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Operator: Greetings, and welcome to Joby Aviation's Third Quarter 2025 Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Teresa Thuruthiyil, Head of Investor Relations for Joby Aviation. Teresa, please go ahead. Teresa Thuruthiyil: Thank you. Good afternoon and evening, everyone. Thank you for joining us for Joby Aviation's Third Quarter 2025 Financial Results Conference Call. I'm Teresa Thuruthiyil, Joby's Head of Investor Relations. We will begin the discussion with comments from JoeBen Bevirt, Founder and Chief Executive Officer; and Rodrigo Brumana, Chief Financial Officer. For the Q&A portion of today's call, we'll also be joined by our Executive Chairman, Paul Sciarra; and Blade CEO, Rob Wiesenthal. Please note that our discussion today will include statements regarding future events and financial performance, as well as statements of belief, expectation and intent. These forward-looking statements are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For a more detailed discussion of these risks and uncertainties, please refer to our filings with the SEC and the safe harbor disclaimer contained in today's shareholder letter. The forward-looking statements included in this call are made only as of the date of this call, and the company does not assume any obligation to update or revise them. Also, during the call, we'll refer both to GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in our Q3 2025 shareholder letter, which you can find on our Investor Relations website, along with a replay of this call. And with all of that said, I'll now turn the call over to JoeBen. JoeBen Bevirt: Thank you, Teresa, and thank you, everyone, for joining us today as we discuss our third quarter 2025 results. The past few months have been momentous for our team, as well as demonstrating the remarkable potential of our aircraft by flying in front of hundreds of thousands of people here at home and overseas, we've also moved the ball meaningfully down the field on certification, and we've passed one of the most important milestones in Joby's history to date. As we announced this morning, we have now begun power-on testing of the first of several aircraft we will build for TIA or Type Inspection Authorization. Entering TIA is widely understood as marking the final stage of the certification process and is a very strong indicator of a company's ability to reach Type Certification. This is the moment when our certification strategy, our intended type design and our manufacturing processes all converge into one physical asset. Let's take each of these in turn. First, our certification strategy. It might sound simple, but our certification strategy is the result of more than a decade of working alongside the FAA to develop a certification basis, the means of compliance for our aircraft, certification plans and test plans. These are the documents we've been talking about quarter after quarter in these calls, and they are absolutely required to get to TIA. Second, having a stable design is the result of years of focused engineering and testing using the same design and putting it through thousands of hours of testing on the ground and in the air. If you continue to make changes to your design, you can't enter TIA with a high degree of confidence that you'll complete it expediently. Finally, on manufacturing processes. This aircraft is one of a series that we are producing under Joby's FAA-approved quality management system. Each of the TIA aircraft, including this one, will be built with FAA-conforming components as required by our FAA-approved test plans. Each of the relevant components will be built to FAA DER or Designated Engineering Representative approved designs, and then inspected and signed off by FAA Designated Airworthiness Representative or DAR. This process adds a lot of overhead to the build processes. It's not fast or easy, but it is what's required to start TIA flight testing. Bringing all of these elements together is a huge achievement and I'm incredibly grateful to the team at Joby and at the FAA for the years of hard work that led up to this moment. We continue to plan for this aircraft to take to the skies later this year, flown by Joby pilots, clearing the way for FAA pilots to start for credit testing next year. As I mentioned earlier, having a mature and stable design is central to being able to move with certainty and pace through the certification process. And over the past quarter, we've been able to build on that maturity, demonstrating a remarkable cadence of flight testing and demonstration flights as well as continuing to fly several times a day out of Marina where we've demonstrated climbing, descending, accelerating and decelerating all at max rates. We also flew our first A to B mission, flying down to Monterey and back. A few weeks later, we participated in the California International Air Show, completing a 20-minute flight that saw us take off vertically, fly to Salinas, completed a demonstration that included multiple transitions between forward flight and hover and returned to Marina for a vertical landing. And we did all this while a separate Joby team completed 2 full weeks of regularly scheduled flights in Osaka as part of the World Expo, demonstrating the aircraft to hundreds of thousands of attendees, including the Japanese Prime Minister and the Governor of Osaka. The operational rigor and consistency we've demonstrated in completing these flights is a testament to the remarkable team we've built and the maturity of our aircraft. It is also preparation for our future commercial service. Speaking of which, it was a privilege to fly Ryder Cup fans back and forth from Manhattan to Long Island this quarter via our Blade service. 2.5-hour drives were replaced with 12-minute flights, highlighting the potential of vertical lift to a key audience suppliers. Our Blade team excels at delivering operations at scale, combined with the highest levels of customer service. This operational experience, combined with the maturity of our eVTOL platform puts us in a great position to take on the opportunity presented by the U.S. government's recently announced eIPP program. Through an executive order, the President has directed the Department of Transportation and the FAA to ensure that mature eVTOL aircraft can begin operations in select markets in the U.S. ahead of full FAA certification. We are already in advanced conversations with a wide range of state and local government entities who are submitting applications for the program, and we believe that having a TIA-ready aircraft as well as a wide set of operational experience will put us in a very strong position to deliver the high levels of safety the FAA will require to participate in this precertification program. We see the eIPP program pulling early demand for our aircraft forward. Taken alongside the demand we're also seeing from a range of international early adopters, it's clear we'll need to keep accelerating production if we are to keep up with the incredible demand we're seeing for our product. The level of production we are preparing for has never been seen in the aviation industry, and we're incredibly grateful to be working closely with Toyota as we plan and execute for scale. And we've already produced 15x more FAA conforming parts so far this year in Marina than we did in all of 2024. As well as growing in Marina and adding more than 100 manufacturing roles this past quarter, we've now begun production of propeller blades at our Dayton, Ohio facility. This is a great example of our approach to scaling, where we'll perfect manufacturing processes at home in California before scaling them alongside Toyota. Before I hand it over to Rodrigo to talk about our financials, I wanted to touch on my excitement for the future of Joby. Our core focus is and always has been the development of our core S4 platform. That's the aircraft you see flying every day. We've put a huge amount of work into designing it from the ground up, and we've built it in a vertically integrated way. As I've said many times before, this vertically integrated approach is our superpower. Because now that our platform is mature, we're able to move with incredible pace to adapt it to a wide range of use cases and technologies. Last year, we adopted it to fly with liquid hydrogen, completing a 561-mile flight with water as the only byproduct. I'm confident that hydrogen will play a very significant role in the future of aviation, supporting a wide range of new applications and aircraft types and the experience we've already built in this field puts Joby at the very forefront of innovation. This year, we announced we would work with L3Harris to develop a turbine electric variant for defense use cases. And I'm pleased to say just 3 months after that announcement, we're already ground testing this aircraft with the hybrid system in the loop, and flight testing is set to begin imminently. In fact, just yesterday, we had the FAA on site working with us to grant airworthiness for this vehicle. L3Harris has been a great partner on this journey, and we remain on track to demonstrate the full capabilities of this aircraft in the coming quarters and compete for some of the $9 billion the U.S. Department of War has requested for the acquisition of resilient, autonomous and hybrid aircraft in the FY '26 budget. Joby's approach to vertical integration puts us in a unique position to move from concept to demonstration and from demonstration to deployment at a pace that's almost unheard of in today's aerospace industry. And it demonstrates the value of dual-use technologies, allowing us to get new tools into the hands of America's troops as quickly and cost efficiently as possible against the rapidly evolving national defense landscape. That advantage also counts when it comes to autonomy. While our initial air taxi product will launch with a fully qualified commercial pilot on board, I believe, a future where we are able to take the pilot out of the loop is approaching more rapidly than I expected even 6 months ago. For decades, the principal barrier to commercial autonomy hasn't been technical or regulatory. It's been the way our commercial air traffic control system works. The current system still requires a human being on a radio to speak with another human being to deconflict airspace, file flight plans and confirm departures and arrivals. The current administration has indicated its intent to invest in modernizing this approach, making much needed investment in the infrastructure that controls our skies and laying the foundation for commercial air autonomy to take off much like the adoption of autonomous ground vehicles has. At Joby, we're making sure we're ready for that step when it happens. Over the summer, the team we brought on board from Xwing demonstrated our Superpilot AI technology stack as part of a landmark Department of War exercise over the Pacific Ocean. Using a conventional Cessna 208 aircraft, our team logged more than 7,000 miles of autonomous operations across more than 40 flight hours in and around Hawaii, managed primarily from Andersen Air Force Base in Guam, more than 3,000 miles away. Once again, illustrating our commitment to not just talking about innovation, but demonstrating it. The same technology is set to be supercharged by our recent announcement with NVIDIA. Joby will be the aviation launch partner for NVIDIA's IGX Thor platform, which uses their Blackwell Architecture to help ingest extraordinary amounts of data in real time to support an even more performance and safe autonomy stack for our aircraft. Integrating this level of compute will help us maximize the potential of autonomous flight. We'll be able to deliver autonomous mission management that enables the aircraft to determine, request and follow optimal flight plans while adapting to changes in weather, air traffic control instructions or unexpected events. It will also support onboard compute processes for high rate data from radar, LiDAR and vision sensors as well as supporting sensor fusion, combining data from a range of sensors to deliver reliable and accurate aircraft state estimation and situational awareness in the most challenging environments. It also establishes a foundation to develop features that enhance operational insight, reliability and performance, including predictive system, health monitoring and digital twin modeling. We'll be deploying Superpilot on the aircraft we're developing with L3Harris, allowing us to deliver to the government the same tech stack they've already seen successfully deployed on conventional planes. But this time, on a low altitude VTOL capable aircraft. The testing we complete on this defense-focused vehicle will also feed forward into a commercial AI autonomy stack that we plan to have ready and tested just as soon as the commercial air traffic control system is ready for it. The level of technological and regulatory progress we're seeing today is unprecedented, and it is matched by an incredible commitment to aerial innovation at both the state and federal level. We've positioned Joby to make the most of these opportunities, and I've never been more excited about the company and the technologies we're building. Rodrigo, over to you. Rodrigo Brumana: Thank you, JoeBen, and good evening, everyone. During the third quarter of 2025, we made several important advancements further positioning Joby to create durable long-term value for our shareholders. When we spoke last quarter, I identified three areas of focus: implementing a disciplined capital strategy, scaling methodically and translating our technical and regulatory progress into long-term value. Let's talk about capital strategy first. At Joby, we are shaping a new industry in bringing an entirely new technology to market. This requires substantial efforts across engineering, regulation, partnerships, infrastructure and manufacturing. To achieve this, we are strengthening our balance sheet. At the end of the quarter, we had approximately $978 million in cash and short-term investments. In October, we added net proceeds of approximately $576 million further strengthening our position. This gives us the financial strength to continue to lead the industry and bring new innovations to markets across the globe. Next is the scaling. We are investing now to build capacity for global air taxi demand. We are methodically scaling manufacturing, and we are very fortunate to have Toyota with us on that journey. As JoeBen said, propeller blades are a critical component in the highest part count on our aircraft. We have started to leverage our Ohio facility to begin ramping our production of propeller blades. Ohio has the skilled labor, the supply chain network and the space to scale our production as we grow. Scaling also means preparing our global operations. Following our acquisition of Blade, we are already running a network of high-frequency routes in New York and Europe, connecting major airports like JFK in prime locations like Nice to Monaco and Manhattan to the Hamptons. These routes are the blueprint for electrified air taxi service, proving the model today, so we can transition seamlessly once our aircraft is certified. At the same time, in addition to our successful flight demonstrations in Japan with ANA, we also expanded our global partnership with Uber to include Blade services. This opens up a powerful opportunity over time to connect thousands of daily Uber users with the experience of vertical lift well ahead of Joby's commercial launch. Meanwhile, in Montreal, we formally accepted our first flight simulator developed in conjunction with CAE, a global leader in pilot training systems. This fully immersive simulator is a prerequisite for commercial pilot training and marks an important milestone in preparing Joby for scaled operations. These efforts are building the foundation for our global network, beginning with Dubai next year and expanding to new markets around the world, turning our regulatory commercial and technical progress into long-term value. Now I'll present our Q3 financial results in more detail. We ended the third quarter of 2025 with cash and short-term investments, totaling $978 million. During the quarter, we raised $101 million through our ATM facility and an additional $33 million from warrants that were exercised. As I said earlier, after the quarter ended, we received net proceeds of $576 million through an equity offering, further increasing our cash reserves. Our Q3 use of cash, cash equivalents and short-term investments totaled $147 million, $35 million higher than last quarter. That was primarily due to an extra payroll run in Q3 versus Q2, growth in operating expenses, working capital changes and onetime costs related to our Blade acquisition, which accounted for $6 million. This spending also included about $30 million on property and equipment, up $1 million from last quarter. We remain on track to hit the upper end of our full year 2025 guidance of $500 million to $540 million in use of cash, cash equivalents, in short-term investments, and that includes the impact of our Blade acquisition. On a GAAP basis, we reported a Q3 net loss of $401 million, $77 million increase from Q2, largely driven by $262 million in noncash items, of which $229 million was a noncash charge related to warrants and earn-out revaluation. The remaining noncash items were related to stock-based compensation, depreciation and amortization, all within the normal ranges. The large noncash revaluation charge related to warrants in earn-out shares was due to the increase in our share price, which negatively impacts the calculation and gets updated every single quarter. Revenue for the quarter was $23 million, including $14 million in revenue from Blade from August 29 through September 30, and $9 million from other revenue, which includes the completion of all required deliverables as part of our Agility Prime defense contract as well as other engineering services. We do not expect Agility Prime revenue to continue as the work has been completed. Total operating expenses for the quarter, including about 1 month of late were $204 million, up about $36 million from the prior quarter. The increase was largely driven by the inclusion of Blade operating expenses and acquisition-related costs, coupled with higher staffing and program spend to support key milestones, including progress on the final assembly of our first TIA aircraft. Adjusted EBITDA, a non-GAAP metric that we reconcile to our net income in our shareholder letter was a loss of $133 million in the third quarter. This was just about $1 million higher than the prior quarter, reflecting the revenue booked in Q3, offset by the increase in spending I called out before. Compared to the same period last year, our adjusted EBITDA loss was $12 million higher, driven by the growth in our team to support aircraft design, manufacturing and certification along with early commercialization investments. As we look ahead, our focus remains on disciplined execution, advancing certification, scaling production and preparing for commercial launch. With a robust balance sheet, proven technology, mature program, flying aircraft and world-class partners, we are operating from a position of strength. We look forward to many folks at the Dubai Airshow in 2 weeks where our aircraft has been cleared by both, the General Civil Aviation Authority and the Dubai Civil Aviation Authority to fly full transition every single day. Thank you for your continued support. And operator, please open the call for questions. Operator: [Operator Instructions] Our first question today is coming from Kristine Liwag from Morgan Stanley. Kristine Liwag: I just wanted to follow up on your progress with your international partners. I was wondering with the early adopters, are you planning to provide commercial service with the Joby aircraft prior to getting FAA certification? Or are you waiting for FAA certification to start flying globally? JoeBen Bevirt: Kristine, this is JoeBen. Great to speak to you. We -- I assume you're speaking about Dubai in terms of the international partner, we will -- we're making incredible progress in Dubai. We have aircraft that's there and flying right now. And as Rodrigo mentioned in the prepared remarks, we have permission from the GCAA and the Dubai Civil Aviation Authority to be conducting daily flights at the Dubai Airshow. So that's incredibly exciting. And I think what you're going to expect to see over the course of 2026 is more and more flying there as we deploy more takeoff and landing locations. And we're seeing incredible momentum and amazing support from the local regulators. So in short, the answer to your question is, yes, we continue to expect to be operational in Dubai prior to FAA Type Certification. Kristine Liwag: I see. Great. And for a follow-up, you guys highlighted your progress on autonomous systems with Superpilot, which sounds really interesting. So is this going to be a software that's also going to be added to the Joby aircraft? And because from my understanding, the Joby aircraft initially would be VFR. So are you adding the IFR capabilities with autonomous systems? Or are you also going to add an expansion to IFR before going to full autonomous, like can you please help me understand the bridging there? JoeBen Bevirt: Yes. So thank you so much. This is a huge -- a bunch of -- huge accomplishments on the autonomy front and something that we're really, really excited about. The first, just to reiterate, the Superpilot, the Xwing team took Superpilot-enabled Cessna 208 and flew it 7,000 miles around the Pacific as part of the REFORPAC exercise earlier this year. That demonstrates the operational maturity. We operated that aircraft in a whole bunch of different classes of airspace. And really showcased how robust that autonomy platform is. As it comes -- when it comes to taking that autonomy platform and putting it into the S4 platform, that's going to be something that we will do progressively. It's a very step-by-step approach that we're taking. But we do think that it's going to have really significant benefits when it comes to -- on both the safety side and the operational efficiency side. So we're really excited about that. And we think that, that is built on the foundation of these changes that are -- we're expecting in the air traffic control framework, as I talked about in my prepared remarks. So we're really, really pleased with both the regulatory side of things and the technical side of things, also thrilled to be working closely with NVIDIA and bringing the phenomenal compute capabilities that they've developed to aviation. And yes, thrilled across all the different dimensions on the autonomy progress. Operator: Our next question today is coming from Austin Moeller from Canaccord Genuity. Austin Moeller: As part of the eIPP, are there any avenues for you to generate revenue in any way in that test phase with those aircraft? And as a second part, could you generate revenue from flying aircraft in a JV partnership overseas during this test phase? Paul Sciarra: Austin, this is Paul. So with respect to eIPP, this is kind of what's going on and sort of how we think it's going to play out. So right now, we have a number of different applications that we are close to that are in the process of getting filed with the Department of Transportation. Those are going to get filed basically through the end of the year. In the early part of next year, they will then down select to 5 with those starting, we think, in the middle of next year. Now look, this is a really exciting opportunity for us because it allows us to put aircraft into operation here in the U.S., I think on a far faster time scale at scale, then we might have thought. And it's really one of the things that's driving the focus that JB mentioned in the prepared remarks around scaling production to now meet this kind of faster demand than we were expecting. When we've -- based on what we know now, the application set is pretty broad. A number of them include passenger transport, cargo transport, medevac and certain of them, we think are going to have an opportunity to have a sort of commercial bent. So without having 100% confidence at this point, but we do think there are going to be interesting revenue-generating opportunities that come out of the eIPP program. Regarding your question with respect to JVs, I think the revenue that you may see from those sorts of partnerships would be preorders and/or prepayments for aircraft that were going into those JVs. We announced, obviously, the partnership with ANA in Japan. That is one that could sort of look like that. But I think the real question now is ensuring that we're able to build enough aircraft to meet this broader, faster demand that we saw. So that's why manufacturing is sort of the focus. Austin Moeller: Okay. And just a follow-up. Are you going to be able to fly the conforming aircraft in TIA testing as long as the means of compliance remains at 97%? Or does it not matter for proceeding with flight testing in that space? JoeBen Bevirt: Yes. Thanks, Austin. So just to be really, really clear here, we are so excited about the progress we're making on building these aircraft for TIA testing. This is the culmination of all the work that we've been doing over more than a decade, and it builds on an incredible foundation of work from both Joby and from the FAA. And as I spoke about, this is heavy lifting from FAA DERs, FAA DARs to ensure that as each of these aircraft is getting built that they're getting built in a really meticulous way. So this is a huge moment to be beginning the power-on testing of this aircraft. I will also add that we are building a total of 5 aircraft for TIA testing. And all 5 of those are in the production process as we speak. So the momentum we're seeing on manufacturing and scaling manufacturing is really fantastic. The reason this is so important is these are the aircraft that FAA pilots will get in and fly for credit, and that is the -- those are the final stages of our TC process, like we're doing the heavy lifting. We're doing the work that's required to get us through TC and it's happening right now. So just can't tell you how proud I am in the manufacturing team, how proud I am of the certification team, how grateful I am to the FAA and their lean in, they're working shoulder to shoulder with us. They were here yesterday, giving us airworthiness -- moving through the airworthiness process on the hybrid aircraft, and they're not getting paid, right? So the commitment, the lean in, the passion from these aviation professionals is just really unprecedented, and we can't say how grateful we are to all of them. Operator: [Operator Instructions] Our next question is coming from Andres Sheppard from Cantor Fitzgerald. Andres Sheppard-Slinger: Congratulations on the quarter. JoeBen, I wanted to maybe go back to the first question just around commercialization. So it sounds like we're still targeting commercialization ahead of FAA certification in the Middle East. Are we able to get more clarity on kind of how you see that unfolding or just in terms of timing or number of aircraft. I think in the past, you had mentioned passenger flights potentially by the spring. So just wondering, is that time line for next year? Is that still on track? Or do we perhaps see maybe pushing into the right slightly? JoeBen Bevirt: Thank you, Andres. Great to catch up with you. So the progress we're seeing and the momentum, as I mentioned, in Dubai, was really fantastic, both with the GCAA, with the Dubai Civil Aviation Authority, with the RTA. We've got all the regulators leaned in. Skyports is doing a phenomenal job on moving forward with infrastructure. We have a team there, and we're building out that team, staffing that team, doing the training and putting all the pieces in place, and I'm really excited and grateful for the progress that we're making day in and day out. In terms of -- we expect to be ramping that operation through the course of this next year. I think the real critical bottleneck is going to be -- and the demand you asked about is very, very substantial there. The bottleneck is going to be how fast we can ramp manufacturing, as Paul was talking about, to meet that demand. And this is where I'm so proud of the team and the progress we're making on scaling production and scaling it alongside Toyota, whether that's in Marina, whether that is the progress we're making in Dayton on Blades. And I think this is the real central pillar of the work that we have in front of us is to scale the manufacturing as aggressively as we can, and we're making great progress. Andres Sheppard-Slinger: Got it. Okay. And I guess maybe a follow-up for Rodrigo. Are you able to maybe help us understand like how should we think about Blades revenues for Q4 and for the -- I guess, throughout next year? I mean is $22 million in quarterly revenue and 55% gross margin, is that the norm or what's the best way to think about that for maybe next quarter and throughout next year? Rodrigo Brumana: Andres, thanks for the question, Rodrigo here. Well, we are not providing any guidance specific for next quarter or next year. However, we would like to point you to what has been said publicly and Blade had a number right before the acquisition on August 29. So essentially, we are not deviating from it. Number two, let's just remind you that Q4 is when the low season starts. So Q4 is one of the slowest quarter there, and we are happy to have Rob here just to add a little more context here, Rob? Robert S. Wiesenthal: Andres, it's Rob Wiesenthal, speaking. It's been -- performance has been pretty good this summer as you've probably been reading. But I think what's also important to announce is kind of the expansion opportunities that we've taken advantage of. Shortly before this call, we announced a pilot program for our very first commuter route to the public, serving New York suburbanites, who live in Westchester, Bedford, Rye, Scarsdale, Greenwich with flights that go between Westchester Airport in Manhattan that turns a 1.5-hour drive during rush hour into a 12-minute flight. You can fly with the Commuter Pass for as little as $125. That will be a 5-day a week service. It's actually our very first public commuter route. And that's important because the industry has been very much focused on airport flights, which is clearly an important use case. We've been doing it for over 6 years, but it was really time for us to kind of expand our service offerings to include commuter routes. And once the Joby aircraft is certified, we expect new landing zones to be approved and activated, which will offer even more convenience to people who work in big cities. And we're going to see more of this in the future. We already have pods of communities like in Deal, New Jersey on the Jersey Shore where people fly to work there and back every morning, that's a 2-hour drive that comes a 15-minute flight. So we're very excited about the prospects of expansion under Joby's ownership and things are off to a great start. Operator: Next question today is coming from Savi Syth from Raymond James. Savanthi Syth: Just a follow-up on one of Austin's questions earlier, just around certification and the shutdown as well. Just the flight that you are -- aircraft that you're building and doing ground testing right now, is that the one that would be flying? Do the propellers kind of get added back? And then what exactly can you do with that aircraft in TIA testing while the government just shut down? It sounds like, as you pointed out, FAA is coming in and doing certain things, but I was curious what you can and cannot achieve during this time? Paul Sciarra: Savi, this is Paul. So thus far, we've got an incredible lean-in from the FAA even during the shutdown. That included, as JB mentioned, I think, in the prepared remarks, having their FAA airworthiness folks here on site to do the checkout for the hybrid version of the aircraft. That's actually still ongoing today. And these are folks that are showing up without getting paid. So we're really obviously sort of grateful for their work on this, in this sort of difficult period. When it comes to the progression of the TIA aircraft, look, we're going to be doing the power-on checkout, progressing then to Joby piloted flights and then moving from there to FAA highlighted flight testing for credit on that vehicle. Right now, we don't necessarily anticipate that the FAA flight test pilot portion of that testing is going to be delayed by the shutdown, but this is obviously still a very much evolving process. And we have been very pleased with the lean that we've gotten. But like if this shutdown persists longer and longer, there's certainly some uncertainty on how that's going to play out. But from the Joby standpoint, we just want to make sure that we're ready, ready with the right aircraft, ready with the training for those pilots and then ready to begin the FAA flight testing just as soon as we can. Savanthi Syth: That's very helpful, Paul. And maybe if I can just follow up on that then. I think the rule of thumb is once you start TIA flight testing, it's about 1 year, 1.5 years from there to full certification. Just how much of that happens with kind of the Joby pilot, which versus kind of when do the FAA pilots going to step in and do that part of the testing? Paul Sciarra: So this is Paul, I guess I'll pick that off. Look, the timing of the TIA flight test portion is sort of variable depending on the program. And we've obviously got a plan that we're sort of working with FAA that includes 5 different aircraft that are going to be flown in various levels of parallelization to try to speed that process up as quickly as we can. As JB mentioned, all 5 of those aircraft are in some part of production at this moment. And obviously, the first one of those is sort of in this power-on stage as we get ready for its first flights. With respect to how much time is spent with the Joby pilots versus the FAA pilots. As a general rule, we want to make sure that we are doing the things that we need to do for FAA for credit flight testing internally before we do them with FAA pilots in seat. Much of that work has already been done on other versions of these aircraft. So it's really about making sure that we have those TIA aircraft ready at the right time. And in turn, we line that up with the availability of the FAA flight testing pilots. And that's going to be the sort of synchronization that we have to manage, starting basically now. Operator: Our next question today is coming from Bill Peterson from JPMorgan Chase & Company. Mahima Kakani: This is Mahima on for Bill. I was curious, how should we think about the pace at which you'll move across the Stage 5 certification progress bar once TIA testing starts? And should we really start to see that acceleration beginning next year as soon as you get the FAA pilots on board? JoeBen Bevirt: Thanks, Mahima. So we're really excited to get into TIA, as Paul talked about. The other element and a key piece to be cognizant of is the way we built our reporting on Stage 5 is that we will get points on the board when we submit those test results. So there's a huge amount of work that's happening on the Joby side as we take the approved test plan and we build the part that is going to get tested or the aircraft is going to get tested and then we run the testing on it. And then we write the test report. We submit that and then we get credit on Stage 5. So it may be that a lot of the progress that happens on Stage 5 is when we're very, very close to the finish line. I think the important thing is that in addition to making incredible progress on manufacturing of the 5 TIA aircraft, the team is also making incredible progress on the manufacturing of the test articles, and those test articles are very challenging from a manufacturing standpoint because each one of them is different from a production part. It has intentional changes that are -- that we're putting into those parts that have been specified by the FAA DERs. And so this is really fantastic work by the manufacturing team, and we're making incredible progress on it, which puts us in a great position, both for the TIA flight test, but also in terms of completing all of the component level testing required to complete Stage 5. Mahima Kakani: That's really helpful context. Maybe as a follow-up. You started manufacturing propeller blades in Dayton, but are there any other conforming parts you expect to also transition to Dayton in the near term? And then how quickly could you ramp up that capacity you'll need to support certification efforts? JoeBen Bevirt: Yes. Thank you. So really thrilled with the team in Dayton and the quality of workforce that we've been able to build there and the speed at which we've been able to onboard those folks and have them contributing in a huge way. We were also thrilled with the support that we've received from the state and local government in Dayton. And we see massive opportunities to continue to expand our footprint, both in our existing facility and as we look forward in the Dayton region more generally. In addition, and again, following the model that I spoke about, where we perfect the process here at our pilot facility in California, and then we're able to scale it alongside our partners with Toyota -- our partnership with Toyota, I would love to just highlight how vitally important Toyota is and how strong relationship that we have with Toyota right now. We have never been closer to Toyota. Toyota has never been more leaned in. And we think that they are an unparalleled partner for us as we look to take aviation to a scale that has never been seen before. Operator: [Operator Instructions] Our next question is coming from Edison Yu from Deutsche Bank. Xin Yu: I wanted to ask about the hybrid for defense. How should we think about the design? Is that something you just kind of put an engine on the existing airframe? Do you need to redo the airframe? Is the supply chain going to get more complicated? Just how to think about the process and design for the hybrid? Paul Sciarra: Thanks, Edison. This is Paul. So look, our approach is really in line with the sort of principles of dual use. Where possible, we want to take full advantage of the proven airframe that we have developed and tested over the last 5, 6 years. And we also want to be able to take advantage of the manufacturing lines that we already have ready to produce those components down the line. So I think the right way to think about that aircraft is a sort of variant of the existing vehicle that is then in turn missionized for different customer use cases. What I think is really exciting, though, is that we've been able to move from concept to soon sort of demonstration of that vehicle at a very rapid pace, basically sort of 3 months from when we announced the L3 partnership to the preparations for flight testing that are happening right now. In turn, we think we're going to be able to move from demonstration to flexible deployment with those customers very quickly because we've got a manufacturing line that we do not have to scale up or retool where most of the components are essentially the same manufacturing line that we're using for the broader sort of commercial vehicle. And that speed is something that in our conversations to date, the customers are really looking for. They are not so happy with the sort of traditional procurement process, long spec writing, competitions and then sort of moving to these sort of restrictive contracts. They are instead looking for things that get new technology into the hands of warfighters far more quickly. And we think we've got an opportunity with this platform in conjunction with L3 to deliver exactly that. Operator: Our next question is coming from Chris Pierce from Needham & Company. Christopher Pierce: I was just curious, and if you fast forward a year from now, like what's the best possible outcome for the Blade transaction? Is it just more passenger throughput in New York? Or what Rob talked about? Is it adding routes so you can see kind of customer demand to get through to consider air taxi at a higher rate? Like if you fast forward a year, what would you consider to make a success out of this to get people enthusiastic about air taxi in the business? Robert S. Wiesenthal: It's Rob Wiesenthal. I think if you step back and you look at the thesis of the acquisition, it was to derisk and accelerate the deployment of the Joby aircraft into commercial service. So we're going to continue working on projects where we can achieve profitable growth in new routes, expansion of existing schedules. We recently expanded our JFK schedule to include another note on the East side and also deepened our Newark efforts. And in Europe, we have been focusing there as well on opportunities. So I think the focus on profitable growth to continue getting more data, acquiring more customers, getting more infrastructure access. And I think that's going to be terrific. That's really going to educate us and help us deploy these aircraft once they're certified and to do it in a way and at a speed that I don't think the competition can match. It's a real head start versus the competition in every market Joby wants to enter. Operator: Next question is coming from Amit Dayal from H.C. Wainwright. Amit Dayal: Just with respect to all the comments on the call today, keeping in mind where we are with manufacturing readiness and all of the testing going on. What is the earliest we can take advantage of this eIPP initiative? Is 2027 a reasonable time frame? Or could it be potentially earlier than that where some of these aircraft get into operation? Paul Sciarra: Amit, this is Paul. I'll try to pick that up. I'm not sure I totally heard it, so I'm going to sort of repeat what I understood the question to be. So your question was when do we think we can start first operations under eIPP? And the answer to that is that we now have with the eIPP program once the down select happens early next year, we've got a date certain for the start of those operations, and that's essentially mid next year. That is a really exciting opportunity and one that I think Joby is sort of uniquely positioned to take advantage of. Our understanding under eIPP is that it's going to require aircraft to be at a high level of maturity. Our understanding is that means it has to be in the TIA process. It's also going to require the operational know-how to put those aircraft into service in the real world. We already have a lot of that from the demo flights that we've done, and we get to really supercharge that with Rob's team at Blade that obviously knows a lot about high tempo vertical takeoff and landing operations already. But finally, you also need to make sure that we have the aircraft. So part of the focus now around scaling production is to meet this demand that is now higher next year than I think we were initially anticipating. So our focus with both the expansion of the Marina facility, the continued rollout into Dayton and obviously, doing both of those things in close conjunction with Toyota is to make sure that we really ramp production to meet this opportunity, because from our perspective, an opportunity to get these aircraft operating in the U.S. as quickly as possible, benefits Joby, and it certainly benefits the broader industry, and we think we're in pole position to kind of make that happen. Teresa Thuruthiyil: Terrific. This is Teresa again. Thank you, Amit, and Kevin, and thanks to all the analysts for your questions today. This quarter, we're doing something a little different. We also invited our broader community to submit questions on X and Reddit. We were thrilled with the volume and the thoughtfulness of the engagement. We selected a few representative questions to ask and answer now. First, what actually is coming right back to you, Paul, it says, when do you expect to start the integration of autonomous capabilities into S4? Paul Sciarra: Thanks, Teresa. So as JB mentioned in the prepared remarks, the first instantiation on a Joby developed aircraft of autonomy is very likely to be the hybrid aircraft that I mentioned earlier on in the call. This is one that's obviously focused on defense applications. We think that's a perfect test bed for the stock, one, because it's already been well tested with its customer on conventional aircraft; and two, because there's not the same sort of regulatory rigor around certification for these sorts of platforms. So it's the right place to begin to extend the existing Superpilot capabilities to low altitude VTOL capable to prove that out as soon as we can and in a wide range of mission sets, so that we're ready if and when there is an opportunity to translate that to the commercial side of things to move very, very quickly. So long and short, that's going to be, I think, the first example of how we begin to roll this out on a Joby developed aircraft. Teresa Thuruthiyil: Terrific. Thank you. Another question also coming in from X. How do you see the future product offerings as both Joby and Blade actively scale operations, particularly in Dubai? Rob, would you like to start with on that one? Robert S. Wiesenthal: Sure. Let me take that. Just as we mentioned before, Blade helps to derisk and accelerate the deployment of Joby aircraft into commercial service, and that includes Dubai. So the knowledge we have on the routes, on infrastructure, the flyer base, we are not starting cold, we're not starting from scratch. Anybody else tries to do this, they're starting with zero knowledge. We have flown hundreds of thousands of people over the past decade. And then if you take a look at our European operations, 1/3 of our European flyers are from the Middle East. So it's a brand that's well known there. The Middle East consumer consistently embrace premium brands from the West that provide exceptional experiences that have trust. So I think we're in terrific shape to help get that launch out and in front of the public and have something that people really enjoy and find us extremely reliable. Teresa Thuruthiyil: Terrific. Thank you. Okay. I think we could maybe get one more in. And there's -- this one is a fun one. It asks for how about something fun. Five years into passenger flight, what kind of crazy things can you see Joby involved in that will blow our minds now? JoeBen? JoeBen Bevirt: Thanks, Teresa. So I think the key thing to focus on is that vertical integration is Joby superpower. This is something that we have invested in heavily for many years, and it puts us in an incredible position to be able to develop game-changing aircraft, all built on the foundation of the incredible technology foundation stack that we've built. I'll add two other dimensions. One we've talked about, which is autonomy. Autonomy is going to unleash many new and exciting applications for aviation. And by leading the world in aviation autonomy, we think we're in a really strong position. The final dimension is hydrogen. Hydrogen, as I think many of you have heard me speak about, it has 3x the specific energy of jet fuel. With fuel cells, we're able to convert the chemical energy and hydrogen into propulsion twice as efficiently as a small turbine can convert jet fuel into propulsion. And what that means is that you can build aircraft with game-changing new capabilities. And so as we look to the 5-year horizon, we think the future for Joby and the future for the technology stack that we're building has never been more promising, and I'm so excited to bring these transformations to the world. Teresa Thuruthiyil: Awesome. Thank you, everyone, for joining us today. We greatly appreciate your support. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation.
Asli Demirel: Ladies and gentlemen, welcome to Anadolu Efes' Third Quarter 2025 Financial Results Conference Call and Webcast. Our presenters today, our CEO, Mr. Onur Alturk; and our CFO, Mr. Gokce Yanasmayan. [Operator Instructions] Unless explicitly stated otherwise, all financial information disclosed in this presentation are presented in accordance with TAS 29. Just to remind you, this conference call is being recorded, and the link will be available online. Before we start, I would kindly request you to refer to our notes in our presentation regarding forward-looking statements. Now I'm leaving the ground to Mr. Onur Alturk, Anadolu Efes' CEO. Sir? Onur Alturk: Good morning, and good afternoon, everyone, and welcome to Anadolu Efes Third Quarter 2025 Conference Call. Thank you for joining us today. As you may recall, due to the continued uncertainties around our operations in Russia, we have classified these operations as financial investments on our balance sheet at the beginning of the year. And accordingly, they are no longer consolidated in our income statement until there is more clarity. However, we separately disclosed the financial results of these operations in our earnings releases for the last 2 quarters. And starting from quarter 3, we decided to stop providing separate disclosure for Russia. And this is primarily because of the information flow has not been as stable, as consistent as before. We will reassess this approach as the situation evolves. And looking at the third quarter, it was a mixed set of results where the profitability was solid. However, the volume momentum came with its own set of challenges. Even so, our broad market presence and agile execution helped us to preserve overall stability as growth in several markets balance softer demands in others. So we maintained our growth trajectory from the second quarter with consolidated volumes reaching 31 million hectoliters, up by 7% on a pro forma basis compared to the same quarter last year. The volume growth was driven by our Soft Drinks operations particularly supported by robust performance in international operations, while Beer group volume performance was softer, mainly impacted by domestic markets. Strong volumes supported top line growth, but the revenue per hectoliter was pressurized due to the ongoing focus on affordability and increased discount rates. On top of strong top line results through gross profit improvement and strict management of operational expenses, we are able to record an expansion in EBITDA margin. Additionally, we successfully generated positive cash flow amounting at TRY 9.4 billion, which was mainly driven by strong operational profitability. As of September 30, 2025, our consolidated net debt-to-EBITDA ratio stood at level of 1.5x. As we shared before, as part of our Vision 2035, one of the key pillars of our growth strategy was geographical and categorical expansion. In this regard, I'm truly pleased to share two important milestones today we achieved during the quarter. Firstly, we have recently started the distribution of Mercan raki spirits in the final days of October, while the discussions regarding the acquisition of 60% of the company are still ongoing. And secondly, we have signed a licensing agreement with Salyan Food Products, which will enable us to produce, sell, distribute and marketing of Efes and Efes Draft brands in Azerbaijan. Turning to Beer group performance. During the third quarter, our consolidated Beer volumes declined by around 5% year-on-year on a pro forma basis. This was mainly driven by a slowdown in Turkiye, where volumes were down by 8.4%. In our international Beer operations, volumes were down low single digits on average. As expected, Moldova reflected a slowdown following the last year's high base. Georgia was temporarily affected by export-related business. On the positive side, Kazakhstan delivered solid growth, supported by strong portfolio execution. And Ukraine also contributed positively by growing low single digit, thanks to ongoing recovery and the low comparison base. Let me discuss Turkiye in more detail. Beer volumes declined by 8.4% in the third quarter. And as mentioned earlier, this was mainly driven by affordability pressures stemming from persistent inflation and weakening of consumer purchasing power. In the second half of the year, the absence of midyear minimum wage adjustments further deepened the pressure on consumer purchasing power and making its impact increasingly evident in the market. In addition, the price adjustments we implemented in early July had a temporary impact on demand, while the slowdown in tourism also weighed on overall volumes, particularly in on-trade and HoReCa channels. And this quarter marked a period of strengthening our portfolio and ensuring it remains well aligned with the customer expectations and market trends. We launched Jupiler 0.0%, a non-alc beer in Turkish markets, which marks an important step in expanding our product range. Although it's very early and it's very small, we expect these launches to be a new strategic pillar for growth for future. And about our CIS operations, starting with Kazakhstan, we delivered low single-digit volume growth, supported by strong brand activations and robust export performance. Our premium segment continued to perform well, driven by effective brand activations like strategic pricing and new can designs that further enhanced brand visibility in the market. And during the quarter, in line with our KEG focus, draft focus, we also launched successfully the Pegas brand SKU, Khmelnoy Los. In Georgia, volumes declined by low to mid-single digits, in line with expectations, actually, mainly due to the restructuring of our export business, which had no impact on profitability right now. And additionally, introduction of Lowenbrau-Oktoberfest Limited Edition helped us to maintain our market presence and customer engagements. In Moldova, volumes contracted in low single digits as expected, reflecting last year's high base. And moreover, year-on-year volume decline was affected from calendarization impacts. Let's briefly review our Soft Drinks operations, too. In the second quarter of the year, CCI's consolidated volumes increased by 8.9%, driven by positive contribution of all international markets. Turkiye volume declined by 1.7%, mainly impacted by weakening consumer purchasing power and deteriorating weather conditions during September, whereas international volumes demonstrated a remarkable growth, posting a 16.1% increase, mainly supported by Central Asia and Iraq. And in Pakistan, volumes increased by 0.7% year-over-year despite severe floods and ongoing political sensitivities. Kazakhstan and Uzbekistan delivered robust growth with 24.2% and 36.5% growth, respectively. And lastly, Iraq volumes up by 7.8%, marking 10th consecutive quarter of growth. When we move on to our operational results. In the third quarter, we continued our solid volume generation on a consolidation basis, although effective portfolio management and price adjustments made in certain markets helped to ease the impact of discounting and affordability focus and revenue per hectoliter decreased by 3%. With improved gross profitability margin and limited increase in operating expenses, EBITDA increased around 8%. As a result, margin also expanded, which was supported with contribution from international operations in both Beer and Soft Drinks businesses. And our consolidated net income was recorded around TRY 5 billion. Although operational profitability remained solid, higher financial expense and lower monetary gains weighed on earnings in the third quarter. Beer group delivered a year-on-year decline in earnings as a result of higher financial expense and a softer operational profitability amid challenging environment. Following a softer quarter 2 performance, we delivered strong free cash flow generation at the consolidated level, driven by our Soft Drink business. On top of the strong operational profitability, we benefited from improving working capital, lower CapEx spendings and tax expenses compared to same period of last year. In the current environment, as I emphasized in our previous conference calls as well, there is no doubt that strengthening free cash flow remains a top business priority, of course, in Beer group, and Gokce will share more details about this. And consequently, our consolidated net debt-to-EBITDA ratio stood at level of 1.5x as of September 30, 2025. And now Gokce will give details on financial metrics. Gokce, please. Gökçe Yanasmayan: Thank you, Onur. Good morning, good afternoon to everyone. Onur covered, as usual, Anadolu Efes' consolidated results. So I will provide an update on the Beer group's performance for the third quarter. But before I start again, I want to remind once more that disclosed figures in my presentation are on a pro forma basis, meaning that they exclude the financial results of Russian operations as of January 1, 2024, to ensure comparability. So in the third quarter, Beer group sales revenue declined by 6.9% on a pro forma basis to TRY 15.7 billion. Even if volume performance and revenue in local currencies were high, international Beer operations sales revenue was recorded at TRY 5.9 billion with a 4.5% decline. Like previous quarters, the decline in sales revenue was driven by TAS 29 implementation as inflation in Turkiye exceeded the depreciation of Turkish lira against local currencies of international Beer operations. So excluding TAS 29, international Beer operations revenue was up 24% on a pro forma basis, again, reaching TRY 6.7 billion. Turkey Beer operations generated a revenue of TRY 9.6 billion in the third quarter, representing an 8.7% decline despite price adjustments during the quarter, revenue per hectoliter decreased due to lower volumes alongside more controlled yet still elevated discount level in line with the market dynamics we have in the country. Thus, on a pro forma basis, Beer group revenue decreased 5.3% to TRY 41.4 billion in 9 months of 2025. And Beer group gross profit declined 11.1% on a pro forma basis again to TRY 7.8 billion in the third quarter, and that came with a margin contraction of 236 bps, though gross profit margin remains at a remarkably good level of close to 50% still. And the decline in the gross margin stem from softer volume performance and higher COGS per hectoliter, driven by increased material costs across our operations and higher hedge levels in packaging costs, especially in this period of the year for Turkey. So in the next slide, I'm going to present the EBITDA. So with an EBITDA of TRY 3.4 billion, Beer group had a 22% margin in third quarter, indicating only a 57 bps decrease. The decline in the top line performance and gross profit in the group -- Beer group was actually partially limited through disciplined operating expense management this quarter, particularly in Turkey operations. On the international front, CIS region on average continues to deliver above 30% margin performance. However, profitability was moderated in this period due to high base of last year. Consequently, Beer group EBITDA in 9 months was TRY 6.4 billion with a 15.4% margin. Again, in the third quarter, Beer group generated unfortunately, a negative free cash flow of TRY 1.3 billion. Softer profitability that we mentioned, together with a temporary deterioration in working capital and lower monetary gain collectively weighted on cash generation despite an absolute reduction in capital expenditures year-on-year. Next slide, please. So for again, information purpose, I'm going to show you the financial statements without -- excluding the impact of TAS 29. However, I have to again say that Anadolu Efes' financial statements are prepared in accordance with TAS, the standard for financial reporting in hyperinflationary economies and the numbers that you are seeing here are just presented for analysis purposes. And excluding the impact of TAS 29, Beer group revenue was TRY 40.5 billion with a growth of 27%. And again, excluding the impact of TAS 29, Beer group EBITDA would increase by 21% to TRY 8.8 billion and net income was reported as TRY 1.8 billion, excluding the CTA impact coming from the scope change in consolidation of Russian operation. About cash and debt management. So as of September 30, 2025, we had 63% of our cash in hard currency denominated in the Beer group and 61% in the consolidated Anadolu Efes level, which is pretty much in line with our previous practices. And the net debt ratio for the period was 1.7x (sic) [ 1.5x ] for Anadolu Efes and 3.9x for Beer Group. And about the risk management, so the key figures to update them, actually no new news for 2025, we are almost done with the year. As for 2026, we have already started hedging aluminum and 16% of our exposure of next year -- sorry, 14% of our exposure of next year for Turkiye and CIS countries has already been hedged. And for the FX of next year, actually as usual practice, we are going to start hedging towards the end of the year for next year. So that basically ends my part of the presentation, and I hand over to Onur. Thank you. Onur Alturk: Well, Asli, let's check the Q&A. Do we have any questions on this one? Asli Demirel: There are a couple of questions from [indiscernible]. Let me start with the first one. Thank you for your presentation. Could you please provide more color on Azerbaijan? When will you start production sales in the country? What are the potential sales volumes and EBITDA contribution and also CapEx? Let me address this to Onur bey, and then there are a few questions more, then I'll address them to Gokce bey. Onur Alturk: Let's briefly discuss Azerbaijan. Azerbaijan is a promising market actually, and CCI already has a strong footprint in the markets. Population is around 10 million, with per capita beer consumption is around, again, 7 liters. And in quarter 3 '25, a license agreement was signed with Salyan Food Products in Azerbaijan for the production, sales, distribution and marketing of Efes and Efes Draft brands. So we already started production of Efes in Azerbaijan. We see it as a strategic step expanding our regional operational footprint. And of course, we want to strengthen our local presence in the market. No CapEx is used for that because it's a [ toll ] fill, third-party manufacturing. And if we see more potential in the markets, there will be an M&A. So we are evaluating this. And also, let me mention a little bit about Uzbekistan, just like because these are the two potential markets for us. And Uzbekistan is even more promising markets where, again, CCI already has a strong footprint. And the population is around 36 million and adding up 1 million every year. And the per cap beer consumption is around 12 liters. So that's a more favorable tax environment is expected in '26. It used to be 3x compared to the local ones. Now it's 2.5. And at the end of '26, we are expecting to the equalization of local and import tax. So if the gap is fully closed, there will be a huge potential. And imports from Kazakhstan has already started in July. Our legal entity and on-site team has been established in Uzbekistan. And our business development team is closely analyzing the market dynamics and potential opportunities like [ toll ] filling, and we are so close to start [ toll ] filling in Uzbekistan as well. And again, we are chasing M&A opportunities with very small investments in this country as well. But the reward seems to be, I mean, very promising in these two geographies. Asli Demirel: The next question from [indiscernible]. Could you please also provide more color on the working capital more at the Beer group level? And what are the initiatives you undertake to improve it? Gokce bey? Gökçe Yanasmayan: Sure. Sure. I mean, overall, as Onur rightly mentioned in his presentation, one of the key focus for us is the cash flow generation on the Beer group side and to turn our free cash flow generation into positive in the coming year. And a very important component of that is working capital, one of the important components of that. On the group level, we can say that our working capital on average is mid-single digit. However, there are certain countries hitting double-digit numbers, some countries close to 0. So on the average, we end up at mid-single digit. And for those who have double-digit or higher working capital, we have started a clear focus project this year and very clearly working on targets for next year to improve the numbers and at the same time, where we want to focus in every other country that we have these high numbers. Therefore, that's especially critical for Turkiye because this working capital financing requirement is being financed with high interest rates. So all the efforts are focused now, especially in Turkiye to decrease this number and the interest payment of next year. Asli Demirel: Thank you very much. Another question is regarding 2026 about the Beer group outlook for volumes and profitability. It's a bit early to comment on this. So let's postpone this to... Gökçe Yanasmayan: Yes, we are at the beginning of our budgeting cycle now. I mean -- and we are changing the numbers very frequently as the assumptions are changing. So we would prefer to give better color towards the end of the year or next year, beginning of next year. Asli Demirel: Exactly. But there is a question from [indiscernible]. Do you expect cost pressure in Turkey after rising food inflation, which may impact wheat and barley prices due to weather conditions? Or have you hedged this cost? Gökçe Yanasmayan: I can give a very, very general color here, maybe just to help you think about it. Recently, our cost base were acting very in line with the inflation in the country. Therefore, for next year to come, initial expectations, again, I mean, we have to work on them towards the end of the year more precisely. Initial indications show currently a slow decline as inflation will decline in the country. So that gets reflected into COGS per hectoliter as well for the next year. Asli Demirel: Another question from [indiscernible]. Can you give more information about Turkey gross margin and EBITDA margin in the third quarter? Gökçe Yanasmayan: Well, I mean, very roughly, we can say that the numbers are in the gross profit in the range of 50s, let's say, EBITDA margins in the third quarter are 20s, we can say so. And those numbers in gross profit margin level, we have seen more contraction as we have discussed in the presentations, but that has been compensated to a great extent with OpEx management. Therefore, the contraction in EBITDA is less than 100 basis points overall. Asli Demirel: Thank you very much. There seems to be no more questions. Let me remind once again, if there are any questions, we can wait a few seconds. And if there are none, we can close the question [ part ]. Okay. There seems to be no more questions. Thank you, everyone, for joining. Onur Alturk: Thank you.
Operator: Welcome to the Claros Mortgage Trust Third Quarter 2025 Earnings Conference Call. My name is Elisa, and I will be your conference facilitator today. I would now like to hand the call over to Anh Huynh, Vice President of Investor Relations for Claros Mortgage Trust. Please proceed. Anh Huynh: Thank you. I'm joined by Richard Mack, Chief Executive Officer and Chairman of Claros Mortgage Trust; and Mike McGillis, President, Chief Financial Officer and Director of Claros Mortgage Trust. We also have Priyanka Garg, Executive Vice President, who leads Credit Strategies for Mack Real Estate Group. Prior to this call, we distributed CMTG's earnings release and supplement. We encourage you to reference these documents in conjunction with the information presented on today's call. If you have any questions, please contact me. I'd like to remind everyone that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our other filings with the SEC. Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligation to update them. We will also be referring to certain non-GAAP financial measures on today's call, such as distributable earnings, which we believe may be important to investors to assess our operating performance. For reconciliation of non-GAAP measures to their nearest GAAP equivalent, please refer to the earnings supplement. I would now like to turn the call over to Richard. Richard Mack: Thank you, Anh, and thank you all for joining us this morning for CMTG's third quarter earnings call. As we approach the end of the year, we are encouraged by the continued signs of stabilization and recovery across the broader real estate market. Liquidity has slowly but steadily returned to the commercial real estate industry, supporting increased transaction volumes and tighter lending spreads. Recent and perhaps expected rate cuts by the Fed have improved the outlook even as investors consider the uncertainty surrounding the slowing economy. Collectively, these market dynamics have created a more constructive backdrop, enabling CMTG to continue executing on its strategic priorities for the year, in particular, resolving watch list loans, enhancing liquidity and delevering the portfolio. At the beginning of the year, we stated that we expected approximately $2 billion in total resolutions. I'm pleased to share that we have already exceeded this target with $2.3 billion in total resolutions, which includes partial repayments. As of November 4, we have significantly improved liquidity by $283 million to $385 million, further delevered the portfolio and resolved a total of 9 watch list loans. As previously reported, we have foreclosed on select cash flowing multifamily assets and have identified additional multifamily assets that are foreclosure candidates. We remain positive on the multifamily sector given the favorable long-term supply-demand dynamics and persistent housing affordability constraints. As we look ahead, we believe that the sharp decline expected in multifamily deliveries over the next few years, coupled with declining base rates should help offset any impact of an economic slowdown. Given our sponsors' experience as an owner, operator and developer and the progress we have made in our REO portfolio to-date, we believe we are well positioned to think creatively about value enhancement and exit strategies. For many of these multifamily assets, in particular, we have identified opportunities to implement operational and capital improvements, some of which can be executed more quickly than others. Since foreclosing, we have received strong unsolicited interest from prospective buyers on certain properties, which we believe is a positive reflection of the underlying demand for these assets. Taking into account our business plans, the strong interest we are seeing in the market and the current capital markets environment, we are actively evaluating opportunities to monetize select multifamily REO assets in the coming quarters. Overall, we feel positive about the progress we've made so far this year. In addition to reporting more than $2 billion of resolutions, we have achieved the following: we resolved 9 watch list loans representing $1.1 billion of UPB, bolstered liquidity by $283 million to $385 million today, reduced total borrowings by $1.4 billion and increased our unencumbered asset pool to $548 million from $456 million. We believe this progress positions us well to achieve our near-term priority of addressing the August 2026 Term Loan B maturity, and we will continue to evaluate our options with respect to this maturity. Before turning the call over to Mike to discuss CMTG's financial results and the portfolio, I want to note that we will not be addressing the New York Mayoral elections in our prepared remarks. That said, we are happy to take questions in the Q&A portion of this call. Now I'd like to turn the call over to Mike. Michael McGillis: Thank you, Richard. For the third quarter of 2025, CMTG reported a GAAP net loss of $0.07 per share and a distributable loss of $0.15 per share. Distributable earnings prior to realized gains and losses were $0.04 per share. Earnings from REO investments contributed $0.01 per share to distributable earnings net of financing costs. CMTG's held-for-investment loan portfolio decreased to $4.3 billion at September 30 compared to $5 billion at June 30. The quarter-over-quarter decrease was primarily the result of 4 loan resolutions that occurred during the quarter and the reclassification of loan to held for sale. One resolution was a regular way repayment of a $168 million construction loan collateralized by a mixed-use property in Northern Virginia. Upon construction completion, the asset has experienced strong leasing momentum across its various components. Construction loans have been a valuable component of CMTG's portfolio and a point of differentiation for our firm, given our sponsors' development and asset management expertise. While our construction exposure has historically performed well, it has also become a smaller component of our portfolio as sponsors have pursued their business plans to refinance such assets upon completion. The other 3 resolutions, all watch list loans were addressed on last quarter's earnings call and consist of the discounted payoff on a $390 million loan collateralized by a New York City multifamily property as well as foreclosures of 2 loans collateralized by multifamily properties in Dallas. Finally, we reclassified a $30 million Boston land loan from held for investment to held for sale as a result of a third-party buyer prevailing at a mortgage foreclosure auction in September. Subsequent to the third quarter, the sale was executed modestly below carrying value and because the loan was unencumbered, generated $28 million of net cash proceeds. This transaction enabled us to enhance liquidity without incurring carry costs or assuming risks associated with taking title to this asset. To recap, we've had $2.3 billion of total resolutions year-to-date, which includes $81 million in partial repayments and 9 watch list loans totaling $1.1 billion of UPB. Turning to portfolio credit. During the third quarter, we did not have any loans migrate to a 4 or 5 risk rating. We had one loan moved to non-accrual, a $170 million 4-rated loan collateralized by a Colorado multifamily property. The underlying asset performance has been tracking below our expectations and has also been impacted by new supply in that market. We are evaluating all available options to pursue our remedies as a lender. Our total CECL reserve on loans at September 30 was $308 million or 6.8% of UPB compared to $333 million or 6.4% of UPB at June 30. Our general CECL reserve increased by $0.6 million to $140 million or 3.9% of UPB of loans subject to our general CECL reserve compared to 3.8% of UPB as of June 30. During the quarter, we determined that a sale of the New York hotel portfolio is no longer optimal amid evolving market conditions impacted by the New York City mayoral election. As a result, we reclassified the hotel portfolio to held for investment as we continue to evaluate the market. The underlying assets continue to perform well and the strong return on equity generated by the portfolio provides an opportunity to optimize value for our shareholders when market conditions become more favorable, particularly in light of the refinancing executed in June. We also made progress during the quarter on further sales from the commercial condominiumization of our mixed-use REO asset. To-date, we've sold 9 of the 12 commercial condo units that were created. As Richard mentioned previously, it's our intention to accelerate the sale of some multifamily REO assets given positive market sentiment. Our focus on loan resolutions has strengthened our balance sheet by significantly reducing leverage and improving liquidity. During the third quarter, outstanding financings decreased by $376 million, which included $52 million of incremental deleveraging, bringing the reduction in financing UPB to $1.2 billion during the first 9 months of 2025 and to $1.4 billion year-to-date through November 4. This activity is reflected in the meaningful decrease in our net debt-to-equity ratio, which was 1.9x at September 30. This compares to 2.2x at June 30 and 2.4x at December 31, 2024. In terms of liquidity, as of November 4, we've increased our liquidity position by $283 million since year-end 2024. To quickly recap, at September 30, CMTG reported $353 million in liquidity, which has subsequently increased to $385 million as of November 4. At September 30, CMTG's total unencumbered assets were $398 million of loan UPB and $104 million of REO carrying value, which has since increased to a combined $548 million as a result of an additional loan becoming unencumbered, partially offset by the aforementioned loan and REO sales. We believe our liquidity position and unencumbered asset pool strengthen our position in addressing the upcoming maturity of CMTG's Term Loan B. We continue to explore various paths to a refinancing or extension, and we anticipate being in a position to provide additional details on a solution in the coming months. Before we open the call to Q&A, I'd like to share some recent news. We entered into an amendment to the terms of our Term Loan B, including the modification and waiver of certain financial covenants through March 31, 2026, including minimum tangible net worth and minimum interest coverage as defined, respectively. Pursuant to the terms of the modification, we're also utilizing a portion of our liquidity to make a principal repayment of $150 million on the Term Loan B. I would now like to open the call up to Q&A. Operator? Operator: [Operator Instructions] The first question comes from Rick Shane with JPMorgan. Richard Shane: Two questions that are related. The first is, what was the impact in the third quarter of reversal of accruals on the loan that was placed on non-accrual so that we can get a sense of what the run rate is. Obviously, there's a recurring impact, but there's also a restatement effectively. Michael McGillis: It was about $4.5 million, the reversal of the accrued interest receivable on that particular loan. Richard Shane: Look, the narrative here has been that NII has been declining. Obviously, with that reversal, with the runoff of the portfolio, with the additional non-accrual, it was down again sequentially fairly sharply. When do you think we will see a trough? Are we there at this point? Or is there still going to be more downward pressure on NII? Michael McGillis: Thanks, Rick. Great question. I think right now, we are really in the process of transitioning the portfolio and trying to aggressively move out of our 4 and 5-rated loans and non-earning and sub-earning assets. Obviously, with the liquidity we have, we can delever financings, which is helpful to earnings, but we really need to continue to make progress on moving out of the 4 and 5-rated loans, get that capital back and get it earning again. It's going to be a little, what I'll call, lumpy over the near term while we work through that. Richard Mack: I would just add one thing, and that is I feel like the market has come through a trough and the environment in which we are operating in is a lot more constructive for everything we're trying to do. Not exactly -- it is not exactly directly answering your question, but I think it's important to state. Richard Shane: No. Look, it's a totally fair observation. I think there are 2 stages to this. One is the identification stage of challenges within the portfolio, and it feels like we have reached that point or are very, very close. Then there is the resolution stage. This is not like a credit card loan where 180 days later, you charge it off. These resolutions can take years as we've seen. I think we're probably in the midst of that right now. Richard Mack: We absolutely are in the midst of it. I will say that we have been in the midst of it for a while, and we are taking aggressive actions to resolve things. We are really not trying to allow problems to faster or we're not allowing problems to faster. Operator: The next question comes from Jade Rahmani with KBW. Jade Rahmani: Can you give an update on the term loan? I know you touched on it, but where would liquidity stand post the $150 million repayment? Over what time frame do you expect to consummate a refinancing? Are you considering any equity-like options in conjunction with this to bolster the company's capital base, give it wherewithal to deal with problems in the portfolio and also improve the corporate financeability. Those things might include preferred equity. Michael McGillis: Thanks, Jade. Boy, that's a big question, but a good question. Let's see, we continue to have very productive discussions on the term loan refinancing. As noted, we had -- before the impact of this recent modification, the balance outstanding is about $712 million. We'll make a paydown of about $150 million in connection with this modification that will bring cash down to the, call it, $230 million, $235 million range. We do expect some additional sort of monetizations of assets over the relatively near term, which will further improve liquidity and what we would envision is a modest incremental paydown in connection with establishing a new facility or extending the existing facility. At this point, we do not anticipate going into the market for preferred equity as part of the solution, but obviously, down -- further down the path that that could be an option, but we think the trajectory of the business in terms of liquidity resolving watch list loans is heading in the right direction at this time. Richard Mack: Jade, I would just like to add that the -- yes, the cost of pref equity is still quite high right now. The opportunities in the market to increase the implicit or explicit leverage depending on how you want to view pref equity in order to originate, I think we just don't see the trade-off right now. We're going to keep our eye on it. If we think that changes, certainly, pref equity is an interesting approach for us to take. Jade Rahmani: Regarding the risk 5 risk 4 loan buckets, which each total about $1 billion, so that's $2 billion in total. Then current REO, can you give some expectations around the risk 5, where does that -- is that going to continue to moderate? Where will that be in 1 to 2 quarters? The risk 4s, do you contemplate any additional adds? Or will those continue to moderate? Will those be improved through modification to risk 3? Then REO, what is the current balance expectation you have, including any monetizations in process and the additional multifamily foreclosures you noted? Priyanka Garg: Yes. Jade, it's Priyanka. Thank you for the question. I'll start with the REO. We are continuing to monetize some of the REO. We have the mixed-use asset that we condominiumized that Mike discussed earlier. There will be some additional realizations out of that. Richard mentioned the realizations on some of our already REO multifamily. In the near term, we do expect the REO portfolio to increase in size. On Page 10 of our earnings up, we show our 5 rated loans, and we show 4 of them being anticipated REO. Those are all in the multifamily asset class. This is a tool in the toolkit, and we always want to try to work with our borrowers. If we can't come to a resolution that we think is in the best interest of our shareholders, we are going to foreclose. We do identify those 4s as anticipated foreclosures and coming on REO. In terms of additional 5s and 4s, we've obviously classified those loans as we see fit today. It's a dynamic environment. don't -- we can't always control borrower decision-making or what happens at the borrower or the market level. Based on what we know today, we think that list is accurate, and we're actively negotiating with borrowers in the 4 category, as you mentioned, to try to come to a reasonable modification, which could result in an upgrade. Also, as we've proven, I think, year-to-date, there's a lot of tools in the toolkit in terms of other ways to monetize the assets to turn over the book, as Mike mentioned earlier. Jade Rahmani: I think the $640 million of risk 5 rated multifamily loans anticipated REO, that would put the REO portfolio to $1.3 billion and reduce the risk 5 from $1 billion to around $335 million. Then the risk 4, I don't believe that there's REO anticipated out of that. Is that correct? Priyanka Garg: Yes. At this moment, that is correct on the 4s. On the 5s, I would just say the REO, it doesn't go on to our balance sheet at the UPB, it's going to go on at the carrying value after the specific CECL reserve. The $640 million is a bit inflated. It's lower than that. Yes, there will be growth in the REO portfolio. Like I said, there are -- there's very clear visibility into our current REO portfolio being partially monetized as well. Jade Rahmani: That would be actually about $1.24 billion, less the $80 million specific reserve? Do you know what the current yield is? Priyanka Garg: On the REO in total? Jade Rahmani: Yes. Is it low single-digit, or? Priyanka Garg: It's a very mixed bag. On the hotels, that is in the low to mid-teens. That is a very good return on equity because of the refinancing that we got done earlier this year as well as just really strong underlying fundamentals. As you can imagine, as we've taken assets REO in the multifamily portfolio, there is a lot of noise in the NOI numbers in terms of just blocking and tackling, like you want to evict the number of non-paying tenants, and that means you're taking a charge-off. We're in this period of transition, so that yield is much lower. Over time, we can -- we see that increasing. I mean it's anywhere between very low single digits to 6% today on an unlevered basis. We'll see if our plan is certainly to improve the yield on some of those. Others, like I said, are ready for monetization now. Operator: The next question comes from John Nickodemus with BTIG. John Nickodemus: Somewhat related to James's last question regarding the anticipated REO multifamily 5-rated loans. Noticed that your largest loan, the California multifamily moved into that bucket of anticipated REO versus where it was in the last quarter. Would just love to hear what changed there and being such a significant size, how that process could play out in terms of taking REO? Priyanka Garg: Thanks, John, for the question. It's Priyanka. Yes, obviously, we're very, very focused on it, given the size, as you said. The reason for the change is really after extensive ongoing discussions with the borrower. It's clear that they are unwilling -- sponsorship is unwilling to support the asset. At this juncture, I think we've proven our ability to evaluate whether we would like to do loan sales, BPOs, short sales, and when we did all of that, we have determined that the best course of action is actually to take ownership of the asset. One, you immediately create value when you go from a loan to a deed if we wanted to flip and sell it, but more importantly, as we have dug in, we've seen a lot of low-hanging fruit here in terms of ability to improve top line, ability to improve expenses. We think this is really a good opportunity for shareholders in terms of creating additional value. In terms of the process, it's in California. It's a non-judicial foreclosure state. It should be a pretty clean process, and we're -- the sponsor is well aware of the plan going forward. John Nickodemus: Then other one for me. I just wanted to ask about repayments, you've had 3 significant repayments in the second half of the year so far. Two of those were on loans that were on the watch list, a couple of 3-rated loans. Just curious if there's any line of sight on any significant repayments before the end of this year or maybe even early next year, whether that's out of the watch list or just out of the rest of the loan book in general? Priyanka Garg: Yes. Thanks, John. Yes, absolutely is the short answer. As both Richard and Mike alluded to, capital markets are healthy. We are seeing borrowers in various stages of refinancing plans, both on 3 and 4-rated loans. We alluded to this last quarter. We don't control those outcomes. I can't even put a number on it, but there is -- that is absolutely a possibility going into the balance of the fourth quarter in addition to the first quarter. Separately, absolutely dual tracking the goal of turning over the book, and we will focus on effectuating transactions even on difficult assets that are less borrower-driven and more lender-driven. That again goes to all the tools in the toolkit. That will be very facts and circumstances based in terms of borrower market asset class, and we have a couple of those in process, and I can see a couple of those getting resolved here in the coming quarters. Operator: There are no additional questions waiting at this time. [Operator Instructions]. There are no additional questions at this time. I'd like to pass the conference back over to Richard Mack for any closing remarks. Richard Mack: Well, I just want to thank everyone for joining and for the questions. I would summarize by saying, we continue to be in a healing capital markets. We're seeing tightening spreads and high demand for assets. This is allowing us to create value in the portfolio by taking over assets when we need to, by accelerating repayments, all to continue to delever the book, reduce our cost of capital and be prepared to refinance our Term Loan B and hopefully get on the other side of that and resume originations and other opportunities. We thank you all again, and we look forward to speaking to many of you soon and to our next quarterly meeting. Thank you all very much. Operator: That will conclude the Claros Mortgage Trust, Inc. Third Quarter 2025 Earnings Conference Call. Thank you for your participation. You may now disconnect your lines.
Operator: Good morning, and welcome to Nova's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Miri Segal, CEO of MS-IR. Please go ahead. Miri Segal-Scharia: Thank you, operator, and good day, everyone. I would like to welcome all of you to Nova's Third Quarter 2025 Financial Results Conference Call. With us on the line today are Gaby Waisman, President and CEO; and Guy Kizner, CFO. Before we begin, I would like to remind our listeners that certain information provided on this call may contain forward-looking statements, and the safe harbor statement outlined in today's earnings release also pertains to this call. If you have not received a copy of the release, please view it in the Investor Relations section of the company's website. Gaby will begin the call with a business update, followed by Guy with an overview of the financials. We will then open the call for the question-and-answer session. I will now turn the call over to Gaby Waisman, Nova's President and CEO. Gaby, please go ahead. Gabriel Waisman: Thank you, Miri, and thank you all for joining us. I will start the call today by summarizing our third quarter performance highlights. Following my commentary, Guy will review the quarterly financial results in detail. Nova achieved record quarterly revenue of $224.6 million in the third quarter, marking a robust 25% year-over-year growth. This performance reflects the continued trust of our customers, driven by demand in advanced nodes and advanced packaging. This quarter, we delivered record revenue from memory devices, fueled by strong demand for advanced DRAM and high-bandwidth memory. We also reached record revenue from advanced logic nodes, predominantly driven by gate-all-around processors. Our materials metrology revenue benefited from adoption of our ELIPSON and METRION platforms, and we also achieved record service revenue, underscoring the resilience and value of our portfolio and business model. According to our fourth quarter guidance, 2025 will be a record year for Nova, reflecting growth of approximately 30% year-over-year at the midpoint. Looking ahead, we anticipate further growth in 2026 with advanced logic, advanced packaging and DRAM continuing to fuel the momentum. Recent announcements of large-scale investments in artificial intelligence are creating a positive outlook for sustained industry growth and wafer fab equipment spending. Manufacturing integrated circuit devices for AI applications introduces unique process control challenges such as complex architectures, tighter tolerances, new packaging technologies and the integration of new materials. Our customers are constantly challenged to reduce ramp-up periods and then maximize yields in high-volume production. Nova's solutions are purpose-built to address these challenges, enabling our customers to deliver the performance and reliability required for next-generation AI devices. With this in mind, in 2026, we expect WFE growth in the mid-single digits with potential upside as AI-driven demand trickles down the value chain to increase utilization rates and wafer starts. Now I'd like to review some of the highlights from the past quarter. First, our record sales in memory this quarter was driven by several key achievements. In materials metrology, we saw record Veraflex sales to memory fabs. We also secured new orders for our PRISM platform supporting HBM manufacturing. In chemical metrology, we anticipate receiving orders for multiple tools from a new memory customer following the successful adoption of the Nova AncoScene front-end platform, which replaces a competing tool. These wins underscore Nova's expanding footprint and the important role our solutions play in enabling advanced memory production. Second, Nova achieved record sales in advanced logic, driven primarily by strong demand for our solutions in gate-all-around manufacturing processes. Notably, our ELIPSON materials metrology platform was selected as a tool of record by a leading global foundry, and we have already delivered several systems for use in high-volume production. ELIPSON leverages state-of-the-art Raman spectroscopy to provide precise nondisruptive material characterization. These capabilities are essential for advanced device nodes. In addition, we recognized revenue from the sales of the METRION platform to a gate-all-around manufacturer, further expanding the adoption of this tool. We expect to see orders from additional customers in the coming months. Third, in advanced packaging, the demand for Nova's optical metrology solutions continues to increase, particularly for critical dimension measurements in the most complex manufacturing environments. Our portfolio for advanced packaging includes Prism, WMC, SemDex, integrated metrology and the Ancolyzer. These solutions address multiple stages in the production process such as post-CMP applications as well as measurements of Through-Silicon Via wafer voltage, total thickness variation and electroplating analysis. This quarter, we introduced our latest optical metrology platform, the Nova WMC, a next-generation modular system designed from the ground up to address the evolving requirements of advanced packaging. The WMC has already been adopted by 3 customers for HBM and power device manufacturing with additional customer evaluations and demonstrations underway. The WMC offers exceptional versatility, supporting a wide range of wafer sizes and forms and multiple metrology technologies. This positions WMC as a cornerstone tool for next-generation packaging, including 2.5D, 3D and hybrid bonding applications. The strong demand for the WMC is a testament to its ability to address industry challenges such as high warpage, nonsymmetric shapes and diverse surface conditions, all with high throughput and nanometer level fidelity. Additionally, our PRISM and integrated metrology platform were adopted by a leading global logic manufacturer for advanced packaging processes and our chemical metrology platform, the Ancolyzer, was shipped to a gate-all-around customer for back-end packaging processes. All of these embody Nova's commitment to deliver comprehensive integrated solutions that enable our customers to meet the stringent requirements of advanced packaging and maintain a competitive edge. Finally, we marked a significant milestone in our operational excellence and capacity expansion with the opening of our new state-of-the-art production facility in Mannheim, Germany. This advanced clean room, which extends our existing site, enables us to triple our production capacity for advanced packaging optical metrology solutions while further improving our manufacturing process and quality. To conclude my prepared remarks, this quarter reflects the strength of Nova's strategy and execution across all fronts from technology leadership to operational scale. As our industry continues to evolve, driven by AI and increasingly complex architectures, Nova is well positioned to support our customers with differentiated, scalable and innovative solutions. Looking ahead, we remain confident in our ability to deliver long-term growth and value. For more details on the financials, let me hand over the call to Guy. Guy Kizner: Thanks, Gaby. Good day, everyone, and thank you for joining our 2025 third quarter conference call. I will begin by reviewing our financial achievements for the third quarter of the year and then provide guidance on the fourth quarter. Total revenues in the third quarter of 2025 reached a record level of $224.6 million, marking the sixth consecutive quarter of record-breaking results. This performance reflects a growth of 2% quarter-over-quarter and 25% year-over-year. Product revenue distribution was approximately 70% from logic and foundry and 30% from memory. Product revenues included 4 customers and 3 territories, which contributed each 10% or more to product revenues. In the third quarter, blended gross margins aligned with our guidance, achieving 57% on a GAAP basis and 59% on a non-GAAP basis, well within our target model range of 57% to 60%. Operating expenses increased to $63.5 million on a GAAP basis and $58.6 million on a non-GAAP basis as we use top line growth to invest in R&D for long-term opportunities and in ongoing strategic evaluations. Operating margin in the third quarter reached 28% on a GAAP basis and 32% on a non-GAAP basis, demonstrating the scalability of our model and the strong value proposition of our process control portfolio. The effective tax rate in the third quarter was approximately 16%. Earnings per share in the third quarter on a GAAP basis were $1.90 per diluted share, and earnings per share on a non-GAAP basis were $2.16 per diluted share. Turning to the balance sheet. During the third quarter, the company generated approximately $67 million in free cash flow, bringing the total positive free cash flow for the first 3 quarters of 2025 to approximately $170 million. In September 2025, the company successfully completed a 0% convertible notes offering of $750 million with a 35% conversion premium and a capped call structure that raised the effective premium to 75%. As a result, total cash, cash equivalents, bank deposits and marketable securities increased to $1.6 billion at the end of the quarter. This strong financial position enable us to continue to invest in R&D and strategic growth initiatives while maintaining the flexibility to pursue M&A opportunities and capitalize on market trends that support our long-term objectives. Next, I'd like to outline our guidance for the fourth quarter of 2025. We currently expect revenue for the quarter to be between $215 million and $225 million. GAAP earnings per diluted share to range from $1.77 to $1.95. Non-GAAP earnings per diluted share to range from $2.02 to $2.20. At the midpoint of our fourth quarter 2025 guidance, we anticipate the following: gross margins of approximately 57% on a GAAP basis and approximately 58% on a non-GAAP basis. Operating expenses on a GAAP basis to increase to approximately $65 million. Operating expenses on a non-GAAP basis to increase to approximately $59 million. Financial income on a non-GAAP basis is expected to increase to approximately $16.8 million in the fourth quarter, reflecting the higher cash balance on hand. Diluted share count for the fourth quarter is expected to be approximately 34 million, incorporating the full quarter effect of the recently issued convertible notes. The increase in share count and higher financial income are expected to largely offset each other, resulting in a minimal impact on the non-GAAP earnings per share. Effective tax rate is expected to be approximately 16%. Before I conclude my remarks, I would like to highlight that based on the midpoint of our fourth quarter guidance, we expect to close 2025 with record high revenues, reflecting exceptional annual growth of approximately 30%. Our non-GAAP profitability outlook for 2025 remain robust with blended gross margins around 59% and operating margins near 33%, positioning us at the high end of our target model and highlighting the strength and scalability of our business. With that, we will be pleased to take your questions. Operator? Operator: [Operator Instructions] The first question comes from Atif Malik with Citi. Atif Malik: Strong execution throughout the year. Gaby, with respect to your mid-single-digit wafer fab equipment outlook for next year, if I recall, this was the same outlook that you were giving in early September and a lot of things have changed in the memory land since then. So can you walk us through the upside case to this WFE? And is Nova still going to outperform the WFE? And we have been hearing that the memory makers are somewhat constrained in their shell capacity. Is that the driver that is limiting the growth to mid-single digit? If you can just walk us through the puts and takes. Gabriel Waisman: Definitely. Thank you for your question. So first of all, I believe that there's been some improvement since the September discussions. But in general, I think that for the Nova side, we do believe that we have the right growth engines and ability to outperform this growth. And we estimate that 2026 will continue the trend and that in general, we believe it will be more of a second half weighted year. Atif Malik: Great. And then, Guy, on the gross margins, a little bit light on the reported quarter and guiding to 58%. Can you walk us through the puts and takes on the gross margin? And are you seeing any impact from the incremental China restrictions to your gross margins? Guy Kizner: So this quarter, we reported gross margin of 59%, and it's aligned with our forecast. Looking ahead for the next quarter, we are guiding 58%, plus/minus 1% point. That range reflects continued discipline in pricing and cost structure and importantly, our ability to deliver strong value to customers. The main fluctuation when they occur in the gross margins is mainly product mix during the quarter. And the right way to look on our performance is on an annual basis, where in 2025, we expect to see 59%, and it's well aligned within our target model of 57% to 60% gross margin. Atif Malik: And the impact from the China restrictions, any incremental impact? Guy Kizner: No. Currently, we don't see a significant impact from China. Operator: The next question comes from Blayne Curtis with Jefferies. Ezra Weener: It's Ezra Weener on for Blayne. Just to start, in the quarter, foundry and logic was down like 6%, memory up a little over 20%. Can you talk about the moving pieces there, especially considering you said leading-edge foundry hit a record? And then how do you see that going into next quarter? Gabriel Waisman: Sure. So first of all, we mentioned that, as you said, that this quarter has seen an increase in the memory sales, and we've reached a record revenue level. This quarter, memory was about 30% of our sales, where DRAM generated the majority of that business. And we see DRAM is recovering nicely, and we have a good exposure in this market. We do expect this trend to continue next year and that memory will be one of the growth drivers for WFE in 2026. Saying that, our long-term model suggests a ratio of 40% memory and 60% logic due to the higher metrology intensity in logic. Specifically to your question about the ingredients of that growth, we see adoption of our portfolio across the product divisions by leading memory customers. We mentioned record VF XPS sales to memory. We have multiple orders for the latest and greatest PRISM stand-alone OCD tool. We have a new win for the WMC for HBM, and we have a new memory customer in chemical metrology. So we do see the fundamentals of the growth in the memory, and we do expect a continued growth next year in that sector. Ezra Weener: Got it. Then in terms of what you're seeing from China, given clearly trailing edge foundry logic is down. Gabriel Waisman: Excuse me, you were cut at the end. Ezra Weener: Yes. So foundry and logic is down in September, but leading edge was up. So that does seem to likely be related to China. Can you talk a little bit about what you're seeing in China? Gabriel Waisman: Sure. So first of all, we expect the nominal volume of our business in China this year to be slightly higher year-over-year compared to last year. We mentioned that the revenue is skewed towards the first half of the year. And on an annual basis, we expect our revenue from China to be nominally higher all in all. But of course, that the share of the overall business from China should be lower than last year. Last year, we had 39% and this year will be lower, probably the range of, let's say, the 30-ish-plus percent mark. We do believe that China has already normalized in terms of the business levels in the second half of this year, and we expect this trend to continue in the first half of 2026. Operator: The next question comes from [ Liam Farr ] with Bank of America. Unknown Analyst: On for Michael. I was just wondering in terms of gate-all-around, what kind of trajectory are you seeing in 4Q and through '26 as well? Gabriel Waisman: So gate-all-around has been driving our business and the third quarter has peaked in that respect. We are exposed to all of the 4 gate-all-around players. And we mentioned before that the aggregated business that we expect for '24 to '26 from that gate-all-around business is about $500 million, and this is well in track. Our business from gate-all-around in 2025 significantly increased, and we expect this to continue next year. And as I mentioned before, we are on track with our original plan both in terms of scope and in terms of time lines. We are very fortunate and we're encouraged to see all the 4 players advancing towards manufacturing. And we believe that this will continue where demand is certainly growing. Unknown Analyst: Just a follow-up. In terms of -- you've mentioned M&A adds upside to your long-term model. Where would you like to expand or do a tuck-in deal, if you could? And what kind of capabilities would you be looking to acquire? Gabriel Waisman: So after the convert that we successfully concluded early in September, we definitely have the right war chest to pursue inorganic growth opportunities. We are looking predominantly on the semiconductor area, process control, but we are definitely open to some additional segments as long as there is a strong semi business in that part. We have a dedicated team in the company that pursues such opportunities, and we are definitely looking forward in making sure that we can execute on our strategic plan in that respect. Operator: The next question comes from Vedvati Shrotre with Evercore ISI. Vedvati Shrotre: My first question was on the WFE outlook that you shared. So you mentioned it's second half weighted for 2026. Can you provide some color whether -- how this splits like foundry logic versus memory? And is that comment of second half weighted for both the end markets? Guy Kizner: Thank you for the question. First of all, I'd like to reiterate the fact that we have the right growth engines and the ability to outperform the growth of WFE next year. We see some upside as well. And in terms of the specifics, I believe that the advanced nodes, in particular, gate-all-around will accelerate further in the second half of next year, driving that weighted assumption. But of course, we are not giving any color beyond that other than saying that we believe that we have both memory and advanced logic driving the business in next year in general and accelerating towards the second half in particular. Vedvati Shrotre: Understand. And my second question was more on the advanced packaging piece. So you have the portfolio sort of increasing with your WFE product lines. And at the same time, you're kind of winning multiple applications across HBM and advanced foundry logic. What's your view on advanced packaging contribution for '25? And like how much of your revenues would be coming from advanced packaging applications this year? And where does that go next year? Gabriel Waisman: Sure. So the current 2025 numbers show a high double-digit revenue growth for the company. We expect to see a higher share of revenue for advanced packaging compared to last year. Last year was about 15%. This year, it will be approximately 20%. The majority of the revenue from advanced packaging is coming from logic devices, whereas the main contributors, by the way, for that business are the dimensional and chemical metrology portfolios, which I alluded to in the script. And we expect 2026 to grow -- to further grow in that business, definitely given the latest AI announcements that we heard of. Vedvati Shrotre: Understood. And if I may squeeze one last one in. On -- like I understand your positioning on DRAM side. And I think foundry logic, your positioning is very clear. Could you give us a sense of what it -- like your positioning in NAND cycle? What would you have to see for like maybe the NAND revenues to start exacting? Gabriel Waisman: So NAND is a bit muted still. I definitely hope that it will be growing probably towards the second half of next year. And we are well positioned in NAND as well. So our business, which is basically capacity driven, requires more investments on the capacity side that, as I mentioned, I hope would start at the second half of next year. Operator: The next question comes from Charles Shi with Needham. Yu Shi: Congrats on the good results. Maybe I'll start with the commentary on next year, mid-single-digit WFE, you outperformed that number second half weighted. But can you provide a little bit color on relative to second half '25, what's your best view on first half '26 in terms of your top line run rate, et cetera, and maybe some of the puts and takes between, let's say, foundry, logic and memory or China, non-China as much as you can at this point? Gabriel Waisman: Sure. Thank you, Charles. So first of all, we don't, as you know, provide guidance beyond the next quarter. So it would be difficult to drive into details. But I would mention that 2026 is driven by both memory growth and investments in advanced logic and advanced packaging. Our position across these segments is strong, and that would drive our growth relatively -- related to that. And we also invest a lot in market share gains in order to accelerate and fuel that momentum. In terms of China, I believe that the business that we see in the second half of the year or the second business that we already have in China is already normalized in terms of business levels. And we expect this trend to continue in the first half of next year. Beyond that, at this moment in China, our visibility is limited and the market is very dynamic, so we need to see how things evolve. Yu Shi: Got it. Maybe I quickly follow up on China. It sounds like first half '25 was pretty strong for you. Second half, it's normalized. China sounds like it's a little bit first half weighted for '25. And if I extrapolate what you said that normalization trend continues into first half '26, it sounds like China is probably a down year next year. Is that the right read? And if that's the case, what do you -- yes, sorry. Gabriel Waisman: Sorry for interrupting you, Charles. Not necessarily. So I mentioned that we have lower visibility for the second half as it's a very dynamic market. But we do hope that nominally, the business in China will remain solid. So it doesn't allude to any changes in the overall levels in China next year. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Gaby Waisman, Nova's President and CEO, for any closing remarks. Gabriel Waisman: Thank you, operator, and thank you all for joining our call today. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the Vivid Seats Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Following management's prepared remarks, we will open the call for Q&A. I would now like to turn the call over to Kate Africk. Kate Africk: Good morning, and welcome to Vivid Seats' Third Quarter 2025 Earnings Conference Call. I am Kate Africk, Head of Investor Relations at Vivid Seats. This morning, we issued our third quarter financial results. The press release as well as supplemental earnings slides are available on the Investor Relations page of our website at investors.vividseats.com. During the course of today's call, we may make forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks and uncertainties described in our earnings press release, our most recent annual report on Form 10-K, our subsequent quarterly reports on Form 10-Q and our other filings with the SEC. On today's call, we will refer to adjusted EBITDA, which is a non-GAAP financial measure that provides useful information for investors. A reconciliation of this non-GAAP financial measure to its corresponding GAAP measure can be found in our earnings press release and supplemental earnings slides. This morning, we also announced a leadership transition that is effective today. Lawrence Fey, who has served as Chief Financial Officer since 2020, will succeed Stan Chia as Chief Executive Officer. Additionally, Ted Pickus, who has served as Chief Accounting Officer since 2022, has been appointed as Interim Chief Financial Officer until a successor is identified. Accordingly, Larry and Ted are joining me today on the call. With Larry's extensive history with Vivid Seats dating back to 2017, the Vivid Seats Board believes he is uniquely qualified to navigate the evolving industry environment and steer the company back to growth. Larry will share more detail on his vision for Vivid Seats next chapter today. And now I would like to turn the call over to Larry. Lawrence Fey: Good morning, everyone, and thank you for joining us today. First, I would like to discuss the leadership transition and express my gratitude to Stan for his leadership and service over the last 7 years. His accomplishments include successfully leading Vivid Seats through a global pandemic, bringing Vivid Seats to the public markets and launching key innovations such as the Vivid Seats Reward program, which provides a foundation on which we will continue to build as we deliver a unique and leading value proposition to our customers. I recognize the responsibility of this role and we'll look to take decisive action to reverse recent trends and build a resilient business well positioned for long-term success. The core pillars of our strategy start with the foundational advantages that have been in place at Vivid Seats for years and build from there. There is much work to be done, but the foundation to return to profitable growth is in place, and our path forward is clear. Vivid Seats has long been known for its leading tech capabilities, unique data and focus on efficiency. In recent years, as paid search has become more competitive and customer acquisition economics have become strained, Vivid Seats has increasingly invested in its app with a focus on building a loyal and recurring customer base. We are now increasing our focus and investment in delivering a leading value proposition to our customers. Alongside our loyalty program with rewards redeemable in the app, late in the third quarter, we launched our lowest price guarantee also in the app. We believe the combination of our lowest price guarantee and our loyalty program represents the most compelling value proposition in the industry, and we are already seeing positive responses from our customers. With our enhanced value proposition, we expect to see a growing number of app users and resulting transactions. Our app users return more often, convert at a higher rate and touch performance marketing channels less. Over time, as our volume increasingly moves into the app, our performance will be increasingly insulated from the heightened competitiveness we have seen in performance marketing channels in recent years. Further, we believe that information transparency will only increase as AI proliferates and impacts the way consumers interact with brands across the Internet. It will take time to build comprehensive awareness of our enhanced app value proposition, but we are confident we will disproportionately benefit as AI reshapes consumer discovery and decision-making as we match consumer demand with the most compelling value in the industry. One of our initial efforts to build awareness of our app value proposition is our recently renewed partnership with ESPN. With ESPN, we have launched a national marketing campaign on Disney streaming, which is reaching more than 127 million global subscribers across over 700 live sports events monthly. We are excited to see how fans respond to our new offering as awareness continues to build. We believe our investments in delivering a leading value proposition will drive order volume but reduce our take rates. Funding these investments in a sustainable manner will require a commitment to operating the most efficient platform in ticketing. We will focus on operating as a lean and agile organization enabled by powerful technology and unique data. We announced the cost reduction program last quarter, and we are now more than doubling our fixed cost reduction target from $25 million to $60 million. We have made substantial progress towards our updated target with savings spanning fixed marketing, G&A and stock-based compensation. Both these savings and our considerable reinvestment in our app value proposition are reflected in our initial 2026 guidance. Continuing with our theme of driving efficiency through clear focus, we executed our corporate simplification agreement, which included the termination of our tax receivable agreement and the collapse of our dual class share structure early in the fourth quarter. The corporate simplification will yield substantial immediate and ongoing savings. As part of the termination, we issued approximately 400,000 Class A shares to the former TRA parties. In return, we will avoid $6 million of cash TRA payments otherwise due in Q1 2026, while capturing up to $180 million of lifetime tax savings, subject to generating sufficient profitability. In addition, by simplifying our structure, we expect to save approximately $1 million per year from reduced financial reporting and compliance costs while also removing tax inefficiencies in our structure. At current levels of profitability, we anticipate our annual cash income taxes to be approximately $3 million. The savings between our cost reduction program and corporate simplification will create a more focused and agile organization, one that can invest strategically for growth while maintaining discipline and profitability. Next, I'll address trends in our third quarter results, which we believe validate our path forward and underpin our initial 2026 outlook, which Ted will provide. While private label remains under pressure, we are encouraged to see stabilization and early signs of momentum across our owned properties. Against the flat sequential industry backdrop, Vivid Seats and Vegas.com delivered sequential GOV growth, while the Vivid Seats app delivered double-digit sequential growth and returned to year-over-year GOV growth. This is a direct result of our ongoing investment in product development and our enhanced value proposition. As we look to the fourth quarter and into 2026, there are no quick fixes, but our priorities are clear. We are committed to improving our financial performance by leveraging Vivid Seats foundational advantages, including leading technology, unique data, best-in-class efficiency and continued investment into a unique and differentiated value proposition. Now I'll turn it to Ted to discuss the quarter and financial outlook in more detail. As we mentioned earlier, Ted, our Chief Accounting Officer, will take on the role of Interim Chief Financial Officer. Ted has been at Vivid Seats leading our accounting function for more than a decade. I have full confidence in Ted, and I'm glad to have him step into the interim CFO role as we manage our leadership transition. Ted Pickus: Thank you, Larry, and hello, everyone. I am honored to be with you today and to assume this role during a transformational time for the business. Turning to our results. In the third quarter, we delivered $618 million of marketplace GOV, $136 million of revenues and $5 million of adjusted EBITDA. These results reflect an intense competitive environment that impacted our private label business, which was also impacted by the loss of a large partner. We generated $618 million of marketplace GOV in Q3, which was down 29% year-over-year. Total marketplace orders were also down 29% with average order size flat. Looking at sequential trends compared to Q2 of this year, overall marketplace GOV was down 10% due to private label headwinds, while owned property GOV increased in a flat sequential industry environment. We generated $136 million of revenues in Q3, down 27% year-over-year. Our Q3 marketplace take rate was 17.0%, down from 17.5% in Q3 2024. We expect near-term take rates in the 16% range. Our third quarter adjusted EBITDA was $5 million, down substantially from the prior year due to lower volume, lower take rates and negative operating leverage. We expect improved operating performance as we enter 2026 with the full benefit of our recent cost reductions. Next, I'll address our 2026 initial outlook. With stabilizing owned property volumes, we expect 2026 marketplace GOV in the range of $2.2 billion to $2.6 billion. At the midpoint, this assumes Marketplace GOV roughly in line with our third quarter run rate. We intend to reinvest cost savings into our enhanced customer value proposition and as such, currently anticipate $30 million to $40 million of 2026 adjusted EBITDA. Our 2026 initial outlook assumes industry volumes are flat year-over-year as the core concert on sales season, which provides supply visibility for the coming year has yet to occur. We ended Q3 with $391 million of debt, $145 million of cash and net debt of $246 million. Against a flat industry environment, we saw working capital continue to consume cash, but at a substantially lower level than seen the first half of the year. I'll now hand it back to Larry for concluding remarks. Lawrence Fey: Thanks, Ted. Despite challenging year-over-year trends, the third quarter offered signs of stabilization, including sequential growth in owned property GOV, year-over-year growth in app GOV and substantial cost reduction progress. From here, diligent execution is crucial, but we believe our investment into our app value proposition provides a clear path to return to growth. With that, operator, let's open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Cameron Mansson-Perrone with Morgan Stanley. Cameron Mansson-Perrone: Ted, welcome to the call. I guess the first question is really just -- I'd like to hear a little bit more about what gives you confidence in issuing '26 guidance this early given the pressures that have existed in the business recently. I heard you on the stabilization front, but just a little bit more on what gives you kind of that increased visibility relative to the past, I think, would be helpful. And then if you could just kind of try and help contextualize what's reflected in the high and low end of the guide for next year with regard to competitive environment and expectations and any other gating factors around what would determine whether you shake out on the high or low end? Lawrence Fey: Yes. Cameron, yes, I think the you've heard us say in the past that we prefer to give guidance on our Q4 call once the Q4 on sale calendar has run its course as you'll have more industry visibility. And so the important caveat in the guidance we put forward is it presumes a flat year-over-year industry outlook. And I think to your question on what would govern the low end versus the high end, I would start with if the industry under-indexes to flat, that would push you towards the low end. If it over-indexes or grows, that would push you towards the higher end. We certainly saw the Live Nation commentary, which if you interpolate what they said, it feels like they're pointing towards another positive growth year in North America. So hopefully, there is some conservatism built in. We'll learn more over the coming months on exactly where the industry settles out, but try to put a baseline that we think is reasonably skewed to the cautious side of the spectrum on the industry performance. Why do we put guidance out, why do we have confidence? I'd point to a few elements. I think one, we obviously pulled 2025 guidance. So it's been a while since there's been a flag or a stake in the ground for folks to look at. You can see a number of changes playing out in Q3, where we talked about our cost reduction initiatives. We talked about some of our reinvestment in our value proposition and lots of puts and takes. And rather than having there be a vacuum where people are waiting in suspense for 4 months on what the net of all of those are, we wanted to distill it down to a target probably goes without saying if competition or competitive intensity reaches new highs, that will pressure. And if they abate, that will be a release valve relative to the range we put forward. But we've assumed essentially a broad continuation of the competitive intensity we've seen in the second half of 2025. Operator: Next question comes from the line of Dan Kurnos with Benchmark Company. Daniel Kurnos: Larry, I guess, maybe just to double-click on the leadership transition. Obviously, Stan had a lot of digital experience from his history. So I guess maybe why now make this move? If you could just give us some color on the thought process. And obviously, to be clear here, I think you're eminently qualified to lead the company, Larry. I just would be helpful to get sort of some of the thought process on the timing. And then in an agentic world, you talked about discovery with OpenAI. If you're going to push app, which is fine, everyone else is putting their app into OpenAI for discoverability. So I don't know what your thoughts are about that, given some of the puts and takes on demand gen and OpenAI potentially becoming the source of demand gen, but -- just help us think about your willingness to increase visibility via that channel and other ways that you might increase the visibility of the value prop? Lawrence Fey: Yes. Thanks, Dan. I'd start with the thanks to Stan, of course, we're sincere 7 years was a great run. I think it was just reaching a time for a shift and preparing the business for the efficiency push that we're embarking on in the near term. To the second question, I think you touched on a theme that is spot on. Yes, we're pushing on app. And I almost think of the customer universe as 2 buckets, right? There's the new customer acquisition and there's a competitive dynamic around that. And then there's the folks who have already done their research and made informed decisions around which marketplaces they buy from or which marketplaces they consider, and that generally occurs in the app. Where I think there could be a really interesting blurring of those lines or fusion of the 2 as we move forward. If one of the fundamental tenets of AI is increasing information synthesis, increasing information transparency as we increasingly place the best value proposition out into the ether. We then, of course, have an obligation to make sure that value proposition is digestible by these new AI platforms that are looking for all of the best information to synthesize and distill for customers. But you better have something that's compelling, right? If they do their job and put forward the best value proposition, you better be front of the line. And so that's where we're going with the app. I think in the near term, while we wait for the commerce portion of the AI disruption to fully arrive, we're going to continue focusing on retaining our customers in the app ecosystem. And then we think there's opportunity coming on that customer acquisition as the technology format evolves. Operator: Next question comes from the line of Maria Ripps with Canaccord Genuity. Maria Ripps: Larry and Ted, congrats on the transition. Can you maybe share a little bit more color on the competitive backdrop right now? Are you seeing any early signs that maybe some of the competitors in the space are starting to focus more on profitability? Lawrence Fey: Yes. Thanks, Maria. We've talked in the past a bit about ebbs and flows, and it can be a little dangerous to extrapolate short-term behavior and assume it continues indefinitely. But I would say, broadly aligning with, call it, changes in corporate status, we have seen a shift in competitive posture. It was a fairly methodical increase in share that we saw from StubHub over the last couple of years. It come in waves, but it kind of went one direction. And we've actually seen that reverse and roll over in September and October, where they're now down year-over-year on share. And I think that is directly tied to what we perceive as a shift in marketing aggressiveness. The magnitude, obviously, it was enough to reverse that trend, but it wasn't like a reversion to 2022 or 2023 levels. And we, of course, know that they reserve the right to change their mind and posture as we embark into 2026, but a notable change over the last, call it, 6 weeks to 8 weeks. Maria Ripps: Got it. That's very helpful. And then any early thoughts you can share sort of on quality of concert lineup in 2026? Lawrence Fey: Yes. We -- I'd say, continue to be looking to Live Nation for the prospective views on what's coming. I heard pretty positive commentary when I read the release, I think they touched on what clearly looks like positive North American growth, a skew towards larger venues. Thus far in the year, you get into these year-over-year comparisons where timing just varies slightly year-over-year. But we're in the midst of this year, Morgan Wallen just announced that I think will be one of the top tours of the year. We've seen several others. So at this point, I would say, other than week-to-week variance, it looks like the Live Nation commentary is flowing through in what we're seeing. Operator: Next question comes from the line of Ryan Sigdahl with Craig-Hallum. Ryan Sigdahl: In response to the FTC lawsuit, Ticketmaster shutting down TradeDesk for concerts. They're also limiting Ticketmaster accounts even further as it appears as they take more action on pricing. Curious your perspective on this. Does this present an opportunity for Vivid to take share on the POS side. But at the same time, I guess the negative would be how much contraction and negative do you see from a supply standpoint in the secondary ticketing? Lawrence Fey: Yes. Thanks, Ryan. I think you framed it properly in that any disruption to TradeDesk, I think, can only be a tailwind, and we think SkyBox will be waiting with open as with its best-in-class capabilities to support any customers who no longer have the full suite that they need to run their business and can only help our position. And then as you said, counterbalance, if there is additional pressure, I'd start from our fundamental view is that the vast majority of what drives this industry is fundamental financial well-functioning financial market, right, where you have artists and teams who are looking to diversify risk. You have artists and teams who are looking to offload risk well in advance of shows and that there is a healthy, vibrant financial instrument via the secondary market that facilitates and benefits all parties. To the extent folks are violating the rules of the game, we have always said this, we continue to say it, we can, should, will support anything and everything that needs to be done to ensure folks do play by the proper rules as defined by the artists and the primary ticketing platforms. To the extent there are folks that are -- I'm sure there are right, there's got to be a bad actor out there. To the extent those folks' behaviors are forced to modify, I think what will be unknown, right? And we'll find out, as you all find out, does that contract the secondary market? Or does it just change the form where you now have increased fragmentation where new smaller sellers fill in the gap and the overall market opportunity remains the same. So we'll keep a close eye on it. But I do think -- yes, there's a positive tailwind on TradeDesk, a potential headwind, but maybe not on the change to Ticketmaster policies. Ryan Sigdahl: Then just the other hot topic kind of from an industry standpoint, direct issuance. Vivid has a smaller DI type offering with college basketball crown. But curious what you think about the ambitions of some of your peers in the space on this model specifically? And then kind of to your point on rules of the game, I guess, contractually, et cetera, I guess, just your thoughts on direct issuance and the viability of doing that in an accelerated way going forward? And what that potentially means from a secondary marketplace standpoint if that further limits the supply of brokers play? Lawrence Fey: Yes. I think obviously, strategies are subject to change. And so just reacting to the way we have seen the direct issuance opportunity defined to date, maybe they change us. But to date, it's been primarily focused as we understand it, on unsold inventory. And so you can imagine regular season baseball games, less popular theater shows where you have well past the event going on sale substantial available inventory available from the primary. And if that gets piped directly into a secondary marketplace, that would represent incremental supply. I think the threshold question for the robustness of that opportunity would start with, is this a supply or demand-constrained industry? And does the fact that you took an event that already had a decent amount of supply and made more available, will that stimulate incremental demand? Or will it cannibalize the eyeballs that you were already getting on the site and to sell more, you still need to get additional eyeballs and spend the marketing dollars to bring them in. I think our viewpoint has been that generally, this is a demand-constrained exercise, not supply constrained in all but the most rarefied air, right? Like you could see Taylor Swift tickets really selling out, but most events, including World Series, Super Bowl, right? There are tickets available all the way up until the event starts even for the highest profile events. So I'd say we're a bit more muted on our belief of the impact that could have. But we certainly have heard that the ambitions are big, and so we'll keep a close eye. Operator: Next question comes from the line of Ralph Schackart with William Blair. Ralph Schackart: Larry, I just kind of want to circle back on sort of driving more awareness to the app and sort of the efforts there. I know you talked about having ESPN as a partner to do that, which is obviously a great partner to have there. But maybe you could just sort of provide a little bit more color how you drive more direct traffic here and build more awareness? And would you be contemplating potentially like a marketing campaign or other efforts to grow more awareness to go direct to the app? Lawrence Fey: Yes. Ralph, I think we're doing what I would call our brand marketing surge via ESPN. That is going to be concentrated in the near term kind of throughout Q4, which is peak sports season. I think this is an industry where there's been many attempts to do broad-based brand marketing, and it is challenging to prove compelling ROI from that. So I don't think we're going to reverse course and jump head first back into broad brand marketing. I think we're going to continue to focus on thoughtful different slices of, call it, more targeted performance-based metrics. One of the advantages we have foundational strengths we have is we've been one of the leading marketplaces for a long time. And as a result, we sold a lot of tickets to a lot of people, and we have a really robust existing user base, really robust CRM database. And so a lot of our effort has been increasing our personalization, improving the nature of our messaging. And now when we're delivering a message with a fundamentally improved value proposition, I think that leads to more engagement across that existing user base. And then continuing as people -- we acquire them on the web, making them immediately aware of what awaits -- if they trusted us enough to buy on the web, that's wonderful. And I think we have perks that would compel them to come back to the app and making sure that, that hyper addressable audience gets made fully aware of the proposition. Those are the 2 major buckets I think we'll be focusing on in the near term. Operator: Next question comes from the line of Steven McDermott with Bank of America. Steven McDermott: Just 2 quick ones. Firstly, for 2026, what World Cup assumptions are kind of built into that outlook? Lawrence Fey: Yes. We essentially have not assumed a meaningful impact from World Cup. I think that is primarily due to 2 things. One, there's not a lot of precedent that we can rely on, right? The U.S. World Cup in an era with online secondary ticketing has 0 precedent data points. When we look at the last 2 World Cups, they are in markets that we basically don't operate in, in Russia and Qatar. And so trying to strike a cautious tone given a lack of conviction beyond that. The second observation, I think it's fairly well documented, but we've seen FIFA be, let's say, quite aggressive in seeking to monetize, optimize their monetization of the event. I think it's safe to assume there will be incremental volume. We will benefit from it. But between those 2 factors, we've opted to essentially disregard it as we've contemplated our outlook for next year, and it would purely represent upside. Steven McDermott: Got it. Appreciate that color. And then my second question, just -- it sounds like you said StubHub pulled back on marketing spend a bit. Is it fair to say that the Q3 exit rate improved on a year-over-year basis? Lawrence Fey: Yes. I think it would be fair to say that over the course of Q3, we saw a shift in their behavior and a corresponding shift in volumes across marketplaces. Yes, that happened closer to the end of Q3 than the beginning. Operator: Next question comes from the line of Brad Erickson with RBC Capital Markets. Bradley Erickson: I just follow up on that last one, actually, Larry. When you say -- or when you look at kind of what's instructing the stabilization commentary on the owned property business, so you mentioned competitive intensity easing several times. Is that kind of the main driver? Any other drivers you'd call out there, either things in your control or other market forces? Lawrence Fey: Yes. I think the biggest one is -- so yes, the competitive landscape, of course, matters. But I'd say similar, if not equal, if not slightly more important in terms of what we've seen in the immediate term has been this value proposition push. And inherent in what we're trying to achieve, as we get more volume in our app, I think that is a more protected ecosystem, right? You can bid whatever you want for a Google Link. But if someone already has our app, already trust us is already looking at us. they will likely look at us. And if we have a structurally better offer, it doesn't matter who else is buying the top Google Link. And so there's -- you control your own destiny more on app. That's why we're pushing, right, reduce the surface area and exposure to competitive response. That's a long game play, right? You don't make that change and immediately have profound shift of volume from one channel to the other. But we have seen market increases in the volume that's moving into the app. And I think this is one of those like layer cake dynamics where every month that goes where you bring in a new cohort of customers who have done their research, seen the value prop, they're going to be fundamentally stickier. And over time, that will compound and build into something pretty exciting. Bradley Erickson: Got it. And then I appreciate the '26 guide and all you gave the EBITDA numbers. Any color you can give maybe on cash conversion relative to that EBITDA guide? Lawrence Fey: Yes. So I appreciate that question. Yes, I think if we look at our cash obligations moving forward, you have roughly $20 million of net interest expense. We'll have a bit less than $20 million of ex cap software. And then we mentioned in this release that pro forma for the TRA transaction, we'll have about $3 million of cash taxes, primarily from international operations. So you sum those up before you consider working capital, you have a roughly $40 million set of cash obligations. As we've kind of talked about quite a bit the last few quarters, when we're growing, working capital is a source when we're shrinking, it's a use of cash. And so I think at the epicenter of will cash balance grow next year is do you believe that we can sequentially grow GOV. I think it's reasonable to assume that take Q1 as we lap the private label losses that we saw in Q3, continue to lap those. The overall year-over-year GOV numbers will continue to be down. But if the sequential help because the balance sheet kind of remark to market every quarter is stable and growing, you can see working capital reverse course. And so the base case plan is at the midpoint or better of our guidance, we would expect to be cash generative next year. Operator: Next question comes from the line of Ben Black with Deutsche Bank. Unknown Analyst: This is [ Kunal ] for Ben. Quick one on the outlook, and you just talked about the cash flow consequences that we could see. One thing with regard to the assumption that underlie that. So are you assuming that the competitive intensity remains at the September, October levels in 2026? Or are you assuming that maybe things go back to what we had seen earlier in this year, and that is what determines the market share that you expect in '26? And then the second one would be with regard to the traffic that you are getting and the traffic that you have on your app. What is different from other providers that makes your value proposition so unique that people will not go anywhere else to shop? Lawrence Fey: Yes. So let me start with the app value prop because I think that's a really compelling one. I think we've talked about our loyalty program for a number of years. We continue to be on a journey to build awareness of that loyalty program. But those who find and use that program, I think, structurally buy more at a multiple of the typical user. And it -- even before the more recent changes to our value proposition, I think, resulted in kind of a clear best-in-class value prop. And then recently, what we've really pushed is base lower everyday pricing. And then we're continually innovating on what kind of inducements and incentives we can provide as customers move through their journey -- their lifetime journey with us. So we think if you create an experience where someone comes in and realizes that your pricing without paying consideration to any incentives, without paying consideration to loyalty are the best in the industry relative to our largest competitors, you have a good experience, right? You get great customer service, you enjoy the way out of the site. And then subsequent to that, you get thoughtful recommendations, you get incentives and inducements, you sign up for loyalty and that price advantage becomes even more significant. That's a really compelling lifetime experience. Now is that to say that others can't offer various elements of that. I don't think there's anything philosophically that would prevent folks from doing it. I think it's an economic question, right? If you're spending significant amounts bidding for the top keywords on search, can you do that and offer these lower price points? If you have very large partnership obligations, can you do those and offer these inducements and incentives. So we'll see, right? I think our belief is that we can operate the leanest platform, and that uniquely enables us to sustainably deliver a best-in-class value prop and others will need to respond as they see fit. As it relates to the first question on the competitive environment contemplated, it's difficult to be precise on this. we certainly have seen that it's been kind of an up into the right level of intensity over the last 2 years, and we are -- we want to make sure we don't just forget that. We also want to reflect that we have seen a change. And so I would characterize the midpoint as, call it, something in between what we've seen in September and October and what we saw at the worst of it kind of late Q1, early Q2. And so a little bit of reversion from the run rate, but not all the way back to the most extreme point that we saw. Operator: Next question comes from the line of Thomas Forte with Maxim Group. Thomas Forte: So first off, congratulations, Larry and Ted, on the new opportunities and best wishes to Stan for his future endeavors. One question, one follow-up. So Larry, are you seeing any changes in consumer behavior when it comes to the secondary ticket market? For example, when you have a game 7 and a playoff series, are they still willing to pay premium prices for the experience as they have in the past? Lawrence Fey: Yes. Tom, I would say, as a broad aggregate statement, continues to feel like live events are a central piece of what consumers want to spend their money on. We had a tough World Series comp, right? You can't really get better than the Yankees and Dodgers. And so I think World Series volumes and average order size were down relative to that. But when we look at the World Series relative to every year post-COVID other than the Yankees and Dodgers, this was the second best year. And so I think healthy, robust demand, we're seeing that across a lot of high-profile events. I think we alluded to this last quarter. To the extent we have seen softness, it's more been on the lower end of the market. And I think we actually see that manifest in Vegas more than in our core business. The call it, weekday lower AOS shows have been feeling, I think, some of this much talked about consumer softness. Thomas Forte: Excellent. And then I might be a little early in this one. But can you talk about your capital allocation priorities, including reinvesting in the business, international expansion, strategic M&A and buybacks? Lawrence Fey: Yes. I think for now, it's reasonable to assume that we won't be looking to complete acquisitive M&A that would be, call it, adjacencies. I think we've long believed that there could be a compelling consolidation in the space. And so we would be eager participants in that. But TAM expansion, I think we've got to batten the hatches and focus on the core business. Given the performance on both EBITDA and cash flow this year, I think we'll display a lot of prudence on any cash leaving the system, including share repurchases in the near term. I think we think that there's a very compelling value at these prices, but step one is batten the hatches and assure that we have all of the capital we need to continue investing in all the initiatives that we see really compelling ROIs against such as international. And so we'll keep doing the defend the core. And then once we have a little more of a proven track record of stabilization, return to growth, return to cash, we can open up the aperture a bit. Operator: Next question comes from the line of Andrew Marok with Raymond James. Andrew Marok: Maybe on the international part there, I guess, what signals are you seeing in kind of that what you call the core international business that give you the impetus to continue investing there as opposed to maybe rationalizing some incremental cost savings out of that business? Lawrence Fey: Yes. Andrew, I'd start with -- we've been pleasantly surprised at the quickness with which we've been able to bring the international business to be contribution margin positive. So we are there today already. I think we've had -- just to refresh on the context, Viagogo has a very substantial market position in Europe. And as a result, when we have shown up in pockets where we have fully competitive supply, and I would say that has initially been areas where it's either NFL comes to Europe, U.S. artists go on global tours or other events where U.S. sellers have meaningful positions. We immediately have fully competitive supply. When we have competed for traffic and eyeballs on those areas with competitive supply and competitive pricing, we have seen abundant success. The task ahead then is to continue to add pockets across various countries, especially with a focus on local events where we can have that fully competitive supply and pricing. And from what we've seen, the ability to market profitably will follow quickly once you have that supply in place. That's some hand-to-hand knife fighting to get to that point. And so that's the journey we're on from here. Operator: There are no further questions at this time. That concludes today's call. Thank you all for joining. You may now disconnect.
Unknown Executive: [Interpreted] Good morning, everyone, and welcome to Iochpe-Maxion Third Quarter 2025 Earnings Release Video Conference. I'm Rodrigo Caraca, Senior Investor Relations Manager, and I'll be conducting today's video conference. Present in the video conference today and available for the Q&A session are Mr. Pieter Klinkers, CEO; and Mr. Renato Salum, CFO. We inform you that this video conference is being recorded and will be made available in the company's Investor Relations site along with the respective presentation. We highlight that Mr. Pieter will conduct the presentation in English. [Operator Instructions] Before moving on, we would like to clarify that statements made during this video conference related to the business perspectives for the company, projections and operating goals and financial goals constitute beliefs and assumptions from Iochpe-Maxion's management based on information currently available to the company. Future considerations are not performance guarantees because they involve risks, uncertainties and assumptions regarding events in the future that may or may not occur. I will now give the floor to Mr. Pieter Klinkers, CEO. Please proceed, sir. Pieter Klinkers: Hello, everybody. Thank you for listening in to our third quarter 2025 earnings call. Before we start to share some slides and talk about some numbers as we do usually, I want to come back to something I said earlier this year during our Investor Day in Sao Paulo when I referred to a quote from Ayrton Senna, I think all of us know him, who said -- you may remember, I said this. Who said when it's sunny weather, you cannot overtake 15 cars. But when it rains, you can. And so why am I referring to that quote again is because I think when you look at our third quarter results, it is reflecting some rainy weather in some regions, particularly in North America. And so we cannot change the weather, of course, but we can try to adapt as fast as possible, maybe faster than others. And we can try to mitigate that rainy weather in one particular area with some more sunny weather, and some more performance in other regions. And I think that's what you will see back when you look at our numbers and when we talk through the slides. So let's keep that in mind. That we can go have a look at some of those numbers. If you look at the next slide, you see we used to look at global production ex China. And so you see a little bit of contraction in LV, light vehicle, 0.3% this year and next year, some more light contraction, maybe stability, but it's not great. There's not great growth at this moment. If we look on the truck side, on the right side, I think here, it doesn't look too bad. it's plus 2%, including China, minus 5%, excluding China. But if you look -- and we will talk about it more during this call, if we look particularly at North America, which is a very important market for us, especially when we talk about components, not so much when we talk about wheels. But for components, it's very important that segment and especially the heavy truck segment is very important. You got Class 4, 5, 6, 7, 8, and most of our business when we talk components in North America is actually in Class 7 and by far, the most is in Class 8. And so the higher up the classes, the more contraction we've been seeing already in quarter 2, but quarter 3 was particularly down in that area -- in that segment. And we will talk about it a little bit more during the call. If we look on what that does to our net revenue, this market situation, you can see our revenue in the third quarter amounted up to BRL 3.8 billion, which is slightly down, 4.5% down to the same period in last year 2024. And so there is another slide where I will talk a little bit more in detail about it. But I can guarantee you that if we would have had only half the drop of what we have seen in North America truck, that number would have been up instead of down. And so this has been impacting our overall net revenue meaningfully. Our gross profit, I would say, given that situation in North America truck, very healthy, remained at about 12% -- 12.1% in the third quarter of '25, and we're actually pretty happy with that number. Our EBITDA amounted to BRL 390 million in the third quarter, and that represents a margin of 10.3%, excluding restructuring costs, which amount to approximately BRL 32 million. Our net income was BRL 35 million. And with all of that, our leverage ended up at 2.55x, a little bit higher than we wanted, but still a little bit lower than in the same period 1 year ago. We will also talk a little bit more about growth, particularly in South America. There is a dedicated slide about that in the remainder of the presentation. If we look in more detail on our revenue, you can see that in the third quarter 2025, we were pretty much equal to the last year same period. And if you look at the 9 months 2025, we actually show some growth. But if you exclude FX, these numbers are a little bit down compared to last year same period. And so as I said before, this North American truck market situation has impacted both the 9 months, but more so the third quarter of 2025. I can also tell you that our -- when our impact was the highest in the third quarter of 2025, also our mitigation was the highest in the third quarter '25. That's one of the reasons why the numbers are pretty equal between the 2 quarters last year and this year. And so that means the more impact we have been having, the more we have been able to offset that in other segments, other products, other regions in the world, which is, I think, a good thing to have happening in the company. If we look on our revenue by product, as we already saw happening in the second quarter, you can see, of course, with that North America truck situation impacting components -- our components business very meaningfully. You can see that the percentage of wheels in the company has been growing. And so again, that's because of components going down, but it's also because wheels going up overall in the world. And so right now, it's about an 80%-20% split between wheels and components. If you go to the next slide, you see that also in our revenue by customer. Clearly, see TRATON. TRATON is a global customer for us for wheels and for components, but we have a big business in components with TRATON. That's their international brand in the U.S. And you see that revenue going down year-over-year same quarter. Same for Daimler. Of course, again, this is a global business, and we do a lot of wheels with them around the world. We do business with them for components in South America, but just the impact of North America truck makes that bar go down in 2025 meaningfully versus 2024. The good thing is, again, that some of the other bars are going up. And so if you look at customers like Ford or you look at Toyota, you look at Volkswagen, we are actually gaining quarter-over-quarter. And so that means in total, the impact of the North American truck market is there, but it's not as big as we -- it would be if we would not have been winning in other segments with other customers in other regions. If we look more in detail in other regions, I think South America, clearly, I would say we are continuing. You've been seeing that already in the first and the second quarter, and we're doing it again in the third quarter. We are outperforming the market. And the market quarter-over-quarter was pretty flat from a light vehicle point of view, and it was pretty down, even though it's only 4,000 trucks, but pretty much down on the commercial vehicle side quarter-over-quarter, year-over-year. And contrary to that, I think Maxion clearly up in light vehicles in a flat market and not as much down at all in the commercial vehicle sector. So overall, our revenue is up in the first 9 months of the year, meaningfully 6%, 7%. And even in that third quarter, it's still up by 2.6% versus the same quarter last year. On the other hand, if we look at North America, we see this is where the big drop is and not so much in light vehicles, but specifically in commercial vehicles. And you look at some of the market numbers and they say it's minus 5% or maybe when you look at North America, it's minus 25%. But in the segment where we operate, Class 7, mostly Class 8, we've recently seen some public announcements from big customers. I talked about TRATON. They were announcing the sales were down in the third quarter at about 64%. Daimler Truck said their sales were down close to 40%. We think the production may be a little bit more down than what the sales were down because already in the second quarter, they were down, so they've been slowing down production even more than their sales has been slowing down in order to build down some inventory. So overall, our numbers reflect very much what is happening in the market of heavy trucks in North America. And so here is where we see the big drop in our revenue quarter-over-quarter and with that third quarter also for the 9 months in 2025. If we look -- if we go to EMEA, this used to be Europe, now we call it EMEA. The only difference is the South African plant, which is, I believe, our smallest light vehicle aluminum plant, but of course, the comparison between the 2 quarters and the 9 months compared to last year, that's apples-to-apples. It's the same perimeter. But I would say I'm happy to say that we have a strong performance, stronger than the market performance, and that's true for both light vehicles and in commercial vehicles. And it's true not only for revenue, but I can tell you it's also true when you look at units. And so that does support our overall global results. Now the units is clear. We're gaining share because the market in light vehicles is pretty flat. Our numbers are up. Our units are up in light vehicles. And in commercial vehicles, okay, again, it's only 10,000 trucks more, but the market has been coming back a little bit in the third quarter of '25. Let's hope that continues into the fourth quarter and into next year. But at the same time that the market came back, also our market share keeps on growing. And so besides the units being up, we can also say that the recovery of higher raw material costs and other inflationary costs and a positive mix. And with that, I mean, we're supplying, for instance, on the light vehicle aluminum segment, we are supplying more and more the premium segment. That all contributes to a positive story, I would say, in Europe, EMEA. We go to the next slide. Asia, our revenue a little bit down in the third quarter 2025, but I can assure you that we will be growing in the Asian market, which, as you know, for us is mainly not only, but it's mainly the Indian market. We're very focused on India with our operations and with our sales. And so I wholeheartedly believe that we will be growing in this growing market, and you'll see that back in 2026. With that, what does that all do to our profit and our profit margin? As I said before, a 12.1% gross profit, actually, we think that's a very appropriate number given the circumstances that we talked about -- when we talked about the market. And so BRL 460 million in the third quarter or BRL 1.44 billion in the 9 months from a gross profit point of view, we think those are very -- those are actually very strong numbers. We go to the next slide. We see our EBITDA and our EBITDA margin. And here is where we see a little bit of the contraction where we cannot fully mitigate all of that heavy rain when we talk about Ayrton Senna and his rain, the heavy rain in North America from a truck market point of view. And so our margin, excluding nonrecurring effects, primarily restructuring costs in North America ended up at 10.3% in the third quarter and now amounts to 10.2% year-to-date. We go to the next, the net income, BRL 35 million in the third quarter. I would say this, again, North America truck production situation impacted our results meaningfully also from a net income point of view. On top of that, we had the restructuring costs. And on top of that, of course, as we all know, financial expenses are higher simply because of the CDI, the SELIC costs. So that's what we see back here on this slide as well. When we look at investments, we talk -- we always talk about disciplined CapEx management. And I think you see that back in -- on this slide. Our investments are actually down year-over-year. And of course, we do that because of some of the market slump that we see primarily in North America. So we try to manage our investments down there where appropriate, there were possible. And we think at the end of the year, we will come in with the number that we have been talking about in the prior calls, maybe a little bit lower because of the adaptations that we're doing because of the market situation. We go to the next one. Our leverage, our leverage is a little bit higher than we were targeting. But given the market situation, we're still happy to say even with that, we are slightly below where we were 1 year ago, even though we are slightly up from the prior quarter's presentation. So 2.55x was the number for our leverage at the end of quarter 3. Go to the next. Our gross debt, not so much change on this slide. We think it's a healthy composition of currencies when it comes to our debt. When you look at the term, 93% is long-term debt. So that's very healthy. And if you look on the top right, also our liquidity, our cash situation seems to be very healthy with BRL 1.6 billion cash in hand. And on top of that, BRL 760 million of undrawn credit lines. If you look at the cost on the bottom, I don't think these costs are uncompetitive. It's actually -- these are pretty good numbers. I think the plus 1.2% is competitive, the 3.5% in euro is competitive and the 5.4% in dollars is competitive. It's the CDI that is not competitive, but we all know about that situation. We go to the next one. Going away a little bit from the financials, talking about the business. We present here our third quarter 2025 SOPs. But I think it's more important to mention to you guys that when we talk about market share gains and outperforming in some important regions for us in the world, when we look at wheels, I can tell you that our new business wins, so the amount of new orders, of new -- of wins we have is significantly higher year-to-date 2025. And then I don't talk 5%, 7%, I talk tens of percentages, significantly higher than the same period last year. And already last year was better than the prior year. And so it's another proof for me when I look at the numbers that we are having some very good traction with the company globally on winning new business at appropriate margins. We go to the next slide. If you win share, especially when you win share in a growing market, and a good example of that is the South American light vehicle aluminum wheel market, our wheels are wanted and cars are wanted as well. And so you want to service your customers correctly, you need to do something. And I think you could have seen in the press release that we have been working hard on being able to service our customers like we want and to profit, of course, from this market growth. And so besides supporting our customers temporarily from global operations, which is very important to be doing, and we can do that as a global company. Also, we are redeploying assets from entities around the world, Europe, Asia back to Brazil to our plants in Limeira and in Santo Andre. And on top of that, I believe you may have all read about our recent acquisition of a majority share in Polimetal, which is an aluminum wheel factory in Argentina. And of course, the Argentinian market is doing well, and we believe we will be doing well going forward also. But the main strategic target here is to expand this factory, and it will be much more efficient for us to expand the factory here. In fact, we have equipment standing ready to be installed on adjacent land in San Luis. And so doing that in Argentina creates for us a situation where we will be able to produce wheels that we produce today in Brazil for Argentina to produce those wheels in Argentina, which again frees up capacity in Brazil for Brazil. And so this is just an example of how we try to service a growing market where we gain share in a very efficient way, meaning without spending a huge amount of money by building a new plant, we try to figure out a way to serve the market correctly and profit from that market growth that we are having in that market. With that, let's go to the next slide. We talk a lot about steel components and steel wheels and aluminum wheels, but we don't talk so much about the 2 materials being merged. And I cannot tell you yet that it is happening. But I can tell you that we have been trying for some time. And I can tell you that we're making a lot of progress. And we're now at a stage where we are involved with 2 OEMs, one in Asia and India, one in Europe for making a wheel that is made out of steel and out of aluminum. And as you guys know, wheel is a very important styling element, but the styling you only need there where you look at it, not there where you put a tire on it. And so we would make the rim out of steel and we will make the disc out of aluminum. And with that, we save costs on the steel part, and we guarantee the styling on the aluminum part, not easy. But I think if anybody will be able in the world to make it happen to pull it off, it will be Maxion because we are kind of the only one that is producing both steel wheels and aluminum wheels. And in many instances, by the way, we produce it at the same location or in the same region. And so this would be a true strategic advantage for our company if we will be able to make that happen. Again, I can't guarantee it yet. We're working at it with our customers, but I hope we will be able to talk about it a little bit more in one of the following earnings calls. With that, I think let's go to the last slide, wrap it up. I think it's not what we wanted, the market that we see in North America, and it's impacting us. But we believe that is a temporary situation, and we believe we will be very strong when that market comes back. I'm not saying if that market comes back, I say when it comes back. And I think in the meantime, we're doing a good job on managing through that situation locally and mitigating that situation with our results in the rest of the world. And so that makes us, I believe, a resilient company. We continue to deliver appropriate productivity. We continue to be disciplined in our costs, and we continue to be disciplined in our pricing management. I can guarantee you that. From a growth point of view, I have given some examples on how we try to grow and what we're doing with new business wins. It's really a good story. And I think overall, very important as well, our customers remain to see us as a very reliable, stable and high-performing partner. And I come back to Ayrton Senna, maybe we go a little bit slower because of some heavy rain locally, but I believe we will be able to overtake. And with that, I pass it on for Q&A. Rodrigo Caraca: [Interpreted] [Operator Instructions] And our first question is from Gabriel Tinem from Santander. Gabriel Tinem: [Interpreted] I'd like to know if the capacity has been adjusted already, if there's anything else to help. And in terms of capital allocation, if you could explain the rationale for the [ participation ] of Polimetal and the opportunities you see in these markets? And also still in that topic, if you could talk about the North American market and talk a little bit about how you saw cash management and how you see the leverage for 2025 and 2026 [ a little ]. Pieter Klinkers: Okay. Thank you very much. I believe that were 3 questions. So, I will try to give 3 answers. I believe the first question was around our management of capacity in North America. And of course, we have been adapting our capacity in the sense that we adapt headcount. And so a very significant number of people have been leaving the facility. We hope to see them back in the future. I'm sure we will see a good part of those people back in our plant. But in that way, the capacity has been adapted. We are also convinced that when this market comes back and the longer the downturn would last, the steeper that comeback would be, we believe. When it comes back, we are very well prepared with our existing operations in Mexico from a components point of view as well as with the new plant that somewhere in 2026 will be ready to operate. And it might just be that is exactly the same time when this market comes back. So I hope that answers the question from a capacity point of view. The other question -- the second question was, I think, around the rationale on Polimetal in Argentina. And as I said, the light vehicle market in Mercosur, particularly in Brazil, is doing well, and we are doing well in that market. And so, if you're gaining market share in a growing market, you also need to make sure that you have the capacity. And so, instead of building yet another new plant, we've come up with some other solutions that require some investment, but a lot less investment than just building a new plant. And so, the redeployment of assets, getting equipment from around the world there where we need less than in Brazil is 1 pillar. And the other pillar is expanding capacity in Argentina at a much lower CapEx number than when we would build a new plant, for instance, in Brazil. And so, those actions together, we believe, will make sure that we can supply our customers, which is really what we want to do because this is a very good market for us and for our customers. The third question, I think, was around the market in North America. And so I think it's impossible to say what will happen to this market on the short term. I think most industry analysts would agree with me when we say this market will come back. But if you ask me what day, what months? Exactly that's going to be very hard to predict. But we believe that somewhere, and this would be our assumption that somewhere during the course of 2026, which is not too far away anymore, by the way, we're having the November earnings call, somewhere during the course of 2026, this market will turn and then we should be ready to supply this market with a steep increase, which is our assumption. I hope this answers the questions you asked. Gabriel Tinem: [Interpreted] Yes, it did. Unknown Executive: [Interpreted] Next question comes from Gabriel Rezende from Itau BBA. Gabriel Rezende: [Interpreted] I would just like to follow up regarding North America. I understand Pieter's comment that you should expect some return in summer 2026. But I'd like to confirm how you have been feeling the body language of the OEMs in terms of orders for the next 2 or 3 months. I understand that short time before we had a deterioration of the market. I would like to understand that if this is continuing to happen or they have stabilized now in the third quarter, mainly if the volumes have started to stabilize. And also, would like to confirm the matter of the restructuring now for the third quarter. Should we expect anything in other markets considering 2026 where volumes-- were the performance not as good as 2025, especially for commercial vehicles? Is that the expectations of the company? Do you expect any impact on other geographies also? Pieter Klinkers: Gabriel, thank you for the good questions. And so, North American market, I think the visibility from our customers is very low. That's unfortunately something that we need. But that being said, volumes are not only stabilizing, we see an increase of volumes, but we only see it for November and December. So, we like it, and we will make it happen. And it's a good thing to happen. But we're not sure if this is the start of a structural recovery or it's just a temporary impact in the end of 2025. And so, I hope it's more structural and it's the beginning of a strong recovery. But right now, we see that happening in the last 2 months of the year, but we don't have that visibility yet for the first quarter of 2026. So, some good news, but let's see if that's structural or just temporary, but we'll take it. When you talk about us seeing any potential other restructuring, particularly in CV in 2026, I would say Europe not, we -- the market should come back to some extent. And we are gaining market share. So, I think 2026 will be a good year for us when it comes to Europe. The same in Asia. I think we'll have a good year in Asia next year with growing volumes in both India and China for us from a commercial vehicle point of view. And North America, my take would be that what we lost in 2025, particularly in the second half, hopefully, we will gain it back over the year 2026, maybe a little bit more towards the second half of the year than the first half of the year. But let's see how this situation in November, December that we see right now develops into 2026. When you talk about South America, interest rates are too high. And so, I would say, we don't expect a major downturn, but we also don't expect a major upside in South America. So, I would say we're not particularly worried about that market. We're also not particularly excited about that market. But it's an adequate level for us. We don't believe we need to do a lot of restructuring, if any, as we see it right now. Does that answer your question? Gabriel Rezende: [Interpreted] Yes, Pieter. Unknown Executive: [Interpreted] Our next questions comes from Fernanda Urbano from XP. Fernanda Urbano: [Interpreted] We have 2 questions. The first regards Europe. What got our attention was the good performance, especially for light vehicles in the region. And you have commented -- mentioned the possibility of gaining share in that area. If you could give us a current view of the competitive scenario in that area? And if you expect any growth in the region higher than the consolidated one for the company? And the other regards supply chain. We have heard many news in the media regarding semiconductors. Some OEMs have mentioned possible stopping production, but it seems that in Brazil, it is under control with the guarantees from Chinese suppliers. And I'd like to know if that has impacted you and if you see any risks in the supply chain talking about automotive production globally for 2026? Pieter Klinkers: Thank you, Fernanda. So, let's start with the European market. I think from a market point of view, I believe next year, there will not be a lot of growth. I don't know if it's going to be 1% or 2% contraction or 1% or 2% growth, but I think it's pretty flat, which is not a disaster, but I think we need to do something more if we want to grow. And our plan is to continue to grow in Europe, both from an LV point of view as well as from a CV point of view. I think the CV, actually, the market is designed to grow back a little bit next year. So that will be a combination of market growth and market share growth, which is -- we would be looking forward to that. And it's our target. It's our assumption that this is going to happen next year. When we talk about market share growth, in our business, if you win something or also if you lose something, you don't lose it. If you won it, you don't lose it the next year or if you lost it, it will take you a little time to regain it. So, once you're on this trend of gaining market share, I'm not saying it's there forever, but it's there for longer than just the current year. And so what we see happening this year in Europe, to some extent, maybe even a little bit more, maybe a little bit less, but I think the trend should be continuing into 2026. And so, even though the market is kind of flattish on LV, I think we will be able to grow. And in CV, I am very, very convinced that we will grow and actually grow more than the market next year. Talking about supply chain and Nexperia coming from Holland, it's all over the news, as you can imagine. I think people were very worried and rightfully so until recently when there was some relaxation, as you mentioned already. So, we are not out of the woods, I would say, but it seems that it's going in the right direction. I can tell you that to-date, we've had no or negligible effect in our customer releases because of this situation. So, let's hope it stays like that. And as you say, it looks like there is some relaxation compared to just 1 or 2 weeks ago. Unknown Executive: [Interpreted] Our next question comes from Andressa Varotto from UBS. Andressa Varotto: [Interpreted] There are some items I'd like to mention. First, regarding margins, thinking about the trajectory of margin and thinking of the recovery of the North American market. The third trimester's recovery, could you consider a normalized level until the volume recovers? Or can the company expand the margin considering the explanation you have given, although there is a consensus that the market will take a while to recover? Another item also regarding North America, regarding Structural Components that if [ this is ] [0:37:32] even more for commercial vehicle. And I'd like to understand what is the exposition of these 2 segments in commercial vehicles and understand the difference. Pieter Klinkers: Thank you. I've noted 3 questions for myself here. So, first of all, talking about margin and maybe normalized margin. So, let me put it like this. If the North American truck markets would have been similar this third quarter than what it was in the third quarter of 2024, I think our margin would have been a solid 11%, okay? So, when that market comes back, that would be my minimum expectation to be reached. And as you know, every year, all other things equal, we will be targeting some volume increase, so some top line increase and also some bottom-line increase. And so that was our target, and that will remain our target. And I feel confident we can make that happen next year based on how I see things today. I hope that answers the question on margin. On the truck market, there is -- within the truck market in North America, there is large differences. The smaller trucks that we, for instance, supply with wheels, there is not such impact as what we see on the heavy trucks. And the heavier the truck gets, the more impact we see. And so, as said TRATON and Daimler on their heavy trucks, the Class 8 trucks, the biggest trucks, they really see big drops, 40%, 60%. And that is what we are seeing as well for the products that we supply to that segment. But not for the smaller trucks, the Class 4, 5, 6, actually is pretty stable. And you see that back in the Wheels numbers in our company because that's the segment that we supply from a Wheels point of view. And those numbers are actually slightly up in our company. So it's a big difference within the North American truck segment between smaller trucks, medium trucks on the one hand and heavy trucks on the other hand. Does that answer your question? Andressa Varotto: [Interpreted] Yes, yes. Unknown Executive: [Interpreted] Our next questions comes from Luiza Mussi from Safra. Luiza Mussi Tanus e Bastos: [Interpreted] Could you give us a little bit more details about the difference we saw from light vehicles in North America with steel wheels growing up and the aluminum wheels going down. And we would like to understand what led to the difference in performance in that sector. Pieter Klinkers: Thank you for the question. I'm going to answer this one as well. So, North American steel wheels is a -- it is a good start for us, and I think you will see that actually expanding that situation into 2026. We've won very significant business that has just started up in the second half of this year with a big North American EV manufacturer. And believe it or not, those are steel wheels and not aluminum wheels. And so that is a big win. That was a big win for several of our factories around the world. But the first one to start up is our plant in Mexico, and that's what you see happening on steel wheels in this case, in San Luis Potosi in Mexico. So that's explaining the steel wheels story. On the aluminum side, we are changing programs between customers. And I'm very convinced next year, we will see a very meaningful growth beyond the market. in our plant in Mexico from a wheel's point of view in Chihuahua. And so even though we have a little bit of a decline right now, we're gearing up the plant for SOPs starting now in the fourth quarter of 2025 as soon as we can. And as soon as we're ready with the tools and we can supply and that will continue throughout 2026 and going into '27, '28. So, it will be a good story also from an aluminum point of view in North America. I hope that answers. Unknown Executive: [Interpreted] Our next question is from Andre Mazini from Citi. André Mazini: I wanted to ask about the Ford aluminum factory fire in New York State that happened in September 16, so kind of recent. It seems to have impacted the F-150 production. So of course, Ford is the second biggest client of Iochpe, if we should expect any impact from that on the fourth quarter? This is question number one. Question number two would be, any comments you could have on the Section 232 tariffs, which are, of course, on steel and aluminum. You guys have production of wheels both in the U.S. and Mexico. So maybe those 2 production hubs could be affected by the tariffs. So any comments on that? Pieter Klinkers: Thank you, Andre. So the Novelis fire, of course, we've all notified that. And even though we see a little bit of impact, so it's not that we don't have impact. We see some impact, but it's more than compensated by the good news that I just talked about in the prior question from Luiza. So, I think we see some impact, but we have more good news than bad news. And so bottom line, it's still a growth story for us. When you talk about tariffs, it's still the same mantra as what we have been saying in the last couple of calls. And so yes, there is indirect impacts that we see. For instance, North America truck is related to tariffs, we believe. But we don't foresee major direct impacts for our production in in Mexico for our wheel or components production and sales in Mexico or from Mexico to the U.S. Still the same -- sorry, very little direct impact, but of course, we see some indirect impacts. Hopefully, that answers your question. André Mazini: It does. Unknown Executive: [Interpreted] With that, we are closing the question-and-answer session, and I would like to give the floor to Mr. Pieter Klinkers for his final considerations. Pieter Klinkers: Thank you, Rodrigo. So, all in all, I would say a third quarter that is a little bit weaker than what we would have wanted and then what we would have expected. But if we look at the macroeconomic environment, if you look at the North American truck market, I can say, bottom line, the teams have been doing a good job on both mitigating regionally there where the issue is -- was and is as well as mitigating the impact from a global point of view. And I believe going forward, I've mentioned it a few times, we cannot change the market, but we will try to continue to do better than the market there where possible, there where appropriate. And you can count on us to give it our all to make that happen. And so I believe on the midterm -- short term, midterm, the market in North America will come back. We will be very well positioned to serve that market then appropriately. And then the rest of the market, we're doing good anyway, and our plan is to continue to do that also in the fourth quarter and in 2026. Thank you very much. Bye-bye. Unknown Executive: [Interpreted] The earnings meeting video conference is closed. Iochpe-Maxion's Investor Relations department is available to answer any other questions. Thank you very much, and have a good day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Welcome to the Brookfield Business Partners Third Quarter 2025 Results Conference Call and Webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions] Now I'd like to turn the conference over to Alan Fleming, Head of Investor Relations. Please go ahead, Mr. Fleming. Alan Fleming: Thank you, operator, and good morning. Before we begin, I'd like to remind you that in responding to questions and talking about our growth initiatives and our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information on known risk factors, I encourage you to review our filings with the securities regulators in Canada and the U.S., which are available on our website. We'll begin the call this morning with a business update from Anuj Ranjan, our CEO -- our Chief Executive Officer. Anuj will then turn the call over to Adrian Letts, Head of our Global Business Operations team to provide an update on the progress we're making at 2 of our most recent acquisitions. Jaspreet Dehl, our Chief Financial Officer, will finish with a discussion of our financial performance for the quarter. After we finish our prepared remarks, the team will then be available to take your questions. With that, I'd like to now pass the call over to Anuj. Anuj Ranjan: Thanks, Alan, and good morning, everyone. Thank you for joining us on the call today. We had a great quarter. We delivered strong financial results, made good progress on our growth and recycling initiatives and continue to execute our strategy to create value for our shareholders. Since the start of the year, we've generated more than $2 billion of proceeds from our capital recycling program and repaid $1 billion of borrowings on our corporate credit facility. We've also bought back just over $160 million of our units and shares and invested an additional $525 million in 3 exciting strategic growth acquisitions, including First National, which we just closed at the end of October. Apart from our growth initiatives, in September, we announced plans to simplify our corporate structure by converting all BBU LP units and BBU C shares into one new publicly traded Canadian corporation. We expect this reorganization will improve our trading liquidity, increase demand for our shares from index investors and more generally make our business more accessible for investors around the world. The feedback from the market has been excellent. And since the announcement, our consolidated market cap has increased by nearly $1 billion. We're excited about the benefits this reorganization will bring to all of our investors, and we are on track to have it completed early in the new year. Stepping back, we created our business almost a decade ago as a way to provide public investors access to Brookfield's global private equity business, which has been delivering top-tier returns for investors over the past 25 years. As a public company, we've been executing that same consistent strategy of acquiring high-quality, market-leading vital businesses and operationally transforming them into global champions. Each dollar that is recycled is reinvested by the same team to fuel that flywheel of our business and continue compounding long-term value. And while the price of our shares and units has significantly improved and is up approximately 150% over the past 2 years, our NAV has also continued to increase. This means that our trading discount, while it's narrowed, there's still more room to go as our NAV will continue to grow going forward. Simply put, there's never been a better time to be a BBU investor. T he fourth industrial revolution powered by AI is happening before our very eyes and is going to happen a lot faster than people think. The productivity improvements that need to be captured from all the capital investment going into the build-out of AI will be massive. What's exciting is that the bottleneck today isn't really the technology. It's actually the operators who have the need for change management and broader expertise to implement and properly transform businesses. That's where we come in. We have both access to capital, but more importantly, the strong operational capabilities to leverage AI as another tool in our toolkit to accelerate our value creation plans and ensure our businesses are positioned to be propelled and not disrupted by it. We're pleased with the progress we've achieved through the first 3 quarters of the year and are cautiously optimistic heading into the fourth quarter. Despite all the headlines, the broader global economy has remained relatively resilient. Public markets are at record highs and transaction activity, both in public and private markets continues to pick up, supported by the downward trajectory in global interest rates. These are all powerful tailwinds for our business as we continue to execute our strategy and find accretive ways to surface value for our shareholders. Before wrapping up, I'd like to thank everyone who was able to join us in September for our Annual Investor Day. We had a fantastic turnout, and it was great to see many of you in person. For anyone who missed it, the webcast and the materials are available on our website. With that, I'll turn the call over to Adrian. Adrian Letts: Thank you, Anuj, and good morning, everyone. It's great to be joining you on the call today. We've been making great headway at the businesses we've acquired since the start of the year, and I want to spend some time today providing an update on where we've been focusing our efforts to advance our value creation plans. Let me start with the acquisition of Chemelex. As a reminder, Chemelex is a global leader in electric heat management solutions, providing mission-critical temperature control systems used to regulate temperature across a wide range of industrial and infrastructure applications. Chemelex has a number of things we look for in high-quality industrial businesses. It's a market leader. Its products are low absolute cost but have a high cost of failure. And the business generates a majority of its earnings from recurring aftermarket revenue, which underpins durable earnings and cash profile. In addition to its strong underlying fundamentals, what made this acquisition particularly interesting to us was the value creation opportunity. The business was a carve-out of a carve-out and had been noncore to a series of previous corporate owners. We saw a clear path to margin improvement by adding a strong management team and improving operational efficiency. With any business that we acquire being able to hit the ground running, having the right management team in place out of the gates, establishing a transformation office to drive accountability and crystallizing optimization savings as quickly as possible is so important to what we do and fundamental to our success. That's exactly what we've done at Chemelex, and I'm really pleased with the tremendous amount of progress we've achieved in just over 6 months of owning the business. Since closing, we've got off to a strong start, completing the carve-out and rebranded the business as a stand-alone company. We strengthened the management team and set up a transformation office to guide operational changes and refocus the business after years of being an underappreciated segment under previous owners. Alongside new leadership, we built out a 100-day plan focused on identifying cost savings opportunities and executing commercial initiatives aimed at rationalizing low-volume SKUs and improving margins primarily in our aftermarket product business. We also put in place a new go-to-market strategy aimed at driving growth through expansion into new verticals and geographies. Finally, we completed a project plan to optimize our manufacturing footprint and our primary production facility. Our investment will enhance equipment, improve measurement and sensing via AI and machine learning as well as enhanced process flow from an improved layout, all of which we expect will increase throughput, reduce labor costs and improve product lead time. We're also off to a strong start in Antylia Scientific, which we acquired in May this year. As a reminder, Antylia is a leading manufacturer and distributor of specialty consumable products and equipment for lab-based testing and research markets. Antylia has a sticky base of over 50,000 customers, producing high-quality mission-critical products that support accuracy and repeatability for lab-based processes. Our value creation plans are progressing well. We've strengthened the leadership team to accelerate execution, enhanced our go-to-market efforts with key sales and product hires. In addition, we are working to enhance the business' digital capabilities like search engine optimization and an AI quoting tool that will improve sales productivity while also building out the business' e-commerce presence. We've deployed significant resource to jumpstart our value creation initiatives and are working on improvement opportunities across procurement, site rationalization and automation of the manufacturing and distribution process. With that, I'll hand it over to Jaspreet for a review of our financial results. Jaspreet Dehl: Thanks, Adrian, and good morning, everyone. Third quarter adjusted EBITDA was $575 million compared to $844 million in the prior period. Current period results reflect the impact of lower ownership in 3 businesses following the partial sale of our interest and includes $77 million of tax benefits. This compares to $296 million of tax benefits included in the prior year results. Excluding tax benefits and contribution from acquired and disposed operations, adjusted EBITDA was $512 million compared to $501 million in the prior period. Adjusted EFO of $284 million during the quarter benefited from lower current tax expense at our advanced energy storage operation and lower interest expense due to the reduction in corporate borrowings compared to last year. Turning to segment performance. Our Industrial segment generated third quarter adjusted EBITDA of $316 million compared to $500 million in the prior period. Including the impact of tax benefits, segment performance increased 17% over the prior year. Increased underlying performance at our advanced energy storage operation was driven by higher overall volumes, growing demand for higher-margin advanced batteries and continued benefits from operational and commercial improvement initiatives. Adjusted EBITDA of our engineered components manufacturer increased on a same-store basis compared to prior year, after adjusting for the impact of a partial sale of our interest in the business earlier this year. Improved performance reflects higher volumes driven by recent customer wins and the benefit of commercial actions and ongoing optimization initiatives, which are supporting resilient margins despite relatively weak market conditions. Moving to our Business Services segment, we generated third quarter adjusted EBITDA of $188 million compared to $228 million last year. Current period results reflect an $11 million impact related to the sale of a partial interest in our dealer software and technology services operation. Our residential mortgage insurer continues to benefit from resilient demand across the businesses served market segment, which includes first-time homebuyers as well as low losses on claims. Results during the quarter reflected the timing impact of slower revenue recognition under the IFRS 17 Accounting Standard due to more conservative model assumptions given an uncertain Canadian economic outlook. At our dealer software and technology services operation, stable bookings were supported by continued renewal activity and commercial initiatives, which largely offset the impact of customer churn during the quarter. Results also reflect the impact of ongoing strategic investments to strengthen its customer service and product offerings. Finally, our Infrastructure Services segment generated third quarter adjusted EBITDA of $104 million compared to $146 million during the same quarter last year. Results reflect the sale of our offshore oil services shuttle tanker operation and a $7 million impact related to the sale of a partial interest in our Work Access Services operation earlier this year. Stable performance at our Lottery Service operation benefited from improved margin performance driven by productivity gains and favorable mix of services despite the timing of terminal deliveries, which were lower compared to the prior period. The business is focused on executing a significant pipeline of system implementations, which include the rollout of digital lottery services in the U.K., which is expected to go live early next year. Turning to our balance sheet and capital allocation priorities. We ended the quarter with approximately $2.9 billion of pro forma liquidity at the corporate level, including the fair value of units we received in exchange for the sale of partial interest to the new Brookfield Evergreen Fund earlier this year. We're in a great position with significant liquidity and flexibility to support our growth and balanced capital allocation priorities. To that end, during the quarter, we renewed our normal course issuer bid, which provides us with the ability to buy back an additional 8 million units in shares. As a reminder, in February, we launched our current $250 million buyback program. And as Anuj mentioned, to date, we've repurchased just under $160 million of units and shares under this program. Going forward, we'll continue to remain opportunistic when it comes to our repurchase activity, balanced against our continued growth objectives. With that, I'd like to close our prepared remarks and turn the call back to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Devin Dodge with BMO Capital Markets. Devin Dodge: I wanted to start with a question on BRK. They had a regulatory filing last week about potentially pursuing an IPO. Just wondering if an IPO, is that still the most likely path for an exit? And is the IPO market open in Brazil even with interest rates remaining quite high? Jaspreet Dehl: Devin, it's Jaspreet. I'll -- I could start and then Anuj can add anything that I've missed. I'd say we've talked about BRK in the past. It is one of our more mature investments, and it is one that we're looking actively to monetize. IPO is one option that is available to us, and we always make sure that we keep all optionality. The capital markets environment in Brazil is still difficult. Interest rates are high, but they seem to have peaked. But -- so you're starting to see some green shoots. And we think BRK is an excellent business, and it would make a great public company. So we're keeping that optionality open and having some early discussions to gauge interest, but it doesn't mean that there isn't other options then we would look at and review. Devin Dodge: Makes sense. Maybe just continue with BRK. It's been relatively quiet on investing in new concessions recently. Just do you expect the business to be more active going forward? Or is financial leverage a bit too much of a constraint currently? Jaspreet Dehl: The focus has been kind of twofold in the business. One has been just operational initiatives to continue to increase margins and EBITDA, which the team has done a great job. The EBITDA is up, I think, in the double digits in the business over -- year-over-year. And the second piece has been around the concessions that we do have continuing to appropriately allocate capital to the development of the underlying concessions, get our inflation and other increases that were allowed under the existing concessions. So there's been a lot of focus on that side as opposed to going out and looking for inorganic growth. So the organic growth within the business, we're quite happy with. And look, we'll be opportunistic. But right now, our focus, just given we've executed on everything that we wanted to do within BRK. We've created an incredible platform, which we think is going to be really valuable. And there continues to be a massive need in the country just around water treatment and sewage and BRK and the platform we've created can play a really important role there. So we think there's lots of opportunities for growth, but our focus right now is more around kind of monetizing the asset. Devin Dodge: Okay. Makes sense. And then just last question here for me on La Trobe. Lots of media coverage related to some actions taken by the regulator. Just -- can you provide a bit of context for the issues, kind of where it stands now? And if this has had much of an impact on the underlying fundamentals of the business, including redemptions? Anuj Ranjan: It's Anuj here. I'll take that one. So La Trobe, I'd say this issue is more of a disclosure issue that the regulators raised. The regulator does this quite often in Australia. It's happened, I think, 90 times in the last year or 2 to other fund managers. So it's something that the guys -- that our team are working through and are going to implement some changes probably over the next little while and just in terms of some of the disclosures. It hasn't had any real impact to the underlying fundamentals of the business. which remain very strong. So the business is performing great, and it's doing really well. And we're still very confident in its future growth perspectives and that the -- many of the interested parties who are interested in La Trobe continue to see it the same way. Operator: Our next question comes from the line of Gary Ho with Desjardins Capital Markets. Gary Ho: Maybe start off with Anuj here, just very high level. Just seeing the success of nuclear and Westinghouse today, just gets me thinking kind of what could have been had BBU just kept that asset today. Just curious, does development of those assets make you consider keeping assets longer for the fullness of time to reap the full potential? Just want to pick your brain on that. Anuj Ranjan: Yes. Look, it's a great question. Westinghouse is an amazing business. It's done incredibly well after we sold it, as you've all seen. Many of the reasons it's doing incredibly well are things that would not have been knowable at the time that we sold it, and we had a very good outcome for the time that we owned it. I think our role as we see it is to buy and truly operationally transform these vital businesses to the global economy, and that's exactly what we did with Westinghouse. So it's a great playbook, and it's a great sort of outcome that we're all still really proud of. Our goal is to make businesses so good that others find value in them, and they should all, frankly, after we exit, others should continue to do well off the businesses that we exit that we've done our job right. So we don't have any regrets in that sense. In terms of our strategy, the nice thing about BBU is it's always presented us a bit of that optionality of some businesses that we thought could be longer-term holders that we could find that makes sense. And so I'd say we've not changed our strategy from the beginning. We have had -- we have co-invested alongside Brookfield's broader Private Equity business. And we have sometimes occasionally considered owning businesses on a more longer-term duration. And I think that sort of optionality that we have continues to exist. We do, of course, look at many companies in our portfolio today and some of them are exceptional. And if there was an opportunity to own them longer, we could always consider it. But I'd say our focus still is on -- we want to compound value over the long term. And much of the compounding that we do is by improving those margins dramatically in the early years. And if we do our job right and we get paid the right value on exit, we still find that sometimes recycling that capital in the new opportunities where we can deploy that same playbook will allow us to generate these sort of exceptional returns that we've done over the past 25 years. Gary Ho: Yes. That makes sense. And while I have you, can you maybe just talk about the new Evergreen fund, the Brookfield Private Equity Fund? Are there other opportunities to further monetize parts of maybe BBU into these vehicles over time? Maybe talk about how you pick and choose these assets to sell. Anuj Ranjan: Sure. Maybe just to start with them, we very recently launched the BPE fund, as I think some of you saw in the press release in Canada. And what I can say is it's been going very well. We're very, very pleased with the results so far. And by next quarter, I presume -- I assume that we will have some redemptions of that prep and be able to share more information in terms of the cash inflows to BBU as a result of that sale, which we think is going to be very successful. The -- in terms of future opportunities, I'd say it's a function of 2 things. One is it is accretive for BBU and shareholders and the share price. And obviously, the share price since we did the first one is better today, but it's still a material discount, we feel to NAV. So part of it depends on how things go over the next little while. And of course, it depends on the inflows that BPE may continue to have in the market. But if that natural opportunity exists in the future, we could explore opportunities. I would say it's not something that we're actively advancing at this moment, but it's an option that we always have in the future if it makes sense for both sets of investors. Gary Ho: Okay. And then if I can sneak one more in just on CDK, your results dipped year-over-year. I know part of that was due to some ongoing strategic investments made and product enhancements. Just wondering if you can provide a bit more details on these initiatives, maybe quantify the impact in the quarter and also future spend in the next 12 to 18 months. Adrian Letts: So it's Adrian here. Yes, look, current quarter reflects continued investment, as you said, in modernizing the technology. I think it's important to step back first, though, margins are ahead of where we bought the business, and we continue to see the benefits of the operations and improvement that we've done across the business. Churn has stabilized and we've started to roll out some of the new features and products that we've been investing in and customer response has been overwhelmingly positive. We will continue to invest, and it's something that we'd always plan to do. We think now is the right time, but we're expecting to see the benefits come through next year. Gary Ho: And are you able to quantify the amount in the quarter? Jaspreet Dehl: I don't think -- Gary, it's Jaspreet. I don't think we've kind of broken that out specifically to say what the contributions are from each piece. But I'd say the bulk of the decrease that you're seeing is related to the technology spend. There's positive kind of commercial actions there is some churn, but the bulk of the year-over-year decrease is related to the technology spend. Operator: Our next question comes from the line of Jaeme Gloyn with National Bank. Jaeme Gloyn: Yes. First one, just -- I might have missed it. Did the tax credits, have you received cash for that at this stage yet? Jaspreet Dehl: Jaeme, it's Jaspreet. We have not. So we're still awaiting. The -- we were told that it's being processed. And I think with the government shutdown in the U.S. now, we're expecting that there's delays and slowdowns just in the processing. But our expectation is still that we will receive the credit, and it's more just a matter of timing. Jaeme Gloyn: Okay. Understood. And then, I mean, pro forma liquidity is in -- probably the best it's been in some time. Should we expect a ramp-up here in deployments? Or is that still somewhat contingent on recycling some of the other assets? Jaspreet Dehl: Look, I'd say our capital allocation priorities are still around funding the growth of the business and maintaining leverages at a good level, so kind of maintaining that. And then the $250 million buyback program. I'll let Anuj provide additional commentary, but the pipeline is very robust. We're opportunistic and selective in terms of where we want to deploy our capital. So if we find the right opportunities, we have the liquidity available to fund growth. So far this year, we've deployed $525 million into 3 what we think are really great businesses. And if there are opportunities to continue to deploy capital, we'll do that. Anuj Ranjan: Yes. I'd just say that I think everything Jaspreet said is right. And I'd just say that generally speaking, the investment environment is looking very good right now. Obviously, financing markets are very strong and very enabling for private equity style transactions. But more importantly, we're just finding great businesses that we really like, many who we have been following for many years that are possibly coming available at great prices. And some of those are deals that we've done so far this year that BBU has participated in. So the pipeline is very strong. There's some incredible opportunities that we're working on. It's sort of -- I don't know if they'll go through or not, but if they did, I think BBU would look to participate in them. This is sort of a great time to be putting money to work, and we're really excited about the overall landscape. Jaeme Gloyn: Okay. Great. And then last one, just on DexKo. Volumes are up year-over-year. EBITDA looks like it's up low double digits. Has this sort of turned the corner? Are you feeling more confident in the near-term outlook for DexKo? Maybe an update on that business and what we should expect in the coming year? Adrian Letts: Yes. So it's Adrian here. I'll give you some color. So look, we are pleased with the performance. The business continues to do well in what is an improving but still somewhat challenging market. Market demand remains below normal cycle levels, but we're seeing some signs of an early recovery in both North America and internationally. And we're hopeful that as we start to go through 2026, we'll see some further green shoots. Operator: [Operator Instructions] Our next question comes from the line of Bart Dziarski with RBC Capital Markets. Bart Dziarski: Just wanted to ask around AI, and you highlighted AI benefits across Clarios and Sagen at the Investor Day. And I was wondering if you could highlight some of the AI benefits you might be seeing across the other large investments. So I'm thinking CDK, DexKo and Scientific Games. Adrian Letts: Yes. So look, it's Adrian here. Just some comments on CDK, Scientific Games and DexKo. So we talked in the past about the benefits that we're seeing in Clarios. We've installed sensors across the business, started to measure and understand quantums of data to really help operationalize and improve the throughput of manufacturing and manage inventory levels. If you talk to CDK, I think the most important thing to talk about from a CDK standpoint is the data opportunity we have there to improve workflow. The volume going through the CDK platform, which is responsible for over 50% of dealerships in North America, the volume of transactions presents a really interesting insight and opportunity that we can start to build out the product proposition for our customers to benefit from that. If you think about SciGames, equally, the understanding of lottery behavior, purchasing patterns and the like is a tremendous opportunity for us to bring to bear to support licensees, licensors in monetizing and growing lotteries within their particular jurisdictions. And then if I talk to DexKo, it's similar to Clarios in terms of understanding sales patterns, managing inventory better and really seeking to improve the operational performance of the business. Bart Dziarski: Great. And then a follow-up on the capital allocation. So the prior $2 billion of proceeds, about half of that was used to pay down debt, so $1 billion. And if I'm reading it right, it doesn't sound like this next $2 billion will be used primarily towards debt reduction. It's most likely capital deployment and buyback. Do I have that reading right? Or am I misunderstanding? Jaspreet Dehl: Look, I'd say the corporate leverage is at a level that we feel quite comfortable. As we have monetization activity and we have proceeds, we'll pay down the line. But to the extent that there are great new investment and acquisition opportunities, we do feel like we've got sufficient liquidity today to participate in that growth. On the buyback side, we've got -- we announced the $250 million buyback program earlier this year, and we've deployed about $160 million of that $250 million. So considering that our units and shares continue to trade at a discount to our view of intrinsic value, we will continue to kind of -- our buyback activity. So I'd say all of those facets are still in play. And just given the -- it's hard to predict the timing of acquisition monetization activity. So the working capital lines will continue to use them. Operator: Thank you. And I'm currently showing no further questions at this time. I would now like to turn the call back over to Anuj Ranjan for closing remarks. Anuj Ranjan: Thank you all for joining us, and we look forward to speaking with you next quarter. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Karman Space & Defense's Third Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Steven Gitlin, Vice President of Investor Relations. You may begin. Steven Gitlin: Good afternoon, and thank you for joining Karman Space & Defense's Third Quarter Fiscal Year 2025 Earnings Conference Call. I'm Steven Gitlin, Vice President of Investor Relations, and I'm pleased to welcome you today. Joining me on today's call are Tony Koblinski, our Chief Executive Officer; Mike Willis, our Chief Financial Officer; and Jonathan Beaudoin, our Chief Operating Officer. Before we begin, please note that on this call, certain information presented contains forward-looking statements. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements and may contain words such as believe, anticipate, expect, estimate, intend, project, plan or words or phrases with similar meaning. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control that may cause our business strategy or actual results to differ materially from the forward-looking statements. All forward-looking statements should be considered in conjunction with the forward-looking statements in our earnings release. Future company updates will be available via press releases. For further information on these risks, we encourage you to review the risk factors discussed in Karman's periodic reports on Form 10-K and Form 10-Q filed with the SEC and the Form 8-K filed today with the SEC, along with the associated earnings release and the safe harbor statement contained therein. This afternoon, we also filed our earnings release and posted an earnings presentation to our website at karman-sd.com in the News and Events section. The content of this conference call contains time-sensitive information that is accurate only as of today, November 6, 2025. The company undertakes no obligation to make any revision to any forward-looking statements contained in our remarks today or to update them to reflect the events or circumstances occurring after this conference call. I'd also like to note that unless otherwise stated, all numbers we will be discussing today are GAAP. Our press release contains a reconciliation of any non-GAAP financial measure to the most comparable GAAP measure. Now I would like to turn the call over to Tony. Anthony Koblinski: Thank you, Steve. Good afternoon, everyone. On today's call, I will provide an overview of our third quarter highlights, then Mike Willis will provide a detailed review of our financial performance and capital allocation priorities. Jonathan Beaudoin will then discuss market dynamics and our operational achievements. Following their remarks, I'll return to share our strategic outlook and guidance before opening the call for your questions. Our team delivered another quarter of record performance across our business through their strong execution, continuing our momentum since our February IPO. As shown on Slide 4 of our earnings presentation, here are the key highlights. We posted record quarterly revenue of $122 million, driven by growth across all 3 of our end markets. We produced record gross profit of $50 million. Adjusted EBITDA rose to $38 million, another new quarterly Karman record. And funded backlog continued to grow, reaching an all-time high of $758 million, providing 100% visibility to the midpoint of our full year revenue guidance range and a strong foundation for 2026. During the quarter, we also completed a $1.2 billion nondilutive secondary equity offering that generated significant market demand and resulted in the effective exit of our private equity sponsor as an owner of Karman shares. Shortly after quarter end, we increased our credit facility, providing the resources to acquire Five Axis Industries and pay off our revolver. Summarized on Slide 5, Five Axis is another strategic tuck-in acquisition that expands our capabilities with IP-rich content for the commercial space industry. The Arlington, Washington-based company is a specialized provider of critical systems, including large nozzles for liquid-fueled rocket engines. Their core focus is on high-performance exotic alloys such as titanium, Inconel and high-temperature high-strength copper alloys. Five Axis supports high-priority space launch programs on a single-source basis with its highly skilled team and state-of-the-art facility. We are delighted to welcome the Five Axis team to Karman. Now let's turn to our end markets, where the demand environment remains very strong. Our customers and their end customers continue to communicate their expectations for significant volume increases in programs we support. One measure of that demand is the fact that we now support more than 80 customers on more than 130 programs. The drivers include increased replenishment activity, the Golden Dome for America, hypersonic developments, unmanned and counter unmanned systems and an increasing space launch cadence for both defense and commercial missions. Given our continued strong performance, driven by accelerated progress on current programs and the Five Axis acquisition, we are again raising our 2025 guidance, this time by $7 million at the midpoint for revenue and $2.5 million for adjusted EBITDA. With that overview, I'll turn the call over to Mike for our financial review. Michael Willis: Thank you, Tony. Good afternoon, everyone. Q3 was another strong quarter that demonstrated the effectiveness of our business model and our team. Shown on Slide 6, highlights include revenue of $122 million, representing a 42% increase compared to the third quarter of fiscal year '24. Gross profit grew 48% to $50 million, maintaining gross profit margin at 41%. Net income rose 78% to $8 million. Adjusted EBITDA jumped to $38 million, a 34% year-over-year increase. Adjusted EPS more than doubled to $0.10 per diluted share from $0.04. And funded backlog grew 38% year-over-year and 31% since December 31, 2024. Growth remained broad-based across all 3 of our end markets shown on Slide 7. Hypersonics and Strategic Missile Defense revenue grew 36% year-over-year to $37 million, driven by order growth in PrSM, Standard Missile 3 and 6 and development programs. Space and Launch jumped 47% to $41 million, driven by the timing of orders from both legacy and emerging launch providers. And Tactical Missiles and Integrated Defense Systems were up 42% to $44 million, driven by increasing production rates for GMLRS, AIM-9X and UAS programs. End market mix was balanced with our 2 defense-driven end markets representing 2/3 of quarterly revenue. Space and Launch representing 33% of quarterly revenue, Hypersonics and SMD, 30%; and Tactical Missiles and IDS, 37%. Turning to the balance sheet. We continue to prioritize growth as we consider capital allocation decisions. We ended the quarter with $19 million in cash and equivalents, up $7 million from year-end '24. In late October, we upsized our Term Loan B by $130 million to a total of $505 million to support the acquisition of Five Axis and to pay off our revolver. This results in a net leverage ratio of approximately 3x adjusted EBITDA on a pro forma basis, a ratio well within our comfort level. Looking ahead, we now expect a statutory tax rate for fiscal year '25 of 25.5% and expect CapEx to be approximately 4.5% of the midpoint of our revised revenue guidance range. With that, I'll turn the call over to Jonathan for an overview of our market position and operational highlights. Jonathan Beaudoin: Thank you, Mike. Customer demand signals across our end markets have grown stronger since last quarter. National security priorities continue to drive increased interest and funding for critical programs, while the commercial space market remains very active. For example, in the third quarter, we saw several large new contract announcements from the U.S. Army for systems we support, including those highlighted on Slide 8. $4.2 billion for GMLRS production, $9.8 billion for PAC-3 missiles known as Patriot, and $5 billion for Coyote missile systems. These contract awards demonstrate increasing customer pull for proven solutions that we have been supporting with qualified content for years. This pull is aligned with the demand signals we continue to receive and with the priorities detailed in the Big Beautiful Bill and proposed defense funding, which are summarized on Slide 9. This demand is evident in our strong and growing funded backlog. Golden Dome remains an important driver of demand beyond 2025. We believe that Karman will benefit in several ways from this transformational initiative. First, through increased demand for existing missile defense programs that we support; second, from an acceleration in the development of new solutions such as hypersonic missiles and space-based interceptors. And third, through increased space launch cadence to develop the space layer of the solution. The federal government shutdown has not impacted our 2025 guidance, which is based on our record funded backlog and associated shipping and invoicing schedules. That backlog provides us with full visibility to the midpoint of the increased guidance that Tony will detail shortly. We have seen some solicitations extended, some meeting shift to the right, but no direct impact to our programs. With respect to federal government procurement, we support initiatives intended to streamline and improve the defense procurement process. Any and all initiatives designed to speed deployment of critical capabilities to the war fighter are perfectly aligned with Karman's focus on innovation, speed, efficiency and scale. We are very comfortable operating in a competitive environment, working with fixed price contracts and investing strategically in CapEx and IRAD. For example, we developed our rapid integration payload launcher or RIPL POD, which permits the rapid integration and deployment of the latest air launch effects from Karman's common launch tube. It's adaptable to various payloads, providing agility and deployment speed for our customers. This is only one example of how we apply internal investment to develop new capabilities for our customers. Turning now to our operations. We remain focused on expanding capacity, capability and productivity. In the third quarter, we continued to expand capacity and increase productivity with new capabilities for testing, manufacturing and advanced inspection. One example is the investment we are making in our Albany, Oregon facility that will double our forging capacity for specialty payload production. These investments increase throughput, enhance quality and give us the ability to scale our business further. Our integration of MTI and ISP continues on schedule for completion in mid-2026 as we now begin the integration process with Five Axis. Finally, last month, our commitment to supporting our customers was acknowledged by ULA, which named us the Enterprise Operations Supplier of the Year for 2025. ULA recognized Karman among their hundreds of suppliers for our outstanding support of their reuse development program, our efforts to improve quality and cost and our proactive problem solving. We are proud to support ULA and all our customers. Now I'll turn the call back to Tony. Anthony Koblinski: Thank you, Jonathan. Our business strategy as a merchant supplier to nearly all prime contractors in the U.S. space and defense market remains tightly aligned with our growing market opportunities. Our Five Axis acquisition broadens our capabilities further while expanding our capacity to support our customers' increasing demand. Karman is the result of the combination of scarce IP-rich assets in the space and defense markets. Our capabilities are unique and growing stronger as we identify and acquire new assets. The competitive moat we have built is only growing deeper and wider through our thoughtful, deliberate M&A process. Our M&A pipeline remains healthy with a number of potentially accretive assets that we believe would create more value by being part of Karman. The combined capabilities of these acquisitions, along with our existing expertise, position us extremely well to address the growing demand for advanced space systems, hypersonics, strategic missile defense, UAS and counter-UAS solutions. As Jonathan described, demand signals from the Pentagon and from our customers continue to indicate significant multiyear growth opportunities ahead. Recent reports indicate that the Pentagon is seeking to double and even quadruple missile production. The missile systems cited include THAAD, Standard Missile 6 and 3, PrSM, AIM-9X and GMLRS, all systems Karman supports with qualified content. The demand environment for Karman looks extremely healthy for the foreseeable future. Let me now turn to our outlook and financial guidance for the remainder of fiscal year 2025, summarized on Slide 10. Based on our strong performance in the first 3 quarters of the year, the integration of MTI and ISP, the acquisition of Five Axis and the continued momentum across our end markets as reflected by our growing funded backlog, we are again raising and narrowing our full year guidance. We now expect full year revenue of $461 million to $463 million, up $7 million to the midpoint and non-GAAP adjusted EBITDA of $142 million to $143 million, up $2.5 million to the midpoint. This increased guidance represents 34% year-over-year revenue and adjusted EBITDA growth. This guidance reflects 100% visibility to the midpoint of our increased revenue guidance range. Now looking beyond 2025, our funded backlog for 2026 continues to grow, helping us define the contours of what we believe will be another year of strong growth. For our preliminary view of 2026, we anticipate achieving annual growth consistent with our recent revenue CAGR of 20% to 25%, excluding the impact of any future acquisitions. We're mindful of the added uncertainty introduced by the federal government shutdown, the timing of the 2026 defense funding and Golden Dome orders as we work to finalize our detailed 2026 guidance and share it with you in our fourth quarter earnings call in March. Our differentiated capabilities, strong backlog, growing pipeline and proven ability to execute reinforce our confidence in the long-term growth algorithm of consistent organic growth supplemented by strategic, accretive acquisitions. I want to thank our employees, customers and shareholders for your continued support. And I'd like to remind you that we think of Karman as a new kind of space and defense company, one that is engineered for performance and growth by helping to enable the next-generation space economy and enhance national security. Now let's open up the call for questions. Operator: [Operator Instructions] Your first question today comes from the line of Peter Arment from Baird. Peter Arment: And maybe I'll just go to Mike, on the third quarter, could you give us what the organic growth was for the quarter? And then, Tony, just on 2026 as my follow-up, just how you're thinking about organic growth as kind of a baseline assumption. I know there's a lot of moving parts, but you've done 3 deals since you've come public. Just how you're thinking about that CAGR. Michael Willis: So we talked about in the past about with organic versus inorganic, they quickly get tingled up in the sense from a business development and integration into Karman between cross-selling engineers that are working on multiple facets across businesses, which really blurs the line of what you would call organic. And so that's one of the reasons why we don't put a specific number on it, not to add any confusion just because things quickly become organic. I think what I might direct you towards though, is, of that growth I mean significant -- the vast majority of it is from organic. The businesses that we acquired early this year are smaller in nature. Anthony Koblinski: And again, Peter, as we think about next year, we're simply guiding that with the assets that we currently have under Karman at this point, that we would anticipate, again, consistent growth of 20% to 25%. We're leading this year, of course, to a 34% revenue and earnings. But this is a preliminary view, but wanted to at least give you some look at how we're thinking about '26 early on. Operator: Your next question comes from the line of Amit Daryanani from Evercore ISI. Amit Daryanani: I have two as well. I guess maybe just to start with -- and Tony, I get it's a preliminary guide that you folks have of 20% to 25%, but it does imply some moderation from what you saw in '25. So maybe just talk a little bit about what are the assumptions that are underpinning the growth of 20% to 25%? And how much coverage do you think you already have from the $758 million of backlog for '26? Anthony Koblinski: Yes. Again, view this as a preliminary number. Again, it is our intent to continue to build confidence as we're still relatively new in the market. The backlog that we've talked about of $758 million is strong, but multiyear. But as we think about a rule of thumb that we have been comfortable with of having 75% plus of the future year booked by the beginning of the year, we are well on path for that, quite comfortable with the backlog and how we'll start the year relative to benchmarks that have held true for us. Amit Daryanani: Got it. And then maybe if I just ask you from a backlog perspective again, are you seeing any program level concentration on your backlog? Or is the backlog much more distributed and balanced out versus the revenue run rate is? Anthony Koblinski: I would say that it is consistent the backlog with the revenue that we're achieving. All 3 of our end markets continue to grow. We have advertised before and continue to view no single program making up. I think we're at 11% as we look forward, probably under 10% concentration on our single biggest program. And so again, a consistent and well-balanced backlog and future pipeline. Operator: Your next question comes from the line of Ken Herbert from RBC Capital Markets. Kenneth Herbert: I wanted to first ask, there's been some chatter in the marketplace about some of your customers looking to maybe dual source some of your offerings just as a way of supporting a greater revenue ramp across missiles and other programs. Are you seeing that? And is that at all factoring into maybe any of the maybe slightly more conservative outlook in '26? Anthony Koblinski: No, it would not be at this point. We are not aware of any dual source effort on products beyond what already exists on products that we supply. Again, we don't give our customers a reason to switch. I know there is, as talked about tomorrow at the Pentagon, this notion of to -- field on new programs. But we believe that there is ample demand on the existing platforms and no effort that we're aware of to displace us as a primary provider of the systems that we currently produce. Kenneth Herbert: Great. And if I could, on Golden Dome, you called out 3 specific areas where you expect to potentially benefit. Are you seeing -- or have you bid or seeing RFPs yet on any of these areas that are specific to Golden Dome? Or what's your view on how this program could potentially impact you from a timing standpoint? Anthony Koblinski: Yes. On the existing assets that will be, in fact, part of Golden Dome, as we've talked about before, we are seeing increased demand signals. Now they don't come in labeled as Golden Dome, of course, but the demand there is building. On the new content, the integration of the various pieces, the space-based assets, space-based interceptors and other new, it's still too early. We are very much involved in meetings and industry days that are occurring, but no hard RFQs, request for proposals that we're participating in. And we would see that over the balance of this quarter and probably through the entire first quarter before there's real clarity as to what is the new and how will we participate. Jonathan Beaudoin: I would just add, as part of those discussions, we are leaning into that from a facilitization standpoint, making sure that we will be ready to meet that demand when the POs start to arrive. Anthony Koblinski: Thanks, Jonathan. Operator: [Operator Instructions] Your next question comes from the line of Louie DiPalma from William Blair. Louie Dipalma: Congrats on another quarter of exceptional results. How would -- Tony, how would you assess the M&A pipeline since you've been public, you've been able to make several deals that have been accretive to your EBITDA. But going forward, is it becoming harder to find deals that would enhance your EBITDA given how high it is relative to the rest of the industry? Anthony Koblinski: I appreciate the comments. And I would say the answer is no. We've run the play several times now. It's well worn, and we know how to do it. There is a pipeline, as we've referred to before, of conversations at various maturity levels. We're a little ahead of the pace that we advertised with 3 in the last 12 months, but expect that there will be more. We are not seeing an appreciable difference in terms of the valuations in the deals that we're seeking, right, which are those that are off the radar a bit and not within an auction. And so we continue to be approached by folks that want to be part of the Karman story moving forward, and we think there are more of those ahead. Louie Dipalma: Great. And another question, if NASA were to implement any major changes to the Artemis program, would that impact you? And in general, what are you assuming for the Artemis program? Anthony Koblinski: So as we've talked prior, we have taken out any forecast relative to the space launch system. But in terms of the Artemis program, the Orion capsule, other exploratory programs that fit within Artemis, there is volume and content for us there. Lunar Lander is part of the CLPS program. We are getting orders relative to Orion and other related. And so we think that we've got some solid demand coming forward, but are ready for more. And as you think of the space market, I was just reflecting on it today, of course, Falcon 9 launch today, ULA Atlas V later today, Blue Origin on Sunday, Rocket Lab within about 10 days. I mean the launch cadence and the steadiness of various providers with different mission sets is impressive, and we look forward to supporting it all. Operator: Your next question comes from the line of Alexandra Mandery from Truist Securities. Alexandra Eleni Mandery: This is Alexandra Mandery on for Michael Ciarmoli, Truist Securities. So I was wondering if you can provide margin guidance for 2026? And should we think about EBITDA margin expansion in what range could we expect? Michael Willis: In terms of EBITDA and margin expansions, we've often talked about a target of 50 bps a year that we will gain from operating leverage as we continue to grow. So while we're not necessarily putting out formal guidance, we continue to think that we would capture 50 bps a year going forward on that growth. Alexandra Eleni Mandery: Okay. Great. And then additionally, are you seeing any impact of the government shutdown on bookings and any impact on 1Q '26? Anthony Koblinski: Again, it depends on how long it goes. Glad to hear there's some discussion. Right now, no impact to '25. As Jonathan indicated in his earlier comments, meetings are being pushed to the right, some solicitations are being delayed, but no impact to either '25 or '26 in our view as of now. Operator: And that concludes our question-and-answer session. I will now turn the call back over to Steven Gitlin for closing remarks. Steven Gitlin: Thank you, Rob, and thank you all for your attention today and for your interest in Karman Space & Defense. An archived version of this call, all SEC filings and relevant company and industry news can be found on our website, www.karman-sd.com. We wish you a good day, and we look forward to updating you on our continued progress in the quarters ahead. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Jared Hagen: Hello, everyone, and welcome to the XAI Madison Equity Premium Income Fund Third Quarter Webinar. Thank you for joining us today. Before we get started, I do have some disclosures. We may reference performance throughout the presentation. Certainly, past performance does not guarantee future results, and current performance may be higher or lower than the performance quoted. Additionally, the materials or discussion may contain forward-looking statements. Investors should not place undue reliance on forward-looking statements. Before we begin, we do want to hear from you. If you have any questions about the fund, please enter them into the Q&A box below and we will do our best to address them at the end of the presentation. Lastly, please check out our website at xainvestments.com for more information about XA Investments and MCN. I'm excited to introduce you to today's speakers, Ray Di Bernardo is a portfolio manager and analyst on MCN. He joined Madison Investments in 2003 and has managed MCN since its inception in 2004. He is also responsible for managing all other option-related mandates at Madison Investments. Kimberly Flynn is the President of XA Investments and is responsible for all product and business development activities at the firm. This includes the firm's proprietary fund platform and consulting practice. My name is Jared Hagen, and I'm a Vice President at XA Investments focusing on product management and development for our proprietary fund platform. The fund is managed by Ray Di Bernardo and Drew Justman. As mentioned previously, Ray has managed the fund since its inception in 2004, and Drew has been with Madison since 2005. MCN recently celebrated its 20-year anniversary this past year and was one of the first covered call strategy funds in the market. The portfolio management team is supported by over 15 equity research analysts that span market caps and sectors. As a quick reminder, XA Investments took over as the adviser to MCN in December of 2024. Madison Investments continues to manage the portfolio as the fund sub-adviser. The fund's strategy and objective remain the same, and the fund continues to trade on the New York Stock Exchange under the ticker MCN. Turning to the current market landscape. Equity markets are being shaped by several key macro forces, including the Fed's -- Federal Reserve balancing act between inflation control and economic growth, including rate cuts in September and October, ongoing geopolitical tensions impacting supply chains, a federal government shutdown adding uncertainty to the policy outlook and an AI-driven tech rally now facing valuation scrutiny. Meanwhile, resilient U.S. economic data has continued to defy recession expectations even as corporate earnings remain under pressure from elevated costs. This environment has created a more selective market where active management, stock selection and sector positioning are increasingly critical to performance. Jared Hagen: Ray, with that broader backdrop, if we dive into the fund's performance in this past quarter, what were some of those drivers that you saw? Ray Di Bernardo: Well, Jared, it was a quarter that was very similar to what we experienced in the second quarter, at least once we got through the first week of the second quarter. So since the so-called Liberation day in early April when there was a lot of angst over the tariff regimes that turned out to be more draconian than expected, that quickly kind of went away when many of those tariff levels were brought down or delayed. And I think the impact of tariffs since then has been minimal. And I think going forward, any kind of noise around tariffs will continue to be minimal because of the expectation that they'll get resolved relatively quickly after a phone call or 2. So since that April low, the market has rallied significantly and has had very little in the way of any kind of correction. The market is up 35% since that first week of April through the end of September. So it's been a very uninterrupted move higher. And it's been driven by some of the factors that you mentioned, Fed cut in September and most recently, just in late October. Interestingly enough, those cuts have not had much of an impact on longer-term rates. The 10-year treasury is actually higher now than it was at the time of either of those cuts. So we're not having an across-the-board decline in rates as many had expected. A couple of other data points during the quarter that drove returns and particularly within the fund, gold was up 17% during the third quarter and oil was down 4%. And I might touch on that a little bit later, but those impacted some holdings in the fund. The key driver in our view was the focus on -- again, we talked about this for quite a long time now, the mega cap growth stocks, which are really impacted mainly via the AI revolution. And that really was the key driver in our view that have been pushing markets to high valuations and driving the overall market returns, whereas we're seeing in many of the underlying stocks, much lesser returns. the Magnificent 7 stocks, the large growth -- mega cap growth stocks out there, they did reasonably well. Not all of them did well in the third quarter, but they continue to be an important driver of returns. Tesla is up 40%. Google is up 38%, Apple 24%; NVIDIA up 18%. So these clearly had a big impact on overall performance. The market was up 8%, just a little over 8%, the S&P 500. But others such as Microsoft, which was only up 4%, Meta, Amazon, which were flat. So not all of the mega caps contributed, but they had enough of a contribution to make a significant difference. Overall, the style breakdown was that high beta stocks significantly outperformed most other styles and high-risk stocks, in other words, stocks with no earnings or -- and/or a high short interest also outperformed. So it's clearly been a risk on market, and I think we could have said the same for most of the second quarter as well. So it's really been more of the same as the markets continue to make new highs through the end of September. And we've only just in recent weeks in October, starting to see some shakiness come out because valuations have gotten so high. So some concerns about valuation risk are starting to permeate through the market now. But those were the key drivers. From a fund perspective, the fund did reasonably well in such an environment where a hedged equity fund utilizing covered writing wouldn't be expected to keep up in such a raging bull market. But the fund was up 4.8% in a market that was up 8.1%. So we participated in approximately 60% of the upside. Our primary benchmark is the S&P BuyWrite Index, the BXM index, and that was up 3.5%. So we outperformed that benchmark in the third quarter, and that's the third consecutive quarter that we've been able to do that. So relative to that benchmark, we're performing quite well. Overall, with the market, it's been more challenging as we are giving up some of the upside in the portfolio in order to provide more downside protection. Sector allocation has been a headwind for the fund because the leading sectors, again, are the sectors that hold these mega cap growth funds, so the tech sector, communication services, consumer discretionary, they all vastly outperformed. And those 3 sectors alone made up 81% of that S&P 500 return. So all of the other 8 sectors combined only made up 19% of the return. So if you weren't in those sectors and overweight, you really had a hard time keeping up even if you were long only. On the flip side, the laggards were some of the more defensive sectors out there, as you would imagine, consumer staples was the only sector that was negative. And then laggards such as health care, materials, real estate, more traditionally defensive areas that one would expect to lag in such a strong market. So we have been underweight from a fund perspective in those high flying higher-risk sectors. And that was one of the reasons we weren't able to keep up with the overall market. Obviously, holding any cash in the fund causes a bit of a drag when markets are going up so much. The option overlay was the biggest drag on the fund, which is typical in a strongly rising market. And the stock selection was quite positive. It was quite a significant positive contributor during the quarter to offset some of those headwinds. So overall, we're quite pleased with the way the fund performed from an NAV basis. And we continue to be positioned for what we think is going to continue to be a very volatile period going forward. Jared Hagen: Very, very helpful. Moving maybe a little bit into kind of some of those specific holdings and maybe looking at the top 10 holdings here. Can you kind of describe your conviction in the top 10? Obviously, the portfolio is relatively concentrated on the equity side with 40 total holdings, equity holdings and the top 10 accounting for 33% of the portfolio. So I think it might be good to describe to investors what positions -- what makes these positions attractive to MCN strategy? And then if there were any notable additions or removals from the top 10 this quarter? Ray Di Bernardo: Yes. The top 10, clearly for us, we operate on a conviction basis with larger positions being our most -- the areas where we have the greatest conviction. And this conviction stems from a number of underlying factors, market leadership, free cash flow generation, strong balance sheets and valuation. So in all of these cases, those are the commonalities between many of these holdings, even though they may operate in various sectors of the economy. So the majority of the top 10 -- now I should mention that in this kind of strategy where we do have option assignments occurring on a regular basis month-to-month, you'll see a lot more movement around the top 10 than you would in a long-only fund where you can simply just buy and hold individual holdings. So you'll see a little bit more movement. But by and large, the companies that are -- that were in the top 10 at the end of the last quarter, the top 5 in particular, are the same or very, very similar with Las Vegas Sands, AES, the utility company, Danaher, American Tower and Conoco remaining in the top 10 compared to the June quarter. There are a few change -- there were a few changes over the quarter and particularly the bottom half of the top 10 usually gets moved around a little bit more because you have some stocks that perform well in a quarter, and they get bumped into the top 10 and others may lag a little and get bumped out. So you have some small movement there. So for example, Hershey was up 14% during the quarter, and it edged up into the top 10. Agilent, the health care company, was up almost 10%. It edged up into the top 10. And we had a few that moved down. Matador Resources, Permian oil and gas, E&P company moved down. As I mentioned earlier, oil prices were down during the quarter, 4%, and it affected most of the energy complex. So it moved out of the top 10. And then we have others where we're adding to existing positions that may not have been in the top 10 that move into the top 10. And examples of that during the quarter would be Pepsi, which we added to our position in September. We think it's a terrific globally branded company and the valuations have come down to a level where we feel very comfortable adding to it for future growth, and it bumped into the top 10 as well as Honeywell. A portion of our Honeywell position was called away in July at $230 a share. By September, the stock had weakened down to around $210, and we bought back not only the shares, the amount of shares that we had previously, but we added more to it. So our position in Honeywell actually increased at a lower price, and we bumped that into the top 10 as well. You always have some stocks that get called away completely. In our case, Barrick Mining was our second largest holding in the fund at the end of June. During the quarter, with gold prices rising significantly, Barrick Mining was up 55% in the quarter, and it got called away in 2 separate transactions, one in July and one in September. So that's no longer in the portfolio. And on the flip side, we added CME as a new name, a new holding to the portfolio. It's a name we've owned many times in the past, but we re-added it during the quarter. CME is in the financial sector. It's an index, essentially a derivative index company. They own Chicago Mercantile Exchange, the New York Mercantile Exchange, the Chicago Board of Trade, the COMEX, the Commodity Exchange, and they're the most active player in the interest rate and commodity futures market. And it tends to do well in volatile environments. So it's a stock that we would expect as volatility continues, more players out in the market, not only speculators, but industry players are looking to hedge and particularly with the volatility as related to tariffs. Hedging activities have increased and CME benefits from that kind of environment. So even in a volatile environment, we expect CME to hold up very well. So that was added and that new addition brought it into the top 10. So those are the changes. But generally, our larger positions have remained there, and our conviction levels remain very high there. Jared Hagen: Thank you, Ray. Maybe just talking a little bit about valuations. You mentioned it in your -- as you were talking about your conviction levels and kind of the underweight to some of those high-flying sectors. Obviously, valuations are near historic highs and the S&P 500 is highly concentrated in those largest stocks, very top heavy compared to historical numbers and kind of weights in those -- in that top -- those top holdings in the S&P 500. Do these market dynamics concern you? And how does that shape your outlook for covered call strategies heading into 2026? Ray Di Bernardo: Yes, it is quite concerning, both the valuation levels and the concentration levels that are really unprecedented at the current time. Valuations right now in the market, looking at a 12-month forward-looking earnings projections is near the levels that we saw at the peak of the dot-com bubble back in 1999. Not quite there. It's within 4% or 5%. It's very, very high. I think the peak was somewhere around 24 -- a little over 24x. We're right now just under 23x forward earnings on the S&P. So that's -- there are a number of similarities that are starting to creep in about comparing the dot-com bubble with the current AI, I guess, call it a bubble, if you will. And that's one of them. One of them is that market valuations have been driven to historically high levels, primarily by these large companies. So not just on that measure, but on almost other -- every other quantitative measure, we're at or above all-time highs currently. Price to sales, for example, which was really elevated back in the dot-com bubble, we're 60% higher now than we were at the peak of the dot-com bubble. Operating margins are at or near all-time highs. There just doesn't seem to be a lot more that can be squeezed out of the market in terms of getting higher and higher valuations. Now that doesn't mean that valuations can't remain high for a while. But at some point, the risk reward or the balance between risk reward, in our view, has to be shifted toward protecting at these levels. So if you -- if we get to peak valuations, maybe there's another 5% until we get there. Maybe we go a little bit higher than peak valuations, but there's just not a lot of room. However, if we go back to just valuations, if we look into the early 2000s when the market sold off after the dot-com bubble blew up, the market started trading back toward 14 -- 13x or 14x earnings from that 23x earnings level. So that compression in valuation, if that similar thing would happen -- were to happen now, that would be a 40% decline just based on valuation. Even if we get back to a 17x or 18x multiple, which is still -- it's an average level multiple. We're looking at a 20% to 25% decline as a result of PE compression. And that's assuming earnings levels stay the same or earnings projections stay the same. If you have earnings [ degradating ] at the same time, it could be worse than that. So when you have a little bit of upside potential, but significant downside, we think it makes sense, at least for part of investors' portfolios to start getting a little more cautious and start thinking about protecting all of the money that they've earned in recent years and start protecting in case we do have some sort of valuation correction. So that really is concerning. The thing that makes it worse in our mind is the concentration. And there are so many different measures. We see them almost every day. The 3 largest stocks in the S&P 500 make up over 22% of the index. That's NVIDIA, Microsoft and Apple, just those 3 stocks alone. At the dot-com peak, the 3 largest stocks made up 12% of the market. So we're almost double that level now. And back then, interestingly enough, Microsoft was one of the top 3 back then as well, Microsoft, Cisco and General Electric. The largest 10 holdings in the S&P right now make up 41% of the market relative to back in the dot-com area, the maximum was 26%. So the level of concentration at the top end is extraordinary. We all know that the tech sector alone makes up over 34% of the S&P 500. That's a record high. During the third quarter alone, just 3 stocks represented half of the S&P return, Apple, Google and NVIDIA. So of that 8.1% move in the market, half of it was attributed to just those 3 stocks. So it works really well for investors when these stocks are doing well, but the reverse will happen if we have some sort of hiccup in the AI environment that causes a correction, not necessarily blowing up the AI as a technology and the future potential, but just from a valuation perspective, and you're starting to see some concerns creep in now that if this -- if we do see some sort of negative impact with valuations, then the concentration will start working against everyone. So while we're starting to see much of the S&P 500 hasn't performed nearly as well as the market, those stocks may continue to hold up reasonably well, but the ones that have been driving performance may underperform dramatically. And that's what we want to protect against. And that's why we have been underinvested in those. So we've missed some upside. There's no question, but our job here is managing a defensive strategy is to always be looking for what could hurt on the downside. So concentration really is making the overall environment much riskier than it otherwise would be. Jared Hagen: Thank you, Ray. Yes, it certainly seems to be in historic times in terms of that concentration in those top names, 40% in the top 10 of the S&P 500 is very concentrated, and I think there's a lot of scrutiny there in terms of how sustainable that is on a going basis. And to your point about AI, seems like there's a circle, there's a web of payments being promised between both private and public companies on future AI usage and data centers that is really interesting, especially since some of those companies aren't making any profit yet, right? How can you make guarantees for hundreds of millions or billions of dollars when you don't have any revenue. So definitely something we'll keep an eye on. Maybe switching to a holding highlight. Let's talk about Las Vegas Sands. It's been a top 10 holding for some time. Can you explain why this holding has been such a large part of MCN and why you guys like the name? Ray Di Bernardo: Yes. Las Vegas Sands was a unique situation. We have followed the name for many, many years, but we really started to get interested when they sold their Las Vegas property. And I believe that was in 2020. And so Las Vegas Sands, it has nothing to do with Las Vegas anymore, essentially. And they focused their operations on the Asian gaming market. So they -- not only by doing that, they brought in a significant amount of money to basically shore up their balance sheet, which had been a little on the risky side, but when they sold the Las Vegas property, their balance sheet improved dramatically because most of that money went to pay down debt. So the balance sheet was fixed to a large extent. And they then focused on Macau and Singapore as their 2 primary markets. And they've always had a very large presence in both of those markets. In fact, they've been in Macau for over 20 years, and they spent upwards of $15 billion over the years in building properties and expanding and renovating properties. They're the largest player individually in Macau. Macau is the largest Asian gaming center. So they've got a market leadership position in the largest market in Asia. And they have multiple brands within that market. So they have The Londoner, The Venetian, The Parisian, The Four Seasons, The Sands Macao. And underneath The Londoner, they have The St. Regis, the Conrad, various other Londoner brands. They used to have the Sheraton and that was just renovated last year and just finished earlier this year, that was renovated, and the name was changed to the Londoner Grand. So they have been spending us some money in renovating and upgrading their current hotel spaces and their gaming properties. And they're just competing very, very well as a market leader in that market. They also are the single largest gaming operation in Singapore with their ownership of the Marina Bay Sands. They have -- and Singapore is the second largest gaming market in Asia. So they are the -- they have 60% market share in Singapore in gaming, so dominant market share there. If anybody knows anything about Singapore, if they're a Formula One fan and they watch the Singapore Grand Prix, the huge triple tower in right downtown Singapore, where the race is raced around it that is connected at the top with restaurants and swimming pools and whatnot, that's the Marina Bay Sands complex. So it's quite an impressive property. It's not only hotel and gaming, but shopping and other retail as well. So it's really the kind of the center of the universe in terms of tourism in Singapore. The problem that the gaming market had not only in Asia but around the world was COVID. It basically shut everything down. Now that's when we started looking at Las Vegas Sands, and we started taking a position in mid-2021. And clearly, with a strong balance sheet, they had the ability to withstand being shut down for a period of time. As we were starting to look at everything reopening, North America and Europe reopened earlier than Asia. So there was a delay in reopening, particularly China. Singapore opened first and then China opened about 9 months to a year later. And -- so the thesis around all of this was we have a market leader with tremendous properties that isn't currently making much money. They were -- had negative free cash flow because they weren't able to service any customers. That was going to change once the markets opened up. And that was kind of our initial premise for starting a position in Las Vegas Sands. And it's been a bit of a choppy ride because there were always some delays in fully opening up. Singapore opened up, but then Singapore, approximately 25% to 30% of their gaming patrons are Chinese and Chinese couldn't -- we were not allowed to exit the country for another 9 months to a year. So it took a while for the opening to started opening in Singapore. And then when Macau opened, it really started to gather steam. And it's really been quite nice to see the return of gaming in those markets. And what we had hoped would happen with free cash flow coming back has happened. And the company is operating very, very well. It's been bumpy because it is based on the Asian and the Chinese economy. So whenever there's a concern about the Chinese economy slowing, it does impact virtually every other Chinese-related company. So there's been a little bumpy along the way. But generally, the trend has been very, very positive. And -- and particularly after the most recent earnings release, the stock is trading near its highs, and it's been a very -- quite a profitable investment for the fund. We continue to believe that it's going to continue to move higher. The free cash flow is growing by the quarter. The balance sheet looks good. The vast majority of the renovations that they were undertaking have been completed. So there's not a lot of capital requirements going forward. And it just ticks off all the boxes in terms of what we like to look at. They're returning a lot of money through share buybacks and dividend increases. They only just reintroduced the dividend in 2023, and they've been increasing it significantly since then. The most recent quarter, just 20% increase in the dividend. So -- it's operating right now quite well after obviously a difficult time, but we felt very comfortable back then investing in a market leader, which had this kind of potential bottled up, but just needed the markets to fully open up. So that's been the story with Las Vegas Sands. It's been a very good holding for the fund, and I think it's going to continue that for the foreseeable future. Jared Hagen: Ray, yes, I totally agree. It's a great story. I think it just goes to show in many aspects, your guys' diligence that you do on these holdings, identifying kind of that entry point and your thesis and seeing the long-term vision in the stock and taking that opportunity and being willing to hold it throughout that time period, not short-term investors in that sense. And I think that's appreciated by investors. Kim, maybe switching to you. The fund changed its distribution policy in April of this year from quarterly to monthly distributions. As distributions continue to be an important factor for many closed-end fund investors, can you describe how this change in the distribution frequency has benefited investors? Kimberly Flynn: Sure. So this may be old news for some, but it's really important because the listed closed-end fund market is really an income buyer-focused marketplace and having a monthly distribution really supports potential demand generation in the secondary market. And what we're looking for is the opportunity to get in front of new potential investors in MCN and a monthly payout really opens this fund up to a broader audience of potential income buyers, income investors. And the listed closed-end fund marketplace because of this strong preference for monthly cash flows has really shifted. It used to be that there were more quarterly pay, but most listed closed-end funds are now monthly pay, and we plan to continue with that monthly declaration and monthly payment. Jared Hagen: Thank you, Kim. Yes, very helpful. And I think it's been a positive development, obviously, helping with investors' cash flow needs, having that more frequent cash flow. Ray, turning back to you. With tariff downturns in early Q2 that really tanked the market for a short stint there and now strong equity performance in Q3 if that market volatility were to change meaningfully in either direction, how might that change your option writing strategy and equity exposures? Ray Di Bernardo: Yes. I think a lot of it depends on the events that causes volatility to change. Over the past year or so, if we look at the VIX index as a kind of a general view of market volatility, for the majority of the time, it's been between 15 and 20 that level. Right now, as of today, it's right around the upper end of that range because we've had some choppiness in the last few weeks. But not long ago, just a few weeks ago, it was at 15. And for most of the third quarter, the VIX was quite low in the 15 area. Back in April, when we had the tariff concerns, as you noted, the VIX spiked above 50. But that was very, very short-lived because the event was very short-lived. The market started recovering within a week or so. So a lot depends on what causes volatility to go up. If volatility were to go down from here, it would mean that the market is probably continuing to move higher. So we would not change our stance in any significant way because we're already very defensively positioned. We have a high level of option coverage right now. For a number of quarters, we've been in that 90% coverage neighborhood. We're already defensively positioned from a sector standpoint. So we're prepared for more volatility. And if it doesn't come, we're just -- right now prepared to continue holding the fort, waiting for something to break in the market. So from our perspective, the only thing that could change that would be an event of some sort that would cause volatility to spike, but that event would be longer lived, such as we saw after the dot-com bubble where we had a good 2.5 years of markets steadily declining or just a prolonged period of decline. In 2022, it was 10 months, for example. So it's very -- we really, in April, we saw the market corrects, we didn't get immediately bullish because our feeling was that, that could have been the beginning of a much more significant correction. That didn't happen. Now we've had the market rebound significantly, and we're still concerned about some sort of negative reaction. So we're more concerned about a volatility spike in the market going down. If that were to happen, then we would perform quite well in that environment. We would protect well on the downside. The portfolio is defensively postured. We very well covered. And then at some point during that period, if we have more of a prolonged event in the market, then it really depends on where valuations sink down to at a certain point, we feel more comfortable reentering the market and getting more aggressive with our underlying sector allocations, for example, we would begin moving out of those defensive sectors more into some of those higher beta sectors like discretionary and technology, for example, where we've been underweight for quite some time. So that would be dependent on what happens within those sectors and what valuations look like as the market corrects. And at that time, in all likelihood, volatility will still be relatively high, and we'll be able to write further out of the money at reasonable option premiums. So we'd be able to buy stocks lower, still participate if they rebound in more of the upside than we otherwise could do in a low volatility environment. So that would be really a terrific environment for us to be able to buy stocks cheaper, get a little bit more aggressive with our underlying stock selection and sector allocation and then continue writing possibly not in the 90% neighborhood, bring that back down to what we typically view as average is around 80%. So get more upside participation and write further out of the money because volatility will remain stickier for longer if we have a longer downturn. So that's kind of the way we approach things. Most of what we do is driven by our -- how we position the underlying portfolio. So when we make those shifts, it's all about comfort levels with the underlying holdings and their valuation levels at that time. And that's typically why we're not chasing stocks at these high valuation levels because we just don't have that comfort level. Jared Hagen: Thank you, Ray. Very helpful as always. Kim, shifting to you. Looking at the current market environment kind of as Ray was talking, can you describe some of the reasons that investors may look to covered call strategies? Kimberly Flynn: Yes. I'm going to quote Ray here, who's our expert, which is that for equity investors, it may be the time now to start protecting. And a lot of equity investors have benefited from the run-up in equity prices over the last few months. So I think covered call strategies for equity investors are basically allowing you to participate in that growth, but you're also generating cash flow from option premiums, which is, I think, for folks that are sort of growing concern, this is a good way, a lower risk way to approach equity investing. And we think that there's a lot of benefits, especially for retirees or income-oriented investors who haven't -- who are concerned about current pricing in the market. I think when Ray spoke about the concentration in the S&P 500, it is quite surprising. And so we're deviating from historical norms. And I think that's why investors like what covered calls have been able to do in various market environments. And MCN has over a 20-year track record, and Ray has been involved from the beginning. And so that consistent approach is, I think, helpful in the context of a manager who's seen a lot of different cycles. So that's why we think there's a natural appeal for covered call strategies. And Jared, we saw it in 2022, 2023 after both stocks and bonds didn't work the way they were supposed to in 2022, we saw a huge increase in demand for hedged equity strategies and covered call strategies were among those. So I think that's why it's worth considering how covered call strategies can be incorporated into the portfolio and potentially play a role where we are today in the market. I think there's a compelling case. Jared Hagen: Thanks, Kim. Yes, I totally agree. And maybe we dive in a little bit on Madison's approach to managing covered call strategies. Kim, could you just briefly describe how MCN's active management approach, both on the active option, active equity selection side is differentiated from some of the other options in the market? Kimberly Flynn: Yes. I think you said it, it's active, active, active both on stock selection, active on single-stock option selection. And so that's always been Madison Investments approach in MCN. And over the last 20 years, there's been quite a new hedged equity strategies that have come to market, many of which are not highly transparent. So when you look at the schedule of investments, there are derivatives, you're unsure of what's going on. So we like the active stock and the active option approach because we have that transparency exactly what the portfolio management team is doing. And I think it adds value to a covered call portfolio to take this approach. And it's -- I think in an age now where there's a lot of different options or choices among different hedged equity strategies, investors should be mindful of some of the differences between these product sets. So we like the approach that Madison Investments takes here in terms of the active thesis development on the underlying stocks. And then they're able to set strike prices in line with where they think full value is in that particular stock. So they're able to be much more precise in terms of the execution of their thesis and as you hear Ray talk about Las Vegas Sands, that's just one example in a diversified portfolio where he's able to express a view in both the underlying option -- or excuse me, the underlying stock and then the option that fits how he's thinking about that stock in the portfolio. So that's why we like the approach that they take. Jared Hagen: Thank you, Kim. Ray, as Kim started to describe there, Madison is very active on ensuring the equity portfolio is covered by call options. Could you just discuss maybe a little bit the portfolio is 88% covered. Do you think this appropriately reflects your views on the equity market today? And how do you determine when to adjust the amount of the portfolio that's covered and the benefit it might provide? Ray Di Bernardo: Yes. We start off from the stance that we are a covered call writing strategy. And so we should be maintaining that discipline. So rather than moving around significantly and being 40% or 50% covered when we think the markets are going to go up and then 80% or 90% covered when we think the markets are fully valued. We've always believed that we're being paid to be a defensive hedged equity, income-oriented strategy, and we have to maintain that discipline. So on average, I think we're going to be -- we're very comfortable being approximately 80% covered, give or take, in kind of a neutral market environment. We may go slightly below that if we feel the markets are attractively valued so that we can get more upside. And then as I noted earlier, in the current environment where we think the markets are overvalued, we would move as close to 100% as we can get. And we -- I get asked a lot, well, why aren't you at 100%? And there are always individual reasons for -- with individual holdings that we may not want to write on every name or fully write on every name. And an example is one of our biggest holdings is AES, the utility. AES is a combined regulated utility and an unregulated wind and solar utility or power generator. And there has been for a couple of months now, some talk that because the stock is so fairly valued and is very attractive with its holdings, it's the second largest alternative energy wind and solar generator in the country that there have been some infrastructure funds like BlackRock and Brookfield that have been sniffing around in terms of potentially buying the company. And so if that's the case, and we think they are -- we think those are actually reliable so-called rumors, I suppose, then we want to be able to participate in that. We're already getting paid a pretty nice dividend on the stock. And if we were to have some sort of bid come in, we would like to participate as much as we can. So we're not fully covered on AES at the moment. So that's one of the reasons why we're not into the -- well into the 90% range. So there's always going to be 1 or 2 of those kind of situations that we don't necessarily want to be fully covered on everything. But being around 90% covered is well more -- is much more defensive than we typically are. And that's just a reflection of how concerned we are with valuations. And we'd rather be early in being defensive than being late. As Kim mentioned, on when markets correct, they become -- there's a lot of interest in hedged equity funds. Well, the interest should be before markets correct because once they correct, it's kind of late to be jumping into a hedged equity fund unless you really believe the markets will go significantly lower. So we're kind of in the same mindset. We want to be defensive before the markets correct rather than try and catch up, take the brunt of the downside initially and then try and get more hedged later. So we're staying relatively higher level of coverage and a level of coverage that's closer to the money with each option, which simply means that the deltas are higher the hedge value of each option is higher, and we're getting more downside protection and collecting more option premium as a result. So that's how we kind of manipulate the option portfolio to our view of the underlying stocks. If we think there's more upside in the stock, then we'll try and write further out of the money or not write fully on the position like the AES position. If we think the stock is getting more fully valued and we're prepared to trim or sell a stock, we will write very close to the money, collect a bigger premium and then let the stock get called away or a portion of it get called away because we were likely going to want to trim it anyway at the higher valuations. So most of the sell discipline that we have, we utilize options as our selling vehicle and assignments as the selling vehicle. So that's how we're managing the active portion of the options. Ultimately, everything starts with the foundation of the portfolio, which are the individual holdings. That's where you can protect the most by owning high-quality companies that are not going to blow up when the market doesn't do well. And so you have to start out with that solid foundation. The options provide the next level of protection and then we can change the level of protection depending on our view of each individual holding. Jared Hagen: Thank you, Ray. Very helpful. [Operator Instructions] I know we're coming close on time. Kim, I do have another question for you, and it's regarding kind of the secondary market dynamics. The fund has relinquished its premium this year, but it does continue to trade well compared to its peers. Can you describe a little bit on how XA Investments works to promote a strong secondary trading market with its listed closed-end funds? Kimberly Flynn: Yes. So I think what we're trying to do is make information available to research analysts, to advisers and then ultimately to the income buyers themselves in terms of allowing you to speak with Ray, who has been the long-time portfolio manager is really an opportunity that's not typical for most listed closed-end funds. And so we're trying to drive awareness for MCN in the secondary marketplace. We're -- I'd say we're okay with how things are trading in the secondary market. MCN typically trades differently than its peer group, which is not too surprising, I guess, given its long history. The market-wide average discount, if you're looking at all listed closed-end funds, which is a mixed bag of different asset classes, it's about negative 4.5%. And so MCN is in line with that market-wide average discount. And so through our proactive secondary marketing, we're trying to drive volume in the secondary marketplace. And maybe, Jared, if you could just show Slide 21, I just wanted to comment on the trading in the secondary market over the last year. On the right-hand side, you'll see we note that in the last -- in 12 months, we've seen average daily trading volume of about 70,000 shares per day. And that's in contrast to last year in 2024, where that volume was about 50,000 shares per day. And this is what we want to see. We're coming up on the 1-year anniversary of the collaboration between XA Investments and Madison Investments. And what we wanted to do was support the fund in the secondary market, help drive demand in the secondary market and a healthy level of trading volume is really important for the overall health and wellness of a listed closed-end fund. And so I think that if we will continue to monitor what's going on in the secondary, the volume is -- if it's a high level of volume, that means people can buy shares, but it also means people can exit their position. And in a listed closed-end fund, most of these listed closed-end funds trade like small cap stocks because they have relatively modest market capitalizations. So it's really important that this volume is there for investors to be able to come and go as they see fit. So we will continue to work on this. We will continue to support the secondary market, and we appreciate feedback and questions. So please do be in touch with me and Jared to the extent that you want to hear more from Madison or if there's -- I know we're working on a white paper too, Jared, that we're going to be publishing soon, which is going to further educate investors. I think the people who've already been long-time shareholders, appreciate the thesis of a covered call strategy. But what we're trying to do is expand the knowledge to a broader base of potential investors. Jared Hagen: Absolutely, Kim. Yes, definitely be on the lookout for that white paper. You can always sign up on our website, xainvestments.com to get those updates, and we will make sure you get it also reaching out to info@xainvestments.com, that e-mail address will get you right in touch with Kim or I. One last question, Ray, for you and maybe looking into the future a little bit here. Equity markets have performed strongly in Q3, as we've discussed. What's your outlook for the last quarter of 2025? Obviously, we're a little bit over a month into the fourth quarter, but also into 2026? Ray Di Bernardo: Yes. I'll keep it brief because we're running up against time, but it's -- the strategy, we're comfortable sitting where we are. Again, we've been very defensive, and it's caused us to lag the overall market but perform well against our benchmark. We're going to continue to stay where we are because in our view, there will be, at some point, a crack in valuation. And I could go on and on about AI and some of the concerns out there, but we're starting to hear more and more of them almost on a daily basis, just even this morning and yesterday, there were -- there's some -- a lot of people within the industry, Sam Altman at OpenAI, Jeff Bezos have come out and said, yes, there's a bubble in AI right now. It doesn't mean the whole thing is going to blow up or the technology isn't transformational, but valuations have gotten well ahead of themselves. And the market seems to be react -- starting to react to that. How this evolves, we'll see. But we are concerned that valuations have gotten too high. So from our perspective, it's kind of like starting a roller coaster ride when you're going up that first big, big climb. And the closer you get to the top, the more white knuckle you get, you grab on tighter, and you prepare yourself for what you know is coming. And we've got white knuckles right now. We're holding on tight, and we're going to continue to maintain our defensive posturing because we think that we're going to see some pretty significant ups and downs and volatility. Whether it happens in the fourth quarter of this year, we slide into 2026, we fear that it's in front of us, and we just want to make sure that we're prepared for it now rather than trying to catch up later. So we're trying to be realists about all of this. And we've all been through cycles before. I know I have over 35 years in the market. You have to remember that there are cycles and that sometimes it doesn't take a lot when you're near the top to cause the cycle to turn. And we just want to -- it's incumbent on us to maintain our discipline and maintain that defensive structure, particularly now. And I think we're just going to maintain that. So our outlook is be prepared, and we certainly are. And I think nothing changes from our perspective for now. Jared Hagen: Thank you, Ray, and thank you, Kim, and everyone, for joining us on the call for the third quarter 2025 MCN webinar. If you have any questions about the fund or XA Investments, please don't hesitate to reach out to Kim or myself. As always, for more information on MCN, please visit xainvestments.com. Thank you and have a great day.
Operator: Good day, and welcome to the Onity Group's Third Quarter Earnings and Business Update Conference Call. [Operator Instructions] Please be advised today's program will be recorded. It is now my pleasure to turn the program over to Valerie Haertel, Vice President, Investor Relations. You may begin. Valerie Haertel: Thank you. Good morning, and welcome to Onity Group's Third Quarter 2025 Earnings Call. Please note that our earnings release and presentation are available on our website at onitygroup.com. Speaking on the call will be Chair, President and Chief Executive Officer, Glen Messina; and Chief Financial Officer, Sean O'Neil. As a reminder, our comments today may contain forward-looking statements made pursuant to the safe harbor provisions of the federal securities laws. These statements may be identified by reference to a future period or by use of forward-looking terminology and address matters that are uncertain. Forward-looking statements speak only as of the date they are made and involve assumptions, risks and uncertainties, including those described in our SEC filings. In the past, actual results have differed materially from those suggested by forward-looking statements, and this may happen again. In addition, the presentation and our comments contain references to non-GAAP financial measures such as adjusted pretax income. We believe these non-GAAP measures provide a useful supplement to discussions and analysis of our financial condition because they are measures that management uses to assess the performance of our operations and allocate resources. Non-GAAP measures should be viewed in addition to and not as an alternative for the company's reported GAAP results. A reconciliation of these non-GAAP measures to their most directly comparable GAAP measures and management's reasons for including them may be found in the press release and the appendix to the investor presentation. Now I will turn the call over to Glen Messina. Glen Messina: Thanks, Valerie. Good morning, everyone, and thank you for joining our call. We're looking forward to sharing our third quarter results and reviewing our strategy and financial objectives to deliver long-term value for our shareholders. Let's get started on Slide 3. Our third quarter results again demonstrate the effectiveness of our strategy and the strength of our execution. Our balanced business delivered sustained results with lower interest rates driven by originations profitability offsetting MSR runoff. Record origination volume and steady servicing profitability drove increased adjusted pretax income versus the second quarter and continued book value growth. Adjusted ROE exceeded our guidance for the quarter and year-to-date, and we're expecting to exceed our guidance for the full year, underscoring our commitment to strong shareholder returns. Let's turn to Slide 4 to review a few highlights for the quarter. We delivered adjusted pretax income of $31 million and annualized adjusted return on equity of 25%, driven by strong originations performance and favorable fair value gains on reverse buyout loans and servicing. GAAP net income and earnings per share of $2.03 reflect a $4 million or $0.48 per share tax provision expense related to tax planning strategies to support future utilization of our deferred tax asset. Average servicing UPB continued to grow steadily, fueled by year-over-year volume growth, which exceeded total industry originations growth for the same period. And finally, book value increased to $62 per share, up 5% versus prior year. We believe our third quarter results demonstrate our effectiveness in navigating changing market conditions with a balanced business model working as designed. Let's turn to Slide 5 for more about the capability of our balanced business. We believe our scale in both servicing and originations enables us to perform well with high or low interest rates. You can see on the left, our total business is delivering improved performance as we have grown servicing and improved overall productivity. Originations is responding well to changing market conditions with profitability increasing as rates have generally declined in the second and third quarter. If interest rates were to materially decline like in 2021, we believe industry origination volume and margins would increase while higher MSR runoff would reduce servicing earnings. In this scenario, we would expect originations to again deliver most of our earnings. Regardless of interest rates, we're always maintaining agility to capitalize on asset management and other opportunities consistent with our strategy to create value for shareholders. Let's turn to Slide 6 for more about our growth focus and actions. We delivered servicing portfolio growth versus the prior quarter and prior year, driven by double-digit originations growth in the same period. We've increased our owned MSR portfolio, consistent with our objective to retain more MSRs to grow earnings and book value as well as reload our portfolio for recapture opportunity. Ending total servicing in the third quarter is up $17 billion or 6% year-over-year with $39 billion in servicing additions net of runoff more than offsetting planned transfers to Rithm and opportunistic client MSR sales. With MSR demand keeping prices elevated, several of our clients have taken the opportunity to monetize their MSRs and are replenishing their portfolio as industry origination volume increases. I believe our ability to replenish and grow our portfolio while our clients execute opportunistic MSR sales highlights the power of our origination capability and the success of our growth strategy. Now please turn to Slide 7 for some highlights on our originations performance. In the third quarter, our originations team delivered volume growth of 39% and 26% versus prior year and prior quarter, respectively, in both cases, exceeding the industry and many of our public peers. Consumer Direct is demonstrating strong growth driven by declining rates in the third quarter and improved execution. In business-to-business, we leverage an enterprise sales approach to deliver our wide range of products, delivery methods and services, coupled with a strong focus on client service. We've continuously invested in technology and process optimization to enhance the customer experience, reduce cost and improve scalability and competitiveness in both business-to-business and consumer direct. We're launching new and upgraded products and services to expand our addressable market and access higher-margin market segments, create alternatives for our customers and manage operating capacity for surges in refinancing activity. To highlight how far we've come in origination, our third quarter funded volume was the highest we've recorded with a market size that's only 41% of the 2021 market peak. Let's turn to Slide 8 to discuss our recapture platform. Our consumer direct team is delivering top-tier recapture performance to enhance MSR returns for us and several of our subservicing clients. As you can see on the left, funded volume was 1.8x the prior year level with an interest rate environment that is comparable between the 2 periods, reflecting the success of our investments. Based on our refinance recapture benchmarking, our third quarter year-to-date recapture performance, excluding home equity products, is better than several of our peers and the ICE reported average. In addition, our refinance recapture rate where the previous loan was originated by our consumer direct channel is 85%, on par with other retail originators. This points out the significant upside in recapture as we continue to improve our first-time recapture capability. We continue to invest in talent, AI tools, predictive analytics and leverage internal and external data sources to help us better understand our customers, proactively identify opportunities and further improve our capability and the customer experience. Let's turn to Slide 9 to discuss our near-term expectations for subservicing. We continue to see a high level of interest amongst prospective clients to explore subservicing options and alternatives. We've signed 9 new clients so far this year and have 6 new agreements under negotiation. We expect subservicing additions in the second half of $32 billion or over 2.5x the first half level, driven by these new relationships, our existing clients and synthetic subservicing with our MSR capital partners. And we expect that momentum to continue into the first half of 2026 with subservicing additions from these clients of over 2x the first half of 2025. One area where we are seeing attractive growth opportunities is the small balance commercial segment, where our subservicing UPB is up 9% versus the second quarter and up 32% year-over-year. While the requirements are more complex than performing residential servicing, the returns are better, we have the expertise, and we're investing to drive continued growth here. Overall, we're excited about the growth potential in subservicing, and we continue to invest in our sales and operating capabilities to pursue a robust opportunity pipeline. Regarding our subservicing relationship with Rithm, we have received notice of nonrenewal and expect to transfer this portfolio to them starting in the first quarter of 2026. Approximately $8.5 billion of UPB requires trustee and other consent, the timing and success of which are uncertain. We appreciate the opportunity to have served Rithm and its customers for nearly 10 years. The Rithm subservicing is a shrinking portfolio of mainly low balance pre-2008 subprime loans and accounts for over half our delinquent loans and borrower litigation. The portfolio attributes result in a high cost of servicing and declining profitability. For the third quarter of 2025, the Rithm subservicing was less than 5% of our total adjusted revenues and one of our least profitable portfolios before corporate allocations. After corporate allocations, it lost money in the last 2 quarters with third quarter loss increasing over the second. For the past several years, we've assumed in our planning the subservicing would not be renewed for the coming year, and our plans for 2026 assume the same. We expect to adjust our cost structure and replace the earnings contribution with more profitable business that are aligned with our current growth focus and not our past. We do not expect the removal of these loans to have a material financial impact for the full year 2026. Let's turn to Slide 10 to talk about our continued investment in technology. We've been investing across 4 categories of AI. Robotics, natural language processing, vision and machine learning to improve business performance and competitiveness on several dimensions. We've cultivated our own award-winning robotic process automation center of excellence and technology innovation lab, which support projects of increasing size and complexity. These projects typically focus on 4 desired outcomes: drive cost leadership, accelerate revenue growth, maximize customer retention and deliver superior operating performance. I'm proud of what the team has accomplished through focused and purposeful investment to enable a highly competitive platform, top-tier recapture performance and an improved customer experience. We continue to utilize this 4x4 approach to technology innovation and to ensure our investments are aligned with delivering outcomes that matter most to our stakeholders. Let's turn to Slide 11 to see what we've accomplished and where we're taking our technology program. We believe our AI investments have been an important enterprise-wide performance enabler, creating value for all Onity stakeholders. Our past investments in AI have been focused on improving cycle times, processing cost, customer access and self-service, scalability of operations, customer opportunity identification and reducing delinquencies. The outcomes of these efforts are reflected in the center column of this slide. And as you can see, they've had a profound impact on our business. Today, our focus is continued integration of robotics, large language models and machine learning across all operations to empower our people and processes where every process is optimized, every decision is data informed and every outcome is superior. For our people, our goal is to provide them with enhanced tools and data-enabled intelligence that drives heightened responsiveness, real-time decisions and superior outcomes. For our customers, our focus is increased personalization, enhanced self-service, continuous improvement in ease of use and anticipating their needs. The opportunity here is exciting, and the potential impact is incredibly powerful. Now I'll turn it over to Sean to discuss our results for the quarter in more detail. Sean O'Neil: Thanks, Glenn. Let's turn to Slide 12 for a recap of the key financial measures. 2025 continues to be a strong year for us as evidenced by the following third quarter results. Revenue grew by double digits, both year-over-year and over the trailing quarter. This was driven by both the servicing and origination operating units. Our third quarter adjusted return on equity was 25% and exceeded our full year 2025 guidance, both for the quarter and year-to-date. Our ability to deliver steady net income added over $2 to book value per share in the quarter. Please turn to Slide 13 for a historical trend of our adjusted pretax income, which is positive for the 12th straight quarter. We posted a strong quarter for adjusted pretax income of $31 million. This shows the strength of our balanced business where originations and servicing each support growth in a diverse range of interest rate environments. The year-to-date adjusted ROE was 20% above the upper end of our guidance. And as mentioned, we expect to exceed our full year adjusted ROE guidance of 16% to 18%. GAAP ROE was 14%, and the appendix has a walk from net income to adjusted PTI to help you understand the differences. Please turn to Slide 14 for the pretax income results for the Originations segment. Originations adjusted pretax income was significantly higher year-over-year and versus last quarter. This was driven primarily by strong execution of recapture and improved performance in our B2B channel, which drove record funding levels and improved margins in most channels. Consumer Direct continued another strong quarter, driven by recapture performance, resulting in elevated funding volumes. We also benefited from stronger closed-end second volumes. Business-to-business saw elevated volumes and margins as well with growth in our Ginnie Mae mix. Reverse originations maintained profitability with higher margins on lower volumes. This was a breakout quarter for originations as we were able to post margin gains amid record volume. Please turn to Slide 15 for the Servicing segment. Servicing remained a solid contributor to adjusted pretax income with $31 million for the quarter. Forward servicing again experienced growth in average UPB with higher revenue both sequentially and year-over-year. The revenue lift from servicing growth was offset by higher runoff in the third quarter. This was driven by a greater amount of owned MSRs as well as higher prepay speed. The ability to capture some of this runoff is measured in the recapture metric. Reverse servicing pretax income rebounded to a positive $4 million in the quarter, driven primarily by stronger gain on sale on the reverse assets. Regarding delinquency, our owned MSR portfolio exhibited improved delinquency statistics again this quarter. For example, our Ginnie Mae MSR portfolio had better delinquency metrics than the broader Ginnie Mae market. Please see the MSR valuation page in the appendix for more details on delinquency by investor type. Page 16 will give you an assessment of our continued strong hedging performance. The hedge strategy on the MSR continues to perform well and as intended. As a reminder, our strategy is designed to mitigate interest rate risk and our hedge has been effective in minimizing the impact of interest rates on our MSR valuation, net of hedge, as you can see on the graph. Over the last 2-plus years, we have increased our hedge coverage ratio such that by the end of 2023, we were seeking to hedge most of our interest rate exposure. When we compare our results with information in the public domain, we believe we provide an effective MSR hedge at an efficient cost relative to our peers. Given that an MSR hedge is dependent on the interest rate and relative derivatives market, we frequently review and assess our hedge strategy to manage risk and optimize liquidity as well as total returns. Please turn to 17 for commentary on our guidance for full year 2025. As mentioned, following the strong quarter of net income, we now expect to exceed our 2025 adjusted ROE guidance. Note that this guidance on ROE is not dependent on the release of some of the valuation allowance, but is rather driven by our view of the strength of the operating businesses. Our UPB growth for the full year is now estimated to be between 5% and 10% versus the prior guidance of 10-plus percent. We don't believe the positive but smaller growth will have an adverse effect on our '26 forecast as we are generating growth in higher-margin servicing areas that need less UPB to deliver comparable pretax income. Consider Glen's earlier comments on commercial subservicing as an example. Overall, I'm pleased to report another good quarter that grew book value per share and delivered a continued strong return on equity for our shareholders. Back to you, Glen. Glen Messina: Thanks, Sean. Let's turn to Slide 18 for a few comments before we open the call for questions. We're focused on accelerating profitable growth and creating value for all stakeholders. I'm proud of the team's relentless focus on delivering on our commitments. Our strong third quarter results led by record originations volume validates our balanced business and its ability to perform through market cycles. We've built a technology-enabled award-winning servicing platform that is efficient, delivers differentiated performance and service excellence. We're delivering profitability comparable to our peers at a more attractive valuation, and we expect to exceed our adjusted return on equity guidance for the full year, underscoring our commitment to strong shareholder returns. All this comes together to suggest a share price that we believe has significant upside. And we intend to continue to take the necessary action and maintain agility in a dynamic market to harvest that value for the benefit of all stakeholders. Overall, we could not be more optimistic about the potential for our business. And with that, Aaron, let's open up the call for questions. Operator: [Operator Instructions] And we will go first to Bose George with KBW. Bose George: Just on the Rithm, the transfer that's going to happen. When you look at that portfolio, just based on your commentary, what's the -- like the present value of that, was it basically flat or even negative? Just how do you think about that? Glen Messina: Yes. To put it in context for you, Bose, look, that portfolio is about 25% of the size it was about 5 years ago. So it's really run down quite a bit. From a contribution perspective, look, we said it was one of our lowest margin portfolios. Look, if you compare it to Ginnie Mae owned servicing, for example, Ginnie Mae owned servicing has about 4x the profit margin of the Rithm portfolio. And looking at it on a dollar value basis, our $5 billion commercial subservicing portfolio generates a multiple of the dollar profit before corporate overhead. So it's really run down quite a bit. We -- the portfolio probably had maybe another year of marginal profit contribution associated with it. Again, that has a lot of assumptions baked in it and stuff like that. But look, it's gotten to the point where the portfolio is so small, delinquencies are high, cost of servicing is high. I'm sure for the Rithm team, they've got servicing oversight responsibilities. It's just at the point where it's pretty much getting to where it's uneconomical for us and our clients to maintain the current relationship. And I've said it throughout the course of this year and even last year, this was an eventuality. It was inevitable, and we're at that point. And yes, so we're going to get on with it. We'll transfer the portfolio, adjust our operations accordingly and feel good about the growth pipeline we have to replace the business. And again, there's many areas of our business have a much higher profit margin than the Rithm portfolio. And we've got a strong team that is demonstrating incredible growth, outpacing the industry and many of our peers. Bose George: Okay. Great. And then just your ROE guidance, I assume it's based on your current capital, but by the end of the year, your DTA gets reversed and your capital goes up, I guess, as that happens and the ROE on that, obviously, I guess, will be a little bit lower because of that. Is that right? Or if you can -- you'll have a GAAP tax rate that will run through next year as well. So where does that kind of shake out after that? Glen Messina: Yes, Sean, I'll turn it over to you. Sean O'Neil: Sure. Bose, Yes, generally speaking, the directional changes you indicated are what will occur. It's all dependent on the amount of the valuation allowance that we do release at the end of the year. But you are correct, that will flow through. It will increase equity. And therefore, all else being equal, we'll have to generate a higher return to maintain the same ROE. And then the tax rate -- the effective tax rate will go up once we release the VA. If we release all of the VA, it would look in line with any other normal corporate taxpayer. I think 21% federal and a couple more for states. And then if we do a partial release, it will be somewhere in between. Operator: [Operator Instructions] We can go next to Eric Hagen with BTIG. Eric Hagen: With the valuation allowance expected to be released, can you comment on how that drives the appetite to hedge the portfolio? I mean, do you feel like that changes the interest rate risk profile of the capital structure in any way? Glen Messina: Yes, the bottom line is the short answer is no, we don't, right? Look, we -- our decision of hedging -- our hedge strategy and approach and hedge coverage ratio, instrument selection and all those things is really a function of protecting book earnings, I should say, GAAP net income, book equity. And as well, we do have secured MSR financing. So we take into consideration the pluses and minuses of margin calls on our derivative instruments as well as margin calls on our debt obligations. So when we take all those factors into consideration and as well the recapture -- performance of our recapture platform as well, too, and that's done on a portfolio basis, agency versus government and the like. Yes, whether or not we -- how much of the valuation allowance gets released, I don't expect will have a material impact in terms of how we think about hedging our MSR. Eric Hagen: Okay. Got you. Any perspectives on prepayment speeds through September and October? I mean, can you share how flow MSRs are pricing over these last 6 or 8 weeks? And has the cash balance changed since the end of September as you guys have backfilled or presumably backfilled some of the MSR portfolio? Glen Messina: So from a speed perspective, Sean, (sic) [ Eric ] when we release the Q, there'll probably be some information in the Q where we can go and calculate speeds. I mean, obviously, speeds are up. I think if you look at Slide 24, which is our MSR valuation page, you'll probably notice that speeds -- the presumed life of portfolio prepayment speeds and the valuation have increased versus periods when they were lower, the interest rate environment was higher and the coupon was lower relative to current market conditions. So yes, we did see an uptick in prepayments in the third quarter. We did see an uptick in MSR runoff. But again, the balanced business, originations performed very, very well and frankly, more than offset that, which was really pretty good. In terms of the fourth quarter and what we would expect, look, we -- I don't think anybody's crystal ball on interest rates is magically correct. When we look at the MBA and the Fannie Mae industry forecast, they are expecting origination volumes for the fourth quarter to be roughly consistent with where they were in the third quarter. Mix shift is a little bit different, though. They are expecting a little bit more or some growth in refinancing volume and a decline in purchase volume. So if you look at that and parse that data, it would suggest that perhaps speeds may pick up a bit in the fourth quarter. But again, it is going to be highly dependent upon where the average 30-year fixed rate mortgage rate settles in for the fourth quarter. Eric Hagen: Yes. That's good color. I appreciate you guys. Can I sneak in one more? I mean, do you guys ever shock the MSR portfolio for changes in interest rates? And what is sort of the max drawdown, if you will, you think you guys can tolerate on the MSR portfolio? And aside from a change in rates or like speed assumptions, what are the variables that you feel like could lead to a correction in the MSR valuation? How do you harness that risk? Glen Messina: Yes. Yes, Eric, we do a fair amount of benchmarking to bulk trades in the MSR marketplace as we think about our valuation of the MSR. We use that as benchmarks to make sure that our portfolio fair value is stated correctly. We look at market transactions in the secondary market or bulk market to support that. As you know, we have historically from time to time, sold portions of our MSR either on a subservicing retained or servicing release basis to take advantage of what we believe are valuations in the market that are better than what we see as intrinsic value in the mortgage servicing rights. Last year, we did a couple of trades like that. This year, we haven't largely because our recapture platform is performing so well. I don't want to give up the recapture opportunity in the portfolio, right? So that's not necessarily a focus for us. And from a portfolio balance perspective, we may from time to time consider synthetic subservicing trades with our capital partners to balance our 50-50 mix of owned servicing and subservicing. So Look, we are -- we take a dynamic approach to asset management and our MSR management. We don't fall in love with any of our assets. But we do like that 50-50 mix and think that serves best for us to optimize earnings growth, dollar earnings growth and return on equity. In terms of the MSR sensitivity to interest rates, the chart that Sean talked about showed the effectiveness of our derivative hedging program on the MSR. It's performed very, very well. Super proud of our CIO and his team and the work they're doing to manage the MSR interest rate risk. And a good portion of that is our originations team and how they're doing from a recapture -- how well they're doing from a recapture perspective. So the combination of the operational hedge and the financial hedge really gives us, we believe, nice protection on fair value changes to the MSR. As a matter of our -- when we look at our hedging performance, we do rate shock analysis for plus or minus 100 basis points. We do target a hedge coverage ratio. And I think we've talked about all those things in the past. So really pleased again with how the MSR is performing, how our hedge program is performing. And we'll continue to take a very dynamic approach to managing MSRs. And if there's an opportunity to sell at a value above what we believe is intrinsic value, as we have in the past, we'll harvest that opportunity. Operator: [Operator Instructions] At this time, there are no additional questions. I'd like to turn the program back over to Glen Messina for any closing remarks. Glen Messina: Thanks, Aaron. I'd like to thank our shareholders and key business partners for supporting our business. We also would like to thank and recognize our Board of Directors and global business team for their hard work and commitment to our success. I look forward to updating all of you on our progress at our next quarterly earnings call. Thank you for joining. Operator: Thank you for your participation. This does conclude today's program. You may disconnect at any time.
Operator: Good day, and welcome to the CF Industries Q3 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Martin Jarosick, Vice President of Treasury and Investor Relations. Please go ahead. Martin Jarosick: Good morning, and thanks for joining the CF Industries earnings conference call. With me today are Tony Will, President and CEO; Chris Bohn, Executive Vice President and Chief Operating Officer; Bert Frost, Executive Vice President of Sales, Market Development and Supply Chain; and Greg Cameron, Executive Vice President and Chief Financial Officer. CF Industries reported its results for the first 9 months and third quarter of 2025 yesterday afternoon. On this call, we'll review the results, discuss our outlook and then host a question-and-answer session. Statements made on this call and in the presentation on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website. Also, you'll find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website. Before we begin today's call, I want to provide an update on the incident we experienced at our Yazoo City, Mississippi complex last evening. All employees and contractors are safe and have been accounted for, and there are no significant injuries. The incident has been contained, and an investigation is underway. Now let me introduce Tony Will. W. Will: Thanks, Martin, and good morning, everyone. Yesterday afternoon, we posted results for the first 9 months of 2025 in which we generated adjusted EBITDA of $2.1 billion. These results reflect outstanding execution by the CF Industries team across all aspects of our business. And most importantly, our team continued to work safely. At the end of the quarter, our trailing 12-month average recordable incident rate was 0.37 incidents per 200,000 work hours. Five years ago, October 2020, we announced a significant shift in the company's strategic direction, including an ambitious plan to begin decarbonizing our production network, a plan to become the world's leader in clean ammonia and a model example of environmental stewardship and how to abate an energy-intensive business in a financially responsible way. Today, that vision has been realized. I'm very excited to announce that the plans we launched 5 years ago have begun delivering real value to our shareholders and broader benefits to the society as a whole. We have made great strides over the last 5 years and have reduced our GHG emissions intensity by whopping 25% from our original baseline. And every single one of the initiatives that contributed to this remarkable achievement have been highly NPV positive, creating substantial value for shareholders. We are the best example of how being environmentally responsible can actually go hand-in-hand with creating significant shareholder value. On our journey, we have executed all of the following initiatives. We closed 2 of our least efficient, highest emissions plants that were also borderline uneconomic to continue operating. We commissioned 2 new highly efficient, lower emissions plants that have return profiles exceeding 20% IRR. We acquired the Waggaman, Louisiana ammonia plant, a very efficient plant with relatively low GHG emissions intensity and increased production at that facility significantly from 750,000 tons annually to over 900,000 tons, resulting in an IRR of over 20%. We installed N2O abatement systems into certain nitric acid plants, the resulting carbon credits from which are being sold at high values, more than recovering our costs within just a single year. And finally, we have begun sequestering approximately 2 million metric tons per year of CO2 from our Donaldsonville complex. The 45Q tax credits from this project will more than pay our installation costs within 2 years, generating an IRR over 20%. And we are currently selling the resulting low-carbon ammonia at a premium. What is otherwise a commodity product, chemically identical to ammonia produced anywhere else in the world has become differentiated and now commands a premium in the marketplace. These initiatives have helped reduce our emissions intensity by roughly 25% from our baseline while creating significant value for our shareholders. And now we are embarking on the development of the world's largest ultra-low emissions ammonia plant at our Blue Point complex in Louisiana. We have 2 world-class equity partners, JERA and Mitsui with us in this venture, and I fully expect the financial and societal benefits will be equally as impressive as the initiatives we have already completed. Additionally, we have a second carbon capture and sequestration project underway at our Yazoo City, Mississippi complex and numerous other initiatives yet to be announced. The end result is that we have a robust high-return growth trajectory in front of us through the end of the decade that will continue to dramatically reduce our GHG emissions intensity while providing exceptional financial returns. Before I turn the call over to Chris to talk more about our operating results, I do want to take a moment and highlight what I consider to be a great misconception in the market. I want to refer you all to Slides #10, 11 and 12 in our materials. Slides 10 and 11 show our consistently strong free cash flow generation and our relentless share repurchase program. Slide 12 shows our remarkable free cash flow conversion efficiency from EBITDA and yet amazingly how we trade at a shockingly low valuation. Oftentimes, CF Industries is compared to agricultural companies, and yet we are very different from most of those. The seed and chemical companies face challenges of products coming off patent and declining margins or of distribution channels being stuffed full and having to go through the pain of destocking. We are also very different from capital equipment companies or those selling more discretionarily applied products like phosphate and potash who are really and truly subject to grower profitability. However, our sole product, nitrogen, is fundamentally different. Even in periods of relatively weak grower profitability, nitrogen demand is unaffected, almost completely inelastic. This year, when there was great hand ringing due to subdued grower profitability, high planted corn acres and global nitrogen supply production disruptions in other parts of the world, created a situation where nitrogen demand and resulting pricing was very, very strong. As Bert will talk about in a few minutes, we see the same strong demand dynamic shaping up for next year. Nitrogen and certainly CF Industries' financial performance is not impacted by most of the factors affecting the rest of the ag sector companies. While other times, we are compared to industrials or material sectors, again, we have very little in common with most of those companies either, especially the chemical companies. We do not suffer from global overcapacity nor from sluggish or declining demand. Our free cash flow generation is consistently high. And yet as shown on Page 12, we have traded at an anemic average cash flow multiple of barely 7.5x free cash flow. Realistically, that should be the low end of an EBITDA multiple, not a cash flow multiple. Oddly, businesses that are on the whole more volatile and structurally way less advantaged than CF trade at a higher valuation. The industrial sector trades at 27x cash flow. The materials sector trades at 30x cash flow, while our consistently high cash flow generation on average has traded at a sickly 7.6x. All of this is a long way of saying the market doesn't really understand our business or our consistently high free cash generation. As Greg will talk about shortly, we have made great progress on our share repurchases and continue to do so. We, around this table, believe CF represents an amazing value, especially when only trading at an average 7.5x cash flow. And we will continue aggressively repurchasing shares from the nonbelievers and those that don't take the time to understand why we are fundamentally different from most ag, industrial and materials companies. With that, I'll now turn it over to Chris to provide more details on our operating results. Chris? Christopher Bohn: Thanks, Tony. CF Industries manufacturing network has operated well throughout the year with a 97% ammonia utilization rate for the first 9 months of 2025. As is typical for the third quarter, we had significant maintenance activity, which reduced production volumes compared to the first 2 quarters. We continue to expect to produce approximately 10 million tons of gross ammonia for the full year. We also have made significant progress on strategic initiatives that are now generating EBITDA and free cash flow growth for the company. In August, we were able to fully utilize expanded diesel exhaust fluid rail loadout capabilities at our Donaldsonville complex for the first time. This enabled us to capture incremental high-margin DEF sales and led to a monthly record for DEF shipments from the site. Also at Donaldsonville, the carbon dioxide dehydration and compression unit, which was commissioned in July, continues to run well. We are generating 45Q tax credits and moved to full rate safely through the quarter. Finally, in October, we completed a nitric acid plant abatement project at our Verdigris, Oklahoma facility. This project is expected to reduce carbon dioxide equivalent emissions at the site by over 600,000 metric tons on an annual basis, which we are monetizing through the sale of carbon credits. By the end of the decade, we expect the returns generated by our CCS projects, along with the Verdigris abatement project will add a consistent incremental $150 million to $200 million to our free cash flow. Longer term, we remain excited about the compelling growth opportunity that the Blue Point project offers us, particularly given the sales team's success in selling low-carbon ammonia from Donaldsonville for a premium. Detailed engineering activities and the regulatory permitting process are progressing well with capital expenditures for 2025 expected to be within the range we projected earlier this year. We expect site construction to begin in 2026. With that, let me turn it over to Bert to discuss the global nitrogen market and the growing interest in low-carbon ammonia. Bert? Bert Frost: Thanks, Chris. The global nitrogen supply-demand balance remained tight in the third quarter of 2025. Demand led by North America, India and Brazil was robust. Additionally, product availability remained constrained due to low global inventories and outages during both the third quarter and earlier in 2025. China's re-entry into the urea export market provided tons the world needed, but did not substantially alter these dynamics. Looking ahead, we expect the global nitrogen supply-demand balance to remain constructive. We believe supply availability will continue to be constrained. Global inventories are low, including in North America. Additionally, major planned and unplanned outages are occurring now while geopolitical issues and natural gas availability, particularly in Trinidad, remain a challenge. The start-up of new capacity also continues to be delayed. At the same time, we expect global demand to remain strong. India is likely to tender for urea in the near term, especially given the result of their most recent tender. Nitrogen demand in Brazil and Europe has picked up recently. And in North America, economics favor corn planting over soybeans next spring based on the December 2026 corn contract, which is currently priced at approximately $4.70 per bushel. Farmer economics across the globe remain a key focus as crop prices have not kept price up -- pace with the price of inputs, equipment, rent and other costs. That said, we believe nitrogen offers clear value for farmers relative to other nutrients for its immediate impact on yields. Given where crop prices are today, we expect farmers to focus on optimizing yield, which should support healthy nitrogen applications. We believe that the strong uptake of our UAN fill program and our robust fall ammonia program and the order book that supports it will support that outlook. We're also preparing for the implementation of the European Union's Carbon Border Adjustment Mechanism, or CBAM, which takes effect in less than 2 months. While there remains some uncertainty about the final structure of these regulations, we feel very confident about our competitive position. Thanks to our Donaldsonville CCS project, we have the largest certified low-carbon ammonia volume in the world. And over the last few years, our team has put in a great deal of time to build relationships with customers, including those who will be affected by CBAM. This has enabled us to sell certified low-carbon ammonia at a premium to conventional ammonia today as customers begin to adapt their supply chains. Based on our conversation with customers, we also believe CBAM will drive significant demand for other low-carbon nitrogen products such as UAN. We see this as a tremendous opportunity for CF Industries on top of our already high-performing nitrogen business. We look forward to working with customers to build out a low-carbon ammonia and nitrogen derivatives supply chain. With that, I'll turn it over to Greg. Gregory Cameron: Thanks, Bert. For the first 9 months of 2025, the company reported net earnings attributable to common stockholders of approximately $1.1 billion or $6.39 per diluted share. EBITDA and adjusted EBITDA were both approximately $2.1 billion. For the third quarter of 2025, we reported net earnings attributable to common stockholders of $353 million or $2.19 per diluted share. EBITDA and adjusted EBITDA were both approximately $670 million. On a trailing 12-month basis, net cash from operations was $2.6 billion and free cash flow was $1.7 billion. We continue to be efficient converters of EBITDA to free cash flow. Our free cash flow to adjusted EBITDA conversion rate for this time period was 65%. As you saw in the press release, we updated our projection for capital expenditures on our existing network to approximately $575 million for 2025. This reflects additional maintenance we were able to complete efficiently during planned outages as well as the timing of strategic investments that Chris mentioned this morning, and he spoke about at our Investor Day in June. We returned $445 million to shareholders in the third quarter of 2025 and approximately $1.3 billion for the first 9 months. In October, we completed our 2022 share repurchase authorization, having repurchased 37.6 million shares, which represents 19% of the outstanding shares at the start of the program. Our share repurchase program continues to create strong value for long-term shareholders. Net earnings increased approximately 18% compared to the first 9 months of 2024, while earnings per share were approximately 31% higher, reflecting our significantly lower share count. The same positive impact can be seen in our shareholders' participation in our production capacity and the free cash flow it generates. We are now executing the $2 billion share repurchase program authorized in 2025 with over $1.8 billion of cash on hand at the end of the third quarter. We are well positioned to continue returning substantial capital to our shareholders while also investing in growth through Blue Point and other strategic projects. With that, Tony will provide some closing remarks before we open the call to Q&A. W. Will: Thanks, Greg. For me, this is earnings conference call #48 and my very last one as CEO of CF Industries. Over the past 12 years, traditionally at this point in the call is when I have thanked the entire CF Industries team for their hard work and contributions to our success. I'm eternally grateful to the entire team. Today may be more so than usual, and I am particularly aware of what an amazing team we have here. So indeed, thank you all said perhaps a bit more heartfelt than the past 47 times. I'm exceptionally proud of the company and the organization I'm leaving. The highly ethical way in which we conduct ourselves, our unwavering commitment to employee safety and our absolute focus on value creation. In addition to the entire CF team, I also want to thank our Board of Directors who have always been supportive of me, providing insight and guidance through the years and importantly, always aligned with me on the objective of value creation. I also want to particularly thank the CF senior leadership team with whom it has been a truly great pleasure to work alongside. I can honestly say this is the best group one could possibly hope for and not only respect them as individuals along with their business acumen, but I also thoroughly enjoy their company and our camaraderie. Finally, I want to thank and congratulate Chris Bohn on being named CEO. Chris has been a consistent thought partner and devil's advocate working with me as we navigated foundational decisions like the Terra acquisition, the sale of our phosphate business, the capacity expansion projects, our strategic repositioning of the company, the Waggaman acquisition, and most recently our Blue Point joint venture. Chris has been hugely successful in leadership roles across the company, including heading FP&A, supply chain, manufacturing, CFO, and his current role as COO. Chris has my complete faith and confidence that he will successfully lead the company to new heights. Again, thank you, and congrats. It has been some kind of a thrilling ride for me as CEO, an incredible honor and a very great privilege. We've accomplished many things over the years. As I say, success has many parents and indeed, all of our successes were team efforts, and I'm delighted to say that the team remains in place. Therefore, I'm steadfastly confident that the company's best years are in front of it. With that, operator, we will now open the call to your questions. Christopher Bohn: Before Q&A, I want to take a moment to acknowledge Tony's retirement and his contributions to CF over his 18-year tenure. Tony's influence and impact on CF cannot be overstated. From his time leading manufacturing where he generated and championed the do-it-right phrase is a core statement of CF's values and culture to his relentless pursuit of personal and process safety. CF has improved through his leadership. Tony's leadership, which can be best described as bias towards action. This has been exemplified through the growth the company has experienced under his guidance through the CHS transaction, Donaldsonville and Port Neal expansion projects, Waggaman acquisition to the recent announcement of the Blue Point joint venture, increasing CF ammonia production and free cash flow generating assets by 45% during his time as CEO and over 200% since he started at CF as a member of the senior leadership team. His safety-first mentality, keen decision-making and focused on disciplined investments and execution is what has positioned CF where we are today, tremendous safety performance, industry-leading asset utilization and superior capital allocation. Over the years, he's not only been a great mentor, but also a great friend. I look forward to building on what Tony has established and wish him the best in his next act. Thank you, Tony. W. Will: Thank you. Operator: [Operator Instructions] First question comes from Ben Theurer from Barclays. Benjamin Theurer: So first of all, Tony, all the best in retirement. I'm pretty sure you have plenty of things you want to do. So enjoy that. And that's -- it was quite a run, I guess. So that's never bad. So enjoy that piece. And maybe as well for you, Chris, all the best on your new assignment as CEO. So 2 quick questions I have. So one, you've talked about in your presentation material about the mid-cycle where you are right now and the mid-cycle where you think you're going to be in 3, 4 years' time as you get these additional projects come through. So I just want to understand the current market conditions obviously still seem to a degree, stretched, right, with the European gas price somewhat elevated versus what maybe mid-cycle in the past was. So I wanted to get your view in terms of the bull versus the bear around that $2.5 billion mid-cycle mark and how we should think about that evolving from a feed cost standpoint of view into the period of 2030? And then I have a very quick follow-up on pricing premiums. Gregory Cameron: Yes. So I'll start. It's Greg. So clearly, today, right, when we built the $2.5 billion, we had a $3.50 gas strip in there for Henry Hub and a price -- realized price on urea at $3.85. As of today and through the year, we've obviously traded below that on the Henry Hub. So from a feedstock, we've been benefiting in our results. And then lately, you've definitely seen a price move up through the course of the year on the urea. So from a results standpoint, hopefully, you're seeing that and appreciating that in the results that we printed at $2.1 billion of EBITDA through the first 3 quarters. I think as you think about it going forward and the spread between what we see here in the U.S. and in Europe, our view is that there'll be some tightening there, we expect to have a competitive advantage and remain lower priced on a nominal basis as well as relative basis versus what we're seeing in European production, which is -- will continue to be a tailwind to us for our financial performance. W. Will: I mean, I guess it's a long way of saying, Ben, that we would agree with you that current conditions are well above mid-cycle and our expectation just based on history of how fourth quarter paces against the other quarters should deliver full year results well above mid-cycle this year. And I think that's consistent with kind of what you said, industry conditions, gas price in Europe, kind of what's going on in terms of the energy space and overall demand, it does feel stronger than, I would say, mid-cycle, but we're delivering against it. Christopher Bohn: And the only other point I would add is on the growth that Greg talked about going to the $3 billion, that is identified in motion being executed on today. So that is not things that are in the pipeline that is what we know today and that will likely grow as time goes on as well. Benjamin Theurer: Okay. Got it. And then that price premium on the ammonia you're selling in Europe, the blue ammonia that you're getting out of Donaldsonville, can you give us a little sense of magnitude as to the premium that you're getting here with your customers? Bert Frost: Sure. This is Bert. And we've been fairly consistent with our goals of as we build the supply, which has come on stream and over time, as we add additional locations and then Blue Point, we want to build correspondingly demand. And so we've been working very synergistically with our European customers, North African customers and even in the United States. So today, the premium is $20 to $25 per ton. As demand grows and we don't see the supply, we would anticipate that those will be matched on as demand grows. So very positive for CF. W. Will: But again, Ben, that was never contemplated as being part of the economics when we went with the dehydration compression plant. So the cost of the plant was just under $200 million. The 45Q benefit when we're sequestering at a rate of 2 million tons a year is going to be about $100 million of cash. And then we're adding another roughly almost 40-ish to 50 from product premium. So we're picking up an extra 50% EBITDA that was never initially part of the justification of that project. And so it's kind of nothing but goodness across the board in terms of our -- that project. Operator: The next question comes from Edlain Rodriguez from Mizuho. Edlain Rodriguez: Tony, clearly, you will be missed. That's clearly the case, and good luck with everything. So a quick question, again, maybe for you, Tony, and maybe for Bert. In terms of -- I mean, as you noted, the nitrogen outlook looks very constructive. But if you were digging for possible bogeyman in terms of trying to find something to worry about in the near or medium term, like where would you look? Bert Frost: Well, actually, we do every day, assess the forward market, the spot market, the prompt market, and we try to be constructive in terms of how we build our order book and thinking about the customer base. That's why we're broad-based in terms of ag business, industrial business, export business, and we're levering those along with our terminaling activity, how do we enter and exit the market and play the market. But when you look at the market today, then it's a global market, you're seeing a constrained supply, and that happened through the global conflicts as well as plants coming offline in Saudi Arabia, Bangladesh and a few other places and gas limitations in Trinidad, high-cost gas in Europe and not a lot of new capacity coming online in low-cost areas. So constructively, supply is, I would say, consistent on a limited basis, while demand continues to grow at that 1% to 2% per year. And we're seeing very healthy demand in India, Brazil, North America, and we plan to continue with that level of demand. And so when I look at the negatives, I think what -- it's -- from your side, it's always yes, but yes -- but this is going to be negative. And we've been hearing about China for 10 years. We've been hearing about other issues for years, and we continue to outperform the market. So looking at the negatives, I would say I like the current market. I think the current market is going to extend into 2026. That's as far as we give a viewpoint. But China's demand internally to consume the tons they produce is pretty well tied to that. So these 4 million tons of exports that we see coming out in 2025 is probably needed. And then India hasn't performed on their production internally. They've been importing consistently high levels of urea and Brazil continues to grow. So I have a hard time finding a negative bogeyman out there. W. Will: See, I was -- Edlain, I'm going to give you a little more flip in answer. I was going to say all you have to do is read some of your other colleagues out there in the industry, you'll get kind of where the bogeyman sits, even though we don't really believe a lot of that is accurate. Edlain Rodriguez: So one quick follow-up for you, this is for Tony and Chris. I mean, Tony, you've talked about the valuation disconnect in your shares. Clearly, I guess, like you failed to convince those jittered investors. Like what else do you think Chris -- and Chris, you could answer that, too. What else do you think you will need to do to convince investors of that valuation gap that you've clearly seen? W. Will: I mean we did a European roadshow this summer or this fall and talked to investors over there. And there was a little bit of kind of not understanding why the valuation was what it was, but also -- there was also, frankly, a little bit of just we trade you as part of this broader group of other companies. And when there's a lot of automated trading going on and there's something that affects, like I said, either the ag sector or something else, all of the company's kind of move. And I think there just isn't a recognition that we're -- our financials are very different from most of the companies in that sector. And I think at some point, when there are few enough shares out, we'll start getting a more realistic valuation against what's remaining. And I think, fortunately, we're generating enough cash, and the shares are such a screaming value that I think continuing just to buy shares out of the market is the only way we can eventually get there. Christopher Bohn: Yes. And the only thing I would add to that is when you ask what should we do, it's to continue to do what we are doing. We have exceptional operational performance focused on safety and a conversion to free cash flow that I think we, as a company, reflect on more than anybody else that I see both in the chemical and the agri and really all industries. And so at some point, that has to resonate with people. Cash is king and whether it's buying back the shares, as Tony said, or making high-growth investments that have great return profiles, it will pay off at some point. So it's continuing to execute the way we're executing. Operator: The next question comes from Joel Jackson from BMO Capital Markets. Joel Jackson: Tony, congrats again. A couple of questions. If you brought forward $75 million of maintenance CapEx this year, does that mean that next year, you should be run rating $425 million CapEx on your non-Blue Point network? Christopher Bohn: Yes. Joel, I'll start with that and then if anybody needs to add something to it. But that increase, we were probably a little light on the $500 million. Generally, we start the year running at about a $550 million is kind of the range we're performing in, but it's really affected by 3 things. One, we completed more projects than we typically do at this time. There's a lot more, I would say, smaller dollar projects that are easier to finish during this particular timeframe. And then we also -- part of it was a timing of a nitric acid precious metal purchase, which was quite a bit that we do from time to time. And then we had, to be honest, slightly higher labor and capital costs related to some of the inflation by a few percentage points than what we had been forecasting. So as I look at 2026, I would still use the $550 million as our range going forward for sort of, let's call it, our base CapEx and then adding CF's component of Blue Point on top of that. Joel Jackson: Okay. And I know it's early, very early, and it's great that no significant injuries. But do you know if what's happening in Yazoo City, is this going to be an outage that's order of magnitude days, weeks or months? W. Will: Yes. It's way too early to speculate on that. I would say the ammonia plant was not directly affected. It's still operating as of this morning. But at some point, you run into inventory containments depending upon how long the upgrades are down. So we're thankful that everyone is accounted for and is safe and that really there is only just a couple of very minor injuries, nothing serious or significant. That was our biggest concern. And then also that there is -- the site has been secured. Now we're in the process of kind of really understanding what the condition of things are and what the root cause was, and then we'll start worrying about turning things on after we do a thorough investigation. I would say, Joel, that this is our smallest segment and a relatively small plant in our smallest segment. So we're not focused on kind of potential financial implications at this time. And as Chris said, we're still expecting to be able to produce the 10 million tons of ammonia this year like we had planned on. Operator: The next question comes from Chris Parkinson from Wolfe Research. Christopher Parkinson: Awesome. Tony, I'm not one to always say like say great quarter, but I'll give you a shout out and I'll say great 12 years and through all the debate, agreements and at times disagreements, you've always challenged me. So I'd like to personally thank you for that. It's been a pleasure. A question to both you and Bert. There's been -- and it shows you outside the market to me. There's been a lot of inconsistency of supply throughout the entirety of this year. And you have things in Russia, Germany, Poland, Romania. I mean perhaps this becomes a broader intermediate to longer-term question. But how much of the demand and the price strength do you attribute to the supply side of it versus the fact that demand, I think, broadly speaking, throughout the year-to-date has also been pretty healthy and kind of led to these price rallies at times at nonseasonal time. So I'd really appreciate your perspectives and kind of how to think about '26 in the context of what we've actually been seeing experience and what we've been experiencing in 2025. W. Will: I think the demand piece of the equation is much easier to forecast going forward. And as Bert said earlier, given where the different products are priced at in the corn-to-bean ratio and just looking at what we saw in the way of the UAN fill program as well as fall application of ammonia that's going on right now, we're anticipating the demand side of the equation to be very strong for the planting year of '26. The supply side is a little harder to kind of peel back. And as you said, it's an integrated kind of question in terms of how much it is the S and how much of it is the D. I would say a lot of the places that you mentioned, not so much Russia and Iran, but a lot of the places that you mentioned where there were some supply disruptions are on the relatively higher end of the cost curve. So those tons don't necessarily move things dramatically up in terms of price. But there's no doubt the conditions that we saw this year due to both the S and the D side were quite strong, and that's why our anticipation is delivering a result that's well above what our mid-cycle numbers when Greg talked about it at Investor Day, what he gave, we expect to be well above that. Bert Frost: I think for CF in particular, how we view the world and being students of the world geopolitically, economically and systematically and how it affects our business. Tony touched on the specifics, but we did lose 5 million tons from the market through the conflicts for Iran and Egypt, Algeria and some in Russia and Turkmenistan. And then I think the lack of China or the late coming in of China in June probably pushed the market higher than anticipated. But we're still tight. And like Tony articulated in terms of demand with India pulling 8 million to 9 million tons, Brazil, 7 million to 8 million tons, North America, 6 million tons and Europe producing less and not having the access and the lack of inventory in any major destination market sets up 2026, I think, very well. And we're going to see, I think, higher-than-anticipated corn acres in North America due to just the economic opportunities and impacts, which is constructive for CF. Christopher Parkinson: Got it. And just as a quick follow-up, I mean, Tony, you've gone through your fair share of capacity expansions, both -- well I should say, very large brownfields and other brownfields and everything within your network. What have you, Bert and Chris learned the most from all of those efforts over the last 12 or so years that Chris and his team can essentially apply the Blue Point to perhaps mitigate a lot of the things. Is there kind of a track record of lessons that you can really apply here? Or is it just going to be every project is different at the end of the day? W. Will: Yes. I would say we learned a ton that is currently in direct application of this project, one of which was we did a full-blown FEED study and detailed engineering of this plant before we announced it, went to FID. And so we have a much better perspective of the actual construction hours, and the unit build material lifts than we did when we announced the expansion projects back in 2012. The other thing I would say is the size of our network and the expertise we have across the network and the scale we have brings tremendous skill sets and capabilities to bear against a project like this. And you see that when you're looking at other people that are trying to start up ammonia plants that are years late because they just don't have the capability and expertise running ammonia. And there are a few of those out there right now. And so I think both the fact that a number of the people involved in this construction project were also involved in the big Port Neal, Dville expansions in 2012 through '16 as well as just some of the broader lessons like the engineering and FEED study, I feel very confident in this. And we also have expertise from our partners that we're going to be able to leverage as well with JERA and Mitsui that are equally, if not even more so, comfortable doing very, very large capital projects like this, and they're bringing some of their best resources to bear as well. Bert Frost: I would say, as Chris said in his comments, Tony, being bold and -- but that boldness is based on market knowledge, understanding -- we've looked at plants all around the world. We've looked at a lot of opportunities over the years. We've had some great debates and discussions and disagreements at times on where to go and how to grow. But in the end, have made some very good decisions on that. And Blue Point is a good example. We're the company that does it right, builds -- stays within, I think, our fairway and brings these plants on safely, and they operate above nameplate. And so it's that bold step of taking it when the market is growing and needs these tons. Christopher Bohn: Yes. And the only thing I would add is that's different from last time, Chris, as we've talked about before, is we're going with modular construction. Last time on a stick build time and material, you started to see labor costs get out of control. So I think that was something that we did a lot of evaluation on and also looking at who we're going to select to build those modules. And then lastly, something that we'll do that we did last time that the whole team is working on, which is we begin hiring operators and engineers today, even though the plant will not be up for 4.5, 5 years or whatever. And what that allowed us last time was to get to over nameplate production within a couple of months after start-up, which nobody else was able to do. So again, as Tony said, leveraging our overall network, not just for engineering expertise, but to train operators and other individuals that will be working at these sites. Operator: The next question comes from Andrew Wong from RBC Capital Markets. Andrew Wong: Just echoing everybody else's comments, Tony, congratulations on a very successful career and guiding CF through a lot of market ups and downs. We've seen a lot. So enjoy your next chapter. W. Will: Thank you, Andrew. Andrew Wong: Yes. And so just maybe on the comments you made earlier around the valuation, I think you made some very fair points. So maybe a question for you and also for Chris. Just given the value in shares and buybacks seem to be the path to kind of realize that value, you have a very strong balance sheet. Would there be any consideration for using debt to fund Bluepoint and then maybe using the cash flows and the cash generation to buy back shares? Like would that make more sense right now. W. Will: I think the problem with doing that a little bit, Andrew, is its sort of a onetime sort of benefit that you get and then you're living with much higher fixed costs as you go. And I think one of the things that we've seen in this business is having a balance sheet with low fixed cost and a lot of liquidity gives us opportunities to move when there's things that are available to us like the Waggaman deal, which we did in cash. And so instead of this being a kind of trying to rush an equity swap for debt, which benefits kind of near-term shareholders. We're really playing the long game here, and it's about trying to make sure that we retain all of the long-term operating and strategic flexibility and at the same time, rewarding the truly long-term shareholders who eventually, I think, will start valuing the company properly. But given my perspective, I'm not going to be here in a couple of months. So this is probably -- Chris and Greg can talk about it. Christopher Bohn: Yes. From my perspective, well, just for starters, I think the numbers that Greg presented and where we're seeing this year, where we're seeing next year and even the mid-cycle, we're going to have enough cash to do both at a significant level, just as we've done over the last decade under Tony, where we've been able to grow and also do significant share repurchases. So the ability to do both. I would echo Tony's comments, like having fixed charges in line, having a, I would say, flexible balance sheet is very important when you're in a commodity business. As we're seeing more of our business here go to ratable, more industrial with premiums and things, we can make different decisions from there. But I think the cash flow that we're generating due to the conversion rate that we do allows us to do whatever we want to do really. Gregory Cameron: Yes. The only thing I would add to it is just emphasize the numbers that we talked about today, right? $1.3 billion of cash back to the shareholders for the first 3 months, $700 million in CapEx, so $2 billion, and we have $1.8 billion of cash on hand today. That creates incredible flexibility for the company. Andrew Wong: Okay. Understood. And then maybe just one on costs. I think SG&A looked still just a little bit elevated for the quarter, obviously, not hugely, but just curious if there's anything there. And then also on just some of the non-gas costs, I suspect that the turnarounds this quarter contributed to some of that. Just I'm wondering if there's anything to flag or anything to add. Gregory Cameron: It's Greg. On the SG&A side, we continue to just update our bonus accrual for the company for the year, and there was a small catch-up as well as a plan for the third. So that's the elevated level on the SG&A. On the non-gas side of production cost, really the one that stuck out to me as I climbed through them was really around ammonia in that segment. And the point to make there is we did have an increased mix around our purchased tons, which obviously come into the system at a higher value than what we can produce them at, but it also contributed to gross margin dollars in the ammonia segment being up 30% year-over-year. So other than that and the timing of some turnarounds, there was really nothing to speak of in the non-production cost. W. Will: Yes. And on the purchase front, just to remind you, the tons that are produced in Trinidad, we purchased, and we realize the value in Trinidad and then that comes through equity earnings instead of directly into the ammonia segment. And then into the U.K., we're purchasing ammonia and then upgrading it to a margin, and then that's going to come through kind of our other ops segment. But the price because we're buying it at market shows up in COGS for ammonia. So that kind of helps dimensionalize what Greg was talking about. Operator: The next question comes from Kristen Owen from Oppenheimer. Kristen Owen: I do want to start with a more strategic long view here, just given some of the prepared remarks about the valuation disconnect. And given your comments on whether it's CBAM, where those Blue Point ammonia tons will go, even some of your comments on DEF, help us understand if we're looking at this business model in that 2030 framework, how much exposure really is ag anymore versus some of these more industrial applications? And how should we think about that mix contributing to that sort of mid-cycle framework? W. Will: Yes. I mean ag is still going to represent the lion's share for the foreseeable future of where we sell our products. And the simple reason for that, Kristen, is that the margins in ag are far superior to the margins in industrial. We could move all of our products into the industrial marketplace, which tends to be ratable and then -- but we would end up doing it at a significantly lower price point, and we wouldn't get the benefit of our distribution and logistics network by doing so. And so some of the -- even though it is kind of "a little bit less predictable," it's at a lot higher volatility. And I'm going to refer back to, I think, sort of something I've heard attributed to Warren Buffett, which is give me a 15% spiky return over a 10% flat, we'd way rather have a spiky to the upside return profile associated with serving the ag marketplace than we would the other way. Now we're starting to build some and that will continue to increase. That does tend to be a little more ratable with predictable margin structures. But we're going to be -- we're 75%, 80% in ag company today, and it's going to be like that for a very long time. Bert Frost: I think you have to also think about how our company is structured with our unique distribution and terminaling assets that are throughout the Midwest on the best farmland in the world with the lowest cost access logistically, if you compare our cost to get to the middle of Iowa for, let's say, $30 for urea against taking that to Mato Grosso from Paranagua or Santos, it's significantly cheaper and the yields are significantly better and the farmer economics is better as well. On top of, we have low-cost gas in those regions. So we are structured to serve the ag business, which, as Tony mentioned, is spiky but profitable. But we balance that with this industrial book and export book that places us in, I think, globally, a very unique position, and we're benefiting from that. Kristen Owen: Sure. And I appreciate that. And perhaps a little clarification on my side. I'm not suggesting that there's some major move out of the ag markets. It's more just how much more meaningful can the earnings potential be on the industrial side given the uplift of some of these markets. So perhaps a slight clarification there. And while I'm here, I'll just ask my follow-up question. Just given the cost curve in China, a little bit more affordable to keep those a little bit more domestic affordability. So just any thoughts on China exports in 2026? Bert Frost: We've been fairly consistent regarding China in that 3 million to 5 million ton range, and that's how they seem to perform. We're expecting them in 2025 to be in the 4 million to 4.5 million ton range. And they've announced this additional export quota. They haven't announced their program for 2026, but I would just bet on the same, probably coming out in sometime in Q2 with exports, May, June and exporting into the early part of Q4. Because their domestic market is so big, their domestic demand, both ag and industrial and where they are capacity-wise and operationally, that 4 million to 5 million -- 3 million to 5 million tons of exports makes sense as you build kind of what their structure should be. W. Will: Yes. Kristen, I'll just add one thing back to your first question. If you think about the 45Q tax credit associated with both Dville and Yazoo City when it comes online, we'll probably be close to $150 million of cash, and that's not net of taxes and everything that is not dependent upon where market pricing is for any of our products. Between what Bert is able to realize in price premium and some of the other initiatives we have like selling carbon credits, there could be another $25 million to $50 million of additional value that accrues to us that is also not tied to the market. So you're starting to get to the point where there's probably -- could be $200 million-ish a year that's coming in that is very ratable and predictable and just part of the base then that, everything else kind of rides above. Operator: The next question comes from Lucas Beaumont from UBS. Lucas Beaumont: Good luck with your retirement, Tony. Congrats on your career [indiscernible] the others. Yes, I just wanted to kind of ask you about Blue Point. So you guys noted that you'd procured all the long lead time equipment now. So kind of just where did the costs come in there compared to the budget? Kind of what percent of the project spend was that. And kind of just remind us of any cost escalation components that are built in there for like inflation and tariffs, et cetera, between now and sort of when the delivery occurs? Christopher Bohn: Yes. Thanks. This is Chris. Well, for starters, I would say the projects were way too early in the phase to say we're under significantly or we're slightly over or whatever. I would say we're right where we thought we'd be. The products that we -- or the equipment that we ordered as long lead time is like your boilers, your compressors, different equipment like that. The modular equipment, which is going to be the significant dollar amount that we'll be selecting the modular yard here shortly. And those have been fixed fee bids in which we had -- which was part of our overall $3.7 billion. So that part, we still feel very confident about. As we look at, I think, your question probably with tariffs, I mean, with the Supreme Court hearing arguments right now, there's still a lot of uncertainty what happens. A lot of the equipment that would be tariffed is most likely going to be coming in, in 3 years from now. So there's still quite a bit of time frame, and I'm certain more will change between now and then. But what I would say is we forecasted quite a bit into tariffs. We're slightly higher than that, that's going into our $500 million contingency, but not anything that would have us concerned at this time. I think additionally, there potentially could be upside dependent on what the Supreme Court rules, but I'm certain there would be some reactions by the administration as well on additional tariffs and other areas. So again, tariff side, a little uncertain, but we feel like we're covered there. Long lead items, those are in path, but those are more some of the more engineered complex items like compressors and such. Lucas Beaumont: And then I guess just on the pricing outlook, I mean, you guys are kind of talked at length about it. I mean, ammonia has been very tight. The pricing is strong. UAN and ammonia imports are sort of running below trends heading into the fall and spring. So I mean the near-term setup looks quite attractive. I mean, at the same time, the TTF futures have sort of been coming off the past couple of months have sort of gone from 12 and looking flattish year-on-year, sort of low 10s kind of now down about $1.50. So I guess just how do you kind of see those 2 factors resolving each together as we go through '26? Or I guess, if you don't think they'll resolve, then why not? Christopher Bohn: Maybe I'll start with the gas side with the TTF -- I mean, TTF has come off about $1. So you're still sitting near $11 on the forward strip with that with the U.S. sitting anywhere from $3.50 to $4. So you still have that differential that is very constructive. As Greg said, longer term, when we get into '28, '29, we may see that contract some, but not nearly to the level just given that the projects being built have to have return profiles with those as well and the additional demand that will be drawing on LNG. So from a constructive standpoint, we still think the gas differential is going to be very strong even if it comes in $1 or $2 from where it is today. Bert Frost: Regarding the market and the tightness we're experiencing today, with Saudi, the plant -- the ammonia plant being down and the late start of some of these new capacities, as well as Trinidad and then suboptimally operating in Europe. The ammonia market is, I think, going to maintain tightness until these new plants come on, and we'll see what happens. But the United States today is at a net import negative on UAN and ammonia, probably balanced on urea. And so again, looking around the world where we participate and where we have communication, you have a tight inventory position in all of the destination markets. And so looking at gas and costs and kind of upside, I think we roll very well into 2026 and probably through the first half easily in a positive way. Operator: The next question comes from Vincent Andrews from Morgan Stanley. Vincent Andrews: I'm actually late to something else, but I wanted to stick around and just congratulate you, Tony and say thank you and good luck in the future. W. Will: Thank you, Vincent. I appreciate that. Operator: The next question comes from Matthew DeYoe from Bank of America. Matthew DeYoe: Tony, congrats on the run. I know I didn't cover you directly for much of the time, but Steve always held you with the highest regard. So I know that goes for the rest of us here at Team BofA. I wanted to ask, I guess, a little bit on the slide where we talk about like ammonia expansions and closures. Certainly, we don't disagree that a number of European plants need to close chemicals across like a lot of chains. But if we look at that 3 to 4 number, I mean, what's the -- how much of that has been announced? What do you think the rates are that those plants are running? And then like I just know that closing plants is expensive and not really done easily. So I'd love a little bit more kind of commentary around your outlook for that capacity. Christopher Bohn: Yes. So this, as you may recall, is a study we did about 1.5 years ago where we analyzed every ammonia plant in Europe based on how its ownership structure was, what its maintenance structure, what its cost structure was going to be to try to identify which of those plants would come off. In Europe used to have about 48 ammonia assets that we're operating and how we have it leveled was red, yellow, green. And what we've seen is the red plants have come off as we expected. And in fact, we're probably ahead of that particular schedule with a number of curtailments and shutdowns that are occurring in Europe from that. But that 48 assets today is probably around 30 assets or maybe 31 assets. And we expect that to drop another 4 to 5 assets over the next couple of years. You have to remember, the decision we made in the U.K. was because we had a significant turnaround coming forward. And these turnarounds are $50 million to $60, so when you're entering into that, you have to make certain you're going to get that return on that cash. Additionally, where TTF is today at the $10 to $12 range makes it difficult to be producing throughout 12 months of the year for really selling in what may be 3 months a year, maybe 4 months a year. So you're making a risk decision based on that. So what we're seeing today is with some of the pricing, there's just a little bit more curtailment going on. But eventually, through our study and what we've seen, you're going to see some of those plants continue to go off. So the European side, we feel very confident that, that 3 million to 4 million is going to come off. Now whether all that gets imported as net ammonia or as upgraded product, that will be determined. But I think the other aspect here is, as Bert mentioned, there is just not a lot of new supply coming on. we have visibility of what plants are being built. And with the exception of ours and the 2 in the Gulf Coast that are about to come on probably sometime in 2026 and one in Qatar, there's really not much coming on. And the other plants that are coming on are upgrade plants that are consuming ammonia and making the ammonia market even tighter. So what we see is a strong constructive gas differential where we'll make money off of that versus TTF. And then we also see a very tight S&D balance that not only continues here into 2026 but really goes all the way to 2030. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Martin Jarosick for closing remarks. Martin Jarosick: Thanks, everyone, for joining us today. We look forward to speaking with you at future conferences. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Addiko Bank Results Q3 2025 Conference Call. My name is Youssef, the Chorus Call operator. [Operator Instructions] This conference is being recorded. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Herbert Juranek, CEO. Please go ahead. Herbert Juranek: Good afternoon, ladies and gentlemen. I would like to welcome you to the presentation of the results of the third quarter 2025 of Addiko Bank AG on behalf of my colleagues, Sara, Ganesh, Edgar and Tadej. Let me show you today's agenda. In the beginning, I will present to you the key highlights of our results. Ganesh will continue with our achievements on the business side. After that, Edgar will give you more details on our financial performance. And Tadej will inform you about the developments in the risk area. Finally, I will do a quick wrap-up before we go on to Q&A. So let's start with a quite positive note. I'm happy to inform you that in Q3, we achieved a record operating performance with an operating result of EUR 31.2 million quarter-to-date due to a strong business performance of our team and due to good cost management. This represents the highest quarterly operating results so far, achieved entirely under the new business model. On a year-to-date basis, the operating result ended up at EUR 82.9 million despite the significantly lower interest rate environment and based on our measures to manage the inflation-driven updrift of our administrative costs. The strong business performance is based on a 17% growth rate in new consumer lending business and on a 9% growth rate in new SME lending business. However, the positive effects from new business were, to a certain extent, neutralized by lower income from variable back book and national bank deposits as well as by repayments of loans driven by aggressive competitor attacks. Nevertheless, we were able to grow our net commission income by 7.8% year-on-year or even at 12.5% if you compare the third quarter with the third quarter last year. Moreover, we managed to expand our active customer base by 5% year-on-year. Altogether, we could keep our net banking income stable, compensating the mentioned negative effects. Let's briefly comment on our risk performance. We were quite successful in reducing our NPE volume further to EUR 140 million at the end of Q3 compared with EUR 145 million at the end of 2024. Our NPE ratio is kept stable at 2.9%, while our coverage ratio continued to improve to 82.2% from 80.8% at the end of June. Our cost of risk on net loans ended up at 0.7% or EUR 25.5 million compared to EUR 25 million last year. Tadej will give you more details on the risk development later. So in summary, we achieved a net profit of EUR 11.3 million in Q3, which results in a year-to-date profit of EUR 35.3 million at the end of the third quarter 2025. Consequently, the return on average tangible equity stands at 5.6% and the earnings per share at EUR 1.83. The funding situation remained quite solid with EUR 5.2 billion deposits and a loan-to-deposit ratio of 69%. Our liquidity coverage ratio is currently very comfortable, above 380% at group level. And finally, our capital position continues to be very strong with a 21.3% total capital ratio, all in CET1, based on Basel IV regulations. Now what else is worthwhile to mention? As presented in our last earnings call, we have laid the operational foundation for our market expansion into Romania in the first half of 2025 and started our fully automated consumer lending business based on a very diligent and prudent risk approach. On that basis, we have started at the end of August with a 360-degree marketing campaign to raise awareness, to build the brand, to position our product and to start generating business. The campaign included TV and out-of-home advertising as well as digital integrated marketing campaigns and was able to create noise and positive reactions in the market. Despite significant parallel marketing efforts by incumbent banks, we view this initiative as a strong starting point for building our brand in a new market and is a solid foundation for continued marketing activities to drive sustained traction. Ganesh will provide further details in his section of the presentation. Now let's come to a different topic. In 2024, Addiko decided to get a listing on the Frankfurt Xetra platform to improve the trading liquidity and to increase the attractivity to a wider range of potential investors. Now after 1.5 years, based on the very limited trading volume in Frankfurt and due to the given changes in the shareholding structure, we concluded to discontinue the Xetra listing in Frankfurt as of 1st of January 2026, as the defined targets were not met. Concerning our ESG program, I would like to inform you that all initiatives are on track and progressing as planned. You will find more information in the appendix of the presentation. Next page, please. Unfortunately, I have to inform you about several unpleasant changes driven by local governments and local regulators with significant impacts to our business revenues. I will explain them country by country. In Croatia, we are confronted with a series of measures with severe impact on our earning capacity. As of 1st of July this year, the Croatian National Bank introduced preventive macro potential measures restricting consumer lending criteria. Amongst other regulations, a debt-to-income ratio of 40% for nonhousing loans was introduced. The effect of this new rule was already visible with an approximately 30% reduction of our new consumer -- Croatian consumer business generation in the third quarter vis-a-vis last year. Now the experience with our respective vintages does not provide the evidence that such a measure was needed. Moreover, we anticipate detrimental consequences for the concerned customers as those affected may be excluded with their loan demand from the banking system and cover it with unregulated providers. Tadej will give you more background later on. Furthermore, the Finance Ministry of Croatia supported a new regulation to restrict and cut banking fees as of 1st of January 2026. This means that we have to offer free account packages, which shall include opening, maintaining and closing the account, Internet and mobile banking, depositing money, issuing and using debit cards, incoming euro transactions and executing payments with debit cards. Additionally, we have to provide a fee-free channel for cash withdrawals for all customers, while for pensioners and vulnerable client groups, both ATM and branch must be free of charge. On top of that, from the 1st of January 2027, 2 cash withdrawals on ATMs of other banks must be offered for free. All of that eats directly into our core business revenues. And one can ask the question, why do banks have to provide such core services for free? In Serbia, starting with the 15th of September, the National Bank of Serbia asked all banks to reduce the interest rate by 300 basis points to maximum 7.5% for citizens with an income of up to RSD 100,000 per month. This reflects almost the average salary in Serbia. In addition, no loan processing or account maintenance fees shall be charged. Unfortunately, this will affect the vast majority of our customers. In the Republika Srpska, the banking agency decided to restrict specific banking fees. As of 9th June 2025, fees for credit party account maintenance, ATM account balance checks and for sending warning letters of delayed payments are not allowed anymore. And finally, in Montenegro, effective 1st of November 2025, a new regulation will introduce a debt-to-income cap of 50%. This will be accompanied by a restriction on maximum interest rates, limiting them to no more than 100% above the average consumer rate in the market, including non-payroll loans and credit cards. Now to summarize. Altogether, the measures depicted on this page would lead to an unmitigated potential impact of just above EUR 10 million on our revenue base. Nevertheless, we are actively working on solutions to mitigate these effects and to create new offers to our customers to enable new growth opportunities. Now with that, I would like to hand over to Ganesh to give you more insights on how we are reacting in this respect and first of all, to inform you on our business development. GaneshKumar Krishnamoorthi: Thank you, Herbert. Good afternoon, everyone. Moving to Page 6, I'm pleased to report strong third quarter performance in our Consumer segment, delivering 17% year-over-year growth in new business with a premium yield of 7.2%. This was achieved despite a persistently low interest rate environment and supported 9% year-over-year growth in the loan book. On the SME side, the new business origination grew 9% year-over-year with a solid yield of 5.1%. However, we continue to face a challenging market with competitors sharply lowering prices to stimulate demand. This has prompted many existing clients to repay loans early, particularly those with higher fixed rates originated last year. As a result, the SME loan book declined 2% year-over-year, mainly due to reductions in large tickets, medium segment loans. I will share more updates on SME turnaround plan on the next page. Overall, our focused loan book grew 5% year-over-year, and this focused book now accounts for 91% of our total loan portfolio, underscoring our strategy to prioritize high return and scalable lending. Please turn to Page 7 for a detailed outlook. Let's take a closer look at our Consumer segment. Year-to-date, we have delivered double-digit growth while maintaining premium pricing, driven by several key factors: number one, strong market demand across our core geographies. Number two, the launch of fully digital end-to-end lending with zero human interventions in 4 of our core markets clearly differentiates us from the competitors. Number three, our point-of-sale lending proposition continues to perform well, achieving 17% year-over-year growth. Number four, we have identified a sweet spot between growth and pricing, enabling us proactively to retain customers and the loan book through disciplined repricing actions. Number five, additionally, we are redesigning our mobile app, introducing new card features with Google Pay and Apple Pay integrations, which has contributed to an 8.5% year-over-year increase in net commission income. As Herbert mentioned, our business model has been affected by new regulatory restrictions. We are already implementing mitigation measures, including downselling, introducing core debt structures and focusing on high-quality customer segments with larger ticket size. Furthermore, we are developing a new specialist program that focuses on non-blending products, aiming at fee-based income growth, and we will share more details once the program is launched. We are confident that these initiatives will not only offset regulatory headwinds, but also strengthen the foundation for sustainable quality growth going forward. Over to SMEs. Our core business model remains unchanged, to be the fastest provider for unsecured low-ticket loans to underserved micro and small enterprises through our digital agents platform. As mentioned earlier, we are facing market challenges due to aggressive pricing, which has led to some loan book contraction. However, we are now seeing a recovery in the market demand. And to reignite growth, we have taken several strategic actions. Number one, our turnaround plan in Serbia, supported by new leadership team, is delivering 20% year-over-year growth in new business. In fact, all countries are recording double-digit growth, except for Slovenia. Number two, we are placing strong emphasis on retaining quality clients and the loan book through better pricing, loan prolongations and superior service delivery. Number three, we also have broadened our product range while maintaining our focus on unsecured loans, we are also expanding to secured investment loans with slightly higher ticket sizes, targeting both existing and new customers. And this has resulted in a 69% year-over-year increase in investment loan volumes. Finally, we have launched a new digital SME tool to process high-ticket loans with a greater speed and simplicity, providing a clear competitive advantage. Overall, we believe these initiatives positions us well to return to a sustainable growth in the SME segment going forward. Lastly, let me touch on our progress with AI adoptions. We are investing in AI technologies to enhance efficiency and customer experience across the organization. Two AI-driven applications are already live, one supporting employees with HR-related inquiries and the other assisting our call center by analyzing customer inquiries, feedback and creating responses. Additionally, we are exploring AI use cases in IT, risk and marketing, further strengthening our operational excellence and data-driven decision-making. To summarize, 2025 is a transitional year, focusing on refining our SME business model and launching new USPs that enhances speed, convenience and value across consumer and SME segments. These investments are essential, not only to drive future growth, but also to strengthen our specialization, stay ahead of the competition, compensate regulatory restrictions and justify high-margin premiums in a low interest rate environment. We are building the foundation for stronger, faster and more profitable growth in the years ahead. Please let me hand over to Edgar. Edgar Flaggl: Thank you, Ganesh, and good afternoon, everybody. Let's turn to Page 9 for an overview of our performance in the first 9 months of 2025. Despite a challenging interest rate environment and cost pressures, we delivered stable results, supported by resilient consumer lending, strong fee income and a robust capital position. Now let's take this one by one. Our net interest income came in at EUR 177.8 million, a slight year-on-year decrease of 2.2%. This marks a modest recovery compared to the 2.4% year-over-year decline, as reported in the first half this year. The decline was mainly due to the lower interest rate environment, which impacted income from our variable back book, so roughly 14% of our book, [ 1-4 ], and on National Bank deposits. As a reminder, the ECB implemented 8 rate cuts since June 2024, totaling a reduction of 2 percentage points, a faster pace than we initially anticipated. This also caused pressure on interest rates we can charge on new loans. Importantly, our Consumer segment performed quite strong with interest income up 7.3%, driven by 9% growth in the consumer portfolio. Overall, the focus portfolio grew 5% year-on-year, slightly ahead of the previous quarter. On the fee side, we delivered solid growth. Net fee and commission income rose 7.8% to EUR 57.8 million, driven by bancassurance, accounts and packages as well as card business, which altogether grew 11.6% year-on-year, with bancassurance as a key contributor. Now looking ahead, new regulations, respectively, law in Croatia, limiting fees on banking products will have an impact on fee generation going forward. Coming back to the end of the third quarter, as a result, net banking income remained stable at EUR 235.6 million despite the challenging environment. Our general administrative expenses in short OpEx increased slightly to EUR 144.5 million, up just 1% year-on-year, and that's mainly due to wage adjustments and operational updates as well as increases. When excluding the 3 million in extraordinary advisory costs related to takeover of [ what we had ] last year, operational costs were only up 3.2% year-over-year. Our cost-income ratio came in at 61.4%, which is a tad higher than last year. The operating result landed at EUR 82.9 million year-to-date, down only 0.8% year-on-year, supported by an exceptionally strong operational third quarter, as Herbert pointed out already. The other result, which includes costs for legal claims as well as for operational banking risks, remained manageable. We have allocated some additional provisions for new legal claims in Slovenia and made a small top-up in Croatia, also to reflect further increased lawyer costs. The main point in Slovenia remains what the higher courts will rule upon regarding the applicable status of limitation and if that will be in line with the dominant legal opinions. As usual, during the fourth quarter, a further deep dive will be conducted in the context of the year-end audit. So there is a possibility for some additions here. When it comes to risk costs, our expected credit loss expenses were EUR 25.5 million, which translates to cost of risk of 0.7% on net loans year-to-date. Tadej will provide more insights in just about a moment. All in all, we delivered a net profit after tax of EUR 35.3 million for the first 9 months. As of today, we do expect the fourth quarter contribution to be less pronounced. So while operating in a challenging rate environment and managing high cost pressures, our focus business remain resilient. And we are seeing solid momentum in our consumer lending and fee-generating activities this year, while also SME lending has started to pick up again in September. Turning to Page 10 and our capital position, which remains a real strength. Our CET1 ratio remained at a very robust 21.3% at the end of the third quarter. For context, that's only slightly down from the 22% at the end of 2024, which was under Basel III rules, while third quarter is calculated under the new Basel IV or call it CRR3 rules. You will notice that our risk-weighted assets increased, and that's mainly driven by changes in risk weighting under Basel IV as well as the new interpretation of EBA guidelines on structural FX, which we already discussed on the back of the half-year results. Looking ahead, we recently received the final SREP for 2026, which includes a small increase in our Pillar 2 requirement, up by 25 basis points to 3.5%, while the Pillar 2 guidance stays unchanged at 3%. So in line with the draft that we disclosed earlier. In summary, our capital position is very strong, giving us a solid foundation for future growth and the flexibility to navigate regulatory changes with confidence. With that, I'll hand over to Tadej for more on risk management. Tadej Krašovec: Thank you, Edgar, and good afternoon, everyone. Let me walk you through the credit risk section for the first 3 quarters of 2025. I'm glad I can report that in the first 9 months, we achieved excellent collection from defaulted clients, surpassing our goals and positively impacting loan loss provisions. At the same time, we managed risk rules dynamically and decisively to keep portfolio quality and NPE inflow under control on the group level. All that led to the NPE decrease, low NPE ratio and the level of loan loss provisions. I will talk about on this on the next page. As we see on the right-hand side of the slide, NPE portfolio decreased by EUR 2.5 million in the last quarter, which brings it to the EUR 4.9 million decrease on a year-to-date basis. NPE volume decreased to EUR 140 million, which is reflected in a stable [ NPE ] ratio of 2.9%. Short-term NPE initiatives are still ongoing, like, for example, further portfolio sale to dynamically drive further NPE portfolio reductions. At this point, I would like to refer to local limitations that central banks are imposing and were before mentioned by Herbert, specifically DTI limitations. Although these regulations will restrict more indebted and therefore, higher risk clients from obtaining larger loans with banks, which will result in an improved consumer portfolio quality; the excluded clients do not have a risk profile that would not be acceptable for Addiko. For context, clients who are no longer eligible due to new regulation limits have on average a default rate twice as high as those that remain eligible. However, the default rates in both groups remains below 2%. Using nearly 10 years of consumer behavioral data, we know that clients who have become noneligible demonstrate a risk profile well aligned with Addiko's business model and profitability objectives. Before going to the next page, let me revisit the topic from the previous calls. This is consumer portfolio in Slovenia. We see that smart risk restrictions implemented in the previous months have already a positive impact on the portfolio quality, which is getting gradually closer to our expectations. Let's move on to Slide 11. Loan loss provisions amounted to EUR 25.5 million in the first 9 months of 2025, resulting in a cost of risk of negative 0.71% on net loans basis. Segment breakdown is as follows: in Consumer, we recognized minus 0.7% cost of risk; in SME, minus 1.3% cost of risk, while nonfocus contributed to loan loss releases with a positive cost of risk of 1.6%. Development in SME segment was impacted by a black swan event, which represent almost 1/5 of loan loss provisions recognized in 2025. We talked about this case already in the previous earnings call. Loan loss provisions also include additional post-model adjustments recognized in the third quarter in the amount of EUR 3 million. The post-model adjustments will be netted out by model changes that will take effect in fourth quarter this year. This amount is in addition to EUR 1.2 million previously booked post-model adjustment to cover sub-portfolios where insufficient data is available for precise calibration. In conclusion, overall, Addiko's risk position remains stable and resilient, further supported by a strong collection performance and active portfolio management, resulting in a reduction of nonperforming exposure and lower loan loss provisions. Thank you for your attention and go back to Herbert. Herbert Juranek: Thank you, Tadej. Let's move on to the wrap-up. At the top of the slide, we present our current 2025 outlook figures. While our guidance is currently under review, due to the potential impact coming from the regulatory front, we have decided to maintain the stated outlook for 2025. We will update our guidance in line with the revised midterm plan and disclose it together with the year-end results for 2025 on the 5th of March 2026. Now we currently operate in a macroeconomic environment marked by global uncertainties, driven by conflicts such as the war initiated by Russia, shifting tariff conditions and persistent supply chain disruptions. Europe and the European Union are very much affected by these developments. However, if we look at the markets where we are operating in, they are performing better than the EU average and are also expected to sustain this outperformance. On that basis, we will concentrate our efforts to further innovate our product offerings and services to our customers in order to initiate sustainable growth in both business segments, Consumers and SMEs. Therefore, we are working on the preparation of our new midterm specialization program, which shall be launched and presented to you in the first quarter of 2026. This program shall enable further optimization of our cost base, expand digitalization capabilities and contain projects to exploit productive and profitable AI-based solutions. Altogether, we are confident to find the path to compensate the negative effects coming from the regulatory front and to prepare Addiko for future growth. Of course, by doing so, we will keep our prudent risk approach as one of our strategic anchors. Together with our dedicated team, we remain committed to delivering our best as we pursue our ambition to become the leading specialist bank for consumers and SMEs in Southeast Europe. On that basis, we will work with full energy to further improve the bank to create value for our clients and for our shareholders. With that, I would like to conclude the presentation. Our next earnings call to present to you the year-end results of 2025 is scheduled for the 5th of March 2026. I would like to thank you for your attention. We are now ready for your questions. Operator, back to you. Operator: [Operator Instructions] Our first question comes from Ben Maher from KBW. Benjamin Maher: I've got a couple. The first one is just on Romania. I was just interested to get your views on why the market is seen as particularly attractive. Is it seen as an underserved Consumer segment? Or is there other reasons that you're targeting a particular market for growth? I understand you're going to give your targets with full-year results, but it would be helpful just to get a sense of how important Romania will be as kind of a share of the business or a share of the loan book in kind of the terminal kind of state. And my second question is on the competitive pressures you note. Is this concentrated in a specific market? Or is this seen across your footprint? And then the third question is just on capital. As you said, it's very solid. I see the dividend still suspend. So I'm just interested for your thoughts on how you plan to monetize the excess capital next year. And then sorry, just a final clarification. Was it a EUR 10 million unmitigated revenue impact from the regulatory changes? I think you said, but perhaps I misheard. Herbert Juranek: Okay. Thank you for your question. Maybe we start one by one with Romania. I will give a brief feedback and maybe also, Ganesh, if you can then add your view on that. We consider Romania as an attractive market, given the digital capabilities given to us and also the stage of development of the market overall and the size of the market. So if you consider our existing markets, we lack scale there because of the size of the given countries. So we see that as an opportunity with our business model. We differentiate ourselves with a solution, which is very, very efficient straight through online. And we differentiate ourselves also with the USP that customers don't need an account with us when we do business. But I also have to admit that we are currently in a starting phase, we have a good engine, but our brand is not known. So that's what we are currently focusing on building up our brand there and getting traction on our business. Maybe, Ganesh, if you want to add something? GaneshKumar Krishnamoorthi: I think you mentioned well there. But additionally, we would like to expand this not just solely on the B2C level, we are also looking at expanding other channels digitally going forward. So we are exploring that options as well. And we will be also enhancing the product features with more refinancing capabilities. So yes, there's more things we are working on, which would help us to position more stronger than what we are today. But I think Herbert covered it with the USP, there's a distinct proposition we have in Romania. Edgar Flaggl: And maybe just to add or conclude on the Romanian questions, if I remember all of them correctly, so you asked about the impact or kind of the contribution in the results. So this year, we are not expecting any noteworthy contribution. It's rather the opposite due to building up the engine and also having some kind of a marketing push, as we disclosed. There is costs. It will take a bit of time for kind of a positive contribution to materialize. But overall, it's rather negligible in the short -- near and short term. Herbert Juranek: Okay. Let's go on to the second question. Edgar Flaggl: So the second one was, and Ben shout, if I misunderstood you, on the competitive pressure that we're seeing if this is like specific markets or across the board. GaneshKumar Krishnamoorthi: Thanks, Ben, for the question. So yes, on the SME level, we are seeing competition really pricing it quite low. They're looking for low margins and higher volumes in the loan book. We have also -- we faced this pressure already in a couple of quarters. We are also adjusting some price going forward and so focusing on growth. You already saw we have recovered well with the growth around 9%. So yes, I mean, we will continue to go forward. So -- but the competition is pricing across the markets, not just a specific market. We are seeing this quite extensively there. On the Consumer side, obviously, the whole Euribor changes is reflecting a much more lower interest rate environment. We see a big pricing pressure and also in Consumer side. And additionally, if you heard Herbert, he also mentioned we have in Serbia, a special situation where we have to drop our price 3% based on the new regulation. So yes, so a lot of pressure across the markets on the pricing side. Herbert Juranek: And the last question was on the capital and on the dividend. So if I understood you correctly, the question was, how is our view there and how do we want to continue here? From -- so according to the current situation, the shareholder situation did not change. So also, our perspective on the dividend is not changing. So there is no change for the time being. So what do we do with the additional capital? Of course, we will use it for further growth. But on the other hand, if the situation with the shareholders would change, we would also return back to the payout. Our dividend policy did not change. So we still are committed to the 50% payout ratio. And as soon as the topic is solved, we would return to that. Edgar Flaggl: And I think, Ben, you had one more question on the EUR 10 million unmitigated potential top line impact, but I didn't get the full question. Benjamin Maher: No. So just checking out the correct number. I want to make sure I didn't mishear -- it was that EUR 10 million unmitigated revenue impact. Edgar Flaggl: Yes, it's just above EUR 10 million. Operator: Next question comes from Mladen Dodig, Erste Bank. Mladen Dodig: Congratulations on the third quarter. If you allow me, I'm happy to see that in Serbia, you have finally managed to capture the decline -- to arrest the decline in the credit portfolio. So congratulations to that, too. As you explained, the moves with the interest rates, very difficult to grasp with also in Serbia. But again, it's a market battle. I already wrote my questions in the Q&A, so I will try to repeat them. IR sensitivity and breakdown of fixed and variable interest rate arrangements, if I'm not mistaken, there is -- that slide is missing in the presentation or not. Edgar Flaggl: Mladen, good to have you on the call. This is Edgar speaking. So you're absolutely right, it's missing because we only publish it on a half yearly basis. But if you would go back to the half-year results, I think it's Page 34, 35 or something, you would actually have it there. And given the structure of our balance sheet, it hasn't changed much. Mladen Dodig: It hasn't changed. Edgar Flaggl: Not much. So 14%, 1-4, is variable in our total loan book. Mladen Dodig: So the colleague already asked about Romania. You said a couple of things about the specialization program. So looking to extend the digital proposition efficiency and AI-based solutions. Any other details, maybe duration or some -- anything else on this? Herbert Juranek: Yes. I mean we will disclose it next year, but -- and we are currently in the process of finalizing our new midterm plan, and the specialization program will be part of that. So it's still under construction, but we aim -- it will have three different layers, the program, and it will be a midterm program. So it will last at least 2 years, potentially a bit more. So intended to bring the bank to the next level. And we will present it then, as said, together with the year-end result in 2026. Mladen Dodig: You already talked about the dividend and the shareholder structure. Could you tell us anything -- I bet you can't, but I need to ask. So is there any kind of event on the horizon that might trigger either the recall of this recommendation or some other action by the regulator? Herbert Juranek: Well, we are not aware about anything which would release or change our perspective on the dividend for the time being. But we are also prepared -- as I said beforehand, if the shareholder situation would change, we would be also ready to take actions on our side and to adjust accordingly. But if there was something already known today, we would, of course, disclose it. Mladen Dodig: And final question regarding Romania. I was recently in Bucharest and wanted to ask you, could it be possible that I heard commercial on Addiko on the radio... Herbert Juranek: Yes, this could be well because we -- as I said beforehand, we started our marketing campaign in August. And we will continue with this marketing campaign, and it also includes radio and TV. Mladen Dodig: Yes. I was driving there, and I heard something on radio because I don't know one word of Romanian, but I think I recognized the Addiko. Herbert Juranek: Good that you recognized it. Mladen Dodig: Yes. So yes, as you said, you are there, but it needs -- it takes time. Sorry for this mess-up with the call. Obviously, I changed recently with my computer. So obviously... Edgar Flaggl: No worries, Mladen. All good. Herbert Juranek: Any other questions? Operator: Ladies and gentlemen, that was the last question from the phone line. I would now like to turn the conference back over to Sara for questions on the webcast. Sara Zezelic: Thank you, operator. We have not received any further questions on the webcast. I'm handing over to Herbert for closing remarks. Herbert Juranek: So in this case, I would thank you very much for your attention. All the best from our side, and we hear each other then in March next year with our year-end results. Thank you very much for attending. 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.
Operator: Ladies and gentlemen, welcome to the Lenzing AG Analyst Conference Call and Live Webcast. I am Matilda, 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 Rohit Aggarwal, CEO. Please go ahead. Rohit Aggarwal: Thank you very much. Ladies and gentlemen, welcome to the presentation of Lenzing's results for the first 9 months 2025. With us today is also Nico Reiner, our CFO. Let's go through our agenda for today. I'll start with a summary of the key developments, followed by the market update as well as our refined strategy. Nico will then guide you through the financials, and I will talk about our investment highlights as well as the outlook. And as usual, at the end, we are looking forward to your questions in our Q&A session. Let's start with the overview of the key highlights for the first 3 quarters. The market continued to remain challenging, and it's even more important that we have refined our strategy with a clear focus on premiumization and excellence. Revenue and EBITDA continued to improve in the first 9 months, supported by a strong first quarter. However, market headwinds impacted us continuously in quarter 3. The market environment is marked by geopolitical uncertainty and especially the aggressive customs policy. EBITDA was additionally negatively impacted by restructuring one-offs. Operational excellence continues to be key for us, and we are further raising the bar on our agility and flexibility. Liquidity is one of our key priorities, and we made great progress. After this year's refinancing, our liquidity cushion reached a very solid level of EUR 1 billion. What remains unchanged are our core strengths, innovation and sustainability, where we were just confirmed as worldwide leader. This leads us to a confirmed EBITDA outlook by year-end. However, it needs to be said that visibility remains quite limited. International tariff measures have very much characterized the last couple of months globally. In Q1, markets were impacted only in a very limited way by tariff developments and Lenzing achieved a strong result. However, the escalation from reciprocal tariffs followed in early April. This has led to both supply and demand shocks impacting global value chains. Ongoing and repeatedly changing international tariff measures and the resulting uncertainty led to tangible stress along the textile value chain and impacting consumer confidence negatively. The direct impact for Lenzing is limited, however, leads to indirect effects on both demand and prices. On a more positive side, I can say that the nonwoven markets were less affected by these tariff developments. To mitigate the tariff impact, Lenzing took actions in 4 ways. Number one, we maintain very close contact to our customers and regional value chains to handle the situation in the best possible way and to strengthen demand visibility. Number two, we believe that we are better positioned than other fiber manufacturers given our global footprint, which allows us to shift fiber volumes between our production sites in order to manage cost and trade impact. Number three, we further strengthened our operational efficiency, which includes the target to reduce around 600 jobs in Austria, mainly in administration. Number four, we decided to start a review of strategic options, including a potential sale for the Indonesian production site, which supports our strategic focus on branded, high-performance fibers with higher margins. Let's look now in more detail how the markets have developed. The relevant markets for Lenzing are textiles, nonwovens on the fiber side as well as dissolved wood pulp. When adjusted for inflation, demand for apparel worldwide was up 2% in the first 9 months of 2025 versus a year ago. Consumer sentiment remains low, which is negatively impacting discretionary spending with elevated saving rate and a wait-and-see attitude. Growth driver was the U.S., which was driven by consumers pulling forward purchases in quarter 2 and quarter 3 in response to tariffs, while Europe and China were mostly flat in a challenging macro and cost of living environment. Let's turn our attention to nonwovens. Here, end markets show higher resiliency with a relatively stable consumer demand. Compared to previous years, the seasonality period with weaker demand lasted a bit longer into September. However, I can say that the development in October was promising given also a more positive sentiment towards 2026. The trend towards less plastics is ongoing, and the carbon footprint and other sustainability credentials are increasingly becoming a differentiator for nonwoven manufacturers and brands driven by consumer awareness and retail commitment, especially the U.S. and regulatory pressure in Europe. DWP demand is mostly driven by the production of regenerated cellulosic fibers. The production cuts we have seen in the viscose industry in quarter 2 were negatively impacting DWP demand and prices accordingly. As operating rates in viscose plants increased in quarter 3 and paper pulp prices stabilize, DWP prices saw some support, at least in U.S. dollar terms. Let's have now a look at the fiber prices on the Chinese market. Please keep in mind that prices shown on this slide are generic market prices. Generic viscose prices in China increased gradually in the third quarter in U.S. dollar terms. In July and August, demand improved and inventories fell as peak season was on the horizon. However, the pace of price increases remained cautious. At the end of September, the price of medium-grade generic viscose fiber stood just 2% higher compared to the end of second quarter at RMB 13,050 per ton. However, due to the weakened U.S. dollar, prices have decreased in euro terms, which is impacting Lenzing negatively. The situation on the cotton market did not change much in the third quarter, and international cotton prices fluctuated on a low level within the range. Dissolving pulp prices stopped falling in the third quarter with support from improved demand from viscose plants and some temporary supply constraints. In the third quarter, imported hardwood DWP prices went up by 2% to USD 818 per ton. Here again, prices in euro terms have decreased due to the weakened U.S. dollar. Lenzing prices are mainly traded at a premium compared to generic prices as the current share of specialties is at around 90%, and we are gradually withdrawing from the lower-margin commodity segments. Let us now turn to the development of costs. Energy and chemical costs remain significantly higher than historical levels, especially energy prices in Europe, but at least they decreased somewhat in quarter 3 compared to the second quarter. Geopolitical conflicts such as Russia, Ukraine and the Middle East continue to fuel the volatility of European gas prices. Lower demand due to warmer weather led to somewhat reduced gas prices in summer. Caustic soda prices remain high across regions, but reduced in general compared to Q2 due to weaker seasonal demand. Even with a slight improvement in the second quarter, both energy and chemical costs remain a major challenge for fiber production. As the relevant markets for us still show no signs of a sustainable recovery, it is even more important that we continue to keep our full focus on cost excellence, which remains a key pillar of our performance program. In 2024, we already realized over EUR 130 million in cost savings, and we do expect cost savings to further increase to annual cost savings of more than EUR 180 million for this year. We are clearly well on track to meet this target as well. To make it clear, we're talking about our recurring targets with an ongoing impact beyond this year as well. We can certainly be satisfied with our success so far, but there are still improvement areas ahead of us in order to maximize our full potential. As communicated about a month back, we are refining Lenzing strategy. Our refined strategy is built around 4 strategic priorities that together unlock value and prepare Lenzing for the future. Unlocking value happens in the first 2 pillars, premiumization and excellence. Premiumization means that we will concentrate more strongly on our branded and innovative fibers like TENCEL, VEOCEL and ECOVERO and gradually step back from less profitable commodity segments. By doing so, we improve margins and position Lenzing in areas where we can truly differentiate. The second is excellence. We are embedding a culture of efficiency and discipline across the group, not just through one-off savings, but by institutionalizing cost control, optimizing our footprint and streamlining structures. This makes us leaner, more agile and more resilient. We are implementing tough but necessary measures. By the end of 2025, around 300 positions will be reduced in Austria, mainly in overhead, supported by a social plan and with full assistance for those affected. This is expected to result in annual savings of over EUR 25 million from 2026 onwards. By 2027, another 300 positions will be reduced through internationalization as we strengthen our footprint in Asia and North America. Both measures will lead to total annual savings of more than EUR 45 million, latest fully effective before end of 2027. The third pillar is innovation. Now here, we will focus resources on fewer but higher impact projects, accelerating time to market and ensuring that our pipeline continues to provide the next generation of premium fibers, whether in textiles or nonwovens. And finally, sustainability. This has always been part of Lenzing's DNA, but going forward, it will be leveraged even more as a value driver. With growing regulation and customer demand for sustainable products, our leadership in this area is a true competitive advantage. Taken together, these 4 priorities, premiumization, excellence, innovation and sustainability ensure that we just don't react to changes in the market, but actively shape them, creating long-term value for customers, employees and shareholders. Innovation and sustainability remain the foundation of Lenzing's long-term strategy that they are what sets us apart from our competition. Even as we streamline, we will not compromise in these areas. On the innovation side, our pipeline continues to create real opportunities. One example is our new TENCEL HV100 fibers. The fiber features variable cut lengths designed to mirror the irregularities of natural fibers and brings undefined rawness of nature into TENCEL Lyocell portfolio for woven products such as denim. On the sustainability side, our leadership is recognized worldwide. We have just been reaffirmed our EcoVadis platinum status. And with this, Lenzing is now in the top 1% of companies in sustainability performance. We've also just been confirmed as a global leader in the Canopy sustainability ranking as we have taken once again first place in this year's Hot Button Report published by the Canadian nonprofit organization, Canopy. These achievements are not just certificates, they are an asset that strengthens our brand, enhances customer partnerships and increasingly drives premium pricing. And with this, I hand over now to Nico for an update on financials. Nico Reiner: Thank you, Rohit, and a warm welcome from my side as well. The third quarter was negatively impacted by weakened fiber demand in continuously challenging markets with revenues decreasing by 3% year-on-year. EBITDA decreased by EUR 27 million to EUR 72 million. This was partially driven by the decrease in revenue just to mention. In addition, one-off restructuring costs for the headcount reduction program to mitigate market impact in the amount of EUR 13 million have also negatively impacted EBITDA. Additionally to that is to mention that we had the annual maintenance shutdown of LDC in the third quarter. Looking at the first 9 months in total, both our revenues and our margins increased, thanks to the measures that we have actively taken. Revenue increased by EUR 14 million in the first 9 months compared to the 9 months of 2024 and reached EUR 1.97 billion. EBITDA increased by EUR 77 million to EUR 340 million as the number of CO2 certificates held continued to increase, we decided to sell some of them in the amount of EUR 37 million in the first 9 months of this year, which positively impacted the EBITDA. Depreciation was at EUR 320 million, including an impairment of EUR 82 million, which I will talk about on the next slide. This led to an EBIT of EUR 21 million, which compares to EUR 38 million in the first 9 months of '24. Income taxes amounted to EUR 6 million compared to EUR 78 million in the first 9 months of '24, and the financial result was minus EUR 119 million compared to minus EUR 72 million in the first 9 months of '24. As a result, there was a loss of EUR 169 million for Lenzing shareholders, which compares to a loss of EUR 135 million in the first 3 quarters of 2024. Let's make it clear. Even though Q3 was negatively impacted by one-offs such as the restructuring costs, we are not satisfied with the result. However, on a positive note, we saw some stability in fiber demand in September compared to July and August. And October looks also more promising with a currently quite stable order book situation. Let's move to the next slide. As communicated, our refined strategy also addresses reviewing selected sites, including the Indonesian plant where potential sale is under consideration. In this context, noncash impairment losses on noncurrent assets, in particular, property, plant and equipment of EUR 82.1 million were carried out. The impairment losses have a negative impact on EBIT, but not effect on EBITDA. EBIT, excluding the impact of the impairment, would have been slightly negative at minus EUR 6 million, which compares to minus EUR 88 million reported EBIT. Please note that this impairment amount is not audited for Q3 closing and therefore, subject to change. Looking now at cash flow. Trading working capital further decreased and was down by 6% compared to the end of the second quarter due to lower inventory levels. With regards to CapEx, Lenzing continues to put a clear focus on maintenance and license to operate projects as part of its performance program and CapEx remained on low levels of EUR 32 million in Q3. As you can see, we continue to have a very disciplined approach to capital allocation. As a result, unlevered free cash flow more than doubled to EUR 103 million in Q3, and we clearly continue to have a very clear focus on free cash flow generation. Let's move to the balance sheet. On the left side of the slide, we show the development of net financial debt. Even though the markets were challenging in the third quarter, net financial debt continues to move into the right direction and came further down by EUR 35 million to about EUR 1.4 billion by the end of September. On the right side, you see the development of our liquidity cushion, it increased by EUR 23 million compared to the end of last quarter and reached a very solid level of EUR 993 million. Let us look at our debt maturities on the next slide. Let's have a short recap on the refinancing measures we have taken recently. In October last year, we have converted the project financing of our Brazilian joint venture of USD 1 billion into a stand-alone corporate finance structure with a further shift of debt maturities. The successful placement of the new hybrid bond in the amount of EUR 500 million in July this year followed the EUR 545 million syndicated loan secured in May. Those measures marked further milestones in the professional and forward-looking management of our capital structure. With this, we have proven to have access to capital markets despite challenging times, and we have essentially secured our financing through 2027. We can now continue to fully focus on executing our successful performance program aimed at improving margins and free cash flow as well as implementing the refi strategy. With this, I hand over back to you, Rohit. Rohit Aggarwal: Thank you, Nico. Let me summarize now why Lenzing represents a compelling investment case today. First, we are recalibrating our asset base. That means moving away from a volume-driven model towards one that prioritizes economic value creation. We are reviewing underperforming assets, including the Indonesian side and focusing investment where returns are highest. Second, we are refocusing the organization. With leaner structures, institutionalized cost discipline and a stronger international footprint, particularly in North America and Asia, we are aligning resources with future growth opportunities. Third, we are resharpening our market focus. We are withdrawing from commoditized fibers and concentrating on premium branded products and resilient nonwoven applications. This makes our business less cyclical and more predictable. Finally, we are positioned to regain valuation. We combine a proven ability to execute, whether it's savings, refinancing, EBITDA growth with unique differentiation through innovation and sustainability. This is how we will restore investor competition and create long-term value. We now come to the outlook. I can clearly say that thanks to our performance program, the operational performance in the first 9 months 2025 was solid despite the still challenging market environment in the third quarter. In terms of fiber demand, I expect that we have already passed the low point with a positive development in September compared to July and August. As Nico also mentioned, we have seen continued promising developments in October and the order book situation looks currently quite stable. We assume relatively stable demand in pulp and have a cautious outlook on the generic fiber market development in the fourth quarter of 2025. We expect energy and raw material costs to remain on elevated levels. However, market visibility remains still on relatively low levels. While the market has not helped us so far, we continue to take the future in our own hands. We expect operational results to continue to be positively impacted by the performance program, and we keep the expectation for EBITDA for 2025 financial year to be higher than in the previous year. By 2027, we target approximately EUR 550 million EBITDA, assuming stable market conditions. With this, I will hand over back to the operator for Q&A. Operator: [Operator Instructions] The first question comes from the line of Christian Faitz from Kepler Cheuvreux. Christian Faitz: Two questions, please. First of all, your free cash flow continues to be on a nice good trajectory. Congrats on that. Would you be able to provide us a free cash flow guidance for the few months remaining in the year? And then second of all, can you tell us a bit about the capacity utilization? I note, obviously, your statements that things in terms of order income have improved, I guess, from September also into October. But where are your capacity utilizations at this point in time versus historical trends? Rohit Aggarwal: Thank you, Christian. First question with regard to potential outlook on the fourth quarter for the free cash flow, Nico, please? Nico Reiner: Yes. Thank you. So overall, as we have communicated now since, I think, meanwhile, 7 or 8 quarters, we are very much focused on generating free cash flow. And we are continuing this journey. So we overall will still work heavily to improve our free cash flow generation, and we are also clearly positive to have a positive further continuation of that story. But nevertheless, don't forget in the fourth quarter, there are always some one-timers, especially in regards to interest payments and so on. But overall, I think we will clearly continue the journey with a positive free cash flow for 2025. Christian Faitz: The second question with regards to the utilization, capacity utilization, can you give us some indication there? Rohit Aggarwal: Yes. Thanks, Christian, for that question. What I can say is the year has been a bit of a roller coaster given what we spoke about from a tariff leading to a lot of uncertainty in the value chain. So we've seen movements through the year, which were pretty strong starting quarter 1. We did see the books getting a bit slowdown in quarter 2, quarter 3, and then we are seeing now a recovery. At this point in time, I can say that we are running fairly back to normal capacity utilization. Of course, based on plants and products, it could vary slightly. But by and large, I would say we are recovering almost back to a full normalized state. Operator: [Operator Instructions] The next question comes from the line of Patrick Steiner from ODDO BHF. Patrick Steiner: Patrick Steiner speaking. Two questions from my side. Firstly, on your annual expected cost savings of EUR 45 million due to the personnel reduction of the roughly 600 jobs in Austria. You said it will take full effect by the end of 2027. What can we expect for 2026 and '27 in absolute terms? That's the first one. And the second one, in your Q3 report, you wrote that you expect that the passing of higher costs related to tariffs will lead to falling demand in the U.S. by next year at the latest. Could you please elaborate further on this and how this might hit you in terms of timing and so on? This would be nice. Rohit Aggarwal: Thank you, Patrick. So the first question with regards to the [ wave ] or how does EUR 45 million personnel cost reduction savings will be reflected in 2026 and 2027. This one for you, Nico, please. Nico Reiner: Yes, Patrick. So we do have our program here separated in 2 waves. So there is wave #1. Wave #1 would mean the first 300. And as already mentioned and commented during the presentation, there will be a EUR 25 million ticket jumping in 2026 and then as a continued improvement also going forward. And for the second phase of cosmos, here, we see further improvement starting already in 2027 and then fully being embedded in 2028. So in 2028, we see the additional EUR 20 million. So if you would sum it up EUR 25 million plus the EUR 20 million, that's the EUR 45 million ticket we have been talking. I think that gives a relatively clear picture. Unknown Executive: Then the second question from Patrick is with regards to the expected falling demand that we expect in the U.S. in terms of overall apparel demand. Rohit, please. Rohit Aggarwal: Yes. Sure, Patrick, thank you for that question. We've seen a bit of consumer behavior in Americas, which has been largely trying to circumvent or delay. And therefore, they have been doing -- putting forward their purchases in terms of apparel. So there have been a lot of pre-purchasing that has happened, and therefore, that we saw impact on the value chain kind of playing out through quarter 3. The prices are going to be looking to move up in the U.S. market. We expect that most of the retail would be affected. And we are continuously monitoring that very, very closely. Now if you look at and compare that to overall other supply chains outside textiles, we have seen that, by and large, those demands have stayed pretty flat in terms of -- and consumer behavior has not been impacted that significantly. But again, it's too early at this stage to make any prediction on how that will play out because it will be the scale of what level of price increases the retailers are able to put on the shelves and also how much of efficiency gains will happen in the supply chain through managing the cost mitigation around the tariffs. So -- but on our side, we are looking to continue to move our product into nonwovens and then we are able to find ways to offset our tariffs and then pass price increases where the contracts allow. Operator: [Operator Instructions] Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Rohit Aggarwal for any closing remarks. Rohit Aggarwal: Well, thank you very much for joining us today, and we appreciate the questions. We hope to be able to see you again on March 19 when we will disclose our full year results for 2025. So look forward to interacting that time. Thank you very much for joining us again. 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: Good day, and thank you for standing by. Welcome to the Tripadvisor's Third Quarter 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Angela White, Vice President of Investor Relations. Angela, please go ahead. Angela White: Thank you so much, Felicia. Good morning, and welcome to Tripadvisor's Third Quarter 2025 Financial Results Call. Joining me today are Matt Goldberg, President and CEO; and Mike Noonan, CFO. Earlier this morning, we filed and made available our earnings release. In that release, you'll find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measure discussed on this call. Before we begin, I'd like to remind you that this call may contain estimates and other forward-looking statements that represent management's views as of today, November 6, 2025. Tripadvisor disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to our earnings release as well as our filings with the SEC for information concerning factors that could cause actual results to differ materially from these forward-looking statements. With that, I'll turn the call over to Matt. Matthew Goldberg: Thanks, Angela, and good morning, everyone. In Q3, we delivered consolidated revenue growth of 4% to $553 million and adjusted EBITDA of $123 million or 22% of revenue. We were pleased with this performance, which beat our expectations on adjusted EBITDA and was within range for overall revenue growth. This week, we've initiated a set of changes that represent a fundamental shift in our operating model to support a more focused set of strategic priorities. These actions will sharpen our execution focus, which we expect to accelerate revenue growth, improve operating margins and create a more durable financial profile. To do so, we'll focus on three priorities. First, extending our leadership position in experiences to drive long-term growth by fully deploying our differentiated assets across Tripadvisor and Viator to win in this category. Second, leveraging our unique content, data and brand trust for an AI-enabled future by powering our marketplaces and positioning Tripadvisor at the center of an emerging AI ecosystem. And third, narrowing the focus at brand Tripadvisor to support experiences and our AI future while managing our legacy offerings for profitability. These priorities reflect a shift from optimizing individual brand strategies to speed our transformation into an experiences-led and AI-enabled company. We will direct our focus, talent and investments to what matters most, resulting in a simpler, leaner and faster-moving organization. Our plan is expected to drive significant operational efficiencies of at least $85 million of annualized gross cost savings, which Mike will discuss shortly. But this is not just a cost-cutting exercise. We are aligning ourselves to drive accelerated growth going forward. This is an important moment in the evolution of Tripadvisor Group. We're a very different company than we were 3 years ago with a portfolio mix now anchored in high-growth marketplaces, delivering more sustainable revenue and profit. In the past 12 months, Viator and TheFork accounted for almost 60% of group revenue, up from approximately 40% in the same period 3 years ago, representing a 27% CAGR over that period. In that time, these businesses contributed an incremental gain of more than $150 million of adjusted EBITDA and now comprise 30% of overall group profitability. Today, we are far less dependent on a legacy model built on SEO with its well-known structural headwinds. These trends have reshaped our financial composition, and we expect them to continue. Now let's walk through these priorities in more detail. Our first priority is extending our leadership position in experiences to drive long-term growth. Strategically, we're already well positioned to win in experiences. We've achieved scale and established a clear track record of growing the top line while expanding profitability from breakeven in 2023 and now approaching double-digit adjusted EBITDA margins. Earlier this year, we shared that Experiences is becoming the strategic and financial center of gravity for the group. Over the last 12 months, we've achieved $4.6 billion in GBV, driven by 17% items growth. And over that same period, for the first time, our total Experiences revenue has surpassed the revenue from our legacy business lines. Now experiences will become the unified focus of both Viator and Brand Tripadvisor. The global experiences TAM is expected to reach $350 billion in GBV by 2028, growing faster than any other category in travel. To date, we've been concentrating on the U.S. as our primary source market and focusing mostly on tours and activities. We believe we can accelerate our growth by addressing new geographic markets and expanding into new categories while benefiting from the tailwinds of growing demand and the offline to online shift. This is a dynamic, fast-growing category without a global digital brand leader. Going after this opportunity will be our primary objective as a Group. We believe that our strength to lead the experiences category lies in the differentiated assets across our brands that are hard to replicate. At Viator, we're leading in the world's biggest market with the largest global catalog of experiences. Our improved storefront is driving uplift in conversion, repeat and customer loyalty trends. Tripadvisor offers two key assets that we expect will drive growth and expansion in experiences, a trusted global brand and proprietary data on more trips and travelers than anyone else in the category. This combined reach, along with our third-party distribution creates unmatched value for operators. Together, we believe these capabilities give us a unique advantage for our experiences business that we have not yet fully realized. In order to accelerate the next phase of growth, we're unifying our Viator and Tripadvisor experiences operations, unlocking the power of all our resources to focus squarely on this opportunity. This is a significant shift in our operating model designed to drive meaningful outcomes with more efficiency. Our conviction to go all in on this opportunity is grounded in what we've learned from a period of increased coordination between the Viator and Tripadvisor teams across marketing, product and supply over the past several months. Here are a few examples. From a demand perspective, as I shared last quarter, we've been experimenting with how Tripadvisor and Viator can operate together in a more coordinated manner, not as two separate brands with different goals, one focused more on growth, the other focus more on profitability, but as a united team aimed at winning the Experiences category. We began coordinated testing in marketing and found that we could compete more effectively on a combined basis to deliver more efficient marketing spend overall, improving revenue while maintaining profitability. This is just one experiment, but it demonstrates the power of treating our brands as complementary levers working together rather than as separate independent P&Ls. We also believe there's an opportunity to lead with Tripadvisor to put our large global audience in service to Experiences in key international markets while leveraging our high brand awareness to acquire more customers more efficiently in paid channels. From a product perspective, we've increased our experiment velocity and coordinated learnings across points of sale. As a result, our conversion rate has continued to show improvement at both Viator and Tripadvisor. In this new formation, we will lean even harder into these dynamics, focusing on key conversion drivers like personalization, pricing and availability with more resources deployed to scale our optimizations seamlessly across our full Experiences offerings. From a supply perspective, we're expanding on our unmatched scale, over 400,000 experiences globally and growing. In the last year, we've seen healthy double-digit growth in active products and suppliers. We're broadening our supply coverage in new categories and strengthening our presence in secondary and emerging destinations while building industry-leading connectivity with our recently updated APIs, now enabling real-time and dynamic management of pricing and availability. And we're using Tripadvisor data to identify where new supply is most needed, all while optimizing how new supply performs, improving conversion, refining pricing and smoothing the experience for both travelers and operators. By unifying our teams behind experienced leadership, we'll build on our strong marketplace flywheel. Our product and supply optimizations accelerate our conversion wins to fuel more efficient and effective marketing, which in turn compounds the conversion gains, driving higher repeat rates and improved unit economics. And now we're unleashing the full power of the Tripadvisor brand and its unmatched global awareness in service of Experiences. Our second priority is leveraging our assets to position ourselves for an AI-enabled future. Tripadvisor is among the most trusted names in travel, built on decades of authentic contributions. Sitting at the privileged intersection of hundreds of millions of travelers and the operators who serve them, we have unique insights about how people make travel decisions, a proprietary knowledge graph across experiences, hotels and restaurants, which is unique in the industry and a powerful foundation for what comes next. AI is collapsing discovery, planning and booking into a single conversational moment. For travelers, it means less friction and faster decisions. For Tripadvisor Group, it plays directly to our strengths in the space we helped invent, helping people travel smarter. At a time when it's hard to know what information to trust for a highly considered purchase decision like travel, we believe our first-party data, user-generated content and decades of trust, combined with supplier connectivity, detailed pricing information and booking gives us a unique advantage to lead in the age of AI. Over the past several quarters, we've experimented with a broad set of efforts to learn how travelers use AI. We built data science and machine learning capabilities to drive conversation and conversion, and we've explored the role of our content in the AI ecosystem. Here are a few things we've learned. First, our content and data are unique and valuable. Internally, it's been the foundation of our product innovation and growing engagement. And Tripadvisor is already among the most cited sources by LLMs. According to a recent third-party study,Tripadvisor appeared as the #8 overall and the only travel company in the top 20. Second, travelers have a very specific problem. It's hard to make decisions. There are too many options and getting it wrong means wasting time and money. That friction is why travelers come to Tripadvisor to inform and validate their travel decisions. While LLMs do a good job of generating high-level trip plans, the opportunity lies in the underlying recommendations, their social validation and actionability, which we are uniquely positioned to deliver to help travelers make it happen. And finally, AI is raising customer expectations as they look to solve these problems. Customers are choosing AI-native products over legacy products with AI features. They want technology to remove friction. We will follow the consumer and shift our focus from AI-powered features to a fully AI-native approach. Based on these learnings, we've identified a few specific AI opportunities, each of which we believe has the potential to become the primary way travelers engage. The first opportunity is in the planning phase when travelers have a rough idea of an itinerary and are trying to decide what's right for them amidst the unlimited options. Tripadvisor's first-party data and insights position us to curate the most personalized recommendations validated by relevant travelers and make them as immediately actionable as possible. The second opportunity is during the trip itself. Travelers make a lot of last-minute decisions around what to do, see and eat, but availability, pricing and logistics are tricky, especially in Experiences. So we'll leverage our assets to help travelers experience the destination better while traveling. This presents an opportunity to deploy geo-aware recommendation algorithms and deliver proactive offers with single tap booking and access to real-time customer support. We're advancing rapidly on these opportunities and expect to launch an AI-native MVP for the planning phase in the coming weeks in Q4. From there, we'll intend to build a strong foundation to scale and continuously iterate and enhance the customer experience. Of course, we're also exploring how Tripadvisor can deliver value to travelers as a deeply embedded partner with broader AI platforms. As part of our learning agenda, we're directly integrating our Tripadvisor and TheFork brands into ChatGPT through first-of-their-kind apps with a differentiated approach from others. We expect these to be live over the next few weeks. We've signed valuable licensing deals with the majority of the leading AI companies, and we're experimenting with use cases like Agentic and multimodal AI. Ultimately, whether we scale AI value creation through on-platform innovation or off-platform partnerships will be decided by our customers. We believe that by focusing on where we are uniquely positioned to serve travelers, maximizing speed of execution and continuing to fuel the content flywheel that is our most differentiated asset, we can position Tripadvisor at the center of the AI ecosystem in travel. Our final priority is narrowing Brand Tripadvisor's focus. Beyond experiences in AI, we'll optimize Brand Tripadvisor's portfolio to enhance profitability. Over the last few years, we've invested incrementally in Tripadvisor's broad engagement strategy designed to fuel new monetization paths and stabilize our legacy offerings. However, we recognize that the pace of impact from these investments has not been enough to offset increasing pressure from the shifting SEO landscape. So in our most mature legacy categories, we'll focus strictly on optimizing for profitability. We'll deprioritize the areas that we expect to be in secular decline in favor of shifting resources towards our marketplace growth opportunities while driving efficiency across areas that are more exposed to ongoing headwinds. Operationally, this will reduce our headcount and better align costs with revenue expectations. Let me be clear. Taken together, these actions are not a deprioritization of the Tripadvisor brand. In fact, we believe Tripadvisor will play an even larger role in Group level value creation moving forward. Hotels and restaurants will continue to be an important part of planning a trip and the hundreds of millions of travelers coming to Tripadvisor each month will still enjoy those features. Our partners will continue to benefit from access to these audiences. While this functionality isn't going away, we'll shift Tripadvisor's focus and resourcing to areas where we believe we can deliver the most value to customers, leverage the brand and traffic to drive experiences growth, position our content and data at the center of the AI ecosystem and enhance profit from the legacy portfolio. In addition to this set of priorities, TheFork will continue to execute on a financially disciplined growth strategy. This quarter, the segment continued its strong performance with growth of 28% and a 22% adjusted EBITDA margin, nearly double what it was last year at this time. We will continue to build on our position as the leader in European dining and prioritize the diversification in revenue across B2B and B2C while increasing profitability. We're also excited about the team's innovation agenda, which includes an AI-powered booking assistant that's driving an uplift in conversion and a social feed that allows diners to discover restaurants based on reviews and contributions from their contacts. In summary, we believe that the priorities we shared today position us well for the future to drive value for shareholders. As part of this ongoing program of work, we will also take additional steps to review our group portfolio as we determine where we'll invest and where we'll simplify further through partnership or divestment. We are building a stronger Tripadvisor Group focused on faster-growing categories with large TAMs, durable transactional economics and strong supply. We're prioritizing areas where we have a proven track record and the capabilities to win. We'll do fewer things better, move faster and optimize the lines of business where our scale or competitive position can't lead the market. We believe that our actions will strengthen our financial profile by reducing costs, accelerating revenue growth and growing profitability, both in the experiences category and for the group as a whole. With that, I'll turn the call over to Mike. Mike Noonan: Thanks, Matt, and good morning. I'll start with a review of our financial performance, and later, we'll provide more information on the cost savings program, what our operating model changes will mean for how we report our segments and some thoughts on Q4. As a reminder, all growth rates are relative to the comparable period in 2024, unless noted otherwise. Q3 consolidated revenue was in line with our expectations of $553 million or 4% growth and consolidated adjusted EBITDA exceeded our expectations at $123 million or 22% of revenue. In the Viator segment, the number of experiences booked grew 18%. Growth improved sequentially in both the Tripadvisor and Viator points of sale, while growth in third-party points of sale continued to outpace the overall segment. Importantly, the number of experiences booked through the Tripadvisor point of sale returned to growth this quarter. In North America, our largest source market, we saw bookings growth accelerate sequentially across both points of sale, which we believe is reflective of the strength of both of our brands as we scale our coordinated marketing efforts. Gross booking value, or GBV, grew 15% to approximately $1.3 billion and revenue grew 9% to $294 million. Changes in FX positively impacted GBV revenue growth by approximately 3 percentage points. The difference between the growth in the number of experiences booked and growth in revenue continues to be driven by the high growth of our third-party merchant bookings relative to 2024. As a reminder, merchant bookings generally have a lower average booking value, which impacts GBV growth relative to volume growth. They also carry a lower implied take rate, which impacts revenue growth relative to GBV growth. While the implied take rate is lower than our owned and operated points of sale, third-party merchant bookings are both financially and strategically valuable. From a financial perspective, these bookings carry an attractive profitability profile. Strategically, these bookings are largely sourced from regions outside of our core markets, which enable us to reach incremental traveler demand as we continue to scale our new and repeat booker cohorts globally. Viator adjusted EBITDA was $50 million or 17% of revenue, a margin improvement of 550 basis points, driven primarily by a more efficient marketing channel mix. We continue to see outsized growth in our direct channels and in repeat bookings, each contributing to our profitable growth profile as repeat bookings cohorts continue to scale. In addition, growth in third-party merchant bookings, which come with no marketing spend contributed to the segment's total marketing leverage. Lower marketing costs more than offset modest increases in personnel costs related to targeted investments in technology, product and supply. Altogether, these trends continue to reinforce our belief in the long-term margin opportunity for this business at scale. At Brand Tripadvisor, Q3 revenue was $235 million, a decline of 8%, which was below our expectations. We experienced stronger-than-anticipated traffic headwinds that accelerated throughout the quarter, negatively affecting both free and paid channels. In branded hotels, revenue was $143 million, a decline of 5%. In hotel meta, strong pricing in both free and paid channels was more than offset by accelerating traffic volume headwinds. Regionally, single-digit growth in U.S. hotel meta revenue was more than offset by declines in Europe and APAC. As a reminder, we will continue to manage our branded hotels business for margin stability and not chase low-margin revenue in this category. We remain focused on improving the quality of our hotels offering and delivering highly qualified incremental demand to our partners, and we believe that success is evident by the sustained pricing growth we continue to witness. Media and advertising revenue declined 11% to $36 million, primarily due to the aforementioned traffic headwinds we incurred in the quarter. Experiences and Dining revenue was $47 million, a decline of 9%. Growth in Brand Tripadvisor's Experiences revenue lags unit volume growth, which returned to growth in the quarter, as I mentioned earlier. Experiences revenue performance was largely stable sequentially. And going forward, we expect Experience revenue growth on the Tripadvisor point of sale to accelerate as a result of our new operating model. Brand Tripadvisor adjusted EBITDA was $59 million and 25% of revenue, which exceeded our expectations. Despite accelerating traffic headwinds in the quarter, placing additional pressure on revenue, the team did a good job managing the growing reliance on paid channels with fixed cost prudence to exceed margin expectations despite pressure on adjusted EBITDA. At TheFork, Q3 revenue was $63 million or 28% growth and 20% growth in constant currency. B2C bookings volume grew 11% across all channels and 13% on TheFork's branded direct channel. The strength of B2B subscription revenue growth continues to be driven by restaurants adopting higher-priced premium plans, ongoing evidence of the strength of the feature set and overall value proposition we deliver to restaurants. While still a minority of TheFork's total revenue, B2B subscription revenue is contributing an increasingly share of the overall revenue mix, which we expect to continue in the future as the team executes on its business model diversification strategy. Adjusted EBITDA at TheFork was $14 million or 22% of revenue, representing a margin improvement of approximately 10 percentage points, driven primarily by leverage in personnel costs. Turning to consolidated expenses for the quarter. Cost of revenue was 7% of revenue, an improvement of 10 basis points. Marketing costs were 41% of revenue, higher by 150 basis points. Modest leverage at Viator was offset by deleverage at Brand Tripadvisor due to the aforementioned traffic headwinds. Personnel costs as a percent of revenue improved by 100 basis points. Investment in Viator personnel offset lower personnel costs at BrandTripadvisor. Absent share-based compensation, personnel costs were approximately flat as a percent of revenue. Technology costs at under 5% of revenue were approximately flat with last year. G&A as a percent of revenue improved by approximately 70 basis points, driven primarily by lower real estate costs. Now turning to cash and liquidity. Q3 operating cash flow was $45 million and free cash flow was $26 million. On an LTM basis, operating cash flow was $347 million and free cash flow was $261 million, which represents significant improvement from last year due to a more favorable working capital and onetime cash tax settlement charges in the comparable period last year. Total cash and cash equivalents at September 30 were approximately $1.2 billion. Our cash balance includes approximately $350 million in Term Loan B proceeds raised in the first quarter of 2025, which we plan to use to pay our outstanding convertible notes due in April 2026. After taking into account deferred merchant payables of approximately $393 million and the $350 million term loan, our remaining excess cash balance is approximately $475 million. During the third quarter, we did not repurchase shares given the operating model changes and cost savings programs we were contemplating. However, we expect to restart our open market repurchases this quarter aligned with our previously communicated programmatic approach, subject to a stable macro environment. Today, we have approximately $160 million remaining in our authorization. We believe that our current cash profile and net leverage levels reflect a strong capital structure with appropriate cash for operating needs. Turning to the gross cost savings program Matt mentioned in his prepared remarks. At the group level, we are sharpening our strategic focus in order to accelerate our ambition in the areas where we believe we have differentiated assets and that can drive meaningful shareholder value. We believe that realigning our strategy, our resources and our brand and data assets across Viator and Brand Tripadvisor into a new operating model provides an attractive opportunity to accelerate growth and innovation. This operating model change will result in a greatly simplified organization and allow us to operate more efficiently. We will be launching an annualized gross cost savings program of $85 million in Q4 that we intend to execute throughout 2026 and expect to fully realize by 2027. This savings program will primarily include reductions in headcount spanning Brand Tripadvisor, corporate G&A and Viator by approximately 20%, but will also include other operating expenses -- expense efficiencies as a result of our operating model change. In 2026, the net impact of our savings program is expected to be lower than $85 million due to the timing of these actions. For example, we expect approximately $10 million of the savings to be recognized in Q4 of this year. And as I mentioned earlier, our plan to invest behind reaccelerating experience growth in 2026 may offset a portion of the savings impact. While it's too early to provide detailed guidance for next year, our preliminary estimate today on this program's impact to fiscal '26 would be an improvement of approximately 100 basis points to consolidated adjusted EBITDA margin. We will provide another update next quarter, given we're still finalizing the '26 plan. Next quarter, we also intend to update our reportable segments to align with our updated operating model and resource allocation strategy. We expect to maintain three segments, which we anticipate will be Experiences, Hotels and Other and TheFork. We believe updating our reportable segments will provide investors with a clearer understanding of the growth and margin performance and future opportunity of our entire Experiences business as well as more clearly highlight how we'll manage our legacy businesses. Let me take a moment to quickly explain the major changes that bridge our existing segment structure to our planned updates. In the Experiences segment, the definition and disclosure of unit volume, GBV and revenue will be consistent and unchanged from the way the Viator segment reports today. However, the cost profile will change to include all fixed and variable expenses related to both brands for Experiences, which have been split between the Brand Tripadvisor and Viator segments. By doing this, there will no longer be a need for intersegment eliminations related to experiences, which today is recognized as an affiliate marketing expense in the Viator segment and intercompany revenue for brand Tripadvisor. The Hotels and Other segment will effectively be the current Brand Tripadvisor segment, but without experiences-related revenue and expenses. Finally, TheFork segment will remain unchanged from today's disclosure. Given these changes are still in process, I will provide guidance for the fourth quarter and full year consistent with our existing segment structure. Turning to our outlook for Q4. Our expectations for the quarter include the benefit of approximately $10 million to adjusted EBITDA from our aforementioned cost savings program impacting both brand Tripadvisor and Viator, but do not assume any revenue benefits from our new organizational structure, which we are implementing this quarter and expect to drive benefits throughout 2026. For Q4, we expect consolidated revenue to be approximately flat to last year and consolidated adjusted EBITDA margin of approximately 11% to 13%, which implies the following for each brand. At Viator, we expect total bookings growth in Q4 of approximately 16% to 18%, driven by an acceleration at the Viator and Tripadvisor points of sale. We expect some sequential pressure in GBV growth due to the impact of promotions and a higher mix of lower-priced tickets to average booking value. We expect revenue growth to be in line to a slight acceleration with Q3 growth. Adjusted EBITDA margin is expected to be approximately 100 basis points lower due to a nonrecurring indirect tax credit incurred last year. Absent that onetime benefit, we would expect Viator's adjusted EBITDA margin to increase by approximately 200 basis points. At Brand Tripadvisor, our current expectation is for revenue to decline in the low teens, which assumes Q3 traffic headwinds persist. Adjusted EBITDA margin is expected to decline approximately 900 basis points, driven primarily by pressure in the hotel meta free channels as well as planned marketing spend resulting from ongoing coordinated efforts in experiences. At TheFork, we expect revenue growth in the mid-teens, which reflects a currency benefit of approximately 10 percentage points. The sequential step down in growth is expected as we are now lapping the scaled growth initiatives in B2B and partnerships we began realizing in Q4 of last year. Adjusted EBITDA is expected to be approximately flat year-over-year. Given our Q4 outlook, we now expect full year consolidated revenue growth of 3% to 4%. However, our adjusted EBITDA margin expectations remain unchanged at 16% to 18%. We are excited about our strategic direction as we finish the year and believe that the operating model changes and cost savings actions will sharpen our focus and allow us to grow consolidated revenue and adjusted EBITDA and improve adjusted EBITDA margin in fiscal year 2026. In Experiences, our targeted investments will unlock a larger TAM and position us to accelerate revenue growth and grow adjusted EBITDA. At TheFork, we will continue to execute a financially disciplined growth strategy, and we expect to optimize our legacy offerings and deliver cost savings to maximize profitability in the face of structural headwinds. Over the past few years, we've made notable progress driving a deliberate business model diversification strategy to grow the mix of revenue and adjusted EBITDA from our marketplace businesses. As Matt stated earlier, this year, revenue from Viator and TheFork, our marketplace businesses are expected to represent 60% of total consolidated revenue and 30% of total adjusted EBITDA in our current segment reporting. Under our new operating model and segment reporting structure, we expect this revenue mix shift to steadily continue and the mix of adjusted EBITDA to surpass 50% consolidated EBITDA in fiscal 2026, which we believe reflects our strength as an experiences and AI-enabled company and our overall marketplace mix. We look forward to sharing more detail with you on our Q4 earnings call next year. I'll pass the call back over to Matt briefly. Matthew Goldberg: Thanks, Mike. Before we start Q&A, I wanted to take a moment and welcome Alex Dichter to our Board of Directors. Alex joins us with many years of experience as an adviser and operator with deep travel industry knowledge and an extensive background working with organizations across multiple travel verticals to transform and scale their businesses. This is the first step to bringing on fresh perspectives from independent directors, and we're excited to have Alex join the Board. He joins us as Greg O'Hara departs, and I want to thank Greg for his contributions and leadership over the years. With that, I'd like to turn the call back to the operator for Q&A. Operator: [Operator Instructions] The first question comes from the line of Richard Clarke of Bernstein. Richard Clarke: I'd just maybe like to ask a question on your revenue growth assumptions going forward. I think you said you think you can accelerate growth. I'm just wondering what the shape of that will be. If you're investing even less in the sort of meta and Brand Tripadvisor product, is the revenue growth -- can you still stabilize better than the mid-teens guide you set out for Q4? And with the new organizational structure, would you expect your Experiences segment to be able to grow faster than the 9% sort of high single digits that Viator is doing at the moment? What's the kind of shape of revenue growth going forward? Mike Noonan: Yes. Richard, it's Mike. I'll take this. In terms of thinking about the longer-term shape of revenue and as reflective of our overall operating model, I'll say a few things as we set ourselves up. In Experiences, we do think the operating model and how we're allocating investment to Experiences, we are expecting our Experiences in our new segment to reaccelerate next year, right? And that is both a focus on two things: one, geo TAM expansion, looking at new source markets to acquire bookers, very important in that equation and category expansion as we think about other opportunities to bring other types of things to commercialize in the storefront, think of attractions, right, for example. So those are two important things as we think about that reacceleration statement next year. We also then, I think, as we think about our hotels and other category, which would be our other second new segment, I think we're taking a very pragmatic view of what this looks like. We are -- when you think about the traffic headwinds we've seen, particularly accelerating in the free channels and then you take that with how we will be investing in growth, meaning we're not going to be prioritizing growth necessarily in the paid channels just for growth. We're going to really divert those resources to Experiences. We would expect continued revenue headwinds next year. And then in TheFork, just to round out in terms of the growth, we are continuing to expect that TheFork is going to grow nicely with continued margin evolution. So when you take that all in, when we think about where we sit today, and to be clear, we will be refining our plans as we move through the next 3 months. From a consolidated perspective, we would expect that we would grow both revenue and EBITDA next year. When we take into consideration the cost savings program that we've enacted that really stop the growth of fixed costs in both the Viator and Brand TA segments, which we'd deliver about -- we said about 1 point of margin improvement to the consolidated financial profile next year. So again, important moves we're making today that we believe are important for growth in margin for next year, but not just next year. It's really how we set ourselves up for the next several years and driving the experiences opportunity we have in front of us. Operator: The next question comes from the line of Naved Khan of B. Riley Securities. Naved Khan: A lot to digest here and I think some of the steps here that you described, Matt, do make sense. I'm just wondering, as you look to reaccelerate growth in the Viator business or the Experiences business, is it possible to kind of get kind of closer to your closest competitor? I think they recently disclosed around 30%. And also, you have kind of expanded margins very nicely in this segment. Is it possible to remain on this margin expansion trajectory as you accelerate growth? How -- give us your thoughts on how we think between the trade-off between growth reacceleration versus margins? Matthew Goldberg: Thanks, Naved. And I think you've hit right at the core of why we are so enthusiastic about this fundamental shift to our operating model because we believe it allows us to do just that, reaccelerate growth while we continue to expand margins. And we are already really leading the category today. You can look at it in many different ways and make judgments about who's got the best profile. But let me tell you what I'm excited about our profile. We believe we're in a real position to shape what comes next as the global brand leader in this category. Together with Tripadvisor, it's the category's largest, most trusted and most profitable platform, and we are building it for sustained growth. Why do I say largest? It's largest because of our scale and reach. We're the global leader in scale with unmatched supply and reach, 400,000 experiences, 65,000 operators. And of course, we can more fully tap the hundreds of millions of travelers using Tripadvisor monthly, giving that supply more visibility and more demand that really no competitor can replicate. And the proof points in my mind are the last 12 months GBV of $4.6 billion and 17% items growth. and we believe we can accelerate off that. Being trusted has an advantage. We've got this global reputation of trust, and it's a foundation to grow Experiences globally. A very good percentage of our audience from Tripadvisor is coming outside the U.S., even though Viator has primarily focused on U.S. source market. So that gives us immediate credibility to expand experiences into new markets. We think there'll be lower barriers to adoption in those source markets where travelers already know and use Tripadvisor. And we think that it signals sort of a reliability, which is critical for the emerging category. And in Europe alone, we have 70% brand awareness and it's relatively unmonetized today. So by focusing Tripadvisor on Experiences, we have many, many times more visitors to go take advantage of than others. And finally, profitability. We are driving this performance with financial discipline. And what we've shown is that the category can scale profitably. And we're the only ones who have shown that. And we're doing it efficiency and with discipline and performance. And so Viator was profitable since 2023. Last year, we delivered a mid-single-digit margin. The last 12 months, we have a high single-digit margin, and we are approaching double-digit margins. And as we move from regional strength to building a global platform, we think that, that leadership is within our capability, and we're going to go after it. So thanks for the question. We're super enthusiastic about reaccelerating growth and expanding margins. Mike Noonan: And I'll just add to the second point of your question. Yes, sorry. And just to underscore a few points that Matt said, we are really pleased with the unit growth. And I think I want to make sure that we all focus on the most important metric, we think, is that because it's a statement of real customer conversion and it's a statement of you have the ability to bring back customers on a repeat basis, and that's super important. And so we'll continue to really focus on driving that scale and that unit volume growth. And on the margin, I would say we -- this model, as we continue our disciplined new user acquisition is really around growing margins. And I think we will continue to think about, particularly as we're excited about reaccelerating next year into new geos, there'll be some modest investment into that. But all in all, I expect to continue to see the model produce margin enhancement. Operator: The next question comes from the line of Ronald Josey of Citi. Unknown Analyst: This is Robert on for Ron. Can you maybe give us a sense of new user trends at Viator and as you continue to expand into the secondary and tertiary markets and into newer categories, help us understand your approach to growing supply in each of these newer markets. Mike Noonan: Yes, Rob, I'll take that real quick, and Matt can chime in. Great question because it does tie directly of how we're thinking about the reacceleration point. In the U.S. and North America as our core market, we continue to see very high repeat revenue growth rate from our repeat customers, very important, because that is long-term customers and they generally -- the more times they come to us, the less reliant they are on paid channels. It's part of our core flywheel. On new users, we are very disciplined, right? And it does explain some of the overall growth profile because we are looking at new user acquisition in light of do those ROIs make sense and do they contribute to our long-term margin targets. So we're very disciplined in terms of that new user acquisition. We do believe that a core tenet of the geo expansion and Matt mentioned some of this around where we would think to go would be, hey, where is our brand Tripadvisor, for example, well known, a lot of traffic volumes, which is in Europe, gives us the opportunity to grow that new user base at attractive ROIs, and we're excited about that. And again, is a key principle of how we're thinking about that reacceleration comment? Matthew Goldberg: Yes. And look, I just want to add, Rob, that the marketplace flywheel that we have working between how we generate demand across both of our brands and do that with an ROI-driven acquisition strategy, the way we expand geographically, bring those new users into our store and give them a better experience where we're leveraging AI to do personalization and matching and our sort to be far more relevant for them and then making sure that we have the right supply in those secondary, tertiary markets in new categories. All of that works together to attract new users, get them coming in, converting and then being more loyal, so you get the new and repeat working really well together. And we think that our marketing tests and the tests we've done on our product and with our supply across the two brands allow us to do that with more efficiency than we've ever been able to do it before, and we're going to scale that. Unknown Analyst: Got it. That's great. And then as a quick follow-up, Matt, you had mentioned a few months ago that AI was already making a difference financially across the business today. So can you maybe elaborate on how AI is driving cost efficiencies across the business? And then given your focus on AI going forward, help us understand how you're thinking about the potential revenue opportunities and licensing deals ahead. Matthew Goldberg: Yes. Thanks, Rob. So we're deploying AI fully across the organization in every part of our organization. And from an efficiency and productivity perspective, we've done it in a lot of enterprise use cases across customer service, where we're making major strides in our content moderation and fraud detection, the way we localize, the way we think about driving our marketing teams. It's giving us a lot of advantage. And we will continue to roll that out in every area of the business. In fact, as we're planning for next year, one of the things we want to do is really measure that very clearly so that we can see not only the pilots making sense, but the way we scale that making sense. And I think our -- we've rolled out the tools to do that, and we're excited about how that will continue. More importantly, right, is the way that we are using it in our product to drive innovation. And we've learned a lot over the last couple of years. We've built the AI infrastructure, and we've leveraged it for our product enhancements. And we've shown in succession how we can work with trips and planning and itineraries to the way that we summarize and synthesize our content through to a travel assistant, which we recently learned. And these were all efforts that are leading us to a place where we can go fully AI native and really serve the customer however and wherever they want to engage with that. So we're building on those learnings from our AI innovation. And we are setting ourselves up to put a deep focus on that and not get distracted by trying to chase other things that might not make as much sense at the expense of being able to do it. And that's why we're going to launch an AI native MVP in the coming weeks, and we're excited to continue that. I will say I also believe that the way that we are doing partnerships has been differentiated, and we're learning. We're seeing good value exchange. And we believe that going forward, we can really scale that opportunity. So we're always having conversations to do that. So feeling real good about the AI future. Operator: The next question comes from the line of Doug Anmuth of JPMorgan. Dae Lee: This is Dae Lee on for Doug. I have two. Firstly, on -- with the reset to an experience-led strategy, will the consumer experience on Tripadvisor change? And how do you expect Tripadvisor and Viator brand to be positioned for consumers shopping for experience going forward? Matthew Goldberg: Yes. So thanks for that. Absolutely, the user experience will change because we are going to primarily be focused on how the Experiences category can play on Tripadvisor. We will continue to offer the features that we've had in the past, but our primary focus as we allocate resources, as we set goals with all of our KPIs is going to be driving that experiences future. And we do believe that bringing it together under one team, which we've already proved that we can do with our product, all of the work we're doing in the store to optimize the funnel to take friction out, all the myriad of little things we do to drive conversion and loyalty and repeat will benefit both brands, both points of sale, which will come together in a more seamless fashion so that consumers can engage with us wherever it makes the most sense for them. And I think that will drive that flywheel that we were talking about, which once you get it going, really has a lot of potential to accelerate our revenue. Mike Noonan: I'd just add a few things on to that, Dae, which is this work has -- this is not a cold start. We've been doing this work. And you've seen us talk about the coordinated bidding as an example of this. And the learnings we've gotten from that has enabled us to lean in and actually gain increasing confidence around what we can do in the Tripadvisor points of sale. So we're very excited and it's a key point of -- as we think about experiences reacceleration. Dae Lee: Got it. And as a follow-up to that, what's been driving the acceleration in volume growth at Viator? And then for your guide for 4Q, what will drive acceleration, especially given the tough 4Q comps? Are there any specific channels, products or regions that's driving the acceleration? Mike Noonan: Yes. On the unit side, it's -- on the unit side, it's really been the 3P mixing higher, and that's been growing very fast, albeit on a much smaller base, but growing very fast. I think we've consistently said it around the other channels, Viator, which is by far the largest channel and TA and Viator are the vast majority of that. Viator has been generally growing around the average, and Viator has been growing lower than the average. And earlier in the year is actually -- it was declining year-over-year. But that has been improving largely because of the efforts around product that Matt just mentioned, largely because of the efforts around coordinated bidding. And this quarter, we just mentioned that both channels accelerated in the quarter. The TA point of sale actually turned to positive growth in the quarter, again, reflective -- and these are all on unit basis to be clear, all reflective of that. And so as we move forward, we are very excited about our merchant 3P business for all the reasons we've talked historically, and we'll continue to work with our partners to advance that. But the work very much continues on our owned and operated channels at both Viator and Tripadvisor point of sale, and we're going to continue to work on those. And we expect embedded in our Q4 guide would be expectations of both the TA and Viator channels to have modest acceleration again. Matthew Goldberg: Yes. And just remember, Tripadvisor Experiences has previously been a drag on growth. That's going to shift, and it will no longer be a drag on growth, and we'll get these things working really well. We have marketing products, supply, data plans to do that. Operator: The next question comes from the line of Jed Kelly of Oppenheimer & Co. Jed Kelly: Just two. Will you market -- will the go-to-market strategy for your Experiences, will that be built more around the Viator brand or the Tripadvisor brand? And then can you talk about how you think potentially expanding into other experiences into other regions, particularly Western Europe? Matthew Goldberg: Yes. So the go-to-market strategy is something that we can continue to work on, and we think that it will be where we believe we have the strongest ability to go. Now both brands can exist in both markets because they do different things. They are different products, right? Viator is a very focused vertical when you kind of already know I want an experience and I want the best way to book it. Tripadvisor still is a broad planning and recommendation platform across multiple categories. And that's not going to necessarily change where we'll put our focus and energy is in making sure that if you come to find your hotel, we're also doing a really good job to cross-market experiences to you in a fundamental way. If you're thinking about where you want to eat, there's probably a really interesting tour around that restaurant that we want to make sure you know about and book. So it will depend category by category in experiences and market by market, how we go to market. We think both brands can be there. We may choose to lead with one or the other depending on the market. Mike Noonan: Yes. And I'll follow up on that point, which is your second question on geo expansion. So we are excited about geo expansion, particularly as we think about accelerating growth in new users. When we look at the geos, obviously, we want to look for a large addressable TAM and look for areas we actually have a competitive advantage and Europe clearly is that when we think about the large TAM size, but we also think about -- and this is where it's so critical about the operating model change. The traffic and brand awareness of Tripadvisor is very large there. And so our ability to really enhance and tighten our focus around experiences, leveraging the Tripadvisor brand is going to be very important to how we think about that expansion. And that doesn't mean -- and Viator will always play a point, and we have two brands to think about how we want to grow in the new market. So a lot of work underway as we're working on this, but we're very excited about that expansion opportunity. Operator: The next question comes from the line of Nafeesa Gupta of Bank of America. Nafeesa Gupta: So my first question is on Metasearch. How are you thinking about the legacy business now that you are consolidating both the experiences in Viator and Tripadvisor? Will that business still have investments that you were planning for the last couple of quarters? And the second one is on Fork. There are reports going around regarding exploring sale of TheFork. Any thoughts on that? And how should we think about TheFork revenue growth in 2026 given the B2B lapping? Matthew Goldberg: Well, thanks for those questions. First of all, on our meta business and our hotel business, the hotel product continues to provide real value for both travelers and partners. We have the best advice, the most photos, and we're trusted really over everyone else in the space. And we recognize that with Google taking more and more share of the search traffic for themselves, we're just not going to be able to grow that business at the level of profitability that we'd like. So we know that it's an important part of the journey that travelers find value and price compare, and we're able to send our partners really good quality leads. And we've done some really good product work there to drive conversion rates higher. And we're -- I think we're still focused on that. But what we won't do is we're not going to continue to invest incrementally. You can think of it as an add-on or incremental product to our primary focus that we will make sure maintains the quality for both travelers and partners. Now as it relates to your question about TheFork. TheFork is a great business that is performing really well. We are excited about the path of sustainable growth and the improving profitability profile that really benefits the Group. But of course, we consistently evaluate all options to unlock value in all of our assets, and that includes TheFork. And our primary focus is what's going to drive the most shareholder value ahead. Nothing is off the table. We see it's a leader in core European markets. We have a good and mix of B2C and with growing B2B, and that's giving us advantage. And as a leading European dining platform, we know it's a valuable asset, both for global and regional travelers. It is run separately. There's optionality there. And we recognize there have been precedent transactions out there that suggest TheFork is a highly valuable asset, especially given its unique scale position in Europe. So optionality, and we are focused on it. We love what the team is doing there. Nafeesa Gupta: Just on the revenue growth for Fork, how should we think about that going ahead? I know this last couple of quarters, there was a lot of FX tailwind as well. And how should we think about next year? Mike Noonan: Yes, sorry about that. Yes, listen, I think a couple of things important to understand the growth profile. Big picture, one, but we still expect nice growth and profit improvement next year for sure. We are -- we will have a bit harder comp next year because we're comping and we're seeing some of this before. We're comping some very strong growth in B2B as well as some of the partnership initiatives we've put in place. So we would expect a step down in growth year-over-year, but we still believe we're very excited about the revenue diversification strategy. We're very excited about the B2B business and the ability to continue to grow into our existing restaurant base, new restaurant base, more and more premium plans. Those all offer a very, very nice upside as well as we continue to see very healthy growth -- volume growth in our B2C business, particularly in our proprietary Fork network. So I think, yes, there'll probably -- there will be -- we expect a step down in growth from what we saw this year, but still very healthy as we move into next year. Operator: This concludes the question-and-answer session. I would now like to turn it back to Matt Goldberg for closing remarks. Matthew Goldberg: Thank you all for joining us on this morning's call. The changes we walked through today represent a meaningful shift in our strategic focus and how we'll deliver value for shareholders ahead. We're excited to move into this new phase of our growth for the group. Before I close out, I also want to take a moment to acknowledge the impact these decisions have on our teams. We're grateful for their continued hard work and dedication. We look forward to updating you on our progress and plans for 2026 on the next call. Thanks, everyone. Operator: Goodbye.
Operator: Good morning, and welcome to Parker-Hannifin Corporation's Fiscal 2026 First Quarter Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the call over to Todd Leombruno, Chief Financial Officer. Please go ahead. Todd Leombruno: Thank you, Chloe. Good morning, everyone, and welcome to Parker's fiscal year 2026 First Quarter Earnings Release webcast. This is Todd Leombruno, Chief Financial Officer, speaking. And with me today is Jenny Parmentier, our Chairman and Chief Executive Officer. And always, we appreciate your interest in Parker, and thank you for joining us today. We address our disclosures on forward-looking projections and non-GAAP financial measures on Slide 2. Items listed here could cause actual results to vary from our forecast. Our press release was released this morning, along with this presentation and reconciliations for all non-GAAP financial measures. Those are available on our website under the Investors section on parker.com. The agenda for today has Jenny starting with an overview of our record FY '26 first quarter performance. She will share some highlights from our day 1 celebrations, welcoming the Curtis team members to Parker. Jenny will also then reiterate the strengths of our interconnected portfolio and share an example from our energy market vertical. I will follow Jenny with more details on our strong first quarter results, and then we'll both provide some color on our increase to our FY '26 guidance. After that, we will move to the Q&A portion of the call and address as many questions as possible within the hour. I now call your attention to Slide 3. And Jenny, I will hand it over to you. Jennifer Parmentier: Thank you, Todd, and thank you to everyone for attending the call today. Q1 was a great start to the fiscal year. Operational excellence was on full display, powered by the Win Strategy. We achieved top quartile safety performance with a 20% reduction in our reportable incident rate. This performance is aligned with our goal to be the safest industrial company in the world. Our team delivered record Q1 sales of $5.1 billion, organic growth of 5% and 170 basis points of margin expansion, resulting in 27.4% adjusted segment operating margin. Adjusted earnings per share grew 16% and cash flow from operations was $782 million. And we completed the acquisition of Curtis Instruments. Next slide, please. A long-standing practice within Parker is for a Parker leader to personally welcome the new team at every location. This slide shows pictures from our day 1 events held around the world, welcoming the Curtis team to Parker. This was a great day for all of us, and we are thrilled to have Curtis in the Parker portfolio. Next slide, please. Obviously, we are very proud of the Q1 results delivered by our team and equally excited about our future. So just a reminder on why we win. First, the Win Strategy is our business system. We have a decentralized operating structure, 85 divisions run by general managers with full P&L responsibility, acting like owners, close to their customers and executing the Win Strategy every day. Next, we have innovative products that solve customer problems, 85% covered by intellectual property. Our application engineers provide the expertise that allows us to have a competitive advantage with our interconnected technologies that provide efficient solutions for our customers. And finally, our distribution network is the envy of the competition and the best in the world. It took us over 60 years to build it, and it is truly an extension of our engineering teams, providing solutions to all of those small to midsized OEMs that are participating in capital spending and investments. These partners are experts at applying our interconnected technology. Next slide, please. We have the #1 position in the $145 billion motion and control industry, a growing space where we continue to gain share. These 6 market verticals represent greater than 90% of the company's revenue. Our interconnected technologies cut across these market verticals and give us a clear competitive advantage. 2/3 of our revenue comes from customers who buy 4 or more technologies, and our growth is focused on faster-growing, longer-cycle markets and secular trends. Next slide, please. This slide focuses on our presence in the energy market vertical. Parker is a significant supplier of products into heavy-duty gas turbines used for electrical power generation. We bring both proprietary designs and world-class manufacturing capabilities to offer a comprehensive suite of interconnected technologies. Parker supports multiple global industry-leading customers, and we are seeing significant growth in this space. This business is long life cycle with multiyear backlog and durable aftermarket. This is a great example of products and technology that are shared across aerospace and industrial markets. I'll hand it back to Todd to go through our first quarter highlights. Todd Leombruno: Thank you, Jenny. This was a great start to the fiscal year. I'm on Slide 9, and I will start with a summary of our Q1 results. Once again, and I love saying this, every number in the gold column on this slide is a record. It was just a fantastic quarter where mid-single-digit sales growth, combined with strong margin expansion, resulting in mid-teens EPS growth. Sales were up 4% versus prior. Organic growth was positive at plus 5%. Currency was favorable at 1%. And divestitures were 2% unfavorable. Those are the divestitures that we've previously completed. And I would just note, this is the last full quarter that we will have a full quarter of a divestiture impact. Moving to adjusted segment operating margins. As Jenny said, we did 27.4%, that's an increase of 170 basis points versus prior year. Adjusted EBITDA margin was 27.3%, that was up 240 basis points. And adjusted net income was $927 million or 18.2% return on sales. All of this drove adjusted earnings per share up 16% to reach a record $7.22 per share. It was a really nice start to the fiscal year with a strong quarter across the board, and it gives us confidence for the remainder of the fiscal year. Our global team members really continue to drive results enabled by the power of the Win Strategy. If we could jump to Slide 10, you'll see a bridge on the year-over-year improvement in adjusted EPS. The majority of our EPS growth came from continued strength across our operations as segment operating income dollars increased by $132 million or 10%. That contributed $0.80 to our EPS growth this quarter. Corporate G&A and other were favorable $0.18. That was primarily due to foreign currency exchange in the prior period quarter last year, that was unfavorable last year, that created a favorable for this year. Interest expense was also favorable by $0.07, and that's driven by lower average debt balances across the quarter and lower interest rates across the quarter. Share count was $0.13 favorable, and that was driven by the discretionary share repurchases that we completed over the last 3 quarters. Income tax was unfavorable by $0.16, and that was really simply due to a few favorable discrete items in the prior period that did not repeat. And that is basically it, a really clean bridge to the 16% increase in adjusted EPS. This record was really achieved by strong sales growth across the board, margin expansion and great adherence to cost controls across the company. If we move to Slide 11, we'll just talk about the segment performance. Orders were strong at plus 8% versus prior year, with order rates increasing across all reported segments. Organic growth came in at plus 5%. This was the first time in 2 years we've had positive organic growth across all of our businesses as diversified industrial organic growth turned positive. Every business delivered record adjusted segment operating margins, resulting in great incrementals and that 170 basis points of margin expansion. Looking specifically at the Diversified Industrial North America businesses. Sales were over $2 billion with organic growth positive at 2%. That's the first time in 7 quarters North America posted a positive organic growth number, that was better than our expectations going into the quarter. We continue to see gradual improvement across market verticals with positive growth driven by the aerospace and defense businesses in Industrial North America, in the implant and industrial equipment vertical and also improvement in off-highway that exceeded expectations. If you look at North America, they also had 170 basis points of margin expansion and reached a record 27.0% segment operating margin. That was really driven by higher productivity, some new business wins at great margins and margin mix with strong aftermarket across all those businesses in North America. And North American orders increased sequentially to plus 3% versus prior year. Looking at the Diversified Industrial International businesses. Sales were up. They were a record at $1.4 billion, up 3% versus prior. Organic growth remained positive at plus 1%. Looking at Asia Pacific, that was our strongest region with a plus 6%. EMEA remained down at minus 3% and Latin America was flat versus the prior year. So Asia Pac really drove the outperformance of growth in the international businesses. Adjusted segment operating margins were also a record at 25.0%, that is a 90 basis point improvement from prior year. And I can't say this enough, our international teams continue to show great resilience, they're driving margin expansion and its really great cost controls, and they're really executing the Win Strategy to great success. International orders rebounded, they improved to plus 6% after a flat Q4. Both EMEA and Asia Pac had positive orders this quarter. And lastly, Aerospace Systems, just another exceptional quarter from this group. Sales were a record $1.6 billion. That's an increase of 13% versus prior. Organic growth of 13%. That's the 11th quarter in a row that we've had double-digit organic growth rate in Aerospace. Commercial OEM is the strongest market segment growing 24% versus prior year. Adjusted segment operating margins increased by 210 basis points and, I'm proud to say, reached 30% for the first time ever. Record top line, productivity, continued aftermarket strength all drove the margin expansion. And Aerospace orders continue to be impressive, increasing plus 15%, and backlog also reached a new level -- record level for Aerospace. There's just robust demand, and that continues across all of our aero and defense markets. It's great to be in the Aerospace business right now. If we move to Slide 12, let's look at our cash flow performance. Cash flow from operations, a record $782 million, that's 15.4% of sales. That's up 5% versus prior year. Free cash flow is $693 million, that is 13.6% of sales. That is up 7% versus prior year. Cash flow conversion for the quarter is at 86%. I just want to remind everybody, I think everyone knows this, but our cash flow is historically second-half weighted. We remain committed to free cash flow conversion of greater than 100% for the year. And lastly, on this slide, we did repurchase $475 million of shares on a discretionary basis within the quarter. That is a wrap on Q1. And Jenny, I'm going to turn it back to you on Slide 14, and we'll move on to our updated fiscal year guidance. Jennifer Parmentier: Thank you, Todd. This slide shows our updated fiscal year '26 organic sales growth forecast by key market verticals. In Aerospace, we are increasing our forecast from 8% to 9.5% organic growth. We continue to see strength in commercial OEM and aftermarket. Implant and Industrial remains the same as our initial guidance at positive low single-digit organic growth. The sentiment does remain positive with continued quoting activity, while customer CapEx spending remains selective. Transportation is our most challenged market this year. Forecast stays the same at mid-single-digit organic decline. We are increasing the off-highway forecast from negative low single digits to neutral. We see gradual recovery progress in construction, while the ag challenges do persist. We are maintaining energy at positive low single-digit growth, with robust power gen activity offset by oil and gas. And we are increasing HVAC/refrigeration from positive low single digits to positive mid-single digits. We see strength in commercial refrigeration and filtration with some nice new business wins with our filtration technology. As a result of these changes, we are increasing our organic sales growth guidance from 3% to 4% at the midpoint. I'll give it back to Todd for some more guidance details. Todd Leombruno: Thanks, Jenny. I'm on 15, Slide 15, with just some of those details. In respect to reported sales, we are increasing the range to 4% to 7% or 5.5% at the midpoint. Currency is expected to be a favorable 1.5 points, and that is based on September 30 spot rates. Now that we have the acquisition of Curtis closed, we are including sales and segment operating income from Curtis in our guide. We have added $235 million to our guide for the remainder of the year, that is approximately 1% of sales. And divestitures that we've already previously completed are 1% unfavorable. If you move to organic growth, the forecast has now increased to a range of 2.5% to 5.5% or 4% at the midpoint. We have increased Aerospace organic growth to 9.5% at the midpoint. And for the Diversified Industrial segment, we have increased North America organic growth for the year to plus 2%. And for international, we still expect organic growth to be 1% at the midpoint. We are raising adjusted segment operating margins. We're raising that 50 basis points to 27.0% for the year. That is now a forecasted increase of 90 basis points versus prior year, and incrementals are now forecasted to be approximately 40% for the full year. Just a few additional items. Corporate G&A is unchanged at $200 million. Interest expense has been increased by $30 million, we now expect $420 million for the full year. And that is driven solely by the funding of the Curtis acquisition. And other expenses just slightly up to $90 million from $80 million last quarter. Our full year tax rate, we expect 22.5%. And we are raising adjusted earnings per share to an even $30 at the midpoint. That would be a 10% increase versus prior year. The range on that EPS is plus or minus $0.40 on either side, and the split is 48-52 first half, second half. In respect to full year free cash flow, we're also raising our guidance there to a range of $3.1 billion to $3.5 billion, with conversion, like I said, greater than 100%. And finally, looking specifically at Q2 for FY '26, we expect organic growth to be -- or excuse me, reported sales are expected to be 6.5%. Organic growth is expected to be 4%. Adjusted segment operating margins, 26.6%, and EPS for the second quarter on an adjusted basis is $7.10. As usual, we have the -- some additional details in the appendix. And really just in summary, FY '26 is off to a great start. That gives us confidence to raise full year guidance for sales margin, EPS and free cash flow. With that, I ask you to move to Slide 16, and Jenny, I'll turn it back to you. Jennifer Parmentier: Thanks, Todd. And a reminder on what drives Parker. Safety, engagement and ownership are the foundation of our culture. It's our people and living up to our purpose that drives top-quartile performance, that allows us to be great generators and deployers of cash. Thank you. Todd Leombruno: All right. Chloe, we are ready to begin the Q&A session. So we'll take the first question. Operator: [Operator Instructions] We'll take our first question from Julian Mitchell with Barclays. Julian Mitchell: Just wanted to start off perhaps with the organic sales picture in the DI North America business. Maybe help us understand a little bit better the cadence of demand. It did seem to surprise you positively, I think, in the quarter. How has demand moved there in recent months? And then when we're looking at the full year guide, I think your midpoint for DI North America doesn't embed any acceleration from the September quarter growth rate. Just wondered the thinking there. Jennifer Parmentier: Okay. Julian, so yes, we're very pleased with the performance. We had guided to a negative 1.5% and came in at a positive 2%. So North America performed better than expected with the Aerospace and Defense business it sits inside of our Industrial businesses, distribution, HVAC and electronics. Construction continued to outperform versus our expectations. And margin expansion from a higher productivity on slightly stronger volume really helped us. We had some project wins at attractive margins, and we're getting a margin mix benefit with the lower industrial OE and a very resilient aftermarket. So you are right, we do expect Q2 to be much like Q1 coming in at 2%. So that was prior, as Todd stated, for the year, we were looking at a total of 1%. So as I was just talking about, what we saw in Q1, we do believe that industrial aerospace and defense world remains strong. We're still talking about a gradual Implant Industrial recovery. Certainly positive sentiment from our distribution channel continues. Quoting activity is good. But as I commented earlier, still customers are being very selective on their projects and their CapEx spending. We still see transportation challenges in automotive and trucks. So we don't expect a truck recovery this fiscal year, but we will see some benefit from the aftermarket. In off-highway, gradual recovery progress in construction, but ag challenges still persist. Energy, power gen, robust. But oil and gas upstream still weak. And we're -- HVAC and refrigeration, we're coming off a very strong fiscal year, and we have increased that for the rest of the year. So while some markets are increasing, not all of them are, and that's why we see Q2 pretty much the same as Q1, but an increase for the total year. Todd Leombruno: Julian, I would just add, Jenny covered the organic growth piece perfectly, but I would just add, on a margin standpoint, we did increase Diversified Industrial North America margins 70 basis points for the full year versus our previous guide. So the teams are converting on that, and I have great confidence that we'll be able to do that. Jennifer Parmentier: Yes. And Q2 margin is 150 basis points higher than the prior year. Todd Leombruno: Correct. Julian Mitchell: That's helpful. And just following up on that last point perhaps, so I understand that you've had a higher margin performance year-on-year for the total company than is guided for the full year. I assume that's just sort of natural conservatism given we're early in the year. I wonder if there was any other factors to think about. And allied to that, your Q2 EPS guide is a decline sequentially, which is quite unusual in Q2. Any color on that, please? Jennifer Parmentier: So I think we left the second half pretty much alone. So based on what we see today, we feel really good about Q2. And I think we'll have a better line of sight here after the first of the year. Todd Leombruno: Yes, Julian, Q2, sequentially, it usually is our softest top line. I think the EPS is just pulling off of that. Nothing out of the normal that we see. Operator: We'll move next to Mig Dobre with Baird. Mircea Dobre: I would like to talk a little bit about Industrial International. The orders there were quite good and, frankly, better than what I would guess. A little bit of update in terms of what you're seeing in various geographies. And related to this, if I look at the past 4 quarters, I think your order intake averaged about 5%. So it's quite a bit better than what you have embedded in your forward outlook for organic growth. So I'm kind of curious at what point in time do you start to see these higher orders really flow through organic growth in the segment. Jennifer Parmentier: So with Industrial International orders, they've been really choppy as we often say. If you go back to our Q3, we had a plus 11%, and then Q4, we went flat. And that was because we had some onetime long-cycle orders that didn't repeat in Q4. So it's really not an average of about 5%. So what we're seeing in the region is, if we look at EMEA, we're showing flat to slightly positive organic growth for the fiscal year. There's uncertainty that's remaining, and we're expecting a slow in-plant industrial recovery. We do expect to see some growth in energy. We are seeing some mining recovery underway. And we do think that there'll be some pickup from the stimulus in future defense spending, but that's not something that we think we're going to benefit from this year. So what we see in EMEA is really to remain flat to slightly positive with what we see on the orders right now. In Asia Pacific, we have positive low single-digit organic growth for the fiscal year. We continue to see strong electronics and semicon demand. Implant is mixed as delays continue in China, but we do see some slight growth in India and Japan. Seeing some mining and transportation improvements in China, but I think there's still some continued uncertainty from tariffs across this market. So this is what we're seeing today on Industrial International. I mean we look forward to the time when this will be a higher organic growth. Mircea Dobre: Understood. My follow-up, and I don't know if you can answer this question, Jenny, it's kind of in the weeds. You talked about the ag market where challenges persist. But I do wonder, in terms of your exposure, if you sort of separate out the large ag equipment, so high-horsepower tractors combines versus midsize and in lower horsepower, I'm just wondering kind of what your exposure looks like there because I am starting to see a bit of a divergence forming where, large ag, as you say, it's challenged, but some of these smaller tractors are starting to grow in terms of volumes, and the volumes are actually much higher in lower horsepower equipment than large ag. So I'm wondering if this end market might turn a little bit sooner than maybe we're thinking about when we're thinking about large ag. Jennifer Parmentier: When we talked about last quarter, I made the comment that we thought that, that market had kind of hit trough. And I would say it's broad-based when we look at ag between that equipment. But you can certainly follow up with Jeff on maybe for more details in one of the follow-up calls. Todd Leombruno: Yes. Mig, I would just add, when we look at ag, it's 4% of total company sales. So it's just become a smaller piece of the total pie. It is broad-based. There's aftermarket, there's the OEM side of it. So I don't know if I'd read too much into movements there. Operator: We'll take our next question from David Raso with Evercore ISI. David Raso: Of the organic guide raise, how much was volume versus a change in price? And of the 50 bps margin improvement, can you give us a sense of how much of that may be related to the answer to the first question, volume improvement versus maybe price/cost different than you originally expected for the year? Jennifer Parmentier: David, well, as you know, we don't disclose pricing. Regardless of pricing or volume, I think that we've shown that we can expand margins pretty much in any climate. We have had 2 years of negative industrial growth and we're seeing the gradual industrial recovery playing out with industrial organic growth now positive in Q1. So we're definitely seeing the impact of slightly stronger volume. Operator: We'll move next to Scott Davis with Melius Research. Scott Davis: I've got to ask about M&A. I probably do a lot of quarters, but I'm going to lead with it anyways because it's been a few years since you closed Meggitt and, obviously, that's such a great deal for you guys. But Curtis seems like an interesting deal too, it's just not as big as maybe some of those others. So can you just update us on your pipeline and such? Jennifer Parmentier: You bet. So obviously, we're committed to actively deploying our capital. And as you mentioned, we did close Curtis Instruments in September, and we're really excited about that. And moving forward, the strategy remains the same with plenty of optionality. So when it comes to capital deployment, obviously, we prefer acquisitions, but it has to be strategic and disciplined. You've heard me talk about this criteria before. And I would tell you that the pipeline, the relationships and the analysis continues to be very active. While sometimes timing is hard to predict, we are working it. And we want to continue to acquire companies where we're the clear best owner. And we feel like we have a strong competitive advantage with our interconnected technologies, and that's what we want to add to the portfolio. So still looking for those deals that are accretive to growth, resiliency, margins, cash flow and EPS. And as I've said many times before, the pipeline has deals of all sizes. Operator: We'll take our next question from Amit Mehrotra with UBS. Amit Mehrotra: So obviously, it was, I guess, nice to see the order improvement. Jenny, a quick question about just the broad basis of that. I mean are we seeing a broader activity in pickup? You also won -- I think I saw that somewhere you guys won a large contract to supply components for aero-derivative gas turbines. I'm just trying to get a sense of are we seeing broad-based green shoots here? Or is it mostly explained by the longer cycle pockets that kind of have been working for a while? Jennifer Parmentier: We have the longer-cycle pockets, but then we're also seeing some improvement in some of our other key verticals. So when you look at the change that we had in the guide this month, we took -- obviously, we took aerospace and defense up. We also moved off-highway from negative low single digits to neutral, and we increased HVAC and refrigeration from low single digit to positive mid-single digits. So we are seeing some pockets within those industrial businesses where we're seeing some growth. Amit Mehrotra: Okay. And the other question I have is on Aerospace margins, obviously just really good. One thing I noticed is obviously the incremental margins being so high despite OE revenue up 20%, which I would imagine would be a little bit mix-dilutive. As the OE build cycles continues to improve, can we talk about what the mix impact is on aero margins going forward? Because it seems to like defy gravity in the quarter. Jennifer Parmentier: Yes. Well, we did have 51% OEM and 49% after margin in the quarter, and we do anticipate that that's going to be the mix for the rest of the year. Aero margins are very strong in Q1, and we had a nice bit of spares in Q1, which is really nice margin for us. So that helped us reach that record 30%, hit 30% for the first time. Going forward, we're very confident in our ability to maintain the margins where we've been and go forward with strong margins. If you look at what we did with the guide, we have full year at 29.5% now. That's 100 basis points higher than prior year, and that was raised 60 basis points from the initial guide. Q2, we're forecasting 29.1%, and that's 90 basis points higher than previous year. So we're in a good spot with aerospace. Our teams are doing an excellent job executing the Win Strategy and really benefiting from this volume. Operator: We'll move next to Jeff Sprague with Vertical Research Partners. Jeffrey Sprague: Can we just cut a little further in the aerospace? And also, Jenny, maybe just a little bit of color on kind of how you see the defense side playing out in 2026 versus the commercial side? Any change of thinking there? Jennifer Parmentier: So Jeff, I'm sorry, what was -- so you wanted dig deeper into aero, especially defense, right? Jeffrey Sprague: Yes, I want to kind of get a sense of defense versus commercial mix and how that's playing and if that's changed versus your initial view. Jennifer Parmentier: Yes. We came out with mid-single-digit growth for both defense OEM and MRO, and that's the same. We haven't -- we're not forecasting any change there. Jeffrey Sprague: Great. And then just on Curtis, I think it comes in a bit margin dilutive, it's not apparent given kind of all the other execution and everything that's going on. But can you just kind of give us a little color on at the margin rate it comes in at the work you're doing to integrate it? And any thoughts on kind of how it might be positioned into next year after you've got it kind of fully digested? Todd Leombruno: Yes, Jeff, this is Todd. I can take that. I mentioned earlier, we added about $235 million of sales into the guide. You're right, it is slightly dilutive. But it's smaller, so it doesn't really have an impact. You can see we did raise both North America and International margins for the full year, even after including Curtis into the mix. If you're looking for a number, I would say, high teens, low 20s would be a good number to use. It does add -- it is EPS accretive in a stub year even. You saw that we added $30 million for interest there. And it's only been a little over a month. The team is super excited about it. Jenny mentioned the welcoming day, and I can tell you they're working really hard to integrate and make this part of Parker, just like we have on the last deals. Jennifer Parmentier: I would just add to that, as Todd said, the integration is well underway. Very similar. We've assembled a dedicated integration leader and a team of high-talent team members, and this is how we ensure a very smooth integration. Operator: We'll move next to Joe Ritchie with Goldman Sachs. Joseph Ritchie: Jenny and/or Todd, is there a way that you could maybe size the opportunity on Slide 7 or give some color just around like what the growth rates have looked like? I'm just curious how to think about this business for you guys going forward. Jennifer Parmentier: Well, I don't think we're in a position to go over the growth rates. But what's great about this power gen business is that we do have this suite of interconnected technologies for power gen applications. And you can see on that slide all the different examples of the products that we have. And it's just a very robust order book, like I commented multiyear. We expect solid growth for years to come. And we're working with all of the leading industry customers. So while this market vertical makes up about 7% of our sales and power gen is about half of that, it's a small percent overall, but a very nice growth area for us. And we expect to, not only continue to win in this market, but really benefit from it. Joseph Ritchie: Yes. No, that's great to see, and glad that you guys highlighted it. Other quick question, I know that we won't be talking specifically around pricing. But in an environment, let's say, where you do see some of these tariffs potentially getting rolled back. Like how does that impact the pricing that you've already put through? And then ultimately, is that another potential boost to margins if we do see some pullback on tariffs? Jennifer Parmentier: Well, obviously, as we've talked about tariffs, we have the analytics and the processes to navigate and act quickly up or down. And we had to do a lot of that over the last several months. And the teams have just done a fantastic job. So we're -- we have a strong muscle when it comes to pricing and to price/cost, and we'll adjust as we need to. But as I've stated time and time again, we can't use tariff as a margin expansion device. This is something that we have to recover from a cost standpoint, and we'll adjust as we need to, going forward. Operator: We will take our next question from Joe O'Dea with Wells Fargo. Joseph O'Dea: Wanted to start on the North America implant side of things and what you're seeing from customer activity or what you're hearing from dealers with respect to greenfield and brownfield investment in the U.S. And then around that, whether you're getting any color on the nature of those investments and kind of local for local or you're seeing more kind of foreign participants looking to invest in the U.S. Jennifer Parmentier: Yes. I don't have the detail too much for local for local versus foreign investment. But I would tell you, my comment earlier about the CapEx being selective, I do believe it's still selective. But in the past, we were just talking about delays and delays. And obviously, we saw a stronger area there through distribution and implant in Q1. So we're seeing some things get across the line and projects get started. But I don't have a specific breakdown for you at this time. Joseph O'Dea: And then on the HVAC side of things and seeing some strength in commercial refrigeration and filtration, I think you talked about some nice new wins in filtration. Can you just expand on that a little bit in terms of verticals you're serving there, where you're seeing some of that strength? Jennifer Parmentier: Yes. We've had some nice filtration wins when it comes to gas turbines. We have some proprietary technologies, really nice filtration products in the energy market. And then we've also had some night filtration wins on the -- actually on the mobile side of the business as well. So it's been a growth area for our filtration group this past year. Operator: We'll move next to Christopher Snyder with Morgan Stanley. Christopher Snyder: So obviously, North America Industrial turned organic positive in the quarter. I'd imagine there's some benefit of incremental price, and it does sound like some of the longer-cycle verticals kind of helped that. But I guess my question is, when you look at North America industrial, the more cyclical pieces, do you feel like the cycle is starting to get better? Jennifer Parmentier: Yes, I would definitely say that Q1 is evidence of that, right, and especially those key market variables where we've increased our outlook for the year. So yes, I would definitely say we're starting to see that. Todd Leombruno: Yes, Chris, I would just add -- I was just going to add, Chris, that we've talked about inventory across the channel, and we feel that it's kind of at a trough level. I can't say that we've seen a restocking yet, but it feels like we're closer to that than going the other direction. Christopher Snyder: Yes. No, happy to hear that. You've talked about implant as being one of the industrial verticals doing well showing momentum. Do you have any color to provide on how that business did in the U.S. versus the international markets? Just to get a sense if some of the policy is driving activity into the U.S. Jennifer Parmentier: In North America, as I commented before, it's a gradual Implant Industrial recovery. But as Todd was just saying, although we don't see restocking yet, we still have that very positive sentiment from our distribution channel and a lot of quoting activity. When we talk about EMEA, it's still some uncertainty that remains. So we're expecting a slow Implant Industrial recovery. When we look to Asia Pacific, it's kind of mixed. Delays continue in China, but there's been some growth in India and Japan. Operator: We'll take our next question from Jeff Hammond with KeyBanc Capital Markets. Jeffrey Hammond: Maybe just at the Analyst Day, you called out data center, and I know, clearly, power gen probably benefiting from that. But maybe just update us on what you're seeing on the liquid cooling side. Clearly, we're seeing some pretty mind-boggling order rates from certainly peers, et cetera. Jennifer Parmentier: Yes. So we do have a nice exposure, and we are seeing rapid growth. But this is not yet large enough for us to call it its own market vertical. It still makes up less than 1% of our sales. But again, this is something what I feel is unique about Parker, and it's these interconnected technologies and its competitive advantage. We can provide great value to our customers in this space. We have the products that they need for the data center cooling, and we have been working with all the industries there. So our ability to provide liquid cooling systems and subsystem components has really given us, I think, a nice position here. Jeffrey Hammond: Okay. And just a couple of housekeeping. One, on the Curtis revenue, can you give us a split between North America and International, kind of how that flows through the 2 segments? And then just you've been more active on buyback. I'm assuming the guide doesn't build in any more buyback, but correct me if I'm wrong. Todd Leombruno: Yes, Jeff, I'll take those. The sales is split almost 50-50 North America and International. I think we'll refine that as we get further on in the integration process. But right now, it's kind of how we're modeling it. And then you're right, over the last 3 quarters, we have done some share buyback. I think we finished the quarter with a net debt to adjusted EBITDA of 1.8. So we're well below our target of 2. That's even after funding the Curtis transaction. We haven't forecasted any additional. You heard Jenny talk about the pipeline. So we're -- that's always a balance of actionability and timing on that. But I would just restate what Jenny said, we're going to be active when it comes to deploying the balance sheet. Operator: We'll move next to Andrew Obin with Bank of America. Andrew Obin: Just a follow-up on all these exciting new verticals, power, AI, just any thoughts, how do you think about, a, available capacity at your technology portfolio to ramp and expand your presence in these markets over the next several years? How much room is there to sort of grow organically or for bolt-ons targeting these specific high-growth verticals that are seemingly new versus where we were for the past decade? Jennifer Parmentier: Yes. Good question, Andrew. So we -- obviously, as I was saying, we've been working with some of the names everybody would recognize when it comes to data centers. And we've been working very closely with them globally to understand the capacity that is needed for our products. And it's another good example of how having this global footprint really helps us because we can partner with these customers in the regions where they need us. In some cases, we can add shifts and add capacity. And in other cases, there's some other capacity increases that we'll have to do. But nothing significant expense or nothing that doesn't have a real nice return to it. So constantly evaluating it and making sure that we're staying a bit ahead of it as we always do. So we can really give them a good delivery and quality experience. Andrew Obin: As we're sort of sitting at the bottom of the cycle, how do you think about the ramp over the next several years? And specifically labor availability, the need to train the labor and any sort of inefficiency as we go from multiple years of limited no growth to actually growing, how do we make sure that the ramp is smooth. Jennifer Parmentier: Yes. We rely heavily on our tools sitting inside of the Parker Lean System and on our culture of Kaizen. That's where we really do get a lot of our efficiency improvement. And the way that we work with Kaizen and the way that we work with our teams, we established how our production line, power assembly cells can operate at different volumes and what that takes from a labor standpoint or flexing at other areas of the factory. So in many cases, we've been able to do that without adding team members. And in other cases, we will add team members as needed. But we put a lot of energy into onboarding and training new team members, and I think we have some really robust programs when it comes to that. So I think we're in a good position. Todd Leombruno: Andrew, this is Todd. I would just add, we did bump up our CapEx forecast for the year. It's higher than we've been historically. A lot of that is going towards automation, safety-related items, capacity in certain regions where needed. So we are -- I think we're being thoughtful about it, and I think we are, obviously, we're preparing for growth. Operator: We'll take our next question from Nicole DeBlase with Deutsche Bank. Nicole DeBlase: Just maybe circling back to the really impressive Aerospace margin performance this quarter. If we kind of look at what you guys are forecasting for the rest of the year, there is a bit of a step-down versus the 30%, and I know that's a really robust result. But is that just because of the mix within the mix with what you said, Jenny, around spare shipments? Jennifer Parmentier: Yes. Spares are hard to forecast. So yes, that would be the biggest part of it, Nicole. For Q2, we have margins at 29.1% for Aerospace, which is a 90 basis point increase year-over-year, and obviously an increase from our initial guide. Nicole DeBlase: Okay. Perfect. That makes sense. And the incremental stepping up to 40% also really good to see. I know kind of the previous long-term target or what's baked into the longer-term 2029 target is closer to 35%. Could this possibly be a new norm for Parker given how strong margin performance is? Or do you still think it's best for us to kind of anchor to the 35% or so in forward years? Todd Leombruno: Yes, Nicole, this is Todd. I'm glad to see those incrementals, they are very much impressive. As you know, they're not easy to get. There's a lot of work around the globe that happens to turn out these great results. Sometimes it's a little easier when the sales are -- the math works a little funny when the sales growth is not enormous. But you've seen our margin expand. You've seen our EBITDA expand. But as far as what we hold our team to, we modeled that 30% to 35%. Of course, it varies depending on where you're at in the cycle. But I don't think we're ready to change that guidance yet. Operator: We'll take our next question from Brett Linzey with Mizuho. Brett Linzey: First question just on construction. So you noted the gradual recoveries. Is this predominantly the MRO piece of that business? Or are you beginning to see a little bit of load-in from OEMs as they're seeing some dealer increases? Jennifer Parmentier: I think it's both. Brett Linzey: A little bit of both? Okay. And then just to follow up on that last question regarding the fiscal '29 targets. So the adjusted op target was 27%. The top end of the guide this year is 27%. So basically got there 3 years early. Should we think of this year as the new bouncing-off point and you're comfortably marching above that? Or is there something about mix or discretionary costs that might need to come back? Jennifer Parmentier: Well, listen, we're really pleased to see what the team was able to accomplish in Q1 and very happy to be able to increase our organic growth forecast outlook from 3% to 4%. We do still have some markets that need to recover. And we think that what we have out there in the guide right now reflects what we see today. Obviously, we could not have achieved this 27% adjusted operating margin without the hard work and dedication of our team. But just a reminder, with the FY '29 target, adjusted operating margin is not the only target, and we're focused on achieving all 5 of those targets. There's still work to do there, but we're confident we're going to get there. Operator: We will take our next question from Nigel Coe with Wolfe Research. Nigel Coe: We've got a lot of grounds, but I did want to go back to the Aero margins. And I'm actually wondering, is there a way to think about legacy Parker Aero margins and Meggitt? And through other question is I'm trying to judge how much more runway there might be to operationalize the Meggitt margins. Todd Leombruno: Nigel, this is Todd. That integration has gone unbelievably well. We have certainly made that part of the Parker operating strategy. It is really hard to tell the difference between the legacy margins now and the Meggitt margins now. A lot of the synergies really came from across the group. And quite honestly, that's not the way we're really running the company now. It's not Parker Meggitt and Parker Aerospace, it's Parker Aerospace. I would tell you they're both stellar, hitting 30% for the first time. It was equal parts of both. And we've got a very great future there. Nigel Coe: Yes. I think that's the right answer, by the way. And then on -- going back to power gen. I think, Jenny, you mentioned, or maybe it's you, Todd, that roughly half of that 7% is power gen. So I'm actually curious, when would you think about breaking it out as a separate reportable subsegment. It seems to be getting to the same sort of size of HVAC. So just curious on that. And then any more color you can provide on the exposures in there? I'm curious the heavy-duty exposure versus the aeros and maybe some of the smaller gas turbines? Sorry for the detail, but it would be interesting to know that. Jennifer Parmentier: Yes. So -- what was the first part of your question? Todd Leombruno: Breaking down the difference. Jennifer Parmentier: The difference. We don't look at the percentage on the market verticals as to where we can break out some subsegments. We haven't gotten that far yet. So I really don't have a number in mind where it would become its own market vertical. Obviously, we're very bullish about the future of power gen. So it's something we continue to evaluate. But energy is an area -- all types of energy we think belongs together. So no real plans to break that out yet. And I would say maybe in a follow-up with Jeff, you could look at some of the other details that you were asking for. But I don't have that available for you right now. Operator: We'll move next to Nathan Jones with Stifel. Nathan Jones: I got a quick follow-up on the gas turbine business. If I remember correctly, many years ago, probably up to nearly a decade ago, the OEM margins on at least some of the components that went into the gas turbine business were pretty low and the aftermarket margins were pretty high. Just wondering if that's still the case and there might be a little bit of a drag as the OE side of that ramps up? Or if that dynamic has changed over the last decade? Todd Leombruno: Yes, Nathan, this is Todd. When you go back and try to compare Parker to a decade ago, it's very difficult. It's a totally different company. The margin expansion is significant. You see that. Every one of these business has been part of that margin expansion. We still have the mix between aftermarket and OEM margins. I would say that that's probably always going to be like that. There's nothing here in power gen that dramatically sticks out that it's lower than the rest of the OEM aftermarket mix. Nathan Jones: Fair enough. And then I had one follow-up on Mig's question earlier on the longer-cycle Industrial International orders. Any color you can give us around what drove those? I know they were maybe 4Q last year that they came in. And Jenny was giving us some cadence on how that doesn't phase in, I guess, to revenue this year, but any color you can give us on when that starts to contribute to growth in International? Jennifer Parmentier: So the longer-cycle orders that we had in Q3, I believe that were in our Engineered Materials business. And that longer cycle could be anywhere from 6 to 12 months. I don't have the details committed to memory on exactly what those were. But they did not repeat in Q4. So longer cycle, longer demand sense, anywhere between 6 and 12 months, I would say. Todd Leombruno: Chloe, this is Todd. I think we've got time for maybe one quick, positive last question, if you could put whoever's next in the queue. Operator: Absolutely. We'll take our last question from Andy Kaplowitz with Citi. Unknown Analyst: This is actually Jose on for Andy. Maybe to wrap it up. You've talked in the past about mega projects and how they could potentially impact Parker. Curious if you could talk about how customers are moving forward with the mega projects? What are you guys listening from your distributors? And how are you approaching that trade-off between there's still a lot of larger projects out there versus a somewhat still uncertain macro environment? Jennifer Parmentier: Yes. And when I was talking about our distribution channel and how they serve all those small to midsize OEMs on capital investments and CapEx, those definitely are those megaprojects. So we still see a very large amount of them out there. We still do hear that there are delays. But there's obviously some of these that are starting to kick off and they're mainly focused on customers looking for productivity and efficiency. And that's what we're hearing from our channel that supports those customers, and that's where we believe most of that is happening today. Todd Leombruno: Chloe, I think we're running out of time. So this concludes our FY '26 Q1 earnings release webcast. Like I said earlier, we appreciate everyone's attention and their time. We thank you for joining us today. Our Investor Relations team of Jeff Miller and Jen Specky will be available for the rest of the day if anyone has any follow-ups or needs clarification. So thank you all, and have a great day. Operator: This concludes today's call. We appreciate your participation. You may disconnect at any time, and have a wonderful afternoon.
Operator: Greetings, and welcome to the Redwire Corporation Third Quarter 2025 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to your host, Alex Curatolo, Senior Director of Investor Relations. Alex Curatolo: Good morning, and thank you, Diego. Welcome to Redwire's Third Quarter 2025 Earnings Call. We hope that you have seen our earnings release, which we issued yesterday afternoon. It has also been posted in the Investor Relations section of our website at rdw.com. Let me remind everyone that during the call, Redwire management may make forward-looking statements that reflect our beliefs, expectations, intentions or predictions of the future. Our forward-looking statements are subject to risks and uncertainties that are described in more detail on Slides 2 and 3. Additionally, to the extent we discuss non-GAAP measures during the call, please see Slide 3, our earnings release or the investor presentation on our website for the calculation of these measures and their reconciliation to U.S. GAAP measures. I am Alex Curatolo, Redwire's Senior Director of Investor Relations. Joining me on today's call are Peter Cannito, Redwire's Chairman and Chief Executive Officer; Jonathan Baliff, Redwire's Chief Financial Officer; and Chris Edmunds, Redwire's Chief Accounting Officer and incoming Chief Financial Officer, effective December 1, 2025. With that, I would like to call -- turn the call over to Pete. Pete? Peter Cannito: Thank you, Alex. During today's call, I will outline our key accomplishments during the third quarter of 2025. Chris, our incoming Chief Financial Officer, will then present the financial highlights for the same period and discuss our 2026 outlook, after which we will open the call for Q&A. Please turn to Slide 5. Now that we have a full quarter of performance from the combination of Redwire Space and Edge Autonomy, I would like to continue to emphasize the major transformation underway at Redwire. As you will see in our accomplishments and results, the technical, operational and financial positioning of our platform has been significantly enhanced. As part of this transformation, I'm excited to introduce our updated vision statement, reflecting Redwire as an integrated space and defense tech company. At Redwire, our expanded vision is to pioneer next-generation space and defense technologies that empower scientific discovery, advance global industries and strengthen security, transforming how humanities explores, connects and protects from the skies above to the stars beyond. Let's now turn to a discussion of highlights from the third quarter of 2025. Please turn to Slide 7. As you can see from the highlights on this slide, the impact of our transformation, including the acquisition of Edge Autonomy was accretive to our financial performance. During third quarter of 2025, we increased our adjusted gross margin to 27.1% in the third quarter. We also saw sequential improvement of $24.8 million in our adjusted EBITDA. Additionally, we recorded significant revenue growth of 67.5% sequentially and 57% year-over-year to revenues of $103.4 million during the third quarter. We continue to scale aggressively. From a growth perspective, we closed a number of key strategic opportunities, adding to our backlog by achieving a book-to-bill ratio of 1.25, resulting in backlog of $355.6 million as of September 30, 2025. We are greatly encouraged by our growth reflected in our strong book-to-bill in Q3 based on strong customer demand for our differentiated products. However, looking forward, we anticipate some issues with near-term timing of awards in Q4 resulting from the ongoing U.S. government shutdown. In particular, we have seen delays in the U.S. Army's long-range reconnaissance and similar UAS programs as well as a slow start to Golden Dome. We've ramped production capability to meet these needs, but have not yet seen awards begin to flow. Therefore, we anticipate the diminished government staff and resulting delay in contracting activity is likely to push a number of our anticipated awards out of the quarter. Notably, however, we do not see a decrease in demand, but rather a temporary near-term timing impact that supports a strong 2026 as the government returns to full strength. Please turn to Slide 8. As Redwire nears completion of its transformation, expanding from exclusively space subsystems and components to becoming a highly scalable space and defense technology platform, I'd like to reorient investors to our 5 primary value-driving product areas. These value drivers represent the product areas where Redwire has differentiated intellectual property, first-mover advantage and recognized thought leadership in rapidly growing domains with sizable total addressable markets. They are differentiated next-gen spacecraft, particularly in VLEO and GEO like SabreSat, Phantom and Mako and others that support next-generation capabilities such as high-fidelity earth observation, quantum key distribution, in-space refueling, AI imaging and maneuverability. Large space infrastructure, specifically our rollout solar arrays and international berthing and docking mechanisms where we provide building blocks for critical space infrastructure like space stations and Moon to Mars exploration. Microgravity development, where we are a global leader with decades of heritage and hundreds of experiments flown in the areas of biotechnology and advanced materials and manufacturing. Combat proven UAS, namely the Stalker and Penguin series, where we supply combat-proven autonomous UAS built in the United States and Europe to war fighters in the most challenging battlefield environments. And finally, sensors and payloads such as optics and radio frequency systems where we support multi-domain missions ranging from airborne ISR to Artemis and the historic commercial moon landings. To underscore our strategic positioning in each area, I will share a brief description of the differentiators, a highlight or 2 from the third quarter as well as examples of future growth targets as we move towards 2026. Please turn to Slide 9. Starting with next-gen spacecraft. Redwire's key differentiators are that we have existing funded customers, classified personnel and facilities and a first-mover advantage in VLEO, GEO and space refueling and quantum secure satellites. During Q3, Redwire announced that we have reached an agreement with Thales Alenia Space to become the prime contractor for ESA's Skimsat mission, a technology demonstration mission for a spacecraft designed to operate in VLEO. The Skimsat mission leverages Redwire's Phantom spacecraft, an advanced European VLEO platform out of our Belgian facility. With this prime ship, we further establish ourselves as a global leader in VLEO capabilities. In addition, we signed an MoU with Honeywell during the quarter for QK-VSAT. Under this ESA public-private partnership, we aim to combine Redwire's quantum platform technology with Honeywell's quantum optical payload as we build towards a QKD constellation. As we look for further growth opportunities, VLEO is a relatively untapped orbit with no dominant provider. Redwire is now executing on 2 prime contracts in VLEO, DARPA's Otter program in the U.S. and ESA's Skimsat mission in Europe. And these funded contracts position us as an early mover and market leader in this exciting orbit. We are leveraging this funded development to position VLEO for Golden Dome and growing European defense spending. In the future, we are targeting opportunities with the intelligence community, Air Force Research Lab, or AFRL, most notably our current TETRA program, Space Force as well as additional phases for DeepSAT and expanding our Honeywell partnership for QKDSat as just a few examples. Please turn to Slide 10. Another key value driver is our large space infrastructure, where we are differentiated as a key supplier for products like ROSA and IBDM on funded contracts from customers with significant heritage and protected IP such as our rollout design. Our unmatched heritage with ROSA on the IFS continues to translate into follow-on orders from customers that need a proven solution. During the quarter, Redwire was awarded a contract to develop and deliver rollout solar arrays or ROSA wings for Axiom's Commercial Space Station. Power is critical to a sustained presence in low earth orbit and another commercial station provider selecting ROSA further underscores our strong positioning in this key capability. Building on Redwire's heritage from the ISS, DART, Blue Origin's Blue Ring, Thales Alenia Space GEO satellites, the power and propulsion element of Gateway and now Axiom's Commercial Space Station, Redwire is pursuing numerous follow-on opportunities to scale with our existing customers as their businesses grow. Additionally, we are aggressively pursuing orders for large space infrastructure such as ROSA and IBDM for other commercial space stations as well as other power-intensive spacecraft programs and Moon to Mars infrastructure like Artemis. Please turn to Slide 11. With hundreds of microgravity experiments conducted, proven IP like PIL-BOX and existing funded commercial, governmental and international customers, Redwire is at the forefront of microgravity development. We are decades ahead of many of our competitors. During the third quarter, Redwire launched 14 PIL-BOXes, studying 18 molecules to the International Space Station with 3 different partners: Bristol-Myers Squibb, Butler University and Purdue University. These PIL-BOXes are expected to return to earth in the coming months. With these, Redwire has now flown a total of 42 PIL-BOXes studying 35 unique molecules as of the end of the third quarter, adding to our extensive heritage in pharmaceutical development on orbit. In terms of future growth, we see the potential impact is extraordinary. Pharma has less than a 10% success rate from Phase 1 trials to approval and a fast-approaching patent cliff that threatens approximately $350 billion in annual worldwide revenue from drugs losing exclusivity through 2030. We see Redwire's pharmaceutical development on orbit as offering a potential solution to these challenges as we will take advantage of the unique microgravity environment in space to grow seed crystals using Redwire's flight-proven PIL-BOX technology. Our subsidiary, SpaceMD, will then sell or license these seed crystals to companies that can use them to create reformulated versions of existing drugs or entirely new therapeutics. We have a template for these commercial agreements and many successes with key partners in the biotech community to build on. Please turn to Slide 12. Next, let's turn to our combat-proven UAS. First, I'd like to take a moment to discuss a few key differentiators of the Stalker. The Stalker is a combat-proven UAS that is built on nearly 20 years of heritage with more than 300,000 flight hours, including in highly contested and harsh environments. The Stalker is silent, enabling covert surveillance and reconnaissance and minimizing detectability in contested or civilian-sensitive environments. The Stalker is also payload agnostic. More than 30 different third-party payloads have been integrated via our modular open systems approach, which enables plug-and-play integration. And finally, the Stalker Block 40 offers extended endurance of more than 18 hours, critical for long-range operations. We also have significant heritage with our Penguin series built in Regal Latvia, having delivered more than 200 Penguin aircraft to the Ukraine armed forces. European defense spending is growing rapidly and we are one of the few European-based suppliers with proven performance on the battlefield. During the quarter, we were awarded and delivered Stalkers for the prototype phase agreement of the U.S. Army's Long-range Reconnaissance or LRR program. The Stalker has previously been selected for 2 programs of record, the U.S. Marine Corps Long-Range Long Endurance and the U.K. Ministry of Defense's TIQUILA program. In total, during the third quarter, we shipped Stalker aircraft to 8 different end customers in the United States and other allied countries, showing the global demand for the combat-proven Stalker platform. Clearly, Stalker is broadly fielded for a variety of mission sets with multiple countries and U.S. military branches based on our differentiated capabilities. From unleashing American drone dominance in the U.S. to the European Drone Defence Initiative, the demand signal is strong. With existing production facilities and a broad customer base, we are targeting future growth globally. Redwire is ready with production capacity and fielded aircraft to deliver on key programs like LRR as we move into 2026. Please turn to Slide 13. Finally, moving to sensors and payloads. Redwire has decades of heritage having delivered thousands of space-based sensors and payloads, including antennas, sun sensors, star trackers and cameras for some of the most high-profile missions. Redwire now also has significant heritage with UAS sensors and payloads, having delivered more than 400 Octopus gimbals to the Ukraine armed forces, for example. These gimbals are compatible with a wide variety of UAS platforms. These are not just for Stalker and Penguin. We are selling these systems to other platform providers. During the quarter, Redwire announced a partnership with Red Cat to integrate their Black Widow Small UAS onto the Stalker to support UAS Army Echelon missions. The Black Widow, which was selected by the Army for its short-range reconnaissance Tranche 2 program can be mounted under the center wing of the Stalker as a deployable payload. By integrating best-of-breed short- and long-range reconnaissance systems, this partnership will provide war fighters on the front lines with mission -- with great mission reach and reliable data for effective decision-making. Stalker and gimbals are already integrated with controllers such as [ ATT&CK ] and CUDA technologies. And after Q3, we announced an MoU with UXV Technologies to enhance controller interoperability and align with the EU's ambitions to strengthen its defense industrial base through cross-border industrial cooperation. As we look forward, we see significant growth opportunities for airborne and space-based sensors and payloads. The UAS EO/IR sensor market segment is forecasted to grow from approximately $1.6 billion in FY '23 to approximately $4.8 billion in FY '32, a 12.9% CAGR. Redwire targets future growth both with the U.S. government and other key OEMs around the world for these products. In space, the proliferation of satellites is expected to continue with an estimated 70,000 satellites expected to be launched over the next 5 years. Further, as capabilities like space situational awareness and airborne ISR become increasingly important, Redwire is positioned for continued growth in this area. Please turn to Slide 14. Although in the near term we've seen delays from the U.S. government shutdown, which is likely to push key awards into next year, our pipeline of opportunities remains very strong and we saw a positive trend in contracts awarded during the third quarter as compared with the first half of 2025. Our contract awards during the third quarter of 2025 almost tripled year-over-year to $129.8 million with a book-to-bill ratio of 1.25x, improving backlog to $355.6 million, including contracted backlog from international operations of $128.7 million or 36% of total backlog. As a reminder, we often see lumpy contract awards from quarter-to-quarter. However, we continue to see a strong pipeline with an estimated $10 billion of identified opportunities across our space and airborne solutions, including approximately $3 billion in proposals submitted year-to-date as of September 30, 2025, inclusive of the year-to-date bids submitted by Edge Autonomy. Although the U.S. government shutdown is likely to delay timing of Q4 awards into 2026 with key wins during the third quarter and in the intervening weeks, we are pleased with the positive change in our trend line for contracts awarded and believe our pipeline of new opportunities is very strong, positioning us for continued growth for the next 12 months and beyond. Please turn to Slide 15. With that, I'd now like to turn the call over to Chris Edmunds, Redwire's Chief Accounting Officer. As previously announced, Chris will succeed Jonathan Baliff to become our Chief Financial Officer effective December 1, 2025. Chris brings deep knowledge of our business and significant finance and accounting expertise, and I look forward to working with him in his new role. Chris will now discuss the financial results for the third quarter of 2025. Chris? Chris Edmunds: Thank you, Pete. Before turning to Slide 16, I want to highlight the photo on this page of the ribbon cutting for our new 15,000 square foot facility in Albuquerque, New Mexico, adjacent to the Kirkland Air Force Base. This facility will support a wide range of capabilities from space, missile defense and other emerging war fighter domains as well as support work under the $45 million contract with the AFRL that was previously disclosed. Redwire is focused on optimizing our operational footprint and smartly investing in locations like Albuquerque, which are key to our nation's defense architecture. Please turn to Slide 16. Let's turn to the financial results for the third quarter of 2025, starting with revenue. Revenues for the third quarter of 2025 increased by 50.7% year-over-year to a record $103.4 million, with Edge Autonomy contributing $49.5 million. Turning to profitability. During the quarter, we saw a significant sequential improvement in our adjusted EBITDA from a negative $27.4 million in the second quarter of 2025 to a negative $2.6 million in the third quarter of 2025. This improvement is largely attributed to the 67.5% sequential increase in revenue and adjusted gross margin of 27.1%, offset by the unfavorable impact of VACs of $8.3 million. Finally, turning to cash and total liquidity. We ended the quarter with total liquidity of $89.3 million, which was comprised of $52.3 million of cash, $35 million of undrawn revolver capacity and $2 million in restricted cash. Although lower sequentially, this does represent a 46.2% year-over-year improvement in total liquidity. Please turn to Slide 17. I'd like to take a moment to provide some additional detail around third quarter adjusted gross profit and cash used in operating activities. Starting with gross profit, as shown on the left-hand chart, during the quarter, we reported gross profit of $16.8 million and gross margin of 16.3%. Included within these results was an $11.2 million noncash purchase accounting adjustment related to the Edge Autonomy acquisition. This represents the amount of the fair value step-up recorded through purchase accounting for the inventory sold this quarter, resulting in adjusted gross profit of $28 million with an adjusted gross margin of 27.1%. We believe that this adjusted gross margin is more representative of the potential of the combined business going forward as we have now fully recognized the inventory fair value step-up in earnings and it will no longer impact future gross margins. Second, as shown on the right-hand chart, we saw a significant and expected reduction in net cash used in operating activities during the third quarter of 2025 as compared with the first 2 quarters. During the quarter, our use of cash from operations decreased significantly on a sequential basis from a use of $87.7 million during the second quarter of 2025 to a use of $20.3 million during the third quarter, an improvement of $67.3 million. Even excluding the impact of acquisition-related costs included in our Q2 2025 operating cash flows, this represents a sequential improvement of approximately $30 million. Although this quarter represents a sequential improvement, we continue to focus on profitability, expanding revenue and gross margin and driving efficient SG&A as we sharpen execution and we achieve profitability, including positive cash from operations. In regards to capital allocation, we remain committed to a disciplined approach to fund our growth initiatives and maintain a prudent balance sheet. In line with this long-term capital sourcing strategy, we expect to file a prospectus supplement for a $250 million at-the-market or ATM equity offering program in the coming days. Please turn to Slide 18, for a brief discussion of the outlook for the remainder of 2025. Although we are benefiting from a diversification in geographical customer mix and despite the improved book-to-bill of 1.25 during the third quarter and the strong bookings we have seen thus far in October, the ongoing U.S. government shutdown has pushed a number of anticipated awards out of the fourth quarter and into 2026. As a result, for the 12 months ending December 31, 2025, including Edge Autonomy from the date of close, we are adjusting to a narrower expected revenue range of $320 million to $340 million. In closing, I'd like to reiterate that although impacts from the U.S. government shutdown have necessitated a prudent revision in revenue guidance, we believe that these anticipated orders have been pushed out of the quarter and into 2026. They have not been lost. With that, please turn to Slide 19, and I'll now turn the call back over to Pete. Peter Cannito: Thank you, Chris. The transformation of Redwire with addition of Edge Autonomy has already been accretive to our financial profile, reflected in our year-over-year revenue growth of 50.7%, 27.1% adjusted gross margin and strong book-to-bill of 1.25x. Finally, before we move to our question-and-answer session, as we announced in early October, our CFO, Jonathan Baliff, will be retiring from Redwire effective November 30, 2025. I'd like to take a moment to thank Jonathan for his leadership and valuable contributions throughout his tenure as he guided Redwire through critical phases of our evolution, both in his role as CFO and as a member of our Board. Thank you, Jonathan. With that, I want to thank the entire Redwire team for their contribution to our results during the third quarter of 2025. We will now open the floor for questions. Operator: [Operator Instructions] And your first question comes from Sujeeva Desilva with ROTH Capital Partners. Sujeeva De Silva: And Jonathan, best of luck with the transition. And Chris, congrats and good luck in the new role here. So starting with the revised guidance, appreciating that you did revise it down. What does that mean for the business looking toward 2026, given what you've seen happening during the second half of '25? Peter Cannito: Yes. So I think as Chris emphasized there in the paragraph on the guidance, these are not lost awards. These are just timing issues, particularly, as I mentioned, with the LRR program. The Army announced publicly right after the award of our prototyping contract that they would be awarding a production capability towards the end of this year and that has not occurred. And we believe the reason that that hasn't occurred is because of the ongoing government shutdown. So we do expect those awards once the government shutdown ends to start to flow. But unfortunately, we only have approximately 7 weeks or so of production time left in the quarter and that includes 2 holiday weeks with Thanksgiving and Christmas. So once the government reopens, and we believe the Army will start placing orders for the production element of LRR, we'll start producing those. And that would lead you to believe that -- and we also believe that that is setting us up for a strong 2026. Chris, anything you want to add? Chris Edmunds: No, I think this is the first quarter we've got the combined results and I think that's a stepping off point as the baseline as we start to go forward, right? So as we think about stepping from today forward and as the government reopens with our diversification geography, we are looking at '26 to be obviously a marked improvement on where we are. And I think we can start to see those trend lines as we're moving out. Sujeeva De Silva: Great. And just to understand that, was the EAC in the quarter, was that related to the government shutdown pushouts primarily? Peter Cannito: No. The EAC was, again, a market improvement quarter-over-quarter as we continue to sharpen our execution. We put a lot of effort into that, but there remain a few space programs that we're rightsizing in terms of our delivery. Sujeeva De Silva: Okay. Great. And my other question here is on the pipeline and bidding activity numbers you provided. And thanks, Pete, for the 5 areas and clarifying kind of the focuses going forward. Which of those 5 areas would you say maybe are the larger emphasis of the pipeline and bidding activity that you have in place today on a relative basis? Peter Cannito: Yes. Well, it's a good question and we are trying to -- I appreciate you acknowledging that because we're really trying to point out where the value is being driven at Redwire, so people have more clarity on that. The good news is all 5 of them are areas with extraordinary potential. Now as we just talked about, the UAS orders, this is something be -- is a major priority for the Army and quite frankly, the Department of Defense in general, our existing customers, the Marine Corps and U.S. SOCOM also have strong needs for UAS. So in terms of -- ironically, even though this is where we saw a pushout in the fourth quarter into 2026, that seems -- that still remains to be an area that has a strong growth potential. But there's been a bit of a slow start to Golden Dome as well and we think the VLEO orbit, in particular, will have a role to play in that defense architecture. So we're really excited about that as well. Those can be sizable orders when you order a large VLEO spacecraft. We believe with the now nomination of Jared Isaacman, who has shown in the past a strong disposition for commercial LEO destinations or commercial space stations that funding may ramp up for the commercial -- for the CLD program for those space stations. And you can see that Axiom is leaning forward. We're obviously in talks with all the commercial space station providers because of our heritage on the ISS. So we think that's really exciting as well. And over the longer term, we're just getting started. We continue to have a strong drumbeat in microgravity. It's not our largest revenue driver. But in terms of the potential for some of the pharmaceutical molecules that we've been working on, we see a lot of growth there. And even in sensors and payloads, that's a tried and true element of both the space and airborne market. And because we sell our payloads and not only use them on our own platforms, but sell them to other OEMs, we see strong growth there as not only coming from us selling more Stalkers and Penguins for UASs, but other people selling UASs in different categories that leverage our Octopus EO/IR sensors. So I guess it's kind of a long answer to your question, but the nice thing about it is we have many paths to victory here. It's just a matter of timing for us. Operator: And your next question comes from Greg Konrad with Jefferies. Greg Konrad: Maybe just sticking to one question. I think you had called out the gross margin improvement, which was noted, but you still had some level of VACs. I mean, how do you think about the right level of gross margins as the business comes back? And then just to reiterate, the fair value purchase adjustment, so that's gone going forward. That is just a 1 quarter adjustment? Peter Cannito: That's correct. So starting with the last part first, 27% to 30% gross margins should be our forward runway. The only reason it wasn't reflected to that and why we call it adjusted gross margin is because of that purchase accounting element. 30% is where we have in the past said is our stated goal for gross margins and where we think the business should be run rate forward, inclusive of any EAC adjustments. Now having said that, we are hyper focused on sharpening our execution. So should we be able to continue to reduce the number of EACs we see on some of these development -- space development programs and as we move out of development and more of our revenue comes from production contracts on the space side, we could do better than 30%, but I think 30% is the right forecasting run rate for us. Chris, I don't know if there's anything you want to add there. Chris Edmunds: Yes, I think you hit it right. As we're looking at the balance of our product mix, we'll continue to make investments where we see expansion in this gross margin. But based on where we are, as Pete said, with the repeat orders like we've seen recently with the announcement of the rollout solar rays with Axiom, again, repeat product line, we'll continue to see that gross margin profile continue to land around that 30% margin, Greg. Operator: Your next question comes from Scott Buck with H.C. Wainwright. Scott Buck: I just want to ask about the commentary around the cost-cutting. Have you completed that cost-cutting process? And if so, what is the annual cost savings target? Peter Cannito: Well, I'll answer the first part, and then I'll turn it over to Chris here. So the short answer is no. We have not completed it. Whenever you do a major acquisition, it's an opportunity to completely review your overall structure. One of the core principles of our acquisition is that we're able to scale to get operating leverage, particularly around SG&A on a much larger platform. So we're going to continue to look at that. And quite frankly, we have a lean culture that we've been implementing and we've been moving a lot of our engineering and development operations towards lean principles. And so that will be a part of who we are going forward. In turning of size and scope, Chris, do you have any comments on that? Chris Edmunds: Yes, playing off of the lean culture. We've gone through -- continue to evaluate all of our processes across the company. And really, the cost control is kind of balanced across all the various elements of the P&L. We are stepping off and making a commitment to a $10 million run rate savings here across the portfolio. We are seeing obviously investments where it makes sense, but being smart about where we can be more efficient in getting operating leverage as we continue to grow the top end of our P&L. We will continue to run the lean program that we've invested in. We do see additional cost savings, again, from production efficiencies as we continue to grow the top end. But no, we're happy where we are. We see margin expansions, as we said on the last comment and we'll continue to see operating leverage with our G&A as we go. Jonathan Baliff: Yes, one other thing, Scott -- yes, Scott, I have to mention [indiscernible] as I retire from the company. This will have -- what Chris has said, will also benefit our cash and cash from operations as we look into the future too. We saw obviously sequential improvement in cash from ops and free cash flow. But all of the things that Pete and Chris are talking about are really meant to obviously decrease the cash burn and eventually become free cash flow positive. Operator: And we have reached the end of the question-and-answer session. I will now turn the call over to Chris Edmunds for closing remarks. Chris Edmunds: Well, thank you all for your questions. Before concluding today's Q&A, as we've done the last quarters, we'd like to ask a select question from our retail community. Government contractors have been inconsistent as to whether they have been impacted by the government shutdown in 2025. Why do you expect to be impacted? Pete? Peter Cannito: Thanks, Chris. As usual, a very poignant and observant question from our astute retail investor base. It's a good one. It's interesting. Like the question states, we've seen a lot of different feedback on the government shutdown. Quite frankly, I'm a little bit surprised that it hasn't impacted everybody in the government contracting sector. But for us specifically, I think it really comes down to the impact on the LRR program. As I stated earlier, the Army had put out an article that they expected production to occur in the latter part of this year for LRR and that hasn't occurred because the government hasn't passed the budget. So those were not 2025 funds that they were playing off of. I also think that in many of our programs, we -- it just happened to line up that we were expecting contract awards to happen in the fourth quarter and those contracts didn't come for some key programs. And for the large defense contractor, maybe I should say, for each defense and government contractor, it probably has to do with where you are in your contract cycle. So maybe some folks that are burning off backlog don't see quite the impact. But we invested a lot in being ready for production for the fourth quarter to meet the operational demands for the drone initiatives that were out there and I'm confident they're coming. But that didn't materialize in the fourth quarter. And with only 7 weeks left for production, we think it's prudent at this time to revise down for ourselves. So thank you for that question. And of course, all the engagement we get.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Datadog Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Yuka Broderick, Senior Vice President of Investor Relations. Please go ahead. Yuka Broderick: Thank you, Martin. Good morning, and thank you for joining us to review Datadog's third quarter 2025 financial results, which we announced in our press release issued this morning. Joining me on the call today are Olivier Pomel, Datadog's Co-Founder and CEO; and David Obstler, Datadog's CFO. During this call, we will make forward-looking statements, including statements related to our future financial performance, our outlook for the fourth quarter and the fiscal year 2025 and related notes and assumptions, our gross margins and operating margins, our product capabilities and our ability to capitalize on market opportunities. The words anticipate, believe, continue, estimate, expect, intend, will and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. These statements reflect our views only as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our Form 10-Q for the quarter ended June 30, 2025. Additional information will be made available in our upcoming Form 10-Q for the fiscal quarter ended September 30, 2025, and other filings with the SEC. This information is also available on the Investor Relations section of our website, along with a replay of this call. We will discuss non-GAAP financial measures, which are reconciled to their most directly comparable GAAP financial measures in the tables in our earnings release, which is available at investors.datadoghq.com. With that, I'd like to turn the call over to Olivier. Olivier Pomel: Thanks, Yuka, and thank all of you for joining us this morning to go through our results for Q3. Let me begin with this quarter's business drivers. We have seen broad-based positive trends in the demand environment with an ongoing strength of cloud migration and digital transformation. Against this backdrop, we executed a very strong Q3 both in new logo bookings and usage growth of existing customers. As a notable inflection, we saw acceleration of year-over-year revenue growth across our non AI customers. And the sequential usage growth for non-AI existing customers was the highest we have seen going back 12 quarters. This growth was broad-based as our customers are adopting more products and getting more value from the Datadog platform. We also experienced strong revenue growth for our AI native customers and a broadening contribution to growth among those customers. There, too, we saw an acceleration of growth in our AI cohort in Q3 when excluding our largest customer. Looking at new business. Contribution from new customers increased in Q3 in both the amount of new customer bookings as well as the revenue contribution from new customers. And as usual, churn has remained low with gross revenue retention stable in the mid- to high 90s, highlighting the mission-critical nature of our platform for our customers. Regarding our Q3 financial performance and key metrics. Revenue was $886 million, an increase of 28% year-over-year and above the high end of our guidance range. We ended Q3 with about 32,000 customers up from about 29,200 a year ago. We also ended with about 4,060 customers with an ARR of $100,000 more, up from about 3,490 a year ago. These customers generated about 89% of our ARR. And we generated free cash flow of $214 million with a free cash flow margin of 24%. Turning to customer adoption. Our platform strategy continues to resonate in the market. At the end of Q3, 84% of customers were using 2 or more products, up from 83% a year ago. 54% of customers were using 4 or more products, up from 49% a year ago. 31% of our customers were using 6 or more products, up from 26% a year ago and 16% of our customers were using 8 or products, up from 12% a year ago. Digital experience is an example of an area within our platform where our rapid piece of innovation is turning into tangible value for our customers. Our digital experience products include RUM or Real User Monitoring, to observe and improve application behavior in mobile and web apps, synthetics to stimulate user flows and proactively detect user facing issues and product analytics to help users connect application behavior to business impact. Over the years, we built our product breadth and depth in this area, and that is being recognized in the marketplace. For the second year in a row, Datadog has been named the leader in the 2025 Gartner Magic Quadrant for Digital Experience Monitoring. We are pleased that today, these digital experience products together exceed $300 million in ARR. And this includes, in particular, a very fast ramp for product analytics, which has already seen adoption by more than 1,000 customers. We also want to call out our security suite of products where we are executing and accelerating growth. Security ARR growth was in the mid-50s as a percentage year-over-year in Q3, up from the mid-40s we mentioned last quarter. We're starting to see success in including Cloud SIEM in larger deals, and we'll get back to that in a bit in our customer examples. And we're seeing positive trends beyond Cloud SIEM, including fast uptake of good security and an increasing number of wins in cloud security. Overall, we saw year-over-year growth acceleration in each one of our security products. Moving on to R&D. We continue to deliver on what is a very ambitious AI road map. We are seeing high customer interest in our Bits AI agents, which we announced at our DASH user conference in June. We have now onboarded thousands of customers for preview access, the Bits AI SRE agent. And as we prepare for general availability, we are getting very enthusiastic feedback on the time and cost savings enabled by Bits AI. As RUM user recently told us, with Bits AI SRE being on call 24/7 for us, meantime to resolution for our services has improved significantly. For most cases, the investigation is already taken care of well before our engineers sit down and open their laptops to assess the issue. And this is not an isolated comment. We see the potential here for our agents who radically transform observability and operations. In LLM observability, we recently launched LLM experiments and playgrounds for general availability, helping teams to rapidly iterate on LLM applications and AI agents. We also launched custom LLM as a judge evaluations for general availability, which lets customers write evaluation prompts to access application quality and safety. As an illustration of growth and adoption in the past few months, the number of LLM spans customers are sending to Datadog has more than quadrupled. And we are seeing a lot of interest in the Datadog MCP servers. Our MCP server acts as a bridge between Datadog and AI agents, such as Codex OpenAI, Claude by Anthropic, Cursor, GitHub Copilot, Goose by Block and many more. Our preview customers are using real-time production data context to drive trouble shooting, root causes analysis and automation in these agents. One user told us, the Datadog MCP server is a great tool. It enables me to get the last 5 of my app and follow the spans and traces all the way to the root cause. I have never been more hooked on Datadog. So we see MCP adoption as a great way to cement Datadog even further into our customers' workflows. Finally, we continue to see rising customer interest for next-gen AI observability with over 5,000 customers sending us AI data to one or more of AI integrations. On the topic of integrations, we are very proud to now support over 1,000 integrations, which we believe is unparalleled in our space. By using our integrations, customer call it otherwise disparate data sources across Datadog products for deeper analysis. We can see from a customers usage that this is a critical part of the Datadog platform. Our 32,000 customers use more than 50 integrations on average, while customers spending over $1 million annually with us use more than 150. And most importantly, as tech stack evolves, we continue to update and expand our integrations. So our customers can use Datadog to deploy new technologies with confidence. Last but not least, I wanted to give a shout out to our AI research team for the amazing work they have published. Our TOTO OpenWave time-series forecasting model has been one of the top downloads on Hugging Face over the past few months, and that is across all categories. It is very impactful as, among other things, the high quality of this work allows us to attract world-class AI researchers and engineers. Now let's move on to sales and marketing. We had a number of great new logo wins in customer expansion this quarter. So I'll go through a few of them. First, we landed a 7-figure annualized deal with a leading European telco, our largest ever land deal in Europe. This company's previous setup was expensive, inefficient and wasn't scaling to meet their needs. By using Datadog, they expect to save over $1 million annually on tool cost alone, along with millions of dollars more in reduced operation costs, lower engineering time and avoidance of revenue loss. They will adopt 11 Datadog products to start, and we consolidate more than 10 commercial and open source tools. Next, we landed a 7-figure annualized deal with a leading financial risk and analytics company. The company's fragmented tooling has led to major incidents that sometimes took multiple days and hundreds of engineers to resolve. They plan to start with 11 Datadog products including On-Call, Cloud SIEM and Bits AI, and will replace 14 commercial open source and hyperscale observability tools. Next, we landed a 7-figure annualized deal with a Fortune 500 technology hardware company. This is an exciting win for new -- sorry. This is an exciting win for our new go-to-market motions, targeting the largest and most sophisticated companies in the world. Datadog has been chosen as their strategic observability partner, and we are displacing commercial tools across availability, cloud team and incident response. This customer is starting with 14 Datadog products. Next, we signed a 7-figure annualized expansion with a Fortune 500 financial services company. This customer has pockets of siloed teams and data, including one business unit, which manually hosted and maintained 93 separate instances of open source tooling. With this expansion, this company will adopt 15 Datadog products, including all 3 pillars in all of their business units. They will also replace their SIEM solution with Datadog Cloud SIEM in a 7-figure land deal for Cloud SIEM. And by bringing all their telemetry data into the Datadog platform, they expect better insights for their adoption of Bits AI SRE Agents today and Bits AI [indiscernible]. Next, we signed a 7-figure annualized expansion with a Fortune 500 heavy equipment company. With this expansion, this customer will replace its open source log solution with Datadog log management and Flex logs. They plan to adopt LLM Observability and their IT team is using cloud cost management to improve cost visibility and governance. Next, we will come back a leading vertical SaaS company with a 7-figure analyze deal. By returning to Datadog, this customer benefits from our alignment with open telemetry and we'll implement the incident and reliability processes that they were unable to execute on previously. Next, we signed a 7-figure annualized expansion with a major American carmaker. This customer is adopting Datadog products faster than previously expected and this agreement supports the higher usage. With this expansion, they will adopt Datadog incident management and On-Call solution company-wide for a total of 5,000 users who support operational continuity across the business. Finally, we signed a 9-figure annualized expansion with a leading AI company. This company has been a long-time Datadog customer and has expanded their usage of multiple products, securing better economics for a higher commitment with an early renewal. Speaking of AI customers, we continue to help AI native customers big and small to grow and scale their businesses. And we continue to see this group broaden in number and size with more than 500 AI native companies in this group, but 100 of which are spending more than $100,000 annually with Datadog and more than 15 who are spending more than $1 million annually with us. While we know there's a lot of attention on this cohort, we primarily see it as an indication of what's to come as companies of every size and every single industry incorporate AI into their cloud applications. And that's it for another very strong quarter from our go-to-market teams, who are now very hard at work as we have a really exciting pipeline for Q4. Before I turn it over to David for a financial review, I want to say a few words on our longer-term outlook. There is no change to our overall view that digital transformation and cloud migration are long-term secular growth drivers of our business. Meanwhile, we are advancing rapidly in AI, where we are incredibly excited about our opportunities. We're building a comprehensive set of AI Observability products to help our customers tackle the higher complexity that comes with these technologies. And we are building AI into Datadog, and I spoke earlier about the excitement our customers have for our Bits AI agents. The market opportunity in cloud and AI is expected to grow rapidly into the trillions of dollars and companies of every size and industry are looking to adopt AI to deliver value to their customers and drive positive business outcome. So we're moving fast to help our customers develop, deploy and grow into the cloud and into the AI world. With that, I will turn it over to our CFO. David? David Obstler: Thanks, Olivier. To start, our Q3 revenue was $886 million, up 28% year-over-year and up 7% quarter-over-quarter. To dive into some of the drivers of our Q3 revenue growth. First, overall, we saw sequential usage growth from existing customers in Q3 that was higher than our expectations and the strongest in 12 quarters in our non-AI native customer base. We saw year-over-year growth acceleration broadly across our business, including in new logos and existing customers, both enterprise and SMB, with customers across our spending bands, big and small, and customers in a wide variety of industries. Next, we saw strong and accelerating contribution from new customers. New logo annualized bookings more than doubled year-over-year and set a new record driven by an increase in average new logo land size, particularly in enterprise. We believe we are starting to see the benefits of our growth of sales capacity. And we are seeing new logos ramping faster, contributing more to revenue growth. The portion of our year-over-year revenue growth that related to new customers was about 25% in Q3, up from 20% in Q2. Next, our AI native customers continue to exhibit rapid growth, while more customers in this group are growing to be sizable customers. As Olivier discussed, we extended the contract of our largest AI native customer. In addition, we now have more larger AI customers, including 15 of them spending $1 million or more annually with Datadog, and about 100 spending more than $100,000 annually. Year-over-year revenue growth from our AI native customers, excluding the largest customer, again, accelerated in Q3. In Q3, this group represented 12% of our revenue, up from 11% last quarter and about 6% in the year ago quarter. I will note that over time, we think this metric will become less relevant as AI usage in production broadens beyond this group of customers. Our year-over-year revenue growth also accelerated amongst our non-AI native customers. In Q3, our revenue growth, excluding the AI native customer group, was 20% year-over-year, accelerating from 18% year-over-year in Q2, and we have seen this trend of accelerating growth continue in October. Regarding retention metrics. Our trailing 12-month net revenue retention percentage was 120% similar to last quarter and our trailing 12-month gross revenue retention percentage remain in the mid- to high 90s. And now moving on to our financial results. Our billings were $893 million, up 30% year-over-year. Our remaining performance obligations or RPO was $2.79 billion, up 53% year-over-year, and current RPO growth was in the low 50s percentage year-over-year. Our strong bookings contributed to this acceleration of RPO. We continue to believe that revenue is a better indication of our trends in our business than billings and RPO. And now let's review some of the key income statement results. Unless otherwise noted, all metrics are non-GAAP. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release. First, gross profit in the quarter was $719 million, and our gross margin was 81.2%. This compares to a gross margin of 80.9% last quarter and 81.1% in the year ago quarter. As previously mentioned, we continue to see the impact of our engineers cost-saving efforts in Q3 as they deliver on our cloud efficiency project. Our Q3 OpEx grew 30% -- 32% excuse me, year-over-year, down from 36% last quarter. We continue to grow our investments to pursue our long-term growth opportunities, and this OpEx growth is an indication of our execution on our hiring plan. Q3 operating income was $207 million for a 23% operating margin compared to 20% last quarter and 25% in the year ago quarter. And now turning to our balance sheet and cash flow statements. We ended the quarter with $4.1 billion in cash, cash equivalents and marketable securities and cash flow from operations was $251 billion in the quarter. After taking into consideration capital expenditures and capitalized software, free cash flow was $214 million for a free cash flow margin of 24%. And now for our outlook for the fourth quarter and the fiscal year 2025. First, our guidance velocity overall remains unchanged. As a reminder, we based our guidance on trends observed in recent months and imply conservatism on these growth trends. So for the fourth quarter, we expect revenue to be in the range of $912 million to $916 million, which represents a 24% year-over-year growth. Non-GAAP operating income is expected to be in the range of $216 million to $220 million, which implies an operating margin of 24%. Non-GAAP net income per share is expected to be in the range of $0.54 to $0.56 per share based on approximately 367 million weighted average diluted shares outstanding. And for the full year -- fiscal year 2025, we expect revenues to be in the range of $3.386 billion to $3.390 billion, which represents 26% year-over-year growth. Non-GAAP operating income is expected to be in the range of $754 million to $758 million, which implies an operating margin of 22%. And non-GAAP net income per share is expected to be in the range of $2 to $2.02 per share, based on 364 million weighted average diluted shares. And finally, some additional notes on our guidance. We expect net interest and other income for the fiscal year 2025 to be approximately $170 million. We continue to expect cash taxes in 2025 to be about $10 million to $20 million and we continue to apply a 21% non-GAAP tax rate for 2025 and going forward. And finally, we expect capital expenditures and capitalized software together to be 4% of revenues in fiscal year 2025. To summarize, we are pleased with our execution in Q3. We are well positioned to help our existing and prospective customers with their cloud migration and digital transformation journeys, including their adoption of AI. And I want to thank Datadog's worldwide for their efforts. And with that, we'll open the call for questions. Operator, let's begin the Q&A. Operator: [Operator Instructions] Our first comes from the line of Kash Rangan of Goldman Sachs. Kasthuri Rangan: Appreciate it. Congratulations on the spectacular results and showing sequential improvement across the board. Olivier, I had a question for you. We've talked about GPU monetization versus CPU monetization. So how closer are we to the point where you can confidently expand and get your share of the customer wallet when it comes to whether it's training workload, inferencing workload on the GPU clusters, which are becoming more prevalent and increasingly a larger part of the compute build-out in the future? That's it for me. Olivier Pomel: Yes. So we have products that are getting into the market now for GPU monitoring. But these don't generate any significant revenue yet. So all the revenues we've shared, like the acceleration, et cetera, that's not related to us capitalizing more on GPUs, that's a future opportunity. Operator: Our next question comes from the line of Sanjit Singh of Morgan Stanley. Sanjit Singh: Congrats on the acceleration in growth this quarter. Olivier, I wanted to talk about some of those enterprise trends you're seeing in sort of your non-AI cohort. What do you sort of put the improved performance in growth this quarter on? You mentioned that the sales productivity or the benefit from some of the sales investments starting to come online. Is there sort of an uplift in sort of the cloud migration trends as you're starting to see enterprise build more AI applications. I'd just love to get your perspective on the underlying trends in the enterprise and the mid-market business. Olivier Pomel: Yes. I'd say there's 3 parts to it. One part is the demand environment is not -- is positive in general. I don't know that we see massive acceleration of cloud migration, but at least the environment is not pushing the other way. We know which happens from time to time. So that's point number one. Point number two is we've been growing sales capacity quite a bit, and we've created new go-to-market motions to go after the kind of customers who were not getting before. Like we've done quite a bit of investment over the past couple of years and we see that starting to pay off. As I said also, we feel good about Q4 in terms of pipeline on the sales side. So it's too early to tell yet. We still have to close those deals, but we feel good about the scaling of our go-to-market. And point number three is we have a number of products that we've been developing over the years. Some of them are early, some of them a little bit further along that are really clicking. We see -- we have a lot of success with getting large enterprises to adopt Flex Logs, for example. We have a lot of success in some of new products such as analytics that we mentioned on the call. We're seeing some large land deals with our cloud team. So all of that is contributing to the picture you're seeing today. Sanjit Singh: And just as a follow-up on the AI observability opportunity. When you look at some of the independent software vendors that are releasing Agentic solutions, Agentic portfolios. A number of them are including observability as part of their sort of value proposition. Is there any work you think Datadog has to do to sort of infiltrate that market or make sure that customers look to Datadog as that Agentic monitoring capability as some of these independent software vendors try to bundle in observability into their solutions. I would love to get your perspective on that? Olivier Pomel: Yes. I mean there's absolutely no doubt to us that the customers will even want a unified platform for observability for all of this. There's 2 parts to that. One is, historically, every single piece of software we integrate with, whether that's SaaS or things that customers on themselves, also has its own management control and observability control. But you're not going to log into [ 70 ] or in the case of customers we mentioned that they use 60 integrations for the smaller customers, 150 integrations for the larger ones. It's not practical to actually go and manage that separately. So we think all of that belongs in a central place, and that's the historical trend we've seen. We also think that you can't separate the AI parts from the non-AI parts of the business. So you're not going to look at your agents separately that you do at your web hosting and your database and your -- everything else you have in your stack. So all of that in the end will be attached to observability. Operator: Our next question comes from the line of Raimo Lenschow of Barclays. Raimo Lenschow: Perfect. Congrats from me as well. That sounded like an amazing quarter and nice to see it coming together. On the AI side, and I don't want to talk about the customer, but more the other ones, like 15 customers over 1 million. That's like a big number and 100 over 100,000. How do we have to think about the nature of those? Is this kind of -- are those kind of especially the bigger ones of those kind of model builders, but then even 15 is a big number. And over 100 sounds like this whole new application world that we've all been kind of waiting for starting to come together. Is that kind of what's going on there? Because it does sound quite exciting and much more broader than we thought. Olivier Pomel: It's actually fairly broad. So there is model vendors, there's models -- model that can be the lens model that can be video, it can be sound generation, it can be all of the various parts of the stack you see as independent companies. It can be -- there's quite a few companies that do that work on the coding side. So coding assistants and vibe coders and everything in that range. Some of these are very new companies. Some of these are not very new companies, some of these started 5, 7, 8 years ago. And we're sort of not necessarily AI native from day 1, but very quickly, that would give them the growth they see today with the people to AI. So we see a little bit of that. We have companies that are other parts of the stack in AI on the, say, the [ steady ] side, the other components of the infrastructure. And we have other companies that are purely applications filled with AI. So we have a bit of everything in there. Like it's actually fairly representative of the space. Operator: Our next question comes from the line of Mark Murphy of JPMorgan. Mark Murphy: You had mentioned the expansion of the contract with your largest AI native customer and I believe you said better economics for a higher commitment. Can you speak to that because I would assume a higher commitment would carry a volume-based discount. I'm just trying to understand if. For some reason, if that was not the case here, what did you mean by better economics? And then I have a quick follow-up. Olivier Pomel: Yes. I mean, this is without getting to the detail of any specific customer like this is the motion is always the same, like customers grow, they commit to more, they get better prices. So you see, like a, again, talking about customers in general, you see both of usage, drops in revenue as customers renew and get higher commit and a better price and then usually growth after that for those customers. That's the motion that we've had. We have about 30,000 customers so far. Mark Murphy: Okay. And the -- what in that, so the better economics part of it is just where it's going to be netting out like 12 months down the road? Is that what you mean? Olivier Pomel: Well, the bigger economics means you commit tomorrow, you get a better price. And as we -- remember, we have a usage model. So we charge people every month on what they use at the price we agreed. So if you get better economics, and your usage is somewhat similar month to month, one month and the next that you pay less, but the overall backdrop of our business is increased consumption. Mark Murphy: Okay. And then as a quick follow-up, Olivier, the acceleration that you saw in the security growth is pretty noticeable too. We recall, I think about 6 months ago, you had ramped up and engaged a lot more of a channel partners, which is a key ingredient to grow in the security business. Is it a function of that? Or is there a mindset change happening out there where customers want observability to be the central point of collection so that all the security teams and the ops teams are working with the same set of metrics and logs and tracers? Olivier Pomel: Look, I think it's a number of things. Definitely, we've been investing in the channel, and that's certainly helpful to do the security business as a whole. The win -- the big win we mentioned on security that we mentioned a couple of wins in Cloud SIEM. These tends to be more related to product maturity. The strength of our underlying platform, especially when it comes to technology like Flex Logs, for example. And the fact also that we've been learning how to properly go to market for security. And I think we see things clicking in a way that is exciting. Operator: Our next question comes from the line of Fatima Boolani of Citi. Fatima Boolani: Oli, I'll start with you and I have a follow-up for Dave. On the On-Call product, Oli, how do agentic advancements in general detract or enhance the value proposition here? And I'm very simplistically thinking about the core nature and value proposition of the On-Call product intelligently routing, requests for remediation, right? So how do you just broader advancements in AI, help beef up and/or detract your ability to monetize this product? And then just a follow-up for David, please. Olivier Pomel: Well, I mean, if you zoom out, we entered the field with On-Call because we wanted to own the end-to-end incident resolution. So we wanted because we before that, we were detecting the incidents and sending the alerts, and then we were pretty much where the resolution happened after that. Customers were spending their time in data to diagnose and understand what was going on. So we wanted to own the full cycle. . And we thought that with AI, in particular, we'd have the ability to do things if we are on the whole cycle that we couldn't do otherwise. So what you see right now is, I mean, this resonates with customers, they adopting to product. We've mentioned like some exciting customers with say, [ one ] with 5,000 seats for On-Call, which is very exciting. But in the future, there's many more things we can do in working on for that product. If we both detect incident and notify, we can do some sort of things such as even predicting the incident and notifying early or rerouting early or telling people before the incident actually takes place, how they can potentially fix it. So these are all things we're working on. I mean, look, if you look at the various product announcements we've made, whether that's Bits AI or SRE or the time series forecasting model we have released. When you assemble all that, you get to a very, very interesting picture of what we can do in the future. So we're excited by that. Our customers are excited by the vision there too, and that's why these products are successful. Fatima Boolani: Appreciate that. David, on net retention rates, why aren't we necessarily seeing more upward pressure on the metric, just given the strength of expansionary bookings that you alluded to in the quarter from the installed base. And I mean I suspect it's because it's a trailing 12-month metric. But any directional color you can just share on that. And any high-level commentary on some of the non-AI native net retention rate trend behavior? David Obstler: Yes, you've nailed it. It's a trailing 12 months, it's a number that's rounded, it has the dynamics that you might expect in that the growth of the non-AI natives has been, as we mentioned, a combination of landing and expanding at higher rates than we've seen in recent quarters. So if that continues as you go into a trailing 12-month metric, you see a directional movement. Operator: Our next question comes from the line of Eric Heath of KeyBanc. Eric Heath: Oli, David, Bits AI seems like a really exciting thing out of Dash. And I know it's still in preview, but you mentioned there's a lot of interest there. So I'm just curious how you think about the agentic opportunity with Bits AI. How meaningful this can be for 2026 as a differentiator versus competition and also as a revenue contributor? Olivier Pomel: Yes. So -- I mean, look, it's super exciting. The feedback is very good on it. I mean, we've been collecting all the -- so I read one quote, we have dozens that look just like that, that was sent to us by customers. And so that's very, very exciting. We also started having some customers buy and come to it to just to show value and to make sure we're on to the right product mix. And so we feel good that this is something that is high quality and we can monetize. In terms of the impact for next year, on the packaging side, I'm not completely sure yet whether the biggest impact will be seen from what we charge Bits AI itself or for the rest of the platform, that it gets benefits from the differentiation of Bits AI. I think that's more of a broader question of packaging and monetization of AI. And remember that we have a product that is usage based. So anything that drives usage up and adoption from customers is good for us and is very, very monetizable. But what we can tell is this is differentiating, this is good. It works significantly better than anything else we've seen or heard of in the market, and we are doubling down on it. We have many, many teams now working on deepening Bits AI SREs to making sure it goes further into the resolution doesn't just point to the issue, but fixes the code that all these kind of things working hard on that. We're also working on breadth, making sure that we train it on many more types of data, many types of sources, sometimes even systems that are observe the systems that are not dialed up, so we can cut across to other systems our customers are using. So we are very, very aggressively developing Bits AI SRE. It's resonating very well in the market. Operator: Our next question comes from the line of Gray Powell of BTIG. Gray Powell: Congratulations on the great results. So maybe just like taking a step back, if we go back to the beginning of the year, Datadog was expecting 19% revenue growth. It looks like you're tracking to something over 26% growth now, and that's just the high end of your guidance. So I guess my question is, what surprised you the most this year? And then just how do you feel about the sustainability of those drivers as you look forward? Olivier Pomel: I mean, look, the -- so first, I apologize for over delivering on the results. We might do it again, but we'll see. I think the biggest surprise for us has been that -- so AI in general has or AI adoption has grown faster than we thought it would at the beginning of the year. So we've seen that across our AI cohort. We've seen also that we got some of our new products and new, like the changes we're making on the go-to-market side to click perhaps earlier than we would have thought otherwise. So all in all, we saw the leading part of the business with AI growth faster, not the lagging but the slower growing, more traditional part of the business also accelerate and that gets us where we are today. David Obstler: And I'd add, we have a good demand environment and we've been investing whether it be in the products that Oli's been talking about or in the sales capacity we made clear that we were in investment and we're seeing those investments pay off. Operator: Our next question comes from the line of Koji Ikeda of Bank of America Securities. Koji Ikeda: Just one from me here. I wanted to ask a question on the inflection in the non-AI native growth and how to think about the areas of strength in this cohort. Is it coming from your largest enterprises? Is it coming from a certain type of customer? Is there a common theme in the workloads that you're seeing or the products that are being added on that is driving that strength? Or is it just really just broad-based? What I'm trying to get out here is I'm really trying to understand more the durability of this growth reflection. Olivier Pomel: So it is broad-based. And I think, again, speaks to a couple of things. It speaks to the fact that, in general, the demand environment is good. Though I would say, there's been a very, very high growth of hyperscaler revenue like over the past an acceleration for the hyper scalers in general. A lot of that is GPU related, but the growth we're seeing here and the exception we're seeing here is largely not GPU-related. It's a little bit of it, but not a ton of it. So that's not exactly what you've seen with some of the other vendors there. One reason this is broad-based is these are the same products we sell to all customers, and this is largely the same go-to-market organization that we have a few segments, but -- and we've been doing well executing there. I think we've invested quite a bit in product, and we keep and we will keep doing it, and we see the results of that. David Obstler: Yes, I want to -- I'll add that it's across the customer base, enterprise SMB. And when we look at it, it's not just an AI SMB. If you remove the AI companies, you still see a strengthening SMB demand cycle going on. And unlike in previous periods, it also is across spending ranges. We're not seeing larger spenders or smaller spenders. We're just seeing a broad trend of improved demand across the spending trends. Olivier Pomel: And remember that for us, SMB is, any company of less than 1,000 employees. It includes a lot of very legitimate and growing businesses. It's not... Operator: Our next question comes from the line of Ittai Kidron of Oppenheimer & Co. Ittai Kidron: Congrats guys. Really great numbers. Oli, in your answer to one of the questions and kind of going into the drivers behind the upside. You've talked about sales capacity increase. You didn't talk much about sales efficiency. Is there a way you can give us some color on where do you stand on percent of salespeople that are hitting quota, where does that ratio stand relative to historical patterns for you guys? And as you approach '26 year, do you anticipate any material changes in the comp structure just given the breadth of product and the list of opportunities, how do you get people focused? Olivier Pomel: Yes. So we feel good about the sales productivity in general. And the rule generally, you grow by scaling capacity and maintaining productivity, it's hard to drive both up at the same time. And remember, if you want to go to 10x, you can do that by scaling if you can't really do it by improving productivity, so you have to scale. And we've been doing that, and we've been successful at it so far. In terms of the complaints that, look, we keep changing the way we compensate and the way we manage the sales force in general to make sure we have the right focus. One of the gifts of a business like ours is that we see -- we have a very heavy land-and-expand model. And so we get a lot of growth from existing customers. The challenge it creates on the other hand is how do we get to focus the sales force on the newer customers, the smaller ones and the new ones because it is more work to get an extra dollar for a smaller customer or for a new one and it is from an existing one that they already have scale. And so a lot of the tweaks we met to our comp plans relate to that. Who do we make sure we direct our attention and we reward people for what is going to generate the most long-term growth for us. And we've made a number of changes. I won't go through them, these are our internal changes. But we had a number of changes this year, we see a number of them pay off. Another thing I mentioned on the call was you mentioned a win for one of our new go-to-market motions and that specifically getting in place multiyear plans to go after some larger customers that are tougher to land than what we've done in the past. And sometimes, it takes more than a year to land certain types of customers. And the problem is if you comp plan only has a 1-year horizon, like it doesn't give a great incentive for the sales force to go after those customers. And so we cordoned off a few of those companies who have special plans to go after that, and we're starting to see success with that too. It's just an example. Operator: Our next question comes from the line of Andrew Sherman of TD Cowen. Andrew Sherman: Great. Congrats. I know you have a team focused on the Fortune 500, where there's still a lot of white space for you. Curious to hear how the team is ramping to productivity. Did that help drive some of the strong new logo bookings and can this contribute even more next year? Olivier Pomel: Yes. I mean, look, the team is not new, right? I mean, we've been focusing on that for many years, and we're tracking well. One thing I was mentioning just before was one challenge even in the Fortune 500 is to make sure that we focus on landing new customers and make sure that there's the right amount of sales attention and reward for the landing a customer even if it's for a small amount, and I think we've done well. I mean again, we can comment on that again after the next quarter when we have a full year of our new clients that have been validated. But so far, we feel very good about it. Operator: Our next question comes from the line of Alex Zukin of Wolfe Research. Aleksandr Zukin: Congrats on dropping some truly inspiring quotes in the script. Maybe Oli, one for you and then I have a quick follow-up for David. Just the duration of this acceleration of the non-AI cohort. It seems like from all your forward-looking metrics, whether it's billings, RPO, CRPO. Those were, again, really, really strong how long do you think we should think about the duration of this trend of this non-AI acceleration? Olivier Pomel: Well, we're a consumption business. So we -- the hardest thing to understand is what the future is going to look like for consumption. The way I would say it is we feel very good about it at the midterm, long term. Now with ebbs and flow in any given month or quarter, that's harder to tell. And again, that's what we've seen through the life of the company. So we feel very confident about the motion in general for digital transformation and cloud migration is steady. And sometimes it slows down a little bit, but it reaccelerates after that. And we see that key going on for a very long time. Aleksandr Zukin: Okay. And then maybe, David, for you, look, gross profit dollar acceleration while you're seeing your largest customer kind of get better unit economics is also inspiring to see how should we think about the progression of gross margins and gross profit dollar growth, particularly as you continue to also see the AI cohort acceleration. David Obstler: Yes, there's a couple of things. I think we've mentioned that we've been focused and have focused over the many years on the efficiency of our cloud platform. We have significant engineering efforts around cost of sales and delivery of value. And so we've been able to deliver on that. We also have a very broad customer base distributed in terms of volume. So as customers get larger and maybe get volume discounts, we have a number -- a lot of customers coming in, it's smaller, so that balance there. And then in terms of the sort of the future -- I'll repeat what we've always said that we've been running the company with a gross margin plus or minus 80%, we've given that range and not changed it, and we watch it. And it gives us mixed signals in terms of efficiency, how we're operating, it gives us good signals in pricing and things like that and I wouldn't change the comments we made over the many years about looking at that and then developing operations and strategies around that. Operator: Our next question comes from the line of Ryan MacWilliams of Wells Fargo. Ryan MacWilliams: Just one for me. On the large AI contract expansion that you provided commentary on, is there any way we can think about the contribution change from this customer over the next few quarters? David Obstler: No. I mean we don't provide that kind of information on individual customers. We're trying to give a picture of the overall business. Generally, I think as Oli mentioned, on our larger customers, we have a motion of the expansion of volume and then we talk when we work on the term and the volume-based pricing, but we don't give guidance like that on individual customers. Operator: Our next question comes from the line of Mike Cikos of Needham. Michael Cikos: I just wanted to come back to it, Oli, for the non-AI native strength, I know we've kind of hit on this a number of times, whether it's road map sales capacity execution, but like kudos on the numbers here? I'm just trying to get a better sense of the why now. Is it just a composite of all those different pieces clicking together this quarter? Or is there anything more to unpack there? And then I have a follow-up for David. Olivier Pomel: Again, I don't think there's a lot more to unpack there. And I know it's boring in a way, but it's also the way we've been growing for the past 15 years, really. So that's a -- I would call it the usual. Michael Cikos: Awesome. Awesome to hear. Okay. And then for the follow-up to David. David, I don't want to take anything away from the Q3 results you guys just posted, and we obviously have the strong guide here for Q4. But I just can imagine myself a month from now starting to get inbounds from certain folks asking about the holiday season and the fact that we have the holidays landing on weekdays in Q4 here. Can you just kind of discuss how you thought about constructing guidance for this Q4 year? David Obstler: Yes. We have years of experience of analyzing the day-by-day patterns. In the holidays, we know that the holiday period ends up in the usage side because of vacation holidays, and we incorporate that into our guidance. We, I think, evolved a lot over the years and sort of days adjusted types of days, et cetera. And so we would be incorporating that like we've incorporated in other years. If there are differences in this calendar period, we incorporate that as always. Operator: Our next question comes from the line of Karl Keirstead of UBS. Karl Keirstead: Okay. Great. I'll ask one for David and one for Olivier. David, first of all, congratulations on the extension of the larger contract, I think everybody on the line is applauding that. I know you're reticent to get into any details, but maybe I could try. Are you able to clarify whether that was a 1-year deal or multiyear? And then related to that, David, what is the contribution to CRPO from that deal, which I presume landed in your CRPO number. If it is a 1-year deal does the entirety of that contract contribute to the sequential CRPO performance in the quarter? So that's it for you, David. And then Olivier, maybe I'll just ask both at once. Some of the very large AI natives are beginning to diversify to utilizing Oracle's OCI and Stargate. And I'm wondering what's the opportunity for Datadog to essentially follow that behavior and begin scaling on Oracle's target or because a lot of what Oracle is doing with the AI native is training clusters, perhaps that near-term opportunity is more limited. David Obstler: Yes. On the first point, I think we give a lot of examples and our motion, which our customers would be following, including that one would be -- we fix out annual plus commits. We're not commenting on individual contracts here, but it would follow a typical path to other types of contracts. So that's what we would do. Olivier Pomel: Yes. And on the OCI, look, this is -- we've built an OCI integration, and then we see more demand from customers on OCI. Some of the things we see like the targets, et cetera, like these are extremely custom build out, like I don't know -- they're not necessarily exactly cloud because they are custom built for specific customers. So the opportunity there is more remote today. But it's -- again, one company is that it's a not fantastic opportunity to product type. But if 10, 15, 20, 50 companies start using that, then that really becomes a commercial opportunity. And so we're very much plugged into all of that. And we go basically where our customers are. David Obstler: I think you mentioned about the RPO. I think in this case, we've mentioned this current and the total is roughly the same, and there wouldn't be anything in that contract that would have been materially around of those numbers. Those numbers, I think we mentioned are produced from the bookings growth more generally and not from that particular contract. Operator: Our next question comes from the line of Jake Roberge of William Blair. Jacob Roberge: Yes. Just on the recent go-to-market investments, obviously, it seems like there's been a lot of traction thus far with those. So I'm curious if there are any areas like security or the new logos or upmarket that you could look to lean even deeper into just given the growth that you've seen here. Olivier Pomel: Yes, definitely. And there are some things we didn't do this year that we'll definitely go to the next year. So there's a number of things we are -- we're in Q4, right? So we're in the middle of planning for next year, and we basically will keep scaling what's working, stop doing some of the things that are not conclusive and then try to do more things. That's the way it works. Interestingly enough, building a go-to-market is not that different from building software like you experiment together data you see what's working was not working and you build the systems. Jacob Roberge: That's helpful. And then just on the new Bits AI Agents, can you just talk about the early feedback that you've gotten for those solutions and maybe how the engagement with those agents as compared to kind of the ramp of security Flex Logs. I know, obviously, much earlier days, but just how it compared when those were still largely in the preview phase? Olivier Pomel: I mean look, the Bits AI Agent is -- it really has a growth factor for customers. So what works really well is and we've seen that number of times, like we set it up for them. It's running on their alert and they go through an outage and they still go to the motion, so they still go -- they still set up a bridge and they have 20 people and they spend 2 hours and in the end, they have an idea what went wrong. And then they go to Datadog and they see, oh, there's an investigation that had run. And 3 minutes into the outage, it got the same conclusion that we got 2 hours later with 20 people on the call. And that's completely eye-opening for customers when they see us. And we have -- so that's why we get many quotes about it. So now there's more we need to do there, like customers say, "Oh, it's great. Now can it make this fix for me? Can you do this? Can you do that? Can you support that other system that right now, you can't actually set it up for. So we have a very, very full road map of things we need to do, and we're doubling down on it. We also shipped -- I mean this one is in preview, but we shipped a security agent that looks at vulnerabilities and looks at security signals and those triad that basically look at trying to investigate what might be benign or what might be a real issue. We also are getting very, very positive feedback for that. And in fact, that's what helped us win some large land deals for our Cloud SIEM products because the combination of the SIEM that runs extremely efficiently on top of observability data that runs very efficiently on top of Flex Log, but also saves an immense amount of time by getting 90% of the issues out of the way with automated investigation that's extremely attractive to customers. All right. And I think with that, we're going to close the call. So -- before we go, I just want to give one quick shout out to the team because I know, as I said earlier, we have quite a lot going on in Q4, whether it's on the planning side, on the product building side or on the sales side, where I said we have a really, really exciting pipeline. And so we have a lot to do. I want to thank the team for the hard work there. I also -- I'm looking forward to meeting a lot of our existing and new customers at AWS re:Invent in a few weeks, and I'll see you all there. Thank you all. Operator: Thank you for your participating in today's conference. This does conclude the program. You may now disconnect.
Grant Howard: While they're doing that, I think we're going to get started. Good morning, afternoon, and welcome to the CEMATRIX Q3 Financial Results Webinar. The results were very good. And presenting today will be Randy Boomhour, who's the President, CEO of CEMATRIX; Marie-Josee Cantin, who is the CFO; and out of Chicago is Jordan Wolfe, who is the President of MixOnSite. So again, congratulations. And with that, Randy, I'm going to turn it over to you and the team. Randy Boomhour: Thank you, Grant. Much appreciated. We're really excited to be here with all of you today to share with you some information about our company and our financial results for Q3 2025. As always, there's a disclaimer here. We will make some forward-looking statements so that you understand the context of those. We always like to start with this slide, which I kind of view as a bit of an executive summary, key investor highlights, key things that investors should know. So number one is we're an innovative cellular concrete solutions company, a leading provider of lightweight, cost-effective, durable cellular concrete for infrastructure projects. We have a strong competitive advantage that we'll cover off in an upcoming slide and work primarily as a subcontractor for major North American general contractors. We're in a position of financial strength and overall growth trend. Sorry, I had trouble getting that out. We've had revenue cumulative annual growth of 24% since 2017, which is very impressive. Our margins have been improving. We've met our record for -- a record 2025 commitment already in Q3, and 2026 is forecasted to be another good year. I like this chart here on the right here because it really shows kind of the key metrics that we follow, 2023 being a record year. 2024 is a step back year, but still profitable and then 2025, focused on profitability and delivering a record year already. So, there's a significant market opportunity in front of us. We're an industry leader. The global cellular concrete market is significant and is expected to continue to grow. And there's just increased tailwinds around infrastructure spending, both in Canada and the U.S. And we see more and more the federal and provincial and state budgets just adding more fuel to the fire of increased infrastructure spending. So, I'm going to hand it over here to Jordan next, who's going to cover the next couple of slides. Jordan Wolfe: Thanks, Randy, and hello, good morning and good afternoon, everybody. So, I'm going to just take you a little bit through the team and corporate time line. We are just -- management was introduced just a moment ago by Mr. Howard. So, we are also led by a Board of Directors, including Minaz, Patrick, Steve, Anna Marie and John, who offer valuable insight with all of their experience across many different industries. Insider ownership in our company is strong, roughly 10% of the 150.2 million outstanding shares, 166.8 million fully diluted. The largest insiders include myself with 12.2 million and Randy with 1.8 million shares. In the lower right corner, we like to show this company time line. It just kind of shows you everything that we've been through as a company from being founded in 1999, going through many different scenarios, challenges from financial crisis, oil price crashes and over the last 5 years with the pandemic, the Ukraine outbreak causing global shortages of cement. We've been through it all, but here we are persevering and flourishing with a record level of earnings. So next slide, please. All right. So, let me give you a little recap or explanation, cellular concrete one-on-one, if you will. The product description is -- cellular concrete is basically made mixing water, cement and a foaming agent that looks like an everyday Maxima shaving cream. The foam agent basically creates a bubble inside the mixture, and it holds its shape long enough until the cement and water harden around it, leaving a cellular structure that has many different air pockets and causes a lightweight effect. The key properties include being cost effective and it is low density and lightweight. It has a high bearing capacity. It's extremely pumpable. We've pumped upwards of 14,000 feet before to give you an idea. It's highly flowable, self-leveling, self-compacting, has thermal insulating properties that help out greatly in colder climates. It's very durable and it's very excavatable. And these are just key properties. There's others as well that I'm not mentioning. Primary applications would include a lightweight engineered fill. This is the bulk of the work that we do, otherwise known as load reducing fill and has many different names. One of those would be MSE or mechanical stabilized earth, retaining wall backfill. Others include lightweight insulating road subbases, flowable self-compacting fills, pipe culvert abandonments, tunnel and annular grout applications, shallow utility, foundation installations. And again, this just names a few. There's several others that we rarely get involved in, like roofing and flooring applications as well as underwater placement applications. So this just, again, highlights the primary applications that we do. And our competitors -- our customers and competitive advantage. Our key customers would include some of the largest companies, general contractors and engineering companies in the North Americas, including your Bechtel, Kiewit, PCL's, I could go on and on. We pretty much work for them all. We'll occasionally contract directly with an owner, but the vast majority of jobs that we work on, we are always a subcontractor. And for our competitive advantages, our reputation is probably the most important. We've been successfully delivering cellular concrete solutions on time and over budget -- on time and on budget for 25 years. I often tell people that our production team is actually one of the greatest assets of our sales team because we do so well in the field. It really speaks volumes when general contractors and owners come to us or come to GCs and say they'd like to use MixOnSite CEMATRIX, Pacific International Grout because of our experiences. So it's really important. And that reputation, of course, is built on our team and experience having 200 years -- over 200 years of experience in our field across our employees. Our equipment gives us a great advantage being the largest fleet of technologically advanced equipment producing cellular concrete, and we actually, with our existing equipment, have capacity to grow. Our size and scale helps tremendously. We have multiple locations coast-to-coast, and we can successfully complete projects across Canada and U.S. in a manner that our competitors are not quite fit to do. And we're more sustainable, generally more environmentally friendly than legacy products that we replace. And just to give you an idea, one ready-mix truck that can come down the road with 10 cubic yards, we can take that 10 cubic yards and turn it into 35, 40, 45 when we're doing wet mix applications. The same is true when we do dry mix applications. We can take one tanker that delivers roughly 50 tons, and we can turn that into around 125 cubic yards of material depending on the mix design. But you can imagine having only 1 truck versus 12 trucks on site, not only does it help be more environmentally friendly, but it also adds a safety element as well, having less construction traffic on site. And with that, I'll pass it off to Randy. Randy Boomhour: Thank you, Jordan. Really good job. One of the questions we get quite a bit is just how big is this opportunity? How big is the market? And it's very tricky to nail it down. Really, the best way to do it would be to add up every single bid that came across cellular concrete and across all the markets and across all the applications, but that's practically impossible to do. So, what happens is third parties estimate the size of this market. And so we've seen estimates from as low as $4 billion from Market Research Future to as high as $27 billion from Allied Market Research. Now that would be worldwide. It would be every single application for cellular concrete, even some that we don't pursue like roofing and flooring applications that Jordan mentioned. But I think the bottom line is the opportunity is pretty big, and then all these sources agree that the market for cellular concrete is growing. And then if you look at the market for other lightweight fills or competitive products, that market is even bigger, which means the market that we can capture is a multiple of the sizes that we would estimate. The other thing that we chat about already, and it's really important is infrastructure spending. So, infrastructure in Canada and the U.S. is aging. It needs to be repaired and replaced. Populations continue to grow, requiring new infrastructure and also placing additional load on existing infrastructure. And so because of that, spending on infrastructure is expected to continue to increase now and into the future. And we see this kind of budget cycle after budget cycle for governments. Even the Canadian government recently just came out this week with a focus on putting more investment into infrastructure spending. Now it's really hard for us to tie those bills to very specific cellular concrete projects. But we know in general, with there's more money spent on infrastructure, that's going to be ultimately more opportunities that pop up that require cellular concrete based on the properties of the material and based on the applications and geotechnical needs of the situation. So just a quick summary here of our financials. MJ is going to get into the details of Q3 here, but I just wanted to highlight, we are forecasting a record year for 2025, and we're very careful about the words we choose. We didn't say we're forecasting a record revenue year. We forecast a record year, and we've hit that achievement already in Q3 by delivering EBITDA that's higher than our best year ever of 2023. Despite stepping back in 2024, we have an overall growth in revenue. So the company continues to grow. So the cumulative annual growth rate of the company since 2017 has been 24% per year. And we should be -- we will grow revenue this year as well. We have a positive bottom line, and we're generating cash. So, we've got a record $5.9 million in 2025 year-to-date adjusted EBITDA, and we've got a record $5.6 million of 2025 year-to-date cash flow from operations before working capital adjustments. We have a healthy balance sheet with low leverage. We've got $9.9 million in the bank and no long-term debt at the end of Q3. So the things that are important to understand about our business is that the revenue growth will be lumpy. Everybody I talk to would love to see a staircase, but that's just not the way it works in construction and it's not the way it works, especially in specialty construction because we don't control when our scopes of work start and stop. And so because of that, our revenue can move quite a bit or be variable quite a bit based on when large projects start or stop. But the overall trend, as we've mentioned many times, is one of growth. For our business, because we operate primarily in Northern climates, it's a seasonal business. So, we're going to have higher revenues in warmer months. And I think we've all experienced that where construction activity picks up in the summer and into the fall. If you look at the last 5 years, we've averaged 18% in Q1, 18% of our revenue in Q2, 36% in Q3 and 28% in Q4. Now obviously, each year is different. They're not all 18%. They're not all 36%, but it gives you an idea of how our revenue is spread out through the year. We're a specialty contractor. So because of that, margins tend to be higher than general contractors, but we have more bench time and fixed costs to cover. So, that's an important concept to understand. Project size impacts margins. So when we bid larger projects, there is more competition for those for obvious reasons. Everybody wants to win the big ones. And then when that happens, the margins that we recognize on those projects will always be lower because of that extra competition. And we do have excess capacity. We have excess capacity in our equipment that Jordan mentioned quite a bit, where we could easily do 2 to 3x the revenue we're currently doing and we have excess capacity in our staffing levels. We can't do 2x revenue with existing staff levels, but we could do 2x revenue without a significant increase in staffing. So, I'll hand it over to MJ, who will go through our Q3 financial highlights. Marie-Josee Cantin: Thanks, Randy. So let's talk about revenue. So revenue for the quarter was $15.3 million compared to $10.1 million in 2024. That's a 51% increase. For the first 9 months of 2025, we did $32.6 million in revenue compared to $25 million last year. So, that's a 30% increase. Gross margin is up at 34% compared to 27% last year for the quarter. That's a 7% gross margin increase. And year-to-date, we had gross margins of 33% compared to 26%. That is also a 7% gross margin increase. Operating income is $2.8 million in Q3 compared to $700,000 last year. Som that's a $2.1 million increase. Year-to-date, we did $3.9 million in operating income compared to a loss of $100,000 in 2024. That's a $4 million increase. Adjusted EBITDA was $3.5 million in Q3 compared to $1.4 million in 2024. That's a $2.1 million increase. And as Randy mentioned, we have a record adjusted EBITDA year-to-date at $5.9 million compared to $1.8 million, which is a $4.1 million increase. Cash flow from operations, both positive for the quarter and the year, $3.2 million in Q3 compared to $1.3 million in Q3 of last year. That's a $1.9 million increase. And year-to-date, a record as well, $5.6 million year-to-date compared to $1.7 million year-to-date last year. So, that's a $3.9 million increase. So, we ended up the quarter with almost $10 million in cash, which is similar to what we had at the same period of last year. Looking at these graphs. So on the left-hand side, you can see our revenue and the trend line is growing, as Randy mentioned. So just as a reminder, in teal, you see full-year numbers and in orange, you see year-to-date. So, we basically did quite the same as last year and past previous years. So, our revenue line is growing, which is great. Gross margin percentage is improving over the last few years. So year-to-date, it was 33%, largely due to the higher revenue that we experienced, as well as key contract structure that we'll talk in a minute. And maybe what can I -- sorry, sorry. All right. 32% apologies for that. Debt and interest were -- debt and interest, we have no longer debt on our balance sheet, but we have an equipment financing loan for $1.6 million. So aside from that, there's nothing else. We've come a long way since 2017. In our share structure for Q3, we had 150.2 million shares outstanding, 5.9 million of options, 2.4 million in RSUs and 8.2 million in warrants. These warrants are set to expire at the end of July 2026. So fully diluted, we have 166.8 million financial instruments. Let's talk about our backlog a little bit. So, we had announced $43.6 million in new project awards since the beginning of the year. In Q3 only, we announced $17 million, and these awards are for various applications for our product. Our backlog is growing. It continues to grow with sales success. So at the end of the quarter, we had a backlog of $75 million, and that's compared to $69.6 million at the end of the quarter last year. So, that's a $5.6 million increase. So, I'll pass it back to Randy. Randy Boomhour: Thank you, MJ. So, one thing that we want to highlight for investors from our perspective, the numbers are the numbers. But I think when you're trying to do comparisons, it's important to understand this. So, we had a large contract in 2025 that was going on through Q3 and continues into Q4, where we made the arrangement to allow the customer to buy the cement themselves and the deal was that we would make the same amount of gross margin dollars. So because of that, our revenue and cost of sales was lower than would be versus kind of comparable contract structure and our gross margin percentage was higher. So in this chart here below, we've kind of shown you what it would look like if we had entered into a traditional contract structure with this customer and the impact it would have had on revenue and gross margin. So, you can see that revenue would have been 14 -- sorry, $4 million higher, up at $19 million and gross margin would have been 7 points lower at 27%. And then you can see on a year-to-date basis, our revenue would have been $36.7 million and our gross margin would have been 30%. So again, the numbers are the numbers as reported, but if you're trying to do comparisons and understand what's happening with revenue growth or understanding what's happening with gross margins, it's important that you understand this contract structure. So yes -- so just we always like to end just like we like to start is, if you're a potential investor or an investor, why should you invest in CEMATRIX? And these are the 5 points that we believe are key to understanding that. Number one is we're an industry leader. We're really well positioned to capitalize on the large opportunity in the growing infrastructure construction segment. We are a growth company. We have growing revenue, 24% annual cumulative growth rate since 2017. We have positive adjusted EBITDA, record levels all time, positive cash flow from operations, and we have a really strong balance sheet. We believe that we're currently undervalued based on traditional valuation metrics. Whether that be forward revenue or forward EBITDA multiples, we still think the share price is under where it should be. We don't have to raise any capital in the short term or long term to fund a burn rate. We're self-sustaining now. Any new capital would only be raised in support of an accretive acquisition. And we don't have an accretive acquisition in the short term or near term here that's being contemplated. And lastly, we do have capital to deploy, and we're adding to that capital because we're generating positive cash flow. And so we're looking for opportunities to grow organically or to grow via acquisition if we can find the right opportunity. On the right-hand side here is our Investor Relations contacts with Howard Group and Bristol. And then we have one analyst covering the company from Beacon Securities, who is Russell Stanley. So then, I think that will take us to the Q&A session. Just before we get into the actual questions, I just wanted to cover a couple of things that I think may come up or that I've been thinking about. Number one is just as an investor, like diversification is important. And so if you have a portfolio of stocks, I'm sure you've heard stories of people that have invested everything they had in Tesla or Bitcoin or some other stock and made out like bandits. But what you don't hear as much about is people who did the same thing in other names and lost everything. So, no security in your portfolio should be more than 5% or 10% of your holdings as an investor. It doesn't matter how great any company sounds. You don't want to risk everything on one company. If you do, that's not investing, that's gambling. So don't do that. CEMATRIX is -- we're slow and steady. We're a traditional bricks-and-mortar infrastructure stock that is focused on profitable growth. We're not really -- we're focused on building and running a profitable business that puts the needs of our customers first because we know if we do that, that the share price is going to follow. So, we're less concerned about the day-to-day or week-to-week fluctuations in the stock price. We know that if we run a good business, sooner or later, the share price is going to follow, and we've seen that happen this year. And so the final thing I'll say is we care why the share price goes up. We know that some stakeholders and some shareholders don't care. They just want to see the price go up. They don't care if it stays there as long as they can exit and make money. We don't want that. We want a share price that makes sense, trading based on fundamentals. I want every investor in CEMATRIX to make money, but we do that by focusing on the customer and the 3 things that we're obsessed with: safety, quality and profitability. So that's it. With those kind of comments, Grant, I'll turn it over to you, and we can go through the Q&A. Grant Howard: Thank you, Randy, MJ and Jordan. That was a good wrap, Randy, or wrap up, not a wrap. We've got about 13 questions already in the queue, and you were mentioning Russell Stanley, who happens to be the Managing Director of Equity Research at Beacon Securities. And the first few questions are from Russell. His first one, outside of the contract restructuring, was there anything unusual in the quarter such as revenue pulled in from Q4 from faster work or pushed out to Q4? Randy Boomhour: Yes. Good question, Russell. I mean it's very rare in construction to have revenue move forward. It almost never happens. So, that would be the exception rather than the norm. The norm is that projects and start dates push. So, we definitely saw some revenue push into Q4, and we've seen some projects that we originally thought might go in 2025 that have pushed into 2026. Grant Howard: Next question is about project size. Can you talk about what you are seeing now in terms of projects starting in 2026? Understanding you see a very wide range of project sizes, how do the jobs you are bidding on and winning compare in size to what you were seeing a year ago? With respect to demand, have you seen any specific projects in the pipeline get trimmed back in scale and/or pushed out perhaps out of caution? How does your level of optimism now compare to what you had a year ago on the demand front? Randy Boomhour: Okay. We're testing my memory there. That's a lot of questions. I'll do my best here if I missed part of it, just let me know, Grant. So in terms of contract or project size, right now, we are actively executing the 2 largest contracts that we've ever had in the history of the company. One being the North -- the project in North Carolina, which we talked about quite extensively, that started in Q3, and it's going to continue into 2026 and likely spill over part of it into 2027. The second was the tunnel grouting project in the Midwest that we started in Q2. We're working on in Q3 and we'll finish this quarter. So, we don't see many projects of that size. I will say we're seeing more and more projects in the $5 million size. And I would say, in general, we're seeing more opportunities for cellular concrete where cellular concrete is spec-ed in, and we're finding more opportunities where other lightweight products are spec-ed in and we're working to actively flip them. So from an overall market perspective and kind of consistent with the earlier slide, we just see the market for cellular concrete continue to grow and more and more people are getting exposure positively to cellular concrete and seeing the benefits that it can provide in solving their geotechnical challenges. So, we're really optimistic about where the business is today, really optimistic about 2026 and really optimistic about the future in general. Grant Howard: Well, that answers the latter part of Russell's long questions or series of questions about your level of optimism. You just addressed that. I think the only thing you might want to touch on here more is with respect to demand. Have you seen any specific projects in the pipeline get trimmed back in scale or pushed out? Randy Boomhour: We haven't really seen that. I think -- and I tried to talk about this earlier is people always try to get us to draw direct lines between administrative directions or administrative changes at the federal government level. And we never see that. I think you would more see that at the GC level. When we see projects that kind of get to the point where they're engaging subcontractors, those projects generally are green lit and they're moving forward. So, I haven't seen anything to indicate that there's any kind of slowdown in infrastructure spending. In fact, what I would say is all the tailwinds point to more money will be spent on infrastructure. Grant Howard: Russell's next question. Can you talk about what you are seeing on the M&A front? In the past, you've noted your first choice would be another cellular concrete player in the U.S. with complementary products, technologies representing plan B, how has that environment evolved since the August call? Randy Boomhour: Yes. I would say really, there's no change, right? Nothing has changed there. Our first priority was executing on our commitment this year to deliver a record year, and we really are trying to get the share price fixed to where we're much closer to a fair value because any acquisition we do would be primarily cash, but we would want to have an equity component as part of that. And so until we kind of get the first part of the job done, which is deliver this year and get the -- get our equity more fair valued, we're not really engaging in deep conversations with potential targets. Grant Howard: Next question, but not from Russell. Could you please elaborate more on your comment that you mentioned in the press release and then the quote was "Looking forward into the fourth quarter, we will be very busy in the first 6 weeks of the fourth quarter and then slowing down in the last 6 weeks, consistent with the normal seasonality in our business." Randy Boomhour: Yes. I mean, this feels like a sort of a tricky way to ask me for like more specific guidance on the fourth quarter. And as you know, Grant, we just don't do that. I would just say the fourth quarter is traditionally our second best quarter, and I would expect this year to be really no different. And that's always the pattern. It's always busy for the first 6 to 8 weeks as October, November is a big push to get things done before winter hits. And then once winter hits and we hit into the Christmas season, we always slow down. There's exceptions sometimes like in 2023, we're really busy over the Christmas season because there was a big push on the Trans Mountain project to get that finished. But generally speaking, that's normal pattern that's in our business since we started these companies. Grant Howard: I know this was addressed during the presentation in some way, but the question is, is any percent of your revenues due to residential business? Randy Boomhour: Not really. I would say sometimes we might be working on infrastructure related to residential development, whether that's a gas line or a banding in a pipeline or supporting road infrastructure. But we don't do residential work specifically. Grant Howard: Since AI is such a big topic these days as well as data centers, the question is, do you see any demand coming from data center construction? Randy Boomhour: Yes. So, I've gotten this question probably the last 2 or 3 calls. And what I would say is it always depends on the geotechnical situation. So, you can't say if there's $1 billion in data centers, there's x percent that's going to be for cellular concrete. It doesn't work like that. You could build 10 data centers and have no need for cellular concrete, but you could build a data center in a situation where there's weaker unstable soils or it's in an environment where they're worried about lateral load or they've got some annulus to fill or pipes to abandon from an existing site, and there could be lots of cellular concrete. So, what I would say is I always go back to is just any increased spending in infrastructure sooner or later is going to result in an opportunity for cellular concrete. But it's not going to be -- like every data center is obviously going to have a huge electrical component. So, there's a one-to-one correlation. There's not going to be a one-to-one correlation with data center construction and cellular concrete usage. It doesn't work like that. Grant Howard: How much of your labor costs are variable? Randy Boomhour: Yes, it's an interesting question. I mean, we really think about labor costs as fixed, but there's an element of our labor that does fluctuate with revenue. So, for example, overtime costs are going to be higher during the peak periods and overtime costs are going to be lower in the slower periods. So, I think that just makes sense and it is common sense. But we spend a lot of time and money training our employees and their experience in the field really to what Jordan mentioned earlier, is one of our key competitive advantages. So, we don't want a lot of turnover in that team. And so as a result, even when we're slow, we keep those employees employed because if we don't, then we can't execute projects successfully in the future. And that really gets back to our comment around understanding the margin as well is when you're a specialty contractor, when you work, you get a higher margin because when you're working, you're not just paying for that day's labor, you're also paying for all the labor and the bench time. It's a very similar model that you would see in consulting or any other specialty construction business. Grant Howard: Question about the stock. And have you considered a reverse stock split? Or another way to put it is a consolidation of the stock? Randy Boomhour: Yes, it's funny. I can ask 10 different people for their advice, and I would get 10 different answers. And so believe it or not, there are people that are advocating that we do a stock consolidation. But the vast majority of the experts I talk to don't recommend that. And so we don't anticipate doing that anytime in the near future. It's not something that we're actively considering. It's not something that we're looking at. We're really focused on just running and building a good business because, again, as I said many times, I know if we do that, the share price will follow. I know it's very frustrating for some of our long-term shareholders, myself included, Jordan included. Jordan is the largest shareholder in the company. I'm the third largest shareholder in the company. So, believe me when I tell you that we feel your pain when the share price doesn't respond the way we expect it to respond. But we also know that if we do the right things for the business, over time, the share price will improve. All you have to do is look at this year where earlier this year, we were trading at $0.16 or $0.17. And even though we've stepped back today on the share price, we're up significantly from that low. We're up significantly from last year when I took over as CEO. And we know that if we continue just to run a good company, grow revenue, be profitable, that share price is going to follow. And it will probably take longer than we all hope, but it will follow because it will be based on fundamentals. It won't be based on some hype or press release. It will be based on us actually doing a good job for our customers and our customers recognizing that good job and rewarding us with more work in the future. That's how you build a good company. Grant Howard: Next one. What does the pipeline look like today versus this time a year ago? Randy Boomhour: Yes. I mean, we had a similar question like this, but I would say the pipeline today looks better than it did a year ago. We're seeing more opportunities to bid. We're actively chasing more opportunities. We're investing more in business development so that we're uncovering opportunities we didn't see in the years past. And so our bidding activity is higher this year than it was last year. So, we remain extremely optimistic. And I think you can see that success in our sales results. So, we've so far this year, sold more revenue, added it to backlog than what we've delivered and we're on track for a really good year for revenue. So, that's pretty impressive and I think indicative of what's happening in the marketplace for us. Grant Howard: Question about earnings per share. Maybe MJ, a specific question was what is the EPS for the third quarter, if you have that? Marie-Josee Cantin: I do. The EPS for the third quarter was $0.012. And year-to-date, we are at $0.015. Randy Boomhour: Yes. And again, Grant, I would say there's all kinds of fancy metrics that the spreadsheet analysts can come up with. But it always boils down to the same thing. There's certain constants in the numerator and denominator. And we know if we increase the numerator by making more money, all of those metrics are going to improve. So, people can ask us about free cash flow, return on capital employed, return on assets. It all boils back down to the same thing, fix the numerator, and I guarantee you that calculation gets better, and that's what we're focused on. We're going to make more money and all those metrics that you can dream up or think about are going to get better. Grant Howard: I think the fact you've had a 6-point bump in your gross margin is incredibly positive. And the fact you're sitting on almost $10 million in cash and virtually no debt speaks volumes in itself. Do you have an estimated contract size that generates the best return for CEMATRIX? Randy Boomhour: I don't really because it's very situational, right? So if you had a situation where you just had a large fill or a large hole to fill and it's just an open pour, literally, Grant, you and me could probably go buy a piece of equipment and run it and have a good chance of executing that project. But if you talk about grouting a tunnel that's underground where you're pumping thousands of feet, then you need specialized equipment and you really need to know what you're doing. And so the margin that we would get is really dependent on the situation, the complexity of the task. Who could compete in that area? How far is it from one of our offices? And this is an area that we've really made a lot of strides in, in the last 5 years in terms of trying to get better at recognizing those factors so that we can price that project appropriately. So if it's relatively simple and straightforward, but big, we know there's going to be a lot of competition on it, and we know the margin is going to have to be tight. If it's very complicated, very sophisticated, very sensitive, we know that's going to rule out many, if not all, of our competitors. And so on that one, we can and should demand a higher margin. So it very much is very situational and the answer is it depends. Grant Howard: You do have some major projects underway right now, and this individual is just asking for an update on those projects. Randy Boomhour: Yes. No different than Procter & Gamble wouldn't give you an update on Crest sales in the U.S. We're not going to provide information on specific projects because we don't want to help our competitors. What I will say is both those projects are going well and kind of as expected from our perspective. Grant Howard: A couple of questions on share buybacks or the normal course issuer bid. What's the status of that? And any plans to continue buying? Randy Boomhour: So the status is we've purchased 700,000 shares all in Q2 related to that as we've disclosed. The NCIB remains in place. If in discussions with the Board, we think there's an opportunity to buy more shares after looking at the best use of capital, we could potentially do more than that. I personally -- this is not necessarily the company's position, but my position. I'm a fan of the NCIB. I think in situations where we think the shares are undervalued, I think it's a good use of capital if we don't have an active acquisition. We will never buy back the maximum. I don't see us deploying that much capital into that, but I do see us hopefully doing more NCIB purchasing in the future. Grant Howard: With the proliferation of MSE wall construction, have you seen an increase in contracts specking cellular concrete as backfill material? Randy Boomhour: Yes. No other elaboration, yes. Yes, we have seen that. And I think you can see that in our numbers. That's part of what's contributing to our growth. We make a lot of sense in that application in terms of ease of construction and often, we can be cheaper than EPS. So it makes a lot of sense for us. Grant Howard: Not sure where this one came from, but do you feel confident on collecting accounts receivable that is aged over 90 days? Could you share a little color on that? Randy Boomhour: 100%, we do. As we talked about earlier, our customers are almost always the large general contractors that operate in North America. Almost all of them have really good credit. And there's lots of legal security around these projects, whether it's liens, whether it's payment bonds, whether it's holdbacks. So, we have very rarely had any AR-related losses. When we do, it tends to be on a very, very small job. So, we do a 5 cubic meter job for Randy's pools, and Randy turns out to be not a reputable guy. So, that's where we run into sometimes occasionally an AR issue, but we almost never run into it on a very large project because of the protections that are built in the construction industry. Grant Howard: Another question on buybacks, which you've already addressed. I guess the only other part of it is whether or not those are filed on SEDI. Randy Boomhour: Yes. So, there's no requirement to file NCIB purchasing on SEDI. We are required to disclose it in our financial statements and our MD&A, which we do every quarter. Grant Howard: I already know what your answer is, but what does Randy think the fair share price should be at present? Randy Boomhour: Yes. I don't want to speculate what would be. Just my personal opinion is it should be higher, right? And you can use whatever valuation you want to use, whether it's a discounted cash flow, whether you want to look at peers, whether you want to look at a forward multiple, whether you want to look at a forward multiple of EBITDA, I would say in almost every one of those, you'll come up with a share price that's probably higher than where we're at today. And then what I would say is we're lucky enough to be covered by Russell Stanley out of Beacon, who's a financial analyst who does this for living. And I think you could take some guidance from what he's put out there. Grant Howard: You heard of other players in the cement industry, cellular industry, such as Martin Marietta Materials or Astec. Do you compete with them? Randy Boomhour: So, obviously, we've heard of those guys for sure. Some of them will have a project or a project -- a product that's similar to cellular concrete. But generally speaking, commodity players struggle in what I would call the more specialized or technical sales. So if you sell cement, you're almost like an order taker. So, someone phones you up and they say they want so much cement and you say, here's the price and here's when I'll deliver it. Cellular concrete is a much more complicated sale because you sometimes have to convince people to use it and you've got to go through the technical qualifications about why it makes sense. So it's a much more complicated sale. So, we don't really compete against those guys. Much like we see general contractors trying to self-perform work, you will often see cement companies trying to figure out how they're going to make more money or grow their business. And sometimes they'll dip down into specialty construction around cement products. But our experience is they're generally not successful at it because it's just a different sales process. So we don't -- I would say we don't compete against those guys. Grant Howard: Interesting one around national defense. Federal government has said it's going to spend up to 2% of GDP on national defense and 5% by 2035. We'll see. But anyways, a significant part of this would be updating defense infrastructure. Are you seeing or expecting any demand from national defense? Randy Boomhour: It's a good question. I'm not sure I've seen anything specifically, but examples I could think of is if, for example, the Canadian military or somebody want to upgrade a port, there could be applications for cellular concrete there. We've done some work down in the Houston area around upgrading a port where cellular concrete, again, because of the geotechnical situation, made a lot of sense. So it really is -- it's definitely possible. It would have to be like a physical infrastructure as opposed to the equipment for obvious reasons. So, I wouldn't expect that to be a big opportunity for us, but there could be opportunities that come about for that. Grant Howard: And this was addressed in the presentation and Randy, you've commented further, but any growth plans like acquiring any other companies? And I believe you said that at this point, there's nothing on the horizon. Randy Boomhour: I'd say there's nothing imminent, Grant, right? Like my hope really was that at Q3, the results would come out, the share price would reflect the progress we've made, would reflect the commitment that we achieved by having a record year already in Q3. We'd be in a better spot to come -- to go talk to some of these players more actively. But what I don't want to do is engage in a conversation and not have the ability to complete the conversation. So, we're still kind of waiting to fix the equity. Any acquisition we did because of the types of company we're target is going to be primarily cash based, but we would want some kind of equity component as part of that. Grant Howard: You've talked about this, but what are the key catalysts investors should keep an eye on in coming quarters? I think you're probably going to say watch the fundamentals. Randy Boomhour: Yes. Exactly, Grant. I mean, when we manage the business, we focus on revenue, how is revenue growing, what are gross margins, what's the bottom line, what's adjusted EBITDA, how is cash flow going? And then we're looking at what investments do we have to make to continue to grow our business or maintain our business. And so the things that we show investors are the same things that we use to track the success of our business. So, we really are fundamentally a fundamentals company, right? And I believe strongly that as those fundamentals continue to improve, that's going to get reflected in the share price. One of the things I would really like to see is to get less -- how do I say it, more institutionals or more long-term shareholders, long-term shareholders involved. So, there are some people who have been shareholders for a long time, and those people are definitely frustrated because many of them have a cost basis that's higher than where we're at. But we need more people that believe in the long-term view of the company and hold so that we don't have as much trading that happens around announcements or as much emotional selling or buying that happens around the company. I'd really like to get more of our shares in the hands of people that are long-term holders and see the future in the company, so we can get some of the volatility out of it. Grant Howard: With that, we've got a couple more, but they've been addressed already or they've been addressed. We don't have any other questions. Team, any closing comments? Randy Boomhour: Yes. Maybe I'll just -- I'll let MJ and Jordan do some closing comments, and I'll do something right at the end, Grant. Jordan Wolfe: I don't have much to say other than thank you for the opportunity to present, and we're really looking forward to the future here, not just with Q4, but 2026 and beyond. Marie-Josee Cantin: I echo what you say, Jordan, pretty excited for the future. Randy Boomhour: And I guess I will just kind of pile on there is we're all equally excited. I think as people that are owners of the business and people that run businesses for a living, when we look at where CEMATRIX is, we really couldn't be happier. Like we're growing revenue, we're generating cash flow. Our customers are happy with us. Our employees are happy with us, and we're focused on the same things that our investors are. So, I would say just keep on believing. I think the people that stick with CEMATRIX continue to be investors are going to get rewarded over the long term. Grant Howard: As a shareholder of 15 years, I keep on believing. So with that, thank you very much to all of those who attended. And thank you to the CEMATRIX team, and we'll see you next quarter. Thank you. Randy Boomhour: Thank you, Grant. Marie-Josee Cantin: Thank you. Jordan Wolfe: Thank you.
Operator: Thank you for standing by. My name is Lauren Cannon, and I will be your conference operator today. Welcome to the Canadian Tire Corporation Earnings Call. [Operator Instructions] Now I will pass along to Karen Keyes, Head of Investor Relations for Canadian Tire Corporation. Karen? Karen Keyes: Thank you, Lauren. Good morning, everyone. Welcome to Canadian Tire Corporation's Third Quarter 2025 Results Conference Call. With me today are Greg Hicks, President and CEO; Executive Vice President and CFO, Darren Myers; and T.J. Flood, Executive Vice President and Chief Operating Officer. Before we begin, I'd like to remind you that today's discussion contains information that may constitute forward-looking information within the meaning of applicable securities laws, including management's current expectations regarding future events and the company's True North strategy. Although the company believes that the forward-looking information in today's discussion is based on information, estimates and assumptions that are reasonable, such information is necessarily subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in such forward-looking information. For information on these material risks, uncertainties, factors and assumptions, please see the company's MD&A, which is available on our website and filed on SEDAR+. The company does not undertake to update any forward-looking information, whether written or oral, except as is required by applicable laws. I would also highlight that our discussion today will focus on the normalized results of the business on a continuing operations basis. Remember that the sale of Helly Hansen completed on May 31, with the business being treated as a discontinued operation in our results up to that date. After our remarks today, the team will be happy to take your questions. We'll try to get in as many questions as possible, but ask that you limit your time to one question plus a follow-up before cycling back into the queue. And we welcome you to contact Investor Relations if we don't get through all of your questions today. I will now turn the call over to Greg. Greg Hicks: Thank you, Karen, and good morning, everyone. In Q3, we performed very well while continuing to make True North investments across both our retail and our financial services businesses. We achieved strong top line and underlying retail performance across our business. Our loyalty engagement increased with over 7 million members shopping our banners in the quarter, an increase of 3%. Sales also grew across our major banners with CTR and SportChek driving revenue gains. These results were supported by our team's very strong margin management. And ultimately, diluted earnings per share grew nearly 7%. There is no question that the consumer demand landscape remains dynamic, yet Canadian shoppers continue to demonstrate admirable resilience. We are cautiously optimistic, recognizing the macroeconomic backdrop remains uncertain and unpredictable with ongoing trade negotiations and government actions that will shape the Canadian economy for years to come. We are actively monitoring these trends and developments, ensuring we remain agile and responsive. And like the entire retail industry, we are watching the Canada Post labor dispute closely and with disappointment that it comes at a time when consumers are craving value. With one of Canada's best loved flyers, this is a headwind that we are working to manage, and we are hopeful this situation stabilizes swiftly and sustainably. With the launch of True North, we've talked at length about the importance of CTC performing and transforming in parallel. That was evident in Q3 as we charted strong results while advancing our transformation. We've done the work to organize and set our teams up for success, both at the corporate and store level. In September, we held our annual Canadian Tire Dealer Convention, and there is no question that the dealers are aligned with where we're going strategically. In Q3, we also completed our internal restructuring as planned. With our new organizational structure now complete, we are set to accelerate the next phase of our journey, which includes harnessing technology and AI to drive the business forward and deliver operating leverage. We're moving the entire enterprise to take more streamlined approaches based on data-informed go-to-market strategies and great retail execution. As we continue to roll out this new approach, the impact will be evident in our retail forward strategic cornerstone. You can expect us to show up as an even better retailer through a mix of both tested and new tactics. We'll leverage the alignment of the dealers, our restructured teams, our high-low pricing and our omnichannel customer experience to capture market share. For instance, throughout 2025, our e-commerce growth continues to outpace bricks and mortar as we invest in great digital customer experiences. Awareness of our comprehensive range of omnichannel offerings and services like in-store pickup of online orders, ship to home and same-day delivery across all our banners continues to increase, helping us grow. The awareness is critical in both busy urban markets and non-VECTOM markets, which represent around 70% of our sales. And with the majority of our transactions starting online, we continue to explore a variety of enhancements, including leveraging new AI tools to improve search performance and to identify the Triangle offers Canadians need, building on enterprise-level customer data. As we've done over the last many months, through True North, we are also continuing to refine our promotional and digital engagement, adapting to changing customer behaviors and reducing our reliance on traditional channels. Likewise, as you saw in our Q3 results, our AI pricing tool, DAVID, is helping us analytically engineer promotional programs and optimize regular pricing to provide customers the value they crave, all while managing our margins. In our conversations with globally scaled advisers and partners, DAVID has been called out as one of the leading North American examples of how retailers are using generative AI at scale. DAVID builds on our unique first-party data, which remains a key differentiator in our modernization efforts and our deployment of AI. Our data is a sustained competitive advantage that also delivers considerable value to our customers. Our Triangle Rewards program is another cornerstone of our strategy. And by partnering with other strong Canadian brands, we are driving the scale of both the Triangle brand and the valuable first-party customer data it generates. Case in point, our first partnership with Petro-Canada has been very successful, growing to nearly 520,000 linked members and over $100 million of incremental sales. In the quarter, 10% of Triangle members were active at Petro-Canada. In Q3, we announced our newest loyalty partnership with Tim Hortons, which, in addition to being the nation's largest quick-serve restaurant chain is a brand loved by Canadians coast-to-coast. This partnership feels like a natural fit. And given their positive response to our announcement, we know that Canadians agree. At the same time, we continue preparing internally to launch our RBC and WestJet loyalty partnerships. With our RBC partnership now in the soft launch phase, customers can now link their Triangle Rewards and RBC payment card to accelerate their earn. This soft launch period will provide us important learnings as we prepare for a full launch with RBC in early 2026 as well as WestJet and Tims, both planned for later next year. With new partnerships like these, Triangle is expanding from a loyalty program into a powerful Canadian network, offering value to the millions of Canadians who engage with these programs every day. You can expect us to make the most of these iconic Canadian partnerships, the natural customer engagement and the associated brand awareness in 2026 and beyond. And with that, I'll hand it over to Darren to take you through our Q3 results. Darren Myers: Thank you, Greg, and good morning, everyone. Our third quarter performance reflects continued strong retail execution, delivering improved profitability and higher return on invested capital. At the same time, we continue to build momentum in our True North transformation, making strategic investments to support long-term growth. Retail revenue remained robust and retail sales came in at a strong margin rate, resulting in meaningful retail IBT performance, up 19% year-over-year. At the bank, customer risk metrics were generally in line with our expectations. As described last quarter, we are making investments to strengthen and grow the business, which contributed to lower IBT. Lower leverage, reduced finance costs and continued progress against our share repurchase program contributed to the 6.5% year-over-year increase in normalized earnings per share. Let me now take you through some of the highlights of the quarter. Retail revenue, excluding Petroleum, was up close to 6%, driven by CTR dealer restocking ahead of Q4 and solid sales growth across our banners. Consolidated comparable sales grew 1.8%, led by a strong performance at SportChek. Loyalty penetration was up 117 basis points to 55.2%. At CTR, comparable sales grew 1.2%, driven by trips and units per transaction, both which trended higher this quarter. We experienced weaker sales in essential categories and a decline in the Living division as a result of slower sales of summer climate control products, combined with less flyer distribution towards the end of the quarter due to the Canada Post strike action. Sales were up 2% to 3% in our other 4 CTR divisions. Automotive delivered a 21st consecutive quarter of growth with auto maintenance continuing to be a strong performer in Q3. Regionally, growth was strongest in Ontario and Quebec, while Alberta was down slightly after a strong performance last year. While CTR comparable sales are trailing revenue on a year-to-date basis due to strong and earlier dealer replenishment, both have been robust with CTR year-to-date revenue up 7% and comparable sales up 4%. As you know, CTR revenue growth and sales growth tend to converge over time given our dealer model. SportChek had another great quarter. Comparable sales were up 4.2% with strong performance in back-to-school and back-to-hockey. SportChek's sharpened focus on winning with athletes and being a destination for sport continue to drive stronger sales of hard goods, including golf and hockey as well as athletic clothing and footwear. At Mark's, comparable sales were up 2.5%, supported by the continued success of our new Bigger, Better, Bolder stores. During Q3, we opened our 12th BBB store, including the first in the province of Quebec as we continue to expand our presence in Quebec and Ontario. From a category perspective, an earlier start to fall in several provinces contributed to increased sales of casual wear categories like sweaters and jeans and workwear sales were also up. Turning to margin now. Our retail gross margin came in strong with solid execution, favorable mix and margin rate increases across all banners. We continue to build capabilities around promo and pricing through our margin nerve center and our AI platform, DAVID, that are helping us manage a dynamic environment. Better product margins across the businesses and less foreign exchange headwind than we anticipated contributed to an excellent result on margin. Excluding Petroleum, retail gross margin dollars were up nearly 8% and the margin rate improved by 57 basis points year-over-year. Our retail SG&A was up 6% year-over-year as expected. Around half of the increase was a result of increased strategic investments supporting our True North transformation, primarily in IT. Our SG&A also included variable costs to support our growth and business as usual inflationary pressures. Initial restructuring savings and higher vacancies were a small positive contributor this quarter. With our restructuring largely complete, we expect to realize a full quarter of benefit in the fourth quarter. Bringing it all together, we delivered strong operational results in our retail business. Normalized retail EBITDA increased almost 4% to $484 million as revenue and margin strength more than offset our investments in the business. Cash generation from operations was more moderate this quarter, reflecting working capital and investments ahead of our largest quarter. Corporate inventory was up 5% as we exited Q3 with increases primarily driven by SportChek and Mark's. At CTR, dealer inventory was up 7% to support Q4 growth. Moving to Financial Services. Customer spend remained robust, and we continue to deepen engagement with cardholders. Receivables grew 2.3%, primarily driven by higher average account balances. We continue to leverage loyalty issuances as a tool to engage cardholders and drive retail sales with eCTM issuance up close to 8% over the last 12 months. Increased cardholder acquisition contributed to a modest increase in active accounts during the quarter. CTFS IBT declined $26 million year-over-year, primarily reflecting higher SG&A as expected, driven by infrastructure and growth investments. Additionally, gross margin dollars decreased 3%, driven by increased write-offs this quarter. As we noted last quarter, SG&A levels are expected to remain elevated into 2026 as we continue to invest in the business. Risk metrics remained relatively stable and were in line with expectations with PD 2+ at 3.5% and the net write-off rate at 7.2%, both up approximately 10 basis points quarter-on-quarter. We continue to closely monitor the environment and are prepared to act should we see meaningful change. With no increase in the allowance and an increase in the ending receivables balance to $7.7 billion, the allowance rate ended at 12.1%, remaining within our targeted range of 11.5% to 13.5%. Before I wrap up and hand the call back to Greg, let me provide color on what we're seeing so far in Q4 and on our capital allocation priorities for 2026. While September was cool in parts, this was followed by an unfavorably warm October in most of the country, which contributed to flat to modest sales growth in the early part of Q4. Earlier restocking, including in key winter categories where CTR dealers ended lean last year, contributed to CTR revenue outpacing sales in Q3. Being in stock combined with continued customer resilience and an extra week this year should position us for sales growth in Q4. However, sales over the next few months will be dependent on how winter comes to us this year and how quickly Canada Post stabilizes. Strong margin management has led to a year-to-date retail gross margin rate above our North Star margin. Based on typical Q4 performance, we are positioned to overachieve our North Star this year. Of course, keep in mind that mix and other factors can drive variability quarter-to-quarter. Overall, we are pleased with our retail fundamentals, and we remain watchful of the trends so we can proactively adjust should the external environment change. Finally, let me close by outlining our 2026 capital allocation priorities. We are pleased with the position of our balance sheet following the sale of our Helly Hansen business. Our approach to capital allocation continues to be balanced, investing in the business for long-term value while also giving back to our shareholders. Our True North strategy is providing greater clarity on investment priorities with a continued emphasis on refreshing and enhancing the store digital experience, rolling out loyalty partnerships, harnessing AI and advancing our technology and processes to drive scale and operational efficiency. We expect to spend operating capital in the range of $500 million to $500 million (sic) [ $550 million ] in 2026, in line with our long-term historical run rate. These investments shaped by our True North priorities are purposefully designed to improve our long-term financial performance. We also continue to deliver returns to shareholders. As of last week, we had completed the $400 million of repurchases under our 2025 share repurchase intention. Today, we announced that we plan to repurchase up to $400 million more by the end of 2026. Finally, in March, the dividend will increase to $7.20 per share, which will be our 16th consecutive year of dividend increase. As I reflect on the last 6 months since I have joined, I'm pleased with our progress and energized by the opportunity in front of us to deliver improved results. We are building new discipline around planning, performance management and capital allocation, and we'll continue to evaluate the returns that we are getting from our investments. Importantly, our teams are embracing the need for change. And for that, I want to thank them. We look forward to updating you on our progress at our Q4 results in February. And with that, I will hand the call back to Greg. Greg Hicks: Thanks, Darren. I'll conclude today by thanking our team. Our people continue to reinforce our purpose through actions that demonstrate we are truly here to make life in Canada better, not just for our customers, but also our communities. For example, in Q3, the SportChek and Jumpstart teams partnered to help community sport organizations replenish their outdated equipment and in turn, offer more programs to more participants. And just last month, we expanded our partnership with the Downie Wenjack fund through our commitment to revitalize the Blanket fund by providing at least $1 million each year for indigenous-led initiatives. This holiday season will mark our debut stewarding the Hudson's Bay stripes with products, including the iconic Point Blanket hitting stores on December 5. Step-by-step, we have taken great care with this brand, and we believe wholeheartedly that our curated stripes holiday capsule collection is a sign of that stewardship. We picked holiday favorite items, working with original vendors to maintain quality and craftsmanship, and we expect this initial run of products to fly off-store shelves. Our meaningful product presence will roll out in the back half of 2026, and our hope is to continue stories that belong to all Canadians, honoring our history while driving into the future. And Canadians are taking notice. Last week, the 2025 Canadian Harris Poll study showed that our already strong reputation with Canadians is improving with notable gains in categories like vision and growth. Like our fellow Canadians, we remain confident that we are taking the right actions to prosper over the longer term. Last but not least, I would be remiss if I didn't acknowledge what an exciting few weeks it's been in the world of sports. First, I want to congratulate Martha Billes on her induction into Canada's Sports Hall of Fame. Martha received Canada's highest sporting honor, the Order of Sport for her work advancing sport nationwide through Jumpstart. And second, I must extend my congratulations to the Toronto Blue Jays on their incredible World Series run. What a thrill that was for the city of Toronto and all of Canada. Not only did this Jay's team demonstrate the power sport has to bring a nation together, but their success fueled sales of Fan Gear, which has been a nice tailwind for us as we comp last year's strong and early winter sales. And with that, we can open the call to questions. Operator: [Operator Instructions] Our first question comes from the line of Irene Nattel with RBC Capital Markets. Irene Nattel: Wondering how you and we should be thinking about Q4. And you've given us your 2026 capital allocation, NCIB levels stable despite your strong balance sheet. So wondering about your assumptions and how you're thinking about 2026 and what underpins that -- those decisions. Darren Myers: Yes. I think I'd go back to what Greg said in prepared remarks, which is we are cautiously optimistic. I mean if we look at this quarter, we saw trips up, we saw baskets up. We saw lots of positives. We're executing good retail fundamentals. And we are still planning for growth, and we're positioned for growth. That said, as I mentioned, for Q4, we are mindful of two things. One is just how weather is going to show up as well as just stabilization of Canada Post. As we think about next year, again, we are positioned and planning for growth. But as we look at in a cautiously optimistic mindset, we are really watching the consumer closely. So there are lots of dynamics going on right now. We still feel good about the business, but we're watching things closely. Irene Nattel: That's really helpful. And just as a follow-up, as you sort of -- with all your data, when you look at -- and clearly, you did very well in Q3. As you look at consumer spending, as you look at CTFS, are you seeing red flags? Are you seeing changes? What are you seeing there? Greg Hicks: Irene, it's Greg. I'd say more of the same and in line with previous commentary in terms of the state of the consumer. I think we continue to see similar characteristics in terms of spend regionally. Alberta was down, but that was a weather comp issue. No major shifts in terms of spend by household income. We're seeing membership spend growth at all income levels, and we're actually seeing some real resilience with low-income apartment dwellers. We continue to monitor communities hit hardest by tariffs at both sales and credit card metric levels, and there's nothing really to call out there either. It's pretty stable. And then I think when you translate that into the performance for us in the quarter, I think it's similar to year-to-date trends. It's minimal GDP growth, but we're growing. And to Darren's point, there's no question that the consumer demand landscape remains dynamic. There are absolutely puts and takes at the macro. But Canadian shoppers just continue to demonstrate admirable resilience. And again, just to follow up, bridge the two questions, I totally agree with Darren. We're cautiously optimistic. We're planning in a very similar way right now to the way we thought about planning this year at this time last year, but know that there's still a good amount of uncertainty, but I think the teams are demonstrating their ability to work through that. Operator: Our next question comes from the line of Chris Li with Desjardins. Christopher Li: First, I wanted just to clarify with respect to the CTR same-store sales, did I hear you correctly that through the quarter, it kind of slowed through the quarter mainly because of the Canada Post strike. And then right now in October, it's kind of flattish. Did I hear that correctly? Thomas Flood: Yes, Chris, it's TJ. Maybe I'll jump in on that. Yes, I think -- I mean first of all, we finished the quarter at -- with a growth rate of 1.3%. September definitely did slow down a little bit for us, but we felt good with respect to the quarter was that our traffic was actually up and our units per basket were up. We had a slight decline in AUR at CTR, mostly driven by air conditioner sales. We were comping a massive heat wave in Alberta year-over-year. But yes, September definitely was impacted by the Canada Post disruption. Operationally, it's obviously a major challenge for us when we get such late notice of disruption of our flyer delivery. So that hurt us a little bit. And then as we get into October, that's -- I think you characterized it right, and Darren said it, we're seeing kind of flat to slightly up performance in CTR. And we continue to monitor closely how the sales are progressing. We've certainly positioned ourselves for growth under the right circumstances when the weather shows up. We like the composition of our inventory. We like the newness in our assortment. We really like the trajectory of the discretionary side of things, and we think that's a little bit attributable to more Canadians being in Canada. If you look at Q3, travel -- auto travel products were up, gardening was up, outdoor furniture was up. And we think that's a function also of the newness in our assortment. You may recall coming out of COVID, we had high inventory levels, and we had kind of older assortment. So we're feeling good about our assortment. So we're -- we feel like we've positioned ourselves as well as we can going into the quarter, and we're cautiously optimistic as we look forward. Christopher Li: Okay. That's very helpful. Are you able to at all quantify the impact of the Canada Post strike on sales? Darren Myers: Yes, we're not going to do that today, Chris. Christopher Li: Okay. No problem. And Darren, maybe just a follow-up for you. Just when I look out to next year in terms of retail SG&A expenses, if we assume, let's say, that the top line, the revenue environment is sort of normal, like, call it, low single digits and considering you have $100 million of savings benefits coming your way next year, in that sort of setup, do you think there is a potential for some SG&A leverage in 2026? Darren Myers: Well, the way I would think about it, we're not going to give guidance on the specific number, but we are going to have the run rate savings, which we talked about, which was $100 million. I think you'll see stability in our investing in the business. So we won't see the same uptick. And then, of course, you'll have regular inflation that -- and variable costs that support the growth. So I'll let you kind of put those numbers together. But those are the kind of three main components to think through as you model next year. Operator: Our next question comes from the line of Vishal Shreedhar with National Bank Financial. Vishal Shreedhar: With respect to the gross margin rate, I think you indicated that you'd be above your North Star rate. So is that something we should expect going forward as well in 2026? Or should we anticipate the gross margin rate to subsequently decline back to that 35% rate? I ask in the context of Canadian Tire has generally been marginally above that 35% for the last few years. Darren Myers: Yes, Vishal, I don't want to get again ahead of ourselves and provide -- we're not providing guidance for 2026. But what I would say as we think about that North Star, we obviously are trending well, and we feel good about this year overachieving that if all things line up in the fourth quarter. And then we -- that momentum and the capabilities we're building and DAVID -- and rolling out DAVID to SportChek and to Mark's, we see lots of opportunity. Of course, the other side of that is you have to look at the consumer environment and see how -- making sure we're stimulating demand. So we're not going to predict what next year's rate is going to be. We haven't changed our North Star, but we feel good about where we are right now. Vishal Shreedhar: Okay. And I wanted to take a few steps back and just look at Tire's positioning in the retail market. There's lots of change and wanted to get your thoughts on high-low retailing in a world where e-commerce and price discovery -- e-commerce is growing rapidly, price discovery is easier than ever. Can you give me thoughts on high-low into the future? Is that a sustainable approach? Do you feel good about it? And how should we think about Tire evolving as all these tools continue to advance rapidly? Greg Hicks: Well, maybe I'll take that, Vishal. It's Greg. I mean we're -- I mean we feel good about our price positioning in the marketplace. We track all indicators relative to our competition around value. Value is much more than price. As you know, we constantly have work underway with squads and/or just retail fundamental practices to try and improve -- continuously improve on those factors that drive the value equation in retail. Canadians love a good deal. And we -- as we said in the prepared remarks, like the flyer and the high-low incentives that are presented within that flyer, our best way right now with the highest degree of household penetration and distribution to get our value messaging to our customer. And so we -- and we think we're really good at. We can stimulate demand and manage a margin profile that is, I think, good for us and our investors to your -- to the first part of your question. But the world is evolving, and we're moving with pace with AI, and the industry is moving with pace around AI, especially Agentic AI. And so we're going to continue to evolve and modernize the way we need to and the way we've evolved for decades. But at this point in time, we see there's no major strategic pivot on the high-low side of our business. Operator: Our next question comes from the line of John Zamparo with Scotiabank. John Zamparo: I want to ask about the gross margin, and I was hoping you could unpack the drivers here a bit more. You listed a few different sources of the improvement year-over-year. Can you rank them in order of magnitude? I'm really trying to get a sense of how much of the improvement is organic or recurring? Thomas Flood: John, it's TJ. I'll take that one. I think as we've said numerous times, I think it's important to point out that our margin rates can be choppy quarter-to-quarter. We're coming off a quarter where we were a little bit below last year in Q2, and we had a very strong quarter in Q3. What I would say is a lot bounced our way. We were up about 57 basis points year-over-year, as Darren articulated. The first thing was we saw improved margin rates across all banners. So that was really good news. We didn't see any material effect in terms of banner mix on our margin rates. We did see a little bit of impact from a product standpoint, product mix standpoint. What I mean by that is something like our Automotive division growing faster than our Living division helped us a little bit. So we're feeling good about that. And then we got a little bit of currency help, too, with the timing and -- of inventory delivery as well as the businesses that are firing a little bit better, gave us a little bit of currency relief. But I think one of the things I wanted to point out is that we continue to build capabilities around promo and regular pricing through our margin nerve center and our pricing AI platform that we've been talking about on the call so far, DAVID. And this is really helping us manage in a very dynamic cost environment, and it helps us as a high-low retailer because DAVID stands for Data AI Value Incrementality Driver, and we use it to help run our high-low business, and it optimizes reg pricing as well as promotional pricing. And it was a pretty significant development that was required to implement it. We had significant data ingestion and feature engineering to build it. We had to establish new forecast models to estimate elasticity, unit demand, sales and margin impact of changes. We had to establish a purpose-built optimizers, which leverage rules-based inputs for each of our reg and promotional program development. And then we've had to develop flexible user interfaces that allows our buyers to override where required. And an AI implementation of this significance requires a lot of change in people and process to integrate the capabilities so we can unlock the value both financially and strategically. So we're really, really proud of that, and we're feeling like the teams have adopted it very well. And we continue to add feature sets to it as we go forward. And as Greg pointed out, I think it was Greg, might have been Darren, we currently just have it in CTR, but we're about to roll it out in SportChek and Mark's going forward. So we're very excited about that. And I think that had a big contribution to our margin performance year-to-date. So -- and then we continue to plow forward with other capabilities as well. Our Triangle membership base allows us to focus investments at the individual level and our own brand stable helps strengthen our margin rates as well. So we're feeling very good about how we've been performing, and we feel like we've built a lot of capabilities to help manage in a what I would describe as a very dynamic cost backdrop as we sit right now. Darren Myers: Yes. And just to add on it, as TJ said at the beginning, just -- things can be choppy. So I don't want people to get too ahead of our skis, but we're certainly pleased with what we've built and where we are right now. John Zamparo: Understood. I appreciate that color. That leads to my follow-up, which is also on your AI efforts. And I wondered, do you eventually foresee using AI externally. In other words, on a customer-facing basis rather than only internal. I assume you've spent some time talking about this. We've seen retail banners in the U.S. start to offer this. I wonder how you see this playing out at Canadian Tire. Greg Hicks: John, it's Greg. Absolutely. And I think in my previous response, I said we're moving at pace on AI. I've yet to experience the pace of change in the industry that we're seeing right now with AI in my career. And we have many use cases in deployment. Some of them are fairly mature and some of them scale like the one that TJ just talked about. But from a customer experience point of view, we think Agentic AI is the breakthrough. We think it's the breakthrough for scaling, and we are absolutely racing towards it in True North. And I think the real potential of Agentic AI is -- and this does apply to the back office as well, but it's not to automate the steps of a workflow, but to eliminate the workflow itself. And it requires a set of foundations that is absolutely a part of the incremental tech investment this year. We're building for multi-agent AI orchestration, and that requires the right standards and protocols. And we're building them with a scaled partner in Microsoft. And so in all, True North really has us working to evolve to be a tech-enabled retailer, not just a retailer that uses tech. And our operating model, as we've talked about, is evolving, and we're working hard to embrace the potential that AI can bring, especially in the customer experience. And then organizationally, from a change management standpoint, we're moving to a place where business leaders identify problems they need to solve, not IT platforms that we need to buy. And it sounds simple, but it's a profound change. And that's why the operating model change in True North is so important. Operator: Our next question comes from the line of Mark Petrie with CIBC. Mark Petrie: I want to come back just to the topic of dealer sentiment. Obviously, consumers are sort of cautious, albeit trends are stable, but revenues have been outpacing sales and pretty notably in Q3. How would you characterize sort of inventory levels today? I know dealers were light on winter. Was that addressed in Q3? Or do you expect that to continue in Q4? And what kind of feedback are you just generally getting from dealers with regards to the selling environment? Thomas Flood: Mark, it's TJ. I'll take that one, and I'll unpack our inventory position a little bit to hopefully provide a bit of context. With the customer, as Greg articulated, remaining resilient and a lot of new product newness in our assortment, as you articulated, we're seeing really positive demand from dealers. Their inventory is up 7% as we go into Q4, and they bought to position themselves strongly for Q4 and the winter season. There was some timing impact for sure in our Q3 revenue, and we estimate about half of the growth that was shipped out in Q3 would have been shipped out in Q4 last year. So there was a timing impact. But certainly, they have been very bullish on the Christmas business, and they have been very bullish on the revenue -- on the shipment side to restock their shelves coming off of a very strong late winter last year. And like us, back to your sentiment, they've been planning for modest growth this year, and they've been buying to support it, which has obviously helped kind of spur our year-to-date up 4% in POS. And from a dealer perspective, obviously, kind of seasonal performance is a big driver of dealer inventory levels in our business. And Q3 marks the end of the spring/summer season. So I did want to highlight that the dealers have slightly elevated inventory levels for spring/summer business, and that's in large part to the performance of climate control categories like air conditioners. So they're a little bit heavy on those categories coming out of Q3. But the winter season is just getting started, and we'll report back in Q1 on our Q1 call on how those categories look from a retail standpoint. So the situation is dynamic with consumer demand right now. I would say the dealers continue to support and buy for growth, but they're watching it closely, just like we are. And probably the last thing, I would say is, as you know, in the long run, kind of revenue growth to dealers usually gets in lockstep with POS growth. So I'll leave it at that. But they have continued to buy for growth, and they're cautiously optimistic as we would be. Mark Petrie: Okay. That's very helpful. And I also wanted to follow up on retail gross margin. Just looking at it a little bit different, but picking up differently and picking up on your comments about stimulating demand. Do you view the stronger than or above North Star gross margin rate as a win because you're able to drop more dollars to the bottom line? Or do you feel like maybe you left some sales on the table and you could have taken some more share with a bit more promo investment and still achieved your target? Thomas Flood: Yes, Mark, it's TJ. I can take that, too. I think what you just articulated is the balance we're always trying to strike, right? We're trying to manage our margin rates and make sure that we're inspiring consumer demand because at the end of the day, the more margin dollars we generate, the healthier our business is. We've been a bit choppy this year quarter-to-quarter on margin rates, but we feel really good about how it stacks up when you look at it over the long term. And we feel like we're tracking really well towards our North Star. But that's what we'll continue to do. We'll continue to try to inspire demand as best we can and manage our margin rates all the while. So that's what we're doing. Greg Hicks: And Mark, maybe if I just add, that's why over the years, you've heard us talk about trying to get more fidelity and understanding around market share. And we think that the market share reporting has come a long way. We've integrated market share reporting into a file of our performance management reporting, including Board oversight. And we took share in the quarter. So that teeter-totter balancing act that, that TJ is talking about, if we're taking share and dropping more margin to the bottom line, that's the happy state. So when we look to Q3 across the businesses, but in CTR, I think was where your question was coming from. We took share in the quarter, and we're able to appreciate margins. So we feel like we got the balance right in the quarter. Operator: [Operator Instructions] Our next question comes from the line of Emily Foo with BMO Capital Markets. Emily Foo: Okay. Just wanted to go back to the flyer disruptions. Are there any contingencies or actions that you're taking to mitigate for Q4? And if so, like have those actions begun? Thomas Flood: Yes, Emily, it's TJ. Maybe I'll take that one. As Greg articulated in his upfront remarks, we have the most beloved and most red flyer in the country. And when less consumers receive it, it certainly becomes friction that we'd rather not have to face. But we have taken the learnings that we had from last December. So this isn't our first disruption with Canada Post. And we've reinvested and deployed marketing plans to help mitigate the impact and -- because it's actually been of a longer duration so far than what we experienced last year. The teams have been able to source local distribution alternatives to get our flyer in as many households as possible. But relative to Canada Post, it is -- these actions are limited and don't have the same efficacy as Canada Post, especially when we have to act as quickly as we had to. But what I'd say is we've built so many great capabilities over the past several years in digital marketing, our digital flyer, our app and our Triangle membership program, which has insulated ourselves a lot from the downside of flyers not arriving at as many homes as is normal practice. So it would have been a much bigger impact for us a few years ago. But as Greg said, we're in an environment where consumers are craving value, we're really looking forward to more stability and sustainable stability from Canada Post as we go forward here. Emily Foo: And also, with respect to DAVID, how many quarters would you say that it's been a significant contributor to your margins? Thomas Flood: Yes. I'd say we -- I would probably say we're into our third or fourth quarter of kind of implementation. It was a rollout. So I'd go back to probably Q4 -- late Q4 of last year when we would have started developing value from it and then certainly throughout this year, but on a rolling basis, and it's getting to the point of pretty scaled implementation at this point at CTR. And as I said, we are going to be rolling it out to SportChek and Mark's in the future here. Operator: This concludes the question-and-answer session. I would now like to turn it back to Greg for closing remarks. Greg Hicks: Thanks, Lauren, and thank you, everybody, for your questions and for joining us today. We look forward to speaking with you when we announce our Q4 and 2025 full year results in February. Bye for now. Operator: This will conclude today's call. You may now disconnect.
Operator: Good morning, and welcome to WeightWatchers International's Third Quarter 2025 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Helderman, Director of Investor Relations. Please go ahead. David Helderman: Thank you for joining us today for the WeightWatchers Third Quarter Earnings Conference Call. Earlier this morning, we released a shareholder letter and press release with our third quarter 2025 results, which are available on the company's corporate website located at corporate.ww.com. The purpose of this call is to provide investors with some further details regarding the company's financial results as well as to provide a general update on the company's progress. Reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measures are also available as part of the shareholder letter and press release. Before we begin, let me remind everyone that this call will contain forward-looking statements. Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's latest annual report on Form 10-K, quarterly report on Form 10-Q, the earnings release, the shareholder letter and as updated by the company's other filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. All forward-looking statements are made as of today, and except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Joining today's call are , Tara Comonte President and CEO; and Felicia DellaFortuna, CFO. Jon Volkmann, Chief Operations Officer, will also join for the Q&A. Tara Comonte: Thanks, David. As we close the third quarter of 2025, WeightWatchers is laying the foundation for renewed growth and leadership in the rapidly evolving weight management sector. I encourage everyone to read our shareholder letter, which we distributed earlier this morning and is posted on our Investor Relations site. It details our key strategic priorities, competitive differentiators and what you can expect to see from us over the near and longer term as we build on work already underway to drive growth and long-term value. But first, let me start with some context. In recent years, we've witnessed one of the most profound shifts in the history of health and wellness. The emergence of GLP-1 medications for weight loss has revolutionized the conversations around obesity, bringing hope and in many cases, results to millions who have long struggled to manage their weight. To many, the story was simple. Miracle drugs had arrived and traditional approaches like WeightWatchers proven high-touch science-based program could no longer compete in a changing world. However, we recognized early that this was not the end of an era, but the beginning of a new one. The future of weight management will be built on an integrated approach that pairs clinical care and medication access with structured nutrition, movement and accountability. That's why we acquired Weekend Health, a telehealth business now rebranded to WeightWatchers Clinic that allowed us to integrate medical expertise and prescription access into our program, broadening our proven science-backed model to include clinical care. We're now evolving and tailoring our behavioral offerings to provide the important support needed by members using these life-changing medications, helping them adhere to treatment, manage side effects and achieve lasting results over time. This evolution is not a rejection of our past, but an extension of our legacy as the world's leading evidence-based weight management partner. For 62 years, we've led with science. And as GLP-1s redefine what's possible, we're leading with the science again. I want to be clear on this. No company has a deeper commitment to the science of weight loss nor a longer history of helping people manage their weight than ours. Our industry-leading behavioral program serves as an essential foundation for the differentiated weight loss outcomes and significant nonscale results achieved through WeightWatchers Clinic. As you can see in our shareholder letter, the data proves the efficacy of this model. Studies found that WeightWatchers Clinic members who have prescribed anti-obesity medications, including GLP-1s, achieved an average weight loss of 19% to 23% over 3 years, significantly outperforming our competitors at 12 months. And what's more, 98% of WeightWatchers Clinic members prescribed a weight management medication reached more than 10% weight loss after 12 months and nearly half of them reaching 20% weight loss. Beyond the scale, GLP-1 users who also engaged with the WeightWatchers program experienced a 197% increase in self-esteem, a 78% increase in intimacy, 62% better physical function, a 53% boost in quality of life and 34% reduction in symptoms of depression. The data is clear. In a GLP-1 world, behavioral programs and community support in tandem with medical solutions are forced multipliers for effective, sustainable weight loss and superior health outcomes. What skeptics once saw as an existential threat to our company has instead become an extraordinary opportunity for us to deliver lasting results for our members and capture a greater share of the growing market we serve. 137 million Americans, over half of U.S. adults are eligible for GLP-1 medications. 12% of adults in the U.S. are now taking a GLP-1 medication with demand continuing to rise. $173 billion in annual medical costs are associated with obesity in the United States and $1.7 trillion in chronic disease costs are linked to overweight and obesity. This isn't just one of the largest health and economic opportunities of our time. It's a chance to help tens of millions around the world live happier, healthier lives. And it's a moment that WeightWatchers is uniquely positioned to lead. This is particularly true after last quarter's emergence from our financial reorganization. This proactive process aimed at strengthening our balance sheet and freeing up capital to invest in growth also provided the opportunity for a philosophical and strategic rebirth, opening the door for renewed and accelerated innovation. Looking forward, we're focused on 4 key priorities to drive our growth. First, we will deliver an engaging unified end-to-end member experience. WeightWatchers has long been the most trusted weight loss platform. But as the world changes, our digital ecosystem and experience must evolve to match both the scale of our ambition and the expectations of today's consumer. Under the leadership of Helene Causse, who is our new Chief Technology Officer, joining us from FIS, Snap and Amazon. We've begun modernizing the 2 most critical digital touch points for our members, our app and our website. The WeightWatchers app is being completely replatformed to remove legacy barriers between our clinical and behavioral offerings, ensuring that members can move seamlessly across the full spectrum of our programs while also discovering new tools and solutions that can help them on their journey. Over time, the app will become a personalized companion that leverages AI and behavioral insights to deliver individualized recommendations and curated programs. This will be fueled in part by the vast and constantly growing data set we've collected over more than 6 decades. By modernizing our systems, we can maximize the potential of this information to offer new personalized solutions that meet members where they are, whether that's on or off medication, managing menopause, diabetes or postpartum or in other life stages that deeply affect weight health. The WeightWatchers website is also being rebuilt on a mobile-first infrastructure designs to guide prospective members to the right starting point for their journey. It will be informative and easy to navigate, serving as both an educational resource and a more effective marketing and CRM engine. This new website will enhance our brand, improve conversion and create a clearer, more connected path from interest to acquisition. Together, these upgrades form the foundation of a full digital transformation. It will create a faster, more intuitive, data-enriched and integrated experience while also improving member outcomes and deepening engagement. The first iterations of our new app and website are expected for peak season early in the new year with ongoing releases throughout 2026. Last but certainly not least, we're reinvigorating the beating heart of WeightWatchers, our community experiences. Under the leadership of Julie Rice, our new Chief Experience Officer, who co-founded SoulCycle, we're revitalizing the community offerings that remain central to WeightWatchers. We're expanding our team of highly skilled coaches and introducing new virtual communities around shared interests such as GLP-1s, menopause, cooking and more. We'll also be upgrading the actual meeting platform that we use for our workshops to provide a more personal immersive experience for our members. And in addition, in-person workshops will also be refreshed with renewed focus on connection, consistency and brand experience to be strategically aligned with member demand and needs. Together and over time, all these initiatives will deliver a unified modern WeightWatchers experience that will remove friction between programs, connect digital and human support, produce better outcomes for members and generate expanded opportunities for profitable growth for our business. Second, we're growing our emerging medical business and investing in new diversified revenue streams. The widespread adoption of GLP-1s for weight loss has transformed the weight management landscape and created substantial opportunity for WeightWatchers. Our immediate priority is to scale what's working. That includes WeightWatchers Clinic, which offers medical access and clinical care. It includes our GLP-1 Companion Program, which provides a behavioral framework to support GLP-1 weight loss regardless of whether you get your prescription from WeightWatchers Clinic or your own care provider. And it includes our cash paid or reimbursable Registered Dietitian Network, which connects members with experts who can help them make curated nutritional choices based on their personal needs. Moving forward, we plan to invest in, expand and elevate these programs for existing and new prospective members. As innovation in the weight health market continues to advance rapidly, we're positioning ourselves to benefit from strong tailwinds that will boost our telehealth business. New oral medications that will expand treatment options are expected in early 2026. Price points are likely to come down for medication over time and long-term trends point towards broader insurance coverage for medical weight management. Each of these factors will ultimately contribute to expanded medication access and provide significant potential for growth. We're encouraged by the strong member interest in GLP-1 medication options through direct cash pay channels, including our integrations with NovoCare and LillyDirect. Our ongoing collaboration with Novo Nordisk is particularly meaningful as we work together to expand access to injectable Wegovy and support the upcoming launch of the Wegovy Pill, while exploring new and innovative ways to bring additional convenience and value to our members. As we continue to expand our medical solutions and capabilities, I will reiterate that patient safety, patient outcomes and regulatory compliance continue to guide our clinical approach. As we expand our GLP-1 medical weight loss program, we are also extending our reach into adjacent areas of weight health. This started with the launch of WeightWatchers for menopause, a new offering launched at the end of the third quarter that offers evidence-based support and medication access to the 1.3 million women in the United States who reach menopause each year, many of whom are managing weight, hormonal and metabolic changes simultaneously. The phased rollout throughout October has been well received, driving encouraging engagement among existing members and strengthening brand awareness around our evolving position in weight health. We also expect our long-term growth to extend beyond the United States, building on more than 50 years of presence in key international markets. Under the leadership of Alejandro Bethlen, Executive Vice President of International, who joined us in September, we will accelerate efforts to strengthen our position abroad, advancing new clinical capabilities while also recommitting to international growth more broadly across our business. Our partnership with U.K.-based telehealth provider CheqUp that we launched in May is exceeding expectations, and we will evaluate additional opportunities to extend our integrated model to other priority markets. We're also expanding our relationships with employers, payers and health systems seeking cost-effective outcome-driven solutions. One recent example is our WeightWatchers RxFlexFund. It launched in October and offers an innovative flexible approach for organizations looking to support employee access to GLP-1s while managing overall costs, underscoring the value of our integrated medical and behavioral care model. Looking ahead, we see meaningful opportunities to thoughtfully extend the WeightWatchers ecosystem into areas that complement our expertise in weight health. Through select partnerships, integrations and service innovations, our focus remains clear: improving member outcomes, expanding solutions and building a more diversified foundation for long-term growth and shareholder value. Third, modernizing the WeightWatchers brand and reclaiming our market leadership. WeightWatchers has been one of the most trusted and effective names in weight management for more than 6 decades. As the world's understanding of weight health is being rewritten, WeightWatchers is uniquely positioned to lead the future of our industry as a company that is grounded in trust, powered by science and committed to expanding clinical access to deliver meaningful lasting results. This is a forward-looking vision we are eager to communicate. That's why we are executing a comprehensive brand refresh that combines a more contemporary and engaging brand expression with a renewed focus on superior proven outcomes, including our growing medication offerings. The effort will launch for peak early in the new year and extend across our visual design, tone of voice and how and where we show up, presenting a bold, modern WeightWatchers. In addition, and over time, we'll evolve our marketing strategy from expensive performance-driven channels dominating spend to a go-to-market strategy built on proven results and real people while leveraging our role as the trusted authority in this space and ultimately creating an organic flywheel for growth. We'll lean into social and community-driven storytelling, leveraging the real voices of our doctors, clinicians, coaches and members to expand reach and bring the WeightWatchers experience to life. We're also dealing with the reality of many years of prolonged deep discounting, a tactic that takes time to wean off. Rather, we will shift towards more of a value-based pricing approach that will complement our brand modernization work, the expanding scope of our solutions and importantly, the success of our programs. Comprehensive pricing and product studies underway across our top global markets will inform this next phase for the business helping us balance access with value and rebuild our product and pricing architecture for durable revenue expansion. This work will all lead into our peak season objectives. That includes breaking through preconceived notions of the WeightWatchers brand and reestablishing ourselves as modern and relevant for an expanding set of target customer segments. It means driving widespread awareness of WeightWatchers' role as a growing provider of GLP-1 medications. And it includes acquiring both net new customers and lapsed rejoiners through compelling product innovation and marketing. Finally, as a business with a strong EBITDA margin profile, we remain committed to driving ongoing operational improvements as we also invest for growth. At every level of our organization, we're focused on efficiency, disciplined execution and prudent resource management. Following the execution of our previously committed $100 million in run rate savings, we continue to identify new opportunities to enhance productivity and performance across the business. Part of this effort is rooted in new technologies. The implementation of AI-powered voice support has improved member resolution rates and reduced service costs, while new AI tools within our clinical support model being rolled out over coming months will handle increased administrative tasks. These are the first steps in a broader effort to streamline and automate processes across our global operations, improving both speed and quality while reducing cost to serve. We're also more closely integrating our clinical and behavioral operations, which is vital to our long-term strategy. This integration is improving efficiency, facilitating cross-training of our teams, fostering shared expertise and delivering a more cohesive experience for our members. These efficiencies make our work faster and more cost effective while preserving the high-quality personalized care that defines WeightWatchers. Through this disciplined operational approach, we're building a more agile, efficient and resilient organization, one that enables reinvestment in growth, protects margins and strengthens our foundation for sustainable long-term value creation. In closing, our work to hone our strategy and streamline our operations has positioned the company for a new chapter of growth and impact during a historic moment. We're leveraging decades of expertise and name recognition with cutting-edge tools to write the next chapter of WeightWatchers, a new story, which redefines the meaning of weight health and positions us for long-term growth and leadership in the industry we created. Much work remains, but as our members know well, hard work can create new beginnings. Our direction is clear and the possibilities are exciting. And with that, I'll turn it over to Felicia to cover the financials. Felicia DellaFortuna: Thanks, Tara. We are pleased with the results for the quarter with continued strong adjusted EBITDA margins of nearly 25%, reflecting our focus on cost discipline and timing of spend while investing in future growth initiatives. Acquisition challenges continue to persist in our behavioral business, although slightly improved from last quarter's bankruptcy period and in part supported by brand marketing associated with the launch of our new Menopause program. We ended Q3 with 2.9 million end-of-period behavioral subscribers, a decline of 20% year-over-year as this sector remains challenged. Conversely, we were pleased with the clinic performance in the quarter with clinical end-of-period subscribers of 124,000, an increase of 60% compared to the same quarter last year. As a reminder, we added compounded semaglutide to our prescription formulary in October last year, and we will start to face more challenging comps over the next couple of quarters. Revenue was $172 million, which declined 11% year-over-year. Clinical revenue grew 35% year-over-year and behavioral revenue declined 16% year-over-year. Foreign exchange provided a $2 million benefit to the quarter and fiscal Q3 2025 included 1 extra day compared to fiscal Q3 2024. In the clinic business, we were encouraged by our retention of a greater-than-expected number of members who had been previously prescribed compounded semaglutide, transitioning approximately 20% of those members to branded or oral medications. We expect Q3 2025 to represent the low point in clinical subscribers with this transition largely behind us. Monthly subscription revenues per average subscriber, or ARPU, was $18.52 in the quarter, increasing 9% compared to the prior year quarter, reflecting the continued shift in mix towards higher-value clinical subscribers. However, ARPU declined sequentially in part due to an increase in clinic 12-month commitment plans together with certain promotional activity. Adjusted gross margin was 75.1%. We continue to closely manage costs while evolving toward a more variable expense structure with nearly 70% of our cost of revenue variable in Q3. Beginning last quarter, we refined our reporting methodology to align direct revenue-related expenses, primarily technology costs within cost of revenue. This adjustment modestly increased gross margin with an offsetting increase in SG&A, providing a clearer view of the scalability of our model. We expect gross margin to decline modestly in the fourth quarter relative to the third quarter, reflecting the seasonal increase of staffing ahead of January peak season. Marketing expense was 28% of revenue, more consistent with levels prior to last quarter's financial reorganization period. We expect marketing investment to increase as a percentage of revenue in Q4 with the start of peak season, along with the initial rollout of new brand and product initiatives Tara mentioned. Additionally, following emergence, we updated our accounting policy to expense advertising costs as they are incurred, a change from previous policy, which recorded advertising expense as deferred costs until airing commenced. As a result, certain costs related to peak may be included in the fourth quarter versus the first quarter of next year. However, we still expect Q1 to represent our highest seasonal marketing spend of the year due to new year demand and continued seasonality of the business. As a reminder, given the timing of our subscription model, there is a lag between marketing investment and related revenue recognition over the duration of a subscription. Adjusted product development expense, which primarily includes personnel-related costs for engineering, design and data teams was 4% of revenue, reflecting an increase in capitalized product and technology initiatives as part of our product road map. Adjusted SG&A was 18% of revenue, reflecting continued cost discipline and the flow-through of executed cost reduction initiatives. Adjusted EBITDA was $43 million and adjusted EBITDA margin was 24.9%. We expect adjusted EBITDA to decline in Q4 compared to Q3, reflecting the increase in marketing mentioned earlier while still maintaining a strong margin profile. Shifting to cash and the balance sheet. We ended Q3 with $170 million of cash and cash equivalents, up from $152 million at the end of Q2. The increase reflects strong Q3 EBITDA, partially offset by the first interest payment on our new term loan and a lease termination payment associated with the exit of our prior corporate headquarters in New York, which is expected to result in modest run rate SG&A savings moving forward. Cash flow from operations was a use of $3 million, reflecting the release of escrow funds reserved for professional fees associated with our financial reorganization. Capital expenditures in Q3 totaled $3 million as we increase investment in product, technology, innovation and other growth initiatives, we expect 2026 capital expenditures to begin to return towards historical levels. Cash taxes are expected to be approximately $15 million to $20 million for 2025, lower than historical years, reflecting the higher transaction-related deductions associated with the financial reorganization and the benefits of the One Big Beautiful Bill Act. WeightWatchers remains a high-margin, highly cash-generative business before debt service, reflecting recurring subscription revenue and low capital intensity. Shifting to our new debt profile, a term loan of $465 million represents a reduction of over 70% following our financial reorganization. The interest rate on the term loan is SOFR plus 680 basis points. It has a maturity of June 24, 2030. As part of the term loan agreement, there are annual prepayments to be made for excess cash above $100 million based on the last 10 calendar days of the first quarter. Now shifting to our outlook. 2025 has been a pivotal year for WeightWatchers. We reset our balance sheet, transformed our leadership team and defined clear strategic priorities that align with our long-term vision for growth. These actions now enable us to focus squarely on execution, allocating resources towards the initiatives that will drive a return to sustained profitable growth. Behavioral pressures persist, though slightly improved from the second quarter, and the compounded medication landscape remains complex with competitors continuing to offer compounded products at significantly lower prices than FDA-approved medications. Due to the recurring nature of our subscription model, however, these near-term factors will influence our starting point headed into 2026. At the same time, execution of our strategic plans throughout the year will target a strengthening of member acquisition and engagement and position us for sustained growth over time. We remain focused on maintaining strong adjusted EBITDA margins, while our variable cost structure and cash-generative business model provide the financial foundation and flexibility to continue to invest in key growth initiatives. We are narrowing full year fiscal 2025 guidance to the higher end of previously provided ranges and expect revenue of $695 million to $700 million and adjusted EBITDA of $145 million to $150 million. I'll now turn back over to Tara. Tara Comonte: Thanks, Felicia. The world of weight management has transformed and WeightWatchers with it. We stand on the precipice of a massive opportunity to build significant value for our business while helping millions of people around the world to live healthier, happier lives, reasserting ourselves as the leading destination for successful weight loss and lasting results. I'll now turn it over to the operator to open it up for Q&A. Operator: [Operator Instructions] And the first question will be from Alex Fuhrman from Lucid Capital Markets. Alex Fuhrman: Congratulations on what looks like a really strong quarter here. Very interesting that you're going to be removing all of the barriers between the 2 programs in the app. I think that makes sense as kind of the natural evolution of the program. I'm curious, when do you think that redesigned app is going to be available to members? Tara Comonte: Alex, I'm Tara. So first of all, thanks for the question. So there's a lot more detail. I don't know if you've had a chance to go through our shareholder letter yet, but I would direct you there for a bit more color around certainly this topic and others. But the first version of the new app, we are targeting to launch by early next year in time for peak. So the team is heads down working really hard on that. And then that will be the first release. There will be a number of subsequent releases of the app and our digital platforms over the course of next year. And it's really the app -- the new app experience or the new digital experience for members is it goes beyond just integrating and removing barriers. It will look and feel very modern, very different, much more intuitive than our existing legacy app that we've had for many, many years with sort of code on code, on code. It will be much better suited to highlight different features, different tools, different programs that may be appropriate to you on your weight loss journey that are today really hard to find at best in our app, things like our Registered Dietitian offering, things like our GLP-1 Companion Program that's currently buried within the core program as a setting that you've sort of got to figure out where to find it. This new experience will allow us to better showcase the full breadth of the offering. And then also as we get to know you and as this experience becomes more personalized and more data informed, it will allow us to better drive our members to solutions for them and meet them where they are on their journey. So we're really excited. The team is doing a huge, huge amount of work to get the first version of this out the door by peak. But yes, it should look and feel like a most definitely a different chapter for WeightWatchers for our members around the world. Alex Fuhrman: That's exciting. It'd be great to see when that comes out shortly. So, can you talk about some of the partnerships that you've been doing lately? You mentioned the partnerships you have with Novo, and it seems like you've been striking a number of these kind of deals that you announced recently. You have a partnership with Amazon for drug delivery. Can you talk a little bit more about some of these partnerships? Is that what's driving your growth? And in the case of Amazon, can you tell us a little bit more about what your members are getting as a result of this partnership? Tara Comonte: Yes, of course. Listen, I think strategic partnerships are a great lever for us across many different angles as we move forward. And certainly, that can include partners with pharmaceutical players like Lilly and Novo that we have or it can include some on the back end like Amazon. And way beyond that, I think there are strategic partnerships opportunities for the business that can extend our services that can help us expand internationally. And so while I would not say strategic partnerships are where our growth is going to come from, I do think they are a part of our growth strategy. But I'll flip to Jon to talk more specifically maybe about Amazon. Jon Volkmann: Yes. Thanks, Tara. Jon Volkmann here. So obviously, we're very excited about our partnerships with NovoCare and LillyDirect and very pleased to announce our new collaboration with Amazon Pharmacy. Overall, the theme of all of these is that it's really just another step in making medication access faster, simpler and more affordable for our members. And specifically to the Amazon partnership, by integrating directly with their infrastructure, our members now get access to real-time medication availability from their specific fulfillment center. They also get automatic coupon savings, applied at checkout with no code needed. And then obviously, the Amazon network for free 2-day shipping for Prime members. So again, all of these partnerships are with the theme of just reducing friction in the health care process and for these specifically allowing patients to focus less on pharmacy logistics and more on their health. And then looking at NovoCare, looking ahead to the orals launch here, we are working very closely with them to help support this launch, and it is fast approaching. And so like we've done in the past, we'll be looking for new and really innovative ways to bring both convenience and value to our members on that front. Alex Fuhrman: That's really interesting. And then if I could just kind of squeeze in one more here. WeightWatchers for Menopause, you just launched it. I imagine it's too early to talk about how that's going. But who are you initially targeting for this offering? Is this something that you think is a big opportunity within your current membership? Or is this an opportunity to reengage with former members that you haven't seen in a few years? Tara Comonte: I think it's both of the above and new members. So yes, we are really excited to have launched the Menopause program, which is really 2 programs, one with a clinical offering and one without -- with the clinical offering only being available in the U.S. with women's health trained clinicians. So we think this is an exciting market moving into women's health, but with a very clear overlap in terms of weight health. We think it's a global need. There's a lot of demand. It is fast being destigmatized. It's a very nice overlap with our existing customer base and has been much requested from our existing member base for a long time. So it feels like a really nice fit for the company and somewhat of a blueprint in terms of how we think about programming moving forward with leveraging each of our core pillars the most recent pillar being medication access and clinical expertise, but curated community offering, coaching, nutritional guidance, movement, but tailored to win in their perimenopausal and menopausal years. Also really we'll be leveraging new technology moving forward. And again, in the same way as we talked about the app, that app infrastructure and that new intuitive modern connected experience, the first version of that actually really is in menopause, albeit it's not yet fully on the new tech stack. But you'll notice that the barriers that exist in some of the other programming are removed in the Menopause program. So it was -- you're right, it's too early to sort of be conclusive about it in any way other than we're excited, and we think it's an important growth lever moving forward. But it was good to get back out in the market, be loud, be proud. You saw we launched it with Queen Latifah, which was great and provided a much needed sort of positive brand moment coming out of those fairly painful extended bankruptcy headings. So exciting about it moving forward. Operator: And our next question will be from Justin Ages from CJS Securities. Justin Ages: I wanted to ask a question on retention, which was better than expected. Can we just drill down on that and some of the returns that you're seeing in some of the programs? Given the headlines around the compounded GLP-1s, I think myself and everyone else thought that clinical subscribers would be down a little more. So that was impressive to see. So I wanted to get some more information on that. Jon Volkmann: Yes, sure. So the transition from compounded medications is largely complete, and we're pleased to announce that those results have exceeded our expectations. So we successfully converted approximately 20% of our compounding members directly into our ongoing clinical program. And within that cohort, we saw members transition to really 3 main treatment areas. So insurance covered GLP-1s. And for these members, we were able to successfully help them obtain coverage. And as previously stated, our ability to do so here really remains a key competitive advantage for us. We also saw members transition to cash pay GLP-1s, many of whom are using our direct integrations with NovoCare and LillyDirect and then finally, to our oral medication kits. Felicia DellaFortuna: We also strategically moved member subscribers towards 12-month LTCs in a very strong effort to retain clients for longer to keep with a more beneficial LTV for us long term. And so while we did see an ARPU decline in Q3, we were very optimistic and positive about that ARPU decline because it did mean better retention for our clinic subscribers. And then on behavioral, we do see that our overall retention is still trending at around 11 months and an area of opportunity for us as well. Tara Comonte: Yes, I was just going to add to the retention point as it being an area of opportunity, another perfect example of why a different member experience on the digital platforms, particularly the app is so needed because, again, some of these silos in the existing journey prohibit us from executing against some valuable tools to drive increased share of wallet, but upsell into different programs, particularly the clinic program, but also to drive retention through stickier, more personalized programming for our members. So all tools sort of pointing to the same set of objectives. Justin Ages: Great. And then one more, if I could. And I know it's early in terms of kind of the reorganization and the rebrand, but there's been some new influencer campaigns at the company. Just wanted to know early returns on broadening the subscriber base. Have you seen any changes in the demographics of the company? Tara Comonte: Well, I'm glad you're seeing our new influencer campaigns. That will make our marketing team extremely happy. Nothing specific to comment on right now. I mean, hopefully, you got from the prepared remarks, and again, there's a little more color in the shareholder letter. But we're really looking to reassert and reposition and sort of reenter this brand into the weight management market. We've got some pretty dated preconceptions of the brand. We've obviously come off the back of some prolonged bankruptcy headings -- headlines that were very challenging for the business over many months this year. And what you're seeing in the influencer strategy is a shift in how we show up, who we engage with as well as the types of channels that we're going to be leveraging to really execute against that strategy. Over many years, the company has really become quite dependent on, as I mentioned in the prepared remarks, a discounting strategy, heavy bottom of funnel performance marketing. And we are -- we have a high level of conviction that as an iconic global brand of more than 6 decades that we should be deploying a much more of a full funnel strategy, leaning into the strength of that brand and rebuilding that organic flywheel through multiple different channels. But certainly, social, telling real-life member stories, showcasing our clinicians, our coaches and leveraging appropriate influencers helps us do that as well as reach new target audiences. Operator: [Operator Instructions] The next question will be from Nathan Feather from Morgan Stanley. Nathaniel Feather: So compounding has certainly driven a lot of volatility in the clinic subscriber growth over the past year. I guess if we strip that out, how should we think about the underlying growth here? And given that, what's kind of the right run rate of clinic growth now that we're past the churn off here? Tara Comonte: Listen, you can't really strip it out, unfortunately. So this is a pretty complex landscape right now, as you know, moving very fast. The business prescribed compounded medications from October last year to the end of May. As Jon mentioned, we have a very robust insurance PA approval engine on the back end. We have non-GLP-1 oral medications, and we are partnering with Novo to bring this new oral Wegovy to market early next year. So there are a lot of moving parts in the clinic business. We have a very high level of conviction in the strength of this integrated holistic medically centered but broader care model, nonetheless, over the long term. We think it is -- it drives superior outcomes. It drives a better member experience. It drives more sustainability in results and really is quite differentiated from just pure-play telehealth. So outside of compounding noise over the course of the year, this is a really important growth engine for us that is only going to receive, I think, more and more demand and adoption of members, particularly as pricing comes down and these medications become more accessible. Jon Volkmann: Yes. And to that end, obviously, we're monitoring the situation closely, as I'm sure you all are with the recent headlines that appear to be putting a lot of downward pressure on medication prices. And I think important to call out that we view that downward pressure really as a net positive and a significant tailwind for our business. As access expands, we believe that the market is going to increasingly value quality of care, and that plays directly to our strengths. Our model has always been built on -- on really high-touch and holistic clinical support. So our members have access 24/7 to their care teams. And as you saw in our shareholder letter, our customer satisfaction and our patient outcomes are really best-in-class. So like looking more long term and looking ahead as this market matures, we're really confident that the key stakeholders in this industry from regulators to pharma partners will increasingly value providers to ensure patient safety, manage outcomes and drive long-term adherence. And when we think about where we are long term, that's the business that we're in. Felicia DellaFortuna: Last thing I would mention is that we also stated that we do anticipate Q3 2025 being the trough on end-of-period subscriber for clinic. Nathaniel Feather: Great. That's very helpful. And then heading into peak season shortly, there was a little bit of commentary in the letter, but interested to hear a touch more about your plans across both product and marketing as you work to improve the resonance, especially within the core behavioral business. Tara Comonte: Yes, happy to take that, and then you guys can jump in if I miss anything. There's -- hopefully, it is clear the extensive work that is going on across the company right now from a full top to bottom digital rebuild, an extensive brand refresh, a relaunching of our virtual community offerings, a showcasing of programs and solutions that have been somewhat buried up until this point and really a rallying around the need for significant increases in awareness in the market that WeightWatchers is in the medication space and provides medication access and clinical expertise as part of this more holistic offering with the force multipliers, if you like, that the behavioral solutions can also play. So a pretty important reentry, an important peak for us and we're obviously targeting an uptick in subscribers Q1 from Q4 as a result. It's early to tell what that's going to look like, but we're really excited. There is a vast amount going on, and it is bold and impactful. And outside of the tactics, everything we're doing first, second and third is to continue to drive superior results for our members. People are looking to achieve results. They're coming to us on -- to achieve their weight loss and do it in a healthy and sustainable manner and really making sure that we turn up at peak, showing how we are very different with some very impressive data to back that up is key. And then supported by the product. So yes, it's an important couple of months as we run up until that point and then beyond, right? So the difference with this peak versus others is really peak is just the beginning of the launch of many of these things that we're talking about. It's Chapter 1, right, of the brand coming back in. It's Chapter 1 of the -- it's the first version of the new app. It's the first version of the new website. So I'm sure we will have a lot to learn, but we have a lot of exciting things planned on post peak as we continue to roll out various growth initiatives across the ecosystem. So hopefully, that's helpful. Felicia DellaFortuna: I would also just mention that we do anticipate, as Tara mentioned, the step-up from Q4 to Q1, but we do still have the acquisition challenges on behavioral that albeit has improved relative to the bankruptcy headlines of Q2, it is creating an opening access tailwind on our subscriber model for 2026 and so -- a headwind in 2026. And so a lot of our strategic priorities are to offset that opening access headwind. Jon Volkmann: Yes. And I think just lastly, to jump in here from a clinical standpoint, a really interesting factor with peak this year is that it happens to coincide with one of the most anticipated things that we've seen in quite a while in the space, and that's the launch of an oral GLP-1, which as Novo Nordisk has stated, is expected to come to market in very early 2026 and then expected with a fast follow-up from Lilly. And we really view that as a significant market catalyst that's going to open up a new top funnel for a large portion of people who are interested in GLP-1s, but resistant to injectables. So in addition to everything that we have planned with our normal peak activities, this also just presents a very interesting and exciting dynamic that we view as an opportunity for our clinical business as well. Operator: And ladies and gentlemen, this concludes today's question-and-answer session. I'd like to turn the conference back over to Tara Comonte for any closing remarks. Tara Comonte: Thank you, everyone. Really just appreciate you joining the call. Appreciate your interest in the business and support of the business. This is an exciting time for WeightWatchers. We are running hard to fully leverage all the growth opportunities ahead of us. So look forward to following up in one-on-ones. And if there's something that you wanted to cover that we didn't get to, please just get in touch directly. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.