our Q&A portion for today. I would like to turn the call back over to Mat Ishbia for any closing comments. Mathew Ishbia: Yes. Thanks for the time today, guys. Appreciate you guys. Have a good day. Operator: Thank you. And ladies and gentlemen, that will conclude today's conference. Thanks for attending. We'll see you next time.
Operator: Ladies and gentlemen, welcome to the HOCHTIEF 9 Months 2025 Results Conference Call. I'm Serge, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mike Pinkney. Please go ahead. Mike Pinkney: Thanks very much, operator. Good afternoon, everyone, and thank you for joining this HOCHTIEF 9 Months 2025 Results Call. I'm Mike Pinkney, Head of Capital Markets Strategy. I'm here with our CEO, Juan Santamaria; and our CFO, Christa Andresky; as well as our Head of IR, Tobias Loskamp; and other colleagues from our senior management team. We're looking forward to taking your questions. But to start with, our CEO is going to run us through the details of another strong set of HOCHTIEF numbers, our guidance increase and provide you with an update on the group's strategy. Juan, all yours. Juan Cases: Thank you, Mike, and thank you, everyone, and welcome to everyone joining us for this results call. HOCHTIEF has achieved an outstanding performance during the first 9 months of 2025. The successful implementation of our growth strategy is reflected in the group's strong and sustainable financial performance. We are delivering significant sales growth, rising margins and a positive evolution of the group's derisked operational profile as the proportion of advanced tech projects continues to increase. Due to our expectations of a Q4 acceleration, we are raising HOCHTIEF's operational net profit guidance for 2025 to EUR 750 million to EUR 780 million versus the EUR 680 million to EUR 730 million previously. The new range implies a year-on-year increase of 20% to 25% compared with EUR 625 million in 2024 and versus the previous indication of an increase of up to 17% year-on-year. The higher net profit expectation for the group are driven mainly by the outperformance of Turner, where we now anticipate an operational PBT of EUR 850 million to EUR 900 million in 2025 compared with the previous guidance of EUR 660 million to EUR 750 million. In addition to achieving a strong financial performance during the first 9 months of the year, we have made further important advances on the strategic front. We are increasingly harnessing our geographic footprint and engineering know-how on a group-wide basis to access additional growth and value creation opportunities. Before providing you with an update on the strategic front, let me give you an overview of the key numbers. Group sales during the first 9 months of the year increased by 24% FX adjusted to EUR 28.1 billion, driven in particular by the group's focus on its strategic growth markets. HOCHTIEF's operational net profit rose by 19% to EUR 537 million or plus 26% FX adjusted, above the top end of the 2025 guidance range we provided at the start of the year. Nominal net profit stood at EUR 656 million. Operating cash flow last 12 months of EUR 2.1 billion shows a strong performance, up EUR 400 million year-on-year pre-factoring, driven by a sustained high level of cash conversion and supported by firm revenue growth and margin expansion. The first 9 months of the year incorporate the characteristic impact of seasonality during the first quarter, but show a $163 million increase in net operating cash flow year-on-year adjusted for factoring. Adjusting for capital allocation effects, net cash would show a strong EUR 1 billion plus year-on-year increase. The movement in the group's net debt position since December 2024 has been driven by strategic investment decisions and their consolidation effects as well as seasonal factors. The new orders level of EUR 36.6 billion represents a significant rise of 19% year-on-year, adjusted for FX effects with all operating segments reporting increases. New work includes important project wins in our strategic growth markets such as advanced technology, critical metals, energy and sustainable infrastructure. On a last 12 months basis, new orders represented 1.2x work done, giving you a sense of the continued growth trajectory. At the end of September 2025, the group's order book stood at EUR 70 billion, up by 12% year-on-year, FX adjusted. Now let's take a brief look at our performance at the segment level. Turner delivered an outstanding performance during the first 9 months of 2025. Sales increased by 38% year-on-year to EUR 18.8 billion, driven by very strong growth in data centers as well as high revenues in health care and education. The acquisition of Dornan Engineering, a rapidly growing advanced tech mechanical and electrical business included in the consolidated figures since January '25, further enhanced growth. Turner delivered very strong operational PBT, reaching EUR 629 million, an increase of 60%, supported by a further increase in the operational PBT margin to 3.4%, up 50 basis points year-on-year and driven by Turner's successful advanced tech-focused strategy. Turner's new orders in the period of EUR 23.4 billion showed a very significant increase of 21% year-on-year with particularly strong growth in data center contracts as well as increases in areas such as biopharma, aviation and commercial. As a consequence, the period-end order backlog of EUR 34.3 billion was 20% higher in local currency terms compared to September '24. Due to Turner's strong growth momentum, we now expect an operational PBT of EUR 850 million to EUR 900 million '25 compared with the previous guidance of EUR 660 million to EUR 750 million. The new profit range represents a year-on-year increase of between 49% and 58% compared with 2024. Moving on to CIMIC. CIMIC delivered a steady performance in the 9 months period. On a comparable basis, sales were stable year-on-year with operational PBT of EUR 351 million, up 3% or 10% FX adjusted. CIMIC's solid order backlog of EUR 23 billion was up by 3% FX adjusted with growth across several segments, including data centers, defense and sustainable mobility with a 4% increase of new orders in Aussie dollars. We expect CIMIC to achieve an operational profit before tax for '25 in the range of approximately EUR 480 million to EUR 510 million. Let's take a look at our engineering and construction activities, which continued their positive momentum during the first 9 months of the year. Sales of EUR 1.2 billion increased by 13% year-on-year, and operational PBT grew by 14% to EUR 61 million, both on a comparable basis. In the January to September '25 period, Engineering and Construction secured new orders of EUR 3.9 billion, 21% higher year-on-year, and this strong development supported a further increase in the order backlog, which showed a solid rise of 10% to EUR 12.2 billion. For '25, we continue to expect an operational profit before tax of EUR 85 million to EUR 95 million from the business. Next, we have Abertis, which achieved a solid operational performance in the first 9 months of '25. Average daily traffic at the Toll Road company increased by 2% year-on-year with revenues and EBITDA on a comparable basis, up 6% and 7%, respectively, reflecting a solid underlying business performance. The operational net profit pre PPA amounted to EUR 543 million, with the year-on-year variation, including adverse tax effects in France. The profit contribution from our 20% stake in Abertis after PPA amounted to EUR 48 million. Let me now give you an update on HOCHTIEF's strategic development. As a global leader in end-to-end advanced tech infrastructure projects, HOCHTIEF is in a unique position to benefit from multiyear demand for infrastructure investments driven by the megatrends of digitalization, demographics, defense, deglobalization and demand for energy. HOCHTIEF's strategy is focused on capitalizing on the very attractive opportunities in its strategic growth markets as well as increasing its share in the value chain by investing equity, applying its O&M capabilities and enhancing its engineering value proposition to drive margins and at risk financial profile. Furthermore, the group is combining its global footprint with its local presence and technological know-how to maximize its delivery capability. By leveraging shared digital platforms, procurement networks and design engineering capabilities across Turner, CIMIC and HOCHTIEF Europe, the group is delivering global scale with local excellence. Turning to our strategic growth markets. HOCHTIEF has taken important strides to further strengthen and expand its leading presence. We command a strong competitive position in the digital infrastructure and advanced tech sector. After the exponential surge we've seen over the last 2 years, growth in the global data center market remains very strong driven by soaring demand for cloud services and artificial intelligence. Data centers and compute CapEx in '25 is expected to reach USD 600 billion, double the 2023 level. Industry observers suggest annualized global AI infrastructure spend could reach USD 3 trillion to USD 4 trillion by the end of the decade. North America remains the largest data center CapEx market in the world, and we expect it to continue expanding at a 15% to 20% annual rate over the next several years. Turner's strong position with the leading hyperscalers give us outstanding visibility with major contracts identified for '26 and '27, driving revenue growth through at least '28. Europe is entering a period of acceleration. We're seeing opportunities that will convert into new orders in '26, fueling revenue growth in the following years. Asia Pacific is poised to be the fastest-growing region. We're seeing a sharp rise in investment driven by the rapid adoption of AI-powered technologies and the continued expansion of digital infrastructure across Southern and Southeast Asia. Across all regions, the story is the same. Demand remains high. Schedules are tightening and clients are turning to us because we can deliver more complex projects rapidly and at scale. HOCHTIEF has the capacity to address the strong sector demand growth through our global scale and ability to mobilize resources. This is complemented by our global sourcing capability through Source Blue and the use of modularization to deliver construction products more quickly, safely and with enhanced quality. The group has been awarded several new large-scale data center projects in the period, more than doubling the value of new orders secured in the first 9 months of '25, underscoring the group's leading presence in these strategically critical markets. In July, for example, the artificial intelligence hyperscaler CoreWeave announced its intent to commit more than $6 billion to create a new state-of-the-art data center in Pennsylvania, purpose-built to power the most cutting-edge AI use cases. The initial 100-megawatt data center with potential to expand to 300 megawatts will be delivered by a Turner JV. Earlier this week, OpenAI, Oracle and Vantage as part of the USD 500 billion Stargate program announced a USD 15 billion data center CapEx in Wisconsin, where Turner is one of the selected construction managers. And in Asia Pacific, we have been awarded projects in Malaysia and Singapore, adding to Leighton's Asia expanding portfolio of data center developments in the region where it is also working on or has completed work in Hong Kong, Indonesia, Thailand, the Philippines and India. The group is also advancing in the semiconductors area as a strong demand for AI and increasing digitalization drive investment levels with double-digit growth expectations going forward. Together with the reshoring trend, this is producing a rapid increase in semiconductor-related opportunities. As part of the strategy to expand the group's presence in the entire AI ecosystem, HOCHTIEF aims to establish a pan-European network of sustainable edge data centers. In September, we announced the integration near Essen of the first YEXIO branded edge data center developed, owned and operated by HOCHTIEF, a major milestone for the group's data center strategy. The previously created joint venture Yorizon will operate HOCHTIEF's edge data center network with innovative cloud computing solutions that support digital sovereign net. Another 4 edge data centers are currently being developed in Germany with several further sites identified. Furthermore, HOCHTIEF is looking to expand the business into other European countries, including Austria, Switzerland and the U.K. Energy-related infrastructure is another strategic growth market for HOCHTIEF with substantially rising demand driven by the global energy and supply security needs. HOCHTIEF is strategically focused on building the infrastructure that underpins a low-carbon future from electricity generation and storage to transmission and advanced technology. The company is embarked in projects as a high-voltage transmission upgrades, regional electricity fortification and the delivery of firming assets that strengthen the grid. In October, HOCHTIEF secured a major nuclear and civil works framework contract worth up to EUR 685 million as part of the infrastructure delivery partnership at the U.K. Sellafield site. The alliance style contract lasting up to 15 years involved design engineering and delivery of civil infrastructure works in support of nuclear operations and decommissioning in collaboration with Sellafield and its partners. This strategic long-term partnership reinforces HOCHTIEF's unbroken legacy in the nuclear sector since the 1950s as a trusted partner in engineering and construction for some of the world's most critical nuclear programs. HOCHTIEF has several decades of experience designing and building nuclear power plants and facilities across the world for renowned global energy companies like RWE. We deliver end-to-end services across nuclear market, and we are well positioned to support the deployment of best-in-class small modular reactor technologies. As these technologies evolve and emerge, we're leveraging our global project and engineering capabilities for new build, SMRs, storage and dismantling in an industry, which could see over $500 billion in investments in Europe by 2050. If we turn to renewables, we represent an ever more important energy source. Battery energy storage systems are becoming a crucial element to balance electricity networks. Global BESS capacity is expected to rise by 67% in '25 to 617 gigawatt hours and to tenfold by 2035. In Australia, for example, CIMIC subsidiary UGL was again selected by Neoen, a world-leading producer of exclusively renewable energy and Tesla, a global leader in battery storage and sustainable energy solutions to construct another battery project of 164 megawatts near Perth. The battery is Neoen's first 6-hour long-duration storage asset and will be equipped to support the region's energy reliability and a greater penetration of renewables into the energy mix. Investment in transmission and distribution networks is set to grow strongly in coming years as renewable power supplies an increasing proportion of electricity generation. Overall energy demand is being boosted by the exponential growth in data centers, electric vehicle usage and other megatrends. The group is strongly positioned in Australia, where CIMIC JV is delivering the 148-kilometer HumeLink West project, which will form the backbone of the power transmission network from South Australia through to Northern Queensland. In the U.K., the HOCHTIEF JV is currently completing a 32-kilometer power supply tunnel for the energy supply of London as well as a power supply project in Wales, and we are also very well placed in other markets such as Germany, which is seeing substantially higher grid investment. Global demand for critical minerals and mineral resources is set to increase significantly as a consequence of the exponential growth of clean energy technologies, digital infrastructure and defense investments. HOCHTIEF has developed a unique position in critical minerals globally, primarily through Sedgman, integrated minerals processing solutions and Thiess global mining services, and is growing its geographical footprint and scale. During the period, Sedgman, which has over 100 critical minerals engineering projects globally started work on an innovative critical minerals processing project in Queensland for vanadium and other rare earth metals as well as a 5-year gold project contract extension in Western Australia. Last month, Leighton Asia secured a 3-year extension to an asset integrity contract in Indonesia for critical production assets to extract nickel, a key component in battery technologies and high-performance alloys. Furthermore, we're also carrying out a process design and project implementation for a copper zinc plant in Western Australia, a 3-year nickel and copper's full-service mining project in Ontario and a 4-year contract to deliver on the ground services at a copper mine in Queensland. HOCHTIEF through Sedgman is also expanding its European footprint in critical minerals. We've been working in Germany with Vulcan Energy on the EPCM validation of what will be the Europe's largest lithium extraction plant. The company's integrated lithium renewable energy project will allow it to deliver a local source of sustainable lithium for the European EV battery industry enough for an initial 500,000 electric vehicles per annum. The awarding of European Union strategic project status under the Critical Raw Materials Act highlights its transformative potential for Europe's clean energy future and lithium independence. And Sedgman has also won a contract to provide a feasibility study and front-end engineering design work for a major lithium project in France, and we're also currently working on or have worked on a number of other lithium projects and studies this year in Portugal, Brazil, Australia and Canada. Global lithium demand growth is expected to fivefold by the end of the decade, pushing the market into deficit by the 2030s, and our natural resources company, Thiess has been awarded a contract extension for mining and asset management works at a magnetite mine in Western Australia. The project is a key part of Australia's iron ore export profile, introducing magnetite, a premium product line with lower inherent emissions and which supports our ongoing strategy to diversify our commodities portfolio. Investment in defense infrastructure is expected to substantially increase globally. HOCHTIEF sees this sector as strategically attractive due to the synergies with the group's leading position in civil works, its engineering capabilities and its sector presence in Europe, the U.S. and Australia. Furthermore, and supported by our key security credentials, the visibility afforded by multiyear public investment plans supports the group's long-term strategy of sustainable value creation. We delivered projects for ministries of defense, police agencies and border authorities across our geographical footprint. At the end of the third quarter, the group had a defense order book of around AED 2 billion. In September, for example, civil company CPB contractors began building works for a Royal Australian Air Force base in Queensland and defense infrastructure upgrades in South Australia. These contracts continue the long-standing partnership between the groups and the Australian Department of Defense and support the objectives of the country's defense strategic review. Australia plans AUD 765 billion in defense spending over the next decade, increasing by AUD 70 billion in the upcoming years. In the U.S., the FlatironDragados joint venture is leading the construction of the dry dock at Pearl Harbor, this project is part of the U.S. Navy's Shipyard Infrastructure Optimization Program, which is modernizing government owned and operated public shipyards. Furthermore, Turner's offered Air Force base flood recovery program in Nebraska is progressing strongly. In Europe, major multiyear defense investment plans, including in Germany, present substantial opportunities in defense-related capital works and potentially via the PPP model. In October, for example, the German Defense Minister announced plans to quickly construct 270 new barracks for the Armed Force starting in '27 based on a modular construction concept in order to accommodate a significantly growing active force in reserve. HOCHTIEF's more mature core infrastructure business remains a solid foundation underpinning the group's growth strategy. Turner was again named ENR's top U.S. general contractor, holding leading position across 13 segments, including health care, aviation and data centers. During the quarter, Turner began work on the 46-story 343 Madison Avenue Tower in New York and was selected alongside AECOM Hunt to deliver the USD 2.4 billion Cleveland Browns Stadium. Other major projects for the group include the Metropolitan Museum of Art expansion and aviation upgrades at L.A. and Memphis airports, underscoring our continued leadership in high complexity sustainable projects. The group has been a global leader in transport infrastructure and sustainable mobility for several decades. The outlook for the sector is very positive due to several infrastructure stimulus packages in key geographies. In Germany for instance, in Germany, the EUR 500 billion infrastructure fund approved by the Bundestag Parliament this year will see its first full year deployment in '26 when federal investments are budgeted to rise to a record level of EUR 127 billion, steep increase compared to the around EUR 75 billion level in '24. Furthermore, the current coalition has provided visibility for this record investment level to be sustainable over the coming years. HOCHTIEF is well positioned to benefit due to the scalability of its business model and its core expertise in bridges, tunnels and rail as illustrated by the EUR 170 million rail infrastructure contract win to modernize a section for Deutsche Bank as part of the integrated plan to upgrade the country's rail network. The HOCHTIEF joint venture was also recently awarded a major contract for the construction of the second main line of the S-Bahn rail network in Munich. Overall, during the last 3 years, our order book for German projects has almost doubled to EUR 5.2 billion, and we expect it to continue to rise. Let me turn now briefly to capital allocation, where shareholder remuneration continues to be a key priority for HOCHTIEF. We regularly assess strategic M&A opportunities with our capital deployment focused on growth markets such as digital infrastructure, energy transition assets and concessions. HOCHTIEF's solid balance sheet, strong cash flow generation and increasing revenue profile supports the group's strategic expansion in these high-return areas. Earlier this year, HOCHTIEF closed approximately EUR 400 million for the acquisition of Dornan, marking a major milestone, which will enable the group to accelerate Turner's European expansion strategy. The start of the year also saw the completion of the FlatironDragados transaction, creating the second largest civil engineering and construction play in North America with an unparalleled track record in delivery of large infrastructure projects. HOCHTIEF holds a 38.2% equity consolidated stake in the new business. In October, a EUR 400 million capital injection was approved for Abertis with HOCHTIEF subscribing its EUR 80 million contribution to support the growth of the international toll road operator. In addition to M&A, we also continue to develop and invest equity in greenfield infrastructure projects in strategic growth areas where we see significant value creation opportunities. In Australia, for example, we're further leveraging the group's capability and leadership position in data centers after the acquisition last year of a site to develop a facility with a 200-megawatt capacity. CIMIC also is investing in and developing renewable assets, transmission lines, grid enabling infrastructure and battery energy storage systems. In Europe, we're investing in a network of edge data centers, as I mentioned earlier, and we continue investing in other core infrastructure via PPPs. Another increasingly important pillar of the group's strategy is the adoption of AI at scale across the group, which is allowing us to enhance the value we offer for our clients whilst also improving productivity and safety. Focus on optimizing our core tech platforms and systems as well as supporting our talent management, AI and digital systems are transforming how we work. For example, autonomous drones and AI-powered image analysis now enhance site safety and planning. Digital tracking platforms streamline workflows and provide real-time transparency into progress and resources. And custom GPTs are simplifying daily operations, while our production control system standardizes delivery and reduces operational risk. The group's focus on environmental, social and governance priorities remain on track. On this front, it is notable that HOCHTIEF was awarded prime status for its ESG performance and achievements by ISS, the International ESG Consultant and rating agency. So let me wrap up. The HOCHTIEF numbers published today show an outstanding performance with a 19% increase in operational net profit to EUR 538 million backed by strong cash conversion. New orders have strongly increased, up 19% FX adjusted to over EUR 36 billion with a period-end order book of EUR 70 billion, which is 12% higher year-on-year and with over 85% of this backlog lower risk in nature. HOCHTIEF's growth trajectory is a consequence of our strategy to first reinforce and expand our presence in key growth markets such as digital and advanced energy, defense and critical minerals, which will provide long-term cash flow visibility for the group; two, harness our geographic footprint and engineering know-how group-wide; and third, further leverage our competitive strength. We will continue to deliver on our strategy underpinned by our solid balance sheet and derisked order book. And as indicated earlier, we're raising HOCHTIEF's operational net profit guidance for '25 to EUR 750 million to EUR 780 million, implying a year-on-year increase of 20% to 25% versus the previous indication of an increase of up to 17% year-on-year. Thanks, everyone, for listening and happy now to take questions. Mike Pinkney: We're ready for questions, operator. Operator: [Operator Instructions] And we have the first question coming from Luis Prieto from Kepler Cheuvreux. Luis Prieto: I had 3 questions. The first one is you have raised the guidance for Q4 for the full year on an accelerated rate of growth for Turner in Q4 that I would assume should continue next year and potentially much longer. Could you help us quantify Turner's actual earnings potential in the medium, long term? You talked about all the opportunities, and that's extremely useful. But can you quantify over the longer term? And in this context, what do you think is the right multiple to use for the valuation of Turner? The second question is that I would expect you to cover this in next week's Investor Day, but let me squeeze in this cheeky question now. How should Turner benefit from ACS' data center development activities? Should I assume that everything will be built by Turner for ACS? And the final question and even cheekier than the previous one. Would it make any sense now that things are going pretty well and the momentum has accelerated, would it make any sense to list Turner in the U.S. market as an independent company? Juan Cases: Thank you so much, Luis. So let me start with the first one. So yes, we have increased guidance. Turner is overperforming. Certainly, they are increasing margins. They increased -- they achieved 3.4% in the first 9 months period. We expect Q4 to get to around 3.7%. So basically, the 3.5% margin average that we announced for '26, it's happening in '25, and we expect further growth in '26. So again, we expect further growth in '26 and '27. I mean, as much as we have visibility, we see growth in both revenues and margins. And also, and I link to your second question, they will get the benefit on top of this of the ACS data center platform. So in general, that is very positive. Turner is helping significantly the development in data centers of the rest of the company, FlatironDragados, HOCHTIEF and CIMIC. So Turner is contributing to that, not just through knowledge, supply chain, but also client relationships. So that also is going to help. Now giving a guidance of how much is hard right now, and probably I shouldn't. Are we talking about double digits, for sure, right? Now how much? I don't dare to provide a guidance. I prefer to follow the right milestones at the right time to be providing guidance. But certainly, we're optimistic about Turner performance, and that will continue. There's no doubt looking at the market and the visibility we have right now at Turner. Listing Turner in the U.S., so at this stage, we -- I mean, we are not -- I mean, we are considering all options. We don't have a plan, but we are not rejecting any possibility, but not much I can say at this point. Operator: The next question comes from Marcin Wojtal from BofA. Marcin Wojtal: Firstly, regarding your, let's say, strategic update, you mentioned that you're open to strategic M&A and bolt-on M&A. Is there actually something new in that message? Are you more actively looking for opportunities? That would be my first question. Second, can you indicate what percentage of the backlog of that EUR 68 billion, I believe, or EUR 69 billion that is actually in data centers? And do you have data center exposure and anything meaningful as well outside of the U.S. in terms of backlog? And maybe my question number three, in terms of cash flow, Q4 last year was pretty strong, right? But should we expect a repeat? Should we expect a similar performance in terms of cash flow in Q4? Or it was a bit exceptional in Q4 last year? Juan Cases: Thank you, Marcin. So let me start with the M&A. No, it's not a new message. It's not a change in strategy. Let me go again through the same strategy when it comes to capital allocation and M&A for the last 3 years, right? Two types of investments. The first one is everything that is infrastructure. greenfield, especially and brownfield, specifically in Abertis that give us sustainable EBITDA and dividends, right? That's where we put anything that is a PPP, and in North America, that's where we put our data centers or specific industrial opportunities at dock, right? Nothing changes. This is the, call it, development infrastructure, what we've been doing for the last 50 years. The second one is the bolt-on acquisitions, right? When you look at all what we've been doing in the critical minerals space this year, and I provided a lot of examples, right? All of that has been possible because of the acquisition of Prudentia, MinSol, Novopro, PYBAR, Mintrex, all of that. And we've been announcing a lot of different acquisitions, very small in nature, but very, very relevant in terms of knowledge, right? All of that is what allow us to be going through all these projects with lithium, rare earth, vanadium, nickel, gold, copper, mineral sands, and some of these projects are becoming EPCM opportunities. One example that we believe could become an EPCM opportunity is the Vulcan project in Germany, where we've been working 3 years on the engineering and now it could potentially become a big EPCM, right? So that's -- at the end of the day, that's the end game. And when you look at critical minerals, we have more than 100 projects of engineering developed by us as we speak that could potentially turn into EPCMs or not, right? So this is why it's so important the bolt-on acquisitions. Now this is the example in critical minerals, but in data center, Dornan was another example. And potentially, we will need to continue seeing other opportunities. That on the engineering space. On the metal and minerals capabilities that is also needed for some of these balance of plants, you look that we have been also making some progress. I mentioned Mintrex was one example, but you've seen other, so we're not talking about very big opportunities. We're not talking about anything crazy, but it's very, very strategic, and little things can provide big multipliers for us, and if you analyze individually every bolt-on acquisition that we've been doing in the last 3 years, you take a look at them individually, we have multiplied from 2 to 3x EBITDA almost each month, right? So this is key. Now asking about backlog data centers, it's USD 12 billion in the U.S., USD 2 billion out of the U.S., more around CIMIC, mainly a little bit in Europe. But we are going to see -- well, first in the U.S. will continue to grow. I do not dare to say for how much, but significantly. But we expect a lot of growth in Europe and in Asia Pacific, right? So we do not see a limit to the data center strategy as much as visibility we have in front of us. And then when it comes to the cash flow, I mean, we are quite comfortable with the full year 2025. We expect strong delivery in cash conversion and the fourth quarter cash flow providing the characteristic strong seasonal performance. So yes, we are very comfortable in that sense. We're not expecting anything different. Operator: The next question comes from Dario Maglione from BNP. Dario Maglione: Congratulation for the great momentum. First question, actually, you mentioned the order backlog in data centers for 9 months. Could you actually repeat that number and confirm whether it is USD or euros? Second question kind of related to what was the order intake in data centers Turner in Q3? And maybe last question, looking medium term, so '26, '27, still remains quite impressive, the growth in data centers that Turner is achieving. Do you see any shortage in skills and labor or anything, any other bottleneck that we should consider that could be -- that could limit the growth rate in the medium term? Juan Cases: Good question, Dario. Can you repeat the second question? I didn't get it. Dario Maglione: Yes. The order intake for data centers in Turner in Q3. Juan Cases: Okay. So let me start with the first one. I think that you were asking -- I mean, the figures that I gave you before are in euros, the EUR 12 billion and the EUR 2 billion in euros, okay? Then we get into the order intake in Q3. I don't have in front of me. Let me see if we have it. If not, I'll send it to you, right? But I mean, certainly, we are -- I think that it was more than doubling what we had, but we can provide that figure exactly to you. So now any short-term skills or bottleneck? We're not seeing that at the moment. At the end of the day, the key for a lot of what we do is, first, our -- I mean, availability -- I mean, there are a few things that I believe give us an opportunity or gives Turner or gives us globally an opportunity, right? At the end of the day, the potential constraints in any market, it's always availability of skilled labor, the availability of material equipment and the speed to market, right? These are typically the 3 things that could jeopardize the growth of any sector. Why we believe that we are very uniquely positioned to navigate those 3, right? So let's start with the first one, right? Availability of skilled labor. The beauty of our 150 years managing civil works and general building that's exactly our specialty. That doesn't say that it's easy to get people. But certainly, that's one of our biggest advantages, right? A lot of the big projects we're getting, let me give you the example of Louisiana, but also the latest one awarded as part of the target program in Wisconsin or the one in Ohio or some of the big projects we're doing in Australia is because we have the ability to provide lots of people in a very short period of time in remote locations, right? And that's as important as having the engineering knowledge and as important as having a supply chain. So it is very important. The other thing that is key is what we've been doing with Source Blue on the global sourcing expertise, which has a lot of different components. The first one is hundreds of dedicated supply chain experts that are always stabilizing and accelerating the supply chains, but also access to very -- to manufacturing of specific components to make sure that they are -- I mean, that they are delivered on time at any given time and do not rely on international global supply chains. But also, a big part of what is coming is not just supply chain engineering and mobilization is the ability to start modularizing and manufacturing of site a lot of these things. And that's where we are putting a lot of strategy globally, right, not just in the U.S., but we are I mean, I will advance at some stage what we're doing in that sense, but that's also allowing to build more faster and attract more revenues and larger margins, and that's an important part of the strategy. Most of those workshops are being reconverted. It's not new workshops. We have those workshops. They used to be for precast facilities. They used to be for girders. They used to be for rings in tunnels, and now we're going to be using them for advanced technology building manufacturing, whether it's data centers or semiconductor fabs or we're talking about battery fabs, defense barracks. I mean there's a lot of different things that we can apply those, and we are putting a lot of effort into that sense. So overall, I would say that we are in a good position, and I think that I did answer the 3 questions. Operator: The next question comes from Filipe Leite from CaixaBank BPI. Filipe Leite: I have 2 questions, if I may. First one, if you can give us an update on sale process of the Transportation division of UGL in Australia? And when do you expect to have it completed? And second question on CIMIC and because sales and EBITDA drop in this quarter, how do you see CIMIC business evolving in the next quarter and during next year? Juan Cases: Okay. So starting with UGL transaction, that continues evolving, I think, in a good way, nothing we can announce at this stage, but we're comfortable the way it's going. And CIMIC, how do we see that evolving? So let me talk a little bit about CIMIC. So when you look at CIMIC, growth, if you just look at the reported PBT, FX adjusted CIMIC would have grown 20%. If you don't look at the FX comparison, then it's about 12%. If you look at the comparable, which is the one we should look, FX-adjusted growth would have gone from 3% to 10%, right? So this is relevant because it's true that you cannot compare with the growth of Turner or the growth that we're expecting potentially for '26 in Germany, right, that we are doubling work in hand, and that's going to continue to increase. But we are seeing in CIMIC 2 offsetting market trends. The first one is -- and that explains part of this slow growth. One is the transportation infrastructure in Australia that is coming off, and -- number one. But number two, we are not pursuing a lot of the projects because we are focusing on lower risk product opportunities, and you see that in the slower growth when it comes to civil and transport, and you see that in the unwinding of our net working capital in Australia, coming 100% from that, right? The Leighton Asia is performing, increasing growth income of new orders, cash flow, same thing UGL, Sedgman, but CPB is consuming a lot for all the reasons that I explained. On the other side, the big increase that is going to be bringing the region will come from Leighton Asia and will come from UGL, and it's not at peak, right? I mean, Leighton Asia sales have increased 66%. So we're comparing with the same level of Turner. The only thing is that the volume is still low. We are expecting that to grow. And UGL that is working a lot of the energy projects that there has been some delay. But I believe that, that will come back. So overall, I would say that the big next thing in terms of growth could potentially be Germany, but I do think that Australia is next. Now I'm comfortable that this will start happening soon. But again, we are making sure we -- we're making sure that we derisk the balance sheet. Operator: The next -- we have a follow-up question coming from Dario Maglione from BNP. Dario Maglione: Okay. Actually, two, if I may. First one is on margin for the data centers. How do they differ compared to a typical margin on nonresidential construction in the U.S. like very ballpark figure will be helpful to understand the opportunity for margin expansion at Turner. And second question regarding Germany. You mentioned a doubling working end. What do you think -- is this coming -- I mean, do you already see a positive impact from the German infrastructure fund? Or do you think that this will come later on top of the growth in the market? Juan Cases: Thank you. So let's start with data centers. I mean, unfortunately, it's very difficult for us to give specific margins on projects and sectors, basically because it could jeopardize a lot of our day-to-day commercial activities, right? And also it changes a lot. It's not the same -- every sector or even data centers, it depends a lot on the risk profile of the project. It depends on the relationship with the client. Some clients, they give you permanent orders for their expansion to secure their time to market, and there's a relationship. So typically, I mean, there's a trust relationship with lower margins because it fits you with a lot of work. In other cases, there's a unique one-off opportunities, which probably are considered in a different way, and there's as many -- I mean, prices are complex, different complexities, et cetera. Overall what I can say and putting aside data centers, but in general, that a big part of the increase of Turner's margin is being the delivery of high-tech projects. That's a change. That's what has gone from the type of margins that Turner had a few years ago with the ones we have right now, have come from in the extreme 1-point something or even 2-something 3 years ago to where we are right now of finishing the year of 3.7% and growing next year, right? So all of that is the composition. Now if you look at Turner, right now, backlog, 32% -- sorry, 32% of the backlog is data centers with another 4% in biopharma and another 5% in our high tech. So we're still low in the most advanced technology projects, and that's going to continue changing, right? So that percentage will continue growing. Source Blue as a supplier of services that has high margins will continue growing, and all of that is what is driving the overall margin of Turner. And then when it comes to Germany, so the EUR 500 billion infrastructure fund will see the first full year deployment in '26. So the federal investment is budgeted to rise to a record level of EUR 127 billion, and that compares with the EUR 75 billion level in '24. All of that is going to be driven mainly on rail through Deutsche Bahn, on highways through Autobahn and defense, right? So transport infrastructure is a major contributor or will be getting a lot of these investments. And the coalition government has recently reinforced their willingness to accelerate transport infrastructure spending by creating an extra EUR 3 billion funding on top of what it was already -- what I already mentioned, right? So there's a strong pipeline of opportunities, and I do think that, that will start getting reflected in the HOCHTIEF P&L in the coming years, right? Now also in that budget for '26, there's a significant spending by NATO, and that is also, I mean, as I said before, going through defense, but potentially other nondefense projects, but anyway, we'll be looking at that. But Germany, I mean, I believe, I'm optimistic and especially to HOCHTIEF infrastructure, that we will see the effects of all what I just mentioned through its books very, very soon. Operator: Next question comes from Nicolas Mora from Morgan Stanley. Nicolas Mora: Just a couple. So starting with -- maybe with the guidance upgrade. So I think at the midpoint, you're increasing your operating net income by around EUR 60 million, 6-0. But you basically upgraded Turner's guidance by EUR 120 million. So I was just wondering where the delta, the EUR 60 million have gone. It seems there's been quite a lot of rise in overhead costs. Is that down to new projects or especially in the data center space? So that's question number one. Question number two, outside of advanced tech in the U.S. at Turner, how do you see the rest of the, let's say, more plain vanilla market going? I mean, you've booked a few large tower projects, more in sports and leisure. I mean what's doing well? What's struggling? I would be interested to get a little bit more color on the non-tech side of the business. Juan Cases: Thanks, Nicolas. So let me start with Turner guidance versus the overall guidance. So well, I mean, I'm sure you realize, but the Turner guidance is an operational activity guidance from which taxes need to be deducted. But at the end, the difference between -- in addition to what I just said, there's the FX impact from CIMIC Asia Pacific and Australia region, which obviously comes to play. We had an increase in Turner, offset by some FX impact, but we had a deterioration in some of our business from an FX perspective, and there's other consolidation. So there's around EUR 20 million just from CIMIC Flatiron that you have to take into account just from an FX perspective, and then we have provided an overall assessment, right? At the end, guidance are guidance, so we always need to be careful with what we say. Now when we get into the other, what else besides data center? So let me give some figures specifically for the U.S. market. I think you're referring to the U.S. market. If not, let me know. But yes, the data center market in the last 9 months has grown the order book, 111%. So that's like EUR 14.2 billion. New orders have grown 141%. But if you go to biopharma, and yes, we were talking about lower figures, but new orders in biopharma have reached 400% increase and an order backlog of 234%. Now we're talking about much lower figures, but that shows that there is a big increase and it's going to continue ramping up. The other areas where we are seeing growth in the U.S. is the commercial market. So 12% order book increase. The aviation market with 17% in the order book or 28% in new orders. Sports have increased by 25%. So we saw -- sorry, hotels, plus 21% in order book. What are we seeing going down? So the battery market, we continue seeing that absolutely stopped, right? We -- I think that is minus 58%. But this is a timing effect. Eventually, the battery fabs and the battery projects, and I'm talking about battery fabs, will need to come back, right? It's a matter -- there were a lot of investments in EV vehicles. Demand is not there. All of that is driving all of that supply/demand have to adjust before all of that continues. But if you add all the future plans of all the EV vehicle producers, there's significant spend. The question is that they will continue delaying until demand supply stabilizes. Then we get to semiconductor market. There's -- that has stopped significantly or slowed down, but we are waiting. We're waiting on 5 projects. We're waiting on 5 projects for the clients to get financing, and that there's geopolitical discussions around it, and obviously, there's funding allocation. So we are waiting. Manufacturing is more or less stable, more or less. Health care, not the biopharma part, but the hospitals, we're seeing it at least in the first 9 months going down by 18%, first time that we see that going down. So probably that will change. Education, our new orders were minus 4%. I mean, not a big number, but went down minus 4% and Public/Justice market, a little bit down, minus 18% on the order book. And so yes, that's more or less one by one. Operator: The next question comes from Alvaro Lenze from Alantra Equities. Alvaro Lenze Julia: Just one. I was just thinking on -- you mentioned scalability and flexibility, and I think there is some concern from investors that there is right now a big investment cycle, especially in data centers. I know that right now, it seems like those should continue to increase over the coming years. But I just wanted to know how flexible is your workforce to change activity, imagine if in the future, the investment in data centers goes through a downturn, can it be shifted to other sectors? Or is the capabilities you have are very sector specific to data centers? I wanted to know how scalable and flexible are you both on the way up as you are demonstrating now or on the potential way down in the data center space in the future? Juan Cases: So let me -- well, first of all, thank you so much, Alvaro. Let me answer the question in 3 different ways, right? The first one, a very straight answer. We do have flexibility. At the end of the day, the same flexibility that we've shown moving people from certain projects into our projects. So it will work in the other way, right? So a lot of our people right now working in data centers, we are getting from other sectors and other fields. That's one of the reasons, there's multiple reasons why we put together the ACS University. But one of the reasons is has a very well structured plan of training people from different jurisdictions, different companies, different parts of the world from one sector to different sectors. So we have accelerated training programs for people, if you are going to jump into a semiconductor fab or you're going to jump into a big data center or you are going to jump into a battery, into nickel, so we have special programs that will move people around with special visas with a lot of investment. So this was one of the few reasons why we put the university, right? The university is -- it has a lot of different angles, right? Now let's talk about the investment cycle. I'm going to give my personal reflection on the cycle because, yes, we're talking about trillions and from every day, people say, well, it's going to be more trillions or less trillions or 20% more, 20% less, 50% more, 50% less. For us, 10% of infinite, it's infinite, 20% of infinite is infinite, right? I mean they are talking about so many trillions that it doesn't matter for how much you divide that. It's still trillions, especially because the bottleneck is not the demand, it's the supply of projects. You can argue all the different things that are going to contribute to demand, and there's a lot of literature writing about the demand, right? What's going to influence the demand. But there's no -- there's nothing talking about the restriction on the supply. And that's where the bottleneck is. No matter what figure you take from the demand, the problem is the supply, how you are going to build all those projects. And that's where in my opinion, the few engineering construction companies that are positioned in building a lot of the large programs, I mean, that's where we can provide value, and that's where we can provide our input. And that's why -- I mean, I'm not going to repeat myself all the things we're doing to try to be flexible and to try to move things. But certainly, we have a lot to say and to help. So in other words, as much as we have visibility of the next years, I don't see any reduction in the growth, right? And again, no matter what worst-case scenario you get, still trillions. I mean, how you build all of that, I don't know, right? But if that happened for whatever reason, because there was, I don't know, something a black swan somewhere, we would show the same flexibility that we've been addressing up to now. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to the company for any closing remarks. Juan Cases: Just wanted to say thank you to everyone again for following us for -- I mean, following our figures, our strategy. I look forward to seeing all of you very soon. And anyway, Mike, do you want to add anything? Mike Pinkney: No. Thanks to everyone. And if you need to follow up on any detailed questions, obviously, just contact us here at the Investor Relations department. Thanks. Juan Cases: Thank you. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Hello, ladies and gentlemen. Welcome to McEwen's Third Quarter 2025 Operating and Financial Results Conference Call. Present from the company today are Rob McEwen, Chairman and Chief Owner; William Shaver, Chief Operating Officer; Perry Ing, Chief Financial Officer; Jeff Chan, Vice President, Finance; Stefan Spears, Vice President, Corporate Development; Michael Meding, Vice President and General Manager of McEwen Copper; Carmen Diges, General Counsel and Secretary; Michael Swistun, President and CEO of Canadian Gold Corp [Operator Instructions] I will now turn the call over to Mr. Rob McEwen, Chief Owner. Please go ahead, sir. Robert McEwen: Thank you, operator. Good morning, fellow shareholders, interested investors. We have been preparing McEwen Mining to benefit from the stronger metal prices we are seeing today. Over the past year, gold at just below $4,000 an ounce is up 45%, silver up 47% and copper is close to $5, up 13%. And I believe the intermediate and long-term prices will be considerably higher. This is an excellent environment for our portfolio mix of assets. I go to -- as far to say that perhaps you could think of us as a mini Freeport with growing gold production pipeline and large exposure to a robust world-class long-life copper story. The improved gold and silver prices have buffeted us from the inconvenient unexpected events that can temporarily throw us off course and off guidance. Fortunately, these moments are temporary and can be resolved in a relatively short period of time and have not seriously delayed our ambitious growth plans of delivering by 2030, 250,000 to 300,000 gold equivalent ounces of annual production, plus watching Los Azules become a copper mine. And in the first 5 years, we're looking at producing at an annual rate of over 450 million pounds of copper a year, which today, copper prices would be about $2.2 billion, and it has a -- at least based on the feasibility study we just put out and the current copper price would have a gross margin of 64%. So we've done a number of things in the quarter, and we've made some investments, and I'll start with those. And then I'll move to asking Michael Meding to talk about the excitement at Los Azules, and then we'll get into our finances and our operations on our gold operations. So I'll start with Ian Ball to talk about our investment in Canadian Gold Corp and also [Technical Difficulty]. Operator: Ladies and gentlemen, we're experiencing technical difficulties, please stay on the line. We'll resume momentarily. Ian Ball: Thank you very much, operator. So on the Canadian Gold front, we're set to close that acquisition in January. Upon closing, we expect to issue an updated resource estimate for the end of February that will come out with our year-end financials, and that's going to be part of a preliminary economic assessment. Our shareholders will note, we have not included Tartan in any of our guidance going forward over the next 5 years, but we fully anticipate including that as we set to embark on our studies of that project. Exploration is ongoing and Canadian Gold is scheduled putting out an exploration update over the next 3 weeks. The key there is we've been drilling on the main zone, continuing to build out that resource. We've been doing a lot of work on the recently acquired ground to the west, which is option from Hudbay, where historically, there was a lot of historical high-grade drill intercepts and surface. We think there's a lot of synergies between Tartan and that ground. It really fits well with the McEwen mining portfolio in terms of the underground style, the processing plant, and we feel there's a lot of ways that we can optimize this and we can accelerate the permitting on this project to get it back into production upon some of the completion of the test work that we're currently undertaking. So we're quite optimistic both on the time frame for permitting, the exploration as well as the production profile that it can deliver for McEwen going forward. Robert McEwen: Mike, would you hop on the call? Michael Meding: Okay. Thank you, Rob. Thank you, operator. Q3 was an excellent and transformative quarter for McEwen Copper. We successfully advanced Los Azules from a world-class deposit into a derisked politically endorsed and bankable Taiwan asset. At McEwen Copper, we are committed to excellence in 3 key areas: operations, ESG and exploration. The most significant strategic event of the quarter was the acceptance of Los Azules into Argentina's [indiscernible] or the large-scale investment incentive program in Argentina on September 26. This is a fundamental game changer for the project. Through VG, Los Azules now benefits from 30 years of legal, fiscal and custom stability, access to foreign exchange and a significantly lower and internationally competitive tax rate. This provides a predictable framework and strong protection against future regulatory changes. The approval of the VG is a powerful public endorsement, which was personally announced by Argentine's Minister of Economy, Luis Caputo, and reinforced by President Javier Milei on their official X accounts. We also finalized a collaboration agreement with the IFC, a member of the World Bank Group. This partnership will align the project with the IFC's rigorous ESG performance standards and establishes a framework for collaboration on future financing. Our most recent milestone was the publication of the NI 43-101 feasibility study results on October 7. The study confirms robust project economics driven by a production process designed for low environmental impact. The leach and SX-EW process will produce 99.99% LME Grade A copper cathodes and as Rob already mentioned in the first 5 years, 204,000 tonnes of pure copper per year. The highlights include $2.9 billion after-tax NPV at 8%, 19.8% after-tax IRR, a payback of 3.9 years, $3.2 billion initial CapEx, C1 cash cost of $1.71 per pound of copper produced, all-in sustaining cost of $2.11 per pound of copper. The financial model used a copper price assumption of $4.35 per pound. The full National Instrument 43-101 technical report is scheduled for publication later this month. Looking forward, detailed engineering for Los Azules is set to commence, and we are targeting construction for late 2026, beginning of 2027, subject to project financing. Finally, let's talk about the upside. Our total mining rights cover approximately 32,000 hectares. To date, we have explored less than 10% of our holdings, about 3,000 hectares. We have already identified 8 significant targets, 4 of which we will focus on in the upcoming season. We have strong reason to believe we can significantly increase the resource size of Los Azules and ultimately convert this project into major mining districts. Thank you so much. I hand back over to you, Robert. Robert McEwen: Thank you, Mike. Perry? Perry Ing: Thank you, Rob. Good morning, everyone. I'll just provide some brief highlights from our third quarter report. So in terms of headline numbers, we reported a net loss of $0.5 million or $0.01 a share compared to a loss of $2.1 million or $0.04 a share in the corresponding period. I will note that this net loss included $4.3 million in terms of the loss from McEwen Copper. As we've noted previously, now that the feasibility study for Los Azules has been published, going forward from the effective date of the feasibility study at the beginning of September, we will be able to report those associated costs on a capitalized basis. So any loss attributable to Los Azules from prior periods will no longer -- will now be capitalized on a go-forward basis. In terms of adjusted EBITDA, we reported $11.8 million of positive EBITDA during the quarter or $0.22 a share compared to $10.5 million or $0.20 a share in the corresponding period. In terms of our treasury, we ended the quarter with $51 million in cash as well as $24 million in marketable securities. Our cash balance was relatively unchanged from the prior quarter at June 30. So just looking ahead, in terms of our release, we've outlined a number of significant projects ahead of us. So just looking into 2026 and our capital needs, obviously, we expect to finish the stock ramp by the end of next year. complete a heap leach pad expansion at Gold Bar. And as noted, we will undertake El Gallo Phase 1 with a capital cost of approximately $25 million. Overall, we expect to accomplish these using our existing treasury and cash flows from operations. And specifically for the El Gallo project in Mexico, we also expect to utilize some form of gold prepay for approximately half of the anticipated CapEx. So with that, we'll turn it over to Bill for some comments on operations. Robert McEwen: And what we're going forward. William Shaver: Good morning, shareholders. So from the operation perspective, as we all know, we started off the year poorly. However, we have a very good start to Q4. Q3 wasn't exactly as we anticipated due to some issues with the final few months of the Froome mine. And this is, I guess, to some extent, I guess, one of the outcomes of the end of a mine life. However, the Froome West deposit has kicked in nicely in -- towards the end of Q3, and we see it producing gold at the rate in our guidance through Q4 and well into 2026. We now see Froome mining until Q3 of 2026, by which time the stock deposit should be coming into production, which we're now indicating as occurring later in the first half of next year. In terms of the development work that we are doing at Stock, the ramp development is going along on schedule. And I would have to say both the mining contractor and our own mining crews continue to have their safety record in very good shape with no lost time accidents by either our contractors or our own forces. In terms of Gold Bar, Q3 has been quite challenging because of the fact that there was one part of our ore that we intended to mine in Q3, which basically did turned out not to be ore when we got to the mining. But we pivoted there quite nicely to move into Q4. Q4 is already looking very good, and we're back into the normal routine of our mining and our stripping and are moving north of 1.5 million tonnes per month. So that's a very good outcome for operations. From the perspective of exploration, we've had very, very good success in both operations at Gold Bar and at Stock. And at our Board meeting yesterday, we approved going ahead with the re-leaching of the -- of the assets in Mexico. So that will start early in the new year with construction and then move on into leaching of the El Gallo leach pad and then putting those tailings back into the pit. So we see a challenging fourth quarter, but we're in very good shape, I would say, in the month of October. And so looking forward to the next 2 months, and we're really looking forward to getting back to producing gold in Mexico. Thank you. Robert McEwen: During the year, we've enjoyed exploration success at we discovered the Froome West deposit that allowed us to bridge our production. During a time when we found permitting delays, we're backing up our production pipeline and our development plans. Both at Gold Bar over at the acquired timberline properties, we're getting excellent grades and continuity. There's one area that I don't know if everyone in the company shares my same optimism, but it's a property called even Seven Troughs. And historically, it excites me because of its historic record is one of the highest grade mines in Nevada at averaging more than 1.2 ounces per tonne. And there was a recent grab sample in an area that historically had shown a lot of plus 1 gram material, and that was better than 270 grams over a very short intercept, but still exciting given the history of that location. Gold at in Timmins, our Grey Fox area is growing. We'll have a preliminary economic assessment out in the first quarter of next year. We've got plans to expand in Mexico, as you heard from Perry and Bill. And we're bringing in some other properties and have some investments in areas and in companies that I think have a lot of growth potential. So with that, I do have to say that our miss year-to-date on our production is inexcusable, but we're taking steps to remedy that and get us back on track. So with that, I'll open it up for questions. Operator: [Operator Instructions] Your first question today comes from the line of Heiko Ihle from H.C. Wainwright. Heiko Ihle: Rob, can you hear me okay? Robert McEwen: Loud and clear. Can you hear us? Heiko Ihle: Perfect. Just making sure. First of all, congratulations to Ian Ball on his appointment there. Rob, you actually early on this call preempted a bit of what I was going to ask you. But I mean, your deal for Britannia or Paragon Geochemical Labs, an interesting move there. A few follow-ups to that. Do you think that you will engage in more vertical integration like this? And building on that last part, do you think we'll see a bit of an arms race for lack of a better word, or other guys want to get involved with suppliers, distributors in order to guarantee supply and fast processing? I mean like one example would be an assay lab. Obviously, you can't do it for independent assays, but would that be like a potential target? Just maybe elaborate a bit on what you were describing earlier on the call and what... Robert McEwen: Heiko, Paragon holds a technology called photo assay, and it's an X-ray process that is faster, cheaper, more comprehensive in terms of the data being provided. I first saw this technology 5 years ago, comes out of Australia. Paragon stepped in and got in line to secure 12 units, and that's about the annual production. Some of the majors have bought units for their sole use. I think as more money comes into the mining space, and that's surely going to happen with everybody, all the sovereign nations and corporations around the world looking for new sources of mineral -- being able to compress time and get more information for your dollar out of your assays is going to grow increasingly more important. And the old suppliers of assays, I mean, you could see backups go 3, 4 weeks or more. And here, you can get it in 2 weeks or less and sometimes almost daily. So I think that's important. I mean the whole industry is under a lot of strain right now. There are labor problems, so there's going to be competition there. There's equipment supplies. When someone comes along, we're going to have all these projects coming on. Who's going to -- will they be able to deliver the trucks, the shovels, the drills and that. You're already -- in Argentina, we looked at that problem with drills. We ended up buying 8 drills because there weren't drills down there readily available. And so mean you look at the world and say mining investments in a mix of global portfolios is very small today. It might be 1% or 2%. 10 years ago, it was up around 12%. We get back to that. As you said, there's going to be a real battle for a lot of the inputs that are required to define an ore body. And at the same time, we have to compress time in this industry. It's taking far too long to reach certain decision points. And so you're going to see a lot more technology. I view what Paragon's technology, the crisis rather, is a disruptive technology that will advance the industry. And we -- we'll be looking for other opportunities to accelerate and improve the knowledge of the industry, first for us, but then for the industry. William Shaver: Yes. Heiko Ihle: Yes, good answer. Obviously, interesting move. I've seen this machine in operation. I was trying to dig up where it was, but I've seen it on a site visit before somewhere. It was one of your assets, it was somewhere else. It might have been -- I go to so many sites. At Gold Bar, you did obviously 8,200 ounces, quite a bit lower, frankly, a bit lower than what we had in our model as well. You were talking about the reinterpretations of geological data and changes to your mine plans. What should we be looking at for next year? I mean this sure sounds like a temporary issue, but is it? William Shaver: I would say absolutely that the particular zone of the mining operation that we were in, in the last quarter, we ended up with a part of the -- where we were mining that we anticipated would be ore. It turned out to be -- to, in fact, be unmineralized material. And as a result, that part of the pit basically turned into stripping material. So -- and for some reason, the historical drilling that was done many years ago didn't identify that horse of unmineralized material. So we've mined through that with our stripping part, and we're now back into what we would call our normal ore. And what we're seeing in the rest of the mining that we're doing is that the reconciliation to the block model is standing up. And it was just, I guess, something that we missed in our confirmation drilling or something that we missed in the mine planning at the time. And again, this is a part of the ore body that we decided more than a year ago to start stripping because of the increase in the gold price, and that's what brought that whole zone into ore. At the gold price that we had 1.5 years ago, that stripping wouldn't -- and that mining would not have been done. So in answer to your question with regard to next year, we see the mine plan being pretty consistent through the year, and we'll be announcing the production guidance for next year shortly. Operator: [Operator Instructions] Your next question comes from the line of Joseph Reagor from ROTH Capital Partners. Joseph Reagor: I think Heiko asked the 2 big ones there. But just kind of following up on Gold Bar. In the comments, you guys said that you're going to be doing some more work to review this. What degree of risk do you see to an overall resource change, if any? Or is this just a matter of sequencing? Robert McEwen: It appears to be a matter of sequencing and not a large risk. Joseph Reagor: Okay. That's good to hear. And then you mentioned with Phoenix mid next year, how comfortable are you guys with that time line to have all your permits? And where do you see like the kind of the potential for to get started earlier on that front? And then do you expect to publish an updated financial study once you have permits in hand? Robert McEwen: Yes, the last question, and the permitting is somewhat unknown. We have a permit to do some of the work and it needs to be amended. And we're hoping that the timing will coincide with what we gave you. William Shaver: And we've had a number of meetings with the government authorities on permitting, and we're fairly optimistic that we'll have those permits in time and the construction of the plant will start in Q1. Joseph Reagor: Okay. And then part of your comments on the Canadian gold thing, I think got cut in the beginning. What is the time line to complete that merger? And then how -- what's kind of the time line after that by quarter as far as expectations for analysts? Robert McEwen: The process, there's a shareholder vote in December, and then it has to be ratified by the courts, and that's set for the 6th of January, I believe. Mid-January? 6 -- early January. And in terms -- then we'll go in there and do a resource estimate and a preliminary economic assessment on that. Joseph Reagor: Okay. Okay. And when do you think the -- what's the rough estimate, assuming a Q1 close, what's the rough estimate on PEA being released, like how many months or quarters? Robert McEwen: You'd probably be looking into the fourth quarter next year. Operator: Your next question comes from the line of [ Gord Weber ] from RBC Capital Markets. Unknown Analyst: With respect to resource estimates, how would McEwen Mining now calibrate or estimate their proven resources? Robert McEwen: The same way everyone else does. Unknown Analyst: And how many ounces or equivalent ounces would McEwen claim to have today? Robert McEwen: It's all set out in our statements. We're looking at about 3 million ounces at Fox. And it's about 4.2 million, I think, between all of the operations. And then we have development going on at drilling at Grey Fox right now. We're drilling down in Nevada at Gold Bar over at Eureka, starting at Seven troughs. Unknown Analyst: The reason I ask is it seems to me a little inequitable that we're being asked Canadian as Gold Corp stockholders to tender 50 shares for one of those shares when, in fact, we have a proven resource. Robert McEwen: Who are you representing? Sorry, who are you a shareholder of? Unknown Analyst: Yes, I'm a stockholder. I've been a long-term stockholder of Canadian Gold Corp. We know we have proven resources, and we also know that we have a lot of drilling that hasn't been analyzed to date. So I assume we have greater resources than has been booked. And it just seems to me 50:1 isn't -- well, it just seems to me very opportunistic. Robert McEwen: We put a bid on the table. It was accepted by management, and it's going to shareholders in December. We thought it was fair at the time, and I believe management thought it was fair. Unknown Analyst: Yes. And will there be a resource estimate for we, the stockholders before it goes to vote? Robert McEwen: We don't have any control over that. Unknown Analyst: Okay. So I think that's an... Robert McEwen: I don't have an answer to that question, but we're not driving a resource estimate. Unknown Analyst: But as the majority shareholder, don't you want to know what that number is before you conclude the transaction? Or do you already have some inside information that leads you to believe it should be concluded? Robert McEwen: No, the drilling is going. It's exciting. It's in an area that had past production, although the Tartan Lake mine wasn't run very well, and that's why it went into bankruptcy. But it's -- it's in a favorite area of the country in terms of energy costs and that and mineral deposit. Unknown Analyst: Yes. No, you don't have to sell me on the merits of the Tartan mine. My concern is that the majority shareholders may have insight or information that the minority shareholders haven't been provided with. Robert McEwen: That isn't the case. Unknown Analyst: Well, that's refreshing to hear that. Robert McEwen: Any other comments, questions? Unknown Analyst: Perhaps we can follow that up later. Operator: Your next question comes from [ Terry A. DeVries ], a private investor. Unknown Analyst: You know what, I'm good. I'm actually really good. I've had a great couple of months watching your stock double. Congratulations for Los Azules. Really exciting what's happening there. And the gold market goes up, the gold market goes down, and we just got a fantastic buying opportunity. And so I stepped up to the plate again. The one question I have I didn't really hear it from Michael Meding. The IPO for Los Azules, do you have any further information that you can give us when you think that might be happening? How much money you'd be willing to -- or looking to raise in the first issue? Robert McEwen: Well, we were hoping to do it earlier, but the feasibility, we got that out in October and didn't feel the market would have enough time to do an IPO in the fourth quarter of this year. Now we're looking at going to sometime next year, doing -- taking the company public. Unknown Analyst: First quarter... Robert McEwen: In terms of raising money, our last financing was at $30 a share. And I would expect that we're been accepted in the RGI. We've got the feasibility study. The project looks very attractive relative to a number of other development projects in copper that we'd see a higher price than that when we go public. Unknown Analyst: Any other market-moving news that you can expect in the next quarter or 2? Robert McEwen: I don't know. I'm going to go meet with the President of Argentina tomorrow in New York. I don't think that will move the market. Unknown Analyst: Well, your drill bits success has been rather encouraging. So I wish you all the luck in pursuing that and look forward for some good news. Operator: And there are no further questions at this time. Mr. Rob McEwen, I turn the call back over to you. Robert McEwen: Thank you very much, operator. Thank you, everyone. We've set our course where we're going. We think by planning by 2030 to have substantially more production coming out of our gold mines. There are a couple of other projects we'd like to see brought into production, and we hope to have the copper mine up and running by -- in 2030. So all good news in the long term. Thank you. Operator: And this concludes today's call. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for joining the Swisscom Q3 2025 results, hosted by Christoph Aeschlimann, Eugen Stermetz, and Louis Schmid. Louis, the floor is yours. Louis Schmid: Good morning, ladies and gentlemen, and welcome to Swisscom's Q3 '25 Results Presentation. My name is Louis Schmid, Head of Investor Relations. And with me are our CEO, Christoph Aeschlimann; and Eugen Stermetz, our Chief Financial Officer. Let's now move to Page #2 with the agenda of today. As you can see, our CEO starts presentation with Chapter 1 and a quick overview on the highlights, the operational and financial performances of the third quarter. Then in Chapter 2, Christoph presents the business update for Switzerland and Italy. In the second part of today's results presentation, Eugen runs you through Chapter 3 with our third quarter financials, including the confirmation of our full year guidance. With that, I would like to hand over to Christoph to start his part. Christoph? Christoph Aeschlimann: Thank you, Louis, and welcome to this Q3 2025 call from my side. And I will move directly to Page #4, showing the highlights of Q3. You can see that this quarter, again, was packed with a number of highlights. We have been able to complete to Connect service tests with the last test that we won this year, we have now won all 4 service tests highlighting our unwavering commitment to the best customer service reinforce the multi-brand play with a new Migros offering, and we are extremely proud of our new deal offering, which we -- for which we launched new additional services, advanced editions, apps and further tiers, which have been launched in the past weeks. South of the Alps in Italy, everything is going according to plan. Integration is proceeding as we have foreseen with integration costs and synergies fully in line. The highlight in Q3 in Italy was the aligned new market portfolio that we launched for the B2C and B2B market, which I will talk a bit more in detail later on in the Italian chapter. And finally, we have confirmed group guidance with revenues roughly at the lower end towards CHF 15 billion, EBITDAaL of CHF 5 billion and CapEx between CHF 3.1 billion and CHF 3.2 billion, also probably rather at the lower end of the range. Now moving to Page #5. You can see the net adds trends in Switzerland and Italy. I will start with Switzerland. Overall, the competitive environment is broadly stable with, I would say, more aggressiveness recently from Sunrise again, and we will -- we probably discuss later on also in the Q&A. On the mobile side, the net adds evolution is stable. You see with roughly a run rate around 45,000 net adds on a quarterly basis. Very pleasing results from our perspective for our mobile business and broadband and TV are slightly improving quarter-on-quarter. We're still negative net adds, but a much better run rate than we had in Q1 earlier this year. If you look at the wholesale side, we have a very pleasing result in Q3 with plus 14,000 net adds. So you can see stable or accelerating growth on the wholesale side. And overall, we have more net adds on the wholesale business than we are losing lines on our B2C. So we can at least partly compensate what we are losing on the consumer side on broadband with new access lines on the wholesale side, which is especially tilted towards fiber connectivity as we will see later on in the details. Now on the Italian side, the market remains competitive, but prices have been pretty stable in the last year. So we can see that the prices are clearly bottoming out and the market is not getting more aggressive. Now in terms of net adds evolution, we have on the mobile side, an accelerating loss, which is actually, if you look at underlying, the B2C losses are improving. So we have less losses this year, clearly better B2C business, but we have less net adds coming in on the B2B side because the TM9 government contract ramp-up is coming to an end. So let's say, net adds on B2B, so a bit less compensating the B2C decline, which leads to an overall minus 39,000 net adds on a company level. On the other side, broadband is improving, and we will see, particularly on the B2C side, things are improving very rapidly, and I will talk a bit more about that later on, but overall, quarter-over-quarter, you can already see that net adds loss has been halved -- more than half between Q1 and Q3 from minus 67,000 to minus 33,000 net adds. So -- and then overall, wholesale, also pretty stable run rate around 50,000, 45,000 net adds per quarter. So we have been able to stabilize both in the wholesale side and also compensating the losses on the broadband side. So I think pretty happy about the wholesale business in Italy. So now moving on to Page #6. You can see that Q3 revenue was slightly softer at CHF 3.7 billion, minus 1.8%, with bringing us to a year-to-date revenue of CHF 1.1 billion, which is minus 2.1%. And the EBITDAaL bridge, you can see on the right-hand side, Switzerland is pretty stable with minus CHF 5 million in quarter 3, bringing us to a total minus CHF 11 million year-to-date. And in Italy, we have the transitional year with the integration and the -- let's say, turnaround of the B2C business, and Eugen will detail the financial numbers a bit more in detail later on in the financial section. But so far, I would say, EBITDAaL is in line with expectations and in line with our full year guidance. Now I will move on to page as a business update for Switzerland and Italy and directly go to Page #8. where you can see our priorities for 2025. So pretty unchanged compared to last quarter. In Switzerland, we want to defend the Telco top line, make sure the service revenue erosion is as slow or low as possible, deliver on the cost savings. And you have seen that we have already achieved the full year cost target by end of Q3, and we want to further grow on the IT side. In Italy, it's similar priorities, but more geared towards the integration. So of course, the priority #1 is to proceed on the integration of the 2 organizations and capture the synergy potential, but at the same time, stabilizing the Telco business and reducing the service revenue erosion that we are seeing this year so that next year, we have a substantially better position, especially on the B2C side. And at the same time, we want to accelerate the energy business, selling more services beyond the core while scaling up the B2B IT and wholesale part to stabilize the overall business in Italy. And you can see now how we are doing in regards to these priorities. I'll move on to Page #9, looking into B2C Switzerland. So as I already highlighted at the beginning of the call, we are extremely proud to be the winner of all connect service tests for best shop, best app and best wireline and mobile hotline. I think this is an important achievement to test and show and demonstrate to the market that the Swisscom customer service is indeed the best customer service in the country. We're also very pleased with the evolution of the We are Family offering that we launched earlier this year. We continue to drive this offering in the market to sustain net adds on the main brand and make the main brand more appealing for family households. In this regard, we have also worked on our third brand positioning, especially with Migros before it was called M-Budget -- now we -- Migros relaunched the mobile brand under the main retailer brand, which is called Migros. So this should help generate more net adds going forward with attractive offers under a new name and a more customer-centric offering. And we have also launched a dedicated AI offering or AI chatbot for private consumers. This offering is called Swisscom -- myAI. It's a chatbot basically in a sovereign mode, where the consumer data is not used for training and respect data privacy. And so there is a free version and then a paid version at CHF 14.90, and we see quite some good traction already, at least on the utilization side of -- in the consumer space. You can see on the right-hand side, RGU and ARPU evolution, churn is at a very stable record low level of 7.7% for fixed and 6.8% for mobile ARPU on the wireline side is pretty stable, which is, I think, a very positive news. And the mobile ARPU erosion of minus CHF 1 is mainly driven by the ongoing brand shift between main brand and second brand, but the ARPUs on a brand level are actually stable as well. So moving on to B2B on Page #10. We are gradually integrating the beem offering in all our existing product portfolios. But we do see quite a lot of competition in the market, and you can see this on the ARPU box in the middle, where you see quite a heavy erosion on postpaid and average underlying product of minus CHF 3, which is basically driven by price competition in the market. And this is why it is so important that we launched the new beem offering to be able to upsell more security services and also create convergence effect on the B2B side and retain more customers with a broader product portfolio instead of competing just on price with Salt and Sunrise. So we will continue to ramp up the beem services. We have launched the new ATL campaign -- marketing campaigns in September. And so far, subscription take-up is very pleasing. We are ahead of plan, which is a good news. And we have now started enabling our partner channels so that we can -- as you know, on the SME front, a lot of sales are not driven in a direct sales mode, but more in an indirect sales mode through partner channels, and this is an important piece of the ramp-up next year. So we have started enabling all our partners to sell the beem offering, especially the higher-end editions, which are more complex to sell, but obviously are more interesting from a revenue perspective. On the IT side, quarter-on-quarter, we have -- or year-on-year between Q3 and Q4, we have -- sorry, between Q3 '24 and Q3 '25. We have a stable revenue evolution. The growth -- we were not able to materialize the growth on the IT side, suffering to some extent a bit from macro conditions in Switzerland. So there is quite a substantial slowdown in the IT market in Switzerland, also still due to the integration of Swiss Credit Suisse and UBS, which took out quite a lot of volume out of the IT market, and we can see this now in the numbers. So I think already a stable service revenue evolution is actually quite a good achievement. But we are obviously aiming to bring that back to growth starting Q4 this year, but especially also next year. I think the highlight is the new cloud platform that we delivered for the Swiss Armed Forces. This project is now nearing completion by end of the year and will be the basis for new IT services that we deliver to the Swiss Armed Forces going forward over the next years and will be a good driver of further IT revenue growth going forward. In parallel, we are also working on the profitability in our operating model, which we continue to transform to improve IT profitability. So you can see that despite having no revenue growth, we were able to increase profitability by 10%, so up CHF 3 million to CHF 35 million quarter-on-quarter, which is, I think, an excellent news, and we will continue to drive IT profitability also next year to make -- or to extract more cash flow from the IT service revenues. And also on the IT side, we have just launched a couple of weeks ago chatbot for SME. So it's basically very similar to the -- myAI for consumers, but this one is geared towards SME companies, so they can upload their own documents and use a highly secured and data private chatbot for their own company, which is quite a high demand, especially in the public sector and some other areas where people have more needs for data privacy and cannot use the, let's say, public cloud or public offering. Now on the Network and Wholesale side on Page 11, we can see that our, let's say, network rollout is continuing. We are now at a 5G plus coverage of 88%, fully on track to achieve our 90% target for the full year in 2025. And also fiber rollout is continuing. It's up plus 5%. We have now a 55% coverage with 10 Gbps connectivity across the country, also in line to achieve our full year target that we have set up for the FTTH rollout. And also on our network, we were able to win the connect fixed network test for the fifth time in a row with a record 991 points out of 1,000. And you can see that on the right-hand side that we are able to monetize also our network in better ways, especially the fiber rollout. So we are accelerating the net adds on the wholesale side. We have more market share on the lines and also plus 4% revenues. So access revenues are up by 4% from EUR 48 million to EUR 50 million on a quarterly basis. And I think what is especially interesting, you can see that the FTTH penetration on our wholesale business is increasing very rapidly [indiscernible]. It's up by 7%, and we have now nearly half of our wholesale lines, which are fiber-based, precisely 49%, and we expect this to be over 50% by the end of the year. Linked to this also, the copper phaseout is going very well. So we don't have numbers on this slide, but we already managed to decommission over 350,000 copper lines. So at the peak, we had 2 million lines in activation, and we are now standing at 1.65 million copper lines, which is already -- so we already achieved our full year phaseout target by end of Q3, which is also a very pleasing development on the network side. So if you look on Page #12, you can see that we have already achieved our full year target of CHF 50 million cost savings by the end of Q3. But I would like to put in a word of caution. We shouldn't get too excited about this because, I mean, it's great that we have achieved the full year target, but we don't expect much more cost savings to come in, in Q4. So please don't extrapolate this -- the growth we had between Q2 and Q3 further into the year, this is definitely way too optimistic. But I would say we come in at 50 plus, but not much more in Q4 to come. But you can -- but what is, I would say, the good news is that the cost initiatives continue to deliver, especially we continue to digitize our customer service. We continue to automate it. We continue to push AI everywhere. We have now launched our unified contact service platform, which is heavily AI-driven, which will continue to deliver new cost savings next year. We are experimenting with new shop formats, AI in the physical stores. We are further expanding nearshore. And of course, we are especially pushing further simplification on the network in IT and this also will continue to deliver cost savings, especially '26 and onwards. Okay. So that was it for Switzerland. I will now move on to Italy. On Page #13, you can see the highlights of the integration, which is progressing as planned and synergies are ramping up. So we have completely finalized our integrated organization, which is fully operational now. We have launched a new aligned product portfolio. So it's not a unified single product portfolio, but we essentially have exactly the same product portfolio under 2 different brands, one on the Fastweb side and one is on the Vodafone side, and we are now able to serve customers of both brands in all stores. And also, most importantly, the SIM migration is progressing in line with plan. So as you know, we have about CHF 200 million of synergies planned next year linked to the SIM migration. So we can confirm that the migration is going according to plan, and we will be -- roughly all customers will be migrated by year-end, and we are very confident to realize the planned CHF 200 million of synergies in 2026. Also, the other projects are ongoing as planned. We have already shut down the first Vodafone Group services that we have terminated and transferred to internal resources, and we are continuously working on carving out more and more services over the coming months and also IT and network consolidations have started. Now moving on to Page #14, we will have a deeper look into the B2C mobile side. So you can see that we have this joint mobile portfolio. There, you can see some screenshots in the middle. So the pricing and the features of the products are completely aligned. And we are continuously working also on improving customer treatment in the shops, but also in call center. And you can see on the right-hand side that this -- all this work is starting to pay off. The churn has significantly decreased from 20% or nearly 23% to roughly 18%, and we will continue to work on better customer service, also leading to higher NPS, and we can already see in our customer surveys that NPS on both brands is improving. So this, I think, is a good news. We can see that the value strategy that we are executing or like moving from volume to value is paying off. We are seeing an improved net adds picture. So you can see on the top right, we typically had over 100,000 negative net adds. We are now at minus 79,000, so still negative. But the outflow, which is typically high ARPU outflow has been substantially slowed down. Sales coming in is also slightly lower, but a much higher quality. So with customers really using our services. So the ARPU delta we are having between churn and net adds has been substantially decreased. And we are further working on this to close the gap and reduce service revenue erosion gradually over the next year. One other important topic on the B2C mobile side is the repositioning of ho. So we have positioned ho. as a clear attacker brand and faster than Vodafone as a clear premium brand, and we will continue to work on this brand positioning to make it clear that we have a clear dual brand strategy with a different service offering on both brands. Now moving on to Page #15. You can see that we have also launched a new fixed portfolio, which is what we call super converged, which is essentially broadband with energy services, which is an important element to drive new service revenue in Italy. So you can see that up to now, we have minus 170,000 RGUs year-to-date, which is impacted by this value strategy and front book price alignment. But transparency and customer centricity are delivering first positive results. You can see we have higher NPS. Churn has also substantially decreased to 15.8%. And you can now see that the RGU development between Q1, Q2 and Q3 is very pleasing. We are now at minus 26,000 RGUs in Q3. But actually, underlying to this, in September, we were at a 0 net adds balance. So the whole loss in Q3 is still coming from July and August, and we have now substantially achieved a stable RGU development. And we are hopeful that in Q4, we will see again a much more improved figure on the broadband net adds side, clearly showing that the strategy and turnaround is working that we are executing on the consumer side, and we will continue to push the new portfolio in the market and continue our value strategy. And I think also one maybe last word on the B2C. We -- the new product portfolio is offered at higher price points. So previously, our lowest price point on mobile was around EUR 8. Now it is at EUR 10 or EUR 9.95. And actually, we can see that the sales inflow or the gross adds are exactly the same. So we are able to sustain the sales performance despite having increased prices from -- or like the entry-level prices from EUR 8 to EUR 10. And the same we see on broadband, our sales numbers have not decreased despite having aligned prices on both sides and now executing at, let's say, increased or above increased prices than previously. So I think that's an excellent news for the Italian market that there are consumers that value quality and are willing to pay for it. Now moving on to Page #16, looking into B2B. So we keep managing also the Telco top line on the B2C side, growing with IT, cloud, security, and AI. So as mentioned at the beginning of the call, RGU net adds have slowed down a bit because we are reaching sort of the end of TM9 contract ramp-up. So we have a bit softer RGU development. But overall, I think a pleasing result on the telecom side. Also on the B2B side, we have integrated both product portfolios from Fastweb and Vodafone, offering the best of 2 worlds now to our customer. And all, let's say, corporate accounts have now been allocated to our internal sales force. Customers have been allocated in the indirect channels. This took a bit more time than on the B2C side because it's more complex to execute. And you can see also this is why we have a bit slowdown in growth on the B2B side as we still were a bit internally focused due to the merger. And you can see that the IT service revenue growth is still there at plus 1.5%, but it is a bit lower than it used to be. But here, we intend to accelerate IT growth again going forward next year as we have now finalized the integration and the sales force is, again, focused not on what is my account, but actually really selling to the market. We also have signed a new contract with Oracle to offer sovereign Oracle cloud offerings in Italy. And as in Switzerland, we have also launched already last quarter, our AI suite for SME companies in Italy, which is a sovereign AI chatbot offering for Italian SMEs. And we are very pleased that we have already been able to sell over 10,000 paying subscriptions, also showing that there is a clear market need or demand for these type of services also in Italy, and we will continue to work on this going forward. Now moving on to my last slide about Italy, Page #19. You can see also that the network rollout is continuing in Italy as well. We have now 87% 5G plus coverage, up 11% and fixed rollout or FTTH rollout is also proceeding rapidly in Italy. We now stands at 54% FTTH coverage with about half of it active and half of it passive in our footprint based on our Fastweb secondary network. We continue to drive wholesale business, both on wireline and Mobile. So on Mobile, we have essentially finished the Coop migration onto our network, and this will help us also to compensate part of the PosteMobile loss next year. And as you might have read in the press, Sky announced the new partnership between Fastweb, Vodafone and Sky. So we will continue to also provide Sky both on wireline and Mobile services, which would also help us to compensate some of the PosteMobile losses, '26 going forward. So overall, I would say, a very pleasing development on the network and wholesale side in Italy. And I will now hand over to Eugen for the detailed financial results. Eugen Stermetz: Thank you, Christoph, and good morning, everybody. I'll start as usual on Page 19 with the group overview on revenue and EBITDAaL. So let's get going with revenue. Revenue is down CHF 242 million in the group, 1/3 of which is currency. So net of currency, the number is minus CHF 153 million. Switzerland down CHF 83 million; Italy, down CHF 55 million. If we look at the quarterly dynamics, Switzerland was almost flat in Q3 after a week Q2, that's due mainly to different timing of hardware revenues this year versus prior year in the IT business. In Italy, it's a bit the other way around. If you look at the quarterly evolution, minus CHF 42 million in Q3 after roughly Q1 and Q2. So year-over-year in Q3, we only had a small contribution from IT and hardware so the Telco service revenue decline shows up in the total number. Move on to EBITDAaL. EBITDAaL is down minus CHF 191 million. We have a lot of adjustments totaling minus CHF 73 million. Net-net, this essentially boils down to integration costs in Italy on the one hand and to currency. Obviously, the gross numbers are a bit more complicated, and I'll comment the gross numbers when I get to Switzerland later on. And obviously, all the numbers as usual, you will find in the appendix to this presentation. So Switzerland, EBITDAaL almost -- if you look at the adjusted numbers, Switzerland almost stable with minus CHF 11 million year-over-year in the first 9 months, which is obviously very positive. Also the quarterly evolution is very stable indeed. On the Italian side, Italy is down minus CHF 95 million EBITDAaL. That's driven by service revenue decline in Q3, we had minus CHF 38 million after minus CHF 15 million in Q2. The minus CHF 38 million in Q3 are actually much more in line with what you would expect given the service revenue decline than what we saw in Q2. You might remember that in Q2, I flagged at the minus CHF 15 million are not necessarily sustainable. So both Switzerland and Italy, EBITDAaL are in line with our full year guidance. I move on to Page 20, CapEx and operating free cash flow in the group. So CapEx is down CHF 174 million, adjusted CHF 171 million. It's driven both by Switzerland and Italy. In both cases, the lower CapEx is due #1 to phasing with some of the capitals to come in Q4. And secondly, also in both cases, Switzerland and Italy, some higher CapEx compared to prior year tied to specific large-scale projects in the prior year. And then obviously, apart from the adjusted numbers in the adjustments, you see the integration CapEx in Italy, which starts showing up this quarter. Operating free cash flow, adjusted deposits plus CHF 53 million. In Switzerland, it's sustainable EBITDAaL, combined with lower CapEx. And in Italy, stable operating free cash flow lower EBITDAaL, but at the same time, lower CapEx, which we're obviously quite happy about. Then move on to Page 21 and dive into the Swiss picture, starting with revenue. Revenues down CHF 83 million, almost stable in Q3. If we look at the individual quarters, B2C is down CHF 29 million that sold lower service revenue and at the same time, somewhat higher handset sales that combined to the minus CHF 29 million. B2B down CHF 60 million, that's lower service revenue, but also lower hardware revenues in line with our strategy not too many low or no-margin hardware deals and somewhat higher IT service revenues in the first 9 months. If you look at the individual quarter, Q3 is a bit of an outlier with plus CHF 8 million. There actually significant hardware deliveries in connection with 1 large customer project all in line with the aforementioned strategy, but that drives actually the dynamics between Q2 and Q3, it's Q2, it was like CHF 27 million lower hardware revenues and in Q3, CHF 27 million higher hardware revenues. Wholesale growing CHF 10 million in revenue. That's essentially the growing excess services over the quarters. There are some minor fluctuations around the general trend due to these clients and roaming, so the bit more volatile elements of the wholesale business. EBITDAaL stable in Switzerland reported slightly up, adjusted slightly down. If we look at the adjustments, we have plus CHF 20 million year-over-year in adjustments positive, in particular in Q3 with plus CHF 33 million. So on the one hand, we released provisions for legal proceedings. But on the other hand, we added restructuring provisions and other provisions with a net effect of plus CHF 33 million. So if we focus on the adjusted numbers, B2C, minus CHF 10 million. B2C was able to compensate part of the service revenue decline with lower direct and indirect costs. In B2B, EBITDAal is down CHF 45 million, which is in line basically with the service revenue decline, there was not much impact of the revenue ups and downs that we saw on the upper part of this page because these revenues are there are pretty low margin IT hardware revenues, as I mentioned. So the service revenue decline shows up in the margin pretty much one-to-one. Wholesale plus CHF 11 million, in line with the revenue growth and also infrastructure and support functions, that's mainly a cost position here in EBITDAaL. So that's CHF 33 million lower costs contributing to the overall cost savings target that Christoph already mentioned. I'll move on to Page 22, deep dive into the Swiss P&L. I'll start at the bottom left with the Telco service revenue evolution decline was minus CHF 35 million in the third quarter, so slightly worse than Q2. If you look at the individual components, B2B at minus CHF 18 million is almost identical to Q2 and Q1. So not much news here. B2C is minus CHF 17 million after minus CHF 13 million in Q2. Actually, wireless in B2C is slightly better than the previous quarter due to increased net debts and also a small effect out of the Wingo price increase and the success of the We are Family! offering. The only element that is worse compared to the previous quarter is wireline ARPU. It's a combination of the phasing of the impact of targeted price increases in the prior year and somewhat stronger promotions in Q3. But all in all, very small numbers and a very stable general trend in the service revenue. Where does that leave us year-to-date? Top left of the page, year-to-date service revenue decline is CHF 92 million for the full year. This means that we will land at about minus CHF 120 million. That's slightly higher than originally guided. You remember, we talked about CHF 100 million, if you look for drivers of that more deviation in B2B, we had somewhat faster migrations of customers that we knew we would lose and the migrations came a bit faster than originally anticipated and on the B2C side, we integrated further roaming into the blue offering, so a somewhat lower roaming revenues was a bit lower demand on streaming on the wireline side. But all in all, no big surprises, no big changes by and large, as anticipated. Move on to Page 23. CapEx is down plus CHF 71 million in the first 9 months, part of which is related to nonrecurring items in the prior year. And part of that deviation will probably remain for the full year and contribute to stable free cash flows from Switzerland, all in line with our full year guidance. And finally, operating free cash flow, up CHF 60 million, adjusted a result of almost stable EBITDAaL and lower CapEx. Now I move on to Italy, Page 24, starting with revenue, down EUR 57 million in the first 9 months. In the third quarter, with a decline of EUR 44 million after a relatively stable Q1 and Q2. So what's going on? Let's look at the segments. B2C is down EUR 73 million, a combination of service revenue decline on the one hand, but higher energy revenues on the other hand. The quarterly evolution is pretty stable. B2B is stable in the first 9 months. So a combination of Telco service revenue compensated by higher IT service revenues and energy revenues. However, in Q3, you see the minus EUR 25 million. So there was a more pronounced Telco service revenue decline compared to prior year than in the first 2 quarters. And at the same time, with growth in IT service revenues and lower hardware revenues in Q3. I'll talk about the reasons for the service revenue decline when I get it on the next page. And finally, wholesale, up EUR 18 million, steady growth, both in wireless and wireline, and there were some decline in non-core revenues. So what you see here is the net of these 2 elements. EBITDAal down minus EUR 148 million reported adjusted minus EUR 99 million. In the adjustment, you have about EUR 40 million of integration cost as the main driver of the adjustments year-over-year in the first 9 months. So if you look at the individual components, contribution margin B2C down EUR 90 million. This is reflecting the impact of the service revenue decline of minus 17 -- sorry, minus EUR 117 million on the one hand and a small positive contribution from the additional margin from the energy business. However, importantly, if you look at the quarterly evolution, Q3 minus EUR 20 million after minus EUR 35 million in the first 2 quarters. This is for the first time that actually the lower mobile COGS show up, and this is obviously very positive and very pleasing because, as Christoph already mentioned, the migration of our mobile customers onto our own network is in full swing and already for the first time shows up as lower COGS in the contribution margin of B2C. B2B contribution margin down EUR 23 million. So that's the margin impact of the Telco service revenue decline and some positive margin from the IT and energy business compensating that. Wholesale, plus EUR 19 million margin -- sorry, the revenue improvement showing up also in the margin. So overall, the minus EUR 99 million adjusted are fully in line with the EBITDAal guidance we gave at the beginning of the year. If we deep dive into the P&L on Page 25, starting with -- also here with the service revenue decline, bottom left. So we had minus EUR 66 million in the third quarter, minus EUR 39 million B2C, minus EUR 27 million B2B, first, B2C. B2C is fairly stable over the quarters, which is very good. Obviously, the operating improvements that Christoph mentioned don't show up yet in the year-over-year numbers, which look backwards, but we are confident they will show up in the next year. Now what's happening in B2B. In B2B, we had EUR 27 million in Q3 after a very small service revenue decline in Q1 and Q2. It's all down to the wireline revenue. So wireline, we had significant onetime revenues in Q3 and Q4 in the prior year related to some large-scale public administration projects. So the effect that we see here in Q3 on B2B wireline is one that we will also see in Q4 again that, that might even accelerate. As I said, it's a tough comparison because we actually had increasing B2B wireline revenues quarter-over-quarter in the prior year, if you look at the pro forma numbers, and this is all due to these large projects with one-off revenues. So full year -- or sorry, year-to-date, that leaves us with minus EUR 166 million year-to-date. So it's clear that the full year service revenue decline will be well above EUR 200 million in 2025. What changed, if you remember, we had an original guidance of EUR 100 million to EUR 200 million already said in the second quarter that we are trending towards the upper end of that guidance. So we will be above that in the full year. What changed is mainly the outlook -- on B2B, we originally expected to be able to replicate these large-scale projects that we had in Q3 and Q4, and this is now not the case. There is no other structural driver we see at this moment. Is there an impact on the EBITDAal guidance? No. The direct and indirect costs we anticipate for the full year are lower than we had originally anticipated in the guidance. So the EBITDAal guidance for Italy is fully confirmed despite this deviation. I move on to Page 26. CapEx in Italy, EUR 83 million below the prior year. That's partly phasing between the quarters, but also partly due to large projects in the prior year. So a part of the deviation is likely to remain for the full year. On the adjustments, you see the integration costs showing up. We had integration CapEx of EUR 53 million so far. There is still a lot to come in Q4, but maybe not the full EUR 150 million of CapEx integration costs that we guided for at the beginning of the year. So CapEx Italy is clearly trending towards the lower end of the guidance. And finally, operating free cash flow in Italy adjusted is stable at minus EUR 2 million with EBITDAal below prior year, but so it's CapEx. Page 27, quick update on synergies and integration costs. We confirm the EUR 60 million synergy target for the full year and the plus EUR 36 million, which we had in the first 9 months is fully in line with this expectation. You remember that the synergies are backloaded due to the importance of the MVNO synergy that kicks in, in Q3 and Q4 and then ramps up to the full run rate next year, as Christoph mentioned before. We also confirm the integration cost target of approximately EUR 200 million. We have in the books EUR 93 million so far, EUR 40 million OpEx, EUR 53 million CapEx. So in the end, there might be some shift from CapEx to OpEx versus the original split of EUR 50 million OpEx and EUR 150 million CapEx, but the overall number of EUR 200 million for the full year, we confirm. Page 28, free cash flow, stable versus prior year. We are comparing to the reported numbers here, not pro forma, so stable versus prior year, plus CHF 23 million, driven by higher operating free cash flow compared to reported last year, plus CHF 116 million on the one hand. And on the other hand, higher interest paid, CHF 127 million, obviously due to the acquisition and all the other deviations on that page are quite minor. So I move on to Page 29, net income. Net income is down CHF 295 million year-over-year with 2 main drivers. One is the higher interest expense, obviously, due to the acquisition. And secondly, there is a lower EBIT, which is almost entirely driven by the amortization of intangibles out of the purchase price allocation of the acquisition, and we also had somewhat lower tax expense this year compared to prior year. So I come to the final page, Page 30 on the guidance. We do confirm the guidance similar to Q2 with 2 comments. Number one, based on the numbers we have seen, it should have become clear that on revenue in Switzerland and Italy and by implication of the group, we trend towards the lower end of the guided range. And we may even undershoot slightly, but if we do so with no impact on EBITDAal guidance and operating free cash flow guidance. And in a similar vein, as mentioned before, CapEx Italy looks like it will land at the lower end of the guidance or even slightly below and also impacting the group number. Last but not least, we confirm the guidance for the dividend of CHF 26. And with that, I hand back to the operator. Operator: [Operator Instructions] Polo Tang: It's Polo Tang at UBS. I just have 3 questions. The first question is just on Swiss price rises. So you recently increased prices on Wingo by CHF 1 a month. But what impact did this have on NPS and churn? And would you consider further price rises on the Wingo brand? My second question is, what is your view on the CHmobile launch by Sunrise? Do you see it as disruptive to the market? And my third question is just about Italian mobile pricing. So you increased your front book price rises. So you increased your front book prices from EUR 8 to more than EUR 10 in September. I appreciate it will take time for these price rises to feed through the subscriber base. But do you think Italian Telco revenues can reach stabilization at some point in 2026? Christoph Aeschlimann: Thank you, Polo. So I'll take the question. So on the Swiss price rises, actually, we were very positively pleased by the execution of the price rise with Wingo. We have seen absolutely no impact on NPS and churn. I think it demonstrates that Wingo is a very strong brand with a very attractive service offering. We executed it as a more-for-more price increase. So we included 5G access with the plus CHF 1, but it was, let's say, good news that it didn't impact NPS and churn on the Wingo brand. And so I will not comment about further price increases, but it is obviously something that we are looking into to see if there is further room to improve revenue and positioning of the brand. But now, let's say, it's also linked to your second question, so CHmobile. Honestly, I don't expect a huge impact from this brand going forward. We already have a lot of low-value brand in the market. It's -- I don't really understand the move from Sunrise because it goes contrary to what they actually talk about moving to a value-based strategy. And at the end, honestly, I think everybody will just end up with the same number of RGUs, but with slightly lower revenues. So it's not really a good news for the market because it kind of creates more downward pressure in the market, especially if you look at the mid -- not really -- I'm not so worried about the premium segment. But if you look at the mid market piece. Obviously, the more routed the brand basis in the lower-end budget segment, the more downward pressure you have also in the mid segment. But we will see a bit how this evolves now over time. But it's clearly, let's say, not a move that goes into, let's say, a price rebound direction in the Swiss market. So we will see also a bit how it's going with the Black Friday promotions in the coming weeks. And then we'll be -- we will see over the next year if there is any impact from this CHmobile brand. Now on the Italian side, the goal is definitely to stabilize service revenue both in B2C and B2B in the midterm. This will take some time, but we are working very hard on it. And actually, price increases, we executed price increases twice. So first, we went to EUR 9 and now to EUR 10. So we have quite a good view on at least the EUR 9 move, which didn't impact sales numbers so far. And I think also now the front book prices, I think, are at a good level. And we are actually executing what we call back book, front book alignment now. So all the back book customers, which are below our front book prices, we are now elevating them onto the front book level to have a completely in-line portfolio. This is currently being executed over the next weeks, and we have started a couple of weeks ago. And so far, numbers look okay as well. And we feel it's an important action so that all customers are actually treated in a transparent and fair way and everybody pays what we are now selling on the front book side. And this will obviously also help us improve service revenue next year going forward as this is a price increase for a couple or like a part of the customer base. Operator: So at the moment, we have one more question. [Operator Instructions] And now I will open the line for the next question. Joshua Mills: It's Josh Mills at BNP Paribas. I had a couple of questions, please. The first was just related to the Swiss service revenue trend. So you said in your comments that part of the reason that you saw a deterioration from 2.4% to 2.6% negative growth this quarter was you had a bit more migration to some of the B2B packages and also some more roaming revenues dropping out as you move to the blue bundles. So it sounds like this is a revenue headwind you've been anticipating, but just one that's coming through a bit earlier than expected. If that's the case, do you think that you'll start to see an improvement in service revenue trends into the end of this year and into 2026? Or are there other factors to consider which mean that we might see a continuation of the service revenue declines? That's the first question. And then the second question, was just around the cost cutting that you lay out on Slide 12. I think you're making it clear not to extrapolate the same level of savings into 2020 -- sorry, into Q4 as you saw in Q3, but where -- why is it that these savings are coming in quicker than expected? And why would there not be more upside to the CHF 50 million target you laid out at the start of the year? Eugen Stermetz: Okay. Thanks, Josh. So I'll take the first question. So maybe I was not super clear in my presentation, so I'll try to repeat. There is -- there is 2 different elements to talk about. So the one I've talked about first is the Q3 service revenue decline compared to Q2 because it looks like a bit of an acceleration. Now actually, on B2B, there is no acceleration whatsoever. So it's minus CHF 18 million after minus CHF 18 million in Q2. The only change is the -- only change is in -- B2C minus CHF 17 million versus the minus CHF 13 million. And there, I commented that wireless is actually slightly better, so the difference that you see between the 2 quarters comes from wireline ARPU because of some targeted price increases we had in the prior year that the impact of which is now trading out and some strong promotions in Q3. So B2B doesn't play a role in this quarter-over-quarter evolution. It's merely B2C. And here, it's wireline ARPU, nothing else. Okay. So that's the one element. Then I talked about the full year outlook, where I said about that CHF 120 million service revenue decline is what we expect and compare that to the roughly CHF 100 million service revenue decline we guided for at the start of the year. And here, actually, there is a B2B element in that deviation, because we lost some customers in B2B wireline on the corporate side, which we were really new at the start of the year. And the -- but the migration of their locations went a bit faster than we anticipated than this led to a slightly higher service revenue decline on the B2B side than anticipated. So that's a B2B. There is no Q-over-Q B2B story. Now having said that, these are all super small numbers, just to be clear. So we guided for about CHF 100 million, which you can't read anywhere you like, but you could always think CHF 120 million, we just wanted to be super transparent while we expect the roughly CHF 120 million now. Is there any impact out of these small changes that I'm commenting here on the midterm outlook? No, I would not read too much into it. Obviously, we are going to talk about the our service revenue decline expectation for '26 in February, but we don't see any fundamental shift. I just tried to explain the change from about CHF 100 million to CHF 120 million on the one hand and try to explain the super small change from minus CHF 13 million to minus CHF 17 million on the B2C side between Q2 and Q3. So I hope I was clear now the second time if not, feel free to follow up. Then on the cost savings side, I always -- I'm repeating myself on that topic. The cost savings do not come in steadily quarter-over-quarter in the same number. That's not realistic. The numbers we are talking about is at the moment, an annual impact of CHF 50 million plus, which is not a huge number, given the overall cost base we have. So small changes in quarters can drive a lot of the change. So it's always important to look at the final year figure, what we achieved for the full year. And I would not read too much into quarterly fluctuation. Joshua Mills: It's very helpful. I mean, just to follow up on the first answer. Should we read that as you don't see any big change in trends to service revenue development and declines in '26 versus the current run rate? Is that what you meant to change? Eugen Stermetz: Yes. I mean you're repeating that. No, I think I was clear. We don't see any structural changes out of the things we commented on -- so you can take -- draw your own conclusions when it comes to 2026 and we didn't guide for '26 in February. Operator: So there's one more question, and I will open the line for the next question. Robert Grindle: Yes. That's Robert Grindle from Deutsche Bank. I saw you bought a B2B video services company in August, the deal is yet to complete, I believe. Is this part of a wider push into security? Could you also provide B2C security products like one of your competitors? And do you see other adjacent opportunities in the market? And my second question is, how would you describe the mood of the typical Swiss enterprise at the moment? You had all that trade talk volatility during the summer. Has that effect sort of evened out now? Or are enterprise customers still holding back on their ICT projects? Christoph Aeschlimann: Thank you, Robert. So I think the B2B video merger you're alluding to is a really small acquisition that I think we did last year, if I'm not mistaken. I think now we have separated it out to an other entity, and we merge with some of our existing capabilities on the Swisscom Broadcast side. But it's really, let's say, a minor business. We're talking about sort of a very low double-digit millions. So it's not substantially impacting really our overall numbers in Switzerland. But Swisscom Broadcast, which is one of our subsidiaries, is actually quite active in sort of the whole surveillance aspect with cameras, but also drone surveillance which is, let's say, a growing area. So we do see some opportunities for growth on that side. But sort of it's growing, but not in a way that it would meaningfully impact our overall Swiss numbers yes, unfortunately. And of course, we -- I mean, there are a number of other adjacencies. I think the most important ones are really sort of AI-related opportunities on the B2B side. So we are pushing very heavily in providing AI consultancy, AI infrastructure services, AI chatbot really trying to monetize the AI implementation in the B2B space. I think that's one important adjacency and the second one is really all around security, which is driven by our traditional security offerings, but also the beem offering, which is completely integrated connectivity and security offering, where we really want to monetize and capitalize on the opportunity of the growing cybersecurity needs of B2B customers. And I think those should provide also meaningful numbers going forward. Now having said that, the general mood of B2B in Switzerland is a bit damp, I would say. So Switzerland is quite heavily impacted by the tariff situation with the U.S. So especially on the machinery and industrial side, it's quite gloomy, I would say. And customers are heavily saving money. Obviously, not all sectors are impacted in the same way, more domestic services companies are not impacted. And also on that side, we are okay. But the more export-oriented industries are quite heavily impacted, so overall, I would say there is a slowdown on the B2B side. It's not like to worry about. I think it's not that bad, but it's not helping us create more growth on the IT side as many companies are now scaling back a bit on their investment envelopes. Operator: So since we have no more questions left, I will hand over back to Louis for the concluding comments. Louis Schmid: Thank you very much. And with that, I would like to conclude today's conference call. In case of any follow-up questions, do not hesitate to contact us from the IR team. Speak to you soon, and have a nice day. Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 KVH Industries, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference call over to your first speaker today, Chief Financial Officer, Anthony Pike. Please go ahead. Anthony Pike: Thank you, Dana. Good morning, everyone, and thank you for joining us today for KVH Industries' third quarter results, which are included in the earnings release we published earlier this morning. Joining me on the call is the company's Chief Executive Officer, Brent Bruun. Before I get into the numbers, a few standard statements. Firstly, if you would like a copy of the earnings release or if you would like to listen to a recording of today's call, both will be available on our website. And if you are listening via the web, please feel free to submit questions to ir@kvh.com. Further, this conference call will contain certain forward-looking statements that are subject to numerous assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements. We undertake no obligation to update or revise any of these statements. We will also discuss adjusted EBITDA, which is a non-GAAP financial measure. You will find a definition of this measure in our press release as well as a reconciliation to comparable GAAP numbers. We encourage you to review the cautionary statements made in our SEC filings, specifically those under the heading Risk Factors in our most recently filed 10-Q. The company's other SEC filings are available directly from the Investor Information section of our website. Now to walk you through the highlights of our third quarter, I'll turn the call over to Brent. Brent Bruun: Thank you, Anthony, and good morning, everyone. The positive momentum that we reported in the second quarter has continued into the third quarter. On our last call, we talked about an inflection point that -- in this quarter, we have reinforced that inflection point. This is due to our strategic focus on LEO airtime revenue and subscriber growth, which have yielded positive results. Highlights for the quarter include a new record for vessel subscriber growth, record quarterly shipments of satellite communication terminals, sequential and year-over-year service revenue growth, closing the sale of our Middletown, Rhode Island facility and the acquisition of customer and vendor agreements, along with other assets from a satellite service provider operating in the Asia Pacific region. At the same time, we maintained our commitment to strong cost control with flat OpEx and reduced CapEx compared to the second quarter of 2025. Service revenue for Q3 was $25.4 million, a 10% increase from the prior quarter and a 4% increase from Q3 2024. The increase in year-over-year revenue is particularly encouraging as the prior year included a significant amount of U.S. Coast Guard revenue, which has drastically decreased since the third quarter of last year. Equally encouraging, our subscriber growth continued in the third quarter. Our total subscribing vessel count increased by 11% to approximately 9,000 compared to the second quarter. And as a result, our subscribing vessel count is up 26% year-to-date. This growth is being driven by the ongoing demand for the Starlink and OneWeb LEO services we provide. During Q3, we shipped roughly 1,600 terminals, a new record. There continues to be strong demand for both stand-alone LEO services and hybrid installations, which represent a combined service utilizing a LEO service in tandem with our legacy VSAT offering. Our Starlink subscriber growth also helped us to stay on target to consume the bulk data pool we purchased in July of 2024, before the end of this year. We're in the final stages of negotiations with Starlink to purchase an additional data pool. We expect the new purchase commitment will scale to reflect the significant growth trajectory of Starlink airtime as a portion of our business, enable us to retain flexibility to create custom competitive data plans to meet our subscribers' needs and allow us to sustain solid airtime margins. In addition, we continue to pursue strategic growth opportunities. In Q3, we completed the acquisition of the maritime communications customer base of a service provider operating in the Asia Pacific region. This acquisition is expected to bring on board more than 800 vessels that are currently utilizing satellite communication services, approximately 300 of which receive our VSAT service, more than 4,400 land-based subscribers who use Inmarsat and Iridium handheld services and a corresponding increase in annual top line revenue. This strategic move represents an essential milestone in our evolution as it is intended to expand our customer base, broaden our product and service portfolio and significantly increase our land connectivity subscriber base. This step is representative of our commitment to investing in KVH and strengthening our market position. And finally, we successfully closed the sale of our facility in Rhode Island, which generated approximately $8 million in net proceeds. Now I will turn the call back to Anthony to discuss the numbers. Anthony? Anthony Pike: Sorry about that. Thank you, Brent. As a reminder, I would like to note that similar to our call for Q2, I will not restate data that is in the earnings release or clearly described in our 10-Q. I will focus my comments on information that either elaborates on or clarifies the published data. So with respect to our third quarter financial results, airtime gross margin was 31.9%, which is down by 3.9% compared to the prior-quarter gross margin of 35.8%. This decrease was driven by the reduction in GEO airtime margins as a result of declining revenue set against a relatively fixed cost base. That said, GEO revenue decline continues to be in line with expectations and is not significantly accelerating. We expect this trend on GEO airtime margin to continue in the fourth quarter. However, from January 2026, our minimum commitments for GEO bandwidth declined considerably by around 1/3, which we expect will reduce pressure on margins. Our LEO airtime margin was consistent with the prior quarter. Total subscribing vessels at the end of Q3 were just below 9,000, which, as Brent mentioned, is 11% up from the prior quarter and 26% up from the beginning of the year. Reported Q3 product gross profit was negative $6.8 million compared to a product gross profit of positive $0.3 million in the prior quarter. This quarter's negative product gross profit included a $5.5 million write-down of our VSAT inventory based upon reduced demand and pricing. The remaining reduction in profitability of $1.6 million this quarter was driven by price reductions on Starlink and our H-Series VSAT antennas. We expect product margins to improve in the fourth quarter from the third quarter of this year, but product margins will remain relatively modest, and we believe the real value of our mobile connectivity hardware shipments is the recurring airtime revenue they generate in the future. The Q3 operating expenses of $9.5 million were flat compared to the prior quarter. And our adjusted EBITDA for the quarter was $1.4 million, and our earnings release has a numerical reconciliation of that. Capital expenditure for the quarter was $1.6 million. This compares to adjusted EBITDA of $2.7 million and capital expenditure of $2.4 million in the second quarter of 2025. Our ending cash balance of $72.8 million was up approximately $16.9 million from the beginning of the quarter. And as Brent mentioned, net proceeds from the sale of our property at Middletown, Rhode Island was $7.8 million. So overall, we are pleased with the third quarter performance, which shows our strategy to focus on our recurring revenue service business is proving successful with double-digit sequential growth on both service revenue and subscribed vessels in the quarter, although we cannot assure that growth will continue at this rate. Our LEO margins remain strong, and we are managing the global decline in GEO well. The sale of our manufacturing facility and the first acquisition we have completed in several years evidences our strategic intent moving forward, and we are optimistic for the future. This now concludes our prepared remarks. I will turn the call over to the operator to open the line for the Q&A portion of this morning's call. Operator? Operator: [Operator Instructions] Our first question comes from Chris Quilty of Quilty Space. Christopher Quilty: I wanted to dial in a little bit to the growth in the LEO business. I think you said 1,600 terminals shipped in the quarter. And historically, you were adding 600 a year on the GEO side. Where are you seeing the demand come from or the nature of the demand to see the levels climb that quickly? Brent Bruun: Yes. The demand is really pretty evenly spread between all regions and all types of vessels. So there's not anything specific that's driving the demand, Chris. We did scale back a bit on leisure marine in the third quarter just due to the time of year, right? That's a very -- fourth quarter, first quarter, we'll see a lot more activity there as the boats are moving south. But it's just not really any significant concentration. Christopher Quilty: And how about -- I mean, are you seeing these as competitive wins? Or are these new installs? Or is that mix changing? Brent Bruun: It's a bit of both. It's definitely some competitive wins, on the new installs also because we're going further downstream, and that trend has continued with the service plans that we offer and the price per bit delivered, it's opened up the market quite a bit to the lower end. Christopher Quilty: Got you. And I think I received my first Starlink e-mail yesterday, offering me free equipment on the consumer side. But apparently, you're also seeing that on the maritime enterprise side. How are you managing the hardware inventory and pricing with what's been a pretty dynamic pricing environment? Brent Bruun: Yes. Well, and as Anthony alluded to, they've reduced price. We're not necessarily offering -- we're not offering free equipment for maritime unless you know something I don't. But they have reduced price. It's caused a bit -- it's difficult. You have to manage it because when you're buying inventory, you have it at a higher price and then they're selling it lower, and you need to drop your price. It did impact our margins to a degree. On a go-forward basis, we have an understanding of Starlink, of how to handle this a bit better. And if, in fact, they have further price concessions, we would anticipate that any stock that we're holding, we would get a corresponding reduction and/or credit for the difference between previous sale purchase price and the new purchase price. Christopher Quilty: Got you. And can you contrast that with your OneWeb terminal sales where I think you mentioned a lot of those are being sold under AgilePlan where you're capitalizing the cost there. Is the differential -- price differential or CapEx requirements on your part causing a shift in terms of how customers are looking at the One service versus the other? Brent Bruun: Price definitely has an impact. It's -- we've shipped quite a few more Starlinks and OneWebs. There are alternatives to using a OneWeb and not necessarily just on a stand-alone basis. We talk about our hybrid service offering, which is primarily concentrating on a LEO service with VSAT, but it doesn't -- we also have some customers that have provided two different LEO services on board to ensure diversity. Christopher Quilty: Understand. On the GEO side, is it fair to assume the Coast Guard headwind going into the fourth quarter is probably like less than $1 million? Brent Bruun: You mean as far as the amount of revenue we recognized in the fourth quarter of last year? Christopher Quilty: Yes. Brent Bruun: When you say headwinds. We had a significant amount of revenue in the third quarter, but the contract was expired at the end of September of '24. And we've retained a small amount of Coast Guard revenue, so it's not completely gone, but that small amount was representative in 2024, in 4Q '24, and it will be in 4Q '25. So it's really not going to be a factor in a year-over-year comparison in the fourth quarter, if that's your question. Christopher Quilty: Yes, that was it. And aside from the Coast Guard, what are you seeing in the trends on the GEO ARPUs? Brent Bruun: Yes. I'll defer to Anthony on that question. Anthony Pike: Yes. So the GEO ARPUs this year have been fairly static. The first to the second quarter, they dropped a little bit. But since then, they've been very static. So we're very pleased with the third quarter's ARPUs on our GEO side. They seem to be remaining. Christopher Quilty: Great. And you guys didn't talk about CommBox much in the quarter. Was there any significant movement in customer adoption or -- you had the new cybersecurity feature coming... Brent Bruun: Yes. Well, the cybersecurity feature is being well received. There's not necessarily new news on that. It's being well received. We shipped, I don't have the exact number, but hundreds of CommBoxes, and we activated hundreds of services and it's being well received in the market. But we didn't really see a need to call it out specifically this quarter. It was -- and shipments were up sequentially in the third quarter versus the second. Anthony Pike: Yes. I mean if I just jump in there, Brent. I mean, revenue was up about mid-30%, I think 36% quarter-on-quarter, which just shows we're getting some successful growth and the growth from -- that we discussed in prior quarters continued both in terms of shipments and activations. Christopher Quilty: Great. And sorry, I'm all over the map. I should have organized my questions. But Anthony, did you mention how many LEO terminals were activated in the quarter? Anthony Pike: No, I did not know. No. I'm not sure, Brent, do we... Brent Bruun: Yes. So basically, we talked about our growth, which went -- was approximately 1,000, from 8,000 to 9,000. A significant portion, majority of those would be LEO. As far as the vessels that we have out there, 9,000, more than half are receiving Starlink services. But we'd like to just keep it at that level and know that our overall subscribing vessels are significant, and they've had significant growth in the quarter, which we hope -- we anticipate, or we hope will continue. There's no guarantees. And as we move forward, a larger and larger portion of our installed base will be receiving LEO services and for the current time period, in particular, Starlink. Christopher Quilty: Great. Are you starting to hear whispers from the Amazon guys coming to market? Brent Bruun: Yes, there's all kinds of -- there's not whispers. I think they're shouting from the mountaintop. So... Christopher Quilty: Right. And does that look like it will be a competitive service based upon what you're seeing in terms of... Brent Bruun: Yes. I mean on paper, yes, the proof is in the pudding. So let's -- once we are able to test it and see what the cost of the equipment is, the data speeds, the ability to maintain link and the overall quality of the service, we'll -- when that all comes to fruition and we're able to do significant testing, we'll be able to answer that question a bit more concisely. But on paper, it looks like it will be compelling. Christopher Quilty: Great. With the acquisition, I think you mentioned 800 vessels that obviously didn't show up in the numbers for this quarter. Will we see kind of a onetime jump of 800 vessels that happens in Q4? Brent Bruun: Yes. Let's just be clear, yes, but over 500 vessels, right? So we -- 300 of those vessels were already receiving our service. We'll be able to achieve higher margin on those vessels because we were selling it to the service provider and the service provider was charging their end customer a higher price. But those will be reflected in our fourth quarter. That net 500 will be reflected in our fourth quarter numbers. Christopher Quilty: Got you. You had previously talked about primarily Latin American land growth, but it sounds like there's an element of that with this acquisition. And I think you specifically called out the sat phone part of their business. Is that a focus? Or is it more around, again, traditional land terminals in Asia... Brent Bruun: Well, a bit of both. In this particular case, it was opportunistic because that's what they provided. So we're taking it on. We do have -- we think it would make sense to go into an adjacent market outside of maritime and provide land services since we have the infrastructure to support it. And we're looking into that to do more. Christopher Quilty: Got you. And is that expanding products or services? Is this all SATCOM-related services? Or do you move into other adjacent communication services? Brent Bruun: It primarily will be SATCOM. The handhelds are very high volume, low ARPU type business. So it's -- you need to get a lot of them out there to make any type of significant revenue. Christopher Quilty: And final question just because I don't pay as close attention to the maritime market. Any notable trends due to tariffs or global geopolitical situations that you're watching in terms of the demand and uptake on the maritime side? Brent Bruun: Yes. Well, of course, we watch it, and we pay attention to what's going on, but we're not seeing any significant impact from tariffs or the geopolitical environment. Operator: I'm showing no further questions at this time. Thank you for your participation in today's conference call. This does conclude the program. You may now disconnect.
Operator: Hello, and thank you for standing by. Welcome to Gogo Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to William Davis. You may begin. William Davis: Thank you, and good morning, everyone. Welcome to Gogo's Third Quarter 2025 Earnings Conference Call. Joining me today to discuss our results are Chris Moore, CEO; and Zach Cotner, our CFO. Before we get started, I would like to take this opportunity to remind you that during the course of this call, we may make forward-looking statements regarding future events and the future performance of the company. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements on this call. Those risk factors are described in our earnings release filed this morning and in a more fully detailed note under risk factors filed in our annual report on 10-K and 10-Q and other documents that we have filed with the SEC. In addition, please note that the date of this conference call is November 6, 2025. Any forward-looking statements that we make today are based on assumptions as of this date, and we undertake no obligation to update these statements as a result of more information or future events. During this call, we'll present both GAAP and non-GAAP financial measures. We have included a reconciliation and explanation of adjustments and other considerations of our non-GAAP measures to the most comparable GAAP measures in our third quarter earnings release. This call is being webcasted and available at ir.gogoair.com. The earnings release is also available on the website. After management comments, we'll host a Q&A session with the financial community only. It is now my great pleasure to turn the call over to Chris. Christopher Moore: Thank you, Will, and good morning. I will let Zach handle the numbers, but I am pleased with our financial discipline, integration and synergy execution and free cash flow generation as we prepare for growth as a result of our new product ramps and global contract wins. My remarks will focus on the significant progress made across our key new products in the third quarter, including 5G, HDX and FDX, all of which are expected to provide a step function increase in speed, consistency and performance. I will also discuss our progress in the military/government end market, including several recent contract wins that validate our unique multi-orbit multi-band strategy for this important customer base. We believe Gogo is well positioned to execute on our new product launches, and this bolsters my confidence in achieving long-term sustained revenue and free cash flow growth. Before we jump into our product rollouts, let's review the positive demand trends within our underpenetrated market. Global business jet flights are about 30% above pre-COVID levels, and at an all-time high. Fractional demand is robust. Overall demand for business jets remains healthy with major OEMs reporting strong backlogs and estimating 2025 final book-to-bill ratios 1x or higher. Last month, Honeywell estimated business jet deliveries globally of 8,500 over the next 10 years, representing an annual growth rate of approximately 3%. Given that our global addressable market of 41,000 business aircraft is less than 25% penetrated with broadband connectivity, these factors create a robust end market. In summary, our value creation is to grow our current strong position in the underpenetrated market with long-term high-margin customer relationships by delivering a set of new products and services, which deliver order of magnitude improvements in performance with purpose-built equipment that is easier to install, maintain and upgrade than competitors' products. Let's start our new product update with Galileo, our global LEO-based service that comes in two flavors: HDX for smaller aircraft and FDX for larger aircraft. The recent announcement by VistaJet, a leading global business jet operator of its plans to deploy both HDX and FDX across its fleet of 270 aircraft is a powerful endorsement for Galileo. HDX installations begin this month in Europe and start in the U.S. and Asia in January. Vista expects one aircraft upgrade with the Gogo Galileo terminal every nine days, reaching at least 60 aircraft with the Galileo terminal within the first 18 months. VistaJet was comfortable with both the robust performance of our Galileo service and our commitment to long-term global customer support as well as the ability to manage capacity and route traffic across a global fleet with multiple aircraft types. The VistaJet contract continues our momentum across multiple global fleet operators. In addition to VistaJet, Gogo has announced wins with the following fleets, all with plans to upgrade their fleet to Galileo and/or 5G, NetJets, Luxaviation, Wheels Up and Avcon Jet. All in, we believe that there is a path with Gogo to reach well over 1,000 fleet aircraft with either Galileo or 5G representing a true slingshot to propel our LEO and ATG business on a global scale. Further, our combined Galileo pipeline for both HDX and FDX is now approximately 1,000, up from 500 at the end of Q2, and we continue to see a favorable pipeline mix between U.S. and global market of about 60-40. Note, as we win new contracts like the VistaJet deal, this pipeline rolls off into new business won. So, a pipeline is just one piece of the puzzle in tracking our progress. Next, let's drill down on HDX. HDX is ideal for the 12,000 midsized and smaller aircraft outside North America without broadband and the 11,000 midsize and smaller aircraft in North America that fly outside of CONUS or won faster speed than 5G. Our execution on HDX bought significant fruit during the quarter as we increased our completed STCs from 8 to 19 out of 40 under contract. We are very close to reaching critical mass with our HDX STC count. Additionally, we have now shipped over 200 HDX units year-to-date, nearly 3x the 77 shipments we announced on our Q2 call in August with 93% earmarked for specific customers. Our HDX installations are now 50, including outstanding FTCs, which we expect to ramp significantly as we begin to install on our major fleet accounts and execute on line-fit installations with Textron beginning in early 2026. Accelerating AOL in a new product is truly where the magic happens and will be the key to future service revenue acceleration. HDX is performing ahead of speed expectations and was purpose-built to fit on 41,000 global aircraft, and we expect a very significant ramp in shipments and AOL growth in 2026 and beyond. Now let's shift to FDX, our larger LEO antenna for the large global business market of 10,000 aircraft. A successful flight test with OEMs, dealers and fleet customers is a fantastic endorsement to the status of the new product. At the recent NBAA show, we flew multiple flight demos with speeds reaching 200 megabits at the high end of our predicted speed range. As we see, this is streaming. We operated 27 streaming devices simultaneously and consumed an outstanding 36 gigs of data in 36 minutes. I've been launching and testing aviation WiFi systems for a couple of decades and have never seen such flawless execution on a flight demo within a week of aircraft installation and delivery. It was truly an awesome performance. Hats off to the Gogo team and our partners, Hughes, StandardAero and OneWeb. We were thrilled to announce in our earnings release this morning that FDX will be a LEO line-fit option for all new Bombardier Challenger and global business aircraft types. In our view, this validates our technology, our team and shows great trust from a major global business aircraft OEM. We expect revenue generation from this important win in early 2027. We have now announced strong Galileo relationships with the following major global OEMs, Bombardier, Textron, Dassault and Embraer. Let's now move on to 5G, our multiyear investment to substantially improve the performance of our ATG network. I am thrilled to say that we are at the goal line on 5G. Our 5G flight testing began on October 28, and the results have exceeded our expectations. As a result, we reiterate a Q4 launch timing for 5G, and we plan to begin shipping boxes to our 400 pre-provisioned 5G customers in early Q1. They already have the 5G antenna installed and the wiring is completed. We expect our 5G service revenue to begin in the latter part of the first quarter once installations have begun. Beyond our focus on preprovisioned aircraft, 28 out of the 33 FTCs under contract are now completed, and we expect the remaining 5 will be completed by the end of the year. Further, Gogo has 5G line fit commitments with 5 OEMs with already installing the AVANCE L5 box on the production line today. These boxes will be swapped with the LX5 5G box when service is turned on. We continue to believe the significant pent-up demand exists for 5G among customers who predominantly fly domestically, particularly those with light and medium-sized aircraft. 5G offers a tenfold increase in speeds versus the existing L5 ATG solution and is a cost-effective solution versus the more premium priced HDX or FDX. Keeping the focus on ATG, let's move to our LTE upgrade. The upgrade of our ATG network to LTE, which will be largely subsidized by FCC funding, is expected to bring multiple benefits: one, accelerating the upgrade of Classic aircraft to AVANCE; two, increasing ATG network capacity and increasing speeds; and third, accelerating our U.S. government business on the ATG network given the enhanced security of the network. We shipped a record 437 ATG equipment units in the quarter, up 8% sequentially split between 208 AVANCE units and 229 C1 units. Equipment shipments are typically a leading indicator of future installs. We recorded a record 145 Classic to AVANCE upgrades in Q3 as AVANCE AOL grew 12% year-over-year to 4,890. AVANCE now represents 75% of our ATG fleet, and that figure is quickly heading to 100%. Correspondingly, our Classic count of roughly 1,500 aircraft is only 25% of the ATG fleet and over 400 are part of fractional or managed accounts with a defined upgrade path. This leaves approximately 1,100 Classic aircraft not associated with a fleet account. We expect that our count of 101 C1 aircraft will ramp significantly over the coming quarters. The C1 box is identical in size to the Classic box and allows the system to operate after the LTE system is turned on. This box swap takes only a few hours and benefits from FCC subsidies. Bottom line, we are accelerating our progress towards the anticipated LTE cutover in May of 2026, and our entire dealer network is pushing all out to upgrade our Classic fleet as they have a strong vested interest in a smooth transition of our air-to-ground network. While we are encouraged with our efforts to improve the performance of the ATG network across multiple levels, including the 5G and LTE rollout and the C1 upgrade process, we continue to believe that industry trends will pressure our ATG online count for the next several quarters. Our ability to return to sustained service revenue growth will be dependent on 2 things: First, the pace of the ramp of our new products, including HDX, FDX 5G and second, progress in the military/government end market. Let's jump into the discussion of performance of our GEO business. We ended Q3 with 1,343 GEO AOL, up 161 units or 14% from the prior year, powered by our line fit positioning. We expect that our investment in GEO technology will continue to improve speed and performance over time for business jet, which we believe can be leveraged across our military/government customers as well. Our SD Router called SDR is on about 2,400 GEO aircraft and is synchronized with the advanced routers on other 4,900 aircraft. That is a total of approximately 7,300 systems that should be upgradable to new products without box swaps or expensive interior rewiring. Now moving to our military/government end market. Given that our military/government service revenue is relatively new to most of you, let me provide context about how we view it. First, the global military/government aircraft number has an even lower broadband penetration than the business jet market, and this presents a compelling long-term growth path. The 25 by 25 initiative from the U.S. Air Force is a great example of this. The U.S. Air Force set a goal that 25% of its 1,100-non-fighter aircraft would have broadband speeds of 25 megabits or greater by the end of 2025 and that the goal will come up short. Of note, the architect of the 25 by 25 initiatives, retired General Mike Minahan, joined our Board this year. Second, we believe governments globally will seek diversity amongst their aero bandwidth suppliers and will place premium on multi-orbit, multiband service for redundancy and performance. These capabilities are military prerequisites for PACE standing for Primary, Alternate, Contingent, and Emergency. And Gogo is the only company that can fit that bill. This was a major contributing factor in our recently announced 5-year federal contract to deliver 5G, LEO and GEO services to a U.S. government agency. This is the first service win for 5G in a multi-orbit government contract. Third, we can reuse business aviation terminal offering for military/government use without incremental R&D spend. This advantage was highlighted with our recent 5-year contract with SES Space & Defense for a blanket purchase agreement for U.S. Space Force’s Space Systems Command, we will plan to deliver managed global Ku-band Geo Flex air services utilizing our Plain Simple Ku-band Antenna to provide scalable, secure and high-speed satellite connectivity across government operations worldwide. This contract ceiling value is $33 million, of which aviation is a major component and a total revenue split, 80% service and 20% equipment. Finally, given that military/government contracts are typically multiyear, we believe that increased predictability revenue streams under contract in this segment have the potential to add a new layer of strategic value for Gogo. Given that context, we expect that military/government, which is 13% of our total revenue, is likely to move towards 20% over the longer term. Thank you for your attention, and I trust that you share our enthusiasm for the significant progress we have made over the last few quarters in transitioning this global business. I will now turn the call over to Zach for the numbers. Zachary Cotner: Thanks, Chris, and good morning, everyone. Third quarter revenue was in line with expectations, highlighted by strong equipment shipments. Also, adjusted EBITDA and free cash flow were ahead of plan as our integration synergies and financial discipline continue to materialize. As a result, we are reiterating the high end of our 2025 financial guidance ranges for revenue, adjusted EBITDA and free cash flow. As Chris mentioned, global demand for our new products continues to expand, and we believe this will ultimately lead to service revenue growth. As implied in our 2025 financial guidance, we expect to return to modest year-over-year revenue growth in Q4, while increases in Galileo and 5G investments as well as elevated inventory levels driven by our new product launches should decrease adjusted EBITDA and free cash flow sequentially. We are still completing our 2026 annual plan, and we'll be providing guidance on our Q4 call in February. However, in the meantime, we would like to provide a bit of context around next year. We see the potential for some incremental working capital need in '26 to support our new product ramps as well as continued ATG AOL volatility, particularly amongst our Classic fleet. Despite these considerations, we believe that new product growth, the roll-off of 5G and Galileo investments as well as further OpEx and CapEx rationalization will benefit us next year. I'll now provide an overview of our third quarter results, then I will turn to our capital allocation priorities and outlook for the balance sheet transactions to reduce interest expense and further de-lever. And finally, I will provide some additional color on the guidance. On a combined pro forma basis, Gogo's total revenue in the third quarter was $224 million, down 1% on a pro forma basis year-over-year as well as sequentially. On a stand-alone basis, Satcom Direct's Q3 revenue declined about 4% year-over-year. Total service revenue of $190 million increased 132% over the prior year and declined 2% sequentially. Total ATG aircraft online at the end of Q3 was 6,529, a decline of approximately 7% versus the prior year period and down 3% sequentially. Consistent with our strategic goals, total advanced AOL increased 12% from the prior year period and now comprises 75% of the total ATG fleet, up from 62% a year ago. Since the end of 2022, our total AVANCE AOL has grown by over 1,600. Total ATG ARPU of 3,407 declined about 3% year-over-year and approximately 1% sequentially. Total broadband GEO AOL, excluding networks that are End of Life, reached 1,343, up 14% from the prior year and 2% sequentially. This strength highlights our OEM line positions. In addition, most GEO broadband aircraft under fixed-term contracts, enhancing revenue stability and our GEO ARPU continues to hold up better than expected. This performance was the primary driver in the increase in the fair value of the earn-out liability that affected our net income in the quarter. Now turning to equipment revenue. Total equipment revenue in the third quarter was $33.6 million, up 80% year-over-year and 5% sequentially. Total ATG equipment shipments of 437 were an all-time high and up 8% sequentially from 405 in Q2, which was a prior record. Advanced shipments remained robust at 208, while C1 shipments ramped substantially to 229 and up from 129 in the prior quarter. Given that equipment shipments are generally a leading indicator of future installation activity, we believe our strong Q3 shipments bode well for the future conversion of Classic customers ahead of our expected LTE network cutover in May of 2026. Now moving on to our margins. Gogo delivered combined service margins, inclusive of Satcom Direct of 52%, which was in line with our budget. Service gross profit accounted for 97% of total Q3 gross profit. We continue to focus on driving this recurring high-margin service revenue. Equipment margins were about 8% in Q3 as Galileo equipment pricing remains close to cost. Now turning to operating expenses. Total Q3 operating expense for G&A, sales and marketing as well as engineering design and development were $57 million, up slightly sequentially, largely due to SmartSky litigation spend. Now let's turn to our major strategic initiatives, 5G, Galileo and the FCC reimbursement program. Total 5G spend in Q3 was $6 million with approximately $5.5 million tied to CapEx. We continue to expect total 5G spend to decline in 2026 as we launch our 5G network in Q4. Turning to Galileo, we recorded $1.2 million in Q3 OpEx and about $2.2 million in CapEx. We continue to expect total external development costs for both the HDX and FDX to be less than $50 million, of which $34 million was incurred from 2022 through the first 9 months of 2025, with approximately $11 million expected this year. We anticipate approximately 80% of Galileo's external development costs will be in OpEx. And finally, our FCC reimbursement program. In the third quarter, we received $6.6 million in FCC grant funding, bringing our program to date total to $59.9 million. As of September 30, we recorded a $26 million receivable from the FCC and incurred $22.8 million in reimbursable spend during the quarter. The timing of reimbursement payments has not been affected by the government shutdown, but we are monitoring the situation closely. The receivables is included in prepaid expenses and other current assets on the balance sheet with corresponding reductions to Property and Equipment, Inventory and Contract assets with a pickup in the income statement. Moving to our bottom line. Gogo generated $56.2 million of adjusted EBITDA in the quarter, and our adjusted EBITDA margin of 25% was consistent with the initial long-term view of the mid-20s we described in the Satcom deal was announced. Net income for the quarter was negative $1.9 million and EPS was negative $0.01. Net income includes a $15 million pretax fair value adjustment related to the Satcom acquisition I described a moment ago. As of Q3, we have achieved over $30 million of annualized synergies and expect run rate synergies to modestly exceed our previous range of $30 million to $35 million with approximately 2 years of closing the Satcom deal. This is a significant improvement from our original guidance of $25 million to $30 million. We continue to anticipate total cost to achieve synergies in the range of $15 million to $20 million. While we have achieved the vast majority of our headcount reductions, we feel confident that we can further reduce costs as we head into '26 in multiple areas, including real estate, back-office software solutions and CapEx rationalization. Now moving to free cash flow. Gogo generated $31 million of free cash flow in Q3, above expectations and totaling $94 million year-to-date. Based on our current 2025 guidance, we expect Q4 free cash flow to be the lowest of the year, mostly due to the timing of strategic investments and inventory purchase related to the launch of our new products. Now I'll turn to the discussion of our balance sheet. Gogo ended the third quarter with $133.6 million in cash and short-term investments and $849 million in outstanding principal on our 2 term loans with our $122 million revolver remaining undrawn. This equates to a net leverage ratio of 3.1x for Q3, down from 3.2x in the prior quarter. Our cash interest paid net of hedge cash flow was $16.3 million. Our hedge agreement is now $250 million with a strike of 225 bps, resulting in approximately 30% of the loans being hedged. In 2025, we continue to expect cash interest paid net of hedge cash flow to be approximately $70 million. Consistent with our Q2 call, our immediate focus remains exploring ways to streamline our balance sheet, reduce interest expense and continue our deleveraging process. Between our cash on hand and our revolver, we have more than $250 million in liquidity. This is significantly more than we need to operate the business, and we believe this provides plenty of financial flexibility to find the right balance sheet solution in 2026. Bottom line, we continue to believe our expected free cash flow growth over the next few years will provide ample excess cash to pay down debt, reduce our interest expense and ultimately return capital to shareholders. In our earnings release this morning, we are largely reiterating key elements of our 2025 financial guidance. For the year, we expect total revenue at the high end of the range of $870 million to $910 million, adjusted EBITDA at the high end of the range of $200 million to $220 million, reflecting operating expenses of approximately $15 million for strategic initiatives, including 5G and Galileo versus our prior expectations of $20 million. Given our guidance, we expect Q4 EBITDA will decline sequentially largely due to the timing of planned investments and an expected decrease in ATG service revenue. Free cash flow at the high end of the range of $60 million to $90 million. We now expect approximately $40 million slated for strategic investments in 2025, net of any FCC reimbursement versus prior expectations of $60 million. This reduction is largely due to timing. Our net CapEx is still expected to be $40 million after $30 million of CapEx reimbursement from the FCC reimbursement program. In conclusion, 2025 has largely been a year of blocking and tackling execution that include the integration of Gogo and Satcom, significant product investments and launching HDX, FDX and 5G. Now nearly a year after the close of the Satcom deal, we are seeing the results of our transformation. Shipments and installations of game-changing new products are starting to ramp, significant costs are being removed, and we are winning long-term contracts with global fleets, OEMs and governments. I want to express my gratitude to the Gogo team for their hard work in driving this transformation and their dedication to providing exceptional customer service. Operator, this concludes our prepared remarks. Please open the queue for questions. Operator: [Operator Instructions] Our first question comes from the line Scott Searle with ROTH Capital Partners. Scott Searle: Maybe just to dig in initially on the fourth quarter implied guidance. Chris, Zach, I'm wondering if you could dive in a little bit more in terms of detailing that outlook, it implies adjusted EBITDA in the $40 million range. You've mentioned incremental strategic investments and the ATG kind of roll-off. Could you take us through that a little bit more in detail in terms of the thought process and if you're being conservative on that front or ATG is expected to continue to transition, particularly on the Classic front?  Zachary Cotner: Thanks for the question. I think the way we're looking at it is, as you've seen, the ATG pressure continues, right? And that's the highest margin revenue, right? So, we anticipate a decline, albeit not as aggressive as the prior quarters, largely because the C1 should start they're shipping.  But the other piece is our revenue is actually going to be up, right? And another piece of that is equipment shipments. So, if you have lower margins on equipment shipments, so the mix changes. And as well as that, we have significant testing on 5G. So, there's a little bit of compression on gross margin because of the mix and then the OpEx side is going to be a little bit higher largely because of 5G testing.  Christopher Moore: Yes. I think also if you look at the record AVANCE shipments, C1s as Zach picked up, it's clear that customers are also planning to upgrade. I think the fact that we're rolling out the 5G network, and that's successful, I think that's also a very positive sign at this point in time.  Scott Searle: Got you. And for my follow-up, I'm wondering if we could dig in a little bit more in terms of existing Classic, the transition to C1 and kind of the offset there now that we're starting to see momentum on 5G and Galileo as we go into 2026. So could you help us frame in terms of Classic, how that's expected to roll over the next several quarters. Now with the C1 out there, you had a lot of momentum this quarter. Is the majority of that base expected to convert pretty quickly to C1? Or are some of those expected to upgrade to 5G as well?  Christopher Moore: I think it's a mix. If you look at the record AVANCE shipments, clearly, those customers are looking forward to 5G. It depends also on the customer budget. The C1 is really a placeholder product, but it's really encouraging that people are also taking that when you think it's just moving them on to a more modern network.  And our MRO partners putting in field service team. So, we expect that to pick up and derisk Classic customers not cutting over. Everything we see at the moment is extremely positive. So, we're feeling pretty good about it.  Scott Searle: Chris, if I could just add on to the back of that. From an ARPU standpoint, how do you see things trending as we go into the first half of next year? There's some downward pressure, I would imagine, as we're going to C1, but you're also having some of the higher ARPU services starting to kick in. So how do you see that playing out as we go into '26?  Christopher Moore: Yes. I think what's encouraging is if you look at 5G ARPU is worth twice that of a Classic customer. So that conversion, we actually see upside. And I think that's really where our heads are at the moment. Obviously, you've got more price-sensitive customers, but we've got a lot of price flexibility within the plans. So, people cutting over from over to C1. That's one aspect.  And then you've got people who I mean, we're going to be delivering a 50 to 80 megabit service on 5G. So that's I mean, that's completely and utterly a different service level than these customers have ever experienced. So, we see that as those customers really being a higher ARPU as they're streaming and being able to use video applications within the aircraft that they've never been able to do before.  Operator: [Operator Instructions] Our next question comes from the line of Justin Lang with Morgan Stanley.  Justin Lang: I just want to double back on the implied 4Q EBITDA guide. Maybe you could just put a finer point on how much of the implied headwind is related to Galileo and 5G investments versus some of the ATG pressures you flagged?  Zachary Cotner: Yes. I would say it's kind of split a little bit evenly between ATG pressure as well as like increased OpEx. I would say there's a bigger piece of it related to 5G versus Galileo. There's still Galileo costs, but the STCs are running through and 5G, there's a lot of testing that has to go. We got to own aircraft right now. So that's a big driver.  Justin Lang: Okay. Got it. And then I know you've mentioned in the past sort of regular maintenance has been a big driver of some of the ATG AOL declines. Are you still seeing that trend? Or are you seeing heightened competitive pressure anywhere?  Christopher Moore: Not really seeing competitive pressure. I think one of the natures of the market is customers have scheduled maintenance for upgrades. So going to the C1, what I mentioned on the previous questions, really, it's that our MRO partners, I put field service teams. It's a very simple upgrade for C1, which we've designed.  So, we're doing a lot of those in the field. And there's been a lot of press about that with Omni, West Star, our MRO partners there. So, I think that will continue to have positive momentum for us. And we see that really encouraging. And I think you can see that with the C1 numbers are starting to really pick up now. So, but obviously, customers who are also waiting for scheduled maintenance, they'll wait until that point as well. It's just the nature of the market.  Justin Lang: Got it. Okay. That's helpful. And then just really quick one on the shutdown. I know Zach you mentioned that it's not really impacting FCC reimbursement. But are you seeing any other impacts maybe around military/government or I'm not sure if there's any regulatory oversight outstanding for 5G flight testing, but are you seeing that creep up anywhere else?  Christopher Moore: Yes. I think you can definitely see things have slowed down a little bit with kind of like when you need government approvals in certain areas. But they're not it's not really affecting our business at this point in time. So, we're just keeping a close monitor to it, but we're not seeing major effects in our revenue outlook because of government shutdown.  Operator: [Operator Instructions] I'm showing no further questions in the queue. I would now like to turn the call back over to William for closing remarks.  William Davis: Thank you for joining our third quarter earnings conference call. You may disconnect.  Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect. Goodbye.
Operator: Good day, and welcome to the Angel Oak Mortgage REIT Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. KC Kelleher. Please go ahead. KC Kelleher: Good morning, and thank you for joining us today for Angel Oak Mortgage REIT's Third Quarter 2025 Earnings Conference Call. This morning, we filed our press release detailing these results, which is available in the Investors section on our website at www.angeloakreit.com. As a reminder, remarks made on today's conference call may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. We do not undertake any obligation to update our forward-looking statements in light of new information or future events. For a more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter and to our most recent SEC filings. During this call, we will be discussing certain non-GAAP financial measures. More information about these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are contained in our earnings release and SEC filings. This morning's conference call is hosted by Angel Oak Mortgage REIT's Chief Executive Officer, Sreeni Prabhu; and Chief Financial Officer, Brandon Filson. Management will make some prepared comments, after which we will open up the call to your questions. Additionally, we recommend reviewing our earnings supplement posted on our website, www.angeloakreit.com. Now I will turn the call over to Sreeni. Sreeniwas Prabhu: Thank you, KC, and thank you all for joining us today. Our third quarter performance reflected another period of disciplined execution and strategic progress for AOMR. We continue to execute both operationally and strategically in a constructive market environment. We capitalized on a couple of strategic opportunities to reallocate capital into high-yielding assets, improve our loan financing funding costs and diversify our lender base. And as always, our team continued to focus on deploying capital into high-quality income-accretive opportunities, supporting both portfolio growth and underlying earnings quality while maintaining vigilance on credit. Our results this quarter were in line with our expectations. This was highlighted by our 13% growth in net interest income compared to third quarter of 2024 and a 2% increase compared to second quarter of the year. GAAP book value per share increased by over 2% compared to the second quarter, driven by increases in valuations across our portfolio. Cash flow dividend coverage increased and is expected to continue its growth trend as demonstrated over the last 2 years. This is driven by earnings from assets purchased during and post quarter end as well as the resecuritization of some pre-IPO deals, which will rotate capital into high-yield uses. Credit continues to perform well, both in aggregate and relative to our peers, and our earnings generation engine continues to strengthen. As I mentioned, we executed on several key initiatives during the quarter. First, we successfully called and retired 2 legacy vintage deals, which is something we have been opportunistically monitoring for the last several quarters. Retiring these deals allowed us to release and reinvest capital into new attractive opportunities and further optimize the yield on our investment portfolio. Second, we added new warehouse credit facility and extended another facility at attractive funding rates, which combined with decreases in SOFR are expected to improve margins while also diversifying our lender base. These actions, along with our continued focus on efficient capital recycling and securitization, emphasize the reliability and the repeatability of our strategy. We are encouraged by the strength and stability in the securitization market as well as the constructive environment for portfolio growth. Securitization spreads continue to tighten and the market continues to function efficiently with new and traditional participants active in the marketplace. The market backdrop has become more positive as the year has progressed and the interest rate trajectory and the efficient securitization execution have supported valuation and earnings growth for AOMR. While the competition in the space has increased, we see this as an indication of solid demand in an area where we have demonstrated expertise. Further, our differentiated platform and dynamic approach to capital deployment and portfolio management positions us to capitalize on opportunities. As we look ahead, we remain committed to continued execution of our strategies, delivering strong results for shareholders and building on our solid historical track record. With that, I'll turn it over to Brandon, who will walk us through our third quarter financial performance in greater detail. Brandon Filson: Thank you, Sreeni. Third quarter operating results were in line with our expectations with 13% net interest income growth versus the third quarter of 2024, an expansion versus the second quarter of this year, demonstrating a positive return on May's senior unsecured debt issuance within 1 quarter. Year-to-date, net interest income increased 11% compared to 2024. Operating expenses, excluding securitization costs and stock compensation expense were 13% lower than in the third quarter of 2024 and 5% lower than the second quarter of 2025. Year-to-date, operating expenses, excluding securitization costs and stock compensation were 19% lower than in 2024 as we continue to push hard on cost rationalization and key expense saving initiatives. Valuations were a tailwind during the third quarter as we observed increases in valuations across the portfolio. As of today, we expect that our book value has grown moderately compared to the end of the third quarter alongside the recent rate rally. For the third quarter of 2025, we had GAAP net income of $11.4 million or $0.46 per diluted common share. Distributable earnings for the second quarter were $529,000. The primary driver of the difference between GAAP net income and distributable earnings were the impacts of $4.3 million of unrealized gains on our residential loan portfolios and $5 million of unrealized gains on hedge contracts. Interest income for the third quarter was $36.7 million and net interest income was $10.2 million, marking a 34% improvement in interest income and a 13% improvement in net interest income compared to the third quarter of 2024. Compared sequentially to the second quarter of 2025, interest income increased by 4% and net interest income increased by 2%. For the first 9 months of the year, interest income was $104.6 million and net interest income was $30.2 million, which translates to increases of 33% and 12%, respectively, compared to the first 9 months of 2024. As we previously noted, we expect our net interest income to continue its growth trend with earnings generated from accretive loans purchased throughout the year and our securitization activity in Q4. Our $238 million of loan purchases in the quarter carried a weighted average coupon of 7.74% with a weighted average combined loan-to-value ratio of 69.4% and a weighted average FICO score of 759. Our total residential whole loan portfolio had a weighted average coupon of 7.98% as of the end of the quarter. The non-QM portion of our whole loan portfolio carried a weighted average coupon of 7.37% and HELOCs carried 11.03% weighted average coupon. As of today, our current weighted average coupon is approximately 8.7%, reflecting the 2025-10 securitization, which closed in October. As of the end of the quarter, our loans in the securitization trust portfolio carried a weighted average coupon rate of 5.8% with a weighted average funding cost of approximately 4.2%. As Sreeni mentioned, the securitization market remains active, and we intend to continue leveraging this strength through our disciplined methodical securitization strategy. As mentioned earlier, we called and retired our retained bonds from AOMT 2019-2 and AOMT 2019-4 securitizations in the third quarter. These deals have become delevered over time, and the [ call ] released $19 million of capital to be reinvested into higher-yielding new loan purchases and other earnings accretive uses. Additionally, in October, we executed the AOMT 2025-10 securitization. This securitization was a $274 million deal that enabled us to pay down $237 million of warehouse financing and released $22 million of cash for redeployment. The execution of this deal was strong with the senior bonds issued at a spread of 125 basis points over treasuries. Operating expenses for the third quarter were $3.2 million. Excluding noncash stock compensation expenses and securitization costs, third quarter operating expenses were $2.8 million. This represents a 13% decrease compared to the same metric in the third quarter of 2024. For the first 9 months of the year, operating expenses were $11.3 million. Excluding noncash stock compensation expenses and securitization costs, operating expenses for the first 9 months of the year were $8.5 million, representing a decrease of 19% compared to the first 9 months of 2024. Going forward, we expect to maintain similar operating expense levels and will continue to be as efficient as possible with our expense structure. Looking at our balance sheet. As of the end of the quarter, we had $51.6 million of cash and our recourse debt-to-equity ratio was 1.9x. As of today's date and factoring in the October securitization, we estimate our recourse debt-to-equity ratio to be approximately 1x. GAAP book value per share increased 2.2% to $10.60 per share as of September 30, 2025, from $10.37 as of June 30, 2025. Economic book value, which fair values all nonrecourse securitization obligations was $12.72 per share as of September 30, 2025, down 1.9% from $12.97 per share as of June 30, 2025. The increase in GAAP book value was driven primarily by the aforementioned valuation increases across our portfolio and valuations of the sold bonds from our 2021-4 and 2021-7 securitizations are included as a liability in our economic book value calculation and the markup of these bonds drove the directional difference between GAAP and economic book value. We ended the quarter with unsecuritized residential whole loans at fair value of $425.8 million financed with $342.6 million of warehouse debt, $1.9 billion of residential mortgage loans and securitization trust and $256.2 million of RMBS, including $21.2 million of investments in commingled securitization entities, which are included in other assets on our balance sheet. We finished the quarter with an undrawn loan financing capacity of approximately $707.4 million. Now looking at credit. We ended the quarter with a total portfolio weighted average percentage of loans 90-plus days delinquent at 2.2%, inclusive of our residential loan, securitized loan and RMBS portfolios, which represents a decrease of 15 basis points from the second quarter of 2025. The AOMT securitization shelf continues to demonstrate outperformance relative to other non-QM shelves in terms of delinquency. We expect that throughout the credit cycle, this outperformance will lead to fewer defaults and lower credit losses than comparable non-QM securitization platforms. This expectation is borne out of our intentional effort to move up in credit for our loan originations and purchases over the past couple of years, which continues to provide us with the confidence that we will deliver consistently amid periods of potential volatility. Additionally, we expect our portfolio-wide low LTV, diligent underwriting standards and inherent credit selection to mitigate losses throughout a cycle if credit becomes an issue. 3-month prepayment speeds for our RMBS and securitized loan portfolios were 9.4% to end the quarter, reflecting a marginal decrease compared to the second quarter of 2025. As a reminder, we model our returns on historical average prepayment speed of 20% to 30%. We continue to expect that mortgage rates would need to fall meaningfully in order to drive a significant uptick in refinances and prepayment speeds in our portfolio. Finally, the company declared a $0.32 per share common dividend, which will be paid on November 26, 2025 to common shareholders of record as of November 18, 2025. For additional color on our financial results, please review the earnings supplement available on our website. I will now turn it back to Sreeni for closing remarks. Sreeniwas Prabhu: Thank you, Brandon. I would like to thank the entire Angel Oak team for their hard work towards building what we believe is the best non-QM loan origination, purchase and securitization platform. We look forward to continuing to build long-term value for our shareholders in the coming quarters and years. With that, we'll open up the call to your questions. Operator? Operator: [Operator Instructions] First question comes from Matthew Erdner with JonesTrading. Matthew Erdner: I'd like to touch on kind of the calling of the old securitizations there. One, get your thoughts going forward? And two, how much incrementally were you guys able to pick up on the margin there in terms of cost of funds kind of coming in as a result of calling the securitizations? And then expectation going forward as to what other calls would do to that cost of funds. Brandon Filson: Yes. Thanks, Matt. Yes, 19-2,19-4, those were our very first securitizations that we did even before this vehicle was a public REIT. They're very delevered, the point, I mean, the factors were down to very, very low levels where effectively our retained interest was earning, the weighted average coupon of the deals are in some cases even a bit less. So 6%, 7% kind of retained yields on those bond positions. The $19 million in cash would be then immediately reinvested into whole loans that would at least lever -- earn that unlevered yield today with leverage 12% to 14%. And then once we securitize a 15% to 20% kind of return. So you can think of 8% of our capital over the next couple of quarters going from earning a 6% to a 14% at a base case level. As we look at other deals, I mean, we do have 19-6 securitization and 2020-3 securitization out there that we're evaluating what to do with them as they delever. It all depends on what the execution price and where we are in terms of the cycle, but I'd expect us to be looking hard at that over the next year. Matthew Erdner: Yes. Got it. That's helpful there. And then you guys mentioned competition earlier on the call. I'd like to touch on this given the amount of people that have entered the space are starting to come in. How are you guys able to go out there and kind of source the loans that you find attractive, opportunistic and whatnot and kind of beat out that competition, so to speak? Brandon Filson: Yes. I think we -- with our affiliation with Angel Oak Mortgage Solutions and the Angel Oak platform in general, we've had a very consistent non-QM program over the past many years. Our rate sheets are similar. We're always buying. We're a surety of closing deals. So when we go out, we think we are able to pull in good demand versus maybe the new guys entering the space that may not be there tomorrow, that may change their mind and they're just coming in and out based on a trade item. Again, we said many times, this is a business for us, not a trade. So we have great relationships, again, with our affiliated originators and other third-party originators where they will show us the loans that we want with the rates we want and the prices we want because they know that we'll be able to execute and close those loans. Operator: The next question comes from Doug Harter with UBS. Douglas Harter: Hoping you could touch on your outlook for growth in the investment portfolio, I guess, given a combination of the resecuritization opportunities plus maybe adding some more leverage to the balance sheet. Brandon Filson: Yes. No, I think we have -- we did our senior unsecured notes offering, second one this last summer. That -- those proceeds have effectively been deployed, maybe not fully. I mean it takes several cycles of securitization to get 100% deployed in terms of capital. We released the securitization from the 19-2, 19-4 deals. You'll also see in the filings and whatnot that we also took back at interest in a vehicle that holds some of the nonperforming loans from those deals. It would be about $7 million that -- those proceeds should also be coming in today, literally. Then 25-10 released over $20 million in capital. So we have kind of a very good runway for growth in terms of what we're looking at in terms of purchasing volume. We like to be consistent in the space. We've been buying $200 million to $300 million a quarter really over the past year of loans. We're also looking at -- we have about $75 million worth of HELOCs in our portfolio. We're looking at doing a securitization in that regard here in the coming quarter that should release additional capital and continuing to grow. So we -- and then as you mentioned, we're going to be looking at the 19-2 and then the 2020-3 securitizations to resecuritize and call if and when that time and opportunity comes up. 19-6, sorry, if I said 19-2. Douglas Harter: Great. I appreciate that. And then I know in the prepared remarks, you did walk through some of the difference between GAAP and economic book value in the quarter. But if you could just kind of give a little more detail on just how we might think about the drivers of change as we go forward on those metrics? Brandon Filson: Yes. So the genesis of economic book value was the 21-4 and 21-6 (sic) [ 21-7 ] securitizations that we did immediately post IPO. Those were the deals that were in the Goldilocks phase of the market when interest rates were 0 and the securitization market was incredibly accretive. So they had one of them, 21-4, the coupon on the senior bond was just over 1%. So literally very little funding cost. We made the election at that time, if you recall, to hold those liabilities for those sold bonds at amortized cost, meaning that as obviously, rates sold off over the next couple of years, they stayed at par when in reality, the fair value of those bonds or the fair value of the liability would have been significantly below par. As we're in this cycle now where real rates are starting to decline, securitization market getting better, things are getting tighter. There's a lot of demand for these products. And again, real rates are declining. Those bonds are starting to mark back up, which doesn't happen under GAAP book value. And that's why you see the divergence or the decrease in economic book value quarter versus the increase in GAAP book value because from a GAAP book value perspective, if you think about those 2 securitizations, we effectively have an unhedged asset with several hundred million dollars in loans in it. And then from an economic book value, then we effectively then hedge that back down as that liability is starting to increase in value. And that liability value is based on the value of those sold bonds. Operator: [Operator Instructions] The next question comes from Timothy D'Agostino with B. Riley Securities. Timothy D'Agostino: Just one for me. Regarding the size of securitizations, just looking back to prior quarters, it seems like in 2024, securitizations were slightly above $300 million. So far in '25, they've kind of hovered around $280 million. I was just kind of wondering if we could see future securitizations kind of get back to that $300 million level or if you guys are comfortable with kind of the size you're doing now? Brandon Filson: Yes. We've made the conscious decision to be hitting the securitization market very programmatically and consistently, right, and not waiting in this rate environment to get to a $300 million, $400 million level. That was something we did use to do. And now we found it better, especially with all the supply coming on the market to be a very consistent issuer. That's why this year, we're already up to 10, 11 real non-QM securitizations. We've done the resecuritization. And then earlier in the year, we had our first HELOC securitization. I say we here as AOMT or Angel Oak itself. So we're consistently in the market, and we find that has helped tighten up our spreads and keep our risk low on our balance sheets as we move to term out that funding cost. Timothy D'Agostino: Okay. Great. And just a quick follow-up. Could we see you investing more in HELOCs going forward? Or are you going to continue to just like majority focus on non-QM? Brandon Filson: We're majority focused on non-QM, and we consider our HELOCs non-QM adjacent. A lot of times, they look a lot and they feel a lot like a non-QM loan from what we're doing. They're just -- especially in today's environment, they're very attractive in terms of their yield profile. Like you can see from some of the disclosures, the weighted average coupon on those are just north of 11% currently versus new originated non-QM loans, 7.25% to 7.5%. The funding cost is similar between the two, so you can get a lot of extra margin on those. I would imagine that over the coming quarters, we'll keep it kind of where we are today, which is, call it, $75 million to $150 million worth of HELOCs in the portfolio, and then we'll securitize them off. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Brandon Filson for any closing remarks. Brandon Filson: All right. Thank you, everyone, for your time and interest in Angel Oak Mortgage REIT. We look forward to connecting with you again for year-end. In the meantime, if you have any questions, feel free to reach out to us, and have a great day. Operator: Thank you. The conference has now concluded. You may now disconnect your lines. Thank you.
Operator: Good day. Welcome to Teads Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Teads Investor Relations. Please go ahead. Unknown Executive: Good morning, and thank you for joining us on today's conference call to discuss Teads Third Quarter 2025 Results. Joining me on the call today, we have David Kostman and Jason Kiviat, the CEO and CFO of Teads. During this conference call, management will make forward-looking statements based on current expectations and assumptions, including statements regarding our business outlook and prospects. These statements are subject to risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. These risk factors are discussed in detail in our Form 10-K filed for the year December 31, 2024, as updated in our subsequent reports filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the call's original date, and we do not undertake any duty to update any such statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's third quarter earnings release for additional information and reconciliations of non-GAAP measures to the comparable GAAP financial measures. Our earnings release can be found on the IR website, investors.teads.com, under News and Events. With that, let me turn the call over to David. David Kostman: Thank you, Josh. Good morning, and thank you for joining us. Before diving into the details of the quarter, I'd like to start with an update on the merger, our turnaround actions and how we're positioning Teads for renewed growth and sustained profitability. While this quarter presented challenges and our results fell short of expectations, we are taking decisive actions to drive a stronger performance moving forward. The integration of our 2 scaled organizations is complex with a strategic effort, and we are actively addressing the challenges we encountered. In addition to the merger complexities, we continue to navigate a dynamic and fast-evolving ecosystem marked by shifting traffic patterns across the open Internet and increasing competition on the demand side. Macro volatility in certain geographies and verticals and shorter planning cycles continue to affect pacing. At the same time, we remain confident in the strategic thesis behind our merger and are excited about the long-term opportunity. We believe that the combination of our technology, data capabilities and deep relationships with enterprise, brands and agencies places Teads in a uniquely strong position to be a strategic partner at a global scale for brands and their agencies. And our cross-screen, outcome-driven ad platform led by our fast-growing connected TV business is resonating with customers and partners. I've just returned from our strategic product offsite, and I can tell you that the innovation, creativity and energy of our teams are truly inspiring. This reinforces our confidence in Teads' future and our ability to lead the industry forward. With this backdrop, we decided to take decisive actions in effort to turn the business around, restore growth and improve profitability. Over the past 2 quarters, we've made meaningful progress on the integration and realization of synergies. Operationally, during Q3, we restructured the leadership of our regions and improved our sales team's coverage structure and sales processes. These measures are already yielding some improvements in key leading indicators, though the revenue impact is still in its early stages. In parallel, after working as 1 merged team for 2 quarters, we also decided to conduct a comprehensive business review to identify additional opportunities to restore growth, enhance profitability and generate positive cash flow while building a great company. The plan we developed focuses on 3 main dimensions: First, portfolio optimization to product, geography and customer segment evaluation, prioritizing investments in innovation and high-growth opportunities while taking steps to improve the profitability of the other parts of the business. Second, operational efficiency, refining our organizational structure and processes to enhance agility and accountability. And third, cost optimization, identifying further efficiencies to improve our financial profile and long-term cost structure. We are rapidly moving into execution of these plans with implementation beginning in the coming weeks with the objective of driving immediate impact. These plans should allow us to continue investing in strategic growth while delivering meaningful incremental EBITDA. We are focused on operating as a positive cash flow business. So far year-to-date, we have generated positive adjusted free cash flow, and our objective is to focus on improving our cost structure and efficiencies to finish the year positive as well. As you may have seen in our separate press release this morning, I'm very excited to welcome on board Mollie Spilman as our new Chief Commercial Officer. Mollie brings a wealth of experience on the sales and operations side at scale. She served as Chief Revenue Officer and then Chief Operating Officer at Criteo for 5 years when the company grew revenues from $600 million to over $2 billion. Most recently, Mollie was the Chief Revenue Officer at Oracle Advertising, where she helped clients realize value through the activation of third-party audiences and contextual targeting. Prior to that, she held senior leadership roles at Millennial Media and Yahoo!. I'm truly excited to welcome Mollie to our leadership team. She brings exceptional experience, fresh perspective and a proven ability to lead through transformation. Her insight and commitment to excellence will not only strengthen our leadership team, but also inspire our entire organization as we move forward towards a stronger future. Now, I will turn to some highlights from the quarter. Connected TV remains our most important growth area. In Q3, we saw continued growth of approximately 40% year-over-year. On a stand-alone basis, assuming continuation of recent trends, our CTV business is expected to hit the $100 million mark by end of year. As a reminder, our CTV business focuses on 3 key pillars: on screen, the innovative CTV placement where we continue to be a global leader, other proprietary formats such as POS ads and in-play and cross-screen, which facilitates full-funnel activation. Our connected TV home screen product continues to gain traction, establishing Teads as a leader in this market. We've executed over 2,500 home screen campaigns since launch and expanded partnerships with major CTV players, including TCL and Google TV, alongside existing relationships, some of which are exclusive, including LG, Samsung and Hisense, giving us access to over 500 million addressable TVs globally. We believe that new research from the [ Media Mentor Institute ] demonstrate the power of our CTV home screen, which based on early results, achieved a 48% attention rate and delivered a 16% attention premium over YouTube skippable ads. Cross-screen adoption is strong with over 10% of our branding advertisers now active across both CTV and web. During Q3, we launched CTV Performance, which is designed to enable brands to bridge awareness and performance goals across premium streaming and video environments. For example, in a recent campaign with Men's Wearhouse, Teads generated over 41,000 site visits and more than 50,000 incremental store visits, which we believe demonstrate that CTV can now drive measurable outcomes across the funnel. While CTV continues to grow quickly, we continue to experience declining pay views on premium publishers, partly due to increased adoption of AI summaries and volatility in our programmatic supply. However, this has been partially offset by ongoing RPM improvements and by actions taken by publishers to increase engagement of their audiences, particularly on their applications. On the cross-sell front, i.e., selling performance solutions to legacy Teads clients, clients such as Homes.com, Lavazza and Nissan are successfully combining branding and performance campaigns, driving measurable full-funnel results. Encouragingly, we're seeing improvements in new business opportunities and a notable inflection in cross-sell revenue, albeit from a small base, with October revenue and bookings growing by more than 55% month-over-month in cross-sell. It is important to remember the open Internet remains a vital channel for advertisers seeking incremental reach and unique audience engagement. For example, a recent case study with a major U.S. CPG brand demonstrated over 90% incremental reach when extending campaigns beyond social into the open Internet, which we believe is a powerful example of Teads' ability to connect brands with new audiences beyond walled gardens. In addition to our CTV expansion, diversifying beyond traditional publishers into potential high-growth, high-value media environments, our retail media innovation continues to advance with more updates and partnerships being announced soon, providing enterprise brands with simplified access to multiple retail media networks through Teads Ad Manager. Moving to AI and algorithmic breakthroughs. The acceleration of our AI and algorithmic capabilities stands as one of the most exciting and impactful outcomes of the merger, already yielding tangible improvements and establishing a highly promising trajectory for 2026. First, the combination of the 2 companies' data science teams, data sets and know-how is resulting in real benefits for both brand and performance campaigns with improved conversion rates, click-through rates, auction level bids and AI-based campaign pacing. After a testing period, we are in the process of rolling out some of these benefits to the entire network. Second, the adoption of large language foundational models for advertising. Our next-generation approach trains a single unified advertising foundational model that learns from all available data, user actions, publisher signals and advertiser goals to deliver exceptional predictive power across the entire advertising life cycle. This shift represents a transformative step in ad selection and personalization, unlocking performance improvements across every stage of the funnel. We believe the improvements to our platform driven by this foundational model could be one of the most significant drivers of performance going forward. To sum it up, we fully acknowledge that our integration journey has come with challenges and the progress has not been linear. However, we remain confident in the strength of our vision, the resilience of our teams and what we believe is the unique value proposition of our integrated platform. We are enhancing our leadership team, sharpening our execution, focusing resources in the areas of greatest opportunity and taking decisive steps to build a more efficient, innovative and profitable business. Looking ahead to 2026, our growth and profitability strategy will center on 5 key pillars: First, connected TV growth through home screen formats and cross-screen activations; second, deepened strategic relationships with agencies and enterprise brands; third, expansion of performance campaigns with enterprise clients; fourth, algorithmic and AI advancements driving nonlinear improvements in results; and fifth, enhanced profitability in our direct response business. We plan to share a detailed 3-year outlook and road map at an upcoming Investor Day in March, and we look forward to discussing our progress and vision in more depth at that time. With that, let me now turn it over to Jason to walk through the financials. Jason Kiviat: Thanks, David. I want to start by saying I'm disappointed by our results, landing slightly below our Q3 guidance for Ex-TAC gross profit and adjusted EBITDA. We experienced volatility in our top line and expect a continuation of this in the short-term, but are committed to taking steps to protect our cash flow as we focus on realizing our long-term vision. Revenue in Q3 was approximately $319 million, reflecting an increase of 42% year-over-year on an as-reported basis, driven primarily by the impact of the acquisition. On a pro forma basis, we saw a year-over-year decline of 15% in Q3. I'll touch a little more on the headwinds David mentioned and we spoke about last quarter. While the operational changes we made in U.S. and Europe are showing a measurable improvement in terms of building a stronger sales pipeline that gives us confidence in the longer-term improvement, we continue to see a lower rate of sales in key countries, namely U.S., U.K. and France. As noted last quarter, these 3 regions, which represent about 50% of revenue, are effectively driving all of the headwind on the legacy Teads business with many other countries neutral or growing, including the DACH region, which is our second largest. The impact of the operational changes is encouraging, but it's clear that the time line to see the real fruits of these changes is longer than we anticipated. The pipeline is growing, and we're focusing our resources and efforts in the coming quarters on driving long-term and sustainable value propositions for enterprise advertisers. On the legacy Outbrain business, we see a couple of drivers. One, we continue to see lower page views year-over-year. The residual impact from our cleanup of underperforming supply partners remains a headwind of about $10 million year-over-year in the quarter. And generally speaking, we continue to see lower page views on our partner sites, continuing the trend from prior quarters. While we also continue to see growth in RPM that partially offsets this, it has been less of an offset in the last couple of months, causing the page view decline to have a larger negative impact on revenues in the quarter. Following the merger, we made several strategic decisions around components of the legacy Outbrain business that we wanted to deemphasize and potentially decommission. These decisions are centered around quality and focus on our long-term vision. Examples of these actions include the supply cleanup we talked about as well as additional changes we have made around content restrictions for certain segments of demand and the deemphasis of our DSP business and DIY platform. The revenue impact of these factors has been larger than expected, most meaningfully in our DSP business, where a few large clients lowered their scale meaningfully across our platform, driving a decline in Ex-TAC year-over-year of $5 million in Q3. On the positive side, CTV revenue continues to be a growth driver, growing around 40% in the quarter and projected to $100 million for the year. And this is an area where we still see ourselves in the early innings, representing about 6% of our total ad spend with a margin that has expanded year-over-year as we scale it and further differentiate our offering. Ex-TAC gross profit in the quarter was $131 million, an increase of 119% year-over-year on an as-reported basis. Note that Ex-TAC gross profit growth is outpacing revenue growth, which is driven primarily by a net favorable change in our revenue mix resulting from the acquisition, but additionally aided by the continuation of improvements to revenue mix and RPM growth from the legacy Outbrain business. Other cost of sales and operating expenses increased year-over-year, predominantly driven by the impact of the acquisition. Note, in the quarter, we recognized $4 million of acquisition and integration-related costs as well as $1 million of restructuring charges. Also note that we recorded a benefit from deal-related cost synergies in Q3 of approximately $14 million, approaching the $60 million annual run rate for 2026 that we had guided previously. This was always an initial milestone in our view, and we feel there is more opportunity ahead. Adjusted EBITDA for Q3 was $19 million. And adjusted free cash flow, which, as a reminder, we define as cash from operating activities less CapEx and capitalized software costs as well as direct transaction costs was a use of cash of $24 million in the quarter, driven largely by the $32 million semiannual interest payment made in August. Year-to-date, we have generated adjusted free cash flow of $3 million. As a result, we ended the quarter with $138 million of cash, cash equivalents and investments in marketable securities on the balance sheet and continue to have EUR 15 million or about $17.5 million in overdraft borrowings classified on our balance sheet as short-term debt. And we have $628 million in principal amount of long-term debt at a 10% coupon due in 2030. We generated positive adjusted free cash flow year-to-date and are focused on improving our cost structure and operating as a cash flow generating business. As David mentioned, we are working intently on ways to drive better profitability and growth as a combined company, which involves a deep analysis of our operating model and opportunities for efficiencies. As we move into the implementation of these plans in coming weeks, we expect a benefit to adjusted EBITDA of at least $35 million on an annualized basis and to start seeing a small impact of that in Q4. And as we look towards Q4, our visibility, like others in the space, remains challenged by the shorter planning cycles from advertisers. Given this and the seasonality of the business, we exercised an increased level of caution in our guidance. And with that context, we provided the following guidance. For Q4, we expect Ex-TAC gross profit of $142 million to $152 million, and we expect adjusted EBITDA of $26 million to $36 million. Now I'll turn it back to the operator for Q&A. Operator: [Operator Instructions] Our first question is from Matt Condon with Citizens. Matthew Condon: My first one is, just can we just unpack the headwinds in the quarter there were multiple things. Is it just mainly the continuation of the things that you saw last quarter? How much of it was the degradation in search traffic? And then also, I think you called out some macro headwinds as well. Could you just parse through those and just talk about the different components? David Kostman: Let me just maybe at the high level, I think overall, you see a combination of factors. We don't believe there's anything structural. It's -- a lot of it relates to distractions from the merger and the execution challenges that we highlight that are taking longer than we had anticipated, and we needed to take deeper actions that Jason highlighted. There is some weakness in certain geographies and verticals, but we believe that we -- with the actions we're taking, we can turn the business around. Jason, do you want to give more details? Jason Kiviat: Sure. Yes. I mean just breaking it down a little bit as far as what was maybe disappointing to us in Q3 versus what we expected a few months ago. Certainly, just an increased level of demand volatility and kind of drove drivers on both sides of the business. On the Teads side, we talked about the operational changes we made early in the quarter in response to the slowdown that we started to see at the end of Q2. And effectively, what we've seen is just a slower-than-anticipated impact from those changes, and it's really impacting the same key countries that we talked about last quarter in U.S., U.K. and France. Typically, Q3 builds towards September being easily the strongest month of the quarter, and it still was, but not to the level that we would typically see historically, which was a little bit of a negative surprise for us. Visibility does remain challenged with advertisers. They still have shorter planning cycles. We've been talking about since really the beginning of this year with the tariff announcements and other things kind of impacting that. On the positive side, we did see, I said, growth in some regions. We did -- we do see just kind of health and the impact of the changes that we made. The pipeline as we measure it, is growing. We see that starting to pay off a little bit in October here, but it's still early days, and we think it will take longer. We also see stronger cross-sell. We see stronger CTV, which are really 2 of our very main focus areas, as David said. So some optimism there. On the Outbrain side, I think you asked about the impact of the page views. They did tick a little bit lower in Q3 than what we saw in Q2. And we also saw RPM continues to grow and be an offset against that, but there was a little bit less of an offset in Q3 as the quarter went on, and that drove it a little bit of the softness as well as, as I said on the call, the strategic decisions we made around quality, the supply cleanup in H1, demand content restrictions that we've employed having a bigger impact than what we expected. Matthew Condon: And then just as a follow-up, just what is your willingness to -- if things don't materialize, just to take the right steps to protect free cash flow here as you look out into the rest of this year and into 2026? David Kostman: I think we said it on the call, I think we are committed to it. We generated positive free cash flow year-to-date adjusted positive free cash flow, and we're taking all the steps to continue to do that. We talked about the plan that is really a transformational plan around deciding on which areas to focus and invest. So we're still in investment only in certain growth areas, but I think we're looking at business components in a smarter way. We did this exercise in the last 8 weeks to really analyze in-depth the business, decided on the focus areas. And part of that, we will be generating a minimum of $35 million of incremental EBITDA, that's a combination of this transformation and cost efficiencies. So we're definitely committed to that. Operator: Our next question is from Ygal Arounian with Citigroup. Ygal Arounian: So I know you're not going to want to give a 2026 outlook here, but just given how 2025 has trended and the work on the integration, maybe if you could just -- I know investors are going to want to look into 2026 and get a better sense of the confidence level on initially some of the sales execution. Now we're changing some of the product, $35 million of savings you're calling out. Any help for investors to kind of think through the pace of this and the level of confidence that this stuff really finally starts to come through and kind of think about next year? David Kostman: I think we're not giving specific -- Ygal, thanks. We're not giving specific guidance to 2026. What we see is some positive indicators month-over-month in growth in CTV, growth in cross-sell, and we decided on focus areas of innovation, they're going to be focused around the agency side, the CTV side. We believe that, that with a combination of sort of the plans we have around the sort of EBITDA improvement will get us to -- we expect to get to single-digit growth in certain areas of the business and run certain areas of the business for profitability. Once we finalize these plans, we will be communicating in more detail. Jason Kiviat: Maybe what I could add to that, Ygal, this is Jason, just to give a little bit more color. We definitely see an impact of the changes that we've made kind of confirming the operational drivers that we talked about last quarter. And what I mean by that is, for example, we made the changes with the structure in the U.S., which has been our underperforming region. We made the change in July. We immediately saw more meetings, more RFPs a bigger, healthier pipeline being built, equity being built with the brands and agencies that we've worked with historically. And we are starting to see early returns. I mean, in October, early kind of results from that impact, it's still down, but it's down less by close to 10 points on a year-over-year basis, right? And so, it's nominal. It's early, but we do think this is the kind of thing that pays off more over time and that it's not as quick of a turnaround as we had hoped for. We've spent a lot more time with clients ourselves, understand a little bit more about some of the challenges and starting to address them and how we win, and that's prioritization of product, just strategic relationship building, commercial terms. And these are things that are not as we had hoped, a 90-day sales cycle turnaround, but rather things that probably take a few quarters, right? And so, we feel good. We feel obviously a lot smarter. We think we need to make changes, and we've talked about what we're doing there. But we feel good about the areas that we're focused on for sure. Ygal Arounian: Okay. So just -- is it fair to say that you're starting to see some early benefits from the sales reorganization still down, still taking time, but starting to see improvements and then the kind of structural changes you're talking about all that's pretty new and starts to come through more next year, or I guess, in 4Q and into next year? David Kostman: I think that, Ygal, that's very fair. And as Jason said, we already see signs, again, they are leading indicators in terms of RFP sizes of those opportunities, more opportunities are opening, more active meetings that are leading to generating pipeline. Again, October was less of a decline than in September. We see good data points in the U.S., which is the main market we address. I think in the U.K., we're also starting to see some impact of the changes. I'm very excited to have Mollie on board. I mean she brings a tremendous experience. I mean she's sort of led. She was the CRO and COO of Criteo in years where they grew from $0.5 billion to $2 billion. She is a very experienced sales leader, operational leader. I think it's -- we spent a lot of time in the last few weeks looking at this. She believes, obviously, there's a huge opportunity here, and it's sort of in our control to fix. Operator: Our next question is from Laura Martin with Needham & Company. Laura Martin: So let's start. Jason, one of the things you said is you lost several big clients and about $5 million of revenue from them. Can you go into the background of why they turned away from your DSP? Like what -- is it just that we're getting winners and losers and they're pulling money? Is it stuff Trade Desk is doing that's out of your control? I assume there's nothing you did in a single quarter that -- so it's something somebody else is doing like Amazon or Trade Desk or taking share from you. But can you talk about that and why that isn't structural because it sort of sounds structural to me. Let's start with that one. Jason Kiviat: Sure. Yes. So to maybe give a little more color on the -- yes, it's a small number of customers that I was referring to buying on our Outbrain DSP business. It made up the majority. It made up about 2/3 of our DSP business coming from this kind of small group and segment of customers spending on it. And I kind of quoted the impact there of $5 million Ex-TAC impact year-over-year. We've made changes around supply. As I said in the first half of the year, we've also been making changes. And this part is not really anything new for us, but we continuously do this of content rules and content restrictions to make sure that things are up to our quality and what we want to allow out there. And some of these changes made by us and also changes that just impact the customers from their own business models and how they're able to use the platform to run their own business models caused them to reduce their spend dramatically. And we did expect an impact. We didn't expect it to be so binary is maybe how I would put it. But we saw the spend leave, and it's not that it went somewhere else as far as we know. I think it's just impacts their model and their ability to spend in general. And as I said, we don't expect this to come back online certainly in Q4. And this was like 2/3 of the DSP business and the rest of the business is really fundamentally different. I don't see a similar risk with the remaining portion, but I hope that is helpful. David Kostman: Maybe just, Laura, to clarify on that. I mean the whole move to a more premium network is a big move. I mean it's something that takes time. We can't always assess the whole impact. I mean we talked about $10 million in revenue impact from removing supply sources, deemphasizing the DSP. These are legacy Outbrain, I would say, hardcore performance. Other people are taking some of this business. We -- as we move forward with the more premium placements that we need to offer the guarantee of quality to the enterprise clients, I mean these are certain steps that are hurting more than we had anticipated, but I think it's going to be something that, again, we're not -- as Jason said, we don't expect it to come back. I mean it's something that sort of we deliberately are doing. And right now, obviously, feeling the pain of it. But I think when we're looking at the strategic direction of the company, these are some of the right moves and some of this happening faster than we thought. Laura Martin: Okay. Yes, that makes sense. And that's helpful because it limits the downside to the DSP segment. Okay. And then, David, one of the things you said at the top of your comments was that you are seeing -- you're the first actually ad tech company that's reported that says they're seeing a diminution in traffic. Magnite said they're hitting record traffic levels even excluding bots. So I'm curious about that. Do you think that's because your content is primarily news and that also sounds structural. So can you talk about this -- the traffic demise that you're seeing that at least other CEOs are not admitting to. So I'm interested in what you're seeing on the traffic side. David Kostman: So I would just not use the word demise. What we have seen and we analyze this obviously daily basis, when we look at the -- so our business is growing very fast on CTV, we're expanding beyond the traditional publisher world in a very aggressive way, and this is -- I talked about the focus areas. On the traditional publisher side, when we look at the sort of list of premium publishers, we saw around between 10% and 15% decline in paid views. I mean these are the numbers we are seeing. I think it's very consistent with everything you're reading out there. So if everyone is saying that there's no decline in publisher page views, I suggest you do a ChatGPT and you'll see those numbers. What we see, I think it's a little bit softer on in-app traffic. In-app traffic is about 30% of those publishers traffic. And there, we see still some decline in the page views lower than that. So single-digit on the in-app and on the web, around 10% to 15%. That's what we see on a certain segment of publishers that I believe is representative. Operator: Our next question is from Zach Cummins with RBC -- sorry, B. Riley Securities. Ethan Widell: This is Ethan Widell calling in for Zach Cummins. I guess just piggybacking on that conversation about page views. How much of that do you suspect is coming from disruption from GenAI search? And otherwise, what would you attribute the decline to? David Kostman: It's difficult to put a specific number of it. I would say that it is -- the decline is accelerating because of AI summaries and the changes in discovery. So I think it is impacting the traffic to those websites. Ethan Widell: Understood. And then regarding free cash flow going forward, maybe what are your expectations in terms of free cash flow positivity or maybe what the time line to sustainable free cash flow looks like? David Kostman: Just one comment on the page views still. I mean, what we didn't mention, but we're seeing -- we continuously see improvements in RPM. So we're offsetting some of that decline. I mean we had 8 consecutive quarters in growth on revenue per pages, RPM. We're diversifying the business. We're working with those publishers with POCs around how to monetize LLM sort of inputs and platforms that they are using. So there's a lot that's being done. It's not that I think publishers are sitting there and not doing -- taking actions. We are partnering with many of them to increase the engagement of users. We are continuously improving RPM. I mentioned on my prepared remarks, I think one of the exciting things is the algorithmic improvement that we see out of the merger. And we think that is only the beginning, and we into 2026, see a really great trajectory of continued significant improvements on those RPMs. So that's on that front. Sorry, Jason. Jason Kiviat: Yes. So your question, Ethan, about cash flow. So cash flow is something that we take very seriously, of course. Year-to-date, our adjusted free cash flow is positive at a few million dollars. We do expect the year to be around breakeven, depending on just timing of working capital around period end, et cetera. We are seeing, of course, lower Ex-TAC. It's resulting in lower EBITDA, lower cash flow, which has brought down our -- versus our expectations from earlier in the year. But we also do expect lower cash taxes, lower CapEx, lower restructuring costs and things that do partially offset that. So we do think we're in okay shape for this year. And obviously, as I say, we take it very seriously in a lot of our look at the project that we're moving to the implementation phase on now in our analysis, cash flow guides a lot of that as well. And as I said, we do expect to take that $35 million of improvement to EBITDA on a run rate basis, starting here with some impact in Q4. So we do think there will be a sizable impact on 2026. And continue to obviously work also on other cash taxes optimization and those things as well are areas that we still are less than a year from merging and still optimizing at this point. So we do aim to generate cash. It's important for us to do so. I'm not guiding obviously anything for 2026 at this point, but I want to make sure you take away from here how serious we view it and how important it is to us. Operator: [Operator Instructions] Our next question is from James Heaney with Jefferies. James Heaney: Yes. It would be great just to hear a little bit more about some of the puts and takes for the Q4 Ex-TAC gross profit guide and what you're assuming for that. Jason Kiviat: Sure. So maybe I'll start here, David, anything you want to add, please do. Our giving guidance here, obviously, we've got a lot to consider. So the visibility is still a little bit challenged by the volatility we've seen. Advertisers continue to have much shorter planning cycles than we historically are used to. And obviously, based on how Q3 played out, where the end of the quarter spike was much more muted than we historically have seen, it certainly gives us a little bit of pause, and we want to exercise additional caution when we're giving guidance. So all that said, we think it's prudent to be conservative and set ourselves up here. Maybe just some of the facts that we're seeing so far into Q4 that might be helpful beyond that. October is performing on the legacy Teads side, October is performing a little bit better than what we saw in Q3. October is typically about 30% of the quarter. So we're still dealing with the bulk of it ahead of us, and there still is volatility in the pipeline. And our guidance, based on what I'm telling you, our guidance for the balance of the quarter is implying a lower performance than what we saw in October. Again, kind of take from that based on my remarks on the things that we're considering in here. On the Outbrain side, we do assume the headwinds that impacted Q3 will impact Q4 even more so within the DSP business, as we said, certain segments of demand, and that drives a deceleration of the performance relative to Q3. Smaller, but on the positive is, we do see October growth in CTV. We do see October acceleration in cross-selling. And these are off a small base, but meaningful accelerations in our focus areas, right? So it gives us some optimism there. But obviously, weighing the collective here, we think it's prudent to guide the way that we are. And I will say that we do expect our cash flow for the year to be around breakeven. Operator: We have reached the end of our question-and-answer session. I would like to turn the conference back over to David for closing remarks. David Kostman: Thank you. Thank you for joining. As you can see, we are very focused on execution, financial discipline. We are investing in growth areas still. We have a clear plan of how to extract more EBITDA into next year and look forward to keeping you updated on the progress. Thank you. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Hello, and welcome to Clear Channel Outdoor Holdings, Inc. Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] Also, as a reminder, this conference call is being recorded today. If you have any objections, please disconnect at this time. It's now my pleasure to turn the call over to Laura Kiernan, VP of Investor Relations. Laura, please go ahead. Laura Kiernan: Good morning, and thank you for joining our call. On the call today are Scott Wells, our CEO; and David Sailer, our CFO. They will provide an overview of the third quarter 2025 operating performance of Clear Channel Outdoor Holdings, Inc. We recommend that you download the third quarter 2025 earnings presentation located in the Financial Information section of our Investor Relations website and review the presentation during this call. After an introduction and review of our results, we will open the line for questions. Before we begin, I would like to remind everyone that during this call, we will make forward-looking statements regarding the company, including statements about its future financial performance and its strategic goals. All forward-looking statements involve risks and uncertainties, and there can be no assurance that management's expectations, beliefs or projections will be achieved or that actual results will not differ from expectations. Please review the statements of risk contained in our earnings press release and on our filings with the SEC. During today's call, we will also refer to certain measures that do not conform to generally accepted accounting principles. We provide schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of the earnings presentation. When reviewing the earnings presentation, it is important to reiterate that all European and Latin American operations are reported as discontinued operations for all periods presented. This includes our current business in Spain, our former business in Brazil, which was sold on October 1, our former businesses in Mexico, Chile and Peru, which were sold on February 5; and our former Europe North segment, which was sold on March 31. Our reported consolidated results include the America and Airport segments and Singapore. Also, please note that the information provided on this call speaks only to management's views as of today, November 6, 2025, and may no longer be accurate at the time of replay. Please see Slide 4 in the earnings presentation, and I will now turn the call over to Scott. Scott Wells: Good morning, everyone, and thank you for taking the time to join us today. Many thanks to those of you who were able to participate in our Investor Day in September. We hope you came away with a clear understanding of our vision, strategy and financial goals as we center all our efforts on accelerating our revenue growth in the U.S., increasing our cash generation and reducing debt. Turning to our results. On a consolidated basis, we generated revenue of $405.6 million, representing a year-over-year increase of 8.1%. This was driven by record third quarter revenue levels in both segments. Our Americas segment grew 5.9% with our 18th consecutive quarter of year-over-year local revenue growth, and Airports delivered another great quarter with 16.1% year-over-year revenue growth. We saw growth in key markets, including New York and San Francisco, in national and local sales channels and in digital and programmatic sales. Categories that continue to perform well across the company include banking, legal services and technology, including AI. We remain on track to achieve our financial guidance for the year as we benefit from our focus on customer centricity, accelerating technology capabilities and sales execution and further strengthening our balance sheet. Our transition into a U.S.-focused company has improved our risk profile while allowing us to focus our management team on a range of initiatives to drive more business across our platform while pursuing operating efficiencies through our zero-based budgeting effort. In addition to our financial results, we announced some important milestones during and shortly after the third quarter as we continue simplifying and derisking our company. On September 7, we entered into an agreement to sell our business in Spain to Atres Media for approximately $135 million. On October 1, we closed the sale of our business in Brazil for $15 million. Once the Spanish sale closes, we will have completed international divestitures worth nearly $900 million. We also continue to derisk our capital structure and extend our debt maturity profile with the August debt refinancing. We continue to strategically reinvest in our business and our digital conversion plan remains key as we leverage our reach, data analytics capabilities and verticalized sales teams to expand our presence in the broader advertising market and gain share. Last quarter, I spoke about the success we were having with pharma driven by our advances in technology, analytics and our go-to-market strategy. This quarter, I would like to share another example of how we are leveraging the power of our out-of-home scale to serve brands in major cities like New York with global events like the recent U.S. Open tennis tournament. For this year's tournament, we executed multiple campaigns for national advertisers looking to connect with the massive and highly attractive audience attending the U.S. Open. We delivered an unmatched advertising platform covering thousands of tennis fans throughout their journey from our inventory in the New York airports as they arrived to our newly expanded New York roadside inventory as they travel to and from the city and finally, through our high-profile inventory in and around city field, adjacent to the U.S. open venue. Our business is increasingly surrounding live events with powerful advertising displays in dynamic and integrated ways. This is also a great example of how we're performing on our expanded New York inventory, and I'm pleased to announce that we're ahead of our internal projections for these assets. They are on track to be cash flow positive in year 1. We've lapped the fixed cost site lease headwind and expect to see accelerating growth as we've now fully incorporated them into our network. Diving deeper into our airports platform to show the power of our inventory, a recent study by Nielsen Scarborough found that airports media is the perfect canvas on which to tell a brand story. According to the study, among frequent flyers who noticed airport advertising, 82% read the ads, 61% recalled seeing them and 57% took action after viewing an ad, a clear demonstration of the impact of this medium. Additionally, the study shows that experiential marketing works well in airport settings and in-person brand experiences are highly appealing with 89% of frequent flyers wanting to sample food or beverages and 62% interested in trying new products they had seen advertised in airports. As we execute on our revenue-driving initiatives, we are also on track to deliver a further reduction in our corporate costs. This is enabled by a combination of direct savings related to the sale of our international businesses as well as the additional efficiency opportunities stemming from our zero-based budgeting efforts, as I previously noted. We are on track to deliver the $50 million in corporate cost savings announced during our Investor Day. To sum it up, our business remains healthy in the fourth quarter, and we are on track to deliver on our financial guidance for the year. We now have 90% of our Q4 revenue guidance under contract and our business pipeline remains strong. In addition, we remain on track in pursuing the multiyear goals we discussed at Investor Day of 6% to 8% adjusted EBITDA growth, $200 million in AFFO and net leverage of 7 to 8x by the end of 2028. So the future looks bright for our company as we actively pursue what we believe is a substantial opportunity to unlock shareholder value as a U.S. focused organization and leader in our space. And with that, I will turn the call over to Dave for the financial review. David Sailer: Thanks, Scott. On to Slide 5 for an overview of our results. The amounts I refer to are for the third quarter of 2025 and the percent changes are the third quarter 2025 compared to the third quarter of 2024, unless otherwise noted. Our results this quarter continued the steady trend we've seen all year with solid revenue growth and strong liquidity, positioning us well to achieve our year-end guidance. Consolidated revenue for the quarter was $405.6 million, an 8.1% increase, in line with our guidance. The increase was driven in part by strong digital revenue and growth across all sales channels. Adjusted EBITDA for the quarter was $132.5 million, up 9.5% and AFFO was $30.5 million, up 62.5%, both within our expectations. On to Slide 6 for the Americas segment third quarter results. America revenue was $310 million, up 5.9%, in line with guidance. The increase reflected growth across both print and digital revenue with continued benefit from the MTA Roadside billboard contract and improvements in the San Francisco Bay Area. Mobile sales were up 5.7% and national sales were up 6.1% on a comparable basis. Segment adjusted EBITDA was $133.4 million, up 3.9% with a segment adjusted EBITDA margin of 43.1%. Please see Slide 7 for a review of the third quarter results for Airports. Airports delivered another great quarter with revenue of $95.6 million, up 16.1%, in line with guidance. The increase was driven by digital revenue up 37.4% and strong performance in national sales, which grew 25.2%. Mobile sales were up 3% on a comparable basis. Segment adjusted EBITDA was $21.9 million, up 29.2% with a segment adjusted EBITDA margin of 22.9%. Moving on to Slide 8. CapEx totaled $13.2 million in the third quarter, down 25.9%, driven by lower digital spend and reduced contractual spend on shelters. Now on to Slide 9. We ended the quarter with liquidity of $366 million, which includes $155 million of cash and $211 million available under the revolvers. Following the amendments of our revolving credit facilities in the second quarter, which extended maturities through June 2030, we completed a $2.05 billion senior secured note offering in August, refinancing $2 billion of existing notes and increasing our weighted average time to maturity to 4.8 years at the time of the refinancing. Through this refinancing and our second quarter debt buybacks, we have maintained essentially flat annualized cash interest, and this does not include interest savings of approximately $28 million from the prepayment of the CCIBV term loans. Now on to Slide 10 and our guidance for the fourth quarter and full year of 2025. For the fourth quarter, we expect consolidated revenue to be within $441 million to $456 million, representing a 3% to 7% increase over the same period in the prior year. We expect America revenue to be within $322 million to $332 million, representing a 4% to 7% increase over the same period in the prior year and Airports revenue to be within $119 million to $124 million, representing a 3% to 7% increase over the same period in the prior year. Given our year-to-date performance and our outlook for the fourth quarter, we've tightened our consolidated full year revenue guidance range. We now expect consolidated revenue to be within $1.584 billion to $1.599 billion for the year, representing a 5% to 6% increase over the prior year. We continue to expect full year adjusted EBITDA to be within $490 million to $505 million, up 3% to 6% from last year, and we now expect full year AFFO to be within $85 million to $95 million, up 45% to 62% from last year. And we continue to expect full year CapEx to be within $60 million to $70 million. And following our recent capital markets transactions, we continue to anticipate future annualized cash interest of approximately $390 million, assuming no additional activity. As we discussed during Investor Day, we are powering our cash flow flywheel, including growing revenue, expanding margins, increasing AFFO and reducing debt. Through this meaningful debt reduction, we are actively converting enterprise value from debt to equity. And now let me turn the call back to Scott before we take your questions. Scott Wells: Thanks, Dave. To summarize, we believe we are at a pivotal moment with industry trends in our favor, irreplaceable premium inventory and strong digital capabilities that together create real growth opportunities. The disruption in search and linear TV ad markets makes this the most exciting ad market in which we've operated. As the last mass visual medium with increasing analytic firepower, our industry is poised to gain share if we do the things we need to do. I believe we are doing those things and excited about the opportunities that lie ahead. To that end, I want to thank our company-wide team for their continued dedication and hard work as we pursue this great opportunity. We are confident in our ability to achieve our near-term guidance and long-term goals, including sustainable top line growth, expanded margins and meaningful deleveraging in line with what we discussed on our Investor Day. For those of you who don't recall, we described adjusted EBITDA growth of approximately $115 million by year-end 2028 and applied our then current multiple, yielding value creation of roughly $1.3 billion. We added to that further debt paydown of about $400 million in the same time frame. Taken together, we see this as an opportunity for value creation of approximately $1.7 billion for shareholders based on the plan we laid out with further upside if we realize some of the discontinuities we discussed or see improvement in our valuation multiple. With a streamlined business and a growing digital portfolio, we expect to enter 2026 from a position of strength. And now we welcome your questions. Operator? Operator: [Operator Instructions] Our first question is from Aaron Watts from Deutsche Bank. Aaron Watts: A couple of questions for me. I wanted to start with one on the ad environment for both the billboard and airports unit. Can you provide a bit more detail around how advertiser behavior to close out the year is setting the stage for early '26? And I know we've all been waiting for some stronger tailwinds from the ad market. Curious if you feel that momentum building. Scott Wells: Thanks, Aaron. This is always a tough question to answer from our little quarter of the world. But we really like what we're seeing in the marketplace right now. The year has built how we expected it would. And if you go back to our earlier earnings calls, we sort of described how we thought it would build, and it very much has had momentum build. And has had good strength. We've seen it both in local and in national and probably relative to kind of prior quarters in our book, national has probably been better than what it has been in the last couple of years, and we see that continuing into 2026. I don't know how much I generalize that to the total ad market because I don't have visibility. And I do think the things we called out on Investor Day around disruption in search and disruption in linear TV are providing us some tailwinds. We certainly are hearing from advertisers that we're picking up some share as a result of those disruptions. Aaron Watts: Okay. That's helpful. And then if I could ask one more. There was a report about interest in the company from a third party. We've also seen public comments from your shareholders encouraging consideration of strategic alternatives. Can you provide us with an update on where all that stands? And has any of this changed how you and the Board are thinking about the strategic future of the company? Scott Wells: Aaron, we're a public company. You know the rules on this as well as I do. So I'm not going to be able to comment on market speculation. Aaron Watts: Okay. Fair enough. If I could squeeze one last one in, maybe for Dave. You ended third quarter with around $150 million of cash held in the U.S., assuming Spain closes as expected, you'll have further liquidity coming in. Remind us what minimum amount of cash you would like to keep on hand day-to-day and how you're thinking about priorities for allocation of that excess cash above the minimum over the near-term horizon. David Sailer: Sure. Thanks for the question. Look, now that we're a U.S. focused business, I've mentioned this in the past. We're probably targeting between $50 million and $75 million of a minimum amount of cash. I think, allows us to weather the seasonality of our business. We have stronger cash generation in the second half of the year. But we're looking to deploy cash in a disciplined way, prioritizing our near-term debt as we look forward. But prioritizing the paydown of debt, as we mentioned before, is a priority for the business, in addition to obviously investing in the business as well. Operator: Our next question is from David Karnovsky from JPMorgan. David Karnovsky: Scott, you noted in the release strength in the Northern California market for billboard and airport. I was hoping to just drill in more. Maybe you could speak to what's improved, where you're seeing that incremental demand? And then just as a follow-up, just with the government shutdown, any impact here either due to government as a category or maybe looking ahead, just the potential for air traffic reductions and what that could mean to the airports business? Scott Wells: Sure. Thanks, David. On NORCAL, there are a few things that have been going San Francisco's way of late. And I think number one is that the city reputation has bounced back, and that has caused broader advertiser interest in the market. A couple of years ago, we suffered as the kind of reputation of where San Francisco was degraded. We're now benefiting from a lot of changes that the city has made cleaning itself up and making progress, and that has helped. I think the second thing and from a dollar level, this might actually be bigger, but it's just kind of one vertical, but it's the tech vertical and specifically AI has been absolutely focused on out-of-home as a vehicle to promote the companies that are emerging in that space, both the big ones and smaller ones. So whenever you have a geographic area with finite inventory where there's a lot of competition to get the word out, that is good. We are a supply and demand business, and this is something that we're benefiting from both in the road side and in airports. So we're very happy about the direction San Francisco is moving in right now. On your second point about government shutdowns, we have not seen anything disrupting things to date. Obviously, we are watching it very closely, but we really have not seen a drop in air traffic. The delays have been episodic and around the system, but have not, at this point, driven any dialogue. So, really nothing to report on that. Probably for us, the government shutdown impacts us more in our Washington, Baltimore market, where just that is not an area that advertisers are necessarily prioritizing much because commercial activity is somewhat diminished in that area. But honestly, it's not enough for us to see in the numbers at this point. Anyway, I'm just saying that, that would be more where I would look at our portfolio for an impact of it. Operator: Our next question is from Lance Vitanza from TD Cowen. Lance Vitanza: Nice job on the quarter. On the Americas, you mentioned strength in San Francisco and New York, but not in L.A. And I'm wondering if you could give an update on the prospects for, I guess, entertainment as a national category, but also L.A. as a local market. And then actually, I'll just throw in auto insurance as a national category, too. I'd be curious to know how those 3 are shaping up. Scott Wells: Great. Okay. Lance, that's a broad field. Let me deal with L.A. first. We'll come back to insurance. This has been a tough year in L.A. starting with the fires in January and all of the movement in the entertainment space. Entertainment is being cultivated by lots of different cities around the country and around the world, frankly, for production. And I think we've all seen the articles exploring how entertainment is "moving out of L.Aâ€. I think L.A. would still very much assert itself as the entertainment capital of the world. But that obviously is something that is coveted and that other people are impacting. And we have not seen the entertainment vertical. It's been kind of a laggard all year for us. I don't think that makes us think that that's a permanent condition, but L.A. is going through a phase like many cities go through. I mean we just talked about San Francisco with David a minute ago. The outlook in 2023 was very bleak. And here we are 2 years later, and it's a shining star. And I think I'm a big believer in L.A. I'm a big believer in L.A. bouncing itself back. And as the entertainment industry evolves and as the rebuilding starts to take hold, which has taken longer, I think, than any of us would have hoped, I think you're going to see L.A. reassert itself and get itself moving in the right direction again. I do have a lot of faith that Los Angelinos are going to burnish their city and get it moving in the right direction. But it has been a laggard for us this year. We're looking forward to talking about its renaissance though soon. In auto insurance, that's a brighter picture. That market, and you and I have talked about this a lot in the last couple of years. They were a really big category for us pre-COVID. Post-COVID, they had shrunk quite a lot. And we're seeing auto insurance come back and the activity that I'm seeing heading into 2026 makes me feel like this is going to have some durability. So I'm hopeful that we'll be talking about auto insurance as a success story for us here over the next couple of years. It's moved in the right direction. It will be a grower for us this year, but I think there's still plenty of upside to that vertical for us. Lance Vitanza: If I could pivot to New York, and you've talked a bit about that in the prepared remarks, but I'm concerned about New York City going forward and perhaps falling into a sort of a San Francisco style slide. And so I'm just wondering if you could just clarify relative to, I guess, OUTFRONT is really the big competitor. Are you more or less exposed to the New York City marketplace in terms of like revenue contribution relative to other areas? Scott Wells: So I don't know their numbers off the top of my head, but I would guess that they are more exposed than we because MTA Subway is a bigger contract than the Port Authority and airports, and they probably have, of the other assets sprinkling around probably somewhat more. But you need to talk to them about what percentage of their revenue it is. For us, it's an increased percentage as a result of the roadside contract MTA that we picked up a year ago. But we very much believe that New Yorkers have grit and that they're going to navigate the uncertainty that the most recent election lays out just fine. So we feel good about New York. We feel good about New York as a cultural and commercial center for the country and for, frankly, the world. So I appreciate your concern, but we feel good about New York's prospects. Lance Vitanza: One last one, if I could, regarding the Spain sale. If I recall, this is your second attempt at selling the asset. And so I'm wondering if there's anything in particular that makes you more comfortable that this transaction ultimately gets approved, whereas the last one, if I recall, got blown up by the regulators. Scott Wells: Your recollection is correct. The first attempted sale was to a direct competitor in the marketplace. This sale is to someone who does not participate in the out-of-home space. They are a media company, but they don't participate in out-of-home. It's in the regulators' hands, Lance, but I can assure you, we did a lot of diligence on that as we were evaluating the process, and we're hopeful that this will be something that is acceptable to the regulator. Operator: Our next question is from [ Avi ] Steiner from JPMorgan. Avi Steiner: A fair bit has already been asked. Maybe 1 or 2 things here. Political was a minor bump in the past from a revenue perspective, but I couldn't help notice more political advertising on billboards, at least on my commute than in recent memory, both from candidates and also new prediction market betting sites. And I was wondering if, a, that was helpful at all into the November election. I'm not looking for specific guidance. And is that potential upside as you kind of think into next year? Scott Wells: Thanks, Avi. And I appreciate that you're noting billboards and other outdoor advertising on your commute. You're like many of the commuters out there. We -- political is down this year as a result of a presidential year. So to your specific question, it was not a contributor, particularly to our Q3 results. I do think we have been working as have our competitors for years to get political campaigns to use out-of-home more. The U.S. is probably uniquely for our -- particularly state and federal elections, a smaller user of out-of-home than other geographies around the world, which it should not be. That doesn't make a lot of sense. Politicians, the world overuse out-of-home with a lot of success and U.S. politicians take a page out of that playbook. So that's my advertisement. But look, I think that 2026 it won't be like a presidential year, but I do think that there's some prospect of some uplift from it, not something that I think is going to make or break our year, but this is a category we'd like to see spend more with us. Avi Steiner: Great. And one last one for me. This was a slower tuck-in acquisition year for, I would say, most of the industry. And as you look into '26, do you think there might be more opportunities to kind of, at the margin, bolster the portfolio? And if so, I'm curious where you think seller expectations might be among maybe the smaller operators. Scott Wells: Thanks, Avi. Yes, look, expectations are always high among the smaller operators on what payment is due and things like that. It's always hard to call what the macro M&A market is going to be like. Obviously, our participation in that market is always pretty limited just given our balance sheet. We are very targeted. Obviously, one of the things we have talked about in our creative commercial solutions is partnering with the people to be able to do some of that, and that may be something that changes our participation in it. But I think with M&A in this space, it's a question of the operators being comfortable that they're selling into a good environment. And I think the environment is solid. So it was a quiet year in 2025, but I would not be surprised if we saw a little bit more activity I don't think that we've had an environment that people's expectations should be wildly out of the realm, but that's probably a positive in terms of being likely to get activity done, but don't really have a deeply informed view of that. Operator: Our next question is from Daniel Osley from Wells Fargo. Daniel Osley: So you recently launched your new in-campaign measurement solution and some of your peers have also released new measurement tools as well. So taking a step back, can you speak to the progress you're seeing in addressing out-of-home's historical measurement challenges? Any early feedback you've gotten from advertisers? And are there any updates on GeoPath? Scott Wells: Great. Thanks, Daniel, and thanks for noticing all of the activity and measurement in our space. I think it's exciting and it's a positive for the industry. On the in-flight insights to which you refer, feedback from advertisers has been positive. We've sold a number of campaigns with it, and it's definitely driving a lot of dialogue right now. So I'm optimistic that, that's going to be something that's a good tool in our toolbox. To your broader question about GeoPath, there is an industry effort going on where the Boards of the [ OAAA ] and Geopath have brought in an industry expert to help us develop a viewpoint on what next-generation outdoor measurement should be. And that effort is ongoing. It's going smoothly. It's in the stage now where vendors are being solicited and an architecture is being framed out. And I would expect that's something that Q1 of next year, we're going to get to a point where we have a sense of what investment is required and we can have the industry conversation about how we actually make that happen. It's not at a point that we can say it's going to happen in exactly one form or another, but I'm encouraged by the enthusiasm every part of the out-of-home community has, the buy side and the sell side for taking a hard look at this. I think everybody recognizes that a better quality currency that everybody can be very, very confident in would be a positive development. Daniel Osley: That's helpful. And as a quick follow-up, to the extent that you've started conversations with advertisers on term renewals, can you speak to how those conversations are going and how any price increases are coming in compared to prior years? Scott Wells: Great. Yes. No, thanks, Daniel. You remember our calendar well. For other folks, we always talk about our upfront, our version of an upfront happening kind of between October and February. So we're kind of a quarter of a way in-ish to the time frame on that. And we're encouraged. The early dialogue has been positive. We're seeing solid increases as we do the renewals and there are definitely some very positive developments in terms of people looking to expand their footprint. So touch wood, it's off to a good start, Daniel. Operator: Our final question is from Pat Sholl from Barrington Research. Patrick Sholl: With the CapEx guidance that you provided, to the extent that we get, I guess, a favorable resolution of the tariff issue, would you look to accelerate that in the coming years? Scott Wells: Look, from a tariff standpoint, there's been a little bit of an effect from a company standpoint. We're seeing an increase in steel. But overall, that really has not had really any impact from a CapEx standpoint and what we're going to invest in the business. You probably noticed our CapEx was down in the third quarter, and that's really more on timing of when we're putting digital in the ground. So not really a huge impact. We also had some shelter that we had to do last year, which we did not this year, which is really driving CapEx being down year-over-year. Airports is pretty consistent year-over-year third quarter last year to this year. But overall, going back from a tariff standpoint, I think the team, we've managed that pretty well. We'll see where that goes into next year, but that really hasn't been part of the decision-making process from a CapEx standpoint. Patrick Sholl: Okay. And then I guess with the sales process in Brazil largely, all the international markets largely complete, do you have like an update on just like the expense reduction expectations for on the corporate side or like any additional cost takeouts on that? Or is that largely complete? Scott Wells: No. It's very similar to what we talked about during Investor Day when we were a global company with all our business units in Europe and Latin America and the U.S., we had corporate expenses roughly in the $135 million range. We mentioned on Investor Day, we went through the process that we're going to take $50 million of cost out, which would leave you in the mid-80s range from a corporate expense standpoint. During that call, we had line of sight to roughly $40 million of that $50 million. We're working on that, and we'll get to that run rate sometime in 2026. So I think that's all on track from that standpoint. very similar to what we talked about during Investor Day. Operator: There are no more questions. So I'll now turn the call back over to Scott Wells for any closing remarks. Scott Wells: Thank you. And I'd like to thank all of our listeners again for taking the time to listen to our call. Like we said before, this is an exciting time in our industry and for our company. I wanted to end by reiterating what we've tried to make clear in each of our investor updates. Our Board, consistent with its fiduciary duties, is open to all avenues to create long-term shareholder value. The Board and company are actively working with advisers to evaluate a range of available pathways to do so. We can't guarantee that any particular outcome will be achieved, and we plan to make an update only if and when there's something concrete to report. But make no mistake, this is an effort about which the Board is very serious. Thanks again for joining our call.
Operator: Welcome to the Curtiss-Wright Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Jim Ryan, Vice President of Investor Relations. James Ryan: Thank you, Erica, and good morning, everyone. Welcome to Curtiss-Wright's Third Quarter 2025 Earnings Conference Call. Joining me on the call today are Chair and Chief Executive Officer, Lynn Bamford; and Vice President and Chief Financial Officer, Chris Farkas. A copy of today's financial presentation and the press release are available for download through the Investor Relations section of our website at curtisswright.com. A replay of this webcast will also be available on the website. Our discussion today includes certain projections and forward-looking statements that are based on management's current expectations and are not guarantees of future performance. We detail those risks and uncertainties associated with our forward-looking statements in our public filings with the SEC. As a reminder, the company's results and guidance include an adjusted non-GAAP view that excludes certain costs in order to provide greater transparency into Curtiss-Wright's ongoing operating and financial performance. GAAP to non-GAAP reconciliations are available in the earnings release and on our website. Now I'd like to turn the call over to Lynn to get things started. Lynn Bamford: Thank you, Jim, and good morning, everyone. As you saw in last night's results, we continue to deliver on our Pivot to Growth strategy. Our top line is accelerating. We continue to drive operational and commercial excellence initiatives throughout the organization while making focused investments and remaining measured in our approach to capital allocation. Looking ahead, I am encouraged by the positioning of our technologies across the A&D and commercial markets we serve and see meaningful growth opportunities for Curtiss-Wright well into the next decade. Later in our prepared remarks, I'll spend some more time discussing Curtiss-Wright's opportunities for growth within those markets and we'll provide some high-level commentary on our outlook for 2026. The momentum continues to build, and the team and I are excited about the long runway ahead. With that, I'll turn to the highlights of our third quarter 2025 results. We delivered another strong operational performance with revenue and growth in operating income across all 3 segments. Overall, sales of $869 million represented an increase of 9% year-over-year, in line with our expectations and highlighted by 6% organic growth. Operating income increased 14% year-over-year, exceeding our sales growth and driving 90 basis points of overall operating margin expansion to 19.6%. This translated into a 14% year-over-year increase in diluted earnings per share. This result slightly exceeded our expectations based on improved operational performance and fewer shares outstanding. Free cash flow was $176 million, up 8% year-over-year, reflecting nearly 140% conversion due to higher cash earnings and lower tax payments while increasing growth investments in capital spending. Regarding our order book, new orders increased 8% and resulted in an overall book-to-bill, providing continued confidence in future top line growth. Starting with our A&D markets, we continue to experience strong demand for commercial aerospace products, signaling a low risk of destocking as production ramps across the major OEM platforms. In naval defense, we saw higher orders for nuclear propulsion equipment, supporting the U.S. Navy's current and next-generation submarine programs. Those increases in demand were partially offset by the timing of orders within our aerospace defense and ground defense markets where despite some delays due to the extended continuing resolution. Within our commercial markets, we experienced tremendous growth in commercial nuclear orders, including 2 new DOE-funded multiyear contracts in support of Idaho National Laboratory and other government sites. This is a small but growing opportunity, which leverages Curtiss-Wright's nuclear pedigree and broad portfolio of products and services in support of increased government focus towards commercial nuclear. We continue to experience solid demand for aftermarket equipment supporting planned outages and restarts in addition to new development contracts supporting SMRs. Overall, the continued growth in orders builds on Curtiss-Wright's already strong backlog, which is now up 14% year-to-date, reaching a new record in excess of $3.9 billion. Regarding our updated full year 2025 guidance, our strong year-to-date performance and growing backlog have provided confidence to once again raise our overall outlook for sales, operating income and earnings per share. We now expect sales to increase 10% to 11%, reflecting the strength within our A&D markets. This, in turn, supports a new range of 16% to 19% growth in operating income. We continue to expect more than 100 basis points in margin expansion and remain on track to deliver record operating margin in excess of 18.5%. Diluted EPS is now expected to grow 19% to 21%, which also includes the benefits of our increased 2025 share repurchase activity. And lastly, we maintained our free cash flow guidance while accelerating overall capital expenditures to support future growth initiatives, and we continue to expect strong free cash flow conversion exceeding 105%. In summary, Curtiss-Wright's strong year-to-date execution and demonstrated success under our Pivot to Growth strategy ensures that we remain well positioned to deliver exceptional results for the full year. Now I would like to turn the call over to Chris to provide a more in-depth review of our financials. K. Farkas: Thank you, Lynn. Turning to Slide 4. I'll begin by reviewing the key drivers of our third quarter 2025 performance. I'll start with the Aerospace & Industrial segment where overall sales increased 8%. In the segment's commercial aerospace market, growth was driven by continued strong demand supporting increased production on both narrow-body and wide-body platforms. In aerospace defense, we experienced modest growth for sensors and surface treatment services supporting both domestic and international fighter jet programs. Within the segment's ground defense market, our results reflected increased EM actuation sales supporting ground-based mobile launcher systems for the U.S. Army's IFPC program. In the general industrial market, sales were flat overall despite the ongoing macro challenges affecting global industrial vehicle markets. And turning to the segment's third quarter profitability. Operating income grew 17%, while operating margin expanded 140 basis points to 18.6%. These strong results were driven by favorable absorption on higher A&D sales, restructuring savings and a more favorable mix of business. Next, in the Defense Electronics segment, sales growth of 4% exceeded our expectations, mainly due to the timing of tactical communications equipment revenues within ground defense as some revenues and deliveries accelerated into the third quarter. Within the segment's aerospace defense market, growth for embedded computing equipment supporting European fighter jets and domestic UAV programs was partially offset by the timing of revenue on helicopter programs. Growth in the segment's naval defense market was driven by higher embedded computing equipment revenues supporting both domestic and foreign military customers. In the segment's commercial aerospace market, we once again experienced solid sales growth mainly for our flight data reports supporting the FAA's 25-hour safety mandate. Regarding the segment's operating performance, we delivered a strong operating margin of 29.2%, up 270 basis points and ahead of our expectations, reflecting favorable absorption on higher revenues, the benefits of our ongoing operational excellence initiatives and a more favorable mix of higher-margin business. Of note, this favorable mix is mainly due to the timing between the third and fourth quarters, and we expect this to normalize across the remainder of the year. Turning to the Naval & Power segment, where overall sales increased 12%. In the naval defense market, we once again experienced strong revenue growth driven by the acceleration of production on both the Columbia-class and Virginia-class submarine programs. Those gains were partially offset by lower sales within the segment's aerospace defense market based on the timing of arresting systems revenues. And as a result, as we look ahead to the fourth quarter, we now expect a strong sequential increase in revenues for arresting systems products, principally supporting international customers. In the power and process market, our results reflected yet another solid contribution from our I&C Solutions acquisition, formerly known as Ultra Energy, driving higher sales to both our commercial nuclear and process markets. On an organic basis, commercial nuclear sales grew more than 10%, reflecting the ramp-up in development across several SMR designs as well as higher government nuclear revenues. Sales in the process market were down slightly overall, but reflected modest growth in subsea pump development revenues. Regarding the segment's operating performance, operating income grew 14%, while operating margin expanded 20 basis points to 16.6%, mainly reflecting favorable absorption on higher sales, which was partially offset by higher research and development supporting next-generation SMR designs. To sum up Curtiss-Wright's third quarter results, the strong top line performance resulted in an overall operating margin of 19.6%, driving 90 basis points in operating margin expansion. Turning to our full year 2025 guidance. I'll begin on Slide 5 with our end market sales outlook, where total sales are now expected to grow 10% to 11%, driven by improved expectations for organic growth across our A&D markets. Starting in aerospace defense, our outlook of 7% to 9% sales growth remains unchanged and continues to reflect strong growth in defense electronics as well as higher sales of aircraft arresting systems equipment. Within ground defense, full year sales are now expected to grow 7% to 9% based upon increased EM actuation sales as well as higher tactical communications equipment revenues. In naval defense, while we expect a sequential decline in revenues in the fourth quarter based upon the timing of material receipts, the strong year-to-date performance on submarine platforms provides us with confidence to raise our full year sales guidance to a new range of 9% to 11%. Looking more broadly across all 3 defense markets and based upon our strong backlog supporting key platforms globally, we're well positioned for continued solid growth in these markets in 2026. Turning to commercial aerospace. Our outlook for 13% to 15% sales growth is unchanged, and we remain on track to deliver strong growth based upon both the ramp-up in OEM production as well as increased sales of flight data recorders within our Defense Electronics segment. Additionally, our order book in commercial aerospace continues to demonstrate tremendous growth, providing increased confidence in our 2025 outlook and our ability to once again deliver strong growth in this market in 2026. Wrapping up our Aerospace and Defense outlook, we now project total sales in these markets to increase 10% to 11%. Moving to our commercial markets. In power and process, despite some timing between the third and fourth quarters, our outlook for 16% to 18% sales growth remains unchanged. Of note, the continued strength of our commercial nuclear order book now provides us with increased confidence to be closer to the high end of our full year guidance range in this market. Overall, our outlook continues to reflect a combination of strong organic revenue growth as well as the contribution from I&C Solutions. And lastly, in the general industrial market, while we continue to expect flat sales in 2025, our team has done a great job positioning Curtiss-Wright to overcome the ongoing global macro challenges facing industrial vehicle markets. Wrapping up our total commercial markets, we continue to target strong full year sales growth of 9% to 11%. Moving on to our full year 2025 outlook by segment on Slide 6. I'll begin in Aerospace & Industrial, where we raised the floor of both our revenue and operating income guidance based upon the strong year-to-date performance in our A&D markets. Overall, we continue to project sales growth of 4% to 5%. Regarding the segment's profitability, we continue to project operating income growth of 6% to 9% and operating margin expansion of 30 to 60 basis points, ranging from 17.3% to 17.6%. Next, in Defense Electronics, we increased our revenue guidance to a new range of 10% to 11%, reflecting solid growth projections across all A&D markets and improved confidence as we close out the year. Regarding the segment's profitability, we now expect operating income growth of 19% to 22% and operating margin expansion of 220 to 240 basis points to a new all-time high range of 27.1% to 27.3%, reflecting more favorable absorption, the benefits of our commercial and operational excellence and mix on higher sales. At Naval & Power, we now expect sales to grow 13% to 15%, including 7% to 8% organic growth, reflecting our increased naval defense market outlook and our overall strong backlog, which provides solid long-term visibility. Regarding the segment's profitability, we raised our operating income guidance to a new range of 17% to 20% based on the higher revenue growth. However, we maintained our prior margin outlook of 16.3% to 16.5%, reflecting the increasing mix towards naval revenues. To summarize our 2025 outlook, overall, we now anticipate total Curtiss-Wright operating income to grow 16% to 19%, and we continue to expect operating margin to range from 18.5% to 18.7%, up 100 to 120 basis points. And as a reminder, we are delivering these strong results while continuing to grow our total research and development across the portfolio, positioning us for future organic growth. Continuing with our financial outlook on Slide 7. Building upon our year-to-date performance and expectations for continued strong growth in earnings, we have increased our full year adjusted diluted EPS guidance to a new range of $12.95 to $13.20 or up 19% to 21%. Note that our guidance now includes a reduction in other income due to lower year-over-year interest income resulting from the accelerated share repurchase activity, which also supports a lower share count. We also reduced the bottom end of our tax rate, which now reflects a range of 21.75% to 22% as we continue to pursue and demonstrate success in our tax optimization strategies. Overall, we remain well ahead of the EPS growth targets that we set at our May 2024 Investor Day as we continue to compound earnings at a mid-teens pace over time. And lastly, we're maintaining our free cash flow outlook and expecting to deliver record free cash flow of $520 million to $535 million, up 8% to 11%. Of note, based on the strength in earnings, we increased the low end of our expectations for operational cash flow by $10 million. That increase was equally offset by a $10 million acceleration in anticipated capital expenditures. As a result, our outlook for $85 million in capital expenditures now reflects an increase of approximately 40% year-over-year and is reflective of our ongoing investments to support near- and medium-term growth. And despite these increased investments, we continue to expect cash flow in excess of earnings and a free cash flow conversion rate of approximately 108%. Now I'd like to turn the call back over to Lynn. Lynn Bamford: Thank you, Chris. And turning to Slide 8, where I will wrap up today's prepared remarks. As we demonstrated today, we continue to build momentum and deliver consistently strong financial performance through our relentless focus on execution. As a result, we are positioned for a strong finish in 2025 with expectations to generate record full year financial results across all major metrics. As mentioned in my opening remarks, as I look to the future of Curtiss-Wright, I am excited about the positioning of our technologies across the A&D and commercial markets we serve. This position is driven by thoughtful and targeted investment to ensure that our businesses remain deeply aligned to the major near, medium and long-term growth vectors within our end markets. I would like to spend just a few of the next minutes highlighting several of those critical market dynamics that have and will continue to provide compelling upside for Curtiss-Wright well into the future. Starting in defense, we are well positioned to capitalize on the continued acceleration in global defense spending based on the accelerated pace of growth in NATO and allied funding and our strong alignment to U.S. priorities. For example, in shipbuilding, which ranks near the top of the priority list of the combined FY '26 budget and reconciliation bill, we have significant content on Columbia-class and Virginia-class submarines and the Ford Class aircraft carrier program and also continue to receive significant development funding on the next-generation SSN(X) submarine. Additionally, Curtiss-Wright's position as a mission-critical partner to the U.S. Navy has led to a meaningful increase in maritime industrial base funding, now up to $40 million and nearly double our pace entering the year for investments in capital equipment and capacity expansion to support our near- and long-term growth, and we continue to believe there's still more funding expected to come our way. Beyond the strong support for shipbuilding, I would also like to highlight our confidence in defense electronics, where we continue to maintain a leading position with the broadest and most differentiated portfolio of products and with our alignment to open standards like SOSA, MOSA and CMOSS. We are investing in and developing a broad range of technologies to support the battlefield of the future focused on the highest processing capacity, interconnect speeds and secure communications, which in turn will allow us to secure positions on a wide range of applications at the tactical edge. We also have a great opportunity to support Golden Dome. Curtiss-Wright has the potential to provide numerous solutions across our Defense Electronics segments, including embedded computing, tactical communications, tactical data links and EM actuation equipment. Elsewhere, we remain aligned with Rheinmetall to support increases in ground vehicle production throughout Europe with our Turret Drive stabilization systems, and we were pleased to recently announce Curtiss-Wright's collaboration on the prototype phase of the U.S. Army's new XM30 combat vehicle program. In commercial aerospace, we have a strong foundation with established content on every Boeing and Airbus platform and remain well positioned to support the anticipated production rate increases going forward. Beyond our existing content, we continue to address our customers' future needs through development of sensor technology in the hottest sections of the engine, EM actuation equipment and specialized coatings, all of which are yielding new opportunities for growth. And as Chris noted earlier, we are delivering improved cockpit voice recorder solutions to the market to meet FAA and EASA safety mandates for longer recording capacity. While we have yet to define the full opportunity set, this has begun to translate into meaningful revenues this year and is forecasted to accelerate over the next several years to support both retrofit and new build opportunities. Turning to our commercial markets and starting with general industrial. Despite the ongoing global macro challenges affecting the industrial vehicle market, our order book has remained generally stable over the past 12 months and actually inflected slightly higher in the third quarter, which is an encouraging sign heading into 2026. Our team has done a great job navigating the impact of tariffs, driving pricing initiatives and building upon its leadership positions to generate market share gains, which is enabling us to remain essentially flat despite the declining industry growth rates in this market. In the process market, we continue to drive innovation and diversification of our critical valve technologies to position the business to support future growth segments, such as the LNG market, which is expected to experience a significant surge in production by the end of this decade. In addition, we are developing applications to drive enormous value and savings to customers that operate deep sea drilling and offshore production facilities. Our first subsea pump was delivered to Shell in the third quarter, while our development testing and support activities with Petrobras and others continue to progress. Through the advancement of this new technology, we have an opportunity to win significant new business by the end of this decade. Lastly, turning to commercial nuclear, which continues to play an important role in meeting future energy demand. Curtiss-Wright is very well positioned to support the strong growth anticipated to drive this market over the next 25-plus years. Our technologies are aligned to support the entire life cycle, both in new build from AP1000 reactors to small modular reactors and in our growing global support in the aftermarket. Our opportunity to reach our Investor Day objectives has been reinforced by the administration's focus on nuclear as a matter of national security. In addition, it is encouraging to see more and more technology companies address their base node power needs and support future data centers through nuclear power. Adding to that, while we have been seeing continued progress from Poland and Bulgaria and other European countries to build new 1 gigawatt plants, private enterprises such as Fermi in Texas have raised the possibility of beginning construction on new AP1000 plants within the next 12 to 18 months. As a result, we see the potential for significant orders supporting AP1000 reactors likely as soon as 2026. This, in turn, provides us with increased confidence in our ability to meet our 2028 target to double our 2023 revenue base in this market and then generate more than $1.5 billion in annual commercial nuclear revenues by the middle of the next decade. The momentum and pace of activity continue to grow. Overall, looking across all our end markets, these are just a few of the many examples highlighting the alignment of our technology to strong positive market growth vectors that are driving confidence in our outlook for 2026 and beyond. Next, I wanted to share a few comments on the topic of capital allocation and highlight our third quarter announcements regarding the acceleration and timing of our share repurchase activity. In May, the Board approved a $400 million increase in our share repurchase authorization, reflecting their confidence in the company's strong free cash flow generation and the momentum we are building in the Pivot to Growth strategy. Subsequently, in August and then again in September, the Board approved our request for 2 separate $200 million expansions of our 2025 share buyback program. As a result, we now anticipate a record of more than $450 million in share repurchases this year. We continue to see the value in our stock price relative to the strong growth and earnings potential in front of Curtiss-Wright. Aside from share repurchases, our record free cash flow generation and efficient balance sheet continue to provide flexibility to enable future growth under our strategy, including ongoing investments in R&D, talent and systems as well as acquisitions, which remains our top priority beyond fueling the core. Lastly, to conclude our prepared remarks, overall, we remain on track to exceed the 3-year objectives provided at last year's Investor Day. Note that these targets exclude an AP1000 order, which, as we mentioned earlier, is anticipated in 2026. As we look ahead to next year and beyond, the strength of our order book, expanding positions across our end markets and the contributions from our capital allocation strategy ensure that we are well positioned for continued profitable growth well into the future. In 2026, we are targeting solid top line growth in each of our 3 segments and continued operating margin expansion while increasing investments in research and development. In summary, we are executing on our Pivot to Growth strategy by compounding earnings at a mid-teens pace and delivering consistent financial performance across all major metrics. Momentum continues to build at Curtiss-Wright, and we remain committed to driving our business to new heights and delivering exceptional results for our shareholders. Thank you. And at this time, I would like to open up today's conference call for questions. Operator: [Operator Instructions] Our first question is coming from Myles Walton with Wolfe Research. Myles Walton: Lynn, I was wondering if you could pick up where you left off on the AP1000 and maybe speak to the shipset content that you have currently on that reactor. I've classically thought about it as $30 million for reactor coolant pumps. But is the complement of your work scope improving there, increasing? Maybe just to level set us. Lynn Bamford: Thank you. It's a timely question as we've been really looking into this and making sure we're appreciating the full range of content we have. And you start out with the RCP, the last time they were sold was just over $28 million per RCP. So you're in line with what you're thinking there. I'm really pleased, we've made some rough comments on this in the past, we've historically said our content on top of the RCPs is $10 million to $20 million of content. And the team is doing a really good job of increasing that incremental content. I think 2, 3x from what we had prior had is what today is in play for Curtiss-Wright. These are ongoing pursuits. So nothing is assured yet. But I do think we are going to really add meaningful business on top of the RCPs to the content we have for AP1000 plant. Myles Walton: Okay. Great. And then just a follow-up, if I could, on the bookings. Could you provide that by segment? And Defense Electronics, in particular, did that bounce back? And is there any concern on the government shutdown? Lynn Bamford: So maybe I'll start with a little color on bookings and then maybe Chris can walk through a little bit more of the specifics after that. So broadly speaking, good quarter, 1.1x book-to-bill. But the government shutdown and CR and now shutdown is having some impact on portions of our business. Our largest end market, the naval defense market, there really hasn't been much disruption. Our year-to-date results and especially the growth in submarine programs are very strong. We work on large multiyear contracts. And so that portion of the business has not been very affected. The most prominent impact within our order book has been in the Defense Electronics segment, where the team has identified over $50 million of orders that have pushed out of Q3 during the CR. And so this is definitely something that we're very closely tracking. We feel very confident none of this business has gone away. The guys in the field talk to the customers, and it's really a matter of being able to process this business that the pipeline of business across defense electronics is healthy and growing. And there's a lot of things -- I want to take the time to just talk on a couple of things that we're doing that is -- gives understanding as to why we are able to grow the pipeline of business for this so much. And the things that have kind of come up, but just to touch on them briefly. We are confident we have the strongest MOSA, SOSA, CMOSS aligned offering in the marketplace. And this year alone, we've introduced 20 -- over 20 new product introductions into this family of products, which is a very strong contribution out of the team and something we're really proud of. We have talked about our NVIDIA partnership that we are now delivering NVIDIA-based products at the GTC show just a little while back, we were the only company to demo a CMOSS-based Blackwell processor. So again, that's something very special to Curtiss-Wright. Our Fabric100, which is the highest speed interconnect available in the marketplace is out and helping really provide a very unique differentiator for Curtiss-Wright and our ability to provide solutions at that tactical edge. But we're also doing things that we also are continuously looking at new capabilities that widen the application space where we can sell our products to keep pushing those walls out. And to name just one, we recently achieved Microsoft Azure validated across several of our small form factor products. And that means these products have been added to the Microsoft Azure local or catalog, which obviously has a huge customer reach. And so that's something we're very excited about. And again, another notable capability of taking cloud applications to the tactical edge. So I list those to say these are the types of things the team is always doing that is ensuring that, that pipeline is healthy and growth in spite of the fact we did see the pushout in Q3. So Chris, I don't know if you want to add some color on the segments. K. Farkas: Sure. Yes. Let me try to jump into some of the numbers here, Myles. And I think it's important to note, I think, as you look at the overall orders and what's been happening for Curtiss-Wright, that we had a very strong first half in naval bookings. The first thing is if you just remove that off the table, we have seen sequential growth in our orders since Q1, and that includes Defense Electronics. So important to kind of pull that out. The Q3 book-to-bill was about 1.1x, and that was on 9% sales growth. We had a 1x book-to-bill in aerospace and defense, and we had a 1.2x in commercial. So the orders were up 8% year-over-year and the backlog was up 14%. We're at a record backlog right now at $3.9 billion. Diving into the segments and just the book-to-bill for the quarter, we were about 1.04 on Aerospace & Industrial, and we were about 1.14 in Naval & Power. We talked about the strength of the commercial aerospace orders and the nuclear orders on the call. But to dive into Defense Electronics, maybe just a little bit more on that topic. The order book did improve sequentially here in the third quarter. As Lynn had mentioned, the pushouts had affected that. It was a 1x book-to-bill. Had we not had the pushouts, we're confident that it would have been 1.1x book-to-bill. The backlog in that segment is up 3%. Strong revenue growth of 10%. It's above the prior year September backlog number. But the book-to-bill has been holding steady at 1x. So as we look ahead, I mean, right now, we're assuming that the shutdown is going to get resolved here in mid-November. We believe that once that gets resolved, it's a 30- to 45-day turnaround time before orders begin to resume a more normal flow. But fortunately, for us, the businesses that are most impacted are generally short cycle in nature, and we would expect to recover very quickly. So I think it's important to note that there's nothing that's affecting our 2025 guidance. Lynn mentioned the pipeline is strong. We have good confidence levels in 2026 and strong alignment to the customers' priorities. next year's defense spending between the budget and the reconciliation bill are up 13%. So we see positivity as we look out into the future. We just need these guys to come to agreement in the meantime. Myles Walton: That's great. And Lynn, I'm sorry, just to clarify on your prior AP1000 comment, is the $10 million to $20 million of incremental content on AP1000, is that a historical benchmark of which I should think about it's grown 2 or 3x? Or is that the current benchmark? Lynn Bamford: No, that's the historical benchmark, Myles, that we had back in the mid-teens. Operator: And we'll go next to the line of Kristine Liwag with Morgan Stanley. Kristine Liwag: And maybe following up on Myles' question on the AP1000 pricing. I just want to make sure we get it right. When -- I mean in the past, when you guys looked at your content, so each cooling tower used to be like $250 million roughly. And then so a build with a twin towers would be about $500 million. And I think the Poland one, they're doing triplets. So that would be $750 million. So the numbers that you're saying incremental to that, the 2x, 3x, is that off of that specific base? Or are we talking about the initial U.S. order from 2007, which is a much lower amount? Lynn Bamford: So maybe just to back up a second. And if you look in our -- like even in our Investor Day briefing from last year, we think of as a plant, which has 4 RCPs, and that's how we've -- when we talk about our revenue per plant, that's the framework for it. We talked about we have $110-plus million of revenue per plant. So Poland is talking about building 6 plants. Bulgaria is talking about building 2 plants. Fermi is talking about building 4 plants. So that's just to keep the terminology because it's easy to get confused between the RCPs versus the plants and such. And so having that as a baseline, prior, we had the RCPs and about $10 million to $20 million of content per plant. And that is the area where we've been working very purposely to see where else we can supply Westinghouse as a supplier to them and engaging with them on different work scopes. And at this time, it looks like we are targeting taking that incremental on top of the RCP's content, that $10 million to $20 million and doubling it or tripling it. And it's still a work in progress as they're still working through their supply chain things, and we're just trying to be there and support them as much as we can to make them successful. So pretty excited that, that would be pushing that content per plant up into the mid-100s for sure. Kristine Liwag: Got you. That makes sense. And maybe digging more into this on AP1000, I mean, it looks since your Investor Day last year, and we've seen a lot more support for U.S. large nuclear power plant builds. And so we've seen the support of executive orders from the White House. But then also last week, we saw Cameco and Brookfield established a transformational partnership with the U.S. government to accelerate deployment of Westinghouse nuclear reactors. I was wondering, can you give us more color regarding the potential of the U.S. market and the timing? And also following up on the expected order that you have for 2026, are you expecting a Poland order and the U.S. order? Or is that just Poland and Bulgaria? Lynn Bamford: Yes. So we work very closely with Westinghouse to try and -- I mean, this is a fast-moving market, and that announcement was, a, just fantastic to see because it's really the money that needs to really get this machine running. So we are very excited to see that partnership get announced. And then there was also the announcement with Japan of putting some money into building nuclear in the U.S. And all these things are sort of taking form, but 2 separate pretty positive announcements in October relative to that. So really, what's in the public knowledge is funding for these 10 plants, how the Japan money overlaps with that, I don't think there's a clear vision of it. And we have some insights from Westinghouse, but really sticking to what's in the public eye. We're focused on those first 10 plants, which is great. And so today, the team still does believe the first order we get will be driven by the Poland opportunity, although Bulgaria is right there with it. And the thinking is those will be ahead of the U.S. But how this billion, which is targeted at long lead material types of expenditures is going to play out. That still needs to take some form. But -- so whether that happens in 2026 is very much TBD. I wouldn't foreshadow that yet at this point. But we do feel good overall about getting our first order in 2026, and the team is doing a lot of work to get ready for it and to think through the various ramp scenarios with this accelerated activity in the U.S. and then what's going on elsewhere, along with -- it's exciting that our work on our SMR opportunities continues to grow and move towards prototyping, too. So the team is busy. I'll leave it at that. Kristine Liwag: Yes. I mean it seems like when it rains, it pours. And so can you just remind us, Lynn, what your capacity is to build an AP1000, especially because, right, the U.S. Navy content is also increasing. So just trying to understand what could you produce in a given year? And you had called out elevated CapEx this year or next year. What is that supporting? Is this in anticipation of commercial nuclear power or the opportunities in the other segments that you had highlighted? Lynn Bamford: Yes. So we think of our capacity as 12 to 16 reactors per year. But again, that needs dovetailed exactly as you just said, with the naval work. And I will say the team is committed from a CapEx standpoint to our Investor Day targets of 105% free cash flow conversion. And we increased our CapEx spending both last year and this year by 30% each year. And a lot of that is geared around preparing for expansion in this space and the $10 million that Chris spoke of in his prepared remarks is geared at expansion capabilities tied to nuclear. And so how -- what we need to be prepared for to support Westinghouse is a very active discussion with them. But we're trying to make sure we're doing the things that were ahead of it. and prepared to support them and that $10 million is part of us getting ahead of it. Operator: And we'll take our next question from Peter Arment with Baird. Peter Arment: Nice results. Chris, maybe just to stay on the theme of AP1000. If you get an order in 2026, maybe could you just give us a high level how quickly you begin to recognize revenues on that? I remember back with the China direct order, how that all works back in the day, but maybe just to level set us on how quickly that begins to flow through on the financials? And then I have a follow-up. K. Farkas: Yes, sure. I think we've had a lot of discussion on the call today regarding reactor coolant pumps and then other content, and I'll focus on the reactor coolant pumps to begin with. When we get that first order, I think a lot of it is going to depend upon the timing of receipts and long lead materials and how quickly we can get that in the door. Lynn has talked about the fact that we're in active discussions with our customer regarding capacity and how to accelerate potentially some of those flows. So as you look at the receipt of the order, it's going to be under POC accounting. And typically, in the past, it was maybe a 5-year bell curve. I think the China contract went out 7 years because their schedule was delayed. But with this flood of activity that we're seeing here, I could see that be accelerated into a tighter window than a 5-year period of recognition. So again, a lot is going to depend upon the timing of the material receipts and then the labor that kind of follows that. But there would be some revenue recognition upfront to 2026, but then it would quickly accelerate in 2027. When we talk about this extra or the other product that kind of can go into the AP1000 power plants, a lot of that won't be long lead material type items. You've got to get some of that bigger stuff into the plant first. So I would expect that to be recognized a little bit further towards the back end of the bell curve, but certainly an opportunity for us as well. Peter Arment: I appreciate that color. And then just, Lynn, on the, I guess, near term more when you think about your targets that you put out there for a doubling of the business by 2028, did you contemplate a lot of these restarts that we're seeing, whether it's Palisades or Three Mile Island or some of the others when you were thinking about that planning just because it seems like that is, again, an incremental tailwind to all things else nuclear. Lynn Bamford: Yes. I mean that was -- there might have been talk about it, but that was not on the table at a level that we would have had that in how we put together our targets. So there's a lot of things -- a lot of good things have happened since we put our targets out. Just 15 months ago, 18 months ago, however long it was, it's amazing how the industry has come alive. And announcements around Europe, the GBN announcement with picking Rolls-Royce. I mean, there's just -- there's a lot of things that are incrementally happening. But you're right, that is new. K. Farkas: Yes. This whole AI wave has been something that's been new for us as well. That's a lot of positive momentum. And I would just remind the listeners is you go back and look at what we provided at Investor Day, and we said we would be doing $1.5 billion in annual commercial nuclear revenue by the middle of this next decade, that really only contemplated the European opportunity at that point in time. So I know we're still several years away from that in the middle of this next decade, but we feel much stronger and more confident in the art of the possible as it was labeled at that point than we did back in May. Operator: And we'll go next to Scott Deuschle with Deutsche Bank. Scott Deuschle: Lynn, are you seeing meaningful retrofit demand for the 25-hour flight data recorder yet? Or is it primarily only OEM demand at this point? And then how should we think about the retrofit gross margins on that product relative to the OE gross margins? Lynn Bamford: So it is a blend, but a lot of the retrofit is, I think, staging of material to prepare for the retrofit more than the actual retrofits is our understanding with dealing with our customer that is Honeywell. And so I think that's very much another layer that's ahead of us as this market -- we just have continued to say it's going to continue to grow through the back half of the year as that comes to reality. But it's not even just the retrofit market, it is also we are working with Honeywell to figure out how we would have an appropriate product offering that would target the regional jets that are over 30 seats that are also part of this mandate. Those are obviously big, big numbers. And our work with Airbus continues on in a positive manner, and we think we will receive certification in the first half of 2026. And then we need to see how our production ramps with those. So we've really not given a 10-year view of revenue on this program yet because there are still a lot of moving parts that are taking form and really how this retrofit is going to take place is -- it's still a little bit of a work in progress. And really, we haven't given much color on the shipset content nor the margin on this for the OEM or the production. But I will say it's inside of our Defense Electronics segment, as you know, and we like the products we produce to support the margins in the segments. Scott Deuschle: Okay. And then, Lynn, can you give an update on the state of the M&A pipeline and how we might think about the opportunity for a reacceleration in M&A activity in 2026? Lynn Bamford: Yes. So I mean, it's -- we're not bashful about saying it's our top priority, and the team is definitely out there. We have some -- a couple of properties that we are having discussions with that are more ones that I like when we work with somebody possibly to come join Curtiss-Wright in a proprietary fashion more than we're in an auction. But I know some people have noted we've kind of acted that there was more excitement and then not announced anything over the past earlier part of 2026. I do remind everybody, we only closed on Ultra, I&C at the end of last year, changed by terminology at the end of last year. So that's going great. But we do have some properties we're looking at that are very strategic in nature for how they would add to our portfolio, and there's still a lot of focus on it. But strategic fit and financial fit. We're not going to overpay for a property. And some of the things that we thought were strategic fits, just the price tag, I just -- I don't think it would create value for our shareholders, and we're not going to do it if it won't. Operator: [Operator Instructions] We'll take our next question from Nathan Jones with Stifel. Nathan Jones: I guess I'll ask you a non-nuclear question. You talked about a stabilization in industrial vehicles and maybe a little bit of a positive inflection in orders during the quarter. So maybe just a little bit more color on regions, geographies or end markets that might be driving that improvement or any color you've got for us there? K. Farkas: Yes. So I'll start out. I mean, obviously, it's been a very challenging situation for industrial vehicle markets as a whole. And the team has been doing a great job at staying above that and flat for the year. I think as we position ourselves for this next year and look forward, while we do recognize that the North American on-highway markets are going to continue to be challenged, we do feel that there are some opportunities in pockets in Europe as the team continues to try to expand its customer and market reach in a few areas. But the team is doing -- we're seeing some good signs within the order book. We actually had an improvement here in the third quarter that was roughly 4% year-over-year. And again, I'm sometimes reluctant to talk about these data points that are hot off the presses, but we're we had a very strong October. And that's a real positive kind of a standout month over the past few years. And with the conversations that we're having with some of our customers, we feel like we're positioning ourselves for a very strong fourth quarter. So I don't want to diminish the fact that there will be challenges again for this market in '26. We expect uplift in '27. But the team is doing a great job, and they continue to kind of push the boundaries to gain more share. Nathan Jones: Then maybe one just on -- following up on the government shutdown potential impact. I think historically, that's when we've had these kinds of disruption, it tends to make the Defense Electronics business, especially maybe a little more second half weighted once it gets resolved. But I think, Chris, you were talking about some of the delays being more on the short-cycle side. So maybe just any color you can give us on expected cadence through the year in 2026 relative to historical patterns just based on what's happened so far and what you know so far? K. Farkas: Yes. So we have been very focused over the past few years of trying to make the fourth quarter less dramatic. And I think as you look at what's happening here in the fourth quarter, we've got very strong backlog. We raised the bottom end of our guidance here to show a little bit of increased confidence as we go to close out the year in 2025. But to the extent that the government shutdown continues and we have delays in the receipt of those orders, yes, it will take a little bit of time to kind of pick back up. So I'm assuming that there will be a little bit more pressure on Q1 at this point in time than there would historically and that, that will force us to be a little bit more back half weighted. But we are confident in the orders that are out there and coming our way, and we'll cautiously balance that against things like advanced buys and other positions in inventory that will help us to kind of recover and deliver those revenues to our customers as fast as possible because I know that they want the orders, they want the part, they're equally disappointed with what's happening here right now. So I would expect there to be a little bit of pressure on Q1, but then we will recover over the course of the year, and we'll continue to try to keep the fourth quarter from being a dramatic data point. Operator: And we'll go next to Pete Skibitski with Alembic Global. Peter Skibitski: Nice quarter. I wanted to ask specifically about the Switzerland business and defense electronics, the Turret Drive stabilization business because it seems like some of your key customers like Rheinmetall, for instance, are getting a good amount of new orders for ground vehicles. So I just wonder if you could talk to kind of the visibility in that business. It seems like the growth outlook could maybe even outperform your -- the rest of that segment. So I was wondering if you could talk that through with us. And maybe valid also, I'm assuming that unit doesn't use commercial pricing unlike some of the rest of DE. Maybe you can clarify that as well. Lynn Bamford: So this is just to put the nature on the team and they have been part of Curtiss-Wright for several decades. It's had periods of strength years gone by. We talked about the Kingdom of Saudi Arabia program about a decade ago when it was on a growth trajectory. And prior to the Ukraine war and such, it had been a very slow growth portion of our business. We expected it to pick up when -- I think when Europe woke up and realized what they had for militarized vehicles. And it has been slower than we thought, but it's pretty exciting that it does feel like it has turned the corner and those orders are going to deliver. And we have a very good relationship with Rheinmetall and their strategic partner for turret drive stabilization. It was nice -- I mentioned in the prepared remarks, the win for the XM30. So that's a first for them getting outside of the European market. But Germany is kind of leading the charge of being committed to ramping their vehicles, and we're very much aligned with them to be participation of that. So I don't think it's appropriate really to talk about the pricing at this point. They're not subject to the far, obviously. And the product does have applicability into some commercial markets outside of defense. We sell it into tilting trains and a couple of other end markets. So there is a commercial capability, but I'll just leave it at that. Operator: And we'll take our next question from Tony Bancroft with Gabelli Funds. George Bancroft: Congratulations, Lynn, Chris and Jim, great numbers and great job doing -- managing this. I just had a bigger picture here. You have 4 businesses that have very strong growth outlooks going forward, a lot of secular tailwinds for the long term. And you've talked about M&A relighting. Can you just maybe sort of just very high level, walk me through -- these are 4 big opportunities. How do you see you prioritize them? I mean you only have so much CapEx that you can probably do and reinvesting in the business. Can you sort of prioritize those for me? Lynn Bamford: So I think we've been pretty transparent that our CapEx allocation and acquisition focuses over the recent past have been around our aerospace and defense and commercial nuclear markets. And those are priorities for the company in places where we see really strong growth, really differentiated technologies. But I think one of the things we always remind people of you take just, for example, pick one thing randomly, the electromechanical actuation capability that goes into industrial markets. It also is the same capability, engineering teams, manufacturing floors that builds this for the aerospace and defense market. So even though our business lays on paper as if it has these different buckets and there's isolated pieces, from an engineering capability, manufacturing standpoint, our businesses are intertwined across those end markets. And it's something we're proud of and pursue that we've always believed that investing in a technology once and taking it to different end markets is part of how Curtiss-Wright has achieved the margin expansion we've achieved over the past years. And the latest very visible example of that is the flight data recorder technology that was developed over decades ago for defense applications and now has this fantastic foothold in the commercial application. So I know I didn't really directly answer your question, but it's hard because the -- I see a business and I see it going across many of our end markets. They're not just like I can look at that business over there and that business over there and say it's just serving one of the end markets. Operator: And we do have another question. We'll go to Alexandra Mandery with Truist Securities. Alexandra Eleni Mandery: This is Alexandra Mandery on for Michael Ciarmoli with Truist Securities. How are you guys thinking about 2026 in terms of growth trajectory for end markets and margin expansion? Lynn Bamford: So I touched a little bit on 2026 in the prepared remarks that we feel good about driving growth across all 3 of the segments. So that's really positive. There's -- I try to talk about with some of the things that are going on in those closing remarks of what are the market dynamics, what are our technologies that support you can look at things in the industry, whether it's the growth rates in commercial aerospace that Boeing and Airbus are talking about the defense spending to all things nuclear is sort of the ones that are top of everyone's minds that will support that growth into 2026. We do believe we'll be well ahead of our 2024 Investor Day targets really down the line. And we're committed to driving operating margin expansion faster than cash, and we'll be giving more specific guide, obviously, on 2026 when we close out the year and have our Q1 call. K. Farkas: So I would just say, I hope we were able to kind of project some of that confidence in the script today. We -- in the areas that we kind of called out. We're excited for what's happening now and as we look out into the future. Operator: At this time, there are no further questions in queue. And I would like to turn the floor back over to Lynn Bamford, Chair and Chief Executive Officer for additional or closing remarks. Lynn Bamford: Thank you, everybody, for joining us today, and we look forward to speaking with you possibly on the road or with our Q4 results out in the beginning of 2026. So have a good day. Operator: Thank you. This concludes today's Curtiss-Wright earnings conference call. Please disconnect your line at this time, and have a wonderful day.
Claus Zemke: [Interpreted] A very good morning from Cologne, ladies and gentlemen, dear colleagues, this is Claus Zemke, and I'd like to extend a cordial welcome to you on the occasion of our telephone press conference on Q3. We have got Matthias Zachert here, CEO, and the CFO, Oliver Stratmann and they both will give you an update on what has happened over the past quarter, and we'll give you the guidance for the remainder of the year. Thank you very much for joining. Technical remark from my side. We are having this press conference in German, but there will be simultaneous interpretation into English. If and when you want to ask questions, there will be a possibility after Mr. Zachert's talk. How that is going to work will be explained a little bit later. And then, for legal reasons, you must know that there is an Internet stream. Mr. Zachert? Matthias Zachert: Thank you very much. A cordial welcome to all of you listening to this press conference of LANXESS. So let me talk about Slide 3, making a head start on my update. And I'd like to give you a description of the general situation of the economy, the German economy. And I mean, you are all reporting about what is happening in the major industries of Germany, that is, the automobile industry, mechanical engineering, and this quarter, all the industries mentioned that the economic situation is very difficult indeed. And this is, of course, also true for the chemical sector, which requires a lot of energy. Well, the reporting has corroborated exactly that. And this brings me to LANXESS. So we are navigating stormy waters, and EBITDA and also sales are burdened. There is one segment that we have strategically developed, and this much to our pleasure, is rather stable, and that is consumer protection. Going to talk about that a little bit later, but the 2 other sectors, segments, that is the intermediates like the individual units, they go to show what fierce competition we have got and how difficult it is to run the business. And this is also true of Specialty Additives. So we are doing our best to offset the general conditions and navigate these stormy waters by cutting costs. So this is something that is under control, under our control, and we will go about it. And we will need to be more precise about the remainder of the year in a minute. Now, the Slide #4, weak environment, unfortunately, and also changes in the portfolio. And I mean, we divested a business unit, but also the unfavorable currency translations and the weak American dollar have had an imprint on sales and EBITDA. So sales are minus 16% and portfolio and currencies are one side of the story. But on the other hand, we have got price reductions of around 2%, a bit more than 2% and also a volume decline, which is rather painful because that holds up to 6%. Of course, that has a bearing on EBITDA. In the prior year quarter, we had EUR 173 million, which was not exactly brilliant in 2024, but that's still better than this year, and it was also an improvement over 2023. So we are still in a weak environment in 2024. And now figures have come down again. And this goes to show how dramatic the situation is in the energy-intensive sectors. Now, let us talk about our individual segments. And I have mentioned before, consumer protection. What we can see here is a rather stable operating income. The level of the prior year, and the margin is quite high, just under 16%. And this is the segment which we have developed and strengthened, also on account of acquisitions. So we have entered businesses that show rather stable performance, even if competition is a bit more intensive in comparison to previous years. Now let me talk about Specialty Additives, Slide 6. This suffers from the weak demand in the industry, particularly in the building and construction industry is still very sluggish, particularly in China, but also here in Germany. And suffers from the declines. This is something we have not seen ever before, particularly if you have a look at the last 10 to 20 years. And I mean, of course, there is an awful lot of catching up to do, but somehow it doesn't happen. There is still a crisis in the building and construction sector. And then the weak dollar is also having a negative impact on sales and EBITDA. As we all know, we are very busy in America as well, and we deliver from America to China, particularly when it comes to our fire protection materials, flame retardants, and well, the relationship between America and China is not exactly helpful in this context. Advanced Intermediates. In this segment, we see a lot of competition from Asia, particularly China, and weak demand. And the Advanced Intermediates business is the core activity of our activities here in North RineWustralia. So our sites in Leverkusen Endingen, and these business units, the Advanced Industrial Intermediates and also inorganic pigments are being produced there. And they suffer not only because they are confronted with strong Chinese competition. Well, the Chinese actually deliver at prices that are below our production costs. And I mean, we really have to discuss antidumping here. These activities not only face fierce competition, but also suffer from high energy costs, a lot of bureaucracy, and general conditions. I mean, we keep trumping that off the rooftop, saying they are conditions that are breaking the neck of our sets, even if our facilities are top-notch when it comes to their activities, their abilities to produce, and they can produce on a world scale. We are hard hit here over the prior year. We must say that there is a further decline. Slide #8, cash management. We are doing a good job here in the third quarter, stable environment. When it comes to the group's capital structure, net financial debt is stable, which has to do with good cash management, which we a couple of quarters. Now, Slide 9, geopolitical situation. I mean, tensions are still very, very high, which makes a contribution to the uncertainties in the world and in the individual regions. We still proceed on the assumption that the automobile industry will stay weak, as well as building and construction, and also the agricultural sector, even if there are different developments among the different actors. Looking at LANXESS, we are continuing with our cost and efficiency program. These are topics that we can control, and we are doing our level best to improve the framework conditions. And whenever possible, we try to draw attention to the fact that it is high time to bring the economy back on course and improve the framework conditions for the German economy. We talk to politicians and decision-makers, and these framework conditions have to be reestablished or else it's going to be so difficult, both in Germany as well as in Europe, to keep up strong industries that are definitely suffering under the present framework conditions. Our guidance of EUR 520 million to CHF 580 million, as published in the summer, will end up at the lower end of our forecast range. And in the second half of 2025, the framework conditions as well as demand haven't changed. So that supports this. On Slide 10, we would like to present the programs we are already using. You know our program forward with CHF 150 million. We finished this program swiftly, and we will be fully effective by the end of the year. In the second quarter, I spoke about the optimized production network. And we mentioned the closure of 2 operations and optimization of organization, and we are implementing these plans, and we take it that we will be successful according to our plans. Today, I would like to let you know that we are in the process of preparing further measures to achieve structural improvements of around CHF 100 million over the coming years. We are already discussing matters with our works council members, and we'll do so very soon and discuss, and decide and implement very soon, and this will probably be specified in the first quarter of 2026, so that you will be in the picture as well. You do see that we accept the market environment, and we change whatever we can change and control. And of course, we hope that the framework conditions will change in the future. But in particular, Berlin and Brussels are involved in the framework condition situation, and we hope some progress will be achieved there. The next slide, #11, gives you an overview of what's happening in the European chemical industry. Handelsblatt already mentioned some or many of the closures on the left-hand side in an article published in the summer, and we are repeating this. But in the right-hand column, we would like to share with you what was published recently. So you see, it's not just 10 minutes to 12, it's already gone to 12, and a lot of these changes are already taking place. The industrialization of those areas that need a lot of energy, and this is to be emphasized, those industries that need a lot of energy are taking place. And these are closures of operations that will not be resuscitated. They will not be back. These are closures of industries, especially the German industry is reputed for the high wages paid in this industry. We are among the industries paying the best wages. But should the framework conditions be such that you can no longer be competitive or even incur losses, then you have to draw your consequences, meaning you have to close plants and operations. This leads to lost jobs and a reduction in wealth. Other countries are fighting for their industry, knowing fully well that this is a driver of wealth and will attract other services, which will be beneficial for any country's wealth. So a lot of regions are fighting for their industries. And let me call a spade a spade. What is being closed here is in areas where the chemistry is needed and will be produced, most of which will be produced in China, where they're using coal for their production, which means, for the climate balance, this is no good news at all. There is not so much technological cleaning taking place. We know purification of water and air, tar, and catalytic purification. This is part of our standard. We are world market leaders there, but these capacities will be migrating to other countries, and they produce the same chemistry and generate wealth for their countries, but that is not beneficial to the global climate. So this is a detrimental effect on our global climate. This is worth thinking about again. You should know that the chemical industry right now is facing one of the most severe crises I've seen over the past 30 years, and we need to return to good competitive circumstances and framework conditions so that this high-level technology, especially the chemical industry, as the third largest industry in Germany, will be able to survive here in Germany. So the signals and the feedback we send out to the political decision-makers, as you see it on Slide 12, is that it's high time to act. We must return to competitive energy prices. We welcome the present discussion or initiative. Hopefully, there will be decisions taken soon on the industrial electricity prices and the compensation of electricity prices that have to be taken into consideration for the chemical industry. We clearly and unambiguously communicate to the European Commission and the European Parliament what is our position with respect to European emissions trading systems, and this needs to be reformed. And you quite frequently cover this topic in your articles. We also face the decision-makers, especially in Brussels, and say that they should not burden the European industry with additional regulations and restrictions, but rather to finally start to defend their own industry, to protect their own industry, as many other states are doing. And I also think we have to have a faster antidumping process. At the moment, it takes around 12 to 18 months rather than just a quarter. And things can be analyzed and decided within a quarter, if you ask me. Ladies and gentlemen, let me now look at the last slide in our deck. The economic situation has just been described, but there is also some light at the end of the tunnel or on the horizon. In the second and third quarters, we've seen the maximum uncertainty in the world because of this erratic tariff policy. And at the moment, this has a full effect in the second and the third quarter. I take it that this tariff uncertainty will be here to stay, but at a lower level. There are some stipulations and regulations in some places; there is no longer total escalation. So the level of uncertainty should exist in the next year, but not as much as we've experienced this year. We also think that the stimulus program for the defense of infrastructure in Germany will also have its bearing on the industry in 2026. So order books will see more orders accepted. That will have some consequences on different products, flame retardants, screed, coatings, and pigments. We've got different portfolios, and we don't take it that this will change overnight. It's November now. We don't see the effects right now, and we take it that there will be a gradual increase. The new government has only been in office since May. And it is on the various levels, like the Federation, the federal states, and the municipalities, that this is going to be implemented, and then it should bear fruit. I can say that the EU is already working on antidumping processes. We have been successful in 2 such procedures in a way that we were supported in that respect, and this is an adpinic acid sector, and also the phosphorus-based claim retardants. And of course, we are looking for further investigations simply because here in Europe, we see that we are actually being glutted by products that are produced by China, products that they cannot sell in the U.S. any longer. Now they are pushing that into the European markets for a song. And market consolidation is what is happening just now. And as I've said previously, there are company shutdowns, site shutdowns, and also our competitors are reducing their capacities or closing them for good. That, of course, will strengthen our position in the market. And from a technological point of view, and also from a size point of view, our facilities are well established. And if we were to survive this competition, then of course, we will emerge stronger from the crisis once it's overcome. This is what I wanted to share with you, ladies and gentlemen, concerning the third quarter and the market environment. So together with my Board members, I have discussed the situation at great depth. And I must say I'm really very pleased that we are all rolling up our sleeves, taking rapid decisions, and responding in a pragmatic fashion. This is what is required in order to get through a time of crisis. We accept that we have a crisis on our hands. We are doing something about it, and we all pull together in order to handle 2026. But before that, of course, we need to conclude 2025. And when we are going to have our financial year press conference at the beginning of next year, covering the entire year of 2025, you will hear what we have been doing. Claus Zemke: [Operator Instructions] Now Jonas Jansen. Mr. Jansen, you can ask your question. Jonas Jansen: Thank you very much for your statements. I've got a question concerning your cost-cutting program, even though you say you can only be more detailed at the beginning of the next year. But what are your ideas? And you said as of 2027, the situation ought to become better. So, is that on the basis of the cost-cutting efforts planned for 2026? And what does that mean? Does that mean that more facilities need to be closed? Or will you try to cut costs further? And I mean, you already have an ongoing program and EUR 350 million, and now you want to double that figure. So where on earth do you intend to get that from? Matthias Zachert: Well, Mr. Jansen, the EUR 100 million well, actually, we will be more detailed at the beginning of next year, but it is not true that this is only to have an impact on 2027. Part of it will already have an impact in the course of 2026. And how are we going to do that, please? Can I ask you to accept that we can only share more details if and when we have discussed the matter also with our works council, and when we can be more specific about the implementation. But it is quite clear that in the course of 2026, this will come the group's way and will bear more fruit in 2027. So when it comes to individual sites or facilities, I have said before that when it comes to production, we have already carried out our analysis and the implementations thereof, and we communicated that in the summer. So I'm really fighting for these sites. I cannot make any promises, but this is what we are fighting for to keep these sites, and sitting here today, we think that we will be able to keep all our facilities here in Germany. But that, of course, means that when it comes to our general cost basis, COGS, we need to save more money. And that, of course, is geared towards whatever does not make a contribution to the actual production. And then, of course, you have to discuss possibilities of simplifications, streamlining processes, and how to become even more efficient and effective. And we have to make sure that no facility produces any loss any longer. Since competition is so fierce and tough, we can only do what is under control, and this is keeping costs at bay. But as I've said before, we will communicate more details thereof in the first quarter of 2026. Claus Zemke: Next question, Patricia Weiss from Reuters. Patricia Weiss: I hope you can hear me all right. Well, the demand situation. And you said that this is going to stay weak until the middle of 2026, or even not longer. So will that reduce your earnings further in 2026? And then the second quarter, also, when it comes to your program to cut costs. And you said you want to keep the existing sites up and running. So, where do you want to get these savings from? I mean, are you considering further job cuts? And then also when you're talking about the general conditions, I mean, it seems that you are a victim of the general conditions. But what else can you do? What can you do when it comes to your strategic setup? And how can you become more resilient as an industry or a company in that sector? Matthias Zachert: Well, Ms., let me take these questions one after the other. Job cuts are not exactly excluded. I mean, we are trying to keep as many jobs as possible, but we cannot exclude that some will go away. I mean, we will go for the approach of natural attrition. We are talking about demographic change, and that makes it possible to reduce the workforce without actually dismissing employees. And your second question, I mean, there is still quite a chunk of COGS, general costs. And 2 years ago, I said that we, for example, are spending too much on our IT. We are significantly above a target value that we must achieve, which is attributable to the fact that over the past 3 years, we introduced a new ERP system. So that was double a burden, if I can call it that. But this is now something that we have concluded. In the first quarter of 2026, this will be concluded for good, and there should be a major part from this sector that will then help with saving costs. That was our target and still is our target. When it comes to the strategy of LANXESS, I mean, the individual segments, if you have a look at what we have done up to now, we have certainly established a consumer protection element. This is a very strong pillar in our group now, and very many of the businesses that we have separated from were polymer activities, and the polymer industry is being shut down here in Europe. This is really in the crossfire together with other sectors of the chemical industry when it comes to Europe. So it was a good idea to get rid of these polymer activities. But then the remaining sector of the chemical industry is still subject to a lot of difficulties. But over the past 6 months or so, we said, yes, we want to orient ourselves in a way that we become future-proof with a strong global position. So this is the market orientation we are affecting, but this cannot be done overnight. And this has nothing to do with the cost, but with the business model and the go-to-market approach, which, of course, we are strengthening in parallel and reorganizing our company accordingly. I hope this answers your questions. Claus Zemke: Next question to Annette Becker from Börsen-Zeitung. We can't hear you yet. Now we can hear you. Annette Becker: Another question on the consolidation of the market as of 2027, as you expected. Do you think that it will be exclusively due to competitors dropping out of the market? Or will there be some options for acquisitions as you see it? And is the European chemical industry in a position at all, given the market conditions, to acquire new businesses, because what we've been seeing for 1.5 years is costs up, costs down, and so on. And where on earth would you want to have the money from to acquire new businesses? Matthias Zachert: Well, looking at the past 30 years, there were different waves of consolidation in our industry, and they always took place after a severe crisis. Thereafter, acquisitions were an option. But quite often, there were also mergers that took place, creating a critical mass together with another company or more companies at the plant, at the business, at the value, adding chain level. So the industry always came up with innovative approaches. These need not always be decisions to acquire new businesses. There were also other approaches in the past, and we will see what the industry will be doing in the next 1 or 2 years to come. I believe that everybody will see that it's not only your own structures that you have to influence and change, but you have to think outside the box. And that has always been an element used by the industry, so I'm firmly convinced that the chemical industry will remain an innovative industry and will find new ways of strengthening its own position for the future. T Claus Zemke: Next question from Bert Frondhoff from Handelsblatt. He is still muted. Can you unmute yourself, Mr. Frondhoff? It doesn't seem to work. So we will return to you. Annettebekker seems to have another question. I was probably too fast. Annettekka, back to you again. Annette Becker: Talking about mergers, another question. The prime example for mergers is to be seen one of the partners will have to have the upper hand. And when you sold your primary businesses, you showed that there was 1 of the 2 companies that remained in control. And I think you are talking about mergers to create critical masses, but that's unrealistic. A lot of companies are failing when this happens. Matthias Zachert: Well, Ms. Becker, I can't confirm that there are successful joint ventures and less successful joint ventures. And over the past 30 years, when looking at the different value chains, there were good examples. Also, we did have a good joint venture of PBT with DuPont, where both of us had 50%. This joint venture was extremely successful, and there are other examples as well. So I would like to say that talking about mergers, if we were to imagine a special type of joint venture, we should talk about it once it's communicated for value chains. All I said was that acquisitions alone are not the panacea to consolidate the business; there are different tunes that you can play on the keyboard, right down to a joint venture. And should that be announced, then we ought to talk about it. I hope that answers your question, Ms. Becker. Bert-Friedrich Frondhoff: Sorry about the glitch beforehand. I have 2 topics. The first topic is that the first emissions trading in Europe was commented on yesterday by the ministers in Europe about free allocation. How do you see it? And what are the numbers? What would happen if this were not implemented and with respect to free allocation and further allocation, and short-term measures? And the second question is linked to this. Are you in favor of abolishing ITS as it is at the moment? Or do you want to see it changed? And if so, how should the change be affected? Matthias Zachert: First question. I can only briefly comment on this. I have not seen an evaluation on the individual elements discussed by the federal ministers at the European level or the different ministers at the European level, whether it's free allocation, yes, or no. And will the door be opened or rather closed, and how to consider this? So let's turn to the second question right away, which was of a more general nature. On the system or the trading concept with CO2 certificates. There are very clear comments on this. Our industry has a consensus. And here, I would like to share with you what I'm reading and what my colleagues are saying. This system, according to our opinion, needs to be revamped, reformed at least, if not abolished. There are different levels of clarity in the comments, but everybody says that the present design of the system would substantially make or worsen the framework conditions substantially and let me be very, very blunt. Our industry over the past years has made substantial progress with respect to achieving the climate targets. If you look at our company, we were really supported and praised, especially by the SBTi initiative. We are Climate Truck Paris 1.5. We earned many awards, although we are not so affected by the ETS costs because we have a much progressive portfolio. But looking at the industry, I have to clearly say one thing. The European industry has the highest standards, and we have all sorts of requirements when it comes to water purification or water treatment, recycling, and air purification. I mean, they are all very, very strong, and we are being certified and need to earn these certificates. So we've got very high ecological standards, and we've got wonderful facilities that meet the requirements at a top-notch level. But over the past couple of years, these facilities have been hit hard by increasing energy prices. And over the last 3 to 4 years, particularly because of Timmansi, former commissioner, who is not exactly friendly towards the industry sectors, quite the opposite is true, I must say. So all the industries, including the chemical sector, were hit hard by excessive requirements and red tape, and whether it is EUR 50 billion, EUR 80 billion, or whatever, I mean that is the cost that is being mentioned because we all had to spend a lot of money in order to meet the requirements. So it is bureaucracy. It is high energy costs, and we had quite high labor costs, and other industries thought that it was really quite enviable that we could pay such good wages and salaries. But then, on top of it, we cannot invest very much in America or sell a lot there. And there is other stuff developing. And on top, the fierce competition of China now in 2026, on the basis of the decisions that were taken by the commission in 2022 and 2023 under the auspices of Commissioner Timmansi, that the ETS allocations ought to be curtailed when it comes to free allocation. Now there is an additional burden, and this is where our industry is saying. I mean, that was decided 2 or 3 years ago, and this is no longer in line with our current realities. What is happening here is a significant additional burden and triggers their respective shutdown events. And the general conditions are no longer the right ones here. So we are producing chemical products, which we are producing under very good conditions, and all that goes to China. And China will care less about clean production. So they use coal and they will not reduce their emissions, and then they put that into their tankers and transport the stuff to Europe, which is fueled by heavy diesel fuel. So we get the products from an environment that is not as conscious about climate protection as we are. And we are, and I mean, it comes back to Gemlif, saying that this is suicidal when it comes to climate protection and when it comes to the protection of our industries. I mean, this is really a very clear and very tough statement. But at the end of the day, I can see the reality thereof. And unless we get our act together now and protect our industry that produces products in an environmentally friendly way. And then we will lose out, and the whole world will lose out because we will then get the products from areas in the world that couldn't care less, or at least are not as conscientious as we are. So we will abolish ourselves unless we reform, unless the lawmakers can agree on a proper compromise, which, at the end of the day, will protect both the climate and our wealth. Under the current conditions, this will not be possible. So, Mr. Frondhoff, I hope that I've been clear enough. Claus Zemke: Mr.Frondhoff says he's got another question, but of course, he doesn't want to hog the scene. So, is there anybody else? Well, why don't you go on, Mr.Frondhofff? Quite all right with us. Bert-Friedrich Frondhoff: Currency translations, foreign exchange effects. Can you quantify that? What does it mean for you? Is this attributable to the weak dollar? Or is it also the renminbi development? And what kind of further developments are you expecting? And maybe you can also talk about the business situation in the individual regions. Matthias Zachert: Well, Oliver, why don't you take over? Oliver Stratmann: Well, Mr. Frondhoff, you kicked it off very well. I mean, the most important currency is the dollar. Well, this dollar is the basis for our business in America and in Asia. So this is about 3% simply on account of the weakening of the dollar. And we expect this to stay? And if I have a look at the banking sector, this is a consensus that you cannot really talk about a short-term recovery when it comes to the most important foreign currency. Claus Zemke: Thank you. Now we have a question from the English space, Andrew Noel. Andrew Noel: If it's possible to get an answer, that would be great. The first one is, I guess, LANXESS was at the CPHI, and you've got some feedback from there. I want to ask, has CDMO finished in Europe? Has the market already shifted to India and Asia? Because when the Syngentas of this world look at ASM, it's in administration. I'm just wondering how much confidence they have in the future of Europe's CDMO. And what is the plan for the longer-term plan for Saltigo, if that's the case? The second question is just a clarification. We've been speaking about mergers and consolidation this morning. And I heard you sort of say different tunes that you can play on the keyboard and so on. Can I ask, do you feel more open to strategic mergers and the other kind of options, LANXESS as a company? Do you feel more open to these situations than previously due to the downturn in the market? Matthias Zachert: Well, I will continue in Germany, and I just hope that you can understand the translation well. First, CDMO. For everybody to understand what that means. This is a custom manufacturing business, and this is all bundled in the Saltigo unit. And the conference that you mentioned is a conference that is happening here in Europe on a regular basis, where everybody comes together. And now your question is quite clear. We want to keep CDMO here in Europe. And this is a business activity, which is very important for the chemical sector. But then, of course, you really have to have first-class facilities and first-class technology to offer. I think the very early synthesis stages that are not yet on a high technological level that they will be in the hands of Indian and Chinese producers. But when it comes to the more complicated synthesis, and there are more steps in the entire chain, that they are going to remain here in Europe. But of course, you need to have a competitive position here. You have to know the technology, you have to know about innovation, and you have to be cost-effective. And you see that in the automobile industry. They have got a strong position in the premium segment, and they have to have that in order to have a good cost structure in order to be competitive in the international comparison. This is also true for the European and German CDMO business areas. You mentioned ASM, and that's not on our list for closures. I think in October, there was a communication that the Austrian CDMO company, ASM, filed for bankruptcy. They were by far not as widely established as Saltigo, and they used to be owned by a private equity company for 10 years before that. So they were not as well-equipped when they had to face the storm. And therefore, they were hit hard. This is changing the market in a way that Saltigo should benefit more than have a detrimental effect. So CDMO will remain important in Europe, technologically speaking, for the respective customers and clients. Cost-wise, of course, you have to keep pace so that in the international environment, you can survive the competition. And this is the motto also for Saltigo going forward. Our technology is of high value, high [indiscernible] value. But of course, we have to face the cost of the international competition as well. I hope that answers the first question. Second question, more with respect to mergers and acquisitions. Looking at the past 10 years, LANXESS has always been a company, which on the M&A side, was rather progressive in inverted commerce or took a pragmatic approach, never a dogmatic approach. And we will have a look at what will be beneficial for both LANXESS and our stakeholders. And then we will see what kind of strategic steps we may take in the future. I hope that suffices as an answer for the second question. Claus Zemke: Thank you, Mr. Zachert. I have no additional questions, or nobody wants to take the floor, but let me look around. No show of hands. Thank you for attending our press conference. And lots of success and enjoy the rest of the day, and greetings from Cologne, and goodbye.
Operator: Good day, and thank you for standing by. Welcome to the Enerflex 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, Jeff Fetterly, Vice President, Corporate Development and Capital Markets. Please go ahead. Jeffrey Fetterly: Thank you, Gigi, and good morning, everyone. With me today are Paul Mahoney, Enerflex's President and CEO; Preet Dhindsa, our CFO; and Ben Park, Enerflex's Controller. During today's call, our prepared remarks will focus on 4 key areas: one, the continued strong performance of Enerflex' business, two, our outlook going into 2026; three, capital allocation, including an increase in Enerflex's dividend; and four, some initial commentary from Paul and strategic priorities. Before I turn it over to Paul, I'll remind everyone that today's discussion will include non-IFRS and other financial measures as well as forward-looking statements regarding Enerflex' expectations for future performance and business prospects. Forward-looking information involves risks and uncertainties, and the stated expectations could differ materially from actual results or performance. For more information, refer to the advisory statements within our news release, MD&A and other regulatory filings, all available on our website and under our SEDAR+ and EDGAR profiles. As our prepared remarks -- as part of our prepared remarks, we will be referring to slides in our investor presentation, which is available through a link on this webcast and our website under the Investor Relations section. I'll now turn it over to Paul. Paul Mahoney: Thanks, Jeff, and thank you all for joining us on this morning's call. I'm pleased to join Enerflex at a very exciting time for the company. The Enerflex team has made significant operational, financial and strategic strides in recent quarters. And I want to start off and thank the team across our global operations for their energy, their commitment and all of their efforts. We are pleased to report another strong quarter of financial and operating results. The energy infrastructure and aftermarket services business lines continue to be the foundation of our results, contributing 58% of gross margin before depreciation and amortization during the third quarter. The Engineered Systems business line benefited from a favorable project sequencing and strong execution to generate the highest quarterly operating revenue in its history. First, I'll start with a few strategic and operational highlights. Enerflex's U.S. contract compression business continues to perform well led by increasing natural gas production in the Permian. Utilization remains stable at 94% during Q3 across a fleet size of approximately 470,000 horsepower. Enerflex remains on track to grow its North American contract compression fleet to approximately 485,000 horsepower at the end of 2025. We expect to continue expanding this business in 2026 and we'll provide more specifics early in the new year. In the U.S., Enerflex was awarded a contract to construct a 200 million cubic standard feet per day cryogenic gas processing facility and associated natural gas compression. The project will be executed by the Engineered Systems business line and scheduled for delivery during 2026 with a strategic client partner in the Permian Basin. The company continues to broaden and strengthen relationships within the midstream client partner base in the U.S. which includes strategic alliances and further developing relationships established through the acquisition of Exterran. During Q3, this resulted in Enerflex securing multiple orders for large compression equipment. In Oman, Enerflex successfully completed the construction and start-up of the Block 60 Bisat-C Expansion Facility for its client partner, OQ Exploration and Production. The project was delivered ahead of schedule and achieved first crude oil in less than 18 months. Enerflex's investment is supported by a long-term contract and reported as a finance lease. In Argentina, Enerflex delivered a state-of-the-art all electric gas compression station for a long-standing client partner in the Vaca Muerta shale play. Lastly, Enerflex received the prestigious Export-Import Bank of the U.S. Deal of the Year Award for its collaboration on a gas-to-energy project in Guyana. First of its kind in Guyana, Enerflex provided the natural gas conditioning and cryogenic infrastructure for this project. We will generate 300 megawatts of power, reduce the country's dependence on imported fuels and expand access to power in underserved communities. And now a few comments on each of our business lines. Engineered Systems backlog as at September 30 of $1.1 billion provides strong visibility into future revenue generation and business activity levels. Bookings of $339 million during Q3 compared to a trailing 8-quarter average of approximately $320 million. The book-to-bill ratio calculated as bookings divided by revenue and normalized for accounting treatment associated with the Bisat-C Expansion project was 0.9x during Q3 and 1x on a trailing 8-quarter average, highlighting that the company is consistently replenishing its backlog in line with project execution. The outlook for Engineered Systems is supported by healthy bidding activity and backlog visibility that extends into the second half of 2026. Notwithstanding, Enerflex continues to closely monitor near-term risks, including tariffs and commodity price volatility and will proactively manage this business line. Activity levels for the ES product line during Q4 of '25 are expected to reflect a pull forward of certain projects into the third quarter. Enerflex continues to expect gross margin for the ES business line in coming quarters to align more closely with historical averages reflective of a shift in project mix. We believe the medium-term outlook for ES products and services is attractive, supported by anticipated growth in natural gas and produced water volumes across Enerflex's global footprint. Results for the aftermarket services business line benefited from increased activity levels and customer maintenance activities during the quarter. We expect these trends to continue into 2026. The Energy Infrastructure business continues to perform well, supported by approximately $1.4 billion of revenue under contract. Our U.S. contract compression fleet is an important part of our energy infrastructure asset base and the fundamentals for this business remain strong. Operational KPIs for this business are highlighted on Slides 15 and 16 of our investor presentation. Slides 17 and 18 highlight our international Energy Infrastructure business, which includes approximately 1.1 million horsepower of operated compression and 24 build, own, operate and maintain or BOOM projects in Bahrain, Oman and Latin America. The international Energy Infrastructure business has a strong contract position, with a weighted average term of approximately 5 years and is expected to provide a steady foundation to Enerflex's financial performance in the coming years. I would like to comment briefly on strategic priorities. Since joining Enerflex at the end of September, I've had the wonderful opportunity to visit the key parts of Enerflex's North American operation and interact across all levels of the company. The strength of Enerflex's people, culture and position and as a global leader, have been evident. We expect to provide further insight into strategic priorities including capital allocation in coming months following continued strategic clarity and discussion with our Board of Directors. I would like to emphasize that our go-forward approach will, one, focus on Enerflex's strengths and areas of excellence; two, stay true to the values that have guided the company for decades and three, continue to emphasize discipline, providing meaningful direct shareholder returns and making investments that support long-term shareholder value creation. In the near-term, Enerflex' priorities are unchanged and include: one, enhancing the profitability of core operations two, leveraging the company's leading position in core operating countries to capitalize on expected increases in natural gas and produced water volumes; and three, maximizing free cash flow to strengthen Enerflex's financial position, provide direct shareholder returns and invest in selective customer supported growth opportunities. Before I turn it over to Preet, I would like to briefly touch on emerging opportunities we are seeing in the electrical power generation part of our business, including opportunities associated with data centers. The delivery of modularized power generation solutions is a core competency of Enerflex. The Engineered Systems business line has been delivering these types of solutions for over 30 years, and our international energy infrastructure asset base includes upwards of 100,000 horsepower of modularized power generation assets. The microgrid power generation market in North America is very much in formation stage. But recent announcements from OEM suppliers and industry participants provide an indication of the potential opportunities. Although power generation represents a modest portion of Enerflex's current Engineered Systems backlog and overall business, we are developing solutions that we believe can address a range of applications and are excited about opportunities in 2026 and beyond. For context, we are currently executing FEED studies for existing and potential client partners and evaluating over 500 megawatts of opportunities across our Engineered Systems and Energy Infrastructure business lines. We look forward to providing updates as Enerflex continues to develop this market opportunity. With that, I'll turn it over to Preet to speak to the financial aside. Preet Dhindsa: Thanks, Paul, and good morning, everyone. I'll start with highlights from the third quarter. We generated revenue of $777 million in the third quarter compared to $601 million in Q3 '24 and $615 million in Q2 '25. Higher revenue is primarily attributable to the Bisat-C Expansion project that Paul highlighted, which contributed $116 million in revenue to the Engineered Systems product line, and strong execution of ES projects alongside a high level of operational activity, which led to certain project milestones being achieved earlier than expected. This results in revenue being realized in Q3 that was originally anticipated in later periods. Gross margin before depreciation and amortization was $206 million or 27% of revenue, including $14 million related to Bisat-C Expansion project compared to $176 million or 29% of revenue in Q3 '24 and $175 million or 29% of revenue during Q2 '25. As Paul referenced, the EI and AMS product lines generated 58% of consolidated gross margin before depreciation and amortization during Q3 '25, lower compared to 65% during Q3 '24 and our guidance for the full year 2025 as a result of contribution from the Bisat-C Expansion project and strong ES activity. Energy Infrastructure performance continued to be strong with gross margin before G&A of $95 million compared to $91 million in Q2 '24 and $86 million in Q2 '25. Aftermarket Services gross margin before G&A was 21% in the quarter, benefiting from strong customer maintenance programs. SG&A was $71 million in the quarter, down $11 million from the prior year period, driven by cost-saving initiatives, improved operational efficiencies and the absence of onetime integration costs incurred in Q3 '24, partially offset by higher share-based compensation. Adjusted EBITDA of $145 million is a new quarterly record for Enerflex that compares to $120 million in Q3 '24 and $130 million during Q2 '25. Adjusted EBITDA benefited from higher gross margin before depreciation and amortization, cost-saving initiatives and operational efficiencies. Cash provided by operating activities before changes in working capital or FFO, increased to $115 million compared to $63 million in Q3 '24 and $89 million in Q2 '25, a function of higher adjusted EBITDA. Free cash flow decreased to $43 million in Q3 '25 compared to $78 million during Q3 '24 due to working capital investments relating to the execution of projects in the ES business line and higher growth capital spend, offset by -- offset partially by proceeds from the sale of EI assets in Latin America. We saw a build of $41 million in net working capital during the third quarter, principally related to strong revenue recognition during the latter part of the quarter, which temporarily increased accounts receivable, strategic inventory investments to support future projects, including purchase of select major components with increasing lead times and continued investment in the Bisat-C Expansion project with $12 million spent during the third quarter. Return on capital employed increased to 16.9% in Q3 '25, a new record for the company compared to 4.5% in Q3 '24 and 16.4% in Q2 '25. Higher ROCE is a function of the increase in trailing 12-month EBIT and lower average capital employed, predominantly due to a decline in net debt. Net earnings of $37 million or $0.30 per share in Q3 '25 compared to $30 million or $0.24 per share in Q3 '24 and $60 million or $0.49 per share in Q2 '25. Compared to Q3 '24, profitability benefited from higher gross margin, lower SG&A expense and lower finance costs, partially offset by $16 million unrealized loss on redemption options related to senior secured notes. Now we'll touch on our strong financial position. Enerflex exited Q3 '25 with a net debt of $584 million, which included $64 million of cash and cash equivalents, a reduction of $108 million compared to Q3 '24 and $24 million compared to the second quarter of 2025. Enerflex's bank adjusted net debt-to-EBITDA ratio was approximately 1.2x at the end of Q3 '25 down from 1.9x at the end of Q3 '24 and 1.3x at the end of Q2 '25. In early Q3, Enerflex entered into an amended and restated credit agreement with respect to a syndicated secured revolving credit facility. The maturity of the facility has been extended by 3 years to July 2028, and availability is unchanged at $800 million. Let me shift to capital allocation. First, on our CapEx plans. We invested $47 million in the business consisting of $33 million in capital expenditures, $15 million for growth and $14 million primarily related to the Bisat-C Expansion in the EH region. Enerflex continues to target a disciplined capital program in 2025 with total capital expenditures of approximately $120 million. This includes approximately $60 million for maintenance and property plant and equipment and $60 million allocated to growth opportunities. Disciplined capital spending will focus on customer support opportunities, primarily in the U.S. market. And now direct shareholder returns. Enerflex returned $11 million to shareholders in Q3 and $35 million during the first 3 quarters of 2025 in the form of dividends and share repurchases. The company repurchased 777,000 common shares at an average price of CAD 12.98 per share during Q2 '25 and a total of approximately 2.7 million common shares and average price of CAD 10.93 since its normal course issuer bid commenced on April 1, 2025, to September 30. Under the NCIB, which expires March 31, 2026, the company is authorized to acquire up to a maximum of approximately 6.2 million common shares or approximately 5% of its public float as at the application date for cancellation. Enerflex' Board of Directors increased the company's quarterly dividend by 13% to CAD 0.0425 per common share, effective with the dividend payable in December 2025. The Board's decision to increase our dividend for a second consecutive year reflects confidence in our business and Enerflex a strong financial position and aligns with our priority to provide meaningful direct shareholder returns. Going forward, capital allocation decisions will be based on delivering value to Enerflex shareholders and measure to get to Enerflex's ability to maintain balance sheet strength. In addition to disciplined growth capital spending, share purchase and dividends Enerflex will also consider further debt reduction to strengthen its balance sheet and lower net finance costs. Unlocking greater financial flexibility positions the company to respond to evolving market conditions and capitalize on opportunities to optimize its debt stack. I want to thank Enerflex employees for their efforts to continuing to deliver strong operational and financial results. With that, I'll turn the call back over to Paul for closing remarks. Paul Mahoney: Thanks, Preet. Let me reiterate that I'm pleased to join Enerflex at an exciting time for the company and appreciate all the efforts of the Enerflex team and making significant operational, financial and strategic strides. We believe the long-term fundamentals driving our growth, including global energy security, and the continued increase in demand for natural gas remain firmly in place that Enerflex is well positioned for those fundamentals. We will now hand the call back to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Aaron MacNeil from TD Cowen. Aaron MacNeil: Paul, congratulations on the new role. I can appreciate you're going to give us an update in the coming months. But I guess I'm just curious to know what the team is telling you throughout the early days of your tenure in terms of what they think Enerflex does really well and what they think needs to be improved? And how does your prior experience sort of inform your perspective? Paul Mahoney: Yes. Well, thank you, Aaron, for the question and the comments. First, let me start that the openness and the transparency through my visitations for the first 30 days have been wonderful. I've probably met well over 1,300, 1,400 people in 30 days. And so what I would say has been confirmation of really focusing and seeing the benefits still in front of us around ruthless focus on some execution levers. Being able to drive cost, price opportunities and gross margin, along with driving working capital efficiency and the efficient use of capital remain priorities as Enerflex has demonstrated. I do see opportunities to enhance our core operation with digitization initiatives and efforts all while staying focused on our investment discipline, that being around investing in core competent areas, core countries and having a very strong specific line of sight for customer activity. Aaron MacNeil: Okay. Great. You mentioned mobile power in your prepared remarks. I was hoping you could dive a bit deeper into that. How do you think about the BlueSky potential for Enerflex, what would 500 megawatts of opportunities translate to in terms of potential revenue opportunity? And given the sort of immediacy of the demand of this sort of product, does the return or margin profile differ versus other products in the portfolio? Paul Mahoney: Great question. This is a very, very embryonic state, I would say, in power, and it's changing quite rapidly. It's clear that speed is a key differentiator and a key need. 500 megawatts could easily grow to well over 1 gigawatt is what I'm trying to say, using behind the meter need an application is seeing strong, strong dialogue activity, quoting activity, balancing OEM delivery dates and really being able to make committed opportunities coming forward. It's very dynamic. It's very much in an area that Enerflex has experienced. As I've said in my opening remarks, with 30 years of power experience. So we're very excited about the opportunity, very cautious, very disciplined, but it's a pretty dynamic situation at the moment. Operator: Our next question comes from the line of Keith MacKey from RBC Capital Markets. Keith MacKey: Welcome to the call, Paul. Maybe just to continue on the power angle. I know you noted it was across Engineered Systems and Energy Infrastructure. Can you maybe just detail a little bit more how you think you might be able to participate in both of those areas. And then as a follow-up would just be what your readiness would be to capitalize on some of these opportunities. And certainly, as you mentioned, speed is of the essence. And the market appears to be moving at a very fast rate with a lot of announcements out from various types of companies these days. So any incremental color you can give on that would be appreciated. Paul Mahoney: Yes, sure. So as I mentioned, I think speed being directly correlated to some of the OEM delivery pieces is what we're working through at the moment. There's opportunity around the recip engine space, natural gas being cost efficient, speed being a differentiator and Enerflex having a history and ability to execute are all coming together. It's very, very dynamic. I see opportunities in Engineered Systems. But what we haven't mentioned is there's a strong opportunity for a follow-on aftermarket services play for operations and maintenance. So it's very exciting, and we're working very hard to build those partnerships. Partnerships here are going to be vital not only with the supply base, but also the power-related folks that are out there trying to solve this challenge or behind the meter activity and microgrid activity. And those partnership meetings and events have been occurring at a high pace. Keith MacKey: Okay. Very good. And just more broadly on the OEM engine availability. Can you just comment on your inventory levels to support or execute existing projects as well as your ability to continue to book new work? How do you feel about the supply chain both in Engineered Systems and aftermarket services from that standpoint? Paul Mahoney: Yes. Maybe I'll open up with some comments and maybe turn it to Preet here. But I've had the opportunity to meet with our major OEM suppliers in the first 30 days and get a really good understanding of what we could expect over the next 12 months. We have started to invest in some strategic inventory. That being tied specifically to customer activity, customer commitment. And so we've started to be able to manage what our '26 commitments will be and what the lead times in our inventory position is. So... Preet Dhindsa: The only thing I'd add is you see the investment in working capital, largely that's focused on the ES business, whereby long lead time equipment requires advanced bookings for that. So we've been doing that quarter-over-quarter. We feel good about customer-supported activities that will clearly procure these items as and when they arrive. But the longer lead times are area of focus for us. And once again, starting to invest in inventory in order to meet the customer support demand down the road. Operator: [Operator Instructions] Our next question comes from the line of Tim Monachello from ATB Capital Markets. Tim Monachello: Congrats, Paul. First question, I just wanted to follow up on the power gen portfolio. You mentioned in your prepared remarks that you might be developing some additional product lines that you think maybe are better suited. My understanding is you have a pretty wide breadth of, I guess, megawatt packages that you can package for the market, but perhaps more suited to the smaller end of that. Can you talk a little bit about what the demand looks like in terms of package sizes and where your product lines fit in and what you might be developing? Jeffrey Fetterly: Tim, it's Jeff. As Paul referenced in the prepared remarks, modularized is a core competency and focus for Enerflex. And there is a very wide range of potential applications, both size that you referenced as well as configurations. I don't think it's appropriate for us to get into the details of that in any specific nature on the call. But as we talked about, we see a wide range of applications and significant opportunities that could align with those as well. Tim Monachello: Okay. I understand there's probably some competitive dynamics there. Can you talk a little bit about, I guess, where you are in that process, if you're going to have the product suite you think is optimized for demand right now? And when do you think that might be available? Jeffrey Fetterly: And as Paul referenced in the prepared remarks, this is business on the Engineered Systems side that we participated in for over 30 years. We continue to be active in delivering power generation solutions, both domestically and internationally. And we continue to be responsive to the customers and engage with the OEMs and the customers to continue to customize those as well. So from our perspective, we believe it's real time, but as Paul also referenced this is an emerging developing market that's moving quite quickly, too. Tim Monachello: Yes. Okay. That's helpful. In terms of, I guess, the natural gas compression market, can you talk about leading edge demand a little bit and where we stand for lead times on key components like Cat engines and compressors. Paul Mahoney: Yes. Good question, Tim. Clearly, in the production -- oil and gas production space, let's focus maybe on the Permian a bit. You do see a constrained capital disciplined environment that's impacting, right, drilling and completions and things like that. But what you're also seeing is operators really trying to get the most out of their dollar spend. And so production optimization, production efficiencies are very, very high on the agenda. What that looks like from a compression standpoint, you still see the centralization of compression happening and occurring you're seeing growth rates in perhaps different production technologies that would utilize the gas, the available gas in gas lift production technologies. So the demand doesn't necessarily correlate with what you may think on drilling and completions and things it's correlating to more centralization and leveraging gas for production optimization efforts. Tim Monachello: Okay. And lead times for the engines and compressors, where we think we're at there. Jeffrey Fetterly: Tim, it's Jeff. It's obviously been fairly widely publicized the increases in lead times associated with certain engines and configurations and we certainly are seeing that. And as Paul and Preet highlighted in their earlier remarks, we've been responding to that with inventory investments and engagement on the OEM side. But we're certainly seeing certain engine configurations where deliveries are now extending into 2027, and in some extreme cases, 2028 and it's really reflective of the convergence that you've seen in recent quarters between what have been traditionally more compression-oriented applications with power gen on the reciprocating engine side. Tim Monachello: Okay. That's helpful, too. And then just on the outlook, in particular, for the Engineered Systems business. When you back out the Oman project, margins were really strong in the quarter. And you guys have been guiding to margins coming down for a few quarters now. We haven't -- I think that it's probably outperformed your expectations and ours. I guess, why do you think you can't keep that outperformance going because I would have imagined that your backlog and the mix in that backlog had been shifting towards negative or towards lower margins over the last number of quarters here? Preet Dhindsa: Tim, you're right, we've been guiding towards historical Enerflex averages for a couple of quarters now. The Oman project, obviously, that contributed $14 million to gross margin, $116 million came out of backlog for that into revenue. And we still feel, given mix, product mix in our backlog and bookings company in we still feel it's prudent to guide slightly to the mid-teen level historical averages. We feel that's still the right spot to be in. And we're pleased with our results to date. As Paul mentioned, look at operational efficiencies where we can. So over time, if we feel we're trending in an even more constructive direction, we'll advise. But right now, we feel good about the historical average gross margin, which is still something you should probably peg to. Tim Monachello: And then last one for me. Can you help quantify how much was pulled forward from Q4 into Q3? Jeffrey Fetterly: Tim, I think the easiest rule of thumb is when you look at the average revenue of the ES business over the last couple of years, it's been between $300 million and $325 million per quarter. If you look at what we reported close to just over $400 million or close to $400 million, you back out the Bisat-C Expansion that we referenced I think that would give you an indication of the strength of Q3 and the execution we saw in Q3 relative to normal cadence. Tim Monachello: Okay. And then you think that much of that comes out of Q4? Like the amount that you're above that cadence in Q3, you should be below it in Q4... Jeffrey Fetterly: I don't know if we can give you a direct correlation. But as was referenced in the remarks, there was definitely some pull forward and accelerated execution that happened in the third quarter. Operator: Thank you. At this time, I would now like to turn the conference back over to Paul Mahoney for closing remarks. Paul Mahoney: Before we close today's call, I'd like to take a moment to acknowledge the upcoming Remembrance Day in Canada and Veterans Day in the United States. We honor the courage and sacrifice of those who served and continue to serve in our armed forces, including many employees now part of the Enerflex family. Their dedication has safeguarded the freedoms and piece we enjoy today. Thank you for joining today's call, and we look forward to sharing our fourth quarter and year-end financial results in February. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, and welcome to the Janus International Group Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Ms. Sara Macioch, Senior Director, Investor Relations of Janus. Thank you. You may begin, Ms. Macioch. Sara Macioch: Thank you, operator, and thank you all for joining our earnings conference call. I am joined today by our Chief Executive Officer, Ramey Jackson; and our Chief Financial Officer, Anselm Wong. We hope that you have seen in our earnings release issued this morning. We have also posted a presentation in support of this call, which can be found in the Investors section of our website at janusintl.com. Before we begin, I would like to remind you that today's call may include forward-looking statements. Any statement made describing our beliefs, plans, strategies, expectations, projections and assumptions are forward-looking statements. The company's actual results may differ from those anticipated by such forward-looking statements for a variety of reasons, including, but not limited to, tariffs, interest rates and other macroeconomic factors, many of which are beyond our control. Please see our recent filings with the Securities and Exchange Commission, which identify the principal risks and uncertainties that could affect our business, prospects and future results. We assume no obligation to update publicly any forward-looking statements and any forward-looking statement made by us during this call is based only on information currently available to us and speaks only as of the date when it is made. In addition, we will be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted EPS and net leverage. Please see our release and filings for a reconciliation of these non-GAAP measures to their most directly comparable GAAP measure. On today's call, Ramey will provide an overview of our business. Anselm will continue with a discussion of our financial results and 2025 guidance before Ramey share some closing thoughts, and we open up the call for your questions. At this point, I will turn the call over to Ramey. Ramey Jackson: Thank you, Sara, and good morning, everyone. We appreciate you all joining our call today. I'd like to highlight a few key themes as I begin my prepared remarks. First, our team continues to execute in an operating environment that remains challenging. Second, we have confidence in the long-term fundamentals of our end markets we serve, reinforced by the stability of our backlog and pipeline. And finally, we believe our flexible financial profile and solid cash generation underpin the resiliency of our business model and allow us to adapt to changing market conditions. For the third quarter of 2025, Janus delivered total revenue of $219.3 million down 4.7% from the third quarter of 2024. Adjusted EBITDA was $43.6 million, up 1.2% compared to the prior year. Anselm will expand further upon drivers of these results shortly. Moving along to a discussion of our sales channels. Total self-storage saw a revenue increase of 3.7% and on the New Construction side. This was driven by strength in our International segment, which more than offset continued softness in the North American market. The R3 sales channel benefited from strength in the door replacement and renovation activity. Our Commercial and Other sales channel decreased 20.1% primarily driven by declines in our TMC business due to project timing as well as weakness in the LTL trucking industry stemming from broader economic impacts. TMC accounted for approximately 70% of the decline in revenue in the quarter. As we have noted before, the TMC business can be somewhat lumpy and will ebb and flow throughout the year. Additionally, we continue to experience overall market softness for commercial sheet doors. Despite the revenue decline, we are still seeing growth in other areas of our commercial business including rolling steel and our multiyear effort to get specified for certain architectural requirements. We believe the more comprehensive suite of offerings we have worked to develop is helping to build upon our position in the commercial market. Adoption of our Noke Smart Entry system continues to progress with 439,000 installed units at quarter end, representing an increase of 35.9% year-over-year. The latest addition in our line of Noke Smart Entry products, Noke Ion has been well received by the industry. The smart locking solution is low voltage powered can be customized and enhanced features like LED lights and motion sensors and is designed and optimized for all Janus self-storage and commercial door products for both New Construction and retrofits. We're pleased with the performance of this business and in particular, the acceleration of interest from the large institutional customers. We continue to see opportunities for further expansion as operators explore avenues to effectively manage their costs, prevent theft and enhance tenant satisfaction. In the third quarter, Janus continued to invest in innovation and expand our offerings to drive long-term growth across our portfolio. Through our BETCO brand, we announced a comprehensive expansion of our metal decking product line. This new range of custom metal decking system provides design flexibility to meet the unique structural and architectural demands of self-storage development and redevelopment. We also launched a redesigned web portal for our Noke Smart Entry platform, marking another milestone in our ongoing commitment to delivering seamless enterprise-level experiences for self-storage owner operators to run their facilities in a more effective and efficient manner. From a financial standpoint, our strong business model and cash flow generation should allow us to be opportunistic with regard to our capital allocation priorities. During the quarter, we continued our share repurchase program and are consistently evaluating M&A opportunities, which remain our top capital allocation priority. Despite sustained high interest rates, we are encouraged by the fundamentals of our business and their capacity to drive long-term growth. The self-storage industry remains resilient and continued consolidation presents growth opportunities for our R3 business. With an aging installed base and in the face of liquidity constraints, we believe facility owners will be encouraged to focus their capital allocation on existing properties. With positive industry tailwinds, coupled with our significant scale and financial discipline, we believe we are well positioned to deliver long-term shareholder value. With that, I'll turn the call over to Anselm for a further review of our financial results and updates to our 2025 guidance. Anselm? Anselm Wong: Thank you, Ramey, and good morning, everyone. As Ramey shared, our team has continued to focus on execution in a tempered operating environment. For the third quarter, consolidated revenue of $219.3 million declined 4.7% as compared to the prior year quarter. In total, our self-storage business was up 3.7%. New Construction increased 5.5% and R3 was up 0.7% for the quarter. The growth in revenues for New Construction was driven by strength in our International segment which more than offset continued weakness in North America. The increase in R3 revenue was driven by increases in door replacement and renovation activity. In the third quarter, our International segment saw total revenues increased to $28.3 million, up $7 million or 32.9% compared to the prior year, driven primarily by growth in New Construction. For the quarter, revenue in our Commercial and Other segment declined by 20.1%. Approximately 70% of the decline in revenue was attributable to our TMC business due to project timing as well as overall weakness in the LTL trucking industry resulting from tariff and economic impact. As Ramey noted, the TMC business can fluctuate throughout the year depending on the timing of jobs that are completed. While we continue to see softness in the commercial sheet door market, we are encouraged by the strength we are seeing in both rolling steel and the carport and sheds business. On a consolidated basis, the impact of revenues for the quarter was roughly 60% price and 40% volume. Third quarter adjusted EBITDA of $43.6 million was up 1.2% compared to the third quarter of 2024. This resulted in an adjusted EBITDA margin of 19.9%, an increase of approximately 120 basis points from the prior year period. The increase in margins year-over-year is primarily attributable to the prior year being negatively impacted by adjustments to our provision for credit losses, which was partially offset by volume declines and the impact of geographic segment and sales channel mix. We continue to see the benefits from our previously announced cost reduction program. As a reminder, we expect to realize approximately $10 million to $12 million in annual pretax cost savings by the end of 2025. For the third quarter, we produced adjusted net income of $22.6 million, up 1.3% compared to the prior year period and adjusted EPS of $0.16. We generated cash from operating activities of $15 million and free cash flow of $8.3 million in the quarter. On a trailing 12-month basis, this represents a free cash flow conversion of adjusted net income of 171% and Capital expenditures in the quarter were $6.7 million. We ended the quarter with $256.2 million in total liquidity, including $178.9 million of cash and equivalents on the balance sheet. Our total outstanding long-term debt at quarter end was $554 million, and net leverage was 2.3x, within our target range of 2 to 3x. These liquidity levels provide us ample financial flexibility and allow us to execute on our capital allocation priority. During the quarter, we repurchased approximately 82,000 shares for $800,000 as part of our share repurchase program. With the additional $75 million share repurchase authorization approved by our Board of Directors earlier this year, the company had $80.5 million remaining on our share repurchase authorization at the end of the third quarter. Subsequent to quarter end, we are also pleased that S&P upgraded our credit rating from B+ to BB- with a stable outlook. This recognition reflects our resilient business model, balanced approach to capital allocation and consistent cash flow generation and profitability. Now going to our 2025 guidance. Based on our year-to-date results, current visibility into our backlog and end markets and business trends and conditions as of today, we are updating our full year 2025 guidance for revenues and adjusted EBITDA. We expect revenues to be in the range of $870 million to $880 million and adjusted EBITDA to be in the range of $164 million to $170 million, reflecting an adjusted EBITDA margin of 19.1% at the midpoint. While we anticipate revenues in the fourth quarter to be largely in line with the third quarter and the midpoint of the guide remains intact, we now anticipate EBITDA margins to come down from our original guidance, primarily driven by geographic and product mix. We continue to anticipate the free cash flow conversion of adjusted net income will be above the target range of 75% to 100% for 2025. Please refer to the presentation we have posted for additional details on our key planning assumptions for 2025. Thank you all for your time. I will now turn the call over to Ramey for his closing remarks. Ramey? Ramey Jackson: Thank you, Anselm. Our team has continued to focus on factors we can control in a dynamic environment. Supported by our balance sheet and cash flow foundation, we will continue to develop our innovative suite of solutions to further build upon our industry leadership position and invest for future growth. We believe we will be well positioned in our industry when an inflection point in the operating environment does occur. Looking ahead, we will continue to execute on our strategic plan as we look to drive long-term value creation for all of our stakeholders. In closing, I'd like to express my appreciation to our team, customers and our shareholders for your support. Thank you again for participating on today's call. Operator, we would now like to open up the lines for Q&A, please. Operator: [Operator Instructions] We'll take our first question today from Dan Moore with CJS Securities. Will Gildea: This is Will on for Dan. Just looking at the guidance -- looking at the guidance, revenue is unchanged, but EBIT is lower by 10% at the midpoint. So we're looking for something in the 19% margin range versus 21%. Can you add some more color and help us rank order or bucket the delta between mix, higher input costs, including tariffs and other factors? Anselm Wong: Sure. Biggest thing was really product mix and in the kind of segment mix, where the sales came from. If you actually noticed when we print the Q, you'll see that international sales were up meaningfully. So there's a lower margin versus kind of in our North America business. So the majority is there, tariffs is really not material and neither was input costs. Will Gildea: Very helpful. And then looking at your backlogs and quoting activity, particularly from your core REIT customers. What does it tell you regarding their plans and budgets for growth for both New Construction and R3 related spend as we look into 2026? Anselm Wong: At least what we are seeing right now, at least for the current time, the backlog in the pipeline looked pretty stable. I wouldn't say there's anything that's changed from last quarter where we saw was fairly stable. Operator: We'll take our next question from Jeff Hammond with KeyBanc. David Tarantino: This is David Tarantino on for Jeff. Starting with commercial, could you give us some more color on the weakness in TMC, how much is timing versus the softness in the end markets? And then maybe around the unchanged midpoint in the overall sales guide, how should we think about the assumptions between the end markets and what gives you the confidence that this is more down to timing and should improve moving forward? Anselm Wong: Yes. As we said about TMC, it's really -- there's 2 things there is that a lot of their projects are pretty large projects that get impacted by weather, get impact the decision by the customer. So it's really hard to predict kind of what quarters certain projects lean in because of those decision points. So a lot of it I would say was a push out of at least from a visibility point of a project that we're aware of. Second, I think if you know that the LTL market and the customer is there, it has been softer due to the reduced volume of transactions due to the tariffs. So we are seeing a little of that pushback in terms of opportunities there because of that. But in general, most of our TMC business is R&R. So at some point, you're going to have to do some of the repairs. So I think there's just some timing that we expect for some of the projects that are being pushed out. Ramey Jackson: Yes. Just to close, I mean it's -- we remain excited about the TMC business. It's a really good business and a good industry. So we're very optimistic about the growth profile of that business. David Tarantino: And is it fair to think within the change midpoint of the sales guide, maybe commercial is a little bit lower in self-storage higher? Is that -- am I thinking about that correctly? Anselm Wong: If you look -- if you do the implied you'll see it's a little lower for both of them just to get to the implied Q4. But I don't think commercial will be as bad as Q3 in terms of decline. David Tarantino: Okay. Great. And then maybe in self-storage, can you dig into what's driving the strength in international and maybe how we should expect that moving forward? And then maybe can you just give us some color on what you're seeing on the ground and North America and how that's played out relative to your guys' expectations? Ramey Jackson: Yes, I can start. Look, I mean, there are certain pockets internationally that are undergoing extreme growth mode. We kind of revised our go-to-market strategy moving forward, and it matters in terms of being in the countries that you serve. And so that's playing out, and we're excited about that. And in addition to that, around the international business, our Noke adoption is becoming more standard. So we're seeing a lot of acceleration as with door and hallway sales being standard with our Noke offering. And then on the self-storage piece of it in North America, no change from the past few quarters. The institutional operators are accelerating development. They're using this opportunity to gain market share. And then the noninstitutional are pretty much on the sidelines. But one positive thing that we are seeing with noninstitutional is they have a lot of construction ready sites. So they're at a good point to when the macro turns, they'll be able to accelerate development as well. And then on the R3 side, same thing. Consolidation matters, M&A matters to us in terms of R3 revenue from a rebranding perspective and then unit mix optimization, being able to rightsize the sites continue to drive R3. Operator: We'll take our next question from John Lovallo with UBS. Spencer Kaufman: This is Spencer Kaufman on for John. The first one, I think if we were kind of back out or back into the impact from TMC, I think it would be like an $11 million impact in the quarter. I guess, one, is that roughly what it was? And then two, are you expecting to sort of recover that in the fourth quarter? Or does this kind of get pushed into 2026? Anselm Wong: Yes, that's about the approximate value if you imply it. And it's going to be a push, as you expect because there's certain jobs we can only do in certain amounts in the quarter. So there's definitely a push into Q4 and then subsequently into 2026. Spencer Kaufman: Okay. Got it. And I think typically, sales in the first quarter are a little bit softer than the rest of the quarters, which usually leads to lower EBITDA margin sequentially. Is that how you guys are sort of thinking about 1Q at this point? Or are there any unusual items kind of similar to what happened in 4Q '24 to 1Q '25? Anselm Wong: Yes. We haven't disclosed anything yet, obviously, on 2026. So I think I'd say at this point, it's just we'll probably refer to our next quarter earnings call to really discuss that. Spencer Kaufman: Okay. Fair enough. If I could just squeeze 1 more in. Just on the tariff side, recognizing it's pretty small for you guys. I think that you haven't really changed the outlook for sort of the annualized impact of $6 million to $8 million on an unmitigated basis. But if I look in the slide deck, I think you guys may have admitted in the footnote this part about securing the alternative sourcing for components and that you anticipate the productivity and commercial actions will offset a lot of that exposure. I guess is there anything to read into it to why that's not in the slide deck anymore? Anselm Wong: No. We're still doing the same thing like we said. We're mitigating and looking at alternative sources. We've already done some of the actions to that. So I don't think it's implying anything. We're still on track for that. Operator: We'll take our next question from Phil Ng with Jefferies. Philip Ng: I appreciate all the color. I guess, first on your self-storage business in the U.S., appreciating TMCs lumpy in nature, but it sounds like a lot of the growth is coming from the international business. So when you guys had to unpack the North American self-storage business, is it kind of unfolding like what you expected, particularly in the back half of this year? Anselm Wong: Yes. It's probably -- the only thing I would say is that the R3, as we talked about, acceleration is not happening as fast as we would have liked. Obviously, we don't predict that timing. It was our best guess in terms of that piece. But I think the balance of it is kind of coming what we expect in New Construction, but it's just the R3 piece is a bit slower in terms of growing where we would have thought it would be. Philip Ng: And that's mostly in the institutional side of things or noninstitutional side? Where it's been a little more... Anselm Wong: Yes, institutional in large REITs. Philip Ng: Okay. All right. That's helpful. And in terms of the color that you shared earlier about how -- Ramey, you shared about how a lot of your noninstitutional customers have construction-ready sites. How quickly can they react? I mean I guess, what should we be monitoring that from the outside looking that would be indicative of perhaps things picking up? Is it rates coming down, liquidity and improving consumer confidence? Just kind of help us think through what are the nuggets that we should be looking from the outside? And if those things unfold, how quickly could that translate to your volumes? Ramey Jackson: Yes, that's hard to predict. Great question, by the way. But all of the above, I mean in terms of the macro, liquidity matters, interest rates, I mean, the 10-year treasury keeps bouncing around. But I think more than anything is the confidence is what we're hearing for a stronger tomorrow in the macro. But what we've seen, we've mentioned several times on these calls that activity in the pipeline remains very strong. And so that gives us optimism that our customers will be ready to dive in as quickly as possible. That's something that hasn't happened in previous downturns. Usually when things slow down, everything slows down. But that has not been the case in terms of the amount of work that we're doing on the design side of it and the quoting in the pipeline. So we're really optimistic that once things do turn that it will accelerate. And on the timing, it's hard to tell. What I do know is I would classify a lot of these sites are shovel-ready, so they have the property. It's just a matter of getting construction started. Philip Ng: So let's say if they decided to move today, just in terms of construction cycle when your products come in, is that 6 months out? Or are you pretty early in that construction cycle in terms of the process? Ramey Jackson: Yes. It really depends on the mix. I mean, a large part of our go-to-market strategy has been end-to-end building solutions. So it's not only the door and hallways. And so with that being said, the projects that we're actually doing the buildings on will start a lot quicker. But 3 to 6 months is probably a good number for that. Philip Ng: Okay. And I'll sneak one more in Ramey. From a raw materials standpoint, how are you guys set up? Because I believe you purchased all of your steel domestic. So you don't really have that steel tariff peaks, but steel prices are certainly still higher. You had a lot of costs hedged out for good parts of this year. So when you look at the '26, I suspect your cost is going to go up. Have you started bidding work at these elevated prices? And are you able to pass it through? Ramey Jackson: Yes. It's actually the opposite. I'll let Anselm speak to the... Anselm Wong: Yes. If you look at the -- if you look at the steel prices, I think there was that trend to go up. But then because there has not been the demand for it, it's actually held pretty low. So if you look at it right now, and obviously, you know how we buy steel is that we've already bought steel going into next year. It's been fairly stable, surprisingly in terms of where the steel price has been. So I wouldn't expect a large change at this point for the early parts of next year. Operator: We'll take our next question from Reuben Garner with Benchmark. Reuben Garner: So you've got the $10 million to $12 million in cost initiatives that you've had in place this year. How much of that has been realized so far? How much will carry into next year? And I guess, if we don't start to see some significant changes in demand, are there more things that you can do to reduce the cost structure? Or is this the kind of situation where you'd likely ride it out? And because you're optimistic about the long-term dynamics in the industry? Anselm Wong: No. I think if you look at the casting, we are on track already. You saw what we posted. We're about 70% of the savings already. So we should be in that range we talked about the 10% to 12% for the year. In terms of further costs, I think we're always looking. So Ramey and I are always pushing business to look at opportunities. So I would say there's definitely more opportunity there. We're already working on a few just in preparation if it does, the demand still stays low. So there's definitely more opportunity. Reuben Garner: Okay. And then it looked like your inventory picked up as a percentage of revenue I don't know if it's just a one-off. Was there anything unique there? Would we expect that to kind of go back down in the fourth quarter and beyond? Anselm Wong: Yes, definitely. If we buy the steel, our volume has been a bit lower than we would have expected. So you would expect the inventory to go up slightly due to compared to the original forecasted volume were there. So I think it's just a slight blip there we had to have -- the inventory was not at the volume that we expected. But our expectation we'll burn it off as we go through the rest of the year. Reuben Garner: Okay. And then last one for me. You mentioned Noke successes internationally. How do things stand domestically? I assume utilization rates have come in somewhat maybe a better time to make those kind of changes that would be necessary to move to the Noke system, at least now versus a couple of years ago? Any signs that an acceleration around the way. I know you've been waiting or looking for a larger institutional player to kind of make the move on that? What are the chances that that's around the corner? Ramey Jackson: Yes, that's a good question. We mentioned in our comments that the institutional activity has certainly picked up and I think it's really a testament to Ion. It's really proven itself in terms of design, performance, stability and a price point that the market is looking for. And then you've heard us talk about security. It's really a problem for the industry. And resolved a lot of the security issues. One of our larger clients has reported a 90% reduction in theft with that product line. So we continue to be optimistic and looking forward to driving additional use cases throughout the sector, but couldn't be happier. Reuben Garner: So just a quick follow-up. I mean is it likely at some point that there's like a step function higher, like where there's a large adoption? Ramey Jackson: Yes. Reuben Garner: Or do you think of more of -- okay, all right. So we're still -- so that's still in the cards. Operator: And we'll take our next question as a follow-up from Jeff Hammond with KeyBanc. David Tarantino: This is David again. Just a quick follow-up on the pricing trends. It was largely stable sequentially. So could you just give us some more color on how we should expect this to evolve moving forward? And maybe into next year just based on the actions you've already implemented to date? Anselm Wong: Yes. I think for related to this year, we expect something similar. But again, we haven't looked into make sure what the impact will be. Operator: And there are no further questions on the line at this time. I'll turn the program back to Ramey Jackson for any additional or closing remarks. Ramey Jackson: All right. Thank you all for joining us today. We appreciate your support of Janus and look forward to updating you on our progress. Have a great day. Operator: This does conclude today's program. Thank you all for your participation, and you may now disconnect.