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Operator: Good day, and welcome, everyone, to the WideOpenWest Third Quarter 2025 Earnings Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Andrew Posen, Vice President, Head of Investor Relations. Please go ahead. Andrew Posen: Good morning, everyone, and thank you for joining our third quarter 2025 earnings call. Earlier this morning, we issued a press release with our financial and operating results for the third quarter of 2025, which is now available on our Investor Relations website. We also published a trending schedule with additional historic and financial and operating metrics. On August 11, 2025, we announced that WideOpenWest entered into a definitive agreement under which affiliated investment funds of DigitalBridge investments and Crestview Partners will acquire all of the outstanding shares of common stock of WOW!, not already owned by Crestview and its affiliates. In light of this pending transaction, we will not be making any comments on our results this quarter. However, we will take questions related to this morning's earnings release. I'm joined this morning by our CEO, Teresa Elder; and our CFO, John Rego, who are here to answer questions. I would like to remind everyone that we may make some forward-looking statements about our expected operating results, our business strategy and other matters relating to our business. These forward-looking statements are made in reliance on the safe harbor provisions of the federal securities laws and are subject to known and unknown risks, uncertainties and other factors that may cause our actual operating results, financial position or performance to be materially different from those expressed or implied in our forward-looking statements. You are cautioned that to place undue reliance on such forward-looking statements. We disclaim any obligation to update such forward-looking statements. For additional information concerning factors that could affect our financial results or cause actual results to differ materially from our forward-looking statements. Please refer to our filings with the SEC, including Risk Factors section of our Form 10-K and most recent 10-Q filed with the SEC. As well as the forward-looking statements section of our press release. In addition, please note on today's call and in the press release we issued this morning, we may refer to certain non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations between GAAP and non-GAAP metrics for our historical reported results can be found in our earnings releases and our trending schedules, which can be found on our website. Operator, are there any questions in the queue? Operator: Yes. We do have one question from Frank Louthan at Raymond James. Frank Louthan: So when you guys are looking out at -- in the market, where are you seeing competition from -- who's kind of reared up? Is it more fixed wireless? Is it the cable companies or fiber? I mean how should we think about who you guys are up against? And I'm talking more about your legacy markets versus the Greenfield builds. Teresa Elder: Well, thanks, Frank. Yes, this is Teresa. And in our legacy markets, we have been since the day we first started at WOW!, a challenger brand. So we really challenged the cable companies, Comcast and Charter are our primary competitors in our legacy markets. We certainly also have competition from fixed wireless. What we have seen, though, in this last quarter is that we've been able to have strong HSD ARPU growth and our churn is near record lows. But we're very pleased with how we continue to compete in our markets. In Greenfield, we actually have been on a tear. We are also competing with the traditional cable companies, new fiber entrants as well as fixed wireless. And in those markets, we've added over 15,000 homes in this last quarter, bringing our total Greenfield homes to 106,000 and the penetration keeps growing at a robust rate. We're maintaining that 16% in Greenfield, even though we're adding so many homes. Also in Legacy, of course, we have long had an Edge-out strategy and we added another 3,700 homes in our legacy markets and the '25 vintage is already near 30%, and the former vintages also continued to perform extremely well. and that information is in our trending schedules. So it's somewhat the same mix of characters, but I think customers really resonate with our no contract, no data caps, reliable network, high-speed, very best value with our simplified pricing. So that mix has continued to work for us. Frank Louthan: All right. Great. And are Charter and Comcast really leaning into their mobility product? I mean is that their main thrust to their marketing in your territories? Or is it something different that's having them get a little bit more traction? Teresa Elder: You probably have to ask them. So I would just say it looks like they're doing a lot of national advertising that's consistent within our markets as well emphasizing mobile. But we have found that the simple approach that we've had with all-in pricing, with an optional price lock has really cut through so customers don't have to be confused by how many mobile lines versus this versus that, they have to have without -- With WOW!, you always get that same clear value at high speed without having a bunch of other strings attached. Operator: There are no further questions. Teresa Elder: Perfect. Thank you so much. As always, we appreciate all of you joining our call. And as always, I would like to thank the people of WOW! who continue to wow our customers every day and provide the value to our customers and appreciate the time on this call this morning. Thank you. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, hello, and welcome to the bpost Group Third Quarter 2025 Analyst Conference Call. On today's call, we have Mr. Philippe Dartienne, CFO. Please note, this call is being recorded. I will now hand over to your host, Mr. Philippe Dartienne, CFO, to begin today's conference. Please go ahead, sir. Philippe Dartienne: Thank you very much. Good morning, ladies and gentlemen. Welcome to all of you, and thank you for joining us. I'm pleased to present to you our third quarter results as CFO for the bpost Group. Chris, our CEO, could not make it today, and I have with me Antoine Lebecq from Investor Relations. We posted the materials on our website this morning. We will walk you through the presentation, and then we'll take your questions. As always, 2 questions each will ensure everyone gets a chance to be addressed in the upcoming hour. I'll start with the quarterly financials, then move on our financial outlook and provide an update on our key transformation initiative for 2025. As you can see on the highlights on Page 3, our group operating income for the third quarter amount to EUR 1.030 billion, remaining broadly stable year-on-year and almost at constant scope as Staci has already contributed for 2 months in the same period last year. As usual, the summer quarters show some seasonal softness, but beyond this, we saw a mix of different factors. At Radial U.S., we continue to see the expected impact for the 2024 contract termination, but even more this time, the materialization effect of those announced earlier this year. As a reminder, these are the same ones that led us to take an impairment at the beginning of the year. Altogether, those elements more than offset the extra month of Staci contribution in the quarter. At the same time, we continue to see good volume growth in Asian cross-border activities. While in Belgium, the domestic mail volumes declined, this was partially compensated by a decent volume growth in Parcels. Our group adjusted EBIT came at minus EUR 3 million, representing a year-on-year decrease of EUR 16.3 million, mainly driven by Radial U.S., where despite sustained margin action, the revenue shortfall due to the anticipated churn and seasonal softness did not allow full absorption of fixed costs in the quarter. More broadly, at bpost Group level, the results we are presenting today are in line with our expectations, and we reconfirm our EBIT outlook at around EUR 180 million for the year 2025. On Slide 4, you will note that the EUR 14 million decline in net profit mirrors the EBIT evolution as in the same period last year, the acquisition of -- the acquisition debt was already on balance sheet and the financial results remain broadly stable. Let's move now to the details of our 3 segments. I'm on Page 5 with BeNe Last Mile segment. We see that the revenue declined by EUR 9 million, amounting to EUR 512 million. Domestic Mail recorded around EUR 16 million decline in revenue, of which EUR 10 million stemmed from transactional and advertising mail and EUR 6 million from press. Excluding press, mail volume contracted by 9.4% in the quarter compared to only 6.7% last year, which had benefited from the election uplift in September 2024. The decline in mail volume had a negative revenue impact of around EUR 20 million, of which was partially compensated by half through a positive price and mix effect of EUR 4.7 million or roughly EUR 10 million. As a result, domestic mail revenue were down by 4.6% or minus 10% year-over-year. On Parcels, revenue increased by EUR 4 million or 3.2% year-on-year, reflecting a volume growth of 2.8% and a slightly positive price/mix effect of 0.5% in this quarter. On the volume side, the reported 2.8% actually corresponds to an average growth of 4.4% per working day. Over the past months, this momentum has been mainly supported by the outperformance of marketplace, notably boosted by sales events and continued strength in the apparel segment. Let's move to the P&L of Last Mile on Page 6. Including some higher intersegment revenues from inbound cross-border volumes handled in the domestic network, our total operating income was slightly down by 1.4% or minus EUR 8 million. At the same time, on the cost side, our OpEx, including D&A, remained broadly stable and mainly reflects 2 effects: lower FTEs resulting from lower volume and efficiency gain, notably from the reorganization of our distribution rounds and retail offices, which are progressing in line with plan, and on the other hand, higher salary cost per FTE around up to 2% year-over-year following the March '25 salary indexation. In contrast with the first half of the year, when EBIT had contracted sharply by almost EUR 64 million year-on-year, mainly due to the end of the press concession in June '24, we see that despite structural mail decline, parcel growth and initial projects of -- sorry, and initial effects of our reorganization are helping to attenuate EBIT erosion. Moving on to 3PL on Page 7. 3PL revenues were broadly stable overall as 2 offsetting events affecting -- came into play. First, effect. 3PL Europe, where revenue increased by EUR 62 million, we benefited from 1 additional month of Staci revenue in the quarter, along with continued commercial expansion of Radial and Active Ants in Europe. That said, sales from existing customers or the famous same-store sale remained soft and even negative in certain geographies during the quarter. As a side note, since we are 1 year after the acquisition of Staci, there will be no further consolidation impact going forward. As we are now advancing in the integration of Staci, Radial Europe and Active Ants, we are really starting to operate as one single business unit as explained at our Capital Market Day in June. Our P&L is being increasingly managed together, this means that from now on, we will only report on 3PL Europe as one single business and gradually phase out stand-alone reporting from individual entities. Second effect, in 3PL North America, revenue decreased by EUR 58 million. At constant exchange rate, this corresponds to a decrease of 24%, mainly driven by revenue churn from contract announced in 2024 and even more so from those announced early '25, partially offset by in-year contribution of new customers, around 60% of which are Radial Fast Track customers as we presented to you at our Capital Market Day. While we are seeing positive and encouraging signs on that front, and I'll come back to that on a moment, we are still feeling the impact as expected of the churn. We continue to execute our sales development plan, and we are confident that these efforts will pay off, but it needs a bit of patience. Let's move on to the P&L of 3PL on Slide 8. With this, the total operating income slightly increased by 1.1%, while our operating expense and D&A increased by 4.8%, primarily driven by in Europe, Staci consolidation impact and one-off reorganization costs, including site closures and relocation of customers to further accelerate 3PL Europe integration and cost structure optimization. In North America, lower variable OpEx in line with the revenue development at Radial U.S., and sustained variable contribution margin close to record high level. The EBIT evolution at Radial U.S. is certainly one of the key highlights of this quarter performance and also the main reason for the gap versus market expectation. Despite 1 additional month of Staci contribution, the minus EUR 30 million EBIT decline in 3PL from plus EUR 1.7 million last year, indeed clearly reflects the situation at Radial U.S. After 3 consecutive years of contraction, revenues are now about 45% below their peak level in Q3 2022. In this quarter, the combined effect of churn and seasonal softness limited our ability to fully absorb fixed costs despite strong VCM discipline and tight cost control. Ironically, we are now at a point where revenue have reached their lowest level ever, and yet our VCM margin stands at all-time high. Looking ahead, the solution lies in top line recovery, and on that front, we are executing our plan and making good progress. Moving on to cross-border on Page 9. Cross-border Europe revenue increased by EUR 11 million or plus 14% year-over-year. This growth was driven by strong volume increase from Asia across all major destinations, notably Belgium, fueled by large Chinese platform and U.S. Across-border North America, Landmark Global continues to face the broader tariff environment that is weighing on existing business and delaying new opportunities. However, this was offset by strong domestic volume in Canada, resulting in an overall plus 1.4% revenue increase for North America, including a 6% negative FX impact. Overall, our cross-border operating income increased by roughly $12 million or 8.7%. As shown on Page 10, our OpEx and D&A increased at the same time by 9.6%, mainly reflecting higher transportation costs linked to the volume growth I just mentioned. EBIT slightly increased to above EUR 17 million with a margin of 11.5%, reflecting a slight dilution from commercial products. Moving on to Corporate segment on Page 11. Adjusted EBIT improved by EUR 1 million to minus EUR 9 million as cost containment measures across spend categories helped offset higher payroll driven by more FTEs and March '25 salary indexation. Then we move to the cash flow on Slide 12. The net cash outflow for the quarter amounts to minus EUR 16 million, representing an improvement of EUR 275 million year-on-year, mainly reflecting the acquisition of Staci last year, which was partially funded in cash for a bit less than EUR 300 million. Besides that, the remaining items to flag are the following: Cash flow from operating activities before change in working cap stood at EUR 71 million and decreased by EUR 7 million year-over-year, mainly reflecting higher corporate tax payment. Change in working capital and provision amounted to EUR 17 million. The plus EUR 16 million variance is primarily explained by the settlement of some terminal dues and some client balances. The net cash outflow from investing activities totaled EUR 28 million, driven by our CapEx for international e-commerce logistics, parcel lockers and capacity expansion. Also, our domestic fleet was considered into this EUR 28 million. This item constitute the main variation in our free cash flow. The net cash outflow for financing activities amounted to minus EUR 776 million and mainly consisted of lease liabilities outflows, while we had on top of the acquisition debt last year. This brings us now to the outlook and our strategic priorities of 2025. Outlook 2025. We presented our group EBIT outlook of the range EUR 150 million to EUR 180 million back in February, and during the Q2 results in August, we indicated that we were targeting the upper end of the range. With a year-to-date EBIT of EUR 97 million, the results we're presenting today are broadly in line with our plan, now allowing us to confirm our full-year outlook at around EUR 180 million. This implies achieving an EBIT of around EUR 80 million to EUR 85 million in Q4 compared with EUR 80 million in the same quarter last year -- sorry, compared to EUR 84 million last year, which we are cautiously optimistic about. Based on current assumption and expectation, we believe this is achievable, particularly thanks to our preparation and readiness for an efficient peak execution across the group. In North America, we validated client volume capacity plan. We have secured to hiring over 4,100 seasonal workers to ensure full site coverage and put peak incentive plans in place. In BeNe Last Mile, beyond the usual measures, we have implemented additional productivity initiatives, including tracking performance at each distribution offices and site and setting up a national tool to further optimize interim and reinforcement of the planning. Of course, we remain vigilant amid challenging market conditions, notably as volume development and the phasing out of end of year peak volumes in Belgium and internationally remain uncertain and partially beyond our control. To wrap up on our outlook, we are also updating our CapEx guidance with a downward revision from EUR 180 million to EUR 140 million. This reflects our disciplined approach to spending in Belgium and in the U.S. and a strategic phasing towards 2026. Overall, we remain focused on prioritization and value creation, ensuring that every euro invested is where it has the highest impact in the group. Finally, as we usually do, I take a few minutes to walk you through the progress we've made on our transformation plan over the last months as part of our Reshape2029 journey we presented to you at the Capital Market Day. When it comes to the update on the strategic initiative, bpost continues to accelerate its transformation, shifting firmly towards becoming an international logistics and parcel operator. Let me walk you through the tangible progress we've made across our segment. I'll start with BeNe Last Mile. Following 2 successful pilot phases, we launched our 9 delivery service on October 15. As new B2B service consisting in a 9-time delivery solution targeted at technician and field workers that helps eliminate detours from central depots and save up to 1.5 hours per day for these technician and field workers. In practice, parcels are collected by bpots until 6:00 p.m. on working days, sorted overnight and then delivered before 7:00 a.m. to selected parcel lockers of our network across Flanders, Brussels and Wallonia. The service is exclusively available for B2B shipment, internal deliveries or business-to-business exchanges requiring high level of reliability. Meanwhile, still in Belgium, our bbox network of parcel lockers continue to expand strongly. We have now around 2,000 active units with 800 more contracted, most of them located in prime location and high-traffic venues like supermarkets. As announced recently with Lidl, we target to have 240 lockers by the end of this year, which represents nearly 10% of the targeted APM capacity. We currently install up to 12 new lockers per day, and by the end of this year, we intend to have 2,500 lockers installed in Belgium. On our future operating model, one of the pillar is bulk rounds, consisting in dedicated parcels round in bulk, serving pickup and drop-off points, including lockers. Here as well, after a successful pilot phase, this model is now fully operational across all sorting centers, servicing 26 distribution offices and handling over 12,000 parcels a day. Before end 2025, we will extend to 29 offices with a capacity close to 21,000 parcels a day. This bulk model is set to become a cornerstone of our 2026 peak strategy capable of managing nearly half of the out-of-home volumes. Let's shift to 3PL Europe. We are entering into a new chapter in leadership with Rainer Kiefer taking over as CFO of 3PL Europe and Staci Americas as of January 2026, succeeding Thomas Mortier, who announced earlier this year its intention to step down at the end of the year and will move into a part-time advisory role starting January 2026. Rainer brings extensive experience from DSV and DB Schenker with a strong track record in transformation and scaling across Europe. This appointment reflects our ambition to accelerate the transformation of the 3PL business, strengthen our European footprint and drive value creation across the full spectrum of contract logistics, fulfillment and omnichannel solutions. With Thomas supporting this transition and Rainer taking a help, we are confident that the business is well positioned to execute the next phase of our growth strategy. In parallel, the integration of Staci remains firmly on track. As cost synergies start to materialize in the second half of the year, we expect to overdeliver on our 2025 synergy targets. The 2026 targets are already secured, fully in line with what we presented to you at the Capital Market Day. In 3PL U.S., our Radial Fast Track rollout is ahead of our plan. 16 customers are already live and 2 more are set to launch in the fourth quarter 2025, each contributing an average ACV between EUR 4 million and EUR 5 million. The in-year revenue from Fast Track is already exceeding internal targets, providing strong momentum in U.S. and validating the scalable potential of the model. As Chris mentioned it last time, there's still a lot of work ahead of us, and the first results are not always immediately visible in the P&L. This is notably the case this quarter in the U.S. That said, we are confident that we are on the right track and focused on doing the right things to deliver sustainable results. We are now ready to take your questions. Again, questions each will allow every one of you to be addressed in the upcoming hour. Operator, please open the line for questions. Operator: [Operator Instructions] The next question comes from Frank Claassen from Degroof Petercam. Frank Claassen: My 2 questions. First of all, on Radial, minus 25% organically in Q3. Could you split the minus 25% between, let's say, the negative same-store sales and the impact of the churn? Is this, let's say, and what can we expect going forward? Is this the bottom? Or do you expect an improving trend in the coming quarters? That's my first question. My second question on Staci. I understand that you don't break down the EBIT anymore or give the separate EBIT. Could you elaborate on how the profitability is developing? Is it according to plan? I recall that you had a sort of guidance or, let's say, target of 10% to 12% EBIT for Staci. Is that still valid? Could you elaborate on that? Philippe Dartienne: Okay. Thank you for your 2 questions. Let's start with Radial. Indeed, we observed a severe decrease in the current quarter, which is mostly explained by the churn. Again, the churn coming that was announced in 2024 that has a full-year impact in 2025 and some churn that were announced at the beginning of the year, and then they're only materializing now. I have one very specific example in mind where the customer said, we're going to stop 1 of the 2 warehouses in the first -- sorry, in the third quarter, so meaning now. This is part of the explanation and this is the bulk of it. Same-store sales evolution is not positive, but nowhere near what we observed in the recent quarters. If you recall, we had a terrible sequence of -- if it's in 2024, minus 4 at the beginning of the year, we peaked, wrong word, but it's a high amount, even it's a negative one, around 9% in the fourth quarter 2024. The beginning of the year was also in negative territories, lower than the minus 9%. Now we are slightly negative, but it's not what it mainly explains the different impact on the EBIT. Simply why? Because the basis at which it applies is also by far lower. This being said, very important to notice that the variable contribution margin has been extremely high, again, sustained quarters-after-quarters, which is a positive sign. That's for Radial. Sorry, and there was a subset in your question about what is the trend. The trend for us is twofold. We have launched in the first quarter of this year, our new product offering or service offering, which is Radial Fast Track that aims at offering solutions which are more flexible, standardized, easy to onboard type of solution, also very asset-light in terms of CapEx and automation, and it's picking up. It's picking up. We have signed 16 customers. We will onboard another 2 between now and the end of the year. Also, important to note is that we will be onboarding customers nearly close to the peak, which is -- which shows how flexible this solution is to onboard new customers. Historically, it was taking roughly 12 months to onboard new customers at Radial because of the high level of customization in the processes and also in the IT systems. In terms of trends, we are optimistic about the product that we have launched because we see it's picking up. There is traction on the market. On the other hand, we need to be realistic. When we are losing customers average size between EUR 50 million and EUR 70 million, while the ACV of the Fast Track typical customers is around 5. You can do the math as well as me. It takes time to be able to compensate this churn. We are also not aware of any new customers who have announced their departure in the near future. That's for Radial. For Staci, it's going according to plan. Yes, it's going according to plan. The EBIT margin is a bit on the low end of the range this quarter, which is mostly explained by the fact that, as I said it, and again, we already announced that there is no news in that one that we want to operate on a geographical platform as one entity, one go-to-market. We have several territories, like Belgium, the Netherlands, U.K., Germany, Italy, where we're really operating as one. The local managers there, they look at their portfolio of customers, what is their needs, what is the solution, the operational solution available to serve those customers and also the footprint. Some movement has been already initiated to relocate customers where they better fit with the requirement of the customer and also optimizing the footprint. It's also the case in the U.S. where one warehouse has been shut down and customers have been transferred to a new site. In Germany, the former site of Staci Germany in Boston has been shut down and customers has been transferred to a former Radial site in Halle. In the Netherlands, in the Active Ants portfolio, we have decided to close 1 of the 2 warehousing in Nieuwegein and those customers have been transferred to Roosendaal. This cost -- these transfers demonstrate that we really want to operate at a local level as one, but it has, unfortunately, on the short term, some cost. There is cost attached to shutting down warehouses and to move customers. It's all for the better. It's to serve the customer in the best possible way and the most efficient way on those territories. Operator: [Operator Instructions] The next question comes from Henk Slotboom from The Idea. Henk Slotboom: One question from my side. We've been hearing a lot about levies on Chinese goods. The French want to do it unilaterally. The Dutch have already said, they might follow the French maybe already as soon as the 1st of January of next year. Now personally, I don't think that EUR 2 per parcel will stop the avalanche of parcels to Europe. It will simply be relocated. What does the situation look like in Belgium? I don't know, if they have similar ideas to do things unilaterally. Well, could it be the case that you benefit from it if stuff is not flown at Schiphol Amsterdam Airport, but at Liège or Brussels instead provided, of course, there are no drugs over there. Philippe Dartienne: Thank you for your question, Henk. Indeed, the situation in Belgium is that the government is thinking of putting EUR 2 per parcel levy. Now it leads to a lot of questions. There is also who's going to collect this EUR 2, which is a very practical problem, and there is no answer to that. Of course, we are not -- we are there to carry the parcels. We are not there to collect this kind of surcharge or taxes levies, whatever you name it. There will definitely be a question of implementation. Interestingly enough, we had a discussion yesterday with one of our Board members who is coming from the Nordic, who faced a bit the same situation, and it took more than 12 months to find a technical solution to implement it. It's still an intent at this stage. There is no implementation date decided. Indeed, it will be difficult to implement. Your comment about, of course, if other countries are deciding for the levies, let's say, in the Netherlands, France, Germany, it could lead to additional volumes in Belgium, but anyway, it would only be a temporary solution. At this stage, it's a very good question, but it's a big question mark when it comes to the implementation date and also the practicalities behind it. Henk Slotboom: Can I ask an add-on to that, Philippe? Philippe Dartienne: Sure. Henk Slotboom: If I look at, for example, Austria Post or Polish Post and that sort of things, they've been entering alliances with, for example, Temu and Shein, who want to move part of their logistics and then I'm talking about warehousing and that sort of things to Europe. You have a fantastic network of fulfillment centers with Radial Europe, with Active Ants, with Staci. Is anything there being discussed with the large Chinese platforms? Philippe Dartienne: Again, a very good question from Henk, as usual. There are movements indeed, we see the Chinese are coming closer to Europe. They are also thinking of implementing themselves in Turkey, which is also close to Europe. Indeed, it's a movement that we see in the market, but I will not comment any further at this stage. Operator: The next question comes from Marco Limite from Barclays. Marco Limite: I've got 2 follow-up questions. One is on Radial U.S. Do we have to think about Q4 as the last quarter of year-over-year decline in revenues, and therefore, we should expect growth from next year? It’s the first question. Second question, on Staci Europe, I mean, if I look at the Q3 numbers, it feels like that most of the decline year-over-year is coming from Radial U.S. At the same time, you've got 1 month more of Radial Europe in the base now. We basically have got 3PL Europe being flat despite growth and despite an additional month. On top of that, you are also talking about synergies being ahead. Just the math doesn't work for me why year-over-year, things are flat despite tailwinds from synergies and an additional month. If you can clarify. Philippe Dartienne: Good. I'll start with Radial. No, in 2026, there still might be some decline in top line because there will be the full-year impact of the customer churn that we observed in 2025. Of course, the one announced in '24 will be over in '25, but there are some of them that will have an impact in 2026. This being said, what is really important for us to look at is the profitability and the cash generation profile and the quality of the portfolio. I really want to remind what we said at the Capital Market Day, not only we want to go for the mid-market, not to have big customers dependent on 2 big customers are requiring huge investment in terms of customization of system, high automation. We want to move out of that one, and they will be gradually phased out. We want to reinforce ourselves our presence in other type of customers. ACV of Radial Fast Track is in the range of 5 million, so totally different, but also and equally important in my eyes is also the portfolio itself in terms of the number of verticals where we want to operate in. In the past, it was focused on only 2. We really want to broaden that one, and we see first signs of result -- positive result going into that direction. Again, as I said, and again, I'm also repeating what we said at the time of the Capital Market Day, it's a long journey. It's not a 1- or 2-quarter journey. It's a long journey to move from big anchor customer focused or very capital intensive and focused on 2 verticals to something which is more nimble and flexible going forward. Again, the math plays against us when it comes in terms of timing. There will be a delay between the moment we could see growth again to be totally honest, transparent, but also totally aligned with what our forecasts are. There is nothing -- no news on that one. There is no change of strategy. There is no acceleration or degradation of the situation. It's happening as we had planned to do it. Marco Limite: Can I just follow up on this one? Is there a risk that more or other large customers are going to, let's say, leave Radial U.S. in the future because you are moving type of strategy and type of service? Philippe Dartienne: The risk is always there, Marco. This being said, interestingly enough, very interestingly, in our Radial Fast Track customers, we have 16 of them that we have new ones, but there is also 2 of them that were former old solution type of customers moved to Radial Fast Track. This also demonstrates that we have now with this solution, capabilities to address their demand. Marco Limite: Europe or 3PL Europe? Philippe Dartienne: Yes, I didn't forget. Don't worry. On Staci, the math add up, but there were maybe -- we need to remind all the elements of the equations. First one and is the vast majority, it's all about the costs relating to the optimization of the operations in different geographies in the U.S., in the Netherlands, in Germany, that explains the chunk of the fact that indeed, when you do the math, you don't see a growth when you come to Staci. There is also, but to a lesser extent, some softness in certain territories, and I'm mostly thinking about France, where the same-store sales has been negative in the quarter. On the other hand, as a positive note, in France, we are not seeing the departure of any customers. Operator: The next question comes from Marc Zwartsenburg from ING. Marc Zwartsenburg: I also have a bit of a follow-up on Radial U,S., because I think you mentioned you will also see a significant decline still in Q4, and that fits also with the story with the mentioning of the churn of the larger accounts. I think originally, there was a sort of a guidance of minus 10% to 20% a bit on the full-year top line, which would indicate still, say, mid-single-digit double digit, let's say, 15% maximum year-on-year decline if you plug in, say, minus 20%. Is that still an applicable guidance that we're looking at still a double-digit decline of around 15% for Q4? Just to get a bit of more feel on the movement of Radial because it's quite big numbers we're talking. That's my first question. Philippe Dartienne: You want me to take it immediately. It's more in the range of 15% to 20%. Marc Zwartsenburg: Q4, we're talking about? Philippe Dartienne: Yes. Marc Zwartsenburg: Then on the parcel volumes, so the working day adjusted number is plus 4.4%. That's a slight improvement from Q2, but how do you -- was that stable through the quarter? How are you looking to the big season? Do you already have a bit of an indication on the big events for Q4, what you expect there? Because I think also here, the guidance was more like a mid-single-digit to high single-digit growth. It looks now more like on the low end of the mid-single digits. What are your thoughts there? What kind of trends do you see? Philippe Dartienne: In fact, there is one very important element. It's not that it's totally new this year, but we see -- and typically in Belgium, we see more-and-more before the peak was very -- excuse me, very focused on 1 or 2 days. By the way, in Belgium, we have the peak, but with also Christmas and Sinterklaas. In fact, it's the month end of November and the month of December, which are, in fact, higher months. Unlike what we see in the U.S., when you see the peak, it's a couple of days. It's more spread all over that period, combined with the fact that we see more-and-more our customers, the one selling directly to the customers or through platform, offering throughout the year, promotion, discount and this kind of stuff. It's very difficult to predict how it will look like. But for sure, we see it's become that higher activity is spread over more days or weeks than it was in the past. Marc Zwartsenburg: Do you see September, October trending higher than the 4.4%? Philippe Dartienne: In that range. Marc Zwartsenburg: It's rather stable. That's currently the trend. Philippe Dartienne: Yes. Marc Zwartsenburg: Then lastly, I know you're not disclosing it, but could you give a bit of an indication of the EBIT contribution of Staci, because it's still important to model that properly also through the quarters because we saw quite a miss on the consensus on particularly the 3PL division and whether that's Staci or whether that's Radial U.S. or whether that's the extra cost, it would be helpful to have a bit more granularity. Can you help us there? Philippe Dartienne: I can help you in repeating what I told you is that the big chunk of the fact that it doesn't grow is linked to this optimization, cost optimization, operational optimization, which is the majority of the variance and the rest coming from same sourcing. You could count on. Marc Zwartsenburg: Staci have no growth on the revenue side and a bit of impact from the fine-tuning of the optimization of the warehouses. Is that how we should see it? Philippe Dartienne: Yes. Marc Zwartsenburg: How long will that take that optimization of the warehouses till when should we pencil that in that the margins may be a bit more at the low end? Philippe Dartienne: I would say -- in fact, the more the people will start working together and depending on the customer need, it might lead to additional ones. This one were the obvious one. I would say, in the next 2 quarters, I'm not expecting any site closures or major site closures now, but It's an ongoing process. Marc Zwartsenburg: For 2 quarters -- yes, exactly. We will see a little bit of double running costs in the meantime. Then after that, we should see the efficiencies coming through. Philippe Dartienne: I hope it will come faster, but it's not to be excluded that we might decide here or there to restructure on another warehouse. There is one that was already planned in the U.S. By the way, it was a journey, nearly 3 years journey at the time of the acquisition of Amware by Staci, they looked at the portfolio, and we were totally aware of that because it was an element that was shared with us at the time of the acquisition. They knew that they had a plan to restructure 3 warehouses. They have done 1 in '24. There is a second one in '25, and there will be the third one in '26. Marc Zwartsenburg: Then thinking about '26, we should see a higher EBIT than what we probably will see in 2025. Is that? Philippe Dartienne: Yes. Marc Zwartsenburg: The path towards your long-term outlook to see a higher EBITDA? Philippe Dartienne: Don't drag me into a budget discussion and a guidance for '26. We will come to you on that one when we publish the Q4, but I give you some element. I have the impression of painting an impressionist painting with dots of colors, some quantities. I'm doing some quantities on the U.S., but don't drag me where I don't want to be dragged. Marc Zwartsenburg: It's the time of the year budget. Operator: The next question comes from Marc Zeck from Kepler Cheuvreux. Marc Zeck: Two, if I may. First one on -- again, Radial U.S. Could you give us a bit of more color or feeling about, let's say, the top 5 customers at Radial U.S., how much of sales is that broadly speaking? For these customers, is there kind of a contract renegotiation period upcoming end of '25 or early in '26? Or is these contracts mostly locked in for a longer period of time? That would be my first question. Second question also on, let's say, the broader U.S. business. I believe we've seen quite a bit of pull forward buying into the U.S. imports for the first 9 months of the year were pretty good, I believe, into the U.S., but we see container imports or container arrivals at U.S. ports dropping quite sharply now in Q4. Is your business in the U.S. mostly related to ocean freight? Should we expect a bit of a negative business development on same-store sales as well for Radial U.S.? Or are you kind of air freight exposed from a product category where we still see quite good numbers, I would say, in the overall market? That's my 2 questions. Philippe Dartienne: Okay. Let me start with the second one. It's a bit of both. Of course, all your comments are valid. We are exposed to air freight and ocean freight. I give you a very practical example. In one of the customers that we have onboarded with Radial Fast Track is a fashion brand coming from Australia, who wanted to be implemented in the U.S. They wanted to have fulfillment there. We are hearing from customers, some other customers that they want to be in the U.S. rather than systematically air freighting stuff. By the way, it's no different than what we are seeing with the Chinese platform now. Let's refer to the comment or the question earlier on the Chinese who want to be implemented -- to implement themselves in Europe to avoid tariffs is the same that we are seeing in U.S. We have a very practical example, as I said, of one who really has decided to come physically in the U.S., and there, we have definitely a role to play and a good service offering. When it comes to Radial, I also want to -- do we have big renewal in the pipe for the coming quarters? The answer is no. We already have renewed some of them in the course of 2025. There, I want to reiterate something which is extremely, extremely important. In the past, what we saw at Radial, especially with the big customers, the situation was the following. They were asking for a lot of customization, a lot of automation that typically are passed on to the customer over a period of 6 to 8 years, while we were having contracts of roughly 4 years. At the same time, we had also our warehouses locked for a period of 7 to 8 years. In many instances, what we saw is the customer left or didn't renew the contract, and we were there even if there was some provision in the contract with unamortized portion of own developments and the liability linked with these warehouses. Since the last 18 months, all renewal or all new contracts signed are [indiscernible] with the lease of the warehouses. It's also important to look at what could be the impact of the customers. In fact, the Radial situation we are in right now is absolutely not the same as the one we saw years ago. Operator: Ladies and gentlemen, there are no further questions. I will hand it back to Philippe to conclude today's conference. Thank you. Philippe Dartienne: Thank you very much, guys, for your intense question session. Antoine is always there to do the follow-up with you in the coming days and weeks. Let's stay in touch. Next time, we'll see, we'll be able to demonstrate that we have executed the peak in a qualitative and efficient way. Thank you very much. Have a good day. Operator: Thank you for joining today's call. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Andrew Peller Limited Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, November 5, 2025. I would now like to turn the conference over to Craig Armitage. Please go ahead, Craig. Craig McDonald: Thank you, and good morning, everyone, and thanks for joining us. Before we begin, just as a quick reminder that during the call, management may make statements containing forward-looking information. This forward-looking information is based on a number of assumptions and is subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from those disclosed or implied. I'd encourage you to refer to the company's Q2 earnings release, the MD&A and other security filings for additional information about these assumptions, risks and uncertainties. With that, I'll turn it over to Paul Dubkowski, Chief Executive Officer. Paul? Paul Dubkowski: Thanks, Craig, and good morning, everyone. I'd like to thank everybody for joining us today. I'm pleased to be joined by Renee Cauchi, our Chief Financial Officer; and Patrick O'Brien, our President and Chief Commercial Officer. As usual, I'll begin with a review of our operational and strategic highlights from the second quarter, and then Renee will walk us through the financial results. As we push to the end of our 2025 harvest, I am pleased to report that the harvest in Niagara is coming in as expected with strong yields and good quality. We're also very pleased to see the return of harvest in the Okanagan Valley this year, after a challenging year last year due to the extreme cold weather events. While we will still not be back to 100% for a few years, it is very encouraging to see the activity in the valley this year. A huge thank you to our supply, operations, winemaking teams, our farmers and to all partners who are helping deliver a successful harvest. As we step back and look at the industry from a macro perspective, the industry and consumers continue to navigate the evolving Ontario retail landscape. There is ongoing growth in the better-for-you and sparkling categories, and we see more and more consumers developing an affinity for domestic products and turning to Made in Canada offerings. Given our leading market position, portfolio breadth and focus on consumer-centric innovation, we are well positioned to capitalize on a sustained shift in the industry and consumer behavior. Perhaps more importantly, for our medium- and long-term growth, we continue to be encouraged by the government's commitment to a strong and competitive wine industry with best-in-class policy that is driving investment domestically and will have a significant economic impact across the regions, provinces and all of Canada. At Andrew Peller, we are investing in infrastructure, equipment, processes and people so we can purchase more locally growing grapes, expand our production capacity and introduce new products that showcase the richness of Canadian wine at a time when there is growing awareness and affinity for Canadian-produced wines. Turning to our Q2 financial results. It was another very strong quarter overall, with increased margins and profitability, highlighted by 18% growth in EBITDA and a 96% increase in net earnings. At the same time, we continue to improve working capital and reduce debt, further strengthening our balance sheet and creating capacity for our growth initiatives. From a top line perspective, our sales decreased year-over-year, which was an expected result given the impact of the LCBO strike in last year's Q2. As we discussed at the time, this drove a significant increase in sales from our retail stores as our team quickly mobilized to meet consumer demand with the LCBO being closed for close to 3 weeks last Q2. Excluding the impact of the strike, our Q2 sales grew year-over-year, reflecting multiple revenue drivers. As we aim to be the fastest-growing wine company in English Canada, one of our strategic pillars is focused growth in our core wine business. For the fiscal year-to-date, I'm pleased to report that we have gained share over the prior year in English Canada and across all major markets for Andrew Peller. Our states in the East and the West also performed well in the quarter. Q2 is typically a strong quarter with higher traffic in the summer months, and we're also benefiting from the trend of Canadians favoring local destinations. We have world-class properties, and our teams are delivering exceptional experiences, helping visitors discover great Canadian wine, while deepening their connection to our brands. Among the recent highlights, Trius Restaurant in Niagara earned a second Michelin recommendation, one of the very few establishments to receive this honor. Another strategic focus for the company is winning in critically evolving markets, and we have seen this through our continued strong performance in grocery and big box stores as the Ontario retail market continues to evolve. We've placed a significant emphasis on these 2 channels with the expectation they will make up a growing percentage of total category sales as consumption shifts over time. Our broad portfolio offers a combination of quality, innovation, familiarity and approachability, making us well positioned to win as consumers shop in these expanded retail settings. As you've heard from us in recent quarters, our team is also highly focused on winning in growth categories, including better-for-you and sparkling, Honest Lot, a zero-sugar offering continues to be among our fastest-growing brands, and our sparkling portfolio is also performing extremely well. We've invested in additional Charmat tanks to increase our sparkling capacity and capitalize on this growing demand. Looking ahead, we have an exciting road map of innovation covering both new product and new packaging. So please stay tuned. Turning to our other financial measures. We reported significant growth in our margins and profitability, strong cash flow and reduced leverage. In short, the business is on a very solid footing and poised to use its balance sheet to support future growth and drive shareholder value. Prior to passing it over to Renee to talk about our financials in more detail, I would also like to highlight our recent announcement from yesterday that Susan O'Brien is joining the Andrew Peller Board as an Independent Director. Susan is currently the Executive Vice President and Chief Transformation Officer at Canadian Tire with the previous role being Executive Vice President, Chief Brand and Customer Officer. Susan brings extensive experience in the consumer goods and retail sectors with significant expertise in customer experience, brand strategy, digital transformation and data-driven growth. We're excited for Susan to join the Andrew Peller team. With that, I'm going to pass it over to Renee. Renee Cauchi: Thanks, Paul, and good morning, everyone. As Paul mentioned, we are very pleased to deliver another solid quarter with growth in margin, EBITDA and earnings, while continuing to invest in our future growth. Second quarter sales were down year-over-year as expected, given the impact of the LCBO strike last July. We otherwise saw growth led by strong performance in several of our well-established trade channels, specifically in Western Canada, driven by the success of our BC replacement program. The growth also reflects expanded distribution in the Ontario retail market with increased sales coming from grocery and big box retail channels. These factors are offsetting some of the softness from our personal winemaking business. Our gross margin in the second quarter was $48.3 million or 45.7% as a percentage of revenue, up from 42.4% in the same period last year. This improvement is driven by the ongoing efforts of our team to deliver on the cost savings program we implemented in previous years, which has lowered costs for glass bottles and inbound freight, which are 2 major inputs. Additionally, Q2 results included $2.4 million from the Ontario Grape Support program, which was not in effect during the second quarter of last year. Excluding the impact of this program, gross margin expanded to 43.5%, representing strong growth year-over-year. Selling and admin expenses were $27 million for the quarter, down 5% from the prior year. This improvement reflects cost savings realized through prior restructuring initiatives. EBITDA increased by 18% to $21.3 million in the quarter, up from $18 million in the prior year, which is due to favorable margins as a result of continued cost savings in the Ontario Grape Support program. Interest expense also decreased by 28% compared to the prior year due to lower average debt levels and lower interest rates. Looking at our balance sheet. At the end of the quarter, inventory decreased to $141 million versus $170 million at the end of fiscal 2025 due to lower cost inputs and our disciplined approach to managing our inventory. With harvest wrapping up, we will see these inventory levels increase accordingly, consistent with historical patterns. The Q2 year-to-date results also highlighted continued cash generation and further debt reduction, which reflects our efforts on working capital management, cost reductions and overall operating efficiencies. In the second quarter, we generated $37.9 million in cash from operations compared to $40.8 million in the prior year. Our net debt position stood at about $159 million at the end of this quarter, down from $180 million at fiscal year-end, and our debt-to-EBITDA ratio was about 2.3x on a rolling 12-month basis. Thank you, everyone, and I'll now pass it back to Paul for his closing remarks. Paul Dubkowski: Thanks, Renee. It's definitely been a really strong first half of fiscal 2026, and this is clearly showing up in our results with our improved profitability and a strong balance sheet. Our team continues to adapt effectively to the shifting market dynamics and evolving consumer preferences, enabling us to outperform the category and gain share. Our strengthening fundamentals are reinforced by growing government support for a resilient and competitive domestic wine industry. We remain confident in the long-term future of Canadian wine and are proud to play a leadership role in its continued evolution. With a solid financial foundation, our team is energized to pursue growth opportunities, both organic and inorganic, that advance our goal of becoming the fastest-growing wine company in English Canada, while creating sustainable value for shareholders and all stakeholders. To finish, as always, I want to thank our Andrew Peller teammates for their passion and commitment to our company and to the domestic industry in Canada. With that, I'll now turn it back to the operator for any questions. Operator: [Operator Instructions] Now our first question comes from Nick Corcoran with Acumen Capital. Nick Corcoran: Congrats on the strong quarter. Paul Dubkowski: Thanks, Nick. Nick Corcoran: Just the first question, you mentioned in your prepared remarks that the harvest in Ontario and BC has been pretty good. Any additional color on the yields and quality? Paul Dubkowski: I think we've seen -- as I said, Ontario has been a strong harvest as expected with strong yields and very good quality. So very pleased with the harvest in Ontario. In terms of the West, as I mentioned in the prepared remarks, a couple of tough weather events a few winters ago that impacted our harvest last year. It has rebounded well. We are definitely a few years away from it being back to historical levels. But the fruit we are getting this year is of good quality, and it is good to see kind of the renewed vibrancy in the valley and that activity. Nick Corcoran: Great. And then you mentioned some investments you're making in the sparkling category and other products. What are you expecting for CapEx in fiscal '26 and fiscal '27? Paul Dubkowski: Yes. I mean I think -- and I can pass it to Renee if there's any additional color. But what I'd say is our investments are really focused on the growth areas in and around wine. Sparkling is one of those areas. We do the traditional method, which is more the champagne style and then the Charmat method, which allows us to reach a different consumer at a different price point in a different time frame. So again, investing around sparkling and then investing in better-for-you in those other growth categories. In terms of our overall capital spend, that was in our expectations, and we do not expect to have to increase that number in order to accommodate these investments. Nick Corcoran: Great. And maybe one last question. Any update on [indiscernible]? Paul Dubkowski: Yes, happy to do that. It remains an active file for us. We're having continued conversations with multiple developers and the city. We really are just evaluating the highest and best use from a monetization standpoint for us, whether that is residential, whether there's a pivot to industrial that highest and best use and path to monetization is important. We do acknowledge the real estate market is a bit bumpy. We see that certainly in the Toronto, Greater Toronto area and out in Vancouver and the Lower Mainland. But what I will reinforce based on my conversations, we have a valuable piece of property. It's really a question of timing and getting the right price, and I'm confident we will, but it's just got to be the right time to sell it. So I've historically talked in that 12 to 18 months, that's been for several quarters. So we're still aiming for that, but we just want to make sure we -- when we do monetize it, we get the right price and the right value for our shareholders. Operator: [Operator Instructions] Okay. It seems there are no further questions at this time. I will now turn the call over to Paul -- I'm sorry, Paul, we do have one question lined up with Luke Hannan with Canaccord Genuity. Luke Hannan: I appreciate it. I got dropped off the call for whatever reason. So I apologize if this got asked, but I did want to circle back, Paul, on your comments on the Ontario retail market, it does continue to evolve, but it does sound like you're putting increased emphasis or more focus on grocery and big box, and you guys continue to do better there. So maybe a couple of follow-on points to that. One is what's underlying that focus on grocery and big box? And then secondly, how are you thinking about now that we're going to be facing periods where there is that initial fill or load into that category? How are you thinking about comping against that for, let's say, the next 12 months from here? Paul Dubkowski: Yes, that's a great question. I'll pass it over to Patrick to take a lead on that one. Patrick O'Brien: Yes. So again, I'll comment a little bit about, again, big box and again, how that's continuing to evolve. So I think from our perspective, we do see big box and grocery as key strategic channels within the Ontario wine category. Bold will be -- will continue to be a big priority for us going forward. We have very strong momentum within both channels. And I think it's fair to say that APL continues to over-index in these channels. So again, we do see that trend continuing and both are, I think, big priorities for us. On the second part of your question, just around kind of comping call it year 1 of retail modernization, I think with the momentum that we have and I think the assortment that we have and the size and scale of our portfolio and the breadth of our portfolio, we feel that we will navigate comping the load-in, we call it from last year. So again, I think just with the year in and again, the portfolio that we have, the relationships from a customer perspective and again, the size, scale and depth and breadth of our portfolio, we believe, sets us up for success as we move forward. Luke Hannan: Got it. Okay. And then just, I guess, a follow-up or a clarification then. So the performance during the fiscal second quarter was strong. It does sound like that momentum has carried forward thus far into the fiscal third quarter. Paul Dubkowski: Yes. I mean, Patrick highlighted it, Luke, that momentum has been strong. We expect that to continue over the back half of the year. And just from a soft outlook standpoint, we think we're going to have a strong year and see growth on a year-over-year basis top line when you adjust for the strike. And that is our expectation and do expect to continue to see improved margins and that dropping to EBITDA on a full year basis. Operator: [Operator Instructions] Okay. So no further questions at this time. Please go ahead, Paul. Paul Dubkowski: Great. Thank you. Thanks again, everybody, for joining us today. We're really excited about our Q2 results and certainly energized for the back half of our fiscal year, and we look forward to connecting again with everybody when we release our Q2 results. Thank you. Have a great day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Greetings. Welcome to Dynatrace's Fiscal Second Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. At this time, I'll now turn the conference over to Noelle Faris, Vice President, Investor Relations. Noelle, you may now begin. Noelle Faris: Good morning, and thank you for joining Dynatrace's Second Quarter Fiscal 2026 Earnings Conference Call. Joining me today are Rick McConnell, Chief Executive Officer; and Jim Benson, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements such as statements regarding revenue, earnings guidance and economic conditions. Actual results may differ materially from our expectations due to a number of risks and uncertainties discussed in Dynatrace's SEC filings, including our most recent quarterly report on Form 10-Q and annual report on Form 10-K. The forward-looking statements contained in this call represent the company's views on November 5, 2025. We assume no obligation to update these statements as a result of new information, future events or circumstances. Unless otherwise noted, the growth rates we discuss today are year-over-year and non-GAAP, reflecting constant currency growth and per share amounts are on a diluted basis. We will also be discussing other non-GAAP financial measures on today's call. To see reconciliations between non-GAAP and GAAP measures, please refer to today's earnings press release and supplemental presentation, which are both posted in the Financial Results section of our IR website. And with that, let me turn the call over to our Chief Executive Officer, Rick McConnell. Rick McConnell: Thanks, Noelle, and good morning, everyone. Thank you for joining today's call. Dynatrace delivered very strong second quarter fiscal 2026 results, exceeding our guidance across every metric. ARR grew 16%. Subscription revenue grew 17% and pretax free cash flow was 32% of revenue on a trailing 12-month basis. This overachievement in performance was due to successful execution of our strategy to capture the growing demand for end-to-end observability and large-scale multi-cloud tool consolidations, including ongoing growth in our logs business. Dynatrace's consistent execution gives us the confidence to raise our ARR, revenue and operating income outlook for the full year. Jim will share more details about our Q2 financial performance and guidance in a moment. In the meantime, I'd like to devote my remarks to why we believe AI-powered observability is mission-critical to software reliability and performance, especially in an evolving agentic world. And I will also provide an update on our key growth drivers. To start, the Dynatrace platform has evolved through multiple phases from reactive operations to automated root cause to now preventive operations. Our vision has been consistent over the past years to enable a world in which software works perfectly. By definition, that means that software must always be available. And when issues do occur, the software must self-heal. Preventive operations is about anticipating and taking action on issues before they become end user impacting. Customers are increasingly seeking not just answers followed by manual resolution, but rather answer-driven automation to deliver and operate software that works optimally. The Dynatrace third-generation platform was built from the ground up to handle precisely the level of complexity and scale of modern cloud and AI native environments, including the following core elements. Grail, our massively parallel processing data lake house, is capable of analyzing billions of interconnected data points in near real time to deliver comprehensive situational awareness. Smartscape provides deep contextual insights of topology and metadata through a directed knowledge graph. Davis delivers reliable, causal and predictive AI insights to produce deterministic answers. Davis Copilot automatically generates remediation proposals. and automation engine helps orchestrate and manage intelligent automated responses across the digital ecosystem. These technologies by being part of a fully unified platform rather than a series of point products with fragmented data stores enable true end-to-end observability, which is crucial to delivering accurate analytics and recommendations. In this way, our AI-powered platform is enabling the next phase of observability for Dynatrace, which is autonomous operations. In this business transformational phase, we take preventive operations to the next level by leveraging an ecosystem of agents, both from Dynatrace and third parties to take action to maintain software reliability, security and performance. It's about deploying intelligence that enables self-healing systems to keep software operational and performant with less human intervention. Moreover, worldwide spending on AI is forecast to be nearly $1.5 trillion in 2025 according to Gartner. As organizations broadly adopt agentic AI themselves, complexity will grow further, driving even greater need for a more scalable autonomous approach. We see Dynatrace and the evolution of observability becoming a bridge to the agentic world for enterprises. As stated perhaps most succinctly, we see Dynatrace as the AI-powered observability platform for autonomous operations. With this evolution, Dynatrace will be able to orchestrate and supervise both internal and external AI agents to auto prevent, auto remediate and auto optimize. We believe that Dynatrace is unique in our ability to deliver such an observability environment. One of our superpowers lies in our ability to pinpoint the so-called needle in the haystack in understanding software availability and performance. This has always been Dynatrace's biggest differentiator. And organizations will only allow autonomous action if it's based on precise, reliable answers, not loosely correlated data points. We like to think of this as answers, not guesses. Based on this deterministic knowledge, we can then confidently conduct agentic platform-based orchestration through both Dynatrace and third-party agents to take action. In order for an autonomous approach to be effective, it has to be built on a foundation of genuine end-to-end observability that provides deep analytics and insights, ultimately enabling an automated response. Our ability to analyze all observability data types, logs, traces, metrics, real user data, topology and even business events in context is essential for generating the most accurate and trustworthy answers. Additionally, the ability to oversee all domains, including infrastructure, apps, log management, user experience, application security and business observability provides the most comprehensive perspective of an organization's IT ecosystem. Whereas metrics and logs are often the data types of choice for infrastructure management, faces a long-time strength of Dynatrace become increasingly important for end-to-end inspection of agentic systems. Combination of full stack visibility and domain breadth allows customers to operate more efficiently, reduce overall costs and increase productivity as well as the pace of innovation. Perhaps most importantly, though, we believe these elements together yield superior outcomes. And customers are rapidly extending these outcomes beyond technical analytics of software performance into true business observability. There's also a vastly growing demand for organizations needing to observe AI native workloads. Customers adopting agentic AI will need to understand the complex interactions among agents and know exactly what to do when something unpredictable happens, including the avoidance of hallucinations. In order to have that level of visibility, all telemetry, especially traces and logs, must be captured, enriched with context and analyzed in real time at massive scale to prevent or instantly remediate issues. We are enabling AI to observe AI workloads through deep end-to-end observability. In sum, Dynatrace is rapidly progressing toward a future where our AI-powered platform doesn't just observe, but empowers organizations through knowledge, reason and action. This is why organizations that are leading the evolution of AI are partnering with Dynatrace as a foundation for smarter, faster and more reliable IT operations. So let me now highlight some recent developments with third parties to help bring autonomous operations to reality. Last Monday, Dynatrace and ServiceNow co-announced a multiyear strategic collaboration to advance autonomous IT operations and scale intelligent automation for joint enterprise customers. We are bringing together Dynatrace's AI-powered observability platform with ServiceNow's AI platform for business transformation to provide proactive self-healing IT environments. This partnership enables IT management and operations with real-time trustworthy autonomous actions across the software delivery life cycle. We also announced our integration with Atlassian to help customers fully understand issues and act quickly by embedding real-time production insights directly into incident management processes. Automatically tying incidents to root cause empowers organizations to operate more efficiently and proactively in managing complex digital ecosystems. And finally, we joined GitHub's Model Context Protocol Registry. This integration helps speed up debugging efforts during development and leverages Dynatrace observed production insights to increase agentic software improvements. This also further enables us to extend left to reach cloud and AI native development and platform engineering teams. I'd like to turn next to an update on 4 key growth drivers for our business, all of which continue to trend positively. First is the massive opportunity that we continue to see in log management. We believe the logs market remains ripe for disruption given the rising cost of legacy solutions that offer little to no expansion in business value. As we have stated in the past, we have taken a very different approach to logs. Traditionally, logs were separated from other observability data types. Instead, Dynatrace provides a unified data model inclusive of logs, allowing for cross-data analytics without manual stitching, resulting in faster root cause analysis and more accurate observability insights. Log management is our fastest-growing product category and is rapidly approaching $100 million in annualized consumption, continuing to grow more than 100% year-over-year. In addition, as more customers look to migrate their existing logs to Dynatrace, we're investing to increase the speed of those migrations. Last month, we announced a partnership with Crest Data Systems to deliver a seamless automated migration experience for customers moving to the Dynatrace platform. This enabled us, for example, to meet an aggressive time line for a global financial services company by automating 70% of their dashboard migrations. Second, the investments we made last year to align our sales coverage around strategic accounts pipeline and partners continue to pay off. Our 4-quarter pipeline for strategic accounts is up 45% versus last year. Bookings through strategic GSI partners doubled year-over-year. And we saw a 53% increase in Q2 ACV from 7-figure deals compared to last year. Here are just a few examples of large wins in the quarter. An AI native revenue intelligence company and new logo selected Dynatrace to be their end-to-end business solution for mission-critical workloads, displacing multiple tools. Our biggest new logo deal in APAC is one of Japan's largest banks. Fragmented tools and the complexity of their architecture were making it difficult for them to reduce mean time to resolution. With Dynatrace, they will now have an end-to-end view of their ecosystem to resolve issues more quickly. A major U.S. airline expanded its existing relationship with us 18 months after adopting Dynatrace to further consolidate tools, including logs after seeing significant improvement in incident resolution and the benefits of end-to-end observability. A third growth driver is the Dynatrace Platform Subscription licensing model, or DPS. We reached a major milestone in the second quarter with 50% of our customers and 70% of our ARR now utilizing DPS. When we launched DPS over 2 years ago, our expectation was that customers with full access to the platform would leverage more capabilities and extend Dynatrace more broadly into their IT environment. This thesis has played out with DPS customers adopting 2x the number of capabilities and at nearly double the consumption growth rates of those on a SKU-based model. And finally, overall platform consumption is a strong indicator of future expansions and is the primary compensation metric for our customer success team. Total Q2 consumption growth was more than 20% and continues to outpace subscription revenue growth. To wrap up, we are pleased to have delivered a strong first half of the fiscal year. The observability market opportunity is more critical than ever given the rapid evolution of cloud and AI native workloads. We have a differentiated AI-powered platform that is enabling autonomous operations in an evolving agentic AI world. We deliver significant customer value driving accelerating platform consumption. We continue to see momentum in our core growth drivers. And we have a compelling business model, which has enabled us to deliver a sustained balance of growth and profitability. Jim, over to you. James Benson: Thank you, Rick, and good morning, everyone. Q2 was an excellent quarter across the board. We surpassed the high end of our top line growth and profitability guidance metrics once again. As Rick mentioned, this strong performance was driven primarily by our ability to capture the growing demand from enterprise customers for end-to-end observability and large-scale tool consolidations. Among many highlights, we continue to demonstrate traction in key growth areas. This includes momentum in large deal activity and pipeline, accelerating consumption and adoption across the platform, notable strength in logs, continued adoption of DPS and a growing number of early expansions, including several 7-figure deals in the second quarter. Additionally, our partner ecosystem is maturing with growing traction across GSIs, hyperscalers and strategic partnerships. Let's review the second quarter results in more detail. Annual recurring revenue, or ARR, ended the quarter at $1.9 billion, representing 16% growth, consistent with Q1. Q2 net new ARR on a constant currency basis was $70 million, up 16% from a year ago, driven by both strong expansion and new logo bookings across the geographies. Execution was particularly strong in North America and Asia Pacific, with many deals influenced and driven by our GSI partners. For the first half of the year, net new ARR was up 14% from a strong first half last year. In Q2, we added 139 new logos to the Dynatrace platform with an average ARR per new logo of over $140,000 on a trailing 12-month basis. We continue to target landing with high-quality new logos that have a higher propensity to expand. The average land size in Q2 was particularly robust with new logo ARR growing well over 30% year-over-year. We continue to see accelerating consumption and adoption of the platform with our average ARR per customer over $450,000, highlighting the criticality and business value we provide to customers. The strategic relevance of the Dynatrace platform is further reflected in our gross retention rate, which remained in the mid-90s. Net retention rate, or NRR, was 111% in the second quarter, in line with the prior quarter. As Rick mentioned, our DPS licensing model continues to gain traction, achieving a major milestone with 50% of our customer base and 70% of our ARR now on this vehicle at the end of Q2. DPS has become our de facto contracting model. With access to the full platform, customers are adopting Dynatrace more broadly across their IT environments, resulting in increased consumption. Turning quickly to usage volumes on the platform. Q2 was another quarter of robust consumption of the platform with the annualized consumption dollar growth rate accelerating and continues to track north of 20%. Further, DPS customers continue to consume at nearly 2x the growth rate and leverage 2x the number of capabilities compared to SKU-based customers. Contributing to that consumption rate, logs remains the fastest-growing product category, growing well over 100% year-over-year and rapidly approaching our $100 million milestone. We believe there is plenty of momentum and runway into half 2 and beyond. Increased consumption on the Dynatrace platform can sometimes accelerate usage above a customer's original DPS annual commitment, resulting in either ODC revenue or an early expansion opportunity. The decision to consume on demand or renew early is customer dependent and will vary based on that quarter's customer cohort behavior and influenced by the remaining duration of their contract. In Q2, we saw more DPS customers expand early versus going on demand and contributing to our strong net new ARR result. ODC revenue came in at $7 million for the quarter, just shy of our expectation. The key takeaway, however, is that the company's emphasis on driving platform adoption and consumption serves as the foundational growth engine, whether it's fueling ODC revenue or supporting early expansion of net new ARR. Both contribute to subscription revenue with ODC reflected immediately in ARR over time. Moving on to revenue. Total revenue for Q2 was $494 million, and subscription revenue was $473 million, both up 17% and exceeding the high end of guidance by nearly 100 basis points, driven by strong net new ARR bookings. Turning to profitability. Non-GAAP operating margin was 31%, exceeding the top end of guidance by 150 basis points, driven mostly by revenue upside flowing through to the bottom line. Non-GAAP net income was $133 million or $0.44 per diluted share, $0.03 above the high end of our guidance. We generated $28 million of free cash flow in the second quarter. Due to seasonality and variability in billings quarter-to-quarter, we believe it is best to view free cash flow over a trailing 12-month period. On a trailing 12-month basis, free cash flow was $473 million or 26% of revenue. As a reminder, this includes a nearly 700 basis point impact related to cash taxes. Pretax free cash flow on a trailing 12-month basis was 32% of revenue. Finally, a brief update on our $500 million opportunistic share repurchase program. In Q2, we repurchased 994,000 shares for $50 million at an average share price of just over $50. Since the inception of the program in May 2024 through September 30, 2025, we have repurchased 5.3 million shares for $268 million at an average share price of just over $50. Moving now to guidance. Our conviction in growth drivers continues to strengthen, fueled by secular tailwinds of vendor consolidation, cloud modernization and AI workload proliferation. Our go-to-market momentum and funnel of large anchor deals continues to grow with the pipeline of strategic enterprise ACV up 45% year-over-year. Consumption growth continues to significantly outpace ARR growth, driven by customer adoption of DTS, leading to broader upsell and cross-sell penetration. Log management continues to be a significant source of growth, both in our installed base and with new logos. We are balancing these leading growth indicators and our strength in the first half of the year with a prudent approach for the second half with 2 primary factors in mind. First, the weighting of the pipeline towards larger, more strategic tool consolidation opportunities often creates increased timing variability and longer duration to close. Second, while observability demand remains resilient, the macro and geopolitical environment, particularly in EMEA, remains dynamic. And with that as context, let me summarize our updated full year outlook. The underlying strength in consumption growth, coupled with the strong first half performance gives us the confidence to raise our full year ARR growth guidance by 100 basis points at the midpoint to 14% to 15% growth in constant currency. Seasonally, we expect net new ARR to be weighted more towards Q4 than last fiscal year due to the mix and timing variability of large deals in the funnel. Moving now to revenue. We are raising our total revenue and subscription revenue growth guidance by 75 basis points at the midpoint to a range of 15% to 15.5% growth in constant currency. Given the half 1 mix shift towards early expansions and ARR, we now expect ODC revenue to be in the low 30s. Turning to our bottom line. We are raising our full year non-GAAP operating income guidance by $8 million, translating to a non-GAAP operating margin of 29%. We expect free cash flow margin of 26%. While we do not guide to free cash flow on a quarterly basis, we anticipate free cash flow to be more weighted to Q4 than historical levels. Finally, we are raising non-GAAP EPS guidance to a range of $1.62 to $1.64 per diluted share, representing an increase of $0.04 at the midpoint of the range. This non-GAAP EPS is based on an expected diluted share count of 307 million to 308 million shares. Looking to Q3, we expect total revenue to be between $503 million and $508 million. Subscription revenue is expected to be between $481 million and $486 million. As a reminder, we saw a notable increase in ODC revenue in Q3 and Q4 of last year. And with the revision to estimated ratable rev rec treatment this year, this will result in a headwind to revenue growth rates in our third and fourth quarters this year. From a profit standpoint, non-GAAP income from operations is expected to be between $143 million and $148 million or 28.5% to 29% of revenue. Lastly, non-GAAP EPS is expected to be $0.40 to $0.42 per diluted share. In summary, we are very pleased with our Q2 performance and strong momentum in the first half of the year. The strategic adjustments and investments we made last year in our go-to-market strategy are taking hold and evidenced in the latest results. We're starting to see momentum in large deal activity and pipeline, accelerating consumption growth across the platform, ongoing traction in logs, broader DPS adoption and a maturing of our strategic partner ecosystem. We have a proven track record of consistent execution and delivering a balance of strong top line growth and profitability. While we're maintaining a prudent approach to our near-term outlook, we're confident in the foundational elements driving growth in fiscal 2026 and remain committed to investing in initiatives that we believe will generate long-term value. And with that, we will open the line for questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Fatima Boolani with Citi. Fatima Boolani: Jim, I was hoping we could spend a little bit of time on the net retention rate metric. And if you could help peel back the onion, so to speak, on some of the puts and takes there. And really, the spirit of the question is, why is the metric lagging in contrast to otherwise very favorable momentum that you have shared in your prepared remarks on renewals, on expansions, on accelerating customer growth as well as signs that you're seeing that customers are now expanding earlier. So I just wanted to get maybe more granular understanding on why net retention rate looks like it's stuck in the mud when all other factors in the business are pointing to more favorable momentum. James Benson: It's happy to take that, Fatima. I'd start with we had a really strong net new ARR quarter. It grew 16% for the quarter, and it grew 14% for the half. So the business momentum is quite healthy in growing net new ARR. I think you know NRR is a kind of a trailing 12-month metric. And so it's going to take multiple quarters to significantly move NRR as a metric. So NRR stabilized Q1 to Q2. So we feel really good. I mean one of the things we talked about in the prepared remarks is we're getting really good traction with the go-to-market changes that we made a year ago. It's showing up in the results. It's showing up in growing pipeline. we are poised to benefit from continued end-to-end observability tool consolidation opportunities. Consumption continues to grow at a rapid clip. So we're very optimistic about the underpinnings of the business. So these metrics, NRR, if we continue to see the performance that we are seeing in consumption in these other areas, you will start to see movement in NRR, but it will happen over time. Operator: Our next question comes from the line of Matt Hedberg with RBC Capital Markets. Matthew Hedberg: Congrats on the strong quarter and increased guide. I had a question. You guys have spent a lot of time focused on go-to-market improvements really over the last several years, and it really feels like it's paying dividends right now in terms of large deals. I'm curious, when you think about sort of some of the capacity adds that you've added historically, could you talk to the level of productivity you're seeing there? And secondarily, with a strong Q2, I'm curious to see if the 6 months quotas are doing what was intended, sort of improving linearity for the year? James Benson: Happy to take that, Matt. It's actually 2 very good questions. So you're absolutely right. We've been building on these go-to-market changes since basically Q1 of fiscal '25. And as you know, we talked about that we were making investments in the top of the pyramid where we had on average roughly 8 to 10 accounts per rep with very large customers. We made investments there to lower that to 4 to 5. We're seeing it in close rates. We're seeing it in pipeline. So yes, we are seeing a productivity lift from the investments that we made there. So we're very, very pleased with that. I'd say relative to the 2 6-month quotas, just to remind you, we did that for 2 reasons. One, it gives you an opportunity if you want to make a midyear adjustments, either a little bit on go-to-market or even on maybe compensation plan design. Two, it also gives you an opportunity to improve on the seasonality of bookings. And so we saw a little bit of that last year where -- this is our second year of going through it. So I think it's actually bearing out what we thought, which is it's showing an improvement in linearity of the business. And so this is not a matter of, hey, there was a lot of pull-ins from Q3 per se, but I just think there's an incentive for the sales organization twice a year to be in accelerators. And I think that's what you saw. So I'd say both things are playing out as we were hoping. Operator: The next question is from the line of Brad Reback with Stifel. Brad Reback: Rick, you alluded to the over 20% consumption growth in the base. So either for you or Jim, how should we think about the convergence of net new ARR and subscription revenue growth towards that 20%? What are the puts and takes as we look out over the next year or 2? James Benson: So Brad, I'd say the puts and takes are -- we are -- as you know, we are a ratable revenue recognition business. So we -- when we book something, the subscription revenue gets amortized ratably. And so we are not a business that has revenue recognition on a consumption basis. if we were, these growth rates that we're talking about for consumption for the company would be in the 20s. So it does take time. You have to put more 20-plus percent growth rates. Obviously, there's an element of your contract terms and your contract terms and burning through commitments and going through expansions. And so it won't happen overnight. It will happen over time. So there will be a convergence. I think the important thing for investors to watch for is us continuing to give you an update on how is consumption tracking. Consumption ultimately, other than bringing in a new logo, consumption is the underpinning for sales to go in and upsell a customer. And we're seeing it play out. We're seeing it play out with early expansions. And there's examples clearly that with DPS, they're able to trial different things on the platform logs notably, and you trial logs, you're under DPS contract. We had a very large global airline that we had a very big contract with that we just booked maybe 1.5 years ago for a 5-year deal. This customer did a huge expansion because they trialed a product category that was not really part of their initial configuration. And now you have a huge upsell literally 2 years into a 5-year deal. And so the more you look at consumption and the more we focus on kind of getting our teams aligned on consumption, whether they be the CSM teams, our strike teams for logs or DEM or security, that ultimately is going to be the underpinning. And you'll see, over time, a convergence of those growth rates with subs growth and ARR growth. Rick McConnell: I might just add, Brad, that while we don't recognize revenue based on consumption, it absolutely is a key leading indicator. The thought process is quite simply that we want consumption to be growing faster than ARR because it is an opportunity then to utilize fully DPS contracts as we use those contracts, then renewals and expansions occur thereafter. So it is the metric of choice for our customer success organization and is where we are pressing the organization to essentially affirm our performance for customers. Operator: Next question is from the line of Eric Heath with KeyBanc Capital Markets. Eric Heath: Maybe just a clarification, Rick and Jim. Just given the focus on consumption and that's accelerating, I mean, should consumption be the key metric that we focus on over ARR and subscription revenue as an indicator for future acceleration looking into fiscal '27? And then just curious on logs and how that contributed to the $1 million ACV deals you did in the quarter. James Benson: So I'll take that. So we have a handful of metrics. What's my favorite metric? We have a handful of them. So I would not say it's one metric. Certainly, ARR is very important. But ultimately, you need to get your go-to-market motion going bring customers on the platform, once they get on the platform, have your customer success and strike teams drive more adoption. So ultimately, the underpinning, I would say, of growth will be consumption. So I do think it's something we're going to continue to want to talk to you about because that is something -- it doesn't show up like it is not a metric that we -- you see in the financial results. It's not a subs revenue. It's not ARR, it's not anything like that, but it ultimately fuels an expansion. And so it is an important metric to focus on. It's not the only one. There's other metrics, obviously, that we share. And I think your other question was on logs, and we are rapidly -- and I say rapidly, very rapidly approaching $100 million. It is by far the fastest-growing product category that we've seen a doubling of customers from a year ago that now spend over $1 million with us. We've almost seen a 4x increase in customers that spend over $500,000 a year with us. And we have a lot of customers now that are still under $100,000 that we have a huge opportunity to continue to expand with. So we're very, very happy with the progress we're making in logs. Rick McConnell: Yes. Just to add on to the logs piece, growing more than -- well more than 100% year-over-year on now what is getting to be a much larger number, as Jim said, approaching $100 million in consumption. And it is really key to emphasize what we said in the earlier remarks that not only are we saving customers a fair bit of money from legacy solutions and what they're doing today, but by incorporating logs into the overall observability mix and framework, we are delivering markedly better outcomes because you have logs, traces metrics, really user data, all in the same data lake house, it results in better outcomes. And that's what we're seeing across the board for the customers that have deployed at scale. Operator: Our next question is from the line of Mark Murphy with JPMorgan. Noah Herman: This is Noah Herman on for Mark Murphy from JPMorgan. The constant currency net new ARR results really stood out positively this quarter. Based on the guidance framework, it seems like seasonality between first half and second half of the year is more equally weighted, whereas in prior years, it seems more like a 40-60 split. So can you just maybe unpack that a little bit, the seasonality dynamics we should expect going forward? James Benson: No, that's a good question. I mean, you're right. We've historically seen more like a 40-60 or 42-58. I think it was Matt that asked earlier around our 2 6-month plan designs. I do believe with these plan designs, you will -- I don't think you're going to necessarily always have balance between the first half and the second half. But I think you're going to get closer to that because there's an incentive of the sales organization to improve linearity. We're actually seeing that. I would also say to be fair, as I said in my opening remarks, we are not demand constrained. So the pipeline is extremely healthy. This is the, I think, the fifth consecutive quarter of an acceleration in our kind of 4-quarter rolling pipeline. So pipeline trends in the demand environment is quite healthy. I think what we've done for the back half of the year is we built some prudence into the back half of the year because as we have focused more on large, high propensity to spend customers, the good news is we're seeing a significant improvement in the pipeline. But that is also coming with very large deals and very large deal sizes. So the timing variability for those deals is difficult to judge. And so we appropriately built some prudence into the back half of the year that maybe deals fall out of kind of the back half, maybe into the first half of fiscal '27. This is similar to what we talked about maybe a year ago. But I would say the pipeline is even more weighted to large deals. So we're very pleased with the pipeline. I think we just built some prudence. So we'll have to see how we execute. But I'd say I'm very optimistic with the kind of the overall go-to-market improvements we've made and the pipeline that we're seeing across the business. Operator: Our next question is from the line of Patrick Colville with Scotiabank. Patrick Edwin Colville: I guess when I think about the big macro trends in IT right now, it's accelerated public cloud migrations, it's an increased trend to multi-cloud, AI, all these trends, in my opinion, should play well into the Dynatrace story. If I look at results this year, net new ARR constant currency this year versus the back half of last year, we're in a much better spot. So I guess as it relates to these kind of macro trends, like are we seeing -- have we passed an inflection point for Dynatrace to really kind of ride this tidal wave of those macro trends? Or is this a case of these net new ARR has been has whipped around in the past and you don't over-index on these last 2 quarters? James Benson: Yes. I guess what I would say is kind of similar the remarks I just made, which is the demand environment is very healthy. So to your point about macro trends, I think we're seeing that play out in what is a significant increase in the overall pipeline and pipeline health of the business. So I kind of anchor you on that. And I'd anchor you on we had a very strong Q2, a very strong first half. Is this, hey, we don't think it's going to be as good in the back half. That's -- I don't want that to be a takeaway relative to this guide. I think we've built some prudence into the fact that as more deals become larger, we just built some timing variability into this. And we'll see how we progress in the back half of the year, but it is -- I don't think it's a demand environment element. I think the demand environment is quite healthy. And I think we are poised to benefit from that. We just built some prudence into the execution of these large deals. Rick McConnell: Yes, Patrick, I would say a very strong first half, a solid increase in the guide. We provided some of the metrics that are leading indicators for us, elements like strategic account pipeline up 45% year-over-year, large deals from the first half, up 53% year-over-year. I think these are all good indicators that are corroborating the evidence that we're seeing in what's happening in the hyperscaler results and the ongoing demand for cloud and AI native workloads. Operator: Our next question is from the line of Jake Roberge with William Blair. Jacob Roberge: Congrats on the solid results. You talked about building some prudence in the back half just related to those large deals that you have in the pipeline. Can you talk about what some of the learnings have been from the past 2 years on these larger platform deals and whether you're starting to see an improvement in win rates and close rates as you've been able to kind of tweak and adjust the model? James Benson: It's a very good question. I mean, obviously, every year is going to be a little bit different. I think when we started, Jake, I want to say this might have been in Q4 of fiscal '24, where we began to see this emergence, and we didn't call it a trend. We said this emergence of very large deals with customers that were considering vendor consolidation. And if you recall, we kind of rolled the table in that quarter. We actually -- we had an unbelievable close. I'd say we had a really strong close last Q4. And I'd say what was an emerging trend became kind of a continued trend. And I'd say this is the momentum. The sales plays that we have, this has been the #1 sales play for the company. And it's the #1 sales play because ultimately, that's what customers are looking for. Customers are looking for someone that they can consolidate what is a disparate set of tools. So I think we're learning that this trend is real. I think our sales force is well equipped. I think the company is well equipped to benefit from this. And I'd say our win rates are quite high because I think we have a very compelling proposition. So I think we're in a good place. I think it's just a matter of you've got to the timing variability of these things varies because of the size of these deals. And so you have to go through a kind of extra level of approval. And so I'm optimistic of our chances and our win rates, but we're just building some caution just into timing. Rick McConnell: Jake, I would say at a very tactical level, the interest that we see from CXOs of major organizations around the globe is increasing at a very rapid rate. I have literally done dozens and dozens of CXO meetings around the globe over the prior 3 months. The interest and mission criticality of observability has never been higher in my observation. So that continues to drive things. And what I would say is they're all interested in 1 or more of 3 things. They're interested in end-to-end observability, which is driving tool consolidation, opportunity for more efficiency, better outcomes, lower cost. Secondly, they're interested in AI observability and deploying observability for AI workloads. And thirdly, they're interested in business observability, extending observability overall to include business events that give them a better handle on the business well beyond what's just happening technically in their software stacks. And these are core themes that really have evolved, I think, over the prior year. Operator: Our next question is from the line of Matthew Martino with Goldman Sachs. Matthew Martino: Great to see the momentum in the business. Rick, you highlighted an AI native win in your prepared remarks. Can you share a bit more on what attracted this customer to the Dynatrace platform? And are you starting to see more potential opportunities within the AI space, if you could contextualize that for us? Rick McConnell: Yes, it's a great question. So let me sort of parse it into a couple of components. First, you have the companies that are our typical customers that are deploying AI workloads. Those customers we have in the hundreds already. They're deploying AI workloads using Dynatrace to provide observability. What you're getting at a little bit are the AI native companies that have developed against AI workloads. And that is where that is evolving rapidly. We are now deeply embedding with AWS services like Bedrock, Azure services like OpenAI and Foundry, Google services like Vertex, NVIDIA's AI infrastructure, et cetera. We are targeting more with our third-gen platform developer capabilities, and this is expanding interest in Dynatrace. And overall, what they're most interested in is getting deterministic answers that enable agentic action. And this is what I talked about earlier in the prepared remarks, but you cannot take action in a agentic world if you don't trust the underlying answers. And so this is where we say answers, not guesses. You have to know what the answers are in order to be able to take action. And I think this is what is increasingly attracting AI native companies to Dynatrace because that is foundational in how they need to operate the businesses autonomously as they look forward. Operator: Our next question is from the line of Ittai Kidron with Oppenheimer. Ittai Kidron: Nice results, guys. A couple of small ones for me. First of all, Rick, do you have a point of view -- clearly, you're making very good progress with DPS adoption, 50% customers, 70% of ARR. But do you have perhaps an updated point of view on where those metrics could peak for you guys, number one? And number two, when you look at the capability uptick and expansion of non-DPS customers, is there a deterioration in that, not because customers are doing less, but because the remaining cohorts are, by definition, less and less attracted to the value proposition for whatever reason that you're selling? James Benson: Yes, I will take that. So I think what we said before relative to like where do we think ultimately it will go as far as DPS penetration. And there are certain industries that DPS is problematic, and that's in like government industries that they have to actually buy finite SKUs. So we're working to see if there's a way to work around that. But I would say what we've said is that we think that we should be able to get 80% to 85% of our business onto a DPS contract. Now if we can remove some of those barriers that I mentioned, it could go even higher. But think of it as we've kind of said 80% to 85% of our business. And I don't think there's any barriers relative to customers that are on SKU to DPS. One of the things that we've done, remember, is we have been focusing on customers that have been going through new customers won, 80-plus percent of them go to DPS. And for renewals, we were only focused on moving customers on a renewal to DPS if they were doing an expansion. So if you were doing a like-for-like renewal, we were not moving them to DPS because we did not want to introduce friction into the process. We have adjusted that effective this half that we are now going to be -- for customers that are even going through a like-for-like renewal, we were having teams of people that are going to help in what I would say, portability of customers moving more to DPS. And so I think you're going to continue to see progress. I think we're going to have -- there's going to be a longer tail here between the 70% that we're at now and the 80% to 85%. But again, all the proof points that we've talked about, you get them on DPS, they can trial anything on the platform. We've proven that they have 2x the consumption growth rates. They have 2x the number of capabilities that they had, and they have much, much higher NRR. So there's a good value proposition to continue to move them. And I think we're focused on all the right things. Operator: Our next question comes from the line of Ryan MacWilliams with Wells Fargo. Ryan MacWilliams: I believe you mentioned more early DPS customer renewals in your remarks. I'd love to hear more color if early renewals of DPS customers are impacting the 3Q subscription revenue guide and the OTC guide as well. We'll just hear about those dynamics. James Benson: Yes, you're right. You picked up on Q2 was a quarter where, again, very strong net new ARR quarter. And I'd say a big piece of that is we did see customers that were on a DPS contract that renewed early. I mentioned a large global airline. They were one. We had many of them. And again, you go back to consumption. It's -- you get them on the platform, we get teams working with them on driving adoption and consumption. And ultimately, good things will happen. And that's what we're seeing. And you're right, there is a dynamic between whether a customer does an early expansion or whether they maybe go on demand. We can't really influence that at the end of the day. What I will say is we did make some compensation changes for our sales force in fiscal '26, where they get paid more for an ARR-generating expansion than they do for an OTC. And so I think inherently, they're more incented to drive an expansion. So our expectation is, I think that motion will continue. I think we're getting in front of it with customers earlier when they're running hot on their consumption and trying to see if we can put something that's compelling for them and give them better unit price if they increase their volumes, and you're starting to see that play out, and I expect that will continue. Operator: The next question is from the line of Sanjit Singh with Morgan Stanley. Sanjit Singh: On the 16% constant currency net AAR growth. I had a 2-parter, I apologize for it, but sort of around the same topic. But I was wondering if you could sort of unpack the strategic collaboration with ServiceNow and what's your hopes for that relationship over the next year from a commercial perspective? And then secondly, more broadly, when we think about making that evolution to that more proactive self-healing type system, when you think about capabilities around ITSM, which you're partnering with the leaders there. But also when you think of like, okay, if we need to drive some code fixes, how do you think about sort of the DevOps platform? Is that another area for partnership or a potential further organic expansion of the Dynatrace platform? Rick McConnell: Thanks, Sanjit. I'll take those. So first, on the ServiceNow partnership, we are delighted with that strategic collaboration that we announced a couple of weeks ago. You can think about it as ServiceNow connecting and automating workflows. We then, as Dynatrace, provide the precise answers to inform those workflows. So it really is an incredible opportunity. Even over the past couple of weeks, I've met with, I don't know, half a dozen customers. Every single one of them mentioned the ServiceNow relationship with Dynatrace and wanting to leverage it to better connect our solutions. We do loosely coupled connections today, but this collaboration with ServiceNow enables us to really engage much more deeply on the product side to provide a much better experience for joint customers, and there's a huge overlap in our customer base with ServiceNow customers. So that's point number one. We are also pleased that as part of that announcement, we're deploying ServiceNow. ServiceNow is deploying Dynatrace for digital -- for some of their digital operations. So that makes us essentially customer 0 for -- on both sides for these integrations. So we think that, that will be a wonderful proof point to customers as to how to best use these technologies together in a very symbiotic way. So that's on the ServiceNow side. As we look at sort of more proactive integrations around code and others, we talked about GitHub. We talked about Atlassian. Our view of the world is quite simply that we have the answers that are trustworthy and precise. We will enable those answers to become exposed through a series of APIs, whether through an MCP server or otherwise for either Dynatrace agents or third-party agents in the ecosystem, be they through Atlassian, GitHub, hyperscaler, ServiceNow to then take action as appropriate to then deliver autonomous operations. And that is precisely what the evolution is that we're seeing in observability, one from reactive to proactive to predictive to now autonomous. And that is -- this is our vision. This is the directional heading of observability, and this is where we can really deliver for customers software that, as per our vision, works perfectly. Operator: The next question is from the line of Howard Ma with Guggenheim Securities. Howard Ma: I want to extend my congratulations on a strong quarter as well. My question is, do you think the sales comp change to incent ARR over on-demand consumption? Is that the primary reason for customers opting to early renew? And is it the primary reason for the lowered ODC expectations in the back half? And on a related note, are the expansions tied to the early renewals above your expectations? James Benson: So it's tough to gauge whether compensation is the only driver. Certainly, compensation does drive behavior. But at the end of the day, the customer has to be willing. And so I think what we're -- now that we're a year into this, I think we're much more proactive with customers and understanding what's going on within their environments from a consumption perspective. So I think it's a good thing that the sales organization is very tightly coupled with the customer around how their consumption is driving and working with them, is there a win-win where we can extend our business with them and give them more favorable unit pricing as a result of that. And so I think it's -- yes, compensation probably does drive some of behavior, but I also think that ultimately, it's much more proactive with customers in their journey and their life cycle around what they're doing around observability. I mentioned logs being an area, new areas, new use cases, sales is looking for those things and doing an early expansion helps with that. And whether or not it exceeded our expectations, the answer to that is yes. We absolutely exceeded our expectations that we are -- we've seen more of that than we even expected. Operator: Our final question comes from the line of Andrew Sherman with TD Cowen. Andrew Sherman: One for Jim. How would you compare and contrast your visibility now versus a year ago given where you've come with the go-to-market changes? Do you have better visibility? It sounds like certainly better sales execution and close rates. Anything else we should consider as we look into the second half? James Benson: That's a great question. I would say visibility and confidence is greater now than it was a year ago. A year ago, we were kind of adding a lot of sales reps. We were kind of changing a bunch of things. We were maturing that process. And we were beginning to see the evidence of that at this time last year. We're 1.5 years into it now. I think we are well established. I think the -- our geographies are performing at a very high level. I think our visibility and focus on growing pipeline and seeing that pipeline close is better than ever. Having said that, going back to my point around when you have large deals like this, you factor in what is the -- your timing certainty. So I feel really good. I think we have good visibility. We have good conviction that we're going to have a good back half to the year. We'll just see how it plays out. Rick McConnell: All right. Well, thank you all for your engaged questions and ongoing support. As always, to close, we delivered a strong first half of the fiscal year, and we are confident in the foundational elements underpinning our growth. We look forward to connecting with you all at IR events over the coming months, and we wish you all a very good day. Thanks for joining. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines, and have a wonderful day.
Fabian Joseph: Hello, everyone. This is Fabian Joseph from Investor Relations. On behalf of my entire team, I would like to welcome you to our Q3 2025 conference call. Joining me today are our CEO, Guido Kerkhoff; our CFO, Oliver Falk; and our CEO, Americas, John Ganem. They will guide you through the presentation. And afterwards, we're happy to answer your questions. [Operator Instructions] With that, I'd like to hand over to you, Guido. Guido Kerkhoff: Yes. Thank you, and welcome to our Q3 '25 conference call. Looking back at a quarter characterized by a persistently challenging market environment and decreasing steel prices in the U.S. Despite these developments, we delivered another solid performance. This confirms our strategic path and our successful development. I will now begin with the financial highlights of the quarter. Shipments came in at 1,440 tonnes, showing a slight year-over-year improvement. This development was mainly driven by the continued positive performance of our segment Kloeckner Metals in Americas but still supported by shipments in our segment Kloeckner Metals Europe, which increased slightly, which is pretty different to what the market outcome overall is in Europe, but we could increase slightly after a couple of quarters where we were shrinking. Sales came in at EUR 1.6 billion, which is a slight decrease year-over-year despite the positive shipment development. This was due to a lower average price level compared to the same quarter last year. We achieved a considerable year-over-year increase in gross profit, whereas gross profit of last year's quarter was particularly affected by windfall losses due to the significant steel price correction in Q3 '24. Gross profit margin also improved considerably compared to the previous year's quarter. EBITDA, therefore, before material special effects came in at EUR 43 million, a considerable increase year-over-year and results in line with our guidance. Despite the ongoing challenging market environment in Europe, our segment Kloeckner Metals Europe generated a positive EBITDA contribution for the first time since 2023. We'll take a closer look at the segment's performance afterwards. Due to a temporary net working capital increase, especially at our segment Kloeckner Metals Americas, operating cash flow came in negative at EUR 118 million in the third quarter. I would like to highlight that this negative OCF is driven neither by weak operating business nor by higher inventories. This development is rather driven by trade payables and trade receivables to some degree, which we expect to reverse in Q4. It was largely driven by orders on material end of Q2 where the payables and the cash outflow came in, in Q3. So Q2 was comparatively a bit overstated and Q3 is weaker. So, you should look at the quarters rather together than just look on Q3. And you'll see in our guidance for Q4, it will reverse and will be on a track like in our guidance so far. Consequently, our net debt financial -- net debt increased compared to level in Q3, but will come down then in Q4 again. Let's have a look at our performance in Q3 '25 by segment. Now segment Kloeckner Metals Americas shipments increased slightly year-over-year in Q3. After reaching a record level in Q2, shipments decreased slightly quarter-over-quarter, which is largely attributable to seasonality. Nevertheless, the volume was the highest we've ever achieved in the third quarter and would be even stronger if we excluded shipments from our divested Brazilian entity in Q3 '24. We're moving on a constant high level, demonstrating that our North American growth strategy really works. However, due to the lower average price level year-over-year, sales Q3 came in slightly below previous year's quarter. Prices have decreased significantly compared to the temporary repeats in Q2 and remain volatile. EBITDA before material special effects came in at $44 million in Q3, which is a considerable increase compared to last year's quarter. In our segment Kloeckner Metals Europe, shipments came in slightly increased sales slightly down compared to previous year's quarter. For the first time since '23, our Kloeckner Metals Europe segment achieved a positive EBITDA contribution despite the persistently weak demand and increased economic uncertainty. This clearly demonstrates that our consistent strategy implementation and optimization efforts are really paying off strongly in the U.S., but even to see in Europe. We're on a better track and again, our self-help measures help us to get out of it. Now let's have a look at our strategy implementation during the third quarter. We further intensified our focus on higher value-added and service center business as becoming the leading metal processor and the leading service center company in North America and Europe by 2030 is our strategic goal. First, let's have a look at our segment Kloeckner Metals Americas. United States, we announced divestments of 8 distribution sites of Kloeckner Metals, 7 of which we intend to sell to Russell Metals and 1 to Service Steel Warehouse. For the 7 sites intended to be sold to Russell, we agreed on a purchase price of approximately USD 119 million based on a net working capital as of June 30, '25, which would result in a book profit of over $20 million. The final purchase price remains subject to closing net working capital and other normal course adjustment. We've mutually agreed not to disclose details of the sale of Service Steel warehouse. The fact that we are able to sell business at a premium that are on group level on the lower end of profitability demonstrates the underlying value of our assets. In the fiscal years '23 and '24, the 7 sites contributed an average annual EBITDA before material special effects of around EUR 9 million per year to our consolidated financial statements. As this number roughly matches the future EBITDA contribution planned internally for these sites, we believe this should represent a performance indicator for them as well. Divestment not only allows us to reduce our group debt level but also creates the opportunity to reallocate capital towards our higher value-added and service center business. We expect to close the deals in December of this year. Segment Kloeckner Metals Europe, we further expanded our defense and infrastructure footprint. We received an official certification for processing armor materials for the German Federal Armed Forces at our site in Kassel, Germany. By doing so, we complete our existing approval for Ambu Steel, successfully integrating the company after its acquisition earlier this year. With that, we're preparing for upcoming large-scale defense orders in Europe by leveraging our capabilities and also our financial strength, providing a clear advantage over smaller competitors. Now let's have a closer look at our improved earnings profile following the closure of 8 U.S. distribution sites. Following recent successes, the U.S. divestments marked the next step in our transformation to the leading service center company in metals process in North America and Europe, positioning us for higher profitability and sustainable growth. Over the past years, we have strengthened our higher value-added and service center business to lower our exposure to steel price developments and thereby reduce the volatility of our results while increasing our underlying profitability. We improved our earnings profile by increasing the share of our higher value-added and service center business. The acquisition of specialized North American companies such as NMM, IMS, Sol Components and Amerinox enhances our capabilities in precision metal processing, component supply and service center operations, making them strategically valuable additions. NMM complemented our already existing footprint within the automotive industry in North America and also gave us access to electrical steel. With IMS, we significantly expanded our metal fabrication business in the U.S. Sol Components is a U.S. market leader in integrated structural solutions for solar installations. The acquisition positions Kloeckner Metals to play a bigger role in North America's transition towards renewable energy. Further, we extended our service portfolio with Amerinox and polishing and high-drose finishing in order to support the development of more competitive global supply chains. Also, we divested part of our European distribution business, which by the time of the divestment accounted for 10% of group sales, but 20% of our FTEs. Our latest achievement on our way was the aforementioned divestment of the 8 sites in the U.S., with which we focus on selling distribution sites with a low EBITDA contribution throughout the cycle. Our portfolio optimization is complemented by organic initiatives. Targeted investments, we have developed selected sites from sole focus on distribution to high-quality processing and metal working. Our strategic shift towards higher value-added and service center business is clearly reflected in the numbers. 2019, 63% of our sales came from these businesses. And as of the first 9 months of '25, the share has increased to 81%, a significant increase of 18 percentage points. If we exclude the sites in the U.S. that we've agreed to sell, the sales share of higher value-added and service center business would be at 87%, an increase of 24 percentage points compared to the starting base in 2019. These businesses offer higher profitability while significantly reducing our exposure to steel price developments together with the volatility of our results. With that, over to you, Oliver, for further financial insights. Oliver Falk: Yes. Thank you. As Guido said at the beginning, steel prices in the U.S. were subject to a considerable decrease during the quarter as illustrated in the upper part of the slide. At the beginning of the year, hot-rolled coal prices in the U.S. increased significantly following the introduction of new tariffs. After reaching a temporary peak in the second quarter, they started decreasing due to weak underlying demand. In Europe, new tariffs are currently awaiting approval by the European Commission. The measures will have the tariff-free import quotas and double tariff rates for quantity exceeding these quotas. Prices could therefore continue to increase. As part of our local-for-local business model, we do not import significant volumes from third countries. Therefore, we do not expect direct effects from those tariffs. Coming to our EBITDA before material special effects, we achieved a considerable increase year-over-year. In total, we generated EUR 43 million in the third quarter. In the first 9 months of '25, EBITDA before material special effects came in at EUR 150 million, which also represents a considerable increase year-over-year. As Guido mentioned beforehand, our strategy continues to focus on higher value-added and service center business with increased profitability and reduced dependence on the volatile steel prices as demonstrated by our latest divestment. Our net working capital came in elevated quarter-over-quarter. According to IFRS 5, positions linked to the planned sale of 8 distribution sites in the U.S., amounting to EUR 68 million, are already excluded. The temporary high net working capital, especially in the segment Kloeckner Metals Americas, is the main driver for our negative OCF of EUR 118 million in the third quarter of '25. Nevertheless, we expect a significantly positive operating cash flow for the full year '25, driven by a strong cash flow in quarter 4 of this year. As part of our operational excellence pillar within the Klöckner & Co, leveraging strength Step 2030 strategy, we continue to leverage our extensive expertise in automation and digitalization. With our efforts, we have been able to increase the number of our digital quotes by 8.9% year-over-year in the first 9 months of '25. Let's take a look at our shipment sales, gross profit, and gross profit margin for the third quarter of '25. Shipments came in slightly above previous year's quarter, mainly driven by our segment Kloeckner Metals Americas. Sales decreased slightly year-over-year due to the overall lower average price level and came in at EUR 1.6 billion in quarter 3. Gross profit came in at EUR 295 million in quarter 3 after EUR 262 million in quarter 3 2024, a considerable increase year-over-year. Also, gross profit margin increased considerably year-over-year from 15.9% to 18.3%. We will now turn to the EBITDA development in quarter 3. The volume effect was positive, contributing EUR 5 million in the third quarter as shipments increased slightly year-over-year. We also benefited from a positive price effect of EUR 36 million compared to the same quarter last year, which contributed significantly to the result, as negative windfall effects of last year's quarter have not recurred. OpEx increased by EUR 16 million year-over-year, mainly driven by higher personnel and transportation costs. We experienced negative FX effects of EUR 3 million year-over-year, mainly driven by the weaker U.S. dollar, which impacted the translation of earnings from our U.S. operations. Consequently, EBITDA before material special effects came in at EUR 43 million. Material special effects of minus EUR 7 million mainly relate to restructuring initiatives. Therefore, EBITDA after material special effects came in at EUR 36 million. We are now coming to cash flow and net development. In the third quarter of '25, we had a net working capital increase of EUR 144 million year-over-year, mainly due to trade payables and trade receivables in our Americas segment. I would like to highlight again that this net working capital buildup is temporary and will reverse in quarter 4. Taking into consideration interest, tax payments, and other items totaling to EUR 10 million, our cash flow from operating activities came in negative at EUR 118 million in quarter 3. Including net CapEx of EUR 23 million, free cash flow was negative at EUR 141 million. Let's have a look at our net financial debt. Positive effects were visible for leasing and FX translation. Taking our negative free cash flow into account, our net debt consequently increased from EUR 870 million at the end of the second quarter to EUR 1.03 billion in quarter 3. Nevertheless, we continue to possess a diversified financing portfolio with a total volume of EUR 1.3 billion, excluding leases, with more than EUR 0.4 billion unused lines available. In July 25, we renewed the European ABS program ahead of schedule, extending it until 2028 with improved terms and an adjusted volume reflecting the sale of parts of the European distribution business. This improved our maturity profile further. Additionally, we expect a significantly positive operating cash flow for the full year '25, which will be further supported by the proceeds from the sale of the 8 U.S. distribution sites, leading to a reduction in net debt. I'll now hand over to John to have a closer look at our end markets in North America. George Ganem: Thank you, Oliver. Let me start with a general overview of the market situation in North America. The U.S. economy is forecasted to have expanded again in the third quarter of 2025, but the forward outlook remains somewhat uncertain and difficult to assess. Stubborn inflation, weak consumer confidence in a slowing labor market, all pose risks for short-term economic growth prospects. Despite a still expanding economy, the metals-intensive manufacturing sector continues to face significant pressure, with the ISM index indicating contraction now for 8 consecutive months. As such, demand for metals in both the U.S. and Mexico has been constrained over the first 9 months of 2025, and this is likely to persist through the end of the year. This is evidenced by the latest industry benchmark third quarter service center industry shipments declined by 2.9% year-over-year and 4.3% quarter-over-quarter. These negative trends are likely driven by aggressive destocking across most metal supply chains as OEMs and other major steel buyers work to rebalance supply better align with expected future demand. As a result, we now expect North American real metals demand, excluding the temporary impact from destocking, to be generally flat year-over-year. Now, looking at the expected development in specific market segments. Construction activity is moderating, and both residential and nonresidential building square footage are forecasted to be generally stable to slightly down in 2025. However, nonbuilding investment and infrastructure are forecasted to grow strongly and will continue to provide an offset to the flat year-over-year trends in the building sectors. All segments are expected to return to a positive growth trajectory heading into 2026 by lower mortgage rates. Manufacturing activity continues to be under pressure, as previously mentioned. We expect the situation near term. New orders for industrial and off-highway equipment are expected to be down up to 5% in 2025, depending on the specific segment. However, current forecasts from key large OEMs are actually improving modestly in the second half of 2025 as supply chains now appear well-balanced after a significant destocking cycle that began in the second half of 2024. Trade policy clarity and lower interest rates should help these key steel-consuming segments regain even more positive momentum in 2026. Turning to transportation. This segment has been the most impacted by changing trade policy as well as the removal of EV tax credits. As a result, North American production has been declining and is now expected to be down by approximately 1% year-over-year in both the U.S. and Mexico. Auto sales have been fairly resilient, so we expect positive growth in production to return once automakers can adjust tariff-impacted supply chains and implement new production strategies in response to changing consumer demand and trade policy dynamics. On the defense shipbuilding front, activity remains very positive with Klöckner's current defense programs set to grow strongly with large contract commitments recently awarded. We also continue working closely with key mill partners to position ourselves strategically to support and benefit from what is expected to be a massive increase in defense shipbuilding investments over the next decade. Demand from appliance, HVAC, and electrical, which are key segments for KMC Americas, has come under some pressure in Q3 2025 due to destocking after holding somewhat steady through the first half of the year. For the full year, these segments are now expected to be stable to down slightly. We'll note, however, that 2024 was a very strong year for these industry segments, meaning that despite the flat growth expectations for 2025, overall demand will remain at strong levels in absolute terms. Energy continues to be the most active steel-consuming segment with positive growth expectations for extraction activity and a solid pipeline of both renewable power and power transmission projects. While renewable growth may come under pressure in future years due to recent changes in government policy, it continues to be a significant growth driver in 2025. Additionally, power transmission-related growth is expected to remain extremely strong and should be up approximately 20% year-over-year. Modernizing and expanding the North American transmission infrastructure is critical to support the expected demand increase for electricity across North America, especially in support of data centers. I will end with a few final comments. Despite short-term market demand headwinds, the Klöckner Americas business generated record 3-quarter shipments, as Guido previously mentioned, as we continue to grow and gain share in a market where service center shipments have been consistently declining. Excluding discontinued operations, our third-quarter year-over-year growth was greater than 6%. These strong growth trends are driven mainly by large energy projects and new automotive and industrial contractual programs, which required a prebuild of inventory in the late second quarter. This caused a temporary increase in third-quarter accounts payable and receivable, which both Oliver and Guido mentioned earlier, and this negatively impacted operating cash flow temporarily. The new projects and programs are now ramping up to full production, and inventories have already been reduced by greater than 10% and more significant reductions are planned. This positive development will generate a strongly positive operating cash flow in both 4Q and the full year, as previously mentioned. So, in conclusion, despite recent market challenges, we remain very optimistic about the long-term demand fundamentals in both the U.S. and Mexico. Our positive and resilient year-to-date results are clear proof that our high value-add investment strategy is working and has allowed KMC Americas to deliver a solid overall performance despite weaker-than-expected demand and continued price volatility. We are confident our positive results will continue and even accelerate as we head into 2026 as already approved investments come online and begin contributing in a more meaningful way. I will now turn it back over to Guido for some final comments. Guido Kerkhoff: Thanks, John. Overall, here in Europe, short-term, we don't see a significant change in expected wheel steel demand in Europe. Therefore, we reiterate stable to slightly negative development of around minus 1% in '25, which is unchanged from our last conference call. However, if we take a look -- a slight look into '26 and the sentiment and outlook there, based on the slight improvements we've seen on our self-help measures and growing, it seems that the underlying sentiment here in Europe and especially in Germany is slightly improving and doesn't continue to be as negative as we've seen. So it might be that we've seen the bottom right now and can start to develop from the market and especially from our own position as it seems we are slightly growing again here on volumes. Together with that, as we mentioned before, the European Commission proposed doubling import tariffs on steel and reducing the duty-free import quarter. Approval from the European Parliament and EU member states is still pending, but let's continue, therefore, with an outlook on our core industries, but the price hikes that are coming out of that and the stabilization of the tariffs should help on the market to develop a bit better going forward as well. And now coming to the sectors, starting with construction industry. We continue to expect a broadly stable development into '25, consistent with the outlook provided on our last call. Effects of past monetary easing are beginning to feed through while weaker economic conditions continue to weigh on construction activity. However, structural growth drivers remain supportive of German infrastructure spending, providing mid-term growth. Manufacturing, machinery and mechanical engineering continue to expect a slightly negative sector outlook for '25, which is consistent with the Q2 call, reflecting market contraction as uncertainty and softer external demand weigh on activity. Tariffs and ongoing competitive pressures from Asia are dampening production and investment, particularly in Germany's export-oriented machinery industry. Monetary easing provides some short-term support, but elevated uncertainty limits firms willingness to invest. Germany's fiscal stimulus package and rearmament initiatives will support medium-term growth in defense-linked sectors. We continue to position ourselves to benefit. Transportation. Let's first focus on automotive sector, where we also see no major change since our last call. We continue to expect slightly negative development in '25 uncertainty remains elevated and consumer confidence at low levels. The export ban on the next period ships from China pose a threat to supply chain with the potential for short-term production costs and rising input costs in the automotive sector, downside risk to our outlook. Now coming to shipbuilding. While the outlook for the commercial shipbuilding segment improved slightly compared to last quarter, substantial upturn is not expected until late next year. For the great ship sector, we are well-positioned to benefit from upcoming defense-related demand, but no notable uptick is expected before late '26, and we anticipate German defense spending will begin to increase. Household and commercial appliances segment with marginal impact on our European businesses, no major changes since the last call and continue to expect a slightly negative development. The energy industry, this sector is expected to have constant development in '25 with no major changes since our last update call. However, long-term demand remains supported by the electrification of transport and heating. Let's now turn to the financial outlook for the full year '25. We still expect EBITDA before material special effects to come in between EUR 170 million and EUR 240 million, a considerable increase year-over-year. The guidance is unchanged compared to our Q2 call. However, given the performance that we are now on the lower end of the guidance, we would expect for the full year in line with the quarter to be there. Further, we continue to expect operating cash flow to be significantly positive, driven by a strong operating cash flow in Q4. We're now happy to answer your questions. Fabian Joseph: [Operator Instructions] There's no questions. So, I will then give to it Guido for final remarks. Guido Kerkhoff: Yes. Thank you all for listening. It obviously looks like we've answered everything in advance. But in case it is not, don't hesitate to call us or Fabian and the whole IR team. So, thank you very much, and talk to you soon.
Operator: Good morning, and welcome to the Jack Henry First Quarter and Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Vance Sherard, Vice President, Investor Relations. Please go ahead. Vance Sherard: Thank you, Jeannie. Good morning, and thank you for joining the Jack Henry First Quarter Fiscal 2026 Earnings Call. Joining me today are Greg Adelson, President and CEO; and Mimi Carsley, CFO and Treasurer. Following my opening remarks, Greg will share his comments on our quarterly results, operational metrics and the outlook for the remainder of fiscal '26. Mimi will then discuss the financial results and updated fiscal '26 guidance provided in yesterday's press release, which is available on the Investor Relations section of the Jack Henry website. Afterwards, we will open the lines for a Q&A session. Please note that this call includes forward-looking statements which involve risks and uncertainties that could cause actual results to differ materially from our expectations. The company is not obligated to update or revise these statements. For a summary of risk factors and additional information that could cause actual results to differ materially from such forward-looking statements, refer to yesterday's press release and the risk factors and forward-looking statements sections in our 10-K. During this call, we will discuss non-GAAP financial measures such as non-GAAP revenue and non-GAAP operating income. Reconciliations for these measures are included in yesterday's press release. Now I will hand the call over to Greg. Gregory Adelson: Thank you, Vance. Good morning, and I appreciate each of you joining today's call. I'd like to begin by thanking our associates for their hard work and unwavering commitment to our key differentiators, culture, service, innovation, strategy and execution. I will share 3 key takeaways from the quarter and then provide additional detail about our overall business. First, our financial performance. We produced record first quarter financial results with non-GAAP revenue of $636 million, up an impressive 8.7% over last year's first quarter. That significantly exceeds the 7% to 7.5% increase we anticipated in August. Our non-GAAP operating margin was 27.2%, representing a robust 227 basis points of margin expansion over last year's Q1. Second, our sales performance, starting with migrations from in-house processing to our private cloud. In Q1, we signed 7 contracts to move existing clients to our private cloud, including a $11 billion asset credit union and an $8 billion asset bank. Notably, the asset size of clients migrating to our private cloud was 60% higher over the past 12 months, $43 billion versus $69 billion, while the number of deals has remained consistent with previous years. As a reminder, we earn on average approximately 2x more revenue from clients in the private cloud compared to those on-premise. Today, 77% of our core clients are operating in the Jack Henry private cloud. Turning to new core sales. As many of you know, the first quarter is typically our lightest of the year. In Q1, our sales team earned 4 competitive core wins, including 1 financial institution with over $1 billion in assets. For context, last year, we started with 6 competitive core wins in Q1 and finished the year with 51. We remain confident that we will be within that range again this year as we are off to a very strong start in Q2. I also want to comment on the new sales procedures we implemented for the contract renewals about 6 months ago, which has resulted in a healthier balance between new sales and renewal contracts as well as improved pricing procedures. Our Q1 fiscal year '26 deal mix was 44% new core sales and 56% renewals compared to 35% new sales and 65% renewals in Q1 last year. We expect this trend to continue throughout the fiscal year. Third, our annual client conference. In September, we hosted another highly successful Jack Henry Connect conference in San Diego, drawing a record 2,651 clients. This is our largest event of the year and a major driver of new business opportunities. We had a record 91 prospects from 30 banks and credit unions. This is important to note because 20 of last year's new core wins came from prospects who attended Jack Henry Connect, underscoring the strategic value of this event. Additionally, the conference drew 48 consultants and our technology showcase featured 266 third-party fintechs, both all-time highs. We also had a record attendance at our annual CEO Forum, hosting 211 CEOs. Overall, attendees expressed less concerned about the macro economy than last year and plan to continue investing in technology to enhance their digital capabilities, strengthen fraud protection, improve efficiencies and modernize their businesses. Next, I'd like to highlight several important announcements we made in the quarter. I'll start with our acquisition of Victor Technologies, which closed on September 30. We're excited to welcome the Victor associates to the Jack Henry family. We are equally excited about this technology as we leverage the capabilities to create new opportunities for our clients and the many fintechs serving the financial industry. As you've heard me say, our acquisition strategy targets companies that have great teams, are cloud-native, API-first and accelerate our product road map, Victor fits that strategy perfectly. Victor's modern innovative platform with direct-to-core connectivity enables financial institutions to embed payment capabilities into third-party nonbank brands such as fintechs and commercial customers. This helps financial institutions grow deposits, diversify fee income and maintain compliance controls. For Jack Henry, Victor provides a highly scalable solution that creates diverse revenue streams, enhances our payments-as-a-service capabilities and accelerates the delivery of emerging services like stablecoin. Victor was already integrated with our SilverLake core banking system and our Jack Henry PayCenter prior to the acquisition. We plan to extend its capabilities to serve our Symitar credit union and treasury management clients and to integrate directly with the new cloud-native Jack Henry platform. I will now provide an update on stablecoin as we've been actively developing and executing our strategy. We just completed a proof of concept in less than 2 weeks to allow financial institutions to send and receive USDC. We continue to work with key vendors and emerging fintechs on other aspects of our strategy, which includes the development of wallet, custody and settlement services for our clients to service their account holders. Furthermore, the new Jack Henry platform supports 9 decimal places, well above the 6 required for USDC, positioning us very well for both stablecoin and tokenized deposits. By contrast, most, if not all, existing core support only 2 decimal places. This advancement has already enabled us to facilitate cross-border stablecoin transactions for third parties through Banno. Another key development this quarter was the launch of our cloud-native Tap2Local merchant-acquiring solution. Tap2Local is offered exclusively through banks and credit unions, giving them a powerful way to win back deposits from small- and medium-sized businesses that have shifted their card acceptance activities to other providers. Tap2Local primarily targets the 82% of SMBs that are sole proprietors. Today, only 16% of sole proprietors keep both their retail and commercial accounts at the same community financial institution, largely due to the lack of SMB-focused services. Built in partnership with Moov, Tap2Local delivers differentiated capabilities for SMBs, including easy enrollment, tap to pay on both iOS and Android devices without additional hardware and continuous account reconciliation to the accounting platform of their choice. We showcased a live demo of Tap2Local at Jack Henry Connect and received fantastic feedback. We are currently rolling it out in phases to our Banno clients. We rolled out the initial phase of 40 clients on Monday of this week. We also did a live on-stage demo of Jack Henry Rapid Transfers at the conference. In partnership with Moov, we conducted more than 1,000 additional demos of this solution in the technology exhibit hall. Rapid Transfers enables both SMBs and consumers to instantly move funds between external accounts, eligible cards and digital wallets to manage day-to-day transaction and personal finances. There are only a handful of institution offering this service today, 0 were community financial institutions until now. We are collaborating with both Visa and Mastercard to facilitate these transactions through their respective debit rails. Rapid Transfers is receiving strong initial reviews with 48 clients now live and 126 more in various stages of implementation. These unique solutions are all powered by the cloud-native API-first infrastructure we've built through our technology modernization strategy and are part of the Jack Henry platform. This strategy has enabled us to accelerate our innovation at speeds not typically seen in our industry, especially from a core provider. We developed our Tap2Local and Rapid Transfers solutions in less than 10 months, including close to 40 external certifications. We developed a full proof concept of USDC in only 2 weeks, and we will be launching our public cloud native deposit-only core in only 3 years, still on schedule for the first half of calendar 2026. The new Jack Henry platform is integrated with all of our existing cores. Unlike most of our competitors, it's not a side core, which is a separate parallel system that runs alongside the primary core. Side cores do not integrate directly with nor do they extend existing cores to enable new and enhanced use cases in the way the Jack Henry platform does. This integration delivers significant advantages to our clients, including real-time processing, streamline operations, open API connectivity, enhanced security and immediate continuous upgrades. Next, I'll provide a few updates on specific products. In our payments segment, we continue to experience outstanding growth in our faster payment solutions. Over the past year, the number of financial institutions using Zelle has grown by 20%, the Clearing House's RTP network by 25% and FedNow by 32%. In Q1, payment transaction volume through these channels increased by 55% over the prior year Q1. In our complementary segment, we signed a total of 38 new Financial Crimes Defender and faster payment module contracts in the quarter. As of September 30, we have 148 financial crimes installations completed and another 66 in various stages of implementation. We also have 113 faster payment modules installed and 205 in various stages of implementation. Speaking of Financial Crimes Defender, we are proud that our solution recently won a silver medal from Datos Insights for Best AML and Fraud Transaction Monitoring Innovation. Continuing with our complementary segment, we continue to see success with our Banno Digital Platform. For the quarter, we signed a total of 18 new clients to the Banno platform. We currently have 1,026 Banno retail clients and 390 live with Banno Business. We finished the quarter with 14.7 million registered users on the Banno platform. At the end of Q1 last year, we had 12.7 million registered users, a 15% increase over the past 12 months. We are confident that the tech spending will remain strong based on recent surveys, direct feedback from our clients and our robust sales pipeline. In Bank Director's 2025 Technology Survey that came out in September, 71% of respondents reported an increase in their bank's technology budget for fiscal year 2025 with a median increase of 10%. These results align with findings from our strategy benchmark published last spring. In that survey, 76% of our own clients said they plan to increase spending over the next 2 years with their top priorities being digital banking, fraud prevention, automation, cybersecurity and AI. Speaking of AI, we continue to focus on numerous product and internal use cases to help our clients and our staff improve back-office efficiency. Our new solutions are built with a human-in-the-loop approach. And while reviews are still early, feedback has been extremely positive. We have created over 100 internal AI use cases, while we continue working through prioritization, these efforts have already enabled us to control headcount additions from the improvements we have seen across all lines of business. As a reminder, we do not sell any of our products utilizing a seat license model. So factors such as the number of branches or employees at the bank do not have a bearing on our revenue stream. Looking ahead, we will hold our Annual Shareholder Meeting next week in Monett, Missouri and offer a webcast for remote viewers. We're also proud to recognize the 40th anniversary of our IPO this month and will commemorate the milestone with a bell ringing at NASDAQ on November 21. In closing, we are extremely pleased with our overall Q1 performance and remain highly optimistic about the rest of the year. I know -- I'll now hand things over to Mimi to walk through the financial details. Mimi Carsley: Thank you, Greg, and good morning, everyone. Our associates remain steadfast in serving our financial institution clients, delivering shareholder value, leading to another quarter of solid revenue and earnings growth. I will begin with our healthy first quarter results, then conclude with our updated fiscal '26 guidance. Q1 GAAP revenue increased 7% and non-GAAP revenue increased 9%, a continuation of consistently solid performance. Non-GAAP revenue growth was positively impacted by the shift of our Connect client conference into Q1 from Q2. Even without this timing shift, quarterly revenue growth would have been a robust 8%. First quarter deconversion revenue of approximately $9 million, which we previously announced was up approximately $5 million, reflecting a steady pace of M&A activity among financial institutions. Now let's look more closely at the details. GAAP services and support revenue increased 6% for the quarter, while non-GAAP increased 8%. Services and support growth during the quarter was primarily driven by strength in data processing and hosting revenue for both private and public cloud, revenue from our Connect conference and solution implementation. Private and public cloud offerings continue to drive strong growth. Cloud revenue increased 7% in the quarter. This reoccurring revenue contributor is 30% of our total revenue. Shifting to processing revenue, which is 42% of total revenue and another strategic component of our long-term growth model. We saw a healthy performance with 10% GAAP and non-GAAP growth for the quarter. Consistent with recent results, quarterly drivers included increased card, digital and payment processing revenues. Completing commentary on revenue, I would highlight total reoccurring revenue exceeded 91%. Next, moving to expenses. Beginning with the cost of revenue, which increased a modest 1% on a GAAP basis and 4% on a non-GAAP basis for the quarter. Drivers for the quarter included higher direct costs consistent with revenue growth, higher personnel costs, partially offset by lower benefits and increased amortization of intangible assets. For modeling purposes, amortization of acquisition-related intangibles was $6 million for the quarter. Next, R&D expense decreased 1% on both a GAAP and non-GAAP basis for the quarter. The quarter decrease was primarily due to tempered net personnel costs. And ending with SG&A expense for the quarter on a non-GAAP basis, it increased 14% and 9% on a GAAP basis. The quarter increase was primarily due to the timing of our Connect client conference, increased personnel service costs, higher net personnel costs, partly offset by lower commission and benefit costs. Without the Connect client conference costs, SG&A would have increased 12% on a non-GAAP basis and 7% on a GAAP basis. Aided by our consistent revenue growth, we remain focused on generating annual compounding margin expansion. Q1 delivered a 227 basis point increase in non-GAAP margin to 27%. Non-GAAP margin benefit from inherent leverage in our business model, strategic cost management and leveraging existing workforce as we continue to focus on enterprise process improvement and AI utilization. These strong quarterly results produced a fully diluted GAAP earnings per share of $1.97, up 21%. Reviewing the 3 operating segments, we are pleased to see positive performance across the board. Core segment non-GAAP revenue increased 6% on the quarter with operating margins increasing a robust 114 basis points. We continue to gain benefits from private cloud trends and disciplined cost management. The payments segment quarterly non-GAAP revenue increased 8%. The segment again had outstanding non-GAAP operating margin growth with quarterly results of 170 basis points. Revenue growth was due to resilience in our card-related services, consistent growth in the EPS business and large -- continuing large percentage growth on faster payments, albeit on a smaller dollar base. Margins benefited from operational efficiencies and disciplined cost management. Finally, complementary segment quarterly non-GAAP revenue increased an impressive 9% with healthy 75 basis points of margin expansion. Quarterly revenue growth continued to reflect digital solution demand, beneficial product mix and sales sourced from both new core wins and noncore financial institutions. Now a review of cash flow and capital allocation. Q1 operating cash flow was $121 million, a $4 million increase over the prior fiscal year. Quarterly free cash flow of $69 million delivered by a $10 million increase was positively impacted by the collection of remaining annual maintenance billings and full tax depreciation and development expenses related to recent tax legislation. Our consistent dedication to value creation resulted in a trailing 12-month return on invested capital of 22% compared to the 20% in the first quarter of the prior year. We're very proud of the durability of this metric performance. Additionally, I would highlight the following significant capital allocation decisions, $100 million in share repurchases year-to-date through October, the asset acquisition of Victor and $42 million in dividends paid. We ended the quarter with a minimal amount of debt consistent with normal course revolver line usage but expect to end the year debt-free, barring acquisitions or other opportunities. I will now discuss the updated increased full year guidance. As you're aware, yesterday's press release included updated increases to fiscal '26 full year GAAP guidance. Deconversion guidance will continue to follow the conservative methodology introduced in fiscal '24. Fiscal '26 deconversion revenue guidance has been increased to $20 million. Aligned with guidance methodology, we will update the outlook as we confirm more activity throughout the year. Full year GAAP revenue growth guidance increased to a range of 4.9% to 5.9%. This is driven by deconversion revenue increase, expected revenue contribution for the remainder of the year from the Victor acquisition. I will emphasize GAAP revenue remains almost certainly understated due to the conservative deconversion revenue guidance. Based on our strong first quarter results and expected continued momentum, we have increased the lower end of the non-GAAP revenue annual growth rate guidance, resulting in a new outlook of 6% to 7%. As a reminder, fiscal '26 and the first quarter of fiscal '27, Victor acquisition-related financial impacts will be excluded as part of non-GAAP reporting. Based on the above revenue growth and our resilient financial model, we expect to again generate sustainable accretive sources of margin. We are increasing full year guidance for non-GAAP margin expansion to a range of 30 to 50 basis points. All of the above are indicative that our business operations remain healthy and sound with near-term growth opportunities. The full year GAAP tax rate estimate for fiscal '26 is 23.75%. The above increased guidance metrics result in a stronger full year outlook for GAAP EPS of $6.38 to $6.49 per share, a growth of 2% to 4%. And as a reminder, updated conservative deconversion revenue guidance almost certainly understates EPS GAAP growth. Fiscal '26 is expected to have superior free cash flow conversion due to recently passed tax legislation, and we have elected to take the accelerated election. Full year free cash flow conversion outlook is for 85% to 100% for the fiscal '26, matching our expected target but with a bias to the higher end of the range. As a reminder, we see fluctuations in quarterly results relating to software usage license components along with the timing of implementation. Therefore, the correct performance indicator for our business is the consistently strong fiscal year financial results. In conclusion, Q1 results reflect outstanding performance leading to increased guidance. We're pleased by the start to our fiscal year and remain positive on the outlook. Demand for our solutions aligned with continued technology spend by our clients and prospects will drive superior shareholder return and value. We appreciate the contributions of our dedicated associates that achieve these superior results and our investors for their ongoing confidence. Jeannie, please open the line for questions. Operator: [Operator Instructions] The first question comes from the line of Rayna Kumar with Oppenheimer. Rayna Kumar: Nice results here. We saw some solid margin expansion in the quarter. And as you mentioned, Mimi, R&D was down 1%. Can you talk about how sustainable this type of margin expansion is going forward? And maybe how margin could look for the remainder of the year by quarter? Mimi Carsley: Thanks for joining us this morning, Rayna, and your question. I think R&D has the same profile that you've seen in SG&A and other areas consistent with across our expense, which is the thoughtfulness in which we planned this year's budget being modestly conservative out the gate. We're being very disciplined around headcount increases while still investing for growth. So as we look to the remainder of the year, some of that is timing related. Some of that is things that we're expecting to kind of reverse, if you will, some benefits-related net personnel costs and the timing of some of the spending we have for projects. But overall, I would say there's consistency that's going to drive the full year margin expansion, which is our general control of spending, our limited head count growth for the year and efficiencies in AI. Operator: Your next question comes from the line of Will Nance with Goldman Sachs. William Nance: I was wondering if you could expand a little bit on the pricing and competitive environment out there. And in particular, there's been a lot of focus around some of the core consolidation happening at the competitors. Are you guys seeing an increased willingness to explore converting cores in the market? And how are you feeling about your chance of maybe shaking loose a couple of those opportunities? Gregory Adelson: Will, thanks for the question. I think we're not seeing anything more significant. I know, obviously, there were some recent announcements on collapsing the number of cores for one of the providers and things along that line. It's still early. I think our pipeline is still remains very significant. As I mentioned in my script, we've already seen some nice wins for the quarter. And so I anticipate that will continue to be at a fairly normal pace. I haven't seen anything out there that has seen any more intense competitive pressure than I would have said 6 months ago, though, at this point in time. Mimi Carsley: I think, Will, the only other add I would say to the point that Greg made in his prepared remarks, the changes we've made operationally around limiting the impact from pricing compression to your -- the first half of your question around pricing, we're starting to see the fruits of the labor paying off. So we're seeing stabilization from that headwind. We're quite excited by the collaboration between our sales, operational teams around that and going after that, and that's reflected also in the sales mix numbers that Greg talked about. Operator: Your next question comes from the line of Dan Perlin with RBC Capital Markets. Daniel Perlin: I just wanted to maybe revisit the sales momentum here and the conversions into private cloud. So I think you said you signed 7 clients to convert to private cloud. You're at 77% today. So you're getting pretty high on the penetration rate there, which is clearly a positive for the revenue uplift. I guess what I'm ultimately getting at is, as you think about the strategy to increasingly sell outside the core, can you just maybe update us on where that progress is? I know you've got a lot of initiatives underway, but it would be helpful to kind of refresh that strategy here. Gregory Adelson: Sure. Thanks, Dan. Yes. So as I mentioned, we're still -- we're right at 77%. As we've talked about, we still see a good 5 to 6 years of continued progress at the numbers that we've been seeing based on -- over the last several years, we've been averaging between 35 and 45 of those migrations. We believe we're on track to do that again this year. As I did mention, some of those are larger customers just based on a lot of the larger customers are more reluctant at the time to make those changes. But to answer your question about outside the base, yes, so we are highly focused on all of the new Jack Henry platform components that we've built are all core agnostic. So every one of those have opportunities to be sold outside the Jack Henry base and creating opportunities for us to leverage larger opportunities. That's been something that we've talked about for the last several years. We had 2, we had a regional -- a very large regional and a super regional at our client conference in September, again, exploring the various opportunities there. We talked about Banno going outside the base. Our team will start selling that and having opportunities in January of '26. So we'll be out actively working, and we already have a couple of potential opportunities identified, but Banno will be something that will continue to create opportunities. And then everything we're building today in the platform even related to our SMB strategy. So the Tap2Local or the Rapid Transfers, we've created companion apps that will allow us to sell all of those to competing digital providers and allow them to utilize that technology and creating a consistent revenue stream for us as part of that. But we're -- obviously, we're launching first with our Banno clients and eventually, we'll be offering that more broadly out in the market. So it's going to create a continuous opportunity for us to connect with outside the base core opportunities as well as complementary and payment products. And by the way, Victor, the Victor acquisition will also allow us to do that, creating opportunities with some of the non-Jack Henry core clients as well. Operator: Your next question comes from the line of Kartik Mehta with Northcoast Research. Kartik Mehta: Greg, I think you and Mimi both talked about the consolidation and obviously, increase in deconversion fees. Just a 2-part question on that. One is, what type of impact do you expect that to have on your recurring revenue into next fiscal year? And as we go into calendar 2026, do you think we'll have the same amount of core activity? Or do you think that slows down because there's all this M&A activity and banks will want to wait to see how that plays out before committing to converting a core? Gregory Adelson: Yes. Thanks, Kartik. So I'll take your first question first. Yes. So we had talked about in the August call, just we had timing. We typically win more than we lose. There was some timing based on some size deals, and we had talked about that being a headwind. We've actually started to see that kind of level itself out, especially in what we call convert merge activity, which is our customers buying other customers. We're already seeing just in our banking segment, almost double the number of convert merge that are on the calendar for this year as compared to last year. So again, that's starting to level itself out. A lot of the impact that we saw for the year that was heavily weighted towards Q1, and there were some opportunities there that we, again, started to rightsize. To answer your question on the number of core activity, I think based on our pipeline, based on our typical success rate, I would say that we're going to be right where we typically are around that 50 number, and the team feels very confident about that as well. There could be some additional opportunities, again, by what was announced with one of the providers in the consolidation of some of their cores. But that yet -- again, that was just recently announced and activity is still being built. But that could increase the number. Don't know, but a lot of those are also smaller deals. So we'll have to see kind of where those fall and if they end up being ones that are acquired prior to making a core change. Mimi Carsley: If I could add a little bit more just from a context, you might find this metric interesting, Kartik, but it really shows to me the real resiliency and the attractiveness of our FI segment. But if you look at the last decade or so from like 2014 to 2024, within the M&A context, you'll see far less activity within the segments that really represent the majority of our customer profile. So within credit unions within the [ $100 million to $10 billion ] segment contracted 13% versus the total market contraction of almost 30%. And banks, it was even more apparent with actually growing that market segment 4%, while the total market contracted 30%. So to me, that really shows the health and attractiveness and the limited impact overall from the continuation of the 4 decades of industry consolidation in our segments. And if anything, we've historically talked about that being a growth engine for a lot of our clients. Gregory Adelson: Yes. And I'll just tag on one other comment that I think is important, which I emphasized in my opening comments around our platform. Our platform strategy and our ability to innovate as quickly as we are is allowing us to keep a foothold on opportunities even when our institutions are being acquired. We're getting time at the table. There's been several instances where we've been invited even though that we know that the acquiring institution is going to move off of their existing -- or keep their existing competitive core. We've been invited in to speak about what we're doing and where we're going as part of their future plans. So there's a lot more opportunity for Jack Henry in these deals than there was even a several years ago. Operator: Your next question comes from the line of Jason Kupferberg with Wells Fargo. Tyler DuPont: Greg and Mimi, this is Tyler DuPont on for Jason. I just wanted to ask not to pile on core banking, but I just want to ask about the trends you're seeing. I heard in the prepared remarks you guys signed 4 takeaways, and you're comfortable with the 50 to 55 target. But just from an asset size perspective, could you maybe clarify the average size of the wins you're seeing in the quarter? And how that sort of coincides with your longer-term strategy to move upmarket and to claim those larger wins? Gregory Adelson: Yes. So I appreciate the question. Yes, I mean, we closed 4 deals for the quarter. One was a multibillion-dollar deal. If you go back to last year, we closed 16 multibillion, 4 over $5 billion, and we're on track to do that or better this year. So based on what our forecasts are and what's in the pipeline, the first quarter results fall directly in line with what our expectations would be. Operator: Your next question comes from James Faucette with Morgan Stanley. James Faucette: Greg, you mentioned the Bank Director survey and the median growth in tech spend. I'm curious, just given where we are in the deposit cycle and the prospect of accelerating loan growth next year with change in interest rates. I was hoping you could help us to stratify the differences in demand from your customers for deposit attraction versus retention versus lending and how you are allocating resources to one side or the other, whether it would be to lending or the ledger side? Gregory Adelson: Yes. So I'll give you a couple of comments. I think Mimi has got a couple as well. So I think what I would say is that from a interest level, obviously, the loan portfolio is continuing to increase as with opportunities. But the real concern with most of the institutions today is maintaining the deposit growth to allow that customer base to have opportunities for lending. And so when you look at the things that are happening in the market today, so whether that be neobanks or stablecoin or other things that -- and again, even what we've seen in the SMB market where a lot of these smaller customers or in this case, sole proprietors are banking at other outside of the community banking space for their SMB needs, that's where the real concern is because they're losing those clients without the right solution sets to keep that in. So there's a lot of interest, obviously, to find opportunities on the lending. But today, I think their bigger focus is efficiency and deposit growth as of right now. Mimi Carsley: And the only add I would say is that we consistently see through our own survey that we do that both deposit gathering as well as lending remain in the top 4 priorities in the last 3 years. Sometimes they horse trade in terms of which is outpacing the other, but both are certainly top of mind. I would say in Q1, James, we started to see a little bit of the signs of an increasing pace of lending activity, whether that was some enthusiasm regarding the overall economy, inflation coming down, the expectations of the Fed starting to move, but we are starting to see a small uptick in the pace of lending, which is a very encouraging sign. Operator: The next question comes from Dominick Gabriele with Compass Point. Dominick Gabriele: I have to say, I think you guys sound pretty fired up on this call in the prepared remarks. And one of the things with Jack Henry is the level of revenue growth. And it sounds like you're limiting pricing compression and stabilizing that headwind. I was just curious, given where your current guidance is this year versus previous years, maybe you could -- is there any chance you could quantify that headwind of pricing over the last 12 months and how it possibly went into your current guidance and what those mitigation efforts like actually are in the business? Is it like salespeople having different mechanics or something along those lines? Mimi Carsley: Sure, Dom. So I would say that we started to see that impact last year, which is why we called it out, but we're seeing it flow through the P&L this year. But from an encouraging sign, I would say we've seen a stabilization through the operational activities, the collaboration between sales, the programs that the leadership team has put in place, we're certainly seeing that headwind abate and we -- but we need to see the whole impact flow through this year. So I wouldn't give a precise number from an expectation, but it was certainly one of the larger causes for the lower guide this year versus our longer-term growth plan. The other area was a modest expectation from consumer sentiment health and the spending. And thus far, we've seen a pretty robust consumer spending. We've seen card. That was part of the Q1 outperformance was card came in higher than expectation. And while we still have a lot of the year to play out, we remain upbeat and optimistic on a modest continuation of that spending trend. Gregory Adelson: Yes, Dom, I'll add a couple of comments around kind of process stuff. Just yes, I mean, we took a very detailed approach with sales operations and finance. It took us several months to get it to where we wanted it to be. And we actually started to see the processes come together at the end of fiscal year '25, so in the fourth quarter, where we saw performance improve, and we've continued to see it through the first quarter. But we still, as Mimi had mentioned, we still had some deals that were already done, especially some larger deals. As I noted last year, we did a lot of -- a lot more renewals than we did the year previously and a lot larger clients. So some of the impact was already felt. But the new processes that we put in place, the structure and the rigor of communication and collaboration amongst all of the teams to ensure that everybody was in sync was a big part of what we were focused on. And honestly, it's exceeded my expectations this early. So we're very optimistic that things will continue down that path as well as having less renewals than we had last year by about 20-something percent. So that's another component of this. But again, a lot of what was baked into the original guidance was because it was already baked into the deals that were done in fiscal year '25. Operator: The next question comes from the line of Dave Koning with Baird. David Koning: Good job. And I guess my question, card processing revenue accelerated about 2%, which was nicely better than industry trends, which were pretty stable to maybe a little acceleration, but 2% is a lot better. And I know you called out a lot of the newer types of payment services growing really well. And I guess the question is, is that sustainable, like this higher level of growth now? Are those other things contributing enough to kind of keep this at a higher pace? Mimi Carsley: Dave, I would say it's a combination of a number of factors within the payments segment. One is, as we talked about, the U.S. consumer spending at a better clip than I think we were concerned about last year as an economy as a whole. So you're seeing that a healthy pace. I want to say it's a crazy pace of exuberance, but a healthy pace of the U.S. consumer spending. The other is the ancillary services surrounding card have been very healthy. So we have a number of services that complement the payments card business. We've seen healthy uptick in growth in those businesses. The stabilization and positive performance from the EPS business really helps. That's still a large segment portion of the payments segment. And then on the faster payments, even though it's off of small base numbers, we think there's a lot of upside from the solutions that are going to drive adoption and volume on the faster payments. So we're quite positive on the momentum there. Gregory Adelson: And Dave, I'd like to add one other component. We are actually starting to see a lot of the value of our Payrailz acquisition coming into play now. We're starting to see a nice uptick in Payrailz/iPay Bill Pay opportunities. We're seeing less compression. We're seeing less deconversion. We're seeing all kinds of things that are generated as what we expected out of that acquisition starting to come to fruition now. So that's another key component based on the size of that business helping to help drive some of that as well. Operator: The next question is from Darrin Peller with Wolfe Research. Darrin Peller: Nice quarter. Just to clear up a little bit. I mean, I know when we came out of last quarter, there was obviously those few items called out. And you touched on some of the progress and what you're seeing around things, whether it's bank M&A or pricing and renewals and generally account growth at credit unions impacting your initial guide by a bit. Clearly, you're seeing good outperformance, like you said, even on the card side. But when we think about where your confidence is around some of the newer areas, again, you mentioned faster payments, but Moov partnership, Tap2Local, Rapid Transfers. Do you see those being enough to spool up so that by the end of the fiscal year, you basically have 50 bps maybe plus that could have replaced what you -- some of the headwinds are impacting this year by. Is that going to be big enough and material enough in your view? And just maybe a quick update on how some of those are trending as well. Gregory Adelson: Yes. I mean it's a good question, Darrin. I think the issue is that specifically tied to Tap2Local and Rapid Transfers, as I mentioned, we're just now rolling that out. I can tell you, we have very high expectations of what it will be long term. And based on the feedback we got at our client conference and what we're seeing initially with customer excitement, we feel very strongly. Now whether it's going to be a 50 bps increase, I'm just going to probably say probably not. But if it is, we'll start to know more here in the next couple of quarters. But I can tell you that for the long-term growth, everything that we're doing in the SMB, which, by the way, this is only Phase 1. There's going to be multiple phases of what we're going to do in this space tied to driving opportunities in both our digital offerings and our payment space. But related to faster payments, related to some of the things that we believe is going to happen, we had a call with the Fed recently. I think the Fed is going to get really serious about pushing various treasury activities and driving more opportunities on the send side of faster payments. That could create some additional revenue flow. But everything that we are doing and even what we've seen with some of the improvements, as I mentioned earlier, on renewals, obviously, the market environment with 10% being the spend with various core opportunities, all of that will help contribute to what we originally stated were going to be headwinds. But it's still -- we're Q1, so it's still early to be able to fully determine what that will be yet. Mimi Carsley: Darrin, I would echo Greg's commentary. There's a lot of reasons to be pleased by the initial reaction and even the momentum we've seen from the uptake and the waves of installations that we have targeted. But I think at this point, the reason for sharing them is really as an indicator and a validation of our investment for growth and the level of innovation, less so the in-year impact from them. But as we think about what they could grow to be over the imminent next few years, it gives us great optimism around being within the range and to the upside of that range and opportunities to start thinking about the next new range possibility. Darrin Peller: All right. That's helpful. And can I just follow-up quickly on the competitive landscape for a moment because I know this came up a bit earlier, but the core consolidation going on at one of your competitors, obviously, that's been talked about a lot. When you think about your -- I know you're reiterating your range of what you'd expect to add from a core standpoint. But when you think about what you're seeing in the market in terms of the magnitude and level of RFPs even, have you noticed any changes more recently in the last, let's call it, 6 months or 12 months? And do you -- or are you hearing rumblings of more change to come on that front? And then I guess, capacity, when you think about your capability to handle if we were to get another 20 potentially, let's say, 50 went to 60 or 70, is that something you see yourselves being able to handle well? Gregory Adelson: Yes, it's a great question. And I'll tell you, from a standpoint of the time frames you gave, like I said, a lot of the news that has come out, I mean, obviously, they announced at their client conference, they were doing the consolidation of the cores, but it got a little more pronounced in the last week with other things. So the activity itself, I wouldn't say, has significantly increased any more than what it's been. I do anticipate that to happen just based on any time anybody announces core consolidations, there's just as an uptick. To answer your question on capacity, yes, we are 100%. We can gear up. We do that already based on timing of things that we have happening in M&A, things that we have in M&A, I mean, in new core wins. So bringing on teams, we do that regularly. We're good at it, and we're not concerned about that. And the other thing is we've done a lot on the AI side related to how we handle RFP responses and things like that. So our acceleration of being able to handle an accelerated amount of RFPs doesn't concern us. But the sales team is all over it, and I anticipate that to be a -- that's a siren, I guess, yes. Sorry. But I don't anticipate that being -- yes, no worries. I don't anticipate that being a concern at all, Darrin. And we'll continue to update you as this goes on. But I will tell you, that we are starting Q2 off with a very nice start to competitive core wins. The one thing I do want to call out is we continue to be the only one that actually announces the number of core wins. So a lot of people reference the number of increase that they have and all of that, but nobody else actually puts out a physical number. So we get held to a different standard, I think, than maybe some others. Mimi Carsley: If I could add on to the thoughtful comments that Greg had, our sales team does a remarkable job of working with prospects. And while I agree, we will see an enhanced kind of acceleration of interest an opportunity that comes from the core consolidation announcement of competitors, the lack of innovation that they've offered for a number of years has already created that demand for opportunities for us to talk and show the solutions -- the innovative solutions we have to offer. So to me, this is a potential acceleration. A lot of clients still are going to wait until the end of their client contract length to make a change, but it's certainly an exciting opportunity because it solidifies the message we've been talking about, which is they need to make a change. They can't just stay on a nonmarketed, not innovative core to meet the needs of their financial institutions. So we're excited about what that could potentially be in the long run, but it's more of a consistency for our sales team. Operator: The next question is from Cris Kennedy with William Blair. Cristopher Kennedy: Can you just talk a little bit more about Victor kind of who the target customer is for that? And what type of interest and opportunity you're seeing with that asset? Gregory Adelson: Yes. Thanks, Cris. A couple of things. So one, it creates opportunities for banking as a service within the banking and credit union market. So as we mentioned already, we have SilverLake integration today. We have several of the Jack Henry core clients that are utilizing the service. So we were already partnered with Victor on that front. We'll be -- and we're connected to our PayCenter offering as well, and we'll be doing the credit union business. But now it's creating opportunities in our treasury management platform. So embedded finance payments and the ability to drive additional payment types like integrated payables, things along that line are all candidates for that. There's also opportunities to work directly with fintechs to facilitate payments for them. So we have several fintechs that are actually already directly integrated into the Victor solution set, and we're processing those payments. The pipeline in only 30 days has candidly grown to a pretty nice number. We're getting ready to already close our first new bank in 30 days, and we have several others that are very interested, but we have a long list of fintechs that are very interested. So it creates an opportunity for us with a diverse revenue stream, creates opportunities for the banks to have diverse revenue streams as well. So we're very bullish on what this is going to bring. It creates some opportunities for some of our stablecoin strategy as well, and we're utilizing some of the technology in that front. But I view this acquisition as a real opportunity for Jack Henry to immediately play in a space that is expected to more than double in the next 2 to 3 years. Operator: The next question is from Ken Suchoski with Autonomous Research. Unknown Analyst: This is [ JD ] on for Ken. I wanted to ask about margins. I think the 1Q margin looked really strong, and I think there's some seasonality in there, but you landed well above the full year range. I think you mentioned some of it is timing and you feel confident about the full year, but when we think about 2Q, you obviously have Connect moving to September from October last year, how should we think about margins next quarter? And maybe if you can help us to shape the rest of the year. I want to make sure that we're not missing anything. Mimi Carsley: Sure. I think the first and foremost, I would encourage you to look at an annual basis for our performance. The individual quarters can have just different rhythms based on implementation or the comps from a year-over-year basis. And so while Q1, we're thrilled by the epic performance in Q1 and raising for the full year, I would say that there's things at play. There's a modest conservatism as well just because of the nature of some of that savings being personnel-related benefits and others, some of it based on the timing of some of the projects, also just -- so some of that we expect from a catch-up perspective and other opportunities for investments for growth plans. We have a modest forecast, but it also allows the opportunity to enhance or accelerate some of the activities we're doing in AI and platform projects. So again, looking forward to the full year, pleased to see the uptick from a guidance perspective for the full year. I think that's a natural course of the levers that are inherent in our business. Glad to see the compounding nature of the margin expansion, but I wouldn't look too much to any one quarter. Rather, I would look to the overall outstanding expectation for the year. Unknown Analyst: Great. And maybe if I can sneak one more in. I think you mentioned 56% of renewals in deal mix. I think that implies renewals were down quite a bit from last year. I guess is it fair to say that you'll see lower renewals this year compared to last year? And maybe if you could talk a little bit about how retention rates are trending. Gregory Adelson: Yes. And I apologize, but part of your, first part of your question broke up. So could you repeat the first part, please? Unknown Analyst: Yes. I think you mentioned in your prepared remarks how 56% of renewals were part of the deal mix, and I think that implies renewals are down year-over-year. So I just wanted you to comment on that. Gregory Adelson: Yes. So as I mentioned, last year, we had a significant number of renewals from even greater, I think it was 12% more than the year previous to that and much larger institutions that we renewed. It was $94 billion in assets versus $224 billion in assets. So just even last year, we had much larger renewals and a #2. So we have a smaller number of renewals this year and a smaller number of very large customers. But the processes that we put in place, part of it was to focus on ensuring that we were going after a larger number of new deals and not relying on the renewal process, pulling in any renewal sooner than it should be and things along that line. So the team has done a great job of adhering to those things, focusing on the new opportunities and managing the relative price compression that we typically see much better than we have in years past. Mimi Carsley: I think the only add-on I would say is that we have not seen any change from the incredibly high retention rate that Jack Henry has experienced historically. So absent M&A, near over 99% retention. So no changes there. So not only are we having great success with new customers and new product -- new prospects and renewing existing, but we're not seeing departures. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Vance Sherard for her closing remarks. Vance Sherard: Thank you, Jeannie. As Greg mentioned, our Annual Shareholder Meeting is on Wednesday, November 12, at noon Eastern Time. We look forward to hosting those who attended our headquarters in Monett, or those who joined the webcast. Management will present in person at multiple investor events, both domestically and internationally prior to the calendar year-end, and we thank all Jack Henry associates for their outstanding efforts and commitment, which contributed to the start of another successful fiscal year. Thank you for joining us today. Jeannie, please provide the replay number. Operator: The replay number for today's call is (877) 344-7529 and the access code is 3613183. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to Assurant's Third Quarter 2025 Conference Call and Webcast. [Operator Instructions] It is now my pleasure to turn the floor over to Sean Moshier, Vice President of Investor Relations. You may begin. Sean Moshier: Thank you, operator, and good morning, everyone. We look forward to discussing our third quarter results with you today. Joining me for Assurant's conference call are Keith Demmings, our President and Chief Executive Officer; and Keith Meier, our Chief Financial Officer. Yesterday, after the market closed, we issued an earnings release announcing our results for the third quarter 2025. The release and corresponding financial supplement are available on assurant.com. Also on our website is a slide presentation for our webcast participants. Some of the statements made today are forward-looking. Forward-looking statements are based upon our historical performance and current expectations and subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in the earnings release, presentation and financial supplement on our website as well as in our SEC reports. During today's call, we will refer to non-GAAP financial measures, which we believe are important in analyzing the company's performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the two, please refer to the earnings release, presentation and financial supplement on our website. We'll start today's call with remarks before moving into Q&A. I will now turn the call over to Keith Demmings. Keith Demmings: Good morning, everyone, and thank you for joining us. 2025 continues to be a remarkable year for Assurant. We delivered a very strong third quarter with double-digit earnings growth across both Global Housing and Global Lifestyle. Our performance during the quarter and year-to-date continues to drive significant cash generation and support our balanced capital allocation. Through our powerful B2B2C business model and diversified lifestyle and housing portfolio, we continue to execute for our partners, policyholders and shareholders. Our unwavering commitment to operational excellence continues to deliver exceptional client outcomes, customer experiences and differentiated returns. Through the first 9 months of the year, we've achieved 13% adjusted EBITDA growth and 15% adjusted EPS growth, both excluding reportable catastrophes. Given the strength of our business performance, we're increasing our 2025 outlook. We now expect full year adjusted earnings per share growth of low double digits and adjusted EBITDA growth approaching 10%, excluding cats, a significant increase from our initial expectations for both metrics. This upward revision further differentiates Assurant in the broader PMC industry as a provider of innovative services within specialized protection and insurance products. Our performance is a testament to our talented employees and their commitment to our clients and policyholders. Their dedication is the foundation of our success, and it's one of the reasons why we've been recognized by TIME as one of the world's best companies for the third year in a row. Let's turn to Global Lifestyle performance and highlights. Lifestyle earnings have continued to accelerate throughout 2025 and have increased 4% or 6% on a constant currency basis year-to-date, supported by double-digit growth in the third quarter. We remain well positioned to deliver full year growth across both Connected Living and Global Automotive. In Connected Living, performance has been the result of executing on our long-term strategy to drive commercial momentum through new client programs and the continued expansion of our partnerships, combined with enhanced capabilities and services. This quarter, we're excited to announce 2 new Connected Living opportunities that were made possible by important investments, which have enabled us to expand our end-to-end solutions and reinforce our competitive advantage. First, in mobile, we're significantly expanding our repair and logistics capabilities through a new multiyear agreement with a large U.S. mobile carrier. We have co-created and are now operating a new fully dedicated state-of-the-art logistics facility where we receive return devices from across their entire ecosystem, including mobile phones, tablets, home Internet and accessories. This one facility solution will process and repurpose all returns from store locations, customers and manufacturers under one roof. Our joint vision was to create a facility that maximizes circularity in the mobile industry, allowing us to reuse, repair and remanufacture and deliver these devices back to end customers within the client's network. This allows us to help them optimize their device protection program while improving the end customer experience. This leverages our capabilities, including device processing, upgrading, repair and rapid claims fulfillment while providing a broad supply of high-quality refurbished devices for insurance replacement, wholesale and direct-to-consumer channels. This collaboration demonstrates Assurant's role as a strategic partner and solidifies our position as a leader in the reverse logistics space. Successfully executing programs like this demands seamless integration of our operational technology and supply chain management with our clients. We leverage advanced automation, AI and robotics on the processing side to maximize efficiency and ensure consistent, scalable outcomes. We're encouraged by the traction we've made in mobile repair and reverse logistics and continue to be excited about additional near-term opportunities. Our second new opportunity within Connected Living is in our retail extended service contracts business, where we recently launched a partnership to provide administration and underwriting with Best Buy, the world's largest specialty consumer electronics retailer. Through this partnership, Best Buy's Geek Squad protection customers will begin to have access to additional services by Assurant, receiving support through our AI-enabled virtual agents, live chat and access to repairs through our nationwide service network, including our cell phone repair or CPR stores. This partnership represents another win in a space where we've increased our footprint and gained significant momentum over the last several years, now working with U.S. retail leaders across appliances and consumer electronics. Looking to 2026 and beyond, we see clear opportunities within Connected Living that will further strengthen Assurant. In Global Auto, adjusted EBITDA increased 4% year-to-date, and we remain on track to grow for the full year, supported by stable run rate earnings and ongoing loss experience improvement. We also continue to optimize performance across the business with a sharp focus on our clients, systems, product design, claims cost and people. We have momentum in Global Auto, which is driven by renewed partnerships across distribution channels, including international OEMs and U.S. dealership groups, further solidifying our client base and reinforcing our position as a market leader. A great example is our expanded partnership with Holman Automotive, one of the largest privately owned dealership groups in the United States. Following Holman's 2024 acquisition of Leith Automotive Group, Assurant will support 30 newly added dealership locations with finance and insurance products, dealership sales and participation program guidance. Our dealer services are also driving new business wins. Our platform is built to support dealers at scale with everything from product innovation to operational support, attracting new partners while creating opportunities with existing ones. Across Lifestyle, our ability to deliver solid results while investing in innovation is a key differentiator. Turning to Global Housing. We continue to outperform with outstanding lender-placed results in our homeowners business as well as continued property management company or PMC expansion within renters. We expect another year of strong housing adjusted EBITDA growth, excluding cats, further building on the impressive growth demonstrated since 2022. We continue to expect a very strong combined ratio for the full year, trending below our initial expectations of the mid-80s. This excludes prior year development and reflects lower-than-expected cats for the year. In Homeowners, we're seeing the impact of our multifaceted growth strategy, supported by our differentiated market position, scale and client focus. One prime example is the momentum we have through new business wins. Following a standout 2024 with significant client renewals and new partnerships, we see meaningful growth potential from our robust new business pipeline that we expect to lead to policy expansion over time. As we continue to scale, we expect to sustain disciplined expense management to underpin our growth. In Renters, our increasing scale is reinforced by technology-enabled services, particularly our Cover360 platform in the expanding PMC channel. This platform has helped deepen relationships with existing clients and win new business, supporting sustained double-digit premium growth and increasing penetration rates for renters policies. During the third quarter, we completed a multiyear renewal with the largest PMC in the U.S. and signed 2 new PMC partnerships. We continue to see benefits from the new renters portfolio that we onboarded earlier this year, adding scale and identifying opportunities to further expand our footprint in the PMC market. Across both Homeowners and Renters, our strategic investments in technology and operational efficiencies continue to drive improved margins and better customer experiences. Global Housing is a cornerstone of our business, delivering strong results today while positioning us well for the future. Assurant's long-term strength and resilience set us apart in the PMC space. Over the last 5 years, we've delivered a compound annual growth rate of 12% for adjusted EBITDA and 18% for adjusted EPS, both excluding catastrophes. Our average ROE from 2019 to 2024 outperformed the S&P 1500 PMC Index median with less than half the volatility. While our 5-year average ROE of approximately 13% reflects the impact of prior acquisitions, our average return on tangible equity over the same period trended above 30%, well above the median of the PMC index, a testament to our earnings power and differentiated returns. Our unique and advantaged portfolio of lifestyle and housing businesses has created diversified sources of earnings and capital, generating strong returns, robust cash flow and strong growth with lower volatility. Looking ahead, we remain laser-focused on finishing the year strong and building for 2026. Although we see power in the diversification in our business, we are pleased to drive growth in 2025 across our Global Housing, Connected Living and Global Automotive businesses. We're well positioned for future growth as we expand offerings with a focus on increasing attachment rates with existing partners, winning new clients across the globe and prioritizing investments in our core markets. That includes launching new products and services across both lifestyle and housing and continue to embed innovation across everything we do from AI-powered tech support and personalized solutions to robotics in our device care centers. These enhancements are helping us drive simpler, faster and more consistent outcomes for our clients, helping them increase the lifetime value of a customer. We see further opportunity for attractive organic growth as we enter adjacent sectors through new product offerings planned for early 2026, creating pathways for growth that align with our strengths and extend our reach. We have a clear strategy and a team that's ready to deliver on the strong momentum we have across Global Lifestyle and Global Housing. As we head into the final quarter of the year, we're energized by the progress we've made, and we're confident in our ability to continue creating value for stakeholders. I'll now turn it over to Keith Meier to highlight our third quarter results and expectations for the remainder of the year. Keith Meier: Thanks, Keith, and good morning, everyone. As we near the end of 2025, we continue to make significant progress on our key priorities, driving growth and strong financial performance through our intense focus on innovation and product differentiation. We have continued to elevate customer experience, building on our long history of technology advancements with AI and digital automation while increasing expense efficiency and ensuring our capital position remains strong, putting Assurant in a position to create meaningful value over the long term. Our third quarter results reflect that significant progress. As Keith mentioned, we're proud of the underlying strength of both Global Housing and Global Lifestyle, which together drove third quarter adjusted EBITDA and EPS growth of 13%, both excluding cats, demonstrating positive momentum within our businesses. Let's take a look at our segment results, beginning with Global Lifestyle. In the third quarter, adjusted EBITDA increased 12% compared to last year, driven by double-digit earnings growth across Connected Living and Global Automotive. In Connected Living, earnings increased 11%, driven by strength within Financial Services, particularly a new card benefits program launched late last year. Subscriber growth in mobile with 2.1 million net additions year-over-year, largely from expanding partnerships with U.S. clients and optimized global trade-in performance supported by growth across U.S. cable and carrier partners as well as our certified pre-owned business. In Global Auto, adjusted EBITDA was up 15%, which includes a net non-run rate benefit of approximately $6 million. When normalized for this non-run rate item, adjusted EBITDA was up 6%, growing both on a sequential and year-over-year basis from improved loss experience. We're encouraged by the improved loss experience in our vehicle service contract business and stable earnings overall. We continue to benefit from prior rate increases and enhancements to our claims processes and product designs while consistently working closely with our clients to stay on track to deliver full year growth despite ongoing inflationary pressures across the industry. For Global Lifestyle, our net earned premiums, fees and other income grew 7%, primarily driven by Connected Living growth from mobile programs and a new program in financial services as well as contributions from Global Automotive. Moving to Global Housing. Third quarter adjusted EBITDA was $256 million, including $3 million of reportable catastrophes excluding cats, adjusted EBITDA increased 13% to $259 million, marking another quarter of strong double-digit growth. Our Homeowners business benefited from the absence of a previously disclosed $28 million unfavorable non-run rate adjustment in the third quarter of 2024. This was partially offset by $16 million of lower favorable prior period reserve development with $29 million in the current quarter compared to $45 million in the prior year period. Excluding these 2 items, underlying results were strong with 9% growth. Results benefited from favorable non-catastrophe loss experience, mainly due to lower claims frequency and continued top line growth within lender-placed from higher in-force policies and average premiums. Finally, our liquidity position at quarter end was $613 million, providing us with flexibility to continue to invest in our business, return capital to shareholders and support future growth. We are driving strong cash flows. This quarter, we returned $122 million to our shareholders, including $81 million of share repurchases and $41 million in dividends. Through October 31, we have repurchased an additional $27 million of shares for a total of $234 million so far this year. During the quarter, we completed the successful issuance of $300 million in 2036 senior notes and redeemed $175 million of senior notes coming due in 2026. The issuance was well received and demonstrated the strong demand for our investment-grade bonds, further affirming the strength of Assurant and our capital position. Let's move on to our updated outlook for 2025. The strength of our year-to-date results reflect the power of our unique business model and differentiated financial profile. Driven by our year-to-date outperformance within Global Housing and earnings momentum in Global Lifestyle, we now expect adjusted EPS to grow low double digits and full year adjusted EBITDA growth to approach 10%, both excluding cats. This increase from our previous expectations reinforces the earnings power of Assurant. We continue to expect strong growth for the year in Global Housing as well as earnings expansion within Global Lifestyle, where both Connected Living and Global Automotive are expected to grow. Global Lifestyle results are expected to be partially offset by investments in new partnerships and programs as well as unfavorable foreign exchange for the year. We continue to expect approximately $15 million of strategic investments for 2025 directly tied to launching high-impact programs and clients. Within Global Housing, we expect strong growth for the year to be led by lender-placed, including increased policies in force. As a reminder, our outlook does not contemplate additional prior year reserve development beyond the $91 million from the first 9 months of the year. In Corporate, we now expect our 2025 full year loss to be approximately $120 million, an increase of $5 million from our previous outlook. This primarily reflects organic investments in a new adjacent program. We would expect additional investments associated with this opportunity in the Corporate segment in 2026 and are looking forward to sharing more details on our next earnings call in February. And finally, our capital objectives remain consistent given our position of strength as we focus on maintaining balance and flexibility, enabling us to support new business growth while returning excess capital to shareholders. For 2025, we now expect to return $300 million to shareholders through share repurchases at the top end of our $200 million to $300 million anticipated range from the beginning of the year. For the fourth quarter, we would expect a higher level of segment dividends compared to third quarter, given our business' ability to generate meaningful cash flows. Full year cash conversion to the holding company is expected to approximate 2024 levels. This reflects the strength of our capital position and disciplined approach to capital management, investing in growth while prioritizing shareholder returns. Our year-to-date performance, commercial momentum and increase in outlook, reinforce the strength of our businesses and the value we bring to our stakeholders. As we look to deliver our ninth consecutive year of profitable growth, we see significant opportunities across clients, products and geographies. Through the power of Assurant's business model, we're driving growth by activating opportunities already in our pipeline, deepening relationships and expanding offerings with existing partners and increasing investments in core markets, all underscored by our relentless focus on innovation. We're excited about what's ahead and remain committed to delivering meaningful value for all of our stakeholders. With that, operator, please open the call for questions. Operator: [Operator Instructions] Our first question will come from Mark Hughes with Truist Securities. Mark Hughes: You referred to a pipeline. I think you're talking about Homeowners or Renters and said you had a strong pipeline, which doesn't seem like the usual thing in that line of business. Could you expand on that? Keith Demmings: Sure. I think we've seen a lot of momentum really across the Board in housing. Certainly, the fundamental performance of the business has been strong, but we've been investing pretty deeply the last few years in all of our technology, operational capabilities. I think our lender-placed solution is unquestionably market-leading, and we do see further opportunities to drive growth with new clients over time. Even though we've got a strong leadership position, there's still opportunity for white space. And then Renters, you've seen pretty consistent PMC growth for the last 3 years, and we expect that, that will continue as we look forward. Mark Hughes: Yes, very good. In Global Auto, the loss performance was better year-over-year, but stable sequentially. Is it hit kind of an area that you think is sustainable or likely to hold steady going forward? Keith Meier: Yes. Thanks, Mark. And I'd say, overall, for Auto, we're really pleased with the quarter, growing EBITDA 15% year-over-year. I think when we look at the loss performance, our vehicle service contract side, I think all of our rate actions that we've taken place over 20% over the last few years and the product changes, I think we've seen that become more stable. So we're pleased with that. And then we touched on the GAAP side as well. Those loss exposures continue to diminish as expected. So we should expect those results continue to improve. So overall, we feel good about the business has stabilized well this year. Mark Hughes: Then one more, if I might sneak one in. In the Homeowners, I think you've been helped somewhat by the hard market. I think your product has been priced right for a lot of Homeowners. If the housing market starts to soften a little bit or broader homeowners market, do you think that has meaning for your top line prospects? Keith Demmings: Yes. I mean there's lots of dynamics at play. I'd say, for sure, we've benefited from the challenging voluntary market. We've seen a lot of policy growth as a result of that. That continue certainly through the year, and we'll have to watch where that goes. And then we've also driven growth with clients in different portfolios. So I think we're well positioned. It's also countercyclical. So should there be a downturn in the economy generally, we may see an uptick in placement rates. So we'll have to monitor how all these factors play together. Operator: Our next question comes from Charlie Lederer with BMO. Keith Demmings: I think we lost you. Charles Lederer: Can you hear me? Keith Demmings: Yes. Charles Lederer: Okay. Sorry. So just starting on the new partnerships in Connected Living. Is there anything you can quantify or color you can give around the impact you're expecting from the reverse logistics and Geek Squad deals? Are these immediate revenue generators? And what kind of trajectory are you expecting? And how should we think about the investment spend around these next year relative to the $15 million this year? Keith Demmings: Yes, it's a great question. So certainly, the -- on the reverse logistics side, we're really excited about being in a position to announce that to the market. It's incredibly strategic, and we're co-locating with a client in the facility. So it's terrific. It certainly will begin to contribute in 2026. We'll continue to make investments, it will be positive as we think about EBITDA impact next year. And then I'd say something similar for the Best Buy opportunity as well. It will contribute in '26. We've made a lot of investments this year. That will certainly taper off, and it will help us in our go-forward EBITDA. Charles Lederer: Got it. And then on the buyback guide, you increased it from $250 million to $300 million to the top end of that range. I guess, given the lower cats this year, would you expect your '26 outlook on capital deployment to be a little bit higher, too? Or how are you thinking about capital deployment next year? Keith Meier: Yes. I think, first of all, I would say we feel really good about the strength of our capital position today. We've got $613 million in Holdco liquidity. So I think that really gives us that flexibility that we want to have. And we try to have a balanced approach, Charlie, as we typically talk about. So Keith highlighted some organic investments that we continue to make. In addition, we always have an M&A pipeline that we're working. We've announced a few smaller ones this year. We had Gestauto in Brazil that helped our auto business. We had OptoFidelity that helped our device care centers and adding some technology there. And then we also acquired U-Solutions in Japan that furthered our walk and repair capabilities in that market. So you'll see us continue to invest in M&A opportunities. And then in terms of the buybacks, we felt really strong about that. That's why we signaled going to the top end of our range. And so we -- as we exit this year, we expect to be in a strong capital position, and we'll provide more guidance on share buybacks next year on our next earnings call. And then lastly, I would just say we also have done 20 straight years of dividend increases as well. So we like being able to have a balanced and a strong position across the Board. Keith Demmings: Yes. And maybe just to add a little flavor for 2026. We'll certainly talk more about buyback expectations and capital deployment in February. We'll see where Q4 ends up. That will help us understand the drivers as we think about 2026 performance to provide the guidance. But I would say, as we think forward, we're incredibly pleased with the momentum that we have really across all the businesses. We do expect to grow all 3 for the full year, Connected Living, Auto and Housing. Certainly, this quarter, we had double-digit growth in each of those businesses. So we've got a lot of momentum, which is very good. And as we think about '26, we do expect Lifestyle to continue to grow. We'll certainly benefit from the investments we've made the past couple of years. And then we do expect underlying growth in housing to continue. So setting aside the PYD, following 3 years of really strong performance, we expect to see that continue. And then we will have a higher corporate loss in '26. Keith Meier touched on it relative to our '25 guidance. We are expecting to launch a new program in an adjacent business, and we'll talk more about that in detail at February as well. Charles Lederer: Maybe just one more. On the 2 Renters PMC deals you talked about, can you dimension the opportunity there relative to the growth we've seen this year? Keith Demmings: Yes. I think we feel good about the consistency of the performance in Renters. I mean we've had 13 quarters in a row of double-digit growth. Our largest partners are growing. Really excited we renewed our largest PMC client to a multiyear agreement. We did a really successful book roll and then adding additional PMCs. That's what's going to continue to fuel the momentum that we've seen, and we expect that to continue. Operator: Our next question comes from James Koehne with Morgan Stanley. James Koehne: This is James Koehne on for Bob. So my first question relates to Housing. So my understanding is that you have 60-plus percent market share in lender-placed. Curious how much you think you could realistically grow share in the intermediate term? And do you have aspirations to grow share to a certain level in the intermediate term? Keith Demmings: Yes. I mean we've -- like I said earlier, we've got a strong right to win. We're incredibly focused on having the best solution and capabilities in the market. There's some big client opportunities where we don't perform that service today. So obviously, we're laser-focused on those. I wouldn't say we've set a threshold or a target. We're trying to acquire clients all the time in every one of our businesses and lender-placed is no exception to that. James Koehne: Got it. Great. My second question is a related one. So on the notable drivers supporting housing results recently, so higher AIV, the hardening of the voluntary market, solid placement rates. Curious how you would rank them in terms of their contribution to the recent uptick in segment growth? And how are you thinking about their relative contribution to growth going forward? Keith Demmings: Yes. I mean I think the growth in our policies certainly has been the biggest driver as we think about the housing performance. We're up 8% year-over-year in terms of our policy counts. That certainly shows up in the placement rate, and it's a result of a lot of it from a hard voluntary market. Rate in AIV, I think, has been a little bit favorable this year, but it's not a dramatic change. AIVs are certainly up but normalizing. So I would definitely put our policy growth at the top of the list. Keith Meier: Yes. And I think certainly, the placement rates are driving that policy growth and the AIVs being up 5% year-over-year, that certainly contributes as well. And then as we talked about earlier, we also see new opportunities to add additional clients on top of that. So when you combine it, that's one of the things that makes that business so powerful is there's multiple ways to grow. Operator: Our next question comes from Tommy McJoynt with KBW. Unknown Analyst: This is [ Molly Nolan ] calling in for Tommy McJoynt. My first question is about the iPhone upgrade cycle. It has been getting a lot of attention in the media. That's led to questions about how downstream suppliers and service providers can benefit. So can you just remind us about Assurant's role and opportunity in trade-in upgrade and adding covered device counts specific to the iPhone upgrade cycle? Keith Meier: Yes. I think what we've seen certainly is a robust cycle. I think we saw some demand pull forward in the second quarter. And I think we've seen, as we outlined, some additional contributions to our trade-in business as a result of some of that as well. The big driver for us in our business really is the protection programs. And often, the customer that has their protection program on their last phone will roll it over to the new phone. So that's what generates a lot of stability for our business as we go through the various cycles. But certainly, overall, it's a positive dynamic for us. Keith Demmings: Yes. And we -- if we look at the clients that we operate the protection services with, particularly in the U.S., our clients gained 81% of the postpaid net adds. So to the extent that there is elevated switching, strong promotional activity and as you said, strong demand for the new iPhone new devices, that tends to bode well for us both on protection as our clients grow, but also we support a lot of different clients as well with trade-in opportunities. So I feel good about how we're positioned there. Unknown Analyst: Great. My second question would be just understanding investments are part of the business cycle. Are there any major investment projects that you currently have planned for next year that we should think about as we think about margin expansion opportunity across the business lines? Keith Demmings: Yes. I think the one thing that we're trying to signal today is we will be launching a new program in an adjacent business early next year. We're excited to share more details, and it will create a long-term vector for growth for the company. We're looking to have the corporate investment be a little higher in 2026, which we'll talk more about in February. But that's probably the big thing that we're signaling that we're going to talk about in more detail to come. Keith Meier: Yes. And we've started already to invest in that a little bit this year, and that's why we've raised the number on our corporate loss by $5 million this year that takes that into account. Operator: [Operator Instructions] Our next question comes from Mark Hughes with Truist Securities. Keith Demmings: Welcome back Mark. Mark Hughes: Glad to be back. In Global Housing, if you look at the loss ratio, is there a material difference in the loss ratio between lender-placed policies and voluntary policies? Keith Meier: I think in general, I think the premium rates are different, Mark. So I think there is a -- I think they would correspond, I think, generally. And I think that it also comes into play where our expenses for tracking go into our rates for lender-placed. So there's the lender-placed tracking expenses versus typically commissions on a voluntary basis. But overall, depending on the mix, those would probably be the bigger differences more so than the loss ratios. Mark Hughes: Yes. What is the magnitude of the top line differential, the premium differential between the two? Keith Meier: We look at our lender-placed rates and what we can compare them to is the prior policy that a Homeowner has held, and it varies from state to state. Some of them are a little bit higher, some of them are a little bit lower. But I would say, overall, over the last couple of years, and I think it's helping our placement rate is I think our product is becoming more competitive as the voluntary market raises their rates significantly. I think all the work we've done to drive expense efficiencies, our expense ratio was in the mid-40s a couple of years ago. Now it's in the high 30s. So us not having to raise rates as much as the voluntary market, I think, has certainly helped our and contributed to our improved placement rates. Mark Hughes: Yes. When you talk about a new program that you're planning to talk about in February, is that kind of a new line of business? Is that what we're talking about? Keith Demmings: Yes. It's a new line of business that we're not in today, which is why we've put it in corporate. The effort is being driven by our Chief Innovation Officer, who used to run the Connected Living business for the company. And yes, we're trying to create a new pathway for long-term growth, and we're very excited to talk more about it later. Mark Hughes: Yes. Your reinsurance buy, it seems like the reinsurance market is going to be more favorable for you next year. Would your preference be for reducing your retention for larger events or reducing cost on the program? Keith Meier: Yes. I would first say that we probably buy in to reduce our volatility more than typical. We'll certainly evaluate that as we look at the pricing. But I do think we're in a good position going into next year. We didn't have anything that touched our reinsurance tower this year. So I think that's positive. And then obviously, this last quarter having very low cat activity should certainly be a positive as well. Our renewal kicks in on April 1. That's when we place the next year, and we certainly look forward to sharing more with you on that. The only other thing I would say is it also the mix of business in the geography in which we've been growing. And so if you look at our reinsurance rates last year versus this year, we expect them to be on a normalized basis, pretty similar, just over $200 million. And I think that's a little less than we were expecting this year because our Florida business hasn't grown, but we've grown significantly in less cap-prone states. So we've been really happy with the mix of business in terms of where we've grown for our housing business. Operator: There are no further questions at this time. I will now pass the call back to Keith Demmings. Keith Demmings: All right. I just want to say thank you to everyone for joining. As we've said, we're excited about the momentum we have across our businesses and certainly look forward to delivering our ninth consecutive year of profitable growth, and we'll talk to everybody again in February. Have a great day.
Operator: Good morning, and welcome to the Bunge Global Third Quarter 2025 Earnings Release and Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mark Haden, Vice President of Investor Relations. Please go ahead. Mark Haden: Thank you, Drew, and thank you for joining us this morning for our third quarter earnings call. Before we get started, I want to let you know that we have slides to accompany our discussion. These can be found at the Investor Center on our website at bunge.com under Events and Presentations. Reconciliations of our non-GAAP measures to the most directly comparable GAAP financial measure are posted on our website as well. I'd like to direct you to Slide 2 and remind me that today's presentation includes forward-looking statements that reflect Bunge's current view in respect to future events financial performance and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Bunge has provided additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation, and we encourage you to review these factors. On the call this morning are Greg Heckman, Bunge's Chief Executive Officer; and John Neppl, Chief Financial Officer. I'll now turn the call over to Greg. Gregory Heckman: Thank you, Mark, and good morning, everyone. Before diving into the quarter, I want to thank our team for their continued focus, discipline and execution in what remains a highly complex operating environment. Across the company, our people are working together, navigating uncertainty, capturing opportunities and delivering value for all stakeholders. With the Viterra transaction closing behind us, this was our first quarter operating as a combined company and I'm very pleased with the way our teams have embraced integration and the One Bunge culture. We are already seeing tangible benefits from bringing these two highly complementary businesses together, benefits that go well beyond cost savings. We have aligned the combined company along our proven end-to-end value chain operating model. This structure enables us to run with greater agility, transparency and collaboration across origination, merchandising, processing and refining. What's different and powerful about our combined company is the increased granularity and information we have at both origin and destination. We've connected more local and regional networks into our global platform, giving us insights and optionality we didn't have before. These competitive advantages are allowing us to respond faster to market signals and execute more efficiently across the value chain, identifying opportunities to optimize our footprint, better coordinate flows between origination and destination and capture margin through improved logistics. These efficiencies are lasting and will benefit the entire value chain over time from farmer to end consumer. They're being unlocked because our teams not only have the same information at the same time, but are also working toward a single set of objectives for our global company. This knowledge sharing, along with collaborative planning is happening throughout the organization, from the elevator operator, to the commercial desk, to the end customer, and it's already driving better outcomes. Shifting to our operating performance. Our third quarter results reflected strong performance in our soybean and softseed processing and refining segments, where we saw the benefits of a more balanced global footprint and the initial impact of our team's work to capture commercial synergies. John will go into more detail in a moment. As we shared on our business update call last month, we've recast our full year 2025 outlook to include Viterra. Looking ahead to the fourth quarter, farmers and end consumers remain largely spot, reflecting continued macro trade and biofuel policy uncertainty. Based on what we can see today, we continue to expect full year 2025 adjusted EPS and in the range of $7.30 to $7.60. This reflects an expected second half adjusted EPS in the range of $4 to $4.25. So with that, I'll turn it over to John for a deeper look at our financials and outlook. John? John Neppl: Thanks, Greg, and good morning, everyone. On our October 15 business update call, we announced that starting with this quarter, we will change our reportable segment structure, from agri business, refining specialty oils and milling to 4 reportable segments. Soybean processing and refining, Softseed processing and refining, other oilseeds processing and refining, and grain merchandising and milling. The changes in segment reporting reflect the realignment of oilseeds operations into processing and refining by commodity type and combining grain merchandising and milling operations into one reportable segment. . These changes reflect a tight interconnection of our upstream and downstream operations and aligns our segment reporting with our end-to-end value chain operating structure. Now let's turn to the earnings highlights on Slide 5. As Greg mentioned, the newly combined team executed well, delivering a strong third quarter. Our reported third quarter earnings per share was $0.86 compared to $1.56 in the third quarter of 2024. Our reported results included unfavorable mark-to-market timing difference of $0.87 per share and an unfavorable impact of $0.54 per share from notable items related to Viterra transaction and integration costs. Adjusted EPS was $2.27 in the third quarter versus $2.29 in the prior year. Adjusted segment earnings before interest and taxes or EBIT was $924 million in the quarter versus $559 million last year. Soybean processing and refining results improved in all regions, reflecting a combination of higher margins, strong execution and the addition of Viterra's South American assets. [indiscernible] destination value chain, higher results were primarily driven by processing in Europe and Asia and origination from South America. In North America, higher processing results were more than offset by lower results in refining. In South America, results were higher in processing and refining. And in Global Oils, higher results reflected strong execution. Higher process volumes primarily reflected the combined company's increased production capacity in Argentina. Higher merchandise volumes reflected the combined company's expanded soybean origination footprint as well as the strong South American soybean exports. Higher softseed processing and refining results were driven by higher average margins and the addition of Viterra's softseed assets and capabilities. In Argentina, results were higher in both processing and refining. In Europe, results were higher in processing and biodiesel, while refining results were slightly down. In North America, results were lower in both processing and refining. Results from global softseeds merchandising activities were higher, reflecting strong execution. Higher softseed processed volumes primarily reflected the combined company's increased production capacity in Argentina, Canada and Europe. Higher merchandise volumes reflected the combined company's expanded global softseeds origination footprint. For other oilseeds processing and refining, higher results in North America Specialty Oils were more than offset by lower results in Asia and Europe. The addition of Viterra has a minimal impact on this segment, which primarily consists of our tropical and specialty oils and soy protein concentrate businesses. In grain merchandising and milling, higher results in wheat milling and ocean freight, plus the addition of the sugar business were partially offset by lower results in global wheat and corn merchandising. Higher volumes reflected the combined company's larger green handling footprint and capabilities. Prior year results included corn milling, which we divested earlier this year. The increase in corporate expenses was primarily driven by the addition of Viterra and performance-based compensation accruals. Prior year other results included income of $6 million from the Sugar & Bioenergy joint venture that we divested in the fourth quarter of last year. Net interest expense of $145 million was up in the quarter compared to last year, reflecting the addition of Viterra, partially offset by a lower average net interest rates and higher interest income from investments in interest-bearing instruments. Let's turn to Slide 6, where you can see our adjusted EPS and EBIT trends over the past 4 years, along with the trailing 12 months. Over this period, our team has excelled in managing a variety of different market environments while also executing on numerous internal initiatives, most notably Viterra integration planning and now execution. The recent performance trend reflects less volatility due to a more balanced global supply and demand environment and the impact of ongoing trade and biofuel uncertainty that has created a very spot transactional market environment. Slide 7 details our capital allocation. Year-to-date, we have generated approximately $1.2 billion of adjusted funds from operations. After allocating $282 million of sustaining CapEx, which includes maintenance environmental health and safety. We have approximately $900 million of discretionary cash flow available. We paid $324 million in dividends and invested $903 million in growth in productivity related CapEx. We received approximately $1.3 billion of cash proceeds from divestments, including U.S. corn milling, an interest in our soy processing footprint in Spain to Repsol, final payment for our interest in the Sugar & Bioenergy joint venture that closed in 2024 and the Hungary and Poland assets as required for receiving regulatory approval in Europe. We also repurchased 6.7 million Bunge shares for $545 million. This resulted in $386 million of retained cash flow. Moving to Slide 8. At quarter end, net debt exceeded readily marketable inventories, or RMI, by approximately $900 million. This change versus recent history reflects the impact of acquisition debt assumed and issued related to Viterra. Our adjusted leverage ratio, which reflects our adjusted net debt to adjusted EBITDA was 2.2x at the end of the third quarter. Slide 9 highlights our liquidity position, which remains strong. At quarter end, we had committed credit facilities of approximately $9.7 billion, of which all was unused and available, providing ample liquidity to manage the ongoing capital needs of our larger combined company. Please turn to Slide 10. For the trailing 12 months, adjusted ROIC was 8.5% and ROIC was 7.2%. Adjusting for construction and progress on our large multiyear projects not yet operating and the excess cash on our balance sheet, our adjusted ROIC would increase to 10% and ROIC to 8% Note that we decreased both our weighted average cost of capital and adjusted weighted average cost of capital from 7% and 7.7%, respectively, to 6% and 6.7%, respectively, reflecting the recent upgrade in our credit rating, change in capital structure of the combined company and the lower interest rate environment. Importantly, we are not lowering our long-term investment return expectations. We also updated our return calculations to align with the change in our combined company profile. The change includes an expansion of merchandising RMI, reflecting our greater volume of softseeds and grains and removing the cumulative translation loss adjustment no longer considered material as a result of our more geographically balanced footprint. Moving to Slide 11. For the trailing 12 months, we produced discretionary cash flow of approximately $1.1 billion and a cash flow yield or cash return on equity of 9.7% compared to our cost of equity of 7.2%. For this calculation, we also removed the cumulative translation losses adjustment due to our expanded footprint and are converting to a 4-quarter average to calculate adjusted book equity that better reflects the average capital base employed to generate cash over the period. Please turn to Slide 12 and our 2025 outlook. As Greg mentioned in his remarks, taking into account third quarter results, the current margin and macro environment and forward curves, we continue to forecast full year 2025 adjusted EPS in the range of $7.30 to $7.60. This estimate reflects an expected second half adjusted EPS in the range of $4 to $4.25. The difference in EPS ranges of $0.30 for the full year and $0.25 for the second half is due to different weighted average share counts used in the respective calculations. Additionally, we expect the following for 2025: an adjusted annual effective tax rate in the range of 23% to 25%, net interest expense in the range of $380 million to $400 million, capital expenditures in the range of $1.6 billion to $1.7 billion and depreciation and amortization of approximately $710 million. With that, I'll turn things back over to Greg for some closing comments. Gregory Heckman: Thanks, John. Before turning to Q&A, I want to offer a few closing thoughts. We had a strong third quarter. We are capturing value from the combined platform, operating as one company and demonstrating the benefits of our expanded global network. Externally, we continue to navigate a high degree of complexity in the marketplace. And as mentioned, farmers and end consumers remain largely spot. Global grain stocks-to-use ratios are elevated, dampening volatility and putting pressure on certain margins. And policy decisions, including biofuels and trade, remain in flux as we look ahead to 2026. But our platform is built to perform and to win regardless of the environment. We have the flexibility to adapt to shifting trade flows and keep products moving. That's the power of our combined company. The scale, scope and resilience of a global network backed by the discipline to manage risk and deliver solutions that create value for all our customers, farmers and end consumers. So in short, we have the people, assets and processes to manage through uncertainty and the rigor to stay focused on what we can control, running efficiently, serving customers and creating value for farmers and consumers of food, feed and fuel. So with that, we'll turn to Q&A. Operator: [Operator Instructions] The first question comes from Pooran Sharma with Stephens, Inc. Pooran Sharma: Just wanted to start off by saying congrats on reporting a strong quarter. I think really demonstrates solid execution on your guys' part. I think the first question I wanted to ask about is just around biofuel policy clarity. I know there's a lot of moving pieces to get to that point of clarity. But as it stands right now, are you able to give us a sense of when you think the soybean oil side or the crush margin formula should start to see a notable improvement? Gregory Heckman: Yes. This was complex enough. Let me start, and I'll let John follow up. But look, on the RVO, we're hearing, I think, the same that the market is. The final proposal, we expect to be at the end of the year or early next. We all hope in the marketplace, I think, that sooner is better. So we prefer to have that by year-end. We know the volume is going to be significantly higher, but we want to have that certainty and get that locked in. And then, of course, the SRE issue, seeing that those are reallocated 100% would make sure that it doesn't -- we don't lose any of that volume from the RVO and that, that gets executed. So look, the industry has made the investments in the soy and in the canola processing. And we need to see that demand put to work because that goes right to the farm gate, right? That supports the farmers, that's domestic demand that we can control. From a timing, you did call out soy oil is really only weak here in the U.S. Oil demand has been pretty good globally. So then that starts to be probably early '26, we would like to think that we would start to see that improvement and then that would continue as the year moved on. Pooran Sharma: Great. Great. Appreciate that clarity there. I guess on my follow-up, just wanted to ask about grain under the new combined platform. I had always thought that storage income is more stable, but maybe has less upside than grain merchandising income. Does the combined grain business offer more stability in earnings versus the legacy Bunge grain business given just the amount of storage infrastructure you have now versus what you all had before? Gregory Heckman: Yes. There's a couple of ways you need to think about it. From a baseline, it allows you a number of other ways, of course, to earn money, not only from the storage, but of course, drying from a handling and blending to certain specifics that depending on what customers want. Connecting it to -- remember, this is a vertical merger, connecting the origination capabilities that Viterra had, which are much stronger to the processing capabilities that legacy Bunge had -- so we're able to drive efficiencies through that value chain around transportation and logistics. So those are kind of baseline and depending on crop, quality of crop and flows. And then the other, of course, is you not only earn the storage income, but then you also have the optionality by having the crop in place, knowing what qualities you have. And so whether it's a weather problem or an increase in -- a weather problem which hurts supplies or an increase in demand somewhere in the world that then calls on that storage to those customers, we have that optionality to then serve that demand with the right qualities and the right quantities and the right price at the right time. Operator: The next question comes from Salvator Tiano with Bank of America. Salvator Tiano: Also congratulations on closing the transaction. Firstly, I wanted to -- now that we can talk explicitly about earnings and other segments they're segmenting, I want to see if you can clarify a little bit the impact on Viterra to EPS and EBIT. So when we think about that $2.27 EPS for Q3 or your full year guide, what was the impact accretive or dilutive from Viterra versus where would Bunge have been on a stand-alone basis? And secondly, can you also clarify on an EBIT basis, as we look at the operating income you made in Q3 versus a year ago, how much of that growth was due to Viterra versus just legacy Bunge earnings growth or contraction? Gregory Heckman: Yes. Let me start and I'll let John put a finer point on it. But the one thing to understand is we're very quickly bringing this together with one team and running this as one company because that's how we're going to maximize profitability. So if you think about the one voice to the farmer to be able to get them to market or the one voice to the consuming customer to get them what they need. So we were much bigger in soy crush, but think about Viterra brought a great footprint there in Argentina, which made us very balanced globally in soy crush. We're running a global soy crush business. So we're not thinking about it as Viterra versus Bunge, which is why we resegmented it along the lines we run the business. Soft, if you think about it, on the soft crush, Viterra brought a great origination and merchandising as well as some additional soft crush. We balanced out our global soft crush franchise. And so we're running that as one global franchise as well as where they were much stronger, of course, in the origination storage handling on the grain merch side and supporting our milling, but even where the origination then is supporting our milling assets. So I'll let John put a finer point, but you really have got to think about this as one company here pretty quickly, and that's why we're kind of focused on the present and going forward. John Neppl: Yes, I would just add that, Salvator, that we had a good third quarter across both what I would say is the legacy Bunge and legacy Viterra footprint in soy processing and refining a soft processing and refining. So it probably in totality, I think they both contributed well. If Viterra was -- as you can tell by the overall numbers forecast for the year, Viterra is mildly dilutive to the year. And I think we saw consistent results in Q3 that would support that. Not where we eventually want to get to certainly with the business and as we go after synergies and everything else. But I think early indications are very good as they were strong contributors on both the soft and soy side. Clearly, on grain merchandising results weren't where we would expect on an annualized basis in Q3. But Q3 is kind of a funny quarter because it's between global harvest seasons in effect. And we've got Q4 here coming up, North America Harvest, obviously, European harvest and Australian harvest. We're going to see, I think, better results in grain merchandising in Q4 that will show the power of what we picked up on the merchandising side. So certainly, looking forward to where we can go with this thing. I think early indications are very good. We're happy with the contribution so far. But I think into 2026, as we continue to work together and we get after the synergy capture, which is still early, I think we'll see more and more of the benefits. Salvator Tiano: Perfect. And then just want to follow up on the synergy capture you mentioned. So were there any synergies so far in Q3 or planned for Q4 material as part of that, I think, $341 million you had stated in your proxy. And how should we think about the timing of this synergy target? Will a lot of it be realized, for example, in 2026? Or is it going to take 2 or 3 years for that? John Neppl: Yes. I think we'll -- look, here in Q3 and Q4 of this year, it's really more about taking the actions that's going to take to see those results. We'll see a little bit probably by the end of the year. But 2026, we'll see a bigger jump in the benefit from synergies for sure. And then I think we'll peak probably '27 will be a big, big step change in synergy capture. But I do expect -- we do expect to capture a meaningful amount in '26. And I think even in fourth quarter '25, a number of actions that we'll take on a run rate basis by the end of the year, we'll see good progress. We do expect to be at or ahead of what we scheduled in the proxy as we move along, and we'll be, of course, be sure to keep everybody updated. Gregory Heckman: And then on the commercial synergies, remember, we didn't call those out. We said those will be to come because the teams, because of regulatory, our commercial teams couldn't work together. So as they're now able to work together as one team, you'll start to see that in the income line. And we're off to a good start, but we're just at the beginning of that. So that will build over time, and we'll have to prove that out with our earnings. Operator: The next question comes from Heather Jones from Heather Jones Research. Heather Jones: I guess I wanted to start with Viterra, and I know it's deeply embedded now within the Bunge operations. But I was just wondering, to the extent you're able, thinking about Q3 and just the numbers that Viterra reported a year ago, do you have like a really rough breakout of how much was just better execution by the team relative to a year ago? And how much was a better industry backdrop for those operations for what we saw in this quarter? John Neppl: Yes. I would -- Heather, I'd say we haven't gone back and dissected certainly Viterra's performance from a year ago versus this quarter. Obviously, we are aware that their performance coming into the close wasn't where we would have expected it. But at the same time, we've seen significant improvement already. And as I mentioned earlier, meaningful contribution in Q3 across both the soy and soft sides of things and then maybe less so on merchandising given timing, as I mentioned earlier. Last year, there were certainly more challenges, I think, in the environment with poor Australian crop, which we expect to be much better this year and lower crush environment in Argentina. So those things have improved this year. So I think generally, we feel like there's more momentum on the legacy Viterra side. And again, haven't dissected line by line with a year ago their performance. We're really, as Greg mentioned, focused on getting the stuff integrated and moving forward, but I feel very good about the contribution they made. Heather Jones: Okay. And then my follow-up is just assuming we get the RVO that I think everyone anticipates. And so just setting aside the timing, but sort of like let's just think of run rate as in mid-'26. And I'm thinking about it relative to the '22, '23 time frame. I mean, soybean meal is -- demand has been extremely robust. And if we -- what's going on in Europe and Brazil and then the RVO, bean oil, veg oil demand should be very robust. But yet you don't have the dislocations you had then and you have more soy processing capacity. So as you're thinking about those considerations, how are you all thinking about what the margin structure would look like relative to what we witnessed in '22, '23? Gregory Heckman: Yes. I mean I think you started to frame the setup very well that we should have favorable U.S. biofuel and trade policy. Now timing will matter when that comes across. We're expecting big crops in South America and then probably a more balanced China program from the origins than we saw here in 2025 and being in all origins that suits us. We continue to see strong global soybean and veg oil demand. As I said, outside of the U.S. has been the exception on soybean oil demand. So seeing that pick up would be a positive. And then as we said, look, we've got what I feel is the best global machine and the best team. So while these big crops come off, that should help improve on the merch side, which has been the drag to the business. Now at the very least, it should stabilize because stocks aren't burdensome globally. So while we'll have a heavier supply/demand, we'll have storage, we'll utilize our system for that. But if there's really any problem in weather, you could see the grain side of thing get more interesting. So while probably don't see back to the 2023 levels, we do see we're at that part of the cycle where it feels like we're at the bottom of the cycle, it's kind of when things get better and how much better they get. And as we start to get a view of that, of course, in -- when we do our Q4 earnings, we've always then start to talk about '26 and start to lay that out. So we'll be more prepared with more detail. And hopefully, a few of these things that are up in the air will land between now and then as well. John Neppl: Yes. And I'd just add to that, Heather, Back in '22, '23, it was like the perfect storm of not only biofuel demand, but we also had some global disruption, Ukraine, Russia, Canada crop. So there were some things that created a lot of additional volatility. Certainly, some of that could happen. Obviously, we're one big weather event away from markets that could get interesting. But nonetheless, as Greg pointed out, I think where biofuel policy is headed, certainly, things are going to -- should improve from here. And the question is how much, but I think we feel like we're well positioned to take advantage of the market as soon as it starts to turn. Operator: The next question comes from Thomas Palmer with JPMorgan. Thomas Palmer: I wanted to clarify maybe expectations as we move from 3Q into 4Q in terms of the different reporting segments. Are there kind of segments where we might see just given the lower earnings outlook in 4Q that's implied more of a step down? Are there other segments that could actually improve quarter-over-quarter? John Neppl: Yes, Tom, I'll take that, and then Greg can jump in. Yes, I think as you look forward, driven a lot by what we talked about around customers being very in the spot right now and a lot of the uncertainty, we're expecting a softer Q4 in both the soy processing and refining and soft Processing and Refining segments. again, driven a lot by some of this policy uncertainty and customer behavior. We do expect -- and then largely relatively flat in the other processing and refining, maybe up slightly. But we do expect a meaningful improvement in the Grain Merchandising and Ming segment, given timing of U.S., European, I'll say, North American in general harvest, European harvest and Australian wheat and canola harvest season. We do expect a better Q4 there. So -- and then we had a -- we do expect in that Corporate and Other segment as well, the negative to be not quite as big in Q4, just given timing of some expenses and things. So overall, we knew it was going to be down in Q4 and that as you can imply by the forecast for the year and where we finished Q3. But again, driven lower soy and soft and up a bit in Grain & Merchandising and milling. Thomas Palmer: Okay. And look, I'll try here. I guess, I don't know how much of a reply I'll get, but it's been a few years since you updated your view of mid-cycle earnings. I think the last update was $11 with $1 or more of upside if you opted for larger M&A. I appreciate there might be more to come here in the coming year. But maybe at a high level, this outlook, what are maybe big swings to think about because that larger scale M&A did indeed happen? John Neppl: Yes, Tom, we're -- our plan is to share that with you in March at our Investor Day. We're working on that right now, looking at our strategic planning, capital allocation plans, what we expect from the newly combined company, what we think we're capable of, where with the mega projects coming on line here, Moorestown actually this month up and running. And then in 2026, having our Destrehan operations up and going by midyear and then following -- early following year, our specialty oils, we're going to recast everything and take a hard look at that. And so our intent is to share that in March with what we believe our go-forward mid-cycle is and as well as what the upside might be. Operator: The next question comes from Manav Gupta with UBS. Manav Gupta: So my first question is whenever you acquire something like for anybody, there are some positive surprises and then you come across some areas where you expect to have to work a little harder to realize the synergies. Now that you have got Viterra, help us understand where are the positive surprises and where you think probably a little more work is needed than when you initially decided to buy Viterra. Gregory Heckman: Yes. And I don't know if we're surprised. I think we've had a lot of confirmation of what we thought. We had a lot of time to do the work where we were waiting on regulatory. The thing that's always more work, right? John and I have had the benefit of being a public company, being a private company working together and being a public company again. So Viterra was private, and it was also not GAAP. It was IFRS. So we knew that there was going to be a bit of a heavy lift to bring that into private company into a public company and switch over to GAAP. That's always more work than you plan it's going to be, and I can't say enough about the teams and what they've been doing to get prepared and to give the teams the information they need to run and serve our customers every day. So that's probably always the heaviest lift and of course, around systems and processes and getting to fewer systems and fewer processes. And that's off to a great start. The team has a good plan, and we're executing it. per the plan and meeting our early milestones, which is exactly where we wanted to be. And then on the commercial side, I'd say we knew the cultures were very similar. But again, we couldn't work together with the commercial teams because of regulatory and to avoid gun jumping. So now we finally get to have those teams work together. And you've had teams that were competing. These are highly competitive, aggressive people that have been competing with one another forever that are now on the same team. And John and I also have been working together a long time, and we've done a number of bolt-on acquisitions, and we've done a merger of competitors before. And I think we knew what to watch for, but that has gone about as well as we could have hoped. And it doesn't always go that well. The way that people have worked together to focus on the priorities to work as one team to think about our customers, and they're not looking back. They're looking forward. And that's -- I think the surprise of how quickly that, that has worked has been great. And then both had a good risk management culture. I'd say we were probably more developed as a public company around our systems, our processes, our rigor and our discipline and also very pleased how the teams have come together and embraced the risk management culture and the information that we're able to put at people's fingertips and able to run the business and make decisions. And I think that's been very positive. So I really can't say enough about our teams and how I feel about we're off. Now look, it's very early. We've got a lot more to do, but I really like the way that we've started, and I can't say enough about the teams and thank our people enough because this is a real people business. Manav Gupta: Perfect. My quick follow-up is it was great to see the restart of share buyback. I think it was $545 million. As the 2 companies come together and you are going to generate a lot of cash, help us understand a little bit what would be the uses of that cash going forward? John Neppl: Yes. So as we get through -- in 2026, we expect to wrap up our mega projects, so the 4 large projects that we've had underway for a while. One is wrapping up now and the rest will wrap up, largely wrap up during 2026. We should see a considerable decline in the CapEx, at least that we have planned at this point. And certainly, we believe with the strong cash generation, share buyback is going to be a meaningful part of our capital allocation going forward. Of course, yes, we'll always balance that with opportunity. But at this point, no doubt it's going to be an important part. Operator: The next question comes from Ben Theurer with Barclays. Benjamin Theurer: Actually, following up on the buybacks, that would be my follow-up question. Where do we stand now with that little over $0.5 billion that you've done in terms of what your initial consideration was for the buybacks when it came to the Viterra deal? Because I remember it was like $2 billion. Maybe help us understand where do we stand? What's missing? That would just a quick follow-up, and then I have my other question for you guys. John Neppl: Yes. Since the announcement of Viterra, we've actually done a little over $2 billion of buybacks, but $500 million of that was related to our sugar divestment. So we've got about $255 million left on the actual Viterra program. And so we'll get that -- we're well ahead of schedule on getting that executed and our plan is to get that done soon and then we'll go from there. But we're not going to be complete that and be done. I think we'll continue to assess that like we do with any capital allocation going forward and make sure we're making prudent decisions for our shareholders. Benjamin Theurer: Okay. Perfect. And then just to understand a little bit, obviously, Argentina, thanks to Viterra, is going to play a very important role. And Argentina is known for let's call it, volatility and sometimes uncertainty just because of the political environment. So maybe help us understand a little bit better how you think about the opportunities, but also the risks of the larger footprint in Argentina over the course of the year, how to think about like the farmer selling behavior, the crushing out of Argentina because clearly, this is something that's going to be really large within the grand scheme of the new Bunge would be great to understand the risks and opportunities here. Gregory Heckman: Sure. There's no doubt with the outcome of the election, I think we all believe that's going to be supportive of kind of improved macros going forward. And I think the one key thing to remember about Argentina versus Bunge pre-Viterra and kind of the new Bunge is we're much more balanced globally and especially on soy crush. So where Argentina in the past could be disruptive, we wouldn't have the opportunity to benefit as much from Argentina with our footprint. Now what that does for our footprint on origination as well as on -- especially on soy crush and on soft crush is we're much more balanced globally on all parts of the business. So we are now able to benefit from that and balance whether it's our soy crush or soft crush or our export programs, the wheat origination, which is feeding our combined wheat milling. We both had wheat milling in Brazil, which a lot of that is fed out of Argentina. So we'll benefit really across all of our external segments now with our Argentine footprint. So we're excited on how that kind of completed the global footprint there and look forward to Argentina continuing to improve. Operator: The next question comes from Steven Haynes with Morgan Stanley. Steven Haynes: Maybe just to ask maybe a similar question, but on Australia. Could you maybe walk through some of the high-level supply and demand trade dynamics there and just kind of how all that's flowing through Viterra's legacy assets there? Gregory Heckman: Okay. Yes, Australia, we've got a real big crop coming off there on wheat barley and Rapesed, which are all really important global crops for us with our origination now in every key producing region. So that's setting up very well. The thing to watch there, of course, weather that can kind of depend whether some of that falls in Q4 or falls in, in Q1 with some of the trade tensions between Canada and China around canola, we'll probably see some increased rapes seed exports coming out of Australia. That should probably be positive. And then, of course, they'll be very competitive in the global market on wheat and barley. So excited to have those big crops and be able to put our origination storage handling export system to work there in Australia. We've got a great business down there. John Neppl: Yes, Stephen, maybe I'd just add that legacy Bunge, we had a small export business there, but not something we talk much about because it just wasn't really material. But Viterra has a very good, very strong position in Australia. So to Greg's point, we're really pleased around that opportunity and things are shaping up there with the crop size this year to be a good beginning of the merger. Operator: The next question comes from Derrick Whitfield with Texas Capital. Derrick Whitfield: Congrats on a solid quarter. Regarding capital projects, while I understand that you're winding down several multiyear capital projects from a legacy Bunge perspective. Could you speak to any material projects that were underway at Viterra and if you're seeing new opportunities for growth investment from a Viterra perspective? John Neppl: Yes. There was nothing really big. I'd say Viterra had a -- they had a few smaller, what I'd call kind of debottlenecking and operational improvement projects underway that we're completing now. So they bring a much more modest amount of CapEx pipeline to the combined company than what we had set up with our large projects, our growth. Obviously, we're looking at a number of things as we always do going forward. We don't, on the horizon, see any big large capital projects like the ones we've had underway here for the last few years, but we'll continue to look at that. But as we've always said, we prefer to consolidate the industry and to add capacity where possible. But obviously, with the broader footprint, more opportunity, we'll make sure we'll always be taking a hard look at those. But again, we do expect at this point to see a pretty meaningful decline in CapEx commitment post 2026, absent something else coming along. So ongoing, I think our expectation was between combined sustaining CapEx and growth, we'd be at about $1 billion a year as a combined company post 2026. Gregory Heckman: Great color. And then I just add on, it's been great as we brought the network together. The teams are now refreshing the strategy and our list of projects and priorities because each company had their own list of projects. And so we're able to look at that combined network to put those priorities together to figure out, okay, where do we have any holes in our global network of origination or processing or distribution. And so then we'll be thoughtful, as John said, how we fill those in, whether it's a brownfield, a greenfield, a partnership. We want to be the partner of choice as you've seen us do things in the energy industry and do things with some of the ag input providers. So we'll be thoughtful about how we do that. But it's also been great for the teams to do that strategy work together as they get to know one another to do some meaningful work as we begin executing the combined platform. Derrick Whitfield: Great color. And maybe as a follow-up on biofuels policy, what are your thoughts on whether the administration will pursue the half RIN concept for foreign feedstocks and products I guess, more specifically to your business, we're hearing the feedstock provision could be difficult to administer. So I'd love if you have any thoughts there from a policy perspective. John Neppl: Yes. I think it's hard to say right now. We've heard a lot of rumors about technical limitations around executing the half RIN. We've heard mixed news on that. Whether it's really an issue, maybe it's not an issue, we don't really know yet. I think, obviously, we are pushing hard as the industry is for a full RIN benefit for domestic feedstock, but half a RIN for foreign feedstock, obviously, that's good for the American farmer. It's important to us in support of the farmers, our key customer. And we'll see where it goes, but we're doing our best to encourage that in D.C. and hoping that it gets implemented beginning in early 2026. Operator: Okay. And was there a follow-up, Mr. Whitfield. Derrick Whitfield: That's all. Great color. Appreciate it. Operator: The next question comes from Andrew Strelzik with BMO. Andrew Strelzik: You guys have mentioned strong execution a number of times. It does look like you outperformed the market, outperformed some of the competitors. I was just hoping maybe you could provide some color on where that strong execution was. You've talked about still a lot of work to do to bring the organizations together and make it more kind of holistic going forward. But where are you already seeing some of that strength? I'm assuming that would be relatively repeatable. But just any color around that would be helpful. Gregory Heckman: Sure. I think it starts with where we've been able to connect the 2 systems, the origination with the crushing and whether that's the soy processing or the soft seed processing and then where we filled in some of the areas where we weren't as strong, as I was talking about in Argentina is a great example on soft crush, on sun crush as well as on soybean processing. And that gives us that information. And in a market that is a bit complicated like we're operating in, having the information to be able to react more quickly. And in this quarter, it was things like where we still had open legs on the crush, executing very well to get every bit of the crush margin that was possible as we maybe rolled off the financial hedges and hedged out the physical to actually execute the programs. And then where we're a better partner on transportation and logistics, right? So working with our transportation providers and even some of the dots that we've been able to connect between our origination and processing. When you look at it as a combined system, you'll make different decisions than when you were running 2 different systems. And so there's early wins falling out in the transportation and logistics as we're pairing the right origins and destinations. And then the other is added liquidity in our own system. You can move faster and have the liquidity to get in and out of the positions that you need to, to execute for the farmer and for your consuming customer more quickly. And you're working inside your business with less friction internally, and that allows us to be externally focused and to move faster. And that happens a whole bunch of times at a lot of places globally, and then you see it start to fall out in the P&L. So we'll be excited over time as we get to fewer systems and fewer processes. But right off the bat, we had a big focus on getting the commercial team the same information at the same time about our combined information along the value chains. And I think we're seeing that paying real dividends. Andrew Strelzik: Okay. Great. That's helpful. And then I know I asked this on the business update call, but just as we think about next year on our side, is there anything from the back half of the year that we should keep in mind relative to your guidance for the back half of the year in terms of seasonality or abnormal type things as we start to build on that for next year? John Neppl: Yes. I don't -- Andrew, I think the Q3, Q4 combined results, I wouldn't say there are any sort of anomalies there. Obviously, we're looking forward to -- I think the bigger contribution we'll see next year, obviously, aside from the commercial synergy capture as we move forward. Hopefully, we'll get rolling -- really rolling on some cost synergies. But again, there's still a lot of uncertainty in the market. And hence, our call down for Q4, timing of policy change and trade and all those things are creating a lot of uncertainty, making it a bit difficult to predict 2026 at this point. Our plan is to provide that at our Q4 call. And hopefully, by then, we should have hopefully a lot more clarity around biofuel and around trade, things like that. But at this point, I would say not anything unusual in the back half of the year here to draw to other than just we've done, I think, to -- as Greg discussed earlier, the teams are working really well together right out of the gate. And with that, we're pretty happy and looking forward to seeing what we can do here in Q4 and get our first 6 months closed out. Gregory Heckman: And when we're talking next year and comparing it to this year, I think if you're kind of asking a question about timing things, the ones that we're watching, and I think we all should be watching, that will be the timing around the biofuel policies. It will be the timing around the trade policies. Those will be different in '26 than we saw in '25. I think we'll probably see a China program executed differently globally in '26 than it has been in '25. That will probably be better for the U.S. farmer than it has been. We've got big crops coming off everywhere. The only thing would be if we've got some [ lending ] risk. And so if anything develops there, that could be an issue. And then, of course, we are dealing with these big crops. So everybody will be putting their storage to work. We have a big crop here in North America, big crops in South America, big crop in Australia. And so that will have the storage assets working harder than they did last year. So I think when you sum it up, we're really pleased with the deal we did here, bringing these 2 great companies together. We're really pleased with the way the teams have started off. We've still got work to do, but we like how we started. And I think we talked all along, this was about giving us the diversification and the capabilities to be really relevant with our customers at both ends of the value chain and to have the resilience for whatever the external environment is. And what that will ultimately be is us performing better than anyone else in the low part of the cycle. But the real key is we get everything in place, and you'll really see this machine work as we get towards mid-cycle or even some of those more robust parts of the commodity cycle is when I think you'll really see the benefit of this machine. So we're excited and doing the work and can't thank the team enough. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Greg Heckman for any closing remarks. Gregory Heckman: I'd just like to thank everyone for joining us today. We appreciate your interest in Bunge and look forward to speaking again soon. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the MBIA Inc. Third Quarter 2025 Financial Results Conference Call. I would now like to turn the call over to Greg Diamond, Managing Director of Investor and Media Relations at MBIA. Please go ahead, sir. Greg Diamond: Thank you, Erica. Welcome to MBIA's conference call for our third quarter 2025 financial results. After the market closed yesterday, we issued and posted several items on our website, including our financial results, 10-Q, quarterly operating supplement and statutory financial statements for both MBIA Insurance Corp., and National Public Finance Guarantee Corporation. We also posted updates to the listings of our insurance company's insurance portfolios. Regarding today's call, please note that anything said on the call is qualified by the information provided in the company's 10-K, 10-Q and other SEC filings as our company's definitive disclosures are incorporated in those documents. We urge investors to read our 10-K and 10-Qs as they contain our most current disclosures about the company and its financial and operating results. Those documents also contain information that may not be addressed on today's call. The definitions and reconciliations of the non-GAAP terms included in our remarks today are also included in our 10-K and 10-Qs as well as our financial results report and our quarterly operating supplement. The recorded replay of today's call will become available on the MBIA website approximately 2 hours after the end of the call. Now here is our safe harbor disclosure statement. Our remarks on today's conference call may contain forward-looking statements. Important factors such as general market conditions and the competitive environment could cause our actual results to differ materially from the projected results referenced in our forward-looking statements. Risk factors are detailed in our 10-K and 10-Qs, which are available on our website at mbia.com. The company cautions not to place undue reliance on any such forward-looking statements. The company also undertakes no obligation to publicly correct or update any forward-looking statement if it later becomes aware that such statement is no longer accurate. For our call today, Bill Fallon and Joe Schachinger will provide introductory comments and then a question-and-answer session will follow. Now here's Bill Fallon. William Fallon: Thanks, Greg. Good morning, everyone. Thank you for being with us today. Our third quarter 2025 financial results had a lower net loss than the comparable period for 2024. Compared to 2024, our third quarter 2025 financial results benefited from lower losses and LAE associated with National's PREPA exposure, which benefited from the sale of $374 million of National's PREPA-related bankruptcy claims and higher estimated recoveries on National's remaining PREPA exposure. National's PREPA exposure now amounts to $425 million of gross par outstanding. Our priority continues to be resolving National's PREPA exposure, where the path and timing of that resolution remains largely uncertain. The administrative expense claims litigation, which was temporarily stayed following the dismissal of certain Puerto Rico Financial Oversight and Management Board members has been restarted. Since last quarter's conference call, PREPA's bondholders representing about 30% of the PREPA bonds outstanding have joined forces with the cooperative group of bondholders in opposition to PREPA's proposed confirmation plan. The combined group now represents approximately 90% of PREPA's bondholders that oppose the confirmation plan. Regarding the balance of National's insured portfolio, those credits have continued to perform generally consistent with our expectations. The gross par amount outstanding for National's insured portfolio has declined by approximately $2.1 billion from year-end 2024 to about $23.2 billion at September 30, 2025. National's leverage ratio of gross par to statutory capital was 23:1 at the end of the third quarter. As of September 30, 2025, National had total claims paying resources of $1.5 billion and statutory capital and surplus of almost $1 billion. Now Joe will provide additional comments about our financial results. Joseph Schachinger: Thank you, Bill, and good morning, all. I will begin with a review of our third quarter 2025 GAAP and non-GAAP results and then provide an overview of our statutory results. The company recorded a consolidated GAAP net loss of $8 million or a negative $0.17 per share for the third quarter of 2025 compared with a consolidated GAAP net loss of $56 million or a negative $1.18 per share for the third quarter of 2024. The lower GAAP net loss this quarter was mostly driven by lower losses in LAE at National, primarily on its PREPA exposure. National's losses in LAE for the third quarter of 2025 was a net benefit of $54 million compared with a loss of $2 million for the third quarter of 2024. The net benefit in this year's third quarter was primarily driven by revising our range of outcomes and the timing of an ultimate resolution in our PREPA loss reserving, giving consideration to the factors Bill previously mentioned. Again, those being the dismissal of certain members of the FOMB, the increase in representation of bondholders within the cooperative group and the sale of a portion of our PREPA bankruptcy claims at prices higher than our prior quarter's recorded salvage. Partially offsetting National's losses and LAE benefit in the current quarter were investment losses related to revaluing MBIA Insurance Corp.'s ownership interest in a Zohar-related company. The company's adjusted net income, a non-GAAP measure, was $51 million or $1.03 per share for the third quarter of 2025 compared with an adjusted net loss of $174,000 or essentially $0.00 per share for the third quarter of 2024. The favorable change was primarily due to the losses in LAE benefit at National this quarter. MBIA Inc.'s consolidated book value per share as of September 30, 2025, was a negative $43.17 due to MBIA Insurance Corp.'s negative book value per share of $52.64. I will now spend a few minutes on our corporate segment balance sheet. The Corporate segment, which primarily comprises the activities of the holding company, MBIA Inc., and our services company, MBIA Services Corp., had total assets of approximately $650 million as of September 30, 2025. Within this total are the following material assets. Unencumbered cash and liquid assets held by MBIA Inc. totaled $354 million, which was down from $380 million as of December 31, 2024, primarily due to the payment of principal and interest on the corporate segment's debt. In addition to the unencumbered cash and liquid assets, the corporate segment's assets included approximately $180 million of assets at market value pledged to guaranteed investment agreement contract holders, which fully collateralized those contracts. Now I'll turn to the insurance company's statutory results. National reported statutory net income of $73 million for the third quarter of 2025 compared with statutory net income of $19 million for the third quarter of 2024. The positive variance was driven by National's statutory losses and LAE benefit of $56 million for the third quarter of 2025, resulting from the adjustments to its PREPA loss reserves, compared to losses in LAE of $2 million for the third quarter of 2024. National statutory capital as of September 30, 2025, was $994 million, up $82 million compared with December 31, 2024. The increase in statutory capital was driven by National's year-to-date net income. Claims paying resources were $1.5 billion and continue to be consistent with December 31, 2024. Now I'll turn to MBIA Insurance Corp. MBIA Insurance Corp. reported a statutory net loss of $25 million for the third quarter of 2025 compared with statutory net income of $2 million for the third quarter of 2024. The unfavorable variance was primarily due to statutory losses in LAE of $25 million for the third quarter of 2025 compared with a losses in LAE benefit of $2 million for the third quarter of 2024. The losses in LAE in the current quarter were primarily driven by adjustments to reflect lower expected recoveries of paid claims associated with the Zohar CDOs. As of September 30, 2025, the statutory capital of MBIA Insurance Corp. was $79 million, which was $9 million below year-end 2024 as a result of its year-to-date net loss, net of an increase in its admitted assets. Claims paying resources totaled $326 million at September 30, 2025, compared with $356 million at December 31, 2024. MBIA Insurance Corp.'s insured gross par outstanding was $2.1 billion as of September 30, 2025, down from $2.3 billion at year-end 2024. Now we will turn the call over to the operator to begin the question-and-answer session. Operator: [Operator Instructions] We'll take our first question from Carlos [Pardo], a private investor. Carlos Pardo: This is Carlos calling from London. I mean, first of all, I mean, thank you very much again for your -- for the strategy with the Custodial Receipts. It was brilliant. Also thank you for the very reasonable approach that you have taken on Puerto Rico over the years. My first question is on the cooperation agreement. After the BlackRock Group joined, my understanding from the agreement is that now not a single party cannot block any deal. Basically, when I look at the definition of requisite bondholders, my understanding from this close is that no single party, including Assured Guaranty or any other party can block the deal. Is my understanding correct? So that because the definition includes that even if a party would hold more than 25% of the bonds, it would be reduced for the purposes of this calculation to 24%? Joseph Schachinger: Carl, that's correct. The requisite bondholders total 77.5%. As you noted correctly, there is a limit on the percentage that can be voted. That is correct that no one bondholder would be able to. Carlos Pardo: That's fantastic. I think that this is great news, and I think that it changes the dynamics of the cooperation agreement. Also, I assume that with the new Board, once the old Board finally goes, I think that with the new Board elected by the new administration, I think that there are very good prospects of reaching an agreement. I think that with these changes to the cooperation agreement with the wider group, I assume that I am absolutely in favor of us being there. I hope that you guys can negotiate as good as you always do. Joseph Schachinger: Thank you. Carlos Pardo: Then on the buybacks, I see that the buyback capacity is still there with $71 million. As we discussed in the previous call, if it is ever necessary, I assume that you guys are ready to deploy it, although at the moment, I don't think that it is needed. I also noticed that the PREPA payments that are due after the huge payment that we made on July, then it is $57 million next year, $20 million in '27 and $20 million in '28, which is absolutely manageable. I assume that the buyback capacity is there if needed. William Fallon: It's correct. We have buyback capacity if we choose to use it. Carlos Pardo: Fantastic. Well done and all the best with the negotiations, and hopefully, we can reach a good agreement that is good for us as creditors and also for Puerto Rico and for the people there. Operator: We'll go next to Patrick Stadelhofer with Kahn Brothers. Patrick Stadelhofer: First of all, yes, great job on selling the custodial receipts. This week on the PREPA docket, it looks like all of the buyers from your previous sale in '21 and '22, so GoldenTree, Tonic, Whitebox, they did the exact same transfer to Argent, all the for custodial receipts and that looks very coordinated. Do you know why all of nationals or all of previously national available claims are being sold or prepared to be sold in such a coordinated fashion? What kind of claims buyer needs like a CUSIP rather than buying it directly from a firm like yours? William Fallon: We are aware of what they've done with the custodial receipts similar to us. We do not know their motivation, so you have to approach them. Patrick Stadelhofer: Then in 2022, obviously, you hired Barclays for a strategic review and you tried to sell the company. What are the gating items to doing it again now that you've resolved a very large part of your proper exposure and you talk about producing uncertainty and all of that. If you did it again, would you feel like you disclosed it again like back in 2022? Or could this be going on in the background this time around? William Fallon: As you mentioned, about 3 years ago, we announced that we had engaged Barclays to initiate that sale process. We learned things during that process that led us to conclude that it was not the best time for our shareholders. As you then know, 2 years ago, we had a special dividend approved from National up to the holding company and then a dividend out to the common shareholders. I think one of the conclusions we had was getting money from National and off the holding company was probably better done before we sell -- before we would sell the company. In a similar way, as you mentioned, the uncertainty around Puerto Rico. We've now substantially reduced that Puerto Rico. Our PREPA exposure is roughly 1/3 of what it was when PREPA went into Title III. We believe, as you indicated, that reducing that uncertainty allows us to get closer to a sale of the company. We would announce if we start a process. To your point, you don't need and we don't need to have a formal process to talk to potential buyers about selling the company. As you know, companies do that all the time. With the reduced uncertainty, I think people thought the termination of several of the Board members was going to lead to a new Board being constituted quite quickly. As you know, that's ended in litigation, which has delayed it a little bit. I think as there's even further clarity around where PREPA is going, the potential buyers for National will be more inclined to have meaningful conversations. We may, at some point, decide to start a formal process. Patrick Stadelhofer: That's great. On that topic of the dividends, for the first time in years, there were some interesting language changes in the 10-Q around special dividends versus annual dividends. Clearly, it's front of mind. How do you weigh kind of such a special dividend versus a sale and delivering value to shareholders? William Fallon: 2 parts to that. When we think about dividends, there is the dividend from National up to the holding company. As you know, we have an as-of-right dividend every year. We did get that special dividend, which has to be approved by the Department of Financial Services in New York. We obviously received feedback when going through that process 2 years ago. I think we have a sense of when it would be appropriate as the book runs off and there's further progress on Puerto Rico, one would be the ideal time to go for a special dividend. Again, there's a lot that goes in that calculation, and it's not a set in stone, and we have to see how PREPA in particular, evolves. Then there's the dividend from the holding company out to shareholders, which you're referring to as well. That takes -- we take into account for that all the factors that you would expect. There are the debt service requirements at the holding company. There's what we think is an appropriate amount of liquidity, which I think has already been discussed this morning. We feel right now that we have the necessary liquidity to meet all the debt service obligations at the holding company. There are, as I mentioned, as the right dividends. Taking all those factors into account, if there was enough cash at the holding company to meet all those obligations and we thought there was enough cushion beyond that, we would consider another dividend to the shareholders. Patrick Stadelhofer: Always great to see adjusted book value going up in the quarter, so congrats. Operator: [Operator Instructions] We'll take our next question from John Staley with Staley Capital Advisors. John Staley: Bill, in the transaction where you sold the bonds, 2 questions. Are there any contingency to that sale? Or is it simply an outright sale, buyer be aware? Can you elaborate a little bit more on the identity of the entity that bought it bought the bond? William Fallon: Yes. John, with regard to the first, there are no contingencies whatsoever. We have sold $374 million of our bankruptcy claims. To your point, whatever now happens with the restructuring and the recovery, that's now on the books of the buyers. With regard to the buyers, it wasn't one buyer. There are multiple buyers involved in that. John Staley: Do you think that you potentially added another litigant against a settlement if you and the other bondholders come up with a number that is unfavorable to what this group of buyers think it's worth. Do you see another potential delay where they suit over everything? Or are they not allowed to suit? William Fallon: We don't think that is likely. Many of those buyers to the best of our knowledge, actually already own PREPA bonds. They were increasing -- they increased their position. John Staley: They're part of the settlement group. They would be approving... William Fallon: Correct. John Staley: The Oversight Board only has one member on it. Do you anticipate that remaining that way? William Fallon: The update on that is that there was a temporary stay in the court in Puerto Rico. 3 of those members that were dismissed filed a suit that they were wrongfully terminated. The temporary straining order essentially says, they were never terminated. Right now, John, there are 4 members on the Board. There is this lawsuit still proceeding in Puerto Rico. They've not yet set a schedule as to when the actual merits of the case will be heard. Then depending on that outcome, either they are reinstated, which looks as though the way -- that's the way the judge in Puerto Rico is going. Then that could be appealed by the administration or the administration potentially could then take further steps to terminate those Board members. Right now, there are 4 Board members, but in some cases, you need more than 4 Board members to approve certain items. For example, our understanding is to approve a confirmation plan in the bankruptcy court, the Board would need at least 5 members, so they are clearly shorthanded right now. John Staley: That sounds to me that things got simplified, but that sounds like a roadblock. That seems like one more thing that could delay things. William Fallon: There is clearly a near-term delay as these 3 what were thought to be terminated Board members pursue their case in court. John Staley: Then one final question. I appreciate this time. The MBIA Inc. that has the limited capacity versus their outstanding obligations, which are unrelated in terms of eventual liability to the holding company. What's keeping you from just declaring whatever it is some level of bankruptcy and just getting rid of that so you're even cleaner to a potential buyer. You guys have solved that issue and not sold an entity to a potential buyer who has to accept the fact that there's no liability between the holding company and National and MBIA Inc. Why don't you just get rid of that? William Fallon: It is possible that we could sell it. On an insurance basis or a statutory basis, MBIA Insurance Corp. is not bankrupt, right? It has substantial surplus. As we've stated before, there is not necessarily economic value to the MBIA Inc. shareholder. Whatever value there is would accrue to what we call the surplus noteholders, we have consistent conversations or regular conversations with the Department of Financial Services. The real issue there, I think what you're talking about, if for some reason, MBIA Insurance Corp. couldn't pay a claim under a policy, then the department might step in. On an insurance company, the equivalent bankruptcy would be some form of receivership, but it's not bankrupt. It has substantial surplus at this point and meets the regulatory threshold. John Staley: You don't see that continuing the way it is as a barrier to somebody coming in and buying MBIA Inc.? William Fallon: It's possible someone might raise some questions, but we don't think it is a barrier to selling MBIA Inc. sometime in the future. Operator: At this time, I am showing no further questions. I'd like to turn the floor back over to Mr. Greg Diamond. Greg Diamond: Thank you, Erica, and thanks to those of you listening to the call today. Please contact us directly if you have any additional questions. We also recommend that you visit our website at mbia.com for additional information on our company. Thank you for your interest in MBIA. Good day, and goodbye. Operator: We'd like to thank everybody for their participation on today's conference. Please feel free to disconnect your line at any time.
Jenny Sandstrom: Good afternoon, and welcome to Orron Energy's webcast for Q3 results. Joining me today we have our CEO, Daniel Fitzgerald; and CFO, Espen Hennie, who will run through the report and latest developments in Orron Energy. We will finish with a Q&A at the end of the presentation. So feel free to send across as many questions as you have, and we will collect and go through them at the end. And with that, I would like to hand over to Daniel to… Daniel Fitzgerald: Thank you, Jenny. And welcome to our Q3 results presentation, where I'll be joined by Espen to run through the financials after we give an update of how we've performed during the quarter and where we are pointing as a company. And I think we've largely delivered in line with our strategy during the quarter. We have seen further headwinds on the production side, both with volumes and pricing, but pleased to share that we do have our first project sales in the greenfield portfolio. We're on track with a range of those developments. And as we look forward into the markets into next year, we start to see increasing futures pricing and increasing performance across the assets, which should lead to higher revenues and higher cash flow for the business as we move forward into Q4 and into next year. As a quick recap, Orron Energy is the renewable vehicle within the Lundin Group of Companies and the Lundin family being a very long-term value-focused shareholder still standing behind the strategy and supporting our growth in this sector. We have 380 gigawatts -- 380 megawatts, sorry, of operating capacity. And in a normal year, that should generate around 1,000 gigawatt hours of production, and that gives us a long-term recurring cash flow into the company. Within that asset base and some of our greenfield projects, we have the opportunity to add organic growth. We can extend lifetimes of assets. We're looking at colocation of both demand and batteries. We're looking at opportunities to then increase production out of the existing asset bases and use the grid connections and facilities and infrastructure that we have in a more accretive fashion. So that's active across all of our countries of operation. And combined with that, we have greenfield projects which are running across 5 countries, and we're starting to see the first monetization out of that platform, which is really exciting to see and gives us a lot of strength as we move into later this year and early next year. And as we have done all along, we remain fully funded, fully financed. So we have a debt facility with sufficient headroom to move into significant M&A and transformational M&A. And in markets such as these, there's many opportunities that are starting to come to the fore that we will consider and look at. So we don't need to touch the equity side of the equation. I do know that the share prices can perform a little bit better than what we've seen in the last quarters, but this side of our balance sheet gives us ample flexibility to go and grow into the future without needing to touch the equity side of the equation. If we look then at the first 9 months of this year, we've produced around 600 gigawatt hours, year-to-date. And that's been impacted somewhat by both weather where we have seen and continue to see some lower wind speeds, not only within Orron Energy, but also within our peer group and any of the producers across the Nordics. We do see a weather pattern over the last quarters that has been less favorable than we expect. We also had an impact in our production from price curtailment, and I'll touch on that a little bit more in the following slide. When we look at the revenues and EBITDA for the company, we've generated revenues of EUR 23 million, leading to an EBITDA of negative EUR 4 million year-to-date. And Espen will touch a little bit more on the detailed numbers for Q3. And important to note in this, we have seen weak pricing this year. We're seeing futures pricing increasing as we move into next year. We've had Sudan costs, which is more than the negative amount on the EBITDA here. So excluding Sudan, we would be in positive territory on a proportionate basis. And then also, as we look into Q4 and Q1, these seasonally are our strongest quarters. So we expect an uplift not only on volumes, but also on price as we move into the winter months of the year. Those market conditions have been improving since the summer of this year, and it feels like we're out of the bottom of the trough in terms of pricing. So we have hedged some of the volumes in the second half of 2025. We continue that hedging program into 2026 at around an average of around EUR 58 a megawatt hour baseload pricing. And that gives us a bit more certainty on the revenue side of the business and allows us still with the unhedged volumes to profit from market improvement while protecting ourselves against the downside scenario, which we have seen both in 2024 and 2023, certainly in the weaker months and quarters of the year. Very pleased to share in our greenfield platform that in July we sold our first project, and that was a 76-megawatt agri PV project for a total of EUR 4 million consideration. Now half of that is being paid upfront. We have a profit of EUR 1.1 million, which is flowing through our profit loss this quarter. And any of the future contingent payments that we receive on this have no cost associated. So we'll see those coming straight through the profit and loss at the headline amount. So this does really return a good performance in terms of invested capital. And now we're starting to see multiple projects that are going to hit key milestones over the coming 6 to 12 months, and we expect this recurring revenue to continue in our business as we look forward. If I look in a bit more detail at power generation, we've got a slide here which looks at the power generation by quarter over the last 3 years. And you can see there where seasonally we produce more and less. And so there's no surprise that Q3 is a weak quarter seasonally against where we normally perform on an average basis. Now even saying that we have been impacted by weather in the quarter, we have seen lower wind speeds, and we expect now to be around 850 to 900 gigawatt hours as a full year 2025 performance in terms of production. If you look quarter-by-quarter, looking back through the years, we're not a long way away from where we have been last year. And Q3 is lower than where we expect and the 2 elements driving our weather and price curtailment. And if I look at our forecast for this year around that 900 level, we've curtailed around 100 gigawatt hours this year based on low pricing. So that would have put us up into a record year had we not curtailed, and that's a factor driven by the lower pricing. So as we move into Q4, we expect volumes to increase. We expect prices to increase. And as prices increase, we're going to see less of the price curtailment. So not only do we see seasonal volumes improving, but with price, we also see additional volumes coming to fruition. And I'm really pleased by what our team have been able to achieve in terms of making our assets more and more flexible. MLK is really leading on this through ancillary services and price-dependent bidding with some management around the balancing costs, we've seen between EUR 1 million, EUR 1.5 million of additional revenues coming across our portfolio, either additional revenues or decreased cost just by adding this flexibility to our portfolio. And that really gives us some levers to play with as prices either move low or high on the balancing markets, as the volatility improves, we now have many more tools to play with. And as we go forward, we expect Karskruv to receive the validation from SVK to allow us to participate more fully into those markets, and we're continuing that rollout across the rest of the fleet. So as of today, we have 80% of our portfolio active in the price-dependent bidding. We have 20% of our portfolio, which is MLK today, active on ancillary services and Karskruv is just awaiting final approval from SVK to then provide those services as well. So that gives us a good platform into next year. And then as prices pick up through the next year, we expect to see higher revenues, higher volumes and returning back to a normal production year for Orron Energy. And adding into that normal production year is hopefully some more recurring revenues from the greenfield platform. And this platform really is delivering as expected. We have a multi-gigawatt pipeline of opportunities across 5 countries. I'd say the most important U.K. and Germany at this stage that are close to recurring revenues and material recurring revenues with the Nordic pipeline being a little bit longer dated and some projects that we'll likely invest in ourselves, and France is still growing as a region. But U.K. and Germany are really driving that greenfield pipeline forward. We see governments in both of these countries very supportive with high ambitions. We see high investor appetite for projects, and we still see electricity pricing and support schemes that really drive us to deliver a good developer premium out of these projects. So those 2 countries definitely are where a bulk of our focus is. And short term, we should see those recurring revenues coming. Our projects are developing as per plan. As we touched on, we've seen the first project sale in Germany. We have a second project that ready to permit and a range of projects that are coming later this year and early into next year. And we're looking at multiple ways to monetize this platform. I'd say the market is moving more and more towards portfolio sales. and a broader discussion around multiple opportunities rather than individual project sales. And so we'll investigate both of those options as we move forward and share with the market more information as we see the results from that. In the U.K., we have been waiting for a while on the NESO grid reform. We now have a secure time line where NESO have committed to confirm both the outcome of the reform, what that means for every single project and to offer up the new grid connection agreement. So that process is going to start communicating back with project developers as of the end of this year. And so through the early part of next year, we expect to hear more of the results from that, and we'll be able to move the U.K. into that sales process. As it stands today, we have 8 projects, which is between 7 and 8 gigawatts worth of opportunities across solar, co-located batteries and co-located data centers within that group. So we need to see the outcome from NESO, we need to see the detailed results, and then we'll be able to communicate more with the market as we move into the new year. And with that, I'll pass over to Espen to focus on the financials and the Q3 numbers. Espen Hennie: Thank you, Daniel, and good afternoon, everyone. Kicking off with some of the financial highlights for the quarter. Reported power generation came in at 135 gigawatt hours, this was, as Dan mentioned, negatively impacted by low wind speeds during the quarter, in addition also to our voluntary curtailments as a response to periods of low prices, which also, as Dan said, has saved us material amounts of costs without losing any significant revenue. So that's a very valuable flexibility to have. In addition to the reported figures, we also have 10 gigawatt hours of compensated volumes. These are volumes which we receive compensation related to either ancillary services or related to operational downtime, which is covered under our availability warranties. The achieved price for the quarter was EUR 31 per megawatt hour, and I'll go through that in a bit more detail on one of the later slides. We had revenues of EUR 2 million from our initial project sale in Germany, which was announced in July. And when we add that to our revenues from power generation, total revenues for the quarter came to EUR 6 million. And EBITDA, excluding noncash and G&A items for the quarter came in at minus EUR 2 million. And we ended the quarter with a net debt position of EUR 83 million, which leaves the company in a very strong financial position, supported by significant liquidity headroom under our EUR 170 million facility. Taking a look at our full year guidance. We are delivering in line with our plans and are therefore also reiterating our outlook for the expenditure items shown on this slide. We have seen a lower balancing costs compared to the previous quarter, partly driven by the measures that we have taken to mitigate this. This is of course very positive and encouraging, but it's also important to remember that these costs still remain at elevated levels compared to recent history. So there's still potential for some cost reductions going into next year or beyond if we start to see a trend back toward more normalized levels for this item. Next, let's look at some key financial metrics for the third quarter comparing to the previous quarters going back to the same quarter last year. Revenues from power generation were down compared with the preceding quarter. This is due to lower volumes. However, they are significantly stronger than the corresponding quarter last year, driven by a significantly stronger achieved price compared to Q3 in 2024. And on top of the revenues from power generation, as mentioned earlier, we also had EUR 2 million from our first greenfield project sale, which is then the upfront payment of the project sale with a potential EUR 2 million contingent payment at a later stage, which we expect a conclusion on that contingent payment during 2026. That brings total revenues to EUR 6.1 million, EUR 400,000 higher than in the previous quarter. We can also see an improvement in EBITDA and CFFO compared with both the previous quarter and the same quarter last year. and the quarter-on-quarter variance is mainly explained by lower OpEx, driven by the lower balancing costs that we've seen this quarter compared to the very elevated and high levels in Q2. Let's now look at some of the details on our achieved price for the third quarter and also the year-to-date period. The Nordic system price averaged EUR 36 per megawatt hour in the third quarter, while the average production weighted spot price for our portfolio was EUR 45. Ancillary service income and sale of GOOs added EUR 1 per megawatt hour to our achieved price, while hedging reduced it by EUR 5. And the fact that our hedges ended up out of the money means that prices turned out quite a lot higher than expected, which of course is very beneficial for the company to our revenues and cash flow. The capture price discount was just over 20% in the quarter, leading to a quarterly achieved price of EUR 31 per megawatt hour for Q3. And for the year-to-date, the average Nordic system price has been similar to Q3 at EUR 36, while the average production-weighted spot price for our portfolio has been EUR 43, a fairly significant premium which is explained by the favorable geographic location of our power producing assets. Ancillary service income and the sale of GOOs contributed positively by EUR 2 per megawatt hour and hedges had a negative impact of EUR 1 before deducting the capture price discount, which has been 21% year-to-date. And this results in an average achieved price for the 9-month period of EUR 35 per megawatt hour, which is very much in line with the system price for the same period. Moving then on to the quarterly reported cash flow and our liquidity position. CFFO, excluding working capital was minus EUR 3.6 million with a negative working capital impact of EUR 0.8 million during the quarter. Cash flow from investing activities totaled negative EUR 0.2 million, and this consisted of EUR 2.3 million in capital expenditures, which is mainly investments into our greenfield projects, and this was almost fully offset by proceeds of EUR 1.7 million from the announced project sale. So please keep in mind, we have EUR 1.1 million reflected in our P&L. But on a cash basis, the proceeds were EUR 1.7 million, with the difference then being book values. Then along with other minor invested related cash flows, we had a total cash flow leading to an ending proportionate net debt position of EUR 83 million at the end of Q3, and this translates to just under EUR 90 million of liquidity headroom, combining our cash balance with the EUR 70 million of undrawn capacity under our revolving credit facility. Summing up then with an updated cash flow outlook for 2025. This reflects the actuals for the first 9 months of the year, and we are applying achieved prices in the range of EUR 35 to EUR 45 per megawatt hour for the fourth quarter. This represents the likely range of outcomes based on current future prices and also takes into account the baseload power price hedges we have entered into with the details shown on the slide. Starting with revenues, we expect these to end up between EUR 32 million and EUR 35 million with a corresponding EBITDA, excluding Sudan legal costs, in the range of EUR 4 million to EUR 7 million. The EBITDA breakeven price is expected to be around EUR 33 per megawatt hour for the year. Including the Sudan legal costs, which we do expect to be significantly lower next year, EBITDA is projected to end up between minus EUR 3 million and breakeven. Looking at free cash flow before CapEx, we expect to end up between breakeven and plus EUR 2 million, excluding the legal costs, which we believe demonstrates resilience given the weak wind conditions and soft pricing that we have experienced throughout the year. When including legal costs, the same range moves to between minus EUR 7 million and minus EUR 5 million. Finally, here, we are also showing the baseload power prices, baseload power price hedges that we have entered into for next year. And the approach, as also Dan commented on, it is very much the same as for our 2025 hedges. We lock in prices for a modest share of our power generation volumes when we consider the market conditions sufficiently attractive. This provides strong downside protection against lower power prices, but also it also allows us to benefit if market conditions improve since the majority of our volumes will remain merchant. So with that, I'll hand it back to Dan. Daniel Fitzgerald: Thank you, Espen. And before we go into Q&A, a few concluding remarks as we normally do. So I think our assets generate long-term cash flows. We have to look at this business with a 20- and 30-year lens and note that the market conditions will be different during those periods. We're going to see highs like we've seen in 2022 and lows like we've seen in the last 1 or 2 years. But our asset base will continue to produce for a very long period of time. And with the organic growth and opportunities to extend life spans and to improve production and add other technologies, it gives us a really good platform that we can use over the longer time horizon to really generate strong revenues. We're financially resilient with significant headroom under our finance facility that allows us to move in terms of growth, investing into greenfield projects, new business and new opportunities. And I'm really pleased to see that our greenfield pipeline is starting to deliver revenues as of this quarter, and we expect that to continue as we move into the coming year. As we see markets improve, we've taken opportunities on hedging. We're starting to see some more M&A that's coming to market now as we're seeing the pricing improve and with the firepower that we have on the balance sheet, we can move in that sector as well. So I remain optimistic as I look forward. We're positioned in some really good markets with pricing coming back, volumes coming back and look forward to certainly Q4, Q1 and into 2026 as we see stronger performance. So with that, I think we move over to Q&A, and I'll invite Espen to come and join me back up here again. Jenny Sandstrom: Yes. Thank you very much. We already have a lot of good questions. So if you have a question and you haven't submitted yet, I suggest strongly that you do so as soon as possible. So let's start with the market. "It's currently a quite challenging market environment. Will you keep investing in new wind farms in Sweden given this? Or do you have any other plans?" Daniel Fitzgerald: Yes. I think it is an interesting time in the market. When we have troughs like this, it is a good time to build the business. So in the Nordics, if I look at greenfield projects, it's quite difficult to sanction greenfield projects today given where the pricing sits. And we haven't seen much of that supply coming on. And over a longer period of time, we will see the impact of that supply. Sweden has turned off some of the offshore wind, they've rejected the permits for a whole range of offshore wind, and we're not seeing that growth in the onshore domain. So I think it's challenging to sanction, but that will come back in the future. So we continue to have that exposure through greenfield projects. And on the flip side, we're seeing at this point in the market some really interesting opportunities on the producing asset side that gives us the ability to scale up our production. So I think it's an interesting time in the market, but it is challenging for new projects for sure. Jenny Sandstrom: "So speaking of M&A, what kind of opportunities are you seeing in the market right now?" Daniel Fitzgerald: I think players in the market are really being rewarded for flexibility. So what we're seeing in terms of the really high premiums in the market, those with flexible power generation or the ability to move their volumes and managing balancing costs, some of the frequency services, there's a strong return on that. So for batteries, ancillary services, et cetera, we see good returns. Data centers are the hot topic in the market today for any players with a data center opportunity, and we're looking at a range of those in our, broadly across our portfolio. I'd say more on the traditional front, I think producing assets in today's market where we do see the low pricing now is a good time where we're seeing sellers' ambitions are coming down to match where the market is at the moment. So that's a bit more interesting for us. But unfortunately, nothing to share until we've got there on an investment or a transaction, and we'll come back to the market when the time is right. Jenny Sandstrom: "And when it comes to strategic partnerships or mergers with other energy companies, is this something that you're considering or looking into?" Daniel Fitzgerald: I think we're always open to the discussions. I think with the share price where it is, we're not willing to dilute significantly for a nonaccretive transaction on a per share basis. So we have to be mindful of that. And we also have the Sudan case, which both Espen and I touched on. The Sudan case comes to an end at the end of next year with the judgment. We see costs coming down significantly. We will see the -- hopefully see the full resolution of the Sudan case at the end of next year, and that opens the door for more material M&A, I think. Jenny Sandstrom: "And speaking of share price, given the current share price level, are you considering buybacks?" Daniel Fitzgerald: Yes, I think buybacks are always a discussion that is in every meeting we have with the Board and with most investors as well. I think it's a very attractive point to be buying back our own shares. There's also a very, very important growth element that we need to take into account where we need to deploy capital accretively on a per share basis. And our company is still too small. We need to be much bigger in size to really diversify the revenue streams and improve the cash flow. So there's a range of competing priorities for that capital allocation. Share buybacks is absolutely one of them. And again, should the conditions be right, then we'd come to the market with that announcement. Jenny Sandstrom: "And going back to the challenging market, how do you plan to make up profits?" Daniel Fitzgerald: Yes. I think we're burdened today by the costs in the Sudan case, that's for sure. And if I were to remove the Sudan case costs from our financials, we'd be back to positive EBITDA. I think it's challenging for a lot of operators to make a good return at current market conditions. And so I think we need to be a little bit patient with the price coming back with Sudan going away and then with some scale up of the company, I think there's a fantastic pathway to profitability. When I look at the greenfield platform, that's already profitable on a project-by-project basis based on our first sale. So when we see the recurring revenues coming out of that and the business getting more self-funding, I think we'll see much more return coming out. Espen, I don't know if you had anything. Espen Hennie: No, I fully support all of that. And I think the key thing, yes, like you mentioned, only one project sale, we expect multiple of those going forward, temporarily -- a temporary situation now with high costs. And also the fact that power prices are below breakevens for new projects. So I think some of that means that we can have a quite constructive view on future only both market pricing and also earnings potential for the company in the medium to long term. Jenny Sandstrom: "And great to see a lower capture price discount. Is this the level you expect moving forward?" Espen Hennie: Yes. I think I mean capture price discount, obviously, can fluctuate widely quarter-to-quarter, hard to precisely forecast it over a short time frame. I think it's -- our expectation is that we will be within the 2025 percentage range. We have been 21% year-to-date, so slightly lower than sort of what we have seen earlier, partly due to also -- also depends on the volume of curtailments, voluntary curtailments, but between the 20% to 25% within that range is our sort of -- I think it's a very prudent estimate and assumption going forward. Jenny Sandstrom: We also have a few questions on the development side. "So congratulations on the first project sale. Is the price per megawatt what we should expect in future sales? And can you give us some flavor on the current pipeline?" Daniel Fitzgerald: Yes. I think in terms of the multiples, what we saw in our first German project sale is largely what we're seeing across the portfolio, whether it's U.K. or Germany. Today, in the Nordics, there's less appetite. So I'd say it's a lower premium or more difficult, but certainly U.K. and Germany are around that level. As we look forward, though, I think the market is changing. People are valuing more project portfolios, which spread the risk. We're starting to see buyers looking at forward sales of projects with cost coverage or stand-alone complete exit project sales. So it really depends on the structure as to what that looks like going forward, but it remains -- I'd say it remains very, very attractive for us as a developer premium. When I look at the broader portfolio, we're only just getting started. We have already 3 to 4 gigawatts in Germany, some of those very early stage, some of them coming towards later stage. We have a range of battery opportunities where we have favorable grid positions for those. In the U.K., we've submitted our first 8 gigawatts into this reform process, and there's another massive pipeline behind that waiting for certainty around the process, and then we'll move through the land acquisition and development process. So for me, this is -- again, it's a 10-year business, 10-, 20-year business where we expect to see the returning recurring revenues coming now, we'll start to mature that business even further and start to carry some projects longer as we move forward. Jenny Sandstrom: "And do you think it's realistic to -- that we will have a first sale from the U.K. greenfield portfolio in 2026?" Daniel Fitzgerald: I'm very hopeful that we get there. We were hoping to be there already in 2025. And we didn't quite get there because of this grid reform process. So I can't control what the energy system operator is going to do going forward, but they have committed to a time line for giving us the confirmed grid offers. And once we receive those, then we'll be able to move forward on the project sales and the market is still very strong in the U.K. So I'm very, very optimistic that we'll see something out of the U.K. in 2026. And given the size of the projects, this is very, very material for the company. Jenny Sandstrom: Good. I think we covered all of the questions. I don't see any further incoming questions. So any concluding remarks from your end? Daniel Fitzgerald: No, I think a challenging Q3 for us, if we're completely honest, we have seen lower volumes, lower pricing, but very, very enthused about looking forward into 2026. We're seeing stronger market pricing for energy. We're seeing hedging coming in at favorable levels. We're seeing projects hitting key milestones and very optimistic about what the coming 6 to 12 months looks like. So we look forward to sharing more information early in the new year with our Q4 results. Jenny Sandstrom: Great. Well, thank you very much. Have a lovely afternoon, everyone, and feel free to reach out in case you have any questions. Thank you. Daniel Fitzgerald: Thank you. Espen Hennie: Thank you.
Operator: Greetings, and welcome to Postal Realty Trust Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jordan Cooperstein, Vice President of FP&A Capital Markets. Welcome, Jordan. Jordan Cooperstein: Thank you, and good morning, everyone. Welcome to Postal Realty Trust's Third Quarter 2025 Earnings Conference Call. On the call today, we have Andrew Spodek, Chief Executive Officer; Jeremy Garber, President; Steve Bakke, Chief Financial Officer; and Matt Brandwein, Chief Accounting Officer. Please note the company may use forward-looking statements on this conference call, which are statements that are not historical facts and are considered forward-looking. These forward-looking statements are covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond the company's control, including, but not limited to, those contained in the company's latest 10-K and its other regulatory filings. The company does not assume and specifically disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, on this conference call, the company may refer to certain non-GAAP financial measures, such as funds from operations, adjusted funds from operations, adjusted EBITDA and net debt. You can find a tabular reconciliation of these non-GAAP financial measures to the most currently comparable GAAP measures in the company's earnings release and supplemental materials. With that, I will now turn the call over to Andrew Spodek, Chief Executive Officer of Postal Realty Trust. Andrew Spodek: Good morning, and thanks for joining us today. Our strong third quarter results build on the last several quarters' momentum as we continue to solidify our position as the leading owner of U.S. postal real estate. Our team remains highly focused on 3 areas of our business to create value for shareholders. First, driving organic growth within our portfolio through programmatic leasing with the Postal Service; second, sourcing and executing postal property acquisitions that are accretive day 1 to per share earnings and which become significantly more accretive over time. And third, deepening our access to capital to fund accretive growth. These 3 pillars form the foundation of our high-quality portfolio leased to the Postal Service, which provides a critical universal service to all Americans that is mandated in the constitution. This service was not interrupted during the most recent federal government shutdown and our rental payments have been unaffected. As we like to remind investors, lease expenses represent only 1.5% of the Postal Services total operating budget, and these real estate locations are the backbone of their entire delivery network, enabling it to provide universal service across 169 million delivery points nationwide. Turning to third quarter results. The team's success executing on the aforementioned 3 pillars resulted in the company reporting AFFO of $0.33 per share or growth of 10% compared to last year. In addition, we are increasing 2025 AFFO guidance by $0.06, which represents annual growth of 13% at the midpoint. Looking at per share AFFO growth from 2022 through 2025, our guidance implies compound annual growth of 9% over the 3-year period. Starting with leasing, we have worked with the Postal Service to create a highly efficient and repeatable framework to negotiate, process and execute new leases across both our existing portfolio and future acquisitions. This approach has yielded important benefits for both parties. For Postal Realty, this framework has improved the predictability of our long-term revenue growth with our new leases offering a mix of 10-year term and 3% annual rent escalations. We are also now able to anticipate rental rate timing and ranges for future lease commencements further in advance than ever before. Starting this year, greater revenue visibility enabled us to provide annual AFFO per share guidance to investors for the first time, and we will do so again for 2026 on our fourth quarter call. Another benefit of this efficient programmatic leasing approach is that paired with our unmatched ability to manage, operate and administer a diverse portfolio of over 2,200 postal properties nationally. We serve as a highly responsive single contact point for the Postal Service. Based on our success advancing our new leasing approach and driving property operating efficiencies, we are updating our 2025 same-store cash NOI guidance to a range of 8.5% to 9.5% from our prior guidance of 7% to 9%. Moving to external growth. We were active in the quarter, completing $42.3 million of acquisitions at a weighted average cash cap rate of 7.7%. This brings closed volume through October 17 to just over $100 million. Based on this and on what we see in the pipeline for the remainder of the year, we are now guiding 2025 acquisitions to meet or exceed $110 million. A highlight of our third quarter activity was the acquisition of a high-quality flex property at a prime location in Newtonville, Massachusetts, an affluent suburb just west of Boston. Consistent with the 75% of our portfolio that has been internally sourced, this was an off-market opportunity that came through a relationship formed over many years. We were able to purchase this property accretively using a mix of debt and equity capital. We closed on the property for $23.5 million. The initial cash cap rate is 7.6% and will increase to 8.3% in 3 years. When our cost of capital aligns with an opportunity, we are prepared to move thoughtfully and efficiently to add strong assets to our portfolio. Our capital allocation approach generates accretion day 1 and enables us to make progress on 2 important long-term goals. The first is to deliver increasing value to the U.S. Postal Service as an efficient single point of contact for their real estate needs. The second is to drive consistent, healthy organic growth for shareholders by finding mark-to-market opportunities, coupled with enhancing leases with both annual rent escalators and extending their length. Acquisitions have and will continue to be a critical part of our long-term value creation strategy. Lastly, I would like to address a key addition to our leadership team that we announced in late September. As of October 27, Steve Bakke has now officially stepped into the role of Chief Financial Officer. I can tell you his contributions have been immediate. Steve joins us from Realty Income, where he was SVP of Corporate Finance. His deep perspective in capital markets, corporate finance and strategy will help further Postal Realty's mission. In addition, Steve is energized and committed to ensure the research community and our current and future investors understand the simplicity, visibility and earnings power of Postal Realty Trust. We are very excited to welcome Steve, and I will now turn the call over to him to go through our third quarter financial results. Steve Bakke: Thank you, Andrew. I'm excited to be part of the team and contribute to the growth opportunity here. Before discussing the results, I want to take a moment to outline why I am so excited to join the team at Postal Realty. Within the REIT industry, Postal Realty is part of a group of companies that operate in highly specialized real estate segments. They apply unique industry knowledge accrued over decades across all facets of leasing, operating and most importantly, acquiring assets that are both stable and growth-oriented. I believe Postal Realty's results the past few years are making it apparent that we have a durable cash flow stream backed by a creditworthy tenant with a 250-year operating history, a portfolio that delivers robust organic growth and a disciplined acquisition strategy with a large addressable market. With access to multiple forms of debt, a public equity currency and continued use of OP units for owners seeking to join our platform, Postal Realty stands out amongst competitors in this segment for its access to both capital and strategic flexibility. I look forward to meeting many of you in the coming weeks and months to discuss Postal Realty further. Moving to this quarter's results. We delivered AFFO of $0.33 per diluted share, representing $0.03 growth from the third quarter of last year. We increased the 2025 AFFO guidance range to $1.30 to $1.32 per share, which represents growth of $0.14 at the low end and $0.16 at the high end versus 2024. We continue to outperform our expectations, driven by a few factors. First, operating expenses have trended lower than expected this year, driven by the timing and scope of R&M projects. Second, revenue has outperformed due partly to even faster lease executions with the USPS as well as re-leasing outcomes, fees and other income exceeding our initial expectations. In regard to fourth quarter AFFO per share, there are a couple of items to call out when thinking about our sequential cadence. First, in the third quarter, we received a lump sum catch-up payment for an asset we acquired in holdover last December, which resulted in a onetime AFFO benefit of $0.01 per share, which we mentioned on our second quarter call. Additionally, for the fourth quarter, embedded within guidance, there is an additional $0.02 per share of R&M expense compared to the quarterly pace. It's important to note, we don't expect the fourth quarter's higher R&M expenses to carry forward into 2026. Shifting to the balance sheet. As Andrew stated, a strong balance sheet is core to our strategy. At the end of the third quarter, net debt to annualized adjusted EBITDA was 5.2x. Fixed rate debt comprised 93% of our borrowings and our weighted average debt maturity was 3.5 years. Through our recently completed recast, we successfully increased credit facility commitments by $40 million to $440 million. On our additional borrowings, we achieved a weighted average all-in fixed rate borrowing cost of 4.73% through the January 2030 maturity. In addition, we hold ample liquidity to pursue investment opportunities with $125 million of undrawn revolver capacity before giving effect to $250 million of accordion capacity as of quarter end. Similarly, we extended the maturity dates of both our revolver and our $115 million term loan by approximately 3 years each, enhancing our financial flexibility. Shifting to acquisition funding, we utilized multiple sources of capital in the third quarter, including credit facility borrowing, equity raised via ATM and OP unit issuance totaling $26.7 million at an average gross price of $15.50 per share or unit. And lastly, approximately $3 million of retained AFFO after dividend payments for the quarter. Retained AFFO has been a growing contributor to acquisition funding as AFFO has outpaced dividend growth since 2023. Recurring capital expenditure in the third quarter was $288,000, within our guidance range of $175,000 to $325,000. Looking forward to the fourth quarter, we anticipate the figure to be between $100,000 and $250,000. We continue to expect total cash G&A expense to be between $10.5 million and $11.5 million for the full year 2025 as we prioritize platform efficiency and declining cash G&A as a percentage of revenue. Our Board of Directors has approved a quarterly dividend of $0.2425 per share, representing a 1% increase from the third quarter 2024 dividend. Our dividend payout ratio for the third quarter is approximately 73%, and our dividend yield as of yesterday was in the 6.5% range. I would now like to turn the call over to Jeremy. Jeremy Garber: Thank you, Steve. I'll provide an update on our leasing efforts, followed by more detail on our third quarter acquisition activity. Starting with leasing, rents for all leases set to expire in 2025 and 2026 have been agreed with the Postal Service, and we are continuing our discussions of the 2027 expirations, which will include 3% annual rent escalations and a mix of 10-year leases. As of October 17, 53% of our portfolio rent was subject to annual rent escalations and 38% of our portfolio rent consisted of leases in place with 10-year term based on leases executed and agreed upon through 2026. As we shared on our second quarter earnings call, due to the execution of new leases during the third quarter, the company received a total lump sum catch-up payment of $329,000. Looking forward to 2026, aside from prospective acquisitions that are acquired in holdover status, lump sum catch-up payments should continue to diminish in frequency and value as we sign leases ahead of their expiration dates. Shifting to acquisitions. As Andrew mentioned, in the third quarter of 2025, we acquired 47 properties for approximately $42.3 million at a 7.7% weighted average cash cap rate, which added approximately 160,000 net leasable interior square feet to our portfolio, a 2.3% expansion of our physical footprint, inclusive of 41,000 square feet from 28 last mile post offices and 119,000 square feet from 19 flex properties. Looking at our Q4 acquisition activity through October 17, we have acquired an additional 19 properties for approximately $7.2 million and placed another 9 properties totaling $5 million under definitive contracts. Postal Realty continues to strengthen its position as the market leader in the postal real estate space, executing its business plan of acquiring new assets and improving the cash flow. This concludes our prepared remarks. Operator, we would like to open the call for questions. Operator: [Operator Instructions] Our first question comes from Jon Petersen with Jefferies. Jonathan Petersen: Congratulations on the good quarter. I was hoping to maybe get a little more details on the Newtonville, Massachusetts acquisition. It looks pretty interesting. I'm curious how often you see these type of infill post office opportunities come up. And then on something like that with just the volume of it, do you end up bidding against more institutional type investors rather than just the typical cast of buyers of USPS properties? Andrew Spodek: Thanks, Jon. I appreciate the question. So the Newtonville transaction was unique. It's a unique property that is very well utilized by the Postal Service, very needed for them to serve that area. As some of you may know, it's really an infill location, as you recognize, but it's also a very affluent area right outside of Boston. We see these often. We don't actively and aggressively go after bidding on them or trying to acquire them because typically, they're not accretive out of the gate. And this was a unique opportunity that was off market that we were able to acquire that was accretive out of the gate given our cost of capital at the time that we thought was something that really was a good asset to add to our portfolio. Jonathan Petersen: Okay. All right. That's helpful. And then I was just curious if in your conversations with potential sellers, how often OP units are part of the conversations these days? Andrew Spodek: So the operating partnership unit currency has been valuable in general. There are sellers that are interested in them. Sometimes we just use them to start the conversation because on smaller deals or deals that have multiple partners that are not on the larger side, they tend to be a little more complicated for some sellers. But in general, it is a currency that is interesting to postal owners in general. Operator: Our next question comes from Nahom Tesfazghi with JPMorgan. Nahom Tesfazghi: I guess sticking with acquisitions, if we look at the $106 million you guys have completed inclusive of what's under contract to date, guidance implies that there's only about $4 million left to go, which seems low for the rest of the year. Maybe could you guys talk about what you're expecting for the remainder of the year? Maybe what's driving that slowdown and what you guys see in the pipeline? Andrew Spodek: Thanks. I appreciate the question. So acquisitions in general are all about timing. So our third quarter was heavier than as usual. Some deals we were able to close quicker like the Newtonville transaction. We closed approximately $94 million in the first 3 quarters of the year. We closed $7 million early on in Q4 and have another $5 million in definitive. So the $110 million is really just guidance. It's meet or exceed that number. I don't view it as a slowdown. I really view this as an annual story, not a quarterly story. So things just end up leveling out at some point. Nahom Tesfazghi: Got it. Okay. That makes sense. And the second one for me, it seems like seemingly you guys are able to hit the trifecta on these new leases with the post office getting a mark-to-market annual escalator and then extending the duration of the lease terms as well. But is there any way you guys could quantify or give some guidepost or bounds as to where those marks have been? Maybe if you can't say where they've been currently, you speak to where they've been in the past. Andrew Spodek: As you know, and we've shared on prior calls with a single tenant, we've steered away from sharing mark-to-markets. We have started providing same-store numbers quarterly. And that's the metric that we've been sharing in order to give you a better understanding on how leases are trending and rolls are trending. Steve Bakke: And I want to just to add to that, if you look at our same-store NOI the last 3 years on average, including 2025, we're at 6%. Now it fluctuated around that mean depending on the timing of expenses and expense margins, but I think that should give you some indicator to Jeremy's point of the internal growth potential of the business. Operator: Our next question comes from Eric Borden with BMO Capital Markets. Eric Borden: I was just hoping to get your updated views on the trajectory of cap rates as we look to 2026. There's been some downward trend in the 10-year. I was just curious if you had any indication of if cap rates would trend downward in lockstep with the 10-year or if you still expect to have cap rates trend in the [ 77, 78 ] range. Andrew Spodek: Thanks, Eric. I appreciate the question. It's a difficult one to answer. It doesn't really trade in lockstep with the 10-year. We're typically lagging to it. Sellers have an expectation of where they want to be with the move in interest rates that we've seen over the past couple of years, the problem is that sellers haven't fully adjusted their expectations with that move. I think they're probably happy that it's come down and think that their pricing should come down as well. So I don't know what this year is going to bring us. I'm still, from my perspective, looking to do 7.5% or better. But as the year progresses, we may -- we hopefully will be able to adjust that guidance, but that's still where I'm seeing things today. Steve Bakke: And Eric, this is Steve. Just to point out, our business, unlike many of our net lease peers is not dependent on external acquisitions to grow. Given the lease expiration schedule that we have over the next few years, 34% of our leases expiring, we have significant growth we can drive as we unlock value there. Eric Borden: And then just on the lease terms, you've extended the WALT to 10 years, up from your previous 4 to 5 years. Is that the goal going forward is to have 10-year leases with rent escalators? Or will you continue to have a mix of 5-year WALT with escalators as well? Andrew Spodek: So I think we'll continue to see a mix. The 10-year term, once we -- we're in agreement with the Postal Service with the annual escalators, the 10-year term just seemed like the natural next step. It gives investors a security in terms of our lease renewal and our WALT, but there will continue to be a mix of 5- and 10-year leases. Operator: Our next question comes from Steve Dumanski with Janney Montgomery Scott. Steven Dumanski: Just one real quick one from me. Do you see, I guess, in terms of the space, any of your competitors potentially moving in or I guess, more acquiring properties leased to the USPS. Just wanted to see what the landscape looks out there. Andrew Spodek: I appreciate the question, Steve. Yes. So there's always been competitors in the space of different sizes and shapes. It really depends on the type of assets that are trading. We are, by far and away, the largest owner in the space. Currently, I think we own about 8% of the market. And yes. Operator: As there are no further questions, I would now like to hand the conference over to Andrew Spodek for closing comments. Andrew Spodek: In closing, I'd just like to state that we remain confident in the value of our properties to the Postal Services mission, the security and visibility of our cash flows and our ability to generate strong internal growth while continuing to consolidate this highly fragmented industry. On behalf of the entire team, thank you for your interest in Postal Realty Trust. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Jenny Sandstrom: Good afternoon, and welcome to Orron Energy's webcast for Q3 results. Joining me today we have our CEO, Daniel Fitzgerald; and CFO, Espen Hennie, who will run through the report and latest developments in Orron Energy. We will finish with a Q&A at the end of the presentation. So feel free to send across as many questions as you have, and we will collect and go through them at the end. And with that, I would like to hand over to Daniel to… Daniel Fitzgerald: Thank you, Jenny. And welcome to our Q3 results presentation, where I'll be joined by Espen to run through the financials after we give an update of how we've performed during the quarter and where we are pointing as a company. And I think we've largely delivered in line with our strategy during the quarter. We have seen further headwinds on the production side, both with volumes and pricing, but pleased to share that we do have our first project sales in the greenfield portfolio. We're on track with a range of those developments. And as we look forward into the markets into next year, we start to see increasing futures pricing and increasing performance across the assets, which should lead to higher revenues and higher cash flow for the business as we move forward into Q4 and into next year. As a quick recap, Orron Energy is the renewable vehicle within the Lundin Group of Companies and the Lundin family being a very long-term value-focused shareholder still standing behind the strategy and supporting our growth in this sector. We have 380 gigawatts -- 380 megawatts, sorry, of operating capacity. And in a normal year, that should generate around 1,000 gigawatt hours of production, and that gives us a long-term recurring cash flow into the company. Within that asset base and some of our greenfield projects, we have the opportunity to add organic growth. We can extend lifetimes of assets. We're looking at colocation of both demand and batteries. We're looking at opportunities to then increase production out of the existing asset bases and use the grid connections and facilities and infrastructure that we have in a more accretive fashion. So that's active across all of our countries of operation. And combined with that, we have greenfield projects which are running across 5 countries, and we're starting to see the first monetization out of that platform, which is really exciting to see and gives us a lot of strength as we move into later this year and early next year. And as we have done all along, we remain fully funded, fully financed. So we have a debt facility with sufficient headroom to move into significant M&A and transformational M&A. And in markets such as these, there's many opportunities that are starting to come to the fore that we will consider and look at. So we don't need to touch the equity side of the equation. I do know that the share prices can perform a little bit better than what we've seen in the last quarters, but this side of our balance sheet gives us ample flexibility to go and grow into the future without needing to touch the equity side of the equation. If we look then at the first 9 months of this year, we've produced around 600 gigawatt hours, year-to-date. And that's been impacted somewhat by both weather where we have seen and continue to see some lower wind speeds, not only within Orron Energy, but also within our peer group and any of the producers across the Nordics. We do see a weather pattern over the last quarters that has been less favorable than we expect. We also had an impact in our production from price curtailment, and I'll touch on that a little bit more in the following slide. When we look at the revenues and EBITDA for the company, we've generated revenues of EUR 23 million, leading to an EBITDA of negative EUR 4 million year-to-date. And Espen will touch a little bit more on the detailed numbers for Q3. And important to note in this, we have seen weak pricing this year. We're seeing futures pricing increasing as we move into next year. We've had Sudan costs, which is more than the negative amount on the EBITDA here. So excluding Sudan, we would be in positive territory on a proportionate basis. And then also, as we look into Q4 and Q1, these seasonally are our strongest quarters. So we expect an uplift not only on volumes, but also on price as we move into the winter months of the year. Those market conditions have been improving since the summer of this year, and it feels like we're out of the bottom of the trough in terms of pricing. So we have hedged some of the volumes in the second half of 2025. We continue that hedging program into 2026 at around an average of around EUR 58 a megawatt hour baseload pricing. And that gives us a bit more certainty on the revenue side of the business and allows us still with the unhedged volumes to profit from market improvement while protecting ourselves against the downside scenario, which we have seen both in 2024 and 2023, certainly in the weaker months and quarters of the year. Very pleased to share in our greenfield platform that in July we sold our first project, and that was a 76-megawatt agri PV project for a total of EUR 4 million consideration. Now half of that is being paid upfront. We have a profit of EUR 1.1 million, which is flowing through our profit loss this quarter. And any of the future contingent payments that we receive on this have no cost associated. So we'll see those coming straight through the profit and loss at the headline amount. So this does really return a good performance in terms of invested capital. And now we're starting to see multiple projects that are going to hit key milestones over the coming 6 to 12 months, and we expect this recurring revenue to continue in our business as we look forward. If I look in a bit more detail at power generation, we've got a slide here which looks at the power generation by quarter over the last 3 years. And you can see there where seasonally we produce more and less. And so there's no surprise that Q3 is a weak quarter seasonally against where we normally perform on an average basis. Now even saying that we have been impacted by weather in the quarter, we have seen lower wind speeds, and we expect now to be around 850 to 900 gigawatt hours as a full year 2025 performance in terms of production. If you look quarter-by-quarter, looking back through the years, we're not a long way away from where we have been last year. And Q3 is lower than where we expect and the 2 elements driving our weather and price curtailment. And if I look at our forecast for this year around that 900 level, we've curtailed around 100 gigawatt hours this year based on low pricing. So that would have put us up into a record year had we not curtailed, and that's a factor driven by the lower pricing. So as we move into Q4, we expect volumes to increase. We expect prices to increase. And as prices increase, we're going to see less of the price curtailment. So not only do we see seasonal volumes improving, but with price, we also see additional volumes coming to fruition. And I'm really pleased by what our team have been able to achieve in terms of making our assets more and more flexible. MLK is really leading on this through ancillary services and price-dependent bidding with some management around the balancing costs, we've seen between EUR 1 million, EUR 1.5 million of additional revenues coming across our portfolio, either additional revenues or decreased cost just by adding this flexibility to our portfolio. And that really gives us some levers to play with as prices either move low or high on the balancing markets, as the volatility improves, we now have many more tools to play with. And as we go forward, we expect Karskruv to receive the validation from SVK to allow us to participate more fully into those markets, and we're continuing that rollout across the rest of the fleet. So as of today, we have 80% of our portfolio active in the price-dependent bidding. We have 20% of our portfolio, which is MLK today, active on ancillary services and Karskruv is just awaiting final approval from SVK to then provide those services as well. So that gives us a good platform into next year. And then as prices pick up through the next year, we expect to see higher revenues, higher volumes and returning back to a normal production year for Orron Energy. And adding into that normal production year is hopefully some more recurring revenues from the greenfield platform. And this platform really is delivering as expected. We have a multi-gigawatt pipeline of opportunities across 5 countries. I'd say the most important U.K. and Germany at this stage that are close to recurring revenues and material recurring revenues with the Nordic pipeline being a little bit longer dated and some projects that we'll likely invest in ourselves, and France is still growing as a region. But U.K. and Germany are really driving that greenfield pipeline forward. We see governments in both of these countries very supportive with high ambitions. We see high investor appetite for projects, and we still see electricity pricing and support schemes that really drive us to deliver a good developer premium out of these projects. So those 2 countries definitely are where a bulk of our focus is. And short term, we should see those recurring revenues coming. Our projects are developing as per plan. As we touched on, we've seen the first project sale in Germany. We have a second project that ready to permit and a range of projects that are coming later this year and early into next year. And we're looking at multiple ways to monetize this platform. I'd say the market is moving more and more towards portfolio sales. and a broader discussion around multiple opportunities rather than individual project sales. And so we'll investigate both of those options as we move forward and share with the market more information as we see the results from that. In the U.K., we have been waiting for a while on the NESO grid reform. We now have a secure time line where NESO have committed to confirm both the outcome of the reform, what that means for every single project and to offer up the new grid connection agreement. So that process is going to start communicating back with project developers as of the end of this year. And so through the early part of next year, we expect to hear more of the results from that, and we'll be able to move the U.K. into that sales process. As it stands today, we have 8 projects, which is between 7 and 8 gigawatts worth of opportunities across solar, co-located batteries and co-located data centers within that group. So we need to see the outcome from NESO, we need to see the detailed results, and then we'll be able to communicate more with the market as we move into the new year. And with that, I'll pass over to Espen to focus on the financials and the Q3 numbers. Espen Hennie: Thank you, Daniel, and good afternoon, everyone. Kicking off with some of the financial highlights for the quarter. Reported power generation came in at 135 gigawatt hours, this was, as Dan mentioned, negatively impacted by low wind speeds during the quarter, in addition also to our voluntary curtailments as a response to periods of low prices, which also, as Dan said, has saved us material amounts of costs without losing any significant revenue. So that's a very valuable flexibility to have. In addition to the reported figures, we also have 10 gigawatt hours of compensated volumes. These are volumes which we receive compensation related to either ancillary services or related to operational downtime, which is covered under our availability warranties. The achieved price for the quarter was EUR 31 per megawatt hour, and I'll go through that in a bit more detail on one of the later slides. We had revenues of EUR 2 million from our initial project sale in Germany, which was announced in July. And when we add that to our revenues from power generation, total revenues for the quarter came to EUR 6 million. And EBITDA, excluding noncash and G&A items for the quarter came in at minus EUR 2 million. And we ended the quarter with a net debt position of EUR 83 million, which leaves the company in a very strong financial position, supported by significant liquidity headroom under our EUR 170 million facility. Taking a look at our full year guidance. We are delivering in line with our plans and are therefore also reiterating our outlook for the expenditure items shown on this slide. We have seen a lower balancing costs compared to the previous quarter, partly driven by the measures that we have taken to mitigate this. This is of course very positive and encouraging, but it's also important to remember that these costs still remain at elevated levels compared to recent history. So there's still potential for some cost reductions going into next year or beyond if we start to see a trend back toward more normalized levels for this item. Next, let's look at some key financial metrics for the third quarter comparing to the previous quarters going back to the same quarter last year. Revenues from power generation were down compared with the preceding quarter. This is due to lower volumes. However, they are significantly stronger than the corresponding quarter last year, driven by a significantly stronger achieved price compared to Q3 in 2024. And on top of the revenues from power generation, as mentioned earlier, we also had EUR 2 million from our first greenfield project sale, which is then the upfront payment of the project sale with a potential EUR 2 million contingent payment at a later stage, which we expect a conclusion on that contingent payment during 2026. That brings total revenues to EUR 6.1 million, EUR 400,000 higher than in the previous quarter. We can also see an improvement in EBITDA and CFFO compared with both the previous quarter and the same quarter last year. and the quarter-on-quarter variance is mainly explained by lower OpEx, driven by the lower balancing costs that we've seen this quarter compared to the very elevated and high levels in Q2. Let's now look at some of the details on our achieved price for the third quarter and also the year-to-date period. The Nordic system price averaged EUR 36 per megawatt hour in the third quarter, while the average production weighted spot price for our portfolio was EUR 45. Ancillary service income and sale of GOOs added EUR 1 per megawatt hour to our achieved price, while hedging reduced it by EUR 5. And the fact that our hedges ended up out of the money means that prices turned out quite a lot higher than expected, which of course is very beneficial for the company to our revenues and cash flow. The capture price discount was just over 20% in the quarter, leading to a quarterly achieved price of EUR 31 per megawatt hour for Q3. And for the year-to-date, the average Nordic system price has been similar to Q3 at EUR 36, while the average production-weighted spot price for our portfolio has been EUR 43, a fairly significant premium which is explained by the favorable geographic location of our power producing assets. Ancillary service income and the sale of GOOs contributed positively by EUR 2 per megawatt hour and hedges had a negative impact of EUR 1 before deducting the capture price discount, which has been 21% year-to-date. And this results in an average achieved price for the 9-month period of EUR 35 per megawatt hour, which is very much in line with the system price for the same period. Moving then on to the quarterly reported cash flow and our liquidity position. CFFO, excluding working capital was minus EUR 3.6 million with a negative working capital impact of EUR 0.8 million during the quarter. Cash flow from investing activities totaled negative EUR 0.2 million, and this consisted of EUR 2.3 million in capital expenditures, which is mainly investments into our greenfield projects, and this was almost fully offset by proceeds of EUR 1.7 million from the announced project sale. So please keep in mind, we have EUR 1.1 million reflected in our P&L. But on a cash basis, the proceeds were EUR 1.7 million, with the difference then being book values. Then along with other minor invested related cash flows, we had a total cash flow leading to an ending proportionate net debt position of EUR 83 million at the end of Q3, and this translates to just under EUR 90 million of liquidity headroom, combining our cash balance with the EUR 70 million of undrawn capacity under our revolving credit facility. Summing up then with an updated cash flow outlook for 2025. This reflects the actuals for the first 9 months of the year, and we are applying achieved prices in the range of EUR 35 to EUR 45 per megawatt hour for the fourth quarter. This represents the likely range of outcomes based on current future prices and also takes into account the baseload power price hedges we have entered into with the details shown on the slide. Starting with revenues, we expect these to end up between EUR 32 million and EUR 35 million with a corresponding EBITDA, excluding Sudan legal costs, in the range of EUR 4 million to EUR 7 million. The EBITDA breakeven price is expected to be around EUR 33 per megawatt hour for the year. Including the Sudan legal costs, which we do expect to be significantly lower next year, EBITDA is projected to end up between minus EUR 3 million and breakeven. Looking at free cash flow before CapEx, we expect to end up between breakeven and plus EUR 2 million, excluding the legal costs, which we believe demonstrates resilience given the weak wind conditions and soft pricing that we have experienced throughout the year. When including legal costs, the same range moves to between minus EUR 7 million and minus EUR 5 million. Finally, here, we are also showing the baseload power prices, baseload power price hedges that we have entered into for next year. And the approach, as also Dan commented on, it is very much the same as for our 2025 hedges. We lock in prices for a modest share of our power generation volumes when we consider the market conditions sufficiently attractive. This provides strong downside protection against lower power prices, but also it also allows us to benefit if market conditions improve since the majority of our volumes will remain merchant. So with that, I'll hand it back to Dan. Daniel Fitzgerald: Thank you, Espen. And before we go into Q&A, a few concluding remarks as we normally do. So I think our assets generate long-term cash flows. We have to look at this business with a 20- and 30-year lens and note that the market conditions will be different during those periods. We're going to see highs like we've seen in 2022 and lows like we've seen in the last 1 or 2 years. But our asset base will continue to produce for a very long period of time. And with the organic growth and opportunities to extend life spans and to improve production and add other technologies, it gives us a really good platform that we can use over the longer time horizon to really generate strong revenues. We're financially resilient with significant headroom under our finance facility that allows us to move in terms of growth, investing into greenfield projects, new business and new opportunities. And I'm really pleased to see that our greenfield pipeline is starting to deliver revenues as of this quarter, and we expect that to continue as we move into the coming year. As we see markets improve, we've taken opportunities on hedging. We're starting to see some more M&A that's coming to market now as we're seeing the pricing improve and with the firepower that we have on the balance sheet, we can move in that sector as well. So I remain optimistic as I look forward. We're positioned in some really good markets with pricing coming back, volumes coming back and look forward to certainly Q4, Q1 and into 2026 as we see stronger performance. So with that, I think we move over to Q&A, and I'll invite Espen to come and join me back up here again. Jenny Sandstrom: Yes. Thank you very much. We already have a lot of good questions. So if you have a question and you haven't submitted yet, I suggest strongly that you do so as soon as possible. So let's start with the market. "It's currently a quite challenging market environment. Will you keep investing in new wind farms in Sweden given this? Or do you have any other plans?" Daniel Fitzgerald: Yes. I think it is an interesting time in the market. When we have troughs like this, it is a good time to build the business. So in the Nordics, if I look at greenfield projects, it's quite difficult to sanction greenfield projects today given where the pricing sits. And we haven't seen much of that supply coming on. And over a longer period of time, we will see the impact of that supply. Sweden has turned off some of the offshore wind, they've rejected the permits for a whole range of offshore wind, and we're not seeing that growth in the onshore domain. So I think it's challenging to sanction, but that will come back in the future. So we continue to have that exposure through greenfield projects. And on the flip side, we're seeing at this point in the market some really interesting opportunities on the producing asset side that gives us the ability to scale up our production. So I think it's an interesting time in the market, but it is challenging for new projects for sure. Jenny Sandstrom: "So speaking of M&A, what kind of opportunities are you seeing in the market right now?" Daniel Fitzgerald: I think players in the market are really being rewarded for flexibility. So what we're seeing in terms of the really high premiums in the market, those with flexible power generation or the ability to move their volumes and managing balancing costs, some of the frequency services, there's a strong return on that. So for batteries, ancillary services, et cetera, we see good returns. Data centers are the hot topic in the market today for any players with a data center opportunity, and we're looking at a range of those in our, broadly across our portfolio. I'd say more on the traditional front, I think producing assets in today's market where we do see the low pricing now is a good time where we're seeing sellers' ambitions are coming down to match where the market is at the moment. So that's a bit more interesting for us. But unfortunately, nothing to share until we've got there on an investment or a transaction, and we'll come back to the market when the time is right. Jenny Sandstrom: "And when it comes to strategic partnerships or mergers with other energy companies, is this something that you're considering or looking into?" Daniel Fitzgerald: I think we're always open to the discussions. I think with the share price where it is, we're not willing to dilute significantly for a nonaccretive transaction on a per share basis. So we have to be mindful of that. And we also have the Sudan case, which both Espen and I touched on. The Sudan case comes to an end at the end of next year with the judgment. We see costs coming down significantly. We will see the -- hopefully see the full resolution of the Sudan case at the end of next year, and that opens the door for more material M&A, I think. Jenny Sandstrom: "And speaking of share price, given the current share price level, are you considering buybacks?" Daniel Fitzgerald: Yes, I think buybacks are always a discussion that is in every meeting we have with the Board and with most investors as well. I think it's a very attractive point to be buying back our own shares. There's also a very, very important growth element that we need to take into account where we need to deploy capital accretively on a per share basis. And our company is still too small. We need to be much bigger in size to really diversify the revenue streams and improve the cash flow. So there's a range of competing priorities for that capital allocation. Share buybacks is absolutely one of them. And again, should the conditions be right, then we'd come to the market with that announcement. Jenny Sandstrom: "And going back to the challenging market, how do you plan to make up profits?" Daniel Fitzgerald: Yes. I think we're burdened today by the costs in the Sudan case, that's for sure. And if I were to remove the Sudan case costs from our financials, we'd be back to positive EBITDA. I think it's challenging for a lot of operators to make a good return at current market conditions. And so I think we need to be a little bit patient with the price coming back with Sudan going away and then with some scale up of the company, I think there's a fantastic pathway to profitability. When I look at the greenfield platform, that's already profitable on a project-by-project basis based on our first sale. So when we see the recurring revenues coming out of that and the business getting more self-funding, I think we'll see much more return coming out. Espen, I don't know if you had anything. Espen Hennie: No, I fully support all of that. And I think the key thing, yes, like you mentioned, only one project sale, we expect multiple of those going forward, temporarily -- a temporary situation now with high costs. And also the fact that power prices are below breakevens for new projects. So I think some of that means that we can have a quite constructive view on future only both market pricing and also earnings potential for the company in the medium to long term. Jenny Sandstrom: "And great to see a lower capture price discount. Is this the level you expect moving forward?" Espen Hennie: Yes. I think I mean capture price discount, obviously, can fluctuate widely quarter-to-quarter, hard to precisely forecast it over a short time frame. I think it's -- our expectation is that we will be within the 2025 percentage range. We have been 21% year-to-date, so slightly lower than sort of what we have seen earlier, partly due to also -- also depends on the volume of curtailments, voluntary curtailments, but between the 20% to 25% within that range is our sort of -- I think it's a very prudent estimate and assumption going forward. Jenny Sandstrom: We also have a few questions on the development side. "So congratulations on the first project sale. Is the price per megawatt what we should expect in future sales? And can you give us some flavor on the current pipeline?" Daniel Fitzgerald: Yes. I think in terms of the multiples, what we saw in our first German project sale is largely what we're seeing across the portfolio, whether it's U.K. or Germany. Today, in the Nordics, there's less appetite. So I'd say it's a lower premium or more difficult, but certainly U.K. and Germany are around that level. As we look forward, though, I think the market is changing. People are valuing more project portfolios, which spread the risk. We're starting to see buyers looking at forward sales of projects with cost coverage or stand-alone complete exit project sales. So it really depends on the structure as to what that looks like going forward, but it remains -- I'd say it remains very, very attractive for us as a developer premium. When I look at the broader portfolio, we're only just getting started. We have already 3 to 4 gigawatts in Germany, some of those very early stage, some of them coming towards later stage. We have a range of battery opportunities where we have favorable grid positions for those. In the U.K., we've submitted our first 8 gigawatts into this reform process, and there's another massive pipeline behind that waiting for certainty around the process, and then we'll move through the land acquisition and development process. So for me, this is -- again, it's a 10-year business, 10-, 20-year business where we expect to see the returning recurring revenues coming now, we'll start to mature that business even further and start to carry some projects longer as we move forward. Jenny Sandstrom: "And do you think it's realistic to -- that we will have a first sale from the U.K. greenfield portfolio in 2026?" Daniel Fitzgerald: I'm very hopeful that we get there. We were hoping to be there already in 2025. And we didn't quite get there because of this grid reform process. So I can't control what the energy system operator is going to do going forward, but they have committed to a time line for giving us the confirmed grid offers. And once we receive those, then we'll be able to move forward on the project sales and the market is still very strong in the U.K. So I'm very, very optimistic that we'll see something out of the U.K. in 2026. And given the size of the projects, this is very, very material for the company. Jenny Sandstrom: Good. I think we covered all of the questions. I don't see any further incoming questions. So any concluding remarks from your end? Daniel Fitzgerald: No, I think a challenging Q3 for us, if we're completely honest, we have seen lower volumes, lower pricing, but very, very enthused about looking forward into 2026. We're seeing stronger market pricing for energy. We're seeing hedging coming in at favorable levels. We're seeing projects hitting key milestones and very optimistic about what the coming 6 to 12 months looks like. So we look forward to sharing more information early in the new year with our Q4 results. Jenny Sandstrom: Great. Well, thank you very much. Have a lovely afternoon, everyone, and feel free to reach out in case you have any questions. Thank you. Daniel Fitzgerald: Thank you. Espen Hennie: Thank you.
Mattias Frithiof: Good morning, everyone, and welcome to Kambi's Q3 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. So the agenda for today, we will start with some highlights from our CEO, Werner Becher, followed by a financial summary from our CFO, David Kenyon. Then Werner will come back with some operational highlights and the summary of the quarter. Following the presentation, we will have time for the Q&A. With that, I would like to hand over the conference to you, Werner. Please go ahead. Werner Becher: Thanks, Mattias, and good morning, everyone. Today's report sets out some of the important steps we have been taking, putting in place key building blocks to enable long-term sustainable growth. On the commercial side, we have been incredibly busy. Momentum is really picking up. Since the start of the third quarter, we have signed 12 new commercial agreements, which I will recap shortly. Three of those agreements were on our Odds Feed+ product, perhaps headlined by the recent partnership with Tier 1 operator, Superbet Group. This morning, we announced the acquisition of the source code of a player account management platform. We believe the addition of a proprietary PAM alongside our market-leading sportsbook product will open doors to new opportunities. Our immediate focus is on markets with limited viable third-party options on the PAM side, with Nevada on top of our list. And finally, our underlying performance met expectations in Q3, reflecting strong margins and a continued focus on cost discipline. However, macroeconomic pressures have heightened, while our planned launch with Ontario Lottery is now likely to take place in early Q1 2026. These factors have led us to adjust our full year EBITDA guidance for 2025, to around EUR 17 million. I now hand over to you, David, to give you more details on the financials, please. David Kenyon: Thank you, Werner, and good morning, everyone. Firstly, a summary of Q3. So revenue was EUR 37.4 million this quarter. Excluding nonrecurring transition fees that we received last year, this represented a decrease of 8.1%. And on the same basis, year-to-date revenue is down 1.2%. However, our ongoing efficiency program enabled us to significantly reduce our costs in the quarter. And this led to an adjusted EBITA (acq), earnings before interest, tax and amortization on acquisitions of EUR 3.4 million for the quarter. Excluding foreign exchange on revaluations, this metric was EUR 3.1 million for the quarter and EUR 10.3 million year-to-date. Our underlying cash flow was positive. And after carrying out EUR 8.1 million of buybacks in the quarter, we end the period with a cash balance of EUR 45.4 million. This slide sets out the operator trading analysis, an index of the aggregated performance by our operators on our turnkey sportsbook. You'll see this quarter, we're presenting it in a new way to really highlight the seasonality of the sporting calendar that we see every year. This is driven in particular by the timing of the American football, the soccer, and the basketball sporting seasons. And Q1 and Q4 always have the highest turnover of the 4 quarters each year and we should expect the same pattern this year with a spike up in Q4. Compared to Q3 last year, turnover was down 6%. Whilst we did see organic growth from certain customers and some new launches, this was offset by a number of factors, including the tournaments we had last year, Euros and Copa America, in soccer and also the Olympics. We had the FX impact for a weaker Colombian peso and U.S. dollar versus last year. Kindred carried out more migrations during the year, originally the dot-com markets in Q4 last year, and now the U.K. migrated at the start of September. And as mentioned in previous quarters, we have an ongoing impact from deposit limits in the Dutch market, which is also affecting our turnover. The operator trading margin for the quarter was 10.3%. This was a really strong margin in July and August, and then dipped quite significantly in September, when there were very player-friendly results, I would say, in both the Champions League and the NFL. This slide sets out the evolution of our adjusted EBITA (acq) from Q3 last year to this year. Firstly, we saw material organic growth from a number of our operators, especially in the U.S. and Latin America. In terms of new customers versus Q3 last year, this came in particular from our operators in Brazil, as well as those using the Odds Feed+ service. Then the negative, the downward pressures on that EBITA (acq) came as mentioned, from the tournaments last year, Euros, Copa America and Olympics, with this year a much smaller contribution from the Football Club World Cup. This, of course, is a temporary headwind. Another temporary nonrecurring tough comparative is the transition fees, which we received last year from Penn, and Napoleon. This reduced to EUR 2.3 million this quarter. It will reduce again in Q4, before disappearing at the end of the year. In terms of migrations, Kindred exited the dot-com markets in Q4 last year, and as mentioned, U.K. at the start of September this year. There's also smaller amounts from migrations from Mr. Green, and Green Tube in these numbers. In the Gaming Tax & Other column, we see a number of factors. Firstly, the impact of those deposit limits in the Netherlands. Also, as referenced previous earlier in the year, the new VAT on deposits in Colombia has had a material impact on our numbers. There's also been other gaming tax increases in the Netherlands and various U.S. states. And finally, we also see the impact of changing effective commission rates with certain customers in this column. Pushing the EBITA (acq) upwards is the cost savings column there. The costs are roughly EUR 4 million lower than the same quarter last year. This is largely driven by a reduction in our staff costs with around 50 FTEs lower versus last year and relocations of roles to lower-cost locations. There was also some staff bonus costs taken last year, which we've not accrued this year. The second piece here is a positive EUR 1.2 million swing in the FX on revaluations. We had a EUR 900 million negative last year and a EUR 300 million positive this quarter. This is a nonrecurring benefit to our cost base this quarter. I want to point out one other thing on our low staff cost this quarter, in particular. In Sweden and Denmark, we accrue the cost of vacation paid during the year, and we released the accrual when the staff take holiday in the summer months. This is a seasonal pattern seen every year, and this showed a GBP 1.1 million benefit in our OpEx versus Q2. This slide sets out our cash flow in the quarter. We had an opening cash balance of EUR 53.1 million. We did see an increase in certain trade receivables balances, which we expect to be paid for in Q4. And we spent EUR 8.1 million on share repurchases in the quarter, taking our closing cash balance to EUR 45.4 million. Werner will tell you more about the acquisition of the PAM Source code we made today. Whilst we cannot disclose the purchase price, I can say that it will not impact our capital return strategy to return excess capital to shareholders through buybacks. And I would expect our upcoming buyback program to continue at a similar pace to our current program. Werner referenced the change in guidance. Our original guidance was an adjusted EBITA (acq), excluding FX revaluations of EUR 20 million to EUR 25 million. Three main factors result in that changing today. Firstly, the regulated Brazilian market in general has developed more slowly than expected. There have been stringent regulatory requirements, including on AML, and this has led to certain friction converting players from the pre-regulated market. Secondly, there have been FX headwinds, especially the weakening of the U.S. dollar and the Colombian peso versus when we set the guidance. To date, this has had a EUR 1.8 million negative impact on our numbers. And if the FX stays roughly where it is, that number is likely to become around EUR 2.6 million by the end of the year. And lastly, Ontario Lottery and Gaming. We had originally hoped for a Q3 launch with this operator. This moved to a December launch due to the significant level of development work and testing needed prior to launch. This now looks very likely to move to January 2026 as this testing is finalized. On the flip side, we've managed to stay close to our original guidance with the tight cost control and the efficiency program I've referenced earlier. But as of today, we expect our adjusted EBITA (acq) for 2025 to be around EUR 17 million. With that, I'll pass you back to Werner. Werner Becher: Thanks, David. I mentioned that we signed 12 new partner agreements since 1st of July. The majority of those have been in relation with our flagship product, our turnkey product. The one Q3 agreement not announced prior to the previous earnings presentation was Oneida Indian Nation, a tribal gaming operator, which runs 3 casinos in the state of New York. Having signed in August, the operators' casinos were all up and running on the Kambi Sportsbook, replacing the operator's previous supplier, OpenBet. The agreement further strengthens our relationship with tribal gaming operators in the U.S. There has been a flurry of commercial activity since the end of the quarter. Glitnor Group, one of the leading operators in Sweden, will soon be launching on the Kambi Sportsbook platform in various jurisdictions, having also decided to move away from its incumbent supplier. Meanwhile, in the Netherlands, we signed 3 operators in BetNation, Holland Gaming Technology, and Hommerson. Despite recent changes to the tax and regulatory framework in the Netherlands, this market remains a key market for Kambi, and these partnerships -- these new partnerships will enable us to further strengthen our position there. Finally, in terms of renewals for turnkey product, Kambi signed an extension to its retail turnkey sportsbook partnership with Penn Entertainment, which had been due to expire at the end of this year. The partnership, which currently sees Kambi supporting Penn in 30 properties across 13 states in the U.S. will now continue through July 27. These signings demonstrate the wide appeal for our turnkey sportsbook product, strengthening our partner network and diversifying our revenue base. When we took the decision to launch Odds Feed+, we did so because we recognized we could provide a quality of feed that no other supplier could match. This would enable us to, first, attract some of the largest operators in the world to our feed; and second, enable us to retain some of the revenue from partners who may leave our network. The past few months has seen us do just that. Our partnership with Superbet will give them access to a complete sports library and their intention is to launch in the coming weeks and gradually expand into multiple sports. Superbet is globally #11 on EGR's annual Power 50 rankings, and market leader in a number of CEE countries with a prominent position also in Brazil. Superbet also operates the Napoleon brand in Belgium, which we're looking forward to work with once again. In Q3, we also signed an Odds Feed agreement with LeoVegas, which see us retain some of their business as they continue to migrate to their own platform. And finally, Coolbet will also take our e-soccer and e-basketball odds through our OddsFeed+ API. In general, we continue to see great interest in our Odds Feed+ product with it being the only available premium feed on the market, offering both the precision and the flexibility operators demand. We now come to today's news. Our acquisition of source code from Omega Systems, which will enable us to offer our own proprietary player account management platform, short PAM. First of all, what is a PAM? A PAM is a platform that carries out most of the end user account functions, such as registration, payments, KYC, AML, bonusing, and it also includes a casino platform. It's the core platform that integrates all gaming verticals, such as sports betting, poker, casino, bingo, virtual sports, et cetera. The key reason for obtaining a PAM is to pursue opportunities where there are no viable PAM options available for us, starting in Nevada. We believe with our own PAM in Nevada, along with our first-class sportsbook, we can capitalize on commercial opportunities in the state. It's important to note that we'll only be offering our PAM in tandem with our sports book, and we will continue to be platform agnostic, working alongside our trusted PAM partners. To unlock the Nevada opportunity for Kambi, our next step is to obtain PAM licensing in the state, which will position us to be ready to go to the market end of H1 2026. So in summary, Q3 and the early stages of Q4 have been one of progress for Kambi in a number of areas. We've delivered 12 new agreements since the start of July with new turnkey and Odds Feed+ partners, along with partner extensions, demonstrating our strong commercial momentum. We've continued to show disciplined cost control with our ongoing efficiency program, delivering material cost reductions, which will continue into 2026. And finally, we are leveraging our unique assets to strengthen our market-leading position. These assets include our partner network of more than 50 operators and a global betting liquidity of EUR 17 billion being managed on our platform, fueling our AI-powered trading risk and management capabilities. As mentioned at the start of the presentation, we are building the foundations for long-term success and long-term growth, and I'm very confident we will deliver. Thank you. Mattias Frithiof: Thank you, Werner. With that, I hand over the word to the operator, and see if we have any questions on the teleconference. Operator: First question on the phone lines. The questions come from the line of Nicolas Kalanoski from ABG Sundal Collier. Nicolas Kalanoski: Just a couple of questions from me. So just firstly, a little bit curious on the PAM renewal. I appreciate that you may not wish to disclose client-specific details, but could you perhaps elaborate a bit on the reasons behind the renewal, please? Werner Becher: PAM is in a silent period having the earnings call tomorrow. So we respect that. And unfortunately, we can't share more information about this deal today. Nicolas Kalanoski: Yes. I respect that. Secondly, I think on the cost structure, it was a bit slimmer than expected in the -- I believe you mentioned there was some accrual of cost of vacation in Sweden and Denmark. But would you say that this cost base that we're seeing in this quarter is maintainable even going forward, of course, notwithstanding quarterly and seasonal effects, please? Werner Becher: I'd say, yes, but I would just flag that I mentioned that EUR 1.1 million positive cost reduction due to vacation pay, which is purely a Q3 benefit. But for the rest, yes, absolutely, it's sustainable. And as we've mentioned, it's an ongoing efficiency program. So we'll keep looking to do more, of course. Nicolas Kalanoski: Just thirdly, just on Brazil. Are you seeing any change in the cadence in that market in Q4 so far? Or would you say that it's proceeding in line with Q3 generally? Werner Becher: So I see the market continuously growing. Eventually, the overall market size was a little bit overestimated before the regulation started. There's a little bit of disappointment, I would say, in the entire industry about the Brazilian market. We are not so sure if the market size actually was oversized and predicted to be a little bit bigger than it actually is now. From our perspective, it's more like that the black market is still very big and the channelization in Brazil hasn't worked as expected. So the legalized regulated market grew slower than expected because the black market is still very big there. Nicolas Kalanoski: Just a follow-up, I think, on the unregulated piece or the black market. Are you seeing any legislative impact that could indicate that black market is becoming perhaps a bit smaller? Is there anything that indicates the channelization could come up, anything of that kind that you're seeing? Werner Becher: Yes, and no. We see efforts from the government and regulatory authorities in Brazil to limit the black market. On the other hand, the ongoing discussions in the Brazilian parliament to further increase taxes definitely will not help to get a high generalization rate in Brazil. Operator: [Operator Instructions] The questions come from the line of Martin Arnell from DNB Carnegie. Martin Arnell: My first question is on the guidance cut on the 2025. You mentioned three factors, like -- FX, Brazil, and the revised timing for all launch. Which one of these would you say matters the most here? Werner Becher: I say matters -- I mean, size-wise, they're all relatively similar in size from when we set the guidance. I'd say FX matters least because it's not structural. OLG is really a shift to January. So the vast majority of the revenue of that deal is completely unaffected. It's just we're talking about a few weeks push, which has impacted what we see in 2025 calendar year. And Brazil, unfortunately, probably is the most important because it's the one where we're not seeing the growth that we hoped for. So that's how I'd rank them. Martin Arnell: On this OLG timing, is there anything that has happened or any issues behind the delay? Werner Becher: No, definitely not. This is a very complex big project for OLG and us together. They're operating 10,000 point of sales in Ontario. So the integration to their lottery system is a complicated project, which we have completed a few weeks ago. So I'd like to make sure that Kambi has delivered everything which was requested already to OLG. We're in a testing and integration phase with them now and being market leader in Ontario. Of course, they want to make sure that everything is working perfectly before they launch the new product. This is why we did not have a lot of influence on the launch. They need some Ontario lottery, of course, to decide, but we expect the launch now early 2026. Martin Arnell: Perfect. Then I have a question on the client pipeline. I appreciate you have signed a couple of ones in Q3. What about the outlook for continued additions of customers? Werner Becher: So the pipeline is not empty now, if this is what you want to hear, no. So we are getting good opportunities into our pipeline, and we are in different stages of negotiations with customers for Odds Feed+ for turnkey, for esports for front-end development deals, et cetera. So yes, we signed a lot of deals in the last few weeks, but you should expect us to continue on this pace. Martin Arnell: My final question would be -- when we look at your top line performance and you comment on the headwinds and the tailwinds, and when you look into 2026, from what you know as of now -- can you confirm that the tailwinds are enough for you to grow your top line next year? Werner Becher: I think we're hopeful. We're not putting out a forecast as of today, but I think we set out plenty of tailwinds and specified which of the headwinds we think will stop. There are still some big headwinds with the migrations that we mustn't ignore, but I think the tailwinds are strong. So we'll probably wait to Q4 to set out what we think really for next year, but we're confident. David Kenyon: Yes. We'll provide a new guidance for 2026 financials together with our Q4 earnings report. Operator: We have no further questions on the phone line currently. So I'll hand back to you for the webcast questions. Mattias Frithiof: Thank you. So I'll start reading the questions to you, and you can decide who wants to answer. Ahead of '26, are there reasons to review the communication and what has been delivered during the year given the positive statements regarding both customer signings and the guidance? Werner Becher: To review the communication? Mattias Frithiof: Yes. Werner Becher: Not sure how to answer this question, to be honest, Mattias. I think we were all a little bit disappointed, sorry, that the closing and signing of some deals took a little bit longer than expected. Yes, I would have loved to see us signing some of these deals already earlier. I think we catch up a lot now in Q3, and we'll continue to sign these going forward. That's also a learning we have with our Odds Feed+ product, targeting the first phase of our go-to-market strategy, now mainly the biggest operators out there that these big companies can be sometimes a little bit bureaucratic internally, meaning in reality that closing deals, having so many stakeholders to be part of decision-making process can take a little bit longer than at least we expected. But other than that, I think the progress we have shown now, at least in the last few months, let us feel very confident. Mattias Frithiof: Next question. Previously, there was a lot of talk about the Bet Builder as a module product. But since spring, there has been close to complete silence. Why has it progressed more slowly than expected? Werner Becher: Yes. Our Odds product, starting with an Odds Feed+ product, Bet Relay, Bet Acceptance Recommendations, et cetera, is a product which we will continue to invest a lot. We have a lot of customers using our Bet Builder products. There has been no great interest on the market, to be honest, to buy Bet Builder products in general. Most of the operators already have a product. We're very focused with this product at the moment on our turnkey customers because integration of this product together with and feeds makes a lot of sense. A separate integration only of a Bet Builder product without also supplying the odds in practice doesn't work great for the operators. Mattias Frithiof: Yes. And continuing on that topic, will you launch a managed trading service MTS? And if so, when will that be ready to sell? And would it be more suitable to smaller operators below the sort of Tier 1 and Tier 0s? Werner Becher: So yes, first of all, we are a premium supplier. So the smallest operators on this planet will most probably never be our focus. But we're not looking so much on to MTS versus Odds Feed. What we want to supply and deliver to our customers is a very flexible product suite. They can either have a simple OddsFeed broadcast. They can provide us the battery lay and we manage better for them their liabilities. We can even do more than what's available today with many MTS products. We could give them clear bet acceptance recommendations about temporary dynamically adjusted life delays, stakes they should accept, et cetera, et cetera. So there is a bunch of modules which we have packaged, of course, which we could offer to our customers, starting with a very basic Odds Feed, up to a full turnkey. So our goal is not to have 2 or 3 boxes to sell to customers and to force to buy these boxes. Our approach is more flexible, reacting to what operators really need. Mattias Frithiof: So a question for you, David, to shift things up a bit. What are the primary drivers behind the strong client acquisition during Q3? And do you anticipate the trend holding into Q4 and Q1? I think maybe we answered that already. David Kenyon: Yes, I think... Mattias Frithiof: At the end of the year approaches, how do you view the developments that have been taking place? Are you satisfied? What could you have done better? David Kenyon: That's a tough question to answer in 30 seconds because, of course, we are in the budget process for 2026 and also in our strategy process for 2026, where a review of where we have been successful this year, not so much successful definitely is a big part of what we are doing now. So clearly, our focus going forward is to even accelerate and scale more in our AI trading and risk management capabilities. So rolling out more sports on this platform. We will also invest a lot more in our front end going forward, native apps as well as mobile and web front-end apps because we learned that to have an outstanding product on the front end is even more important in Latin America than in a lot of other markets. And Latin America is a big battleground and a big opportunity for us at the moment. On the sales side, as some of the questions also indicate, we've done a lot of changes. We have executed and are still in this process, what we call a commercial uplift project to organize ourselves in a different way, et cetera, et cetera. So there are a lot of ongoing strategic initiatives, of course, happening already now. Mattias Frithiof: Then maybe finally, one for David. How confident are you on making the EUR 7.6 million EBITA (acq) in the Q4, given OLG is delayed? Can you explain the confidence there? Can you give some guidance on likely contribution from OLG in 2026? David Kenyon: Well, firstly, Q4, I mean, really, it's a seasonal story. It's -- we're now seeing all the leagues in full flow. So of course, we're looking -- hoping for a strong margin. We saw some player-friendly results in those key leagues in the NFL and Champions League in September. So we need the margin. But all in all, the seasonality should really help us drive strong turnover. I talked about the spike in Q4. That's really what we're expecting, and we've seen it every year for as long as I've been working in this industry. So we really expect that. So that's the main reason to believe in Q4. In terms of OLG, they have an existing business. It depends when we can launch, but we set out some numbers that they're doing currently in the past. Yes, they have a strong business, and we're really looking forward to taking it over and growing it for them. Mattias Frithiof: What is your take on all the noise about Polymarket? Is it a threat? Or could it be an opportunity? Could Kambi, for example, become a market maker or sell data or anything else to Polymarket? Werner Becher: Yes. So I think we are in a similar position to all the betting and casino operators in the U.S. being licensed in 60-plus jurisdictions globally and more than 20 jurisdictions in the U.S., we have a lot to lose. So we have to be very careful, and we will never risk our existing licenses. We will continue to support our partners in the licensed and legalized betting space in the U.S. But clearly, definitely, this is something we are looking to very closely. We don't see any big impact or not that impact at all, to be honest, on the existing licensed markets from the prediction markets. It looks like it's really more business for the still unregulated markets like California and Texas. And these prediction market guys definitely have a first-mover advantage there, right? Coming back to your question about market making. Yes, with our EUR 17 billion liquidity and the precision of our odds, I think we could be a great partner for the prediction markets to help them with some market making, but we'll only do it if we feel it's legal and it's safe for us. Mattias Frithiof: Thanks. Next question. Given the somewhat slow growth of the number of new customers for the modules during '25, what should we now expect for '26? Werner Becher: Yes. So I think we said earlier this year, the goal is to sign 3 to 5 customers in OddsFeed this year because we only focused on the big Tier 0s and Tier 1s, which we delivered and which we will continue to deliver also in the next few weeks, hopefully, being in discussions with some more. For next year, after this first phase of our go-to-market strategy, as discussed already with our commercial uplift project, we will increase our efforts on the sales team and increase the sales teams for OddsFeed+ product as well to target then also Tier 2 operators as a next step. So definitely, having now signed some big names in the industry, and seeing them taking more and more sports from us, of course, is a good story also for us now to convince more operators to take this great product. Yes. Mattias Frithiof: So following up on that, given you started only with the largest operators, you did the same thing when you launched the turnkey. Are you repeating the same mistake? Or is this sort of different this time different? Werner Becher: I'm not sure if being market leader, it was a mistake to start this way, to be honest. Could we do more? Yes, 100%. But I think to go to market without having a proven business case, without having proven product to market fit is a waste of money and time. That's why we designed this go-to-market strategy in the way it is. Again, we are now accelerating. We are now scaling up the teams. We also need to learn from our operators based on integration, what tools they need, what reporting they need, right? So we learned our lessons now in the last few months, and we are now able to -- we'll be able to scale and accelerate, yes. Mattias Frithiof: Okay. Moving over to the PAM and Nevada. Is it reasonable and rational to acquire PAM for Nevada before signing any customers? How far along are you in the customer discussions at this stage? Werner Becher: Yes, it's a chicken and egg problem, isn't it? So you can either wait to have signed a customer and then you're too late to get it licensed, so we'll never catch this opportunity or you invest. Our approach is to invest. And I think, as David said very clearly, the investment is a commercially attractive one for us, which means it will not impact our share buyback strategy at all. We are in conversations already with very interesting opportunities in Nevada, where we need this PAM to get the deals closed and to not only promise them, but really deliver within a few months the product so that we can go to market. Mattias Frithiof: Following up on that, would you like to give some more color on why you are, relatively speaking, investing so heavily in Nevada? Werner Becher: So Nevada is a very specific state. We talked about that it's the gold standard for licensing on this planet. This means in reality, there is little to no competition for us there, right? And the existing sportsbooks operated in the casinos in Las Vegas, right, are sometimes not very competitive. So it's a big interesting market with little to no competition, which makes it now being licensed to us very attractive for us to take market share and to, let's say, bring these opportunities home. Mattias Frithiof: Looking at other national lottery opportunities, are there still potential in that space for new clients heading into 2026? Werner Becher: Yes. I think participating in public tenders of state-owned or private lotteries, mainly state-owned still around the globe is part of our usual business. We have been engaged in several ones this year. We got noticed that a few more ones are coming probably next year. This is part of normal business. With Ontario lottery, with some Svenska Spel, with the Belgium lottery, I think we have a very interesting footprint and also a very good showcase how more successful also state-owned lotteries can be with a premium product. So this is an interesting market for us definitely. Mattias Frithiof: Yes. And then moving over to the Netherlands. What would you say is the main reason behind signing customers in the Netherlands in such a short time? Is it possible to repeat in other markets? Werner Becher: Yes. That's a very interesting question because everyone is talking so much about how more difficult Europe gets with all these taxes always increasing, increasing, making the life of the operators out there more difficult every day. But this lower margin they now see because of the increased taxes, deposits limit, et cetera, also triggers internally with many of the operators, is our existing sportsbook good enough to compete? And is it efficient enough from a cost base to either continue to run it in-house or to work with other third parties. And it looks like that especially in these markets where life is getting more difficult for operators, more and more consider to outsource. But if they want to stay in the market, they also understand that they need a product where you can compete against the big guys. Mattias Frithiof: Coming back to the PAM, is it something hindering you from bundling the PAM with the rest of your products worldwide? Please elaborate as to why it is currently not viewed to be a long-term replacement for the current PAM partners. Werner Becher: No, nothing is hindering us. So the agreement, which makes it also commercially attractive, to be very honest to you, has a clear, I would say, restriction. So we can only sell this PAM together with our sportsbook, which is no problem for us because we have no ambitions at all to sell the PAM as a stand-alone business outside of our sportsbook anyway going forward. But this is the only restriction we have. So we only start now in Nevada because, let me call it low-hanging fruit, right, and a very urgent business opportunity for us to go in and take some market share and get some more revenues from Nevada. But definitely, this is something we will consider going forward after this now first focus phase also to use it in other jurisdictions around the globe. But I want to remind what I said before, we definitely will stay agnostic when it comes to PAMs. So whenever a customer prefers to work with one of our other trusted PAM partners, we will never bundle and force customers to use our PAM because this is not our DNA. Mattias Frithiof: Coming over to you, David, on the cost side. The cost base is expected to be EUR 145 million in 2025. Is it fair to assume that the cost base will be lower than this in '26, given the ongoing cost savings? David Kenyon: It's always a tricky on this because we've obviously have inflationary pressures on most of our P&L base on the cost base. So whatever savings we make to a large are going to be offsetting those inflationary kind of headwinds we have. So a little bit hard to say as I stand here right today, but rest assured, we are continuing -- we're never ending on this efficiency drive now. And plus we'll get in 2026, we'll get some positive effect of savings we've made mid-2025. So that OddsFeed for full year in 2026. So yes, we're certainly going to -- don't worry, we're not going to stop being efficient. That's all I can say now. Mattias Frithiof: Thanks. And then coming back to the pipeline and sales. So commercial momentum seems to be picking up. Can you talk about your confidence returning to organic revenue growth? And when should this expect to happen? If you're successful, should Kambi grow around 5% organically midterm? Or what is the target? Werner Becher: Yes. I think -- please let me repeat what David said, right? So we have no approved budget and guidance today already for 2026. So this needs some more alignment, of course, also with the Board before we can provide some more guidance about 2026. Definitely, next year, as outlined by David, some of our headwinds will decline. We signed a lot of new deals this year. Our pipeline is looking good. So to say next year, we will be back on top line growth and costs will go down. It's difficult for me to say today, not having an approved budget from the Board already now. Mattias Frithiof: Short question on Kindred. What is the end date for the partnership? Has that been set? Werner Becher: I think we announced previously, we had a deal that ends at the end of 2026, with that EUR 55 million guarantee spread over 3 years -- '24, '25, '26. So yes, that's it, yes. David Kenyon: We have an OddsFeed+ in parallel going longer than that. Mattias Frithiof: Yes. For you, David, we've seen good progress on cost saving on OpEx. How should we view reductions in CapEx going forward? David Kenyon: I mean I think there have been -- we've made some cuts in engineering, especially on the consulting side, as part of our whole efficiency program. But in general, I'd say the -- right now, the cuts, we're not focusing on cuts on the side that drives CapEx. So engineering, there's more other areas of the business that we're looking at because the engineering is driving the product that we need to sell to deliver 12 deals in this quarter. So I won't give a long-term focus on it. But right now, it's not what's driving our bigger cuts. Werner Becher: We are not desperate enough to stop investing. David Kenyon: Yes. Mattias Frithiof: Last question. What is the scale of opportunity in Nevada in terms of contribution on the revenue side? Werner Becher: That's a tough question. But -- we are in talks with several customers out there. Some of them have EUR 100 million plus GGR. So we are definitely not talking only about a very few small opportunities, but some quite interesting opportunities. And as mentioned, the product available today in this market, I would say, is quite limited. So we have definitely an edge with our product there. We have to go through the field test still in Nevada. That's on the agenda for the next few months. But it's definitely not only a small market for us going forward, why we put so much focus on it now. Mattias Frithiof: Thanks. That was all the questions. So thank you very much, everyone, for participating today. Thank you, David and Werner. And we look forward to seeing you in February when we come back with our Q4 report.
Operator: Greetings, and welcome to Gladstone Investment Corporation's Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Erich Hellmold, General Counsel. Please go ahead. Erich Hellmold: Thank you, Donna, and good morning. This is Erich Hellmold, General Counsel of Gladstone Investment. This is the earnings conference call for the second quarter ended September 30, 2025, of the 2026 fiscal year for shareholders and analysts of Gladstone Investment, listed on NASDAQ under trading symbols GAIN for the common stock, GAINN, GAINZ, GAINL and GAINI for our 4 different registered notes. Thank you for all calling in. We're happy to provide updates to our shareholders and analysts and provide our view of the current business environment. Two goals for our call today are to help you understand what has happened and give you our current view of the future. Now we'll hear from Catherine Gerkis, our Director of Investor Relations and ESG to provide a brief disclosure regarding certain regulatory matters concerning this call and report. Catherine Gerkis: Good morning, everyone. Today's call may include forward-looking statements, which are based on management's estimates, assumptions and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors supported in our SEC filings, which you can find on the Investors page of our website, gladstoneinvestment.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Q and earnings press release for more detailed information. You can also sign up for our e-mail notification service and find information on how to contact our Investor Relations department. We are also on X, @GladstoneComps as well as Facebook and LinkedIn, keyword for both is The Gladstone Companies. Now I will turn the call over to David Dullum, President of Gladstone Investment. Dave Dullum: Thanks, Catherine, and good morning to everybody, and also thank you for being on the call. I am again pleased to report that our second quarter of fiscal '26, we experienced strong performance. This was driven by the continued growth in the portfolio and the results also of our existing portfolio companies. We ended the second quarter with adjusted NII of $0.24 per share, which is sufficient to cover our monthly distributions to shareholders and our total assets of $1.1 billion are up $90 million from the end of the prior quarter. Now this increase quarter-over-quarter in assets resulted from one new buyout investment during the current quarter along with appreciation of our investment portfolio, I should say, net appreciation. With the new buyout investment, we currently have 28 operating companies and a very healthy pipeline for new acquisitions, which we'll discuss a little further. To date and through the first 6 months of fiscal year '26, we have invested approximately $130 million in three new portfolio companies, and this compares to a total of $221 million which we invested in all of fiscal year '25. So we're at a pretty good run rate relative to where we were in fiscal '25. Now these new investments, they are in line with our strategy to continue growing our portfolio through the acquisition of operating companies at what we deem to be attractive valuations. Now as usual, these acquisitions are made with a combination of our equity and debt, where we look to generate capital gains on the equity when we exit the business and the operating income from the debt securities that we hold for the monthly distributions to shareholders. From our operating income, we were able to maintain our monthly distribution to shareholders of $0.08 per share, or $0.96 per share on an annual basis. So we have earned our ability to distribute from our income that we generated. Now for perspective, since inception in 2005, and through this period in 9/30/2025, we have invested in 65 buyout portfolio companies for an aggregate of approximately $2.2 billion. We exited 33 of these companies. So this leaves total investments currently valued at approximately $1.1 billion, while we generated approximately $335 million in net realized gains and $45 million in other income and exit over that period of time. Now let's turn to the outlook, which is probably the most important part, where are we today and what do we see going forward. First of all, there is very good liquidity in the M&A market which is where we compete, which does create this very competitive environment [ and we've been trying ] to make new acquisitions at these reasonable valuations that I referenced. In addition, we are in a bit of uncertainty, obviously, with the added variable tariffs, potentially slowing of the economy, which obviously will impact the analysis when we evaluate new opportunities. So it's not that easy, but we believe we have a pretty good handle on these variables and take them very carefully, again, coming back to our desire to have reasonable valuations on these companies [indiscernible]. Now not every business is affected in the same manner, which then both creates opportunity and obviously, again, adds to the uncertainty. We seem to be able to compete effectively for acquisitions that fit our model. As we mentioned earlier, we've been active, we closed on three new investments during the first 6 months of the fiscal year. We are in the final stages of diligence on some new opportunities and in review and negotiation of a number of other new opportunities. So our activity level is strong. We're very active in the marketplace. And this -- as a result of this, this activity keeps me somewhat optimistic for closing on some new buyouts during the balance of our fiscal year. As to our existing portfolio, we have a few companies that are consumer focused. And while they have experienced very good results to date, we are cautious due to supply chain disruption, tariff costs on the ultimate consumer prices, which may have an effect on the actual demand and the margin impact on that -- those particular companies. We continue to work with all of our companies in evaluating supply chain alternatives and the production strategies as we continue to navigate the current environment. And as I mentioned over the past years, as a group, we're very proactive in working with our businesses from an operating perspective as well. So we feel pretty good about where we are in this. So in summing up the quarter and looking forward to the rest of the fiscal year, our current portfolio is in good shape. We have a strong and liquid balance sheet, a good level of buyout activity with the prospect of continued good earnings and distributions over the next year while we navigate the challenges of an uncertain economic landscape. So with that, I'm going to turn it over to Taylor Ritchie, our CFO, to provide us with some more direct information. Taylor? Taylor Ritchie: Thank you, Dave, and good morning everyone. Looking at our operating performance for the second quarter, we generated total investment income of $25.3 million, up from $23.5 million in the prior quarter. The increase was primarily driven by an additional $1 million of interest income resulting from the continued growth of our debt investment portfolio. The weighted average yield on our debt investments decreased from 14.1% to 13.4% during the quarter. However, after adjusting for the collection of past due interest income from investments that had previously been on nonaccrual status, our portfolio's weighted average yield increased modestly from 13.1% to 13.2%. This improvement reflects our recent buyout debt investments which generally include interest rate floors in the 13% to 13.5% range. Excluding nonaccrual investments, the weighted average interest rate floor of our current debt portfolio was 12% as of September 30. We believe these elevated interest rate floors positions us well to mitigate potential compression in net interest income in the event of future declines in SOFR. Additionally, we experienced a $0.7 million increase in dividend and success fee income, the timing of which can be variable. Net expenses for the quarter were $21 million, up from $14.5 million, the increase was primarily due to the increase in incentive fees, which included a $5.1 million increase in capital gains-based incentive fees as well as a $0.3 million increase in income-based incentive fees. Interest expense increased in the current quarter due to the timing of borrowings for new investment activity from both the current and prior quarter, partially offset by our ATM sales in the current quarter. This resulted in net investment income of $4.3 million compared to $9.1 million in the prior quarter. Overall, portfolio company valuations in the aggregate were up $54.5 million. The increase was a result of both the net unrealized appreciation of $35.3 million and $19.1 million of reversal and unrealized depreciation from our restructuring of our investment in J.R. Hobbs. The unrealized appreciation was driven by increased performance at some of our portfolio companies, partially offset by lower valuation multiples across the portfolio and decreased performance at some of our other portfolio companies. Adjusted net investment income, which represents net investment income, excluding any accrued or reverse capital gains-based incentive fees, was $9.2 million or $0.24 per share, compared to $8.9 million, or $0.24 per share in the prior quarter. We believe that adjusted net investment income remains a meaningful measure of our ongoing performance as it removes the impact of the capital gains-based incentive fee, which is an expense recorded under U.S. GAAP each quarter, but is not yet contractually due. During the quarter, we reduced the number of portfolio companies on nonaccrual status from four to three. This reduction reflects the restructuring of our debt investments in J.R. Hobbs, which resulted in a $29.9 million realized loss, while establishing a new $20 million term loan that is now paying interest. We are confident in the management team in place at J.R. Hobbs and believe that the restructuring will position the company for long-term success. Despite continued macroeconomic uncertainty, we do not see any broad-based credit concerns across the portfolio. We continue to stay closely engaged with the three companies currently on nonaccrual, working alongside their management teams to support efforts to return to accrual status or pursuing exits where appropriate. Following J.R. Hobbs returned to accrual status, our nonaccrual investments represent 3.9% of our total portfolio at cost and 1.7% at fair value. Our NAV increased to $13.53 per share compared to $12.99 per share at the end of the prior quarter. The increase was primarily a result of $1.42 per share of net unrealized depreciation, $0.11 per share of net investment income and $0.06 of accretion from our issuing shares on our ATM at prices in excess of NAV. These increases were partially offset by $0.78 per share of realized losses and $0.24 per share of distributions to common shareholders. Looking at our balance sheet. We believe that maintaining strong liquidity and financial flexibility is essential to supporting and growing our portfolio. As of yesterday's release, we had $174 million in availability under our credit facility. In addition, we raised approximately $31.1 million in net proceeds through our common stock ATM program during the quarter, and we intend to continue utilizing [indiscernible], while pricing remains accretive to NAV. Looking ahead, we expect to access both the equity and debt markets to support what continues to be a healthy pipeline of new buyout opportunities and to refinance upcoming debt maturities. Overall, our leverage remains in a strong position with an asset coverage ratio as of September 30, of 193%, providing what we believe to be ample cushion [ to the required ] 150% coverage ratio. Focusing on our distributions to shareholders, we ended the prior fiscal year with $55.3 million or $1.50 per share in spillover, sufficient to cover our current monthly distribution of $0.08 per share for an annual run rate of $0.96 per share as well as the $0.54 per share supplemental distribution paid in June. We will seek to continue paying future supplemental distributions as we recognize realized capital gains on the equity portion of future exits. Using the monthly distribution run rate of $0.96 per share per year, and the $0.54 per share in supplemental distributions paid in the current fiscal year, our aggregate estimated fiscal year distributions would yield about 10.9%, using yesterday's closing price of $13.79. This covers my part of today's call. I'll now hand it back over to David Gladstone to wrap us up. David Gladstone: Well, thank you very much, Taylor. It's nice for you and Dave and Catherine, good information for our shareholders. This call and the Form 10-Q we filed, that should bring us up to date for everyone that follows us. The team has reported solid results for the quarter ending September 30, 2025, including new investment activity, improvements in nonaccrual balances, that's a good one to get out of the way and a strong liquidity position to grow the portfolio through the rest of this fiscal year, which will end on in the next quarter. We believe that Gladstone Investment is an attractive investment for investors seeking continuous monthly distributions and supplemental distributions from potential capital gains and other income that we have. The team hopes to continue to show you a strong return on your investment in our fund. Why don't we slow down now and have some questions from our analysts and other shareholders. So operator, if you'll please come on and ask some questions -- or get some questions. Operator: [Operator Instructions] Our first question is coming from Mickey Schleien of Clear Street. Mickey Schleien: Taylor, in your remarks, you mentioned that the net unrealized depreciation, excluding the Hobbs reversals due to some companies performing well. Could you give us a sense of which sectors are the strongest in the portfolio? And what sectors you're seeing the most challenges. Dave Dullum: Mickey, it's Dave. Taylor sort of pointed at me and said, "Hey, maybe you should take that question." So I'll try and he can jump in. Frankly, it's really truthfully across the board. It's not like our -- a couple of our consumer-oriented companies, we're seeing not only a slight change downwards in multiples in general and one or two that are slightly down in EBITDA, which, of course, combines for -- again, these are not huge, frankly, unrealized valuation decreases are all in line, relatively speaking. But I'd say in that, we've got a couple that are somewhat related to the government sector stuff where there's been some slowdown, if you will, or pushing backwards on some of the activity, clearly because of the shutdown, et cetera, but not anything dramatic. The business are all performing really well. So truly, I can't give you one sector that I would say is not performing worse, let's say, or any others. The oil and gas or energy sector, we've got a couple of pretty good holdings there. They're doing quite well. And there, we've seen multiples pretty much across the board are actually down. And so it's really more a function of where EBITDA on any one of the individual companies is actually up, which is combined to give the sort of unrealized appreciation aspect of it. But the short answer is, relatively speaking, it's pretty broad spread. Mickey Schleien: Dave, I -- yes. I'm sorry, go ahead, Taylor. Taylor Ritchie: Sorry, I was just going to add in, if you look at the top three portfolio companies that moving up from the quarter, they spread all 3 of our kind of traditional sectors, between SFEG, E3 and Schylling. So we are seeing it kind of across the board. Mickey Schleien: That's helpful. And Dave, you mentioned the government shutdown, which is obviously a new development since the last earnings call and since your Investor Day in Utah. Could you give us a little more color on how that's impacting the portfolio and which companies are most exposed to that? Dave Dullum: Well, the ones that would be most exposed are those that are, where we have direct involvement with services products related, obviously, to military and so on. And again, fundamentally, they're all doing well. I would say it's less of an issue now. We went through a period where we were concerned, let's use that word carefully on maybe pushing back of demand because of the uncertainty from the government, not that the fundamentals of what we needed to do our supply were in question, it was really more whether something might get funded or not. But what we learned actually and what's occurred is it really has not been an issue for our specific portfolio companies. So it's just something we keep an eye on. Again, it had an impact earlier in the year, but it frankly now seems to be smoothing out. So no, I wouldn't want to highlight any one particular of our companies that has got an issue with that because that would be misleading. Mickey Schleien: And my last question, Hobbs had been an issue for a long time. So it's good to see the restructuring. But I noticed you cut your investment in Hobbs by about half. So did another investor get involved, whether another sponsor or another lender? And how would you describe that company's outlook now? Dave Dullum: Yes. No. So we are the only continuing investor. As we mentioned, we did a restructuring, if you will, and that allowed us to really sort of set the table with the dollars we have invested to generate income, as Taylor mentioned, which is a good thing. We've seen a really nice turn in the business there, a business that are a function of the construction-related projects generally in multifamily and, to some extent, commercial down in the Southeast generally, which frankly has continued well. So what they've done very well in the last, I'd say, 9 months to 12 months, is to really realize which are the contracts that they need to take on and we reduce the revenue as a result of that. The revenue run rate order of magnitude, $100 million, which is still pretty significant. But it's caused us to really be critical and not take contracts that while it might be nice to have the revenue might run the risk of not being able to provide any margin, if you will, just because of the nature of the beast. So all in all, I'd say to the management team has done an exceptional job in bringing it to where it is. And now we're looking at positive EBITDA, positive cash flow. And yes, we're happy that we've continued to remain in that investment and now got it at least on an income-producing basis. Operator: The next question is coming from Christopher Nolan of Ladenburg Thalmann. Christopher Nolan: Taylor, in case I missed it, what was the spillover income per share in the quarter, please? Taylor Ritchie: We don't disclose that quarter-by-quarter just given the fluctuations, and we're really don't manage the spillover on a quarterly basis. We're really looking on an annual basis. But to put it in perspective, again, we started the year with $1.50, which covers the supplemental of $0.54 in June and each month of $0.08. So we really have only been eating into the current -- the spillover that we started the year with. So we still feel comfortable and are confident in where we're going to end the year. Christopher Nolan: Okay. And then following up on the J.R. Hobbs comments from Mickey, should we look for other restructurings and for the other companies on nonaccrual? Dave Dullum: Chris, this is Dave. No, I would say not. I think the other companies that are on nonaccrual for slightly different reasons, they're actually producing income, et cetera. We just have to work through with some of the other folks that are in the investment senior lender and what have you in terms of some certain restrictions, function of covenants. But no, I would not anticipate any restructuring on those other couple of companies. Christopher Nolan: Okay. Final question is, I noticed there was a slowdown in the ATM issuances quarter-to-date. Does that really reflect just smaller windows where you can accretively issue the shares or just lower seasonal balance sheet growth? Taylor Ritchie: Chris, it's Taylor. Now to confirm, when you say quarter-to-date, are you talking about subsequent to 9/30? Or are you talking about the 9/30 quarter itself? Christopher Nolan: Subsequent to 9/30, please, the 515,000 common shares issued. Taylor Ritchie: Yes. So subsequent to 9/30, again, with us having the ability to be active on the ATM, but only when we are trading at a price sufficiently above NAV between covering our costs and commissions and then providing a little bit of cushion for any kind of downturn. The trading window for while we were in a position based on our 9/30 NAV, which again increased meaningfully from $12.99, up to $13.53. When factoring in the commission and the cushion, there were only so many days that we were trading above that. And as I mentioned in my prepared remarks, we will continue to utilize the ATM as price remains above NAV and the cushion discount that we factor in. Operator: The next question is coming from [indiscernible] of B. Riley Securities. Unknown Analyst: I was just wondering if you could provide some more detail or color on the diligence and the conversations you're having for upcoming commitments and general scale and industries. Dave Dullum: Yes. So obviously, I have to be a little sensitive to -- with our legal team sitting here with me about what we're saying about those. But seriously, we are as I say, active in a number of companies right now kind of in the final phases of diligence, which means that with any success will sometime in the next month or so, hopefully, see some new acquisitions for us. And then there are others where we're very active constantly in evaluating new businesses with indications of interest, and those turn into letters of intent, if we generally earn a couple of those right now as well. No guarantee that those LOIs, as we call them, that will get accepted because these are competitive processes, as you know. So I'd say right now, all in all, we've given the level of activity, given that when we look at those that are in IOI indication of interest, those that are in LOI, those that are actually in what we call initial review, the level is probably as high as it's been for a while. So subject to just getting through those processes, I think we're in really good shape for adding to the portfolio. Unknown Analyst: Okay. And then I was just wondering if you could provide more color on the variability of tariff uncertainties, if there's specific holdings or industries that are worse than others in your view? Dave Dullum: Yes. Well, certainly, some of those, we're fortunate, frankly, in a lot of our companies that would import products, say, from China, which is obviously the big area, have been able to find other sources. There are a couple of companies and part of it, to be honest, because of the demand for the product even though we had fairly significant tariff increase, primarily in a consumer-related company, it didn't affect the demand at all. In fact, demand continued and the profitability of the business pretty significant. So it's really more around those companies, the ones that we have where they use a lot of steel, let's say, or what have they are not particularly impacted. It's really those that are where we have a very significant supply, say, from China specifically. But so far to date, most of our companies that are doing that, we've been able to mitigate it to some degree. But we're cautious just because you never know. I mean, we seem to think that it looks like we might be seeing some pushback now on tariffs, some reductions. And if so, that will be a good thing. Operator: Our next question is coming from Erik Zwick of Lucid Capital Markets. Justin Marca: This is Justin on for Erik today. I had a question on the J.R. Hobbs preferred position. We noticed it was previously marked at 0, and now it's marked well above the cost basis. Was that a result of the restructuring? Or is that more a function of improving business performance? Taylor Ritchie: The primary driver is obviously the restructuring, which eliminated essentially $29.9 million of debt that was ahead of the preferred when you come to the valuation process. So as we look at kind of our waterfall method of coming up with a TEV for the company each quarter, you go through the debt stack, allocate value there and then what is left over will fall into equity fair value. So as we got rid of the debt investments that left over a fair value for the preferred equity piece. Justin Marca: Okay. Yes, that makes sense. And then you guys had another really solid quarter of net new investments. I was hoping you can expand on how the pipeline is looking compared with last quarter and where you're seeing the most compelling opportunities. Dave Dullum: Yes. I think as I was indicating a little bit earlier, yes, we are, as I mentioned, seeing a volume that's probably as good as it's been in the last quarter or so, last couple of quarters actually. Part of it is a function of, obviously, I think, and our team doing a really good job getting out there and seeing opportunities that meet what we want to do. The other thing we've been doing frankly, gradually increasing the size of investments that we're making. So per investment, we're actually putting more money to work because we think that the businesses that are a little bit larger, generating more consistent EBITDA will be better value creation over time. So all in all, again, nothing spectacular other than we're active. We're out there. We're putting out a lot of indications of interest on some good quality businesses. It is a competitive environment. But again, I feel like we're in really good shape for net new deals as we look forward. And it's similar to like we've done in the last couple of quarters. Justin Marca: Okay. And last one for me. I'm just kind of curious about market dynamics and the competitive landscape. We've heard some larger BDCs are moving down market to smaller deals. Are you seeing any evidence of this in the borrowers that you're looking at? Dave Dullum: Yes. No. And we -- keep in mind that our approach is less than being a credit-oriented fund, if you will, right? We fall in that category of the businesses we're looking at, we're buying them. So when, of course, we bring our debt and our own leverage from our own balance sheet to the transactions. So I would say we don't fall in that broad category of competing necessarily with those folks who might be coming down market on the debt pieces. I think where we are is looking more at the middle market on the companies that we can buy. And as I mentioned, we're increasing, looking at slightly larger businesses for us, relatively speaking, because we think that's where we can, over time, create higher value and consistently put more money to work in both the debt and the equity investments in those particular companies. So I wouldn't say that we're seeing necessarily greater competition because people are coming down market, I'd just say that generally, there is enough capital out there, certainly in the M&A world and where we saw to compete that it is a struggle to some degree, to find these businesses at values that we think makes some sense. But we obviously have been doing it reasonably successfully and think we can continue doing that. Taylor Ritchie: And I think the only thing I would add to that to what Dave just mentioned is really that when we are going after portfolio companies of potential acquisitions, our competitors are typically going to be private equity funds that are focusing on the middle market space. So while other BDCs in the industry may be moving down market, they're often looking at companies that we may not be looking at. So our competitors are a different subset of the industry. Operator: At this time, I would like to turn the floor back over to Mr. Gladstone for closing comments. David Gladstone: Thank you all for calling in. It's nice to know that this place will keep rocking and rolling, even if I'm stuck in traffic as I was this morning, I got to see the new way into Tysons Corner, which is a disaster. Nonetheless, I'm here, still working. I want to thank you all for calling in. And if you have other questions, we'll catch you next quarter. That's the end of this message. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast and enjoy the rest of your day.
Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. [Operator Instructions] At this time, I would like to welcome everyone to the Kinross Gold Third Quarter 2025 Results Conference Call and Webcast. [Operator Instructions] Now I would like to turn the call over to David Shaver, Senior Vice President, Investor Relations. Please go ahead. David Shaver: Thank you, and good morning. In the room with us today on the call, we have Paul Rollinson, CEO; and from the Kinross senior leadership team, Andrea Freeborough, Claude Schimper, Will Dunford and Geoff Gold. For a complete discussion of the risks and uncertainties, which may lead to actual results differing from estimates contained in our forward-looking information, please refer to Page 3 of this presentation, our news release dated November 4, 2025, the MD&A for the period ended September 30, 2025, and our most recently filed AIF, all of which are available on our website. I will now turn the call over to Paul. J. Rollinson: Thanks, David, and thank you all for joining us. This morning, I will discuss our third quarter results, provide high-level updates across our portfolio, comment on sustainability and confirm our outlook. I will then hand the call over to the team to provide more detail. Following an excellent first half, our portfolio of mines continued to perform well in Q3. Production in the quarter was on plan, delivering 504,000 ounces at a cost of sales of $1,145 per ounce. The strength of our operating portfolio, combined with good cost management and favorable gold prices resulted in another quarter of strong operating margins. As a result, in Q3, we delivered another quarter of record free cash flow of nearly $700 million and over $1.7 billion year-to-date. Our business is in excellent shape, underpinned by a very strong balance sheet, robust operational outlook and significant cash flow generation. In accordance with our disciplined capital allocation framework, we are committed to further strengthening our balance sheet through additional debt repayment and enhancing returns for shareholders. We have returned significant capital through our dividend and share repurchases. Given our strong position, we are now planning to increase our return of capital to shareholders beyond the minimum of $650 million we committed for this year. Andrea will provide further details on our capital allocation plans later. Turning to our operational highlights. In Q3, Paracatu and Tasiast delivered substantial production at good costs, generating robust free cash flow. Paracatu was once again the highest producer in the portfolio and remains well on track to deliver close to 600,000 ounces. At Tasiast, both the mine and mill continued to perform well with production in the third quarter delivering as planned and operations remain on track to beat guidance. At La Coipa, performance improved in the third quarter and the site remains on track to meet its full year production guidance. At our U.S. assets, production and costs were on budget in Q3 and also remain well positioned to meet guidance. In Alaska, we saw consistent production with strong contributions from both Fort Knox and Manh Choh. In Nevada, production from Bald Mountain and Round Mountain were as planned. At Bald Mountain, mining of Redbird 1 continued to ramp up and study work for Redbird 2, along with numerous additional satellite opportunities is ongoing. At Round Mountain, initial production from Phase S continued to ramp up following the completion of mining at Phase W. At Phase X, underground development is progressing well with over 5 kilometers advanced to date and infill drilling continues to return excellent grades and widths. With respect to our broader project pipeline, we continue to make steady progress at Curlew, Great Bear and Lobo-Marte in the third quarter. These projects, along with other organic opportunities, continue to be backed by an extensive resource base with excellent long-term optionality. Our strong in-house technical team continues to evaluate these value-generating investment opportunities that we may choose to invest in to continue to grow shareholder value. Turning now to a few remarks on sustainability. In Q3, we continued to provide meaningful impact in our host countries. For example, in Mauritania, we contributed to local educational infrastructure by developing new school facilities in the Inchiri region. In Brazil, Paracatu's tailings facilities recently received the top level AA classification from the engineer of record. This is a strong endorsement of the site's safety practices, reflecting industry-leading standards in monitoring, maintenance and risk control. And in Nevada, Bald Mountain earned the Nevada Excellence in Mine Reclamation and Earthworks Award. Turning now to our outlook. Through the first 9 months, we have produced over 1.5 million ounces at a cost of sales in line with our annual guidance. Operations remain on track in the fourth quarter, and we are firmly positioned to achieve our full year targets. Looking forward, we will remain focused on rigorous operational and financial discipline to deliver strong margins and cash flow to support strong returns for our shareholders. With that, I will now turn the call over to Andrea. Andrea Freeborough: Thanks, Paul. This morning, I will review our financial highlights from the quarter, provide an update on our balance sheet and return of capital program and comment on our guidance and outlook. In Q3, we produced and sold 504,000 gold equivalent ounces. Cost of sales was $1,145 per ounce and with an average realized gold price of $3,458 per ounce, we delivered margins of over $2,300 per ounce. Cost of sales increased quarter-over-quarter due to planned mine sequencing and the impact of higher gold prices on royalties. All-in sustaining costs also increased as compared to Q2 for the same reasons as well as timing of sustaining capital expenditures. In Q3, our adjusted earnings were $0.44 per share and adjusted operating cash flow was $845 million. Attributable CapEx was $308 million with slightly more sustaining capital versus growth. Attributable free cash flow was a record $687 million or $538 million, excluding changes in working capital. And we received an additional $136 million of cash in Q3 from the prior divestiture of Chirano mine. Turning to our balance sheet. Our strong financial position continued to improve in Q3. We ended the quarter with approximately $1.7 billion in cash and approximately $3.4 billion of total liquidity, increasing by over $600 million over the prior quarter. As of Q3, our balance sheet is in a net cash position of almost $500 million. Our financial strength was recognized by S&P, who updated our credit outlook from stable to positive during the quarter. With respect to the Chirano proceeds, we received $136 million in the third quarter and subsequent to the quarter, an additional $96 million or a total of $232 million since the beginning of Q3. Since the closing of the Chirano transaction in 2022, we have realized approximately $314 million in cash proceeds compared with the original sale price of $225 million. As Paul noted, as part of our disciplined capital allocation strategy, we are further strengthening our balance sheet through additional debt repayments. Yesterday, we issued a notice to redeem our $500 million 2027 senior notes. The notes will be redeemed prior to year-end, resulting in approximate interest savings of $35 million over 2026 and 2027. Following the redemption, we will have $750 million of senior notes outstanding maturing in 2033 and 2041. With respect to ongoing return of capital to shareholders, in the third quarter, we continue to make regular share repurchases, canceling approximately $165 million in shares. Year-to-date, we have repurchased $405 million of our shares. Including our quarterly dividend, we have returned more than $500 million to shareholders to date in 2025, marking strong progress against our initial commitment of $650 million. As Paul noted, given our robust financial position and strong free cash flow, we are increasing our return of capital in 2025. We increased our long-standing dividend by 17%, and we intend to increase share repurchases by $100 million for a total of $600 million this year. In total, this represents more than $750 million in returns to shareholders. And when considering the $700 million of debt repayment, we will have returned a total of almost $1.5 billion in capital in 2025. This is an increase of more than 50% compared to 2024 and a total of nearly $3 billion over the last 3 years. Turning to our guidance. Full year production is on track to be slightly above the midpoint of our guidance with fourth quarter production expected to be slightly lower than 500,000 ounces. Operating costs at AISC remain on track to meet our full year guidance despite higher royalty costs from higher gold prices. All-in sustaining cost is expected to be within the upper range of our guidance as a result of a higher proportion of sustaining capital with Q4 all-in sustaining costs expected to be above Q3. Total capital expenditures remain on track to meet guidance of $1.15 billion. With respect to our cash flow outlook next year, as typical for us, we will have seasonal tax payments due in the first half. Given the higher gold price, we expect these payments to be higher as they relate largely to income realized in 2025. I'll now turn the call over to Claude to discuss our operations. Claude J. Schimper: Thank you, Andrea. This quarter, we continue to expand our Safeground brand by completing additional critical risk management training, and we have had an enthusiastic response from our workforce on this initiative, and we will continue to innovate in how we approach safety at each of our operations. Our focus remains on reinforcing a collective effort to manage costs and capture margin in this strong gold price environment. Going beyond our focus on operational performance, we have put emphasis on getting the best value available out of our contracts, increasing labor efficiencies, improving maintenance and rightsizing consumables as part of our broader cost management strategy. Moving to the summary of our operations. Starting with Paracatu, production of 150,000 ounces was in line with the prior quarter, while cost of sales of $933 per ounce decreased quarter-over-quarter. Paracatu saw strong mining rates, mill recoveries and higher grades in the third quarter. And Paracatu remains firmly on track to meet its guidance range. At Tasiast, we delivered budgeted production of 121,000 ounces at a cost of sales of $889 per ounce, with production in line over the prior quarter. Production was supported by strong mill performance, including high recoveries following the recent mill optimization initiatives. Capital development of the Fennec satellite pit also ramped up in the third quarter and remains on plan. Tasiast remains on track to meet its production guidance of 500,000 ounces at a target cost of sales of $860 per ounce for the year. At La Coipa, we produced 58,000 ounces at a cost of sales of $1,199 per ounce, which improved over the prior quarter as planned. Production and costs improved as mining transitioned into the higher-grade ore from Phase 7. Production is expected to be stronger in the final quarter as mining continues through this higher-grade ore. La Coipa remains on track to meet its full year guidance of 230,000 ounces. Collectively, the U.S. sites delivered production of 175,000 ounces at a cost of sales of $1,469 per ounce in the third quarter. Production in the U.S. operations was as planned and collectively remain on track to meet full year guidance of 685,000 ounces at a cost of sales of $1,420 per ounce. In Alaska, third quarter production from Fort Knox of 96,000 ounces was in line with the prior quarter. Cost of sales of $1,372 per ounce was higher over the prior quarter due to more operating waste tonnes. At Bald Mountain, we produced 42,000 ounces at a cost of sales of $1,148 per ounce. Production decreased over the prior quarter due to the lower grades as planned, resulting in a higher cost of sales. At Round Mountain, production of 37,000 ounces was in line with the prior quarter. Cost of sales of $2,095 per ounce were increased compared to the prior quarter, primarily due to more operating waste tonnes as Phase S transitions from capital waste into operating waste. With that, I will now pass the call over to William to discuss our projects. William Dunford: Thanks, Claude. As Paul noted, our project pipeline is backed by a significant resource base of 26 million ounces of M&I and an additional 13 million ounces of inferred, calculated at $2,000 per ounce. Our in-house technical team continues to focus on advancing these opportunities into our near- and longer-term production profile, while also leveraging ongoing exploration to augment our broader resource base and support future production. With the significant and current resource base, the strong exploration results and the long-term optionality enhanced by current gold prices, we see a number of value-creating investment opportunities emerging across the portfolio to leverage the strong gold price and enhance our production profile in the 2030s and beyond. We continue to focus on extensive technical study, disciplined investment and competition for capital to ensure the projects we approve have significant margin, return and resilience. We will provide further information on these investment opportunities and decisions in Q1 2026. Regarding the near-term project pipeline, you can see we are already well advanced and making significant progress with our projects in the U.S. and Canada. At Bald Mountain, recent exploration and technical work has been progressing well to support an investment decision for Redbird 2 and has also confirmed opportunity to augment the production profile through concurrent satellite pit mining, leveraging economies of scale and shared infrastructure at the site. At Round Mountain, Phase X underground project is well advanced with underground development, engineering, technical study work and permitting progressing to support a project decision in 2026. It's a similar story at Curlew, where engineering and technical studies on the high-grade resource that has been developed over the last few years are on track to support a project decision in 2026. We will provide a separate update for Great Bear, where AEX and main project engineering are progressing rapidly. These are the projects alongside continuation of our existing operations that support our potential to remain at 2 million ounces through the end of the decade. Turning to our longer-term project pipeline for the 30s. Our resource base has significant optionality both for new projects with large resources such as Lobo-Marte and Maricunga come online and for further extensions of mine life at our existing operating assets. We will be progressing a number of technical studies and permitting efforts across the high-quality portfolio over the next couple of years to advance the significant production potential for the 2030s we see at these assets. To provide some more detail on exploration at Curlew in Washington. This year, we have been focused on infill drilling to support the early years of the mine plan. The results of that work have been positive, confirming the strong widths and grades that we expected to see, which are supportive of high-margin underground mining potential. A few notable intersections from this last quarter included 2 meters true width at 22 grams per tonne at the EVP zone and multiple intercepts of approximately 6 meters width and 8 grams per tonne in the K5 zone. We also completed the initial development of the Roadrunner decline and further extensions of the North Stealth development this quarter. This will provide drill positions to explore for extensions of the high-grade resource at North Stealth and to follow up on high-grade intercepts at Roadrunner, which is not currently in the resource or mine plan. We will be focused on this resource extension drilling in Q4 2025 and 2026. Turning to Round Mountain Phase X exploration. You can see in Q3, we focused on further infill of the Lower Zone with results continuing to intersect strong grades and widths, proving out our exploration thesis of a bulk tonnage underground mining opportunity. The extensive infill drilling is now sufficient to support an initial underground resource estimate. Overall, our infill drilling results have been positive at Phase X, supporting potential for a larger initial resource than we anticipated when we made the decision in 2023 to advance this target. We expect to release the initial resource estimate alongside the projects and economics update in Q1 2026. At Great Bear, both the AEX program and the main project are progressing well, and the main project remains on schedule for first production in 2029, subject to permitting. Starting with updates on the AEX, earthworks activities are well advanced as can be seen on this slide. The natural gas pipeline is now complete and commissioned and the AEX camp is now operational. The water treatment plant building is enclosed with equipment installation currently ongoing. The initial development of the portal box cut is progressing well with the initiation of the exploration decline now forecast to commence in the summer of 2026, pending receipt of provincial permits. Geoff will comment further on permitting shortly. As a reminder, AEX is not on the critical path for first production in 2029, but rather is focused on providing underground drill access for infill drilling of the underground resource and exploration drilling to further delineate extensions of the mineralization at depth. With respect to the main project, which remains on track, detailed engineering for key items such as the mill, tailings management facility and other site infrastructure continues to progress well with a 30% design review for the mill completed in Q3. Initial procurement activities for major process and water treatment equipment have commenced with contract awards planned to start prior to year-end. Manufacturing of selected long lead items is expected to begin next year. I will now hand it over to Geoff to provide a brief update on the Great Bear permitting and time lines. Geoffrey P. Gold: Thanks, Will. Permitting of the AEX program and the main project continue to advance as we work with the provincial and federal authorities. For AEX, we have 3 of the 5 permits required, including our closure forestry and wildlife permits, which has enabled us to carry on significant AEX activity. We continue to work with the Ontario Ministry of Environment, Conservation and Parks, MECP, to finalize the 2 remaining AEX water permits that are required to manage contact water for exploration purposes. And in the interim, permitted activities continue as planned. For those who are not familiar, contact water is primarily rainwater that comes into contact with their site and naturally occurring underground water. Our First Nation partners, Lac Seul and Wabauskang, on whose traditional lands the project resides continue to support the project and permitting. These 2 outstanding permits are taking more time than anticipated as MECP consults with other First Nations. As Will noted, AEX is not on the critical path for the main project time line. Construction activities at the AEX site will continue uninterrupted throughout the winter months as current activities and conditions do not require the use of water-related permits. In terms of the main project, which remains on schedule, we continue to work with the Impact Assessment Agency of Canada to advance the project impact statement. The first of 3 phase submissions for the project's impact statement was filed in September with the second submission on track for filing in December. The final phase is targeted to be submitted at the end of Q1 of next year. We also continue to advance our IVA negotiations with Lac Seul and Wabauskang Nations of the Northwest Metis community. I will now turn it back to Paul for closing remarks. J. Rollinson: Thanks, Geoff. After another strong quarter, we are well positioned to meet our market commitments again this year. Looking forward, we're excited about our future. We have a strong production profile. We are generating significant free cash flow. We have an excellent balance sheet. We have an attractive return of capital through both the dividend and share buybacks. We have an exciting organic pipeline, and we are very proud of our commitment to responsible mining that continues to make us a leader in sustainability. With that, operator, I'd like to open up the line for questions. Operator: [Operator Instructions] And your first question comes from the line of Fahad Tariq with Jefferies. Fahad Tariq: On the cost side, some of your peers, Agnico Eagle and Newmont, in particular, are focusing a lot on cost reduction efforts. Is that something you're working on? And if so, can you provide some examples of maybe productivity improvements across the portfolio? Claude J. Schimper: Yes. Thanks for the question, Tariq. It's Claude here. No, as I said in my remarks, we have a number of different initiatives globally, different projects to focus on, different cost elements, significant focus on working with our contractors and turning them into true business partners where the relationship works for both of us. At the same time, labor improvements and productivity improvements around that. We're doing a significant amount of training across all sites to sort of standardize some of our performance and then also a big focus on maintenance spares and parts and things that have been traditionally pressed by inflation. Fahad Tariq: Okay. And then maybe just switching gears to Bald Mountain. Can you just remind us, does the Redbird pit displace [ feed ] from other pits? Or is it incremental tonnes and ounces? Unknown Executive: No, it's incremental tonnes and ounces. It's a heap leach facility there. So we stack on top, and we're expanding our heap leaches as we speak to suit Redbird. Fahad Tariq: Okay. And then just lastly, just on the expansion of the heap leach, I know Redbird 2 is still -- we're waiting for the study update. But would it make sense to do the heap leach expansion even if there aren't new satellite pits identified? In other words, is the Redbird pit sufficient to justify the larger heap leach operation. Unknown Executive: Yes, absolutely. Like we do heap leach expansions at Bald fairly frequently. So it's -- we'll continue to do so for Redbird. Some of the satellites are in different areas of the operation. We have a variety of heap leach pads throughout the operation, and we expand those as needed to suit the satellites or the anchor pits such as Redbird. Operator: And your next question comes from the line of Daniel Major with UBS. Daniel Major: A few questions. So the first one, just on the capital returns and the balance sheet. I think it's very encouraging. You pushed up the dividend and committing to an accelerating buyback in the fourth quarter. If we look at the current gold price, consensus or estimates have you generated maybe $2 billion of free cash flow at spot commodity prices and you've got a run rate of about $750 million of capital returns. But when we think about what you'd be committing to next year, can you give us any indication on a balance sheet position that you'd want to get to before you would kind of commit to returning all of your excess cash to shareholders? J. Rollinson: Yes, sure. I'll maybe take a lead on that one, Daniel. It's a good question. Look, I think, number one, we've done what we said we would. We guided last year that it would be our intention to return back on our share buyback. We actually did that ahead of schedule. I would like to say in the same theme, as the year has progressed, we've had more cash than we were budgeting. And so as a result, as we've -- as we're coming into the fourth quarter, we've done more. So from my perspective, I think we've demonstrated that we want to do the right thing as it relates to return on capital as well as paying down debt and improving our balance sheet. So I think that the track record speaks for itself. As we look into next year, frankly speaking, we're right in the middle of our budget cycle. We do give our guidance, as you know, with the year-end in mid-February. That's typically when we give an update. Last year, when we gave our guidance, we were in a sort of a $2,500 gold price environment. To your point, we're in a different gold price environment today. But with that comes higher taxes, higher royalties. We do see opportunities to invest in our portfolio. So look, I think directionally, we want to keep going. But let us just get through year-end budget cycle, and we'll come out with an update in the new year. Daniel Major: Okay. Yes, I look forward to that. The second question is sort of a specific one on the tax payable accrual. If we look at current prices persisting through to the end of the year, for example, what would the working capital reversal be for the tax catch-up in Q1 of next year? Andrea Freeborough: So I mentioned in my opening remarks that we have significant tax payments in 2026 related to 2025. The first one that we typically talk about is Brazil. So we're expecting more than $300 million in January related to Brazil. And then for Q1 in total, it's close to $400 million. And that's just the tax payments that we're accruing throughout this year. And there will be installments on top of that for the 2026 year. Daniel Major: Great. It's clear it's about $400 million in Q1. Okay. That's good. And then a last question just on the permitting time line at Great Bear. You mentioned there's no impact on the project, the fact that the final 2 permits at AEX taking a bit longer. At what stage would those 2 specific permits start to impact the time line of the overall project. William Dunford: Yes. Look, the main project itself is building a mill and open pit mines and an underground, which is what AEX is focused on is the early drilling for that underground. So the whole purpose of AEX is to get ahead and do the definition drilling and do the expansion drilling for the underground. The main project itself and first production is really all about getting the mills built. And if you look at our PEA, we've got significant ore coming out of the open pit at the beginning of the mine to support that mill. So that's why it's not really a critical path right now in terms of those permits. Geoffrey P. Gold: I would also just add to Will's comments that there's really no direct link between the AEX permits and the main project permits. And at this time, we don't really believe we will experience a similar delay for the main project. Operator: And your next question comes from the line of Tanya Jakusconek with Scotiabank. Tanya Jakusconek: Three questions. Maybe over to Paul. I'm just thinking about you're in your budgeting phase and you're thinking about your life of mine plans and your reserve and your resource base. We've had some companies put out some initial targets for what they're running their pits at gold prices on reserves and resources. I'm just wondering how you're approaching that. I know you have your reserve pricing. I think it was $1,600 in resources at $2,000. How are you balancing that with your life of mine plans and your cutoff grades and inflation? J. Rollinson: Sure. Well, I think I would expect -- I mean, everyone is kind of thinking about what the new reserve resource price will be going forward. I think we're all in a good way, lagging where we are in spot. So I do think -- I expect there'll be generally an increase in the industry in our peer group in both reserve and resource pricing. But I think we'll all probably still be well below spot, which is the right side of the line to be on, of course. As it relates to our planning, as we've said, our mills are full. We're not planning to do anything with our cutoff grades. We're really goal seeking margin and cash flow. To the extent we're thinking about cutoff grades, it's low-grade stockpiles, end of mine life, where we might put different material for end of mine life. But as it relates to the near-term production, we're holding the line and still seeking margin and cash flow. Tanya Jakusconek: Should I be then, Paul, thinking that as I look at 2026, should I be thinking that if inflation is running and some companies will go anywhere between 5%, 10%, should I be thinking that if I kind of think about your reserve pricing and think about inflation and cost in that sort of level, that would be something that would be reasonable to adjust our gold price to for reserve calculations? J. Rollinson: Yes. I think to be frank, Tanya, I mean, it's a bit of art versus science. But I think we generally -- we look at it like we do with many things from a different -- from a number of different perspectives. But I think it's not a rule of thumb, and I wouldn't say we do this exactly, but we also take into account sort of a 3-year rolling average as well. And that would be a safe place to be if you were thinking about what we were going to do. Tanya Jakusconek: Okay. All right. I look forward to your approach in the new year. Maybe just on the some of the optionality that you have and you talked about the... J. Rollinson: I'm not sure what that noise is. Tanya Jakusconek: Yes, I don't know either. I don't have anything happening on my end either. So hopefully, we can get through just the last 2 I have. Maybe just on the optionality in the short term on the projects that come in, in that '27 to 2030 time frame, just specifically Curlew and some of the satellites at Bald. Would it be fair to say that they could add incrementally 100,000 to 200,000 ounces in that time frame? William Dunford: You mean between the 3 of them. I think between the 3 of them, there's potential that if they can add more than that. I think it depends on what year you look at. Tanya Jakusconek: Yes, I'm just kind of between '28 onwards, right? I was just thinking the Bald and also just Curlew, would that be like fair in the 100,000 to 200,000 and then if we Round Mountain, that's a bit different. William Dunford: Yes. I mean, Curlew itself, ultimately, we'll provide more guidance early next year, but it might get up to the 100,000 ounce per year as we ramp it up or close to that number. Redbird itself, Redbird 2 and the satellites, depending on the year, will be in that range of 100,000, maybe a little bit higher in some years as you mine through different zones. And then Phase X, we're also targeting to try and get over the 100,000 ounce per annum target, and we'll still be processing remaining stockpiles from Phase S, particularly with these gold prices in combination with the underground at Phase X. So I think our disclosure in Q1 will help you build the profile better, but certainly between the 3 of them, they can add more than 200,000 ounces once they're all up and running. That's coming on -- as other things move in the portfolio, all of that is to try and maintain that 2 million ounces, which we believe we can with those projects. Tanya Jakusconek: Okay. So that could be supplemental to the 2. William Dunford: Sorry, it's not supplemental to the 2 million ounce base. These are the projects that keep us at 2. Tanya Jakusconek: And then my final question for Andrea. Can you -- you're looking at buying back the $500 million in Q4 of the notes and you've got the 2033s and the 2041 notes. Should I be thinking that on the $500 million that for 2026, either one of those would be something you'd be targeting as well? Andrea Freeborough: Look, I mean, we're happy to continue to grow our net cash, and that's sort of how we're looking at it. Those longer-dated notes, they're just not economic to take out ahead of time, but we'll continue to watch that. And if it did become accretive, then we would think about that. Tanya Jakusconek: Okay. And so I should be thinking that maybe the pause on the debt reduction after the Q4 and then maybe the cash flow, as Paul mentioned, would be looking on a positive bias for capital returns. Maybe just to ask, what's the minimum cash that you would need to run your business, I should think about keeping on the balance sheet. Andrea Freeborough: Sure. We typically say the minimum is about $500 million, and then it fluctuates a little bit above that. We just got to net cash as we reported this quarter. So we're certainly happy with that, and we're happy to continue to grow that net cash. So I think it will be a balance between CapEx, continuing to grow cash on the balance sheet and returning capital to shareholders. Tanya Jakusconek: Yes, bearing any changes in those 2033 and 2041 notes. Andrea Freeborough: Right. Operator: [Operator Instructions] And your next question comes from the line of Anita Soni with CIBC World Markets. Anita Soni: Tanya asked a few of them. I just wanted to circle back on, I guess, capital allocation just in broad strokes as you think about it going into next year. Is there kind of a formula that you're using in terms of how you're going to allocate the free cash flow, like obviously, the debt repayment is kind of on pause, but capital return to shareholders as a certain percentage, reinvestment in the business as a certain percentage and anything else as a certain percentage. Could you give me an idea of that? And really, what I'm trying to figure out is, obviously, there's inflation, but that you were talking about in the order of, I think it was 5% to 10%. But what should we be thinking about in terms of capital for next year? J. Rollinson: Yes. A couple of questions in there, Anita. I'll start and Andrea chime in, if you like. Again, number one, we're right in the budget cycle. So again, I'll say what I said a little bit earlier. Directionally, all things being equal, we want to continue with a healthy return of capital. We don't typically think about it on a formula basis. We do believe the majority of our shareholders prefer buybacks. That's where we're really focused. And on our internal metrics, when we look at our valuation, we still believe that, that's the right thing to do with our free cash flow. I would say, though, as I go back to the budget, there's moving parts. We do expect, as Andrea said, higher taxes, higher royalties, inflation is always there. And as we've alluded to, we do see a lot of optionality to reinvest in our business for the future. Things are getting better. Phase X is looking better. Curlew was looking better. That might drive decisions to increase capital spending for longer-term mine lives. So I think I don't really want to get pinned down on a specific. I think as we go into the new year, it's -- we're in a good place where, as you say, we've paid down the debt. We've got lots of free cash flow, lots of organic opportunities. And I think we can do all of the above. Anita Soni: Okay. And then where would inorganic opportunities fit in all that -- the M&A pipeline? J. Rollinson: Look, again, we -- as I've said many times, we're in a fortunate position that given the strength of the organic portfolio, we don't feel under any pressure. We've got a great team here technically. We do look at external opportunities. But as I know you're aware, we've probably only done 3 deals externally in the last 10 years. So we're very careful. We do look at opportunities. If we saw another Great Bear, we do it again in the heartbeat. But we're very careful, and we are not under pressure, and we'll continue to look. Anita Soni: Okay. And congratulations on very solid quarter. Operator: There are no further questions at this time. I will now turn the call back over to Paul for closing remarks. Paul? J. Rollinson: Thank you, operator, and thanks, everyone, for dialing in today. We look forward to catching up with you in person in the coming weeks. Thanks for joining. Operator: This concludes today's call. You may now disconnect. RECONNECT
Operator: Thank you for standing by. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Trimble's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the call over to Rob Painter, President and CEO. You may begin. Robert Painter: Welcome, everyone. Before I get started, our presentation and safe harbor statements are available on our website. Our financial review will focus on year-over-year non-GAAP performance metrics on an organic basis. In addition, we will focus on adjusted numbers that we believe more accurately portray the underlying performance of our business. This means we will exclude the divested agriculture and mobility businesses as well as the 53rd week of fiscal 2024. As reported numbers, along with the reconciliation are provided in the appendix of our slide presentation. Okay, let's get to it. Our third quarter results delivered a top and bottom line beat, and we are once again raising guidance for the year. The story of Trimble this year can be summarized in 3 words: clarity, durability and momentum. That message continues today, driven by the purposeful execution of our Connect & Scale strategy. Our strategy continues to guide our own transformation, delivering transformative outcomes to our global customers and positioning us well to deliver on our 2027 financial commitments. We're also carrying this momentum forward with the Trimble brand. Earlier this year, we launched our NASCAR partnership with RFK Racing. And last week, we announced our partnership with Liverpool Football Club. This isn't just a sponsorship. LFC will employ Trimble technology and the design and construction of its world-class infrastructure. That's Connect & Scale in action. Turning to Slide 5. The numbers clearly reflect our execution. We delivered $901 million in revenue in the quarter, up 11% and. Our ARR grew 15% to $2.31 billion with a notable 17% increase in our AECO segment. EPS of $0.81 was up 16% year-over-year and higher still on an organic basis. The structural quality of our model is self-evident. Recurring revenue accounted for 63% of third quarter revenue and software and services for 78% of our total. As you will see from the results in Field Systems, the physical solutions of Trimble are uniquely empowering workflows by connecting the work between the office and the field with rich mission-critical data sets. Before turning to the segments, I want to briefly address 3 topics we've heard many of you asking about over the last few weeks. First, the impact of the U.S. federal government shutdown. We correctly anticipated lower government revenue early in the year and have been able to contain the impact on the business, which we previously quantified as single-digit millions in the back half of 2025. The second topic is the impact of AI on vertical software. In short, we see a net opportunity. We believe we are uniquely positioned to capitalize on this transformation for 3 key reasons: First, AI as a logical extension of Connect & Scale, not a separate initiative. We've been working with AI for years, and we are already connecting physical and digital solutions, workflows and ecosystems. We believe AI will be adopted inside industry platforms like ours as a natural extension of the data coming out of the mission-critical systems we build today. We're not chasing a new market. We're leveraging our core assets. Second, our industries are inherently difficult to disrupt. We operate in physical industries like construction and transportation, and they're fragmented and complex. This requires deep domain expertise, extensive go-to-market capabilities and a trusted partner that can bridge the office in the field. The unique corpus of data that flows through our ecosystems each and every day, combined with our deep industry relationships, creates a powerful competitive moat that a new pure-play AI company cannot easily replicate. Third, we are already executing on this opportunity. We remain humble to the potential for disruption and are hard at work integrating AI across our business. We're using it to drive internal efficiencies and accelerate our product innovation. We view AI as a powerful tool to enhance our value proposition and extend our leadership. Expect us to drive productivity over time. The third topic is the strong demand for AI data centers. Many of our customers have significant global backlogs and continue to invest to service them with an emphasis on speed of delivery. This is clearly reflected in our ACV bookings performance. We have the benefit of serving a diversity of end markets, infrastructure, residential, energy, commercial, onshoring and reshoring of manufacturing and more. Our business is resilient because we are not dependent on any single project type contractor profile or end market. Okay. Let's turn to the segments, starting with AECO. The team delivered another outstanding quarter. ARR at $1.42 billion and revenue at $358 million were both up 17%. Our ACV bookings remained strong and in line with our long-term model, and we continue to see strong engagement and expansion with our core commercial customer base with net retention, excluding SketchUp at approximately 110%. Market feedback continues to validate our value proposition to connect workflows and integrate ecosystems to address higher order problems, create connected data environment and facilitate multisided marketplace business models. In the quarter, we launched SketchUp 2026, which is now enabling real-time viewing, which in turn enhances collaboration and usage. We launched ProjectSight, which is our AI-enabled project management solution into Europe and Australia. Our unique Trimble workflows are linking design and reality capture. They're linking scan to BIM and digitizing site layout, delivering step function levels of quality and productivity to our customers. In October, we held a user conference with our owner and public sector customers, showcasing our latest innovations in our suite of asset life cycle management solutions. We sit in a unique spot to help asset owners digitize their capital program management as well as their permitting and operational asset management needs. This digitization enables us to provide AI-driven insights that solve real problems. Moving to Field Systems. The business outperformed in the quarter, with particular strength again in Civil Construction. Kudos to the team. This is the industrial IoT of our business, our data collection node in the physical world. Revenue at $409 million was up 8%. ARR at $386 million was up 18% driven by strength across our geospatial and civil solutions. At a product and workflow level, an example of our continued mix fleet innovation comes from our announcement with Vermeer and their pile drivers. The solution we enable automatically move the physical machine to the precise location of a pile according to the digital project plan, then optimizes the depth of the pile with minimal operator input. The system allows one operator to complete the task of driving piles, which otherwise would be a 2- or 3-person job. Productivity and quality, that's Trimble at work. Our latest AI innovations are now offering automated point-cloud classification and inspection analysis tools to quality control as-built construction. In addition, we continue to expand our points of distribution to help better drive adoption of technology in the market. In September, we held our first Trimble Dimensions in Australia, enabling us to showcase our innovations to almost 1,000 attendees in Brisbane. Next week, we are excited to be back in Las Vegas to host our flagship Trimble Dimensions user conference for all our AECO and Field Systems customers, where we will showcase new workflow solutions along with our latest AI innovations. The reach of this business into the physical world is near ubiquitous. The sampling of customers and projects won in the quarter spans the globe, rail projects in Japan, airports in Quebec and Colorado, transportation authorities in Norway, Paris and the U.S. State Department of Transportation, survey agencies in Thailand and Saudi Arabia as well as wins with automotive and autonomous mining OEMs. Moving to Transportation. ARR at $501 million was up 7%, delivering profitable growth in a challenged freight market. In September, we held our European User Conference in Amsterdam, an inspiring forum with representation from some of the largest and most important companies in the world in attendance, many of whom were new customers. At the end of this month, we'll be in New Orleans for our North American User Conference. To give a sense of Connect & Scale in action here, we start with critical customer problems, network optimization, empty miles, driver retention, maintenance and fuel management. Our ecosystem strategy enables interoperability to help companies achieve a more holistic view of their supply chain, leading to better planning and execution. This breadth of data enables AI to learn and forecast future processes, enabling predictive analytics for demand, capacity and potential disruptions. As an example of the strategy in action, we announced and launched our freight marketplace offering with Procter & Gamble as our anchor shipper customer. We are building the next generation of an intelligent and responsive supply chain. With that, I'll hand it over to Phil to walk us through more of the numbers, including our updated full year guidance. Phillip Sawarynski: Thanks, Rob. Let me start with some comments regarding capital allocation. During the third quarter, we repurchased $50 million worth of shares, a direct reflection of our confidence in the long-term value of our business and our commitment to delivering shareholder returns. This leaves approximately $273 million under our current repurchase authorization. Longer term, we continue to expect at least 1/3 of our free cash flow to be used for repurchasing shares. Our M&A strategy remains focused on strengthening our core market positions. We look for opportunities in high-growth areas such as construction software with a particular emphasis on tuck-in acquisitions, smaller strategic purchases that integrate quickly and enhance our existing platforms to deliver a rapid return on investment. Let's review the third quarter of 2025, starting on Slide 6. Organic revenue growth at 11% exceeded the high end of our outlook, driven by the strength of AECO and Field Systems with Transportation & Logistics continuing to grow in a challenging freight market. ARR was in line with the top end of our outlook at 15% to another record of $2.31 billion. The consistent growth in our recurring revenue base provides a predictable and resilient foundation for our business. Gross margins expanded 90 basis points to 71.2%, showcasing our continued model progression. We achieved EBITDA margins of 29.9%, which is a 160 basis points expansion year-over-year. Reported earnings per share was $0.81 for the quarter, $0.10 better than the midpoint of our guidance and $0.06 above the high end of our guidance. Moving to the balance sheet and cash flow items on Slide 7. Our year-to-date reported free cash flow remains strong at $206 million when considering the $277 million cash tax payment paid in the second quarter, which was related to the agriculture divestiture. Our balance sheet is a source of strength and financial flexibility with $233 million of cash and a leverage ratio of 1.2x, which is well below our long-term target rate of 2.5x. Moving to a segment review of the numbers before we close with guidance and starting with AECO on Slide 8. AECO delivered a record $1.42 billion of ARR posting 17% ARR and revenue growth for the quarter. Operating income at 31.8% increased 270 basis points year-over-year. This business continues to operate well above the Rule of 40, reflecting a balance of high growth and profitability. Next, Field Systems on Slide 9. Revenue was up 8% in the third quarter despite approximately 150 basis points of model conversion headwinds. The segment posted another strong quarter of ARR growth at 18% where we continue to successfully execute our business model conversions and deliver and expand capabilities that are subscription-based. Field Systems operating income at 33.4% increased 40 basis points driven by a greater mix of higher-margin recurring revenue. Finally, Transportation & Logistics on Slide 10. The segment delivered revenue growth of 4% and ARR growth of 7%. We continue to make excellent progress on our Connect & Scale strategy, which will unlock a cross-sell and upsell opportunity we size at approximately $400 million within this segment. Operating margins expanded 10 basis points year-over-year to 25.8%. Let me turn to guidance on Slide 11. With the strong performance in the third quarter, we are increasing the midpoint of our full year as reported 2025 revenue guidance by $45 million to $3.565 billion. We are also increasing our full year EPS midpoint outlook by $0.10 to $3.08 and are maintaining our organic ARR growth midpoint at 14%. From a cash flow perspective, we are holding to our full year view to be approximately 1x net income after adjusting for the $277 million cash tax payment related to the sale of the Agriculture business and the approximately $30 million in M&A costs. We continue to expect that we can deliver free cash flow greater than non-GAAP net income over the long term. Before turning the call back to Rob, I want to connect these results to our long-term vision. Our execution to date in 2025 reinforces our confidence in achieving our fiscal 2027 targets, which we refer to as our 3, 4, 30 framework. That is $3 billion in ARR, $4 billion in revenue and 30% EBITDA. An early look at 2026 revenue has us in the mid- to high single-digit range. We look forward to providing more details regarding 2026 in February. Back to you, Rob. Robert Painter: We are committed to ending the year on a high note and positioning ourselves for another year of growth and strategic progression in 2026. This confidence is rooted in our strategy and the conviction of our team. To our colleagues and partners, I thank you for your dedication and results. To our customers, thank you for your confidence in Trimble. To the investment community, thank you for your interest and support. Operator, let's open the line to questions. Operator: [Operator Instructions] Your first question comes from the line of Jason Celino with KeyBanc Capital Markets. Jason Celino: Great. Nice to see the quarter here. I think, Rob, you've addressed it a little bit, but can you maybe talk a little bit more about the government shutdown impact? I think you said the word contained and you'd already maybe baked some impact into the second half, but maybe elaborate a little bit? Robert Painter: Jason, thanks for the question. Yes, the good news is at the beginning of the year, we correctly anticipated that it would be lower to book in the impact we're talking about and quantify it. We're talking single-digit millions in the back half of this year. So the business, I'd say, all around this has outperformed clearly to contain this. And I will advertise that we are hoping that the government opens back up here soon. Jason Celino: Yes, absolutely. I think we all are. And then on the AECO side, nice to see the strength again. I would love to get more granularity on some of the strengths. Perhaps maybe you could break it down in the different segments, the A, the E, the C and the O. And what's driving kind of the confidence to sustain the ARR growth at these levels? Robert Painter: Sure. So if we look at each component of the A, the E, the C and the O, each one is over $230 million of ARR now. So strong balance across that portfolio. The C is the largest of the components that we have. I'd say the performance is broad-based and strong and the whole portfolio is growing. But to go through it in a little more specificity in the quarter, our BIM and Engineering Solutions, which really fit mostly in the E were the standout performers growth there. Strong product and go-to-market execution came together nicely, TC1 bundles and cross-sell is a big part of that. I'd say the second callout is the construction portfolio. We call that construction management solutions internally. The project management solution project site is doing really, really well for us. We took that into Europe actually, specifically in the Benelux in the quarter as well as Australia and New Zealand, and then we'll see that in the fourth quarter rollout further into Europe. And then the construction aspect is largely the viewpoint ERP, which continues to perform and grow and have competitive wins and be a really good anchor tenant for our TC1 and cross-sell plays. Operator: Your next question comes from the line of Guy Hardwick with Barclays. Guy Drummond Hardwick: Thanks for the early look on 2026. I think you said mid- to high single-digit range. And I think consensus is 7%. So that looks solid. But perhaps it's a bit of an unfair question, but how do you feel about 2026 as that's stepping stone to 2027 and the 2027 framework? Do you feel kind of ahead or behind in any sort of metrics? Phillip Sawarynski: Guy, it's Phil. Thanks for the question. So I mentioned that the 2027, I think, with the performance to date, we obviously -- if nothing else, it improves our confidence around those numbers. And we're still early, obviously, in 2026. So just previewed that mid- to high single-digit growth rate. But we're going to continue to go through our planning process. We'll give another update obviously with more details next earnings call. Guy Drummond Hardwick: And just as a follow-up, in terms of the Q4 revenue guide, obviously, it's a little ahead. Is there anything going on in terms of incrementals or perhaps incrementals maybe a little bit lower than I would have expected? Phillip Sawarynski: Sorry, Guy, is that on the revenue growth? Or what -- sorry, what are your... Guy Drummond Hardwick: That's for Q4 guidance in terms of the margins relative to the revenue in terms of the revenue growth. Robert Painter: Guy, this is Rob. I think it's pretty well in line. I think you're following probably the guide on the revenue delta versus the EPS guide if you're looking at the midpoint. We continue to invest in the business. So if we're looking forward into where we want to be with bookings in '26, we like where we sit right now. So then we can put the pedal on, let's say, the marketing investments in the business, the continued underlying systems and process work that we're doing, which is part of helping us accelerate the bookings work that we want to get going early in '26. So we get the '26 number so that we get the '27 ARR in line with the 3, 4, 30 model. Operator: Your next question comes from the line of Jonathan Ho. Jonathan Ho: Trimble has long been an adopter of AI. And based on your commentary, can you talk a little bit about where your customers are at in terms of their interest in using AI in their everyday workflows? And maybe perhaps remind us of your data moats as well in the space. Robert Painter: Jonathan, well, on the data moat side, if I start with that, you've heard me reference before trillions, billions, millions and thousands. Trillions of dollars of construction run through Trimble, billions -- tens of billions of freight run through Trimble, millions of users of our software, hundreds of thousands of instruments and machines in the physical world run on Trimble. That's a unique corpus data at Trimble, and we think of that in context of connecting users, stakeholders and that data across the industry life cycle continuum. And that enables a progression from optimizing tasks to optimizing systems. It's a different category of problems we can solve. And in that respect, AI is a force multiplier for what one can do with the data. The first question you had was around customer adoption of AI and maybe even say readiness for AI. Is that correct? Is that what you're asking? Jonathan Ho: Yes. Robert Painter: Yes. As you'd expect, I mean, there's a pretty good differential in the customer base on that given the number of customers we serve. But there's no question from the time I spend in the field around the world and the time with our operators, that is increasingly part of customer conversation. I'd say there's a fair amount of it that's curiosity-driven, trying to understand how can they actually get more out of their data, really putting in context of the problems they're trying to solve as they need to do their work better, faster, safer, cheaper and greener. And so how can -- our customers are asking how can they unlock their data, how can AI be a part of accelerating -- being a force multiplier for that. But I'd say like the most progressive customers are really doing some interesting things and really helping show us the way. We're not enamored with AI for the sake of AI, we're enamored with the problems that we can solve through the adoption and application of technology. And in that respect, we see customers who are working with the abilities that we provide for them to do, let's say, in construction, natural language design to do auto invoicing, if you're a contractor on the ERP, working to automate RFIs and submittals, driving significant time savings around that. In transportation, the autonomous procurement and autonomous quotation products continue to grow. So I feel like we're very early in the game at the customer level, and I like where we are positioned as a company in terms of the readiness and the work we're doing to help lead our customers and lead the industry. Jonathan Ho: Perfect. And Phil, just for a quick follow-up. With your 15% ARR growth, can you maybe provide some additional color to unpack the composition of that growth between new customer acquisition, net expansion, pricing? Anything that's changed in terms of the composition of that growth over time? Phillip Sawarynski: Thanks, Jonathan. I think it's been pretty consistent, as we talked about, which is about 1/3 new logo, 2/3 within AECO. And that's -- so I think that's been pretty consistent. And the 15% has been consistent with the last couple of quarters as well. So I would say if nothing else, [ treat the word ], but consistency with the model and what we're seeing. Operator: Your next question comes from the line of Joshua Tilton with Wolfe Research. Arsenije Matovic: This is Arsenije on for Josh. I just wanted to kind of unpack the acceleration in AECO organic ARR really strong going into the back half? And then just as a follow-up question, there's been new partnerships with OEMs, and that is kind of expanding on side of kind of the Caterpillar JV that you guys have been involved with. Is that getting more eyes on the TC1 suite? And is that getting better existing lands into new logos that you guys haven't really had that access to before? Robert Painter: Arsenije, this is Rob. Thanks for the question. I'll take the AECO organic growth. One thing I can point out is we're getting better marketing insight in the business. So the systems investments we've been making and process investments we've been making for years continue to pay off, and we continue to roll out functionality. So the ability for us to get insights into the data we have, let's say, about our customers. When I say about our customers to understand who they are, what are they buying, what are their [ emotions ], can we run to reach them. Cross-sell performance continues to do better, and that is absolutely enabled by the underlying processes and systems. And let me say the team, the people, the execution, they're really raising the bar and achieving that growth and kudos to everyone on that team. Relative to the partnerships, that you referenced, that hits in the Field Systems arena and there, I'd say, shut out to our Civil Construction Team, in particular, just had an absolutely terrific quarter. They've had a terrific year progress at the product level, progress at the go-to-market level where you're hitting as more of the go-to-market level and at the go-to-market level, there's 2 things to highlight. Let's see it. One is OEM relationships. So in the quarter, we announced a relationship with Vermeer on their pile drivers, with KOBELCO and their 2D earthworks for North America, with Hyundai, Trimble Ready applications for dozers in North America. So that's one aspect of reaching the mixed fleet market. The other, which is specifically which you're referencing as we call them Trimble technology outlets. That work is ahead of the plan that we've had. And really, the core principle we have with our joint venture partner is to reach the market. So we have an absolutely aligned vision to reach the market. For us, that means it's a mixed fleet market. And to reach a mixed fleet market, we need to have relationships with OEMs as well as with those dealers in the world that can help us reach machine types and colors that we weren't previously fully reaching. So really, really good execution from the team. Thanks for the question. Operator: Your next question comes from the line of Nay Naing with Berenberg. Nay Soe Naing: I have two, please. The first one is on the subscription transition growth headwinds in your Field Systems business units. I think it's a 1.5 percentage point this quarter, about 2 percentage points last quarter, so there's a bit of a deceleration there. I was wondering if you could remind us how long should we expect the growth headwinds to continue? And kind of linking to your qualitative 2026 guide, that improvement in top line growth compared to '25. Is it as a result of slower growth headwinds in the subscription transition in the Field Systems? Or is it -- will it come from elsewhere? And I'll wait for the second question later, if that's okay. Phillip Sawarynski: Nay, thanks for the question. Yes, we expect the transitions within Field Systems to continue through the next couple of years, through '27, which is what we talked about at Investor Day as far as our anchor year. So expect those to continue throughout the next couple of years. And then your second question was on the growth. So yes, conversions, we mentioned that. And I think we also start to lap ourselves in 2026 with the solid year that we've so far been putting up this year. On the -- so I think that -- but as I talked about before, if nothing else, we just increased our confidence around the 2027 numbers. Nay Soe Naing: So I was very clear with my question on the growth outlook for '26. Clearly, what you're guiding for '26 will be higher than what you guided for '25. That growth profile uplift, is it coming from any of the particular segments? Is it as a result that we will see slower growth headwinds from the subscription transition? Is that where the growth uplift is coming from? Phillip Sawarynski: So we're not actually guiding higher -- '26 higher than '25. If I look at our as adjusted revenue growth for this year, it's about 9%. And so that guide for next year actually is we said the mid- to high single digits. Operator: Your next question comes from the line of Tami Zakaria with JPMorgan. Tami Zakaria: I wanted to ask you about the leverage ratio. It's 1.2 turns. Is that the right number? Or would you consider levering up to buy back stock? Or are you waiting for any opportunistic acquisitions? So any thoughts on the leverage ratio as it sits here today at almost at all-time lows. Phillip Sawarynski: Tami, thanks for the question. Yes. So as we think about the capital and particularly the balance sheet, obviously, we focus on the highest ROI and we, first and foremost, are investing back in the business to be able to continue to drive the ARR growth. And then as we think about where other places, we talked about M&A and the tuck-ins in particular, we like that play and we'll continue to do that with the main focus within the construction software assets. We're committed to over 1/3 of our free cash flow going back to the shareholders via the share buybacks. So as we look going forward, we always sort of look across the spectrum of where the best use and the best ROI of our capital is in any given time, and we'll put that to the best use. Tami Zakaria: Understood. And my next question is on operating margin. So operating margin, you raised the expectation, it seems like, or it's coming in better than what we thought it would be initially when we started the year. So if you're expecting to grow mid- to high single digit next year from a top line perspective, should we expect similar year-over-year improvement in operating margins? Or any color on how we should think about that metric? Phillip Sawarynski: Yes. Thanks, Tami. So we just put the top line for 2026, the mid- to high single digit as a revenue guide. We'll get into more detail as we think about the EPS and the margins in the earnings call the next time. But we're not going much deeper than at this point into beyond the revenue. Operator: Your next question comes from the line of Kristen Owen with Oppenheimer. Kristen Owen: Congratulations on the nice quarter. So Rob, since you kind of opened up the box a little bit here on the discussion of AI disintermediation in SaaS. I'm wondering if you can maybe double-click on that a bit, particularly where you feel like given the diversity of the portfolio, do you have more of a moat against that disintermediation in certain categories? And as you assess the portfolio, are there areas where you do maybe see some vulnerabilities where you need to adjust? Robert Painter: Kristen, thanks for the question. Relative to the moat and let's say, particular strengths and weaknesses. Let me characterize it as follows: In totality, there's the trillions, billions, millions and thousands, which is already referenced, you could call that -- you think of that as the size of the moat. Where I believe we most strongly compete and differentiate is by connecting our solutions in the field and the office. That's connecting the hardware and software of Trimble to truly connect the physical and the digital world. And the flywheel of solutions that Trimble moves from the point solution to the bundle, to the workflow, to ecosystems and the value delivery, as you move along that flywheel, is differential and transformative, right? It's additive as you move through that. And so through selling -- this is one of the reasons I like selling the bundles and the TC1 frameworks and the cross-sell whether it's in Transportation or Field Systems or in AECO, as you're changing the nature of how customers are using their technology. And the more value the customers get the technology, the more they're going to stay with you. I mean that's what customer success is. So the strongest ability we have to compete on the moat is when customers are using multiple solutions. When they're using AI that we're embedding into our technology and also separate from the technology to get more out of what they're buying from us. We do that, and I have a high confidence that we retain the moat, and we grow the business and not only for the net retention, but it's a new logo gain that I believe that we can get. And of course, there's the unlocking of the $1 billion cross-sell in -- excuse me, in Construction and $400 million in Transportation. I'd say we're -- whether I call it weakness or whether I call it the humility, I think we absolutely -- I know we need to stay humble to the market around us. It moves so fast. And there's no question that at the moment, there's start-ups and there's well funded start-ups. There's the incumbents in the market. I mean all of us have AI ambitions. So we can't sit still. Like to me, that would be the risk as if we sit still. And we don't have the courage to move and to act. Now good news is I believe we do have the courage to move and to act through this moment. And the last question we had around how are we thinking about op leverage coming into next year is. And one of the reasons we want to be cautious not to get ahead of ourselves on the margin progression is we want to make sure we're investing in this business to unlock this AI opportunity. And I think we can do that and very much be within the framework of the 3, 4, 30 model we put out for 2027. And I think the way to ensure that we then get the next years beyond that, an attractive growth is to ensure that we're doing this upfront investment correctly into the business. Kristen Owen: Really appreciate that color. My follow-up question is more on the [ here and now ]. I want to ask you about the Transportation & Logistics business. Obviously, some continued good growth there, not really seeing much of an inflection in the end market. Is there anything on the horizon that you see either from a macro perspective or maybe from the Trimble's portfolio perspective like this freight marketplace introduction that gives you some optimism for that business going into 2026? Robert Painter: Yes. Great question. So let's say -- I think about control what we can control. I don't see meaningful green shoots right in front of us, whether it's the rest of the year in 2026 at the macro level. So our planning assumption is the same market we've got. And by the way, I hope I'm wrong about that. But that feels like the safe assumption and feels to calibrate with customers in Europe and North America. So in that respect, the control what we control, that's our own execution. I look at the, let's say, take the op margins this year first half versus second half. Second half, we see 400 basis point improvement in the margins in the business, okay? We can control that. We're growing, as you could see from the quarter with the 8% -- 7%, excuse me, ARR growth in the quarter, that's clearly outperforming the end market growth. That's within our control. And then the double-click on that gets into the product set that we have. Like you said, freight marketplace. So we -- in the quarter, we had -- I think it's the largest booking we've had of taking our mapping technology, which is into the Transporeon customer base in Europe and vice versa, we had the largest Transporeon booking in North America that the companies had to date. So those are elements that are within our control that, let's say, give me optimism that we can do better with what we have in our portfolio. At a $500 million ARR level, this makes us one of the largest transportation supply chain technology companies in the world. Operator: [Operator Instructions] Your next question comes from the line of Chad Dillard with Bernstein. Charles Albert Dillard: So I just want to spend some time on the Field Systems business and particularly your OEM strategy. Maybe can you talk about the TAM expansion that you're seeing post being [ freer ] to do more business with other OEMs. Maybe you can remind us what the OEM versus distribution split is and what the growth differential is? But also from like a product development and a sales perspective, what do you need to do differently versus before to win? Robert Painter: Yes. Thanks, Chad. This is Rob. I'll take this one. At the OEM level, we've always been able to work with OEMs. That's actually not -- that's not a new aspect of the joint venture. And so I should just continue to reinforce that that's not new. I'd say what's new within the OEM strategy is our own ability to put a differential level of resources to meet their needs. And then to be more specific because I think this is a big unlock in the OEM world is the nature of how they're adopting and implementing technology, specifically within machine control, which is to say, you could have open interfaces something closer to an open standard that the OEMs adopt in order to put on machine control technology or you have OEM by OEM technology, in other words, proprietary. It's very difficult for Trimble and our peers and competitors and very inefficient when it's OEM by OEM and very separate. We're actually very much in favor of a singular approach to that, which means, hey, our competitors and peers would have the same access as us to working with OEMs. I believe we win with the quality of our solution, with the breadth of the portfolio and in the [ linkage end ] of the larger ecosystem that we have, both in the Software and Field Systems and AECO. That's where we're really, in my opinion, most unique and different. So we are putting more expense, operating expense, investment in R&D into serving the OEMs so that they've got access to our technology. Where we -- of course, as you know, where we really focus ultimately is in the aftermarket. I mean that's where the predominant volume comes from. And so like I mentioned, the Trimble Ready dozer option a few minutes ago. And that is what that means when it's Trimble Ready is it's prewired and plumbed such that in the aftermarket, we can come and access that technology. You also asked about product development. Here, the team has done really well. If you think about the machine fleet and you think about machine control, we tend to think about dozers and graders, but excavators remain a single-digit penetrated market. And so the technology continues to serve, I'd say, that mid-tier level of machines, so unlocking an addressable market. When we do that, this was a few months ago, but we announced putting -- machine guidance now supports tilt buckets. That's something that the European customers need. In the quarter, we released some new technology called Roadworks 3D for pavers. Pavers, obviously, is a specialty piece of equipment. So larger reach into the available market and then at the sales level, the team is doing a really nice job. And by the way, I should say, our partners are doing a terrific job around the world of accessing the market. So strength and performance in all dynamics. Charles Albert Dillard: Great. That's helpful color. And maybe just sticking with Field Systems, more modeling question. So if I look at the implied guidance in the fourth quarter, it looks like you're taking a step down on growth. I'm just trying to think through like what that means from an exit rate perspective, just given that you're guiding to continued growth in '26, at least at an enterprise level. Phillip Sawarynski: Chad, it's Phil. Yes, so good question. So in Field Systems, a couple of things. One is we had a really good fourth quarter in 2024. And in particular, we had some larger government orders. And so we're not seeing those, as Rob mentioned before, a very small amount in the forecast. And so that's part of the downward pressure on the Field Systems growth year-over-year or a large part, I should say. Operator: Your next question comes from the line of Jonathan Ho with William Blair. Jonathan Ho: I just wanted to maybe dig into some of your federal government comments, but from a slightly different angle. I think you're pursuing FedRAMP certification. And so just wanted to understand what you see as kind of the opportunity set, what the timing could look like for that and potentially whether sort of the shutdown slows down anything on the FedRAMP side? Robert Painter: Jonathan, on the -- specifically on the -- actually, let me talk about a couple of things. On the federal side, the business we do within federal, you could think of DoD work and civilian work. Just looking forward, it won't be a surprise. We would see stronger opportunities on the DoD side than on the civilian side. And let's see how this plays out. We'll do better if -- when the government -- I guess I'm knocking wood, when the government reopens, if we open with a budget passed, omnibus bill, that's better than if we continue to govern by the CR, the continuing resolution. So just a little bit more color there on how we think about looking forward into 2026 on the overall federal level. With FedRAMP specifically, and going after the certifications, yes, there's a federal business. But the reality is we wouldn't do this if the opportunity was only in the federal business. We think about it as a security posture, which is increasingly important to all customers. So the FedRAMP to one customer and security as a service to another set of customers. So we think it's an important set of work to do in a world that's got very, let's say, complex data security, data sovereignty requirements around the world. It's a good hygiene and a good posture to have. And yes, by the way, we think that it could be business at the federal government. We weren't planning any revenue in that for FedRAMP in the government in 2026. So it's -- there's really nothing to see there as I think about the state of the government at the moment, and we'll keep plugging away at it, but we also see our customer -- by the way, a customer may often do both federal work and private work, maybe actually all of them do that -- do both. And more and more they're asking themselves, do they want to operate with FedRAMP certified technology in one part of the business and not in another. All things equal, they'd rather just operate with one set of security postures and protocols throughout their business. But it's a significant investment to do this. Jonathan Ho: That makes a ton of sense. And just a quick follow-up in terms of your SketchUp business. We've picked up some price increases that took place a little bit earlier in the third quarter. I just wanted to understand sort of the impact there and how you think about SketchUp in terms of lead generation as well? Robert Painter: So on the pricing dynamic or actually it's even bigger than a pricing dynamic. We have multiple paths to market. We sell e-commerce. We sell through direct sales to enterprise customers. We sell on the App Store, and you can get SketchUp and we invite you to go buy some licenses. Each one of those could offer monthly services or annual contracts. There's an optimization routine because what's our goal is to penetrate the market, to reach the market, to reach the customers where they are. And so you got to get the balance right and optimize the monthly and the annualized pricing such that you get the incentives right, right? We would like to have more people using the -- and doing the annual license with us. And we think we got that balance right now. So those are some of the pricing dynamics of optimizing that balance that we talked about on the last call. We think we got them right. Relative to lead generation for the rest of the business, actually, there's some good cross-sell plays that happened in some of the bundling plays. One of the ones that I think is the most compelling at the moment is Reality Capture and SketchUp. So think about collecting 3D point cloud out in the field, and you need to do something with that data that's collected well. What you can do is bring that data and the SketchUp. And whether you're collecting an [indiscernible] that you didn't need to, let's say, design or do a remodel of boom, it's right there and SketchUp natively integrating with the field data collection that we're doing. So that's just one example, but there's many examples where SketchUp is linked very nicely to the rest of the portfolio. Operator: Your next question comes from the line of Nay Naing with Berenberg. Nay Soe Naing: I just got a follow-up question on the operation leverage point. If we look at the year-to-date, your gross margin expansion, the year-on-year expansion dropped through to your EBIT margin expansion. I think it's tracking around 45%. So almost half of the gross margin expansion, we've seen that benefit coming through in EBIT, that rate is an improvement from about 30% that you achieved in the last 2 years. Just wanted to understand from you, how should we think about this margin expansion drop through from gross margins to EBIT going forward as more of your top line growth will be driven by a higher gross margin software businesses? Robert Painter: Yes. Thanks for the follow-up. At Investor Day, we put -- the frame we put on operating leverage was 30% to 40%. Yes, we've been tracking ahead of that. But we think about it on a multiyear baseline. So we still hold the 30% to 40%. It's not lost on us that with the higher gross margins and those continue to go up in the business. By the way, in the last 5 years, 1,200 basis point increase in gross margins, 1,200 basis points. That is a structural improvement of transformation in the business model of Trimble. So yes, we have -- you could say the natural ability of the business model to be at the upper end of that 30% to 40%. The balance that we've got -- that we'll get right and we will work towards is making sure we're continuing to invest in this moment, in this -- I'll say, in this AI moment. Simultaneously, we can get unlocks of productivity in our business, and we have areas where we want to differentially invest in order to get ourselves either ready or to accelerate the work that we're doing. We're playing the long game. So I don't want to reset the expectation of that 30% to 40% range. We'll guide 2026. Phil will put that framework out next quarter. So we're not ready to say where we want to be within that. But you can see the growth in the business, and we feel confident enough where we are now to have given you a preview of '26 and that is a stepping stone to 2027. I'll just say one other comment given whether it was the operating leverage comment on Q4. Remember, the moving parts as you're doing the modeling, a 53rd week that we had last year. We have chunks of term licenses that hit on January 1, and our January 1 hits in the fourth quarter of this year. And so the supplementary material that the team puts out, I highly encourage you to spend time with that and walk through that, and we can do that in the callbacks as well. Operator: Thank you so much to everyone for joining us today. This does conclude today's conference call. You may now disconnect.
Rafael Russowsky: Good morning, everyone, thank you for standing by, and welcome to the Earnings Conference Call to discuss the Results of the Third Quarter of 2025. With gross margin at a solid level and discipline in controlling expenses, we achieved results that reflect a highly committed effort and a clear focus on efficiency and profitability. These advances are even more relevant when we look at the current macroeconomic outlook, which remains very challenging with high interest rates, selective consumption and high competitiveness in retail. Moving on to the results of the quarter on Slide 3. I will start with the sales pillar. Total sales reached BRL 4.9 billion, a 2.2% increase over the same period last year. Same-store sales grew 4.1% with a highlight for Extra Mercado, which accelerated and grew 5.5% compared to the previous quarter last year, reflecting the positive effects of the assortment review and category management project, which began at the end of quarter 2 '24, and over 60 stores that were remodeled over the 12 past months. Pão de Açúcar remained strong with a 3.5% increase in same-store sales, reflecting the consistency and strength of the premium brand's value proposition. The Proximity format also stood out with 17.3% growth in total sales, driven by the opening of 49 new stores in the past 12 months. In e-commerce, we continue on a solid growth trajectory. Total sales reached BRL 604 million in the quarter, an increase of 9.8% over the same period in '24, totaling BRL 2.4 billion in the last 12 months. All brands grew with Extra Mercado once again standing out, increasing its penetration in this channel by 2.4 percentage points. E-commerce accounted for 13.1% of the group's total sales, an increase of 0.7 percentage points over Q3 '24, driven by the evolution of the sales mix, mainly with the growing advance of digital penetration in the Extra Mercado and Proximity brands. This performance reinforces the effectiveness of the 100% ship-from-store model, which ensures efficiency and capillarity in operations. We continue to capture growth opportunities with the expansion of the service to 60 more of its Proximity and Extra Mercado units this quarter. It's worth noting that the sales of perishable goods remain strategic, accounting for 36.1% of total sales in our 1P channel. With a pre-IFRS 16 EBITDA margin of 10.3%, digital reinforces its role as an efficient, profitable and enduring channel in our multichannel strategy. High profitability consolidates our leadership in this segment, both in our own channels and on the main partner platforms. In terms of market share, we maintain a positive pathway, advanced 0.6 percentage points in the premium segment according to Nielsen data, considering total sales in all cities where we operate with Pão de Açúcar and Minuto Pão de Açúcar. The Proximity format also showed a strong growth of 1.6 percentage points among small supermarkets in Greater São Paulo, a direct result of the effectiveness of our expansion strategy in the past few years. The share of wallet of loyal Pão de Açúcar customers grew by 1.5 percentage points, showing an increase in frequency and average spending. These advances reinforce the growing relevance of our premium and Proximity brands, which are fundamental pillars of our business strategy. Moving on to Slide 4. Profitability remains on a consistent trajectory, reflecting the company's focus on efficiency and quality implementation. Gross margin reached 27.6%, sustained by the resilience of our commercial strategy and continuous advances in store operations. In addition, specific initiatives aimed at increasing profitability stand out, such as the reduction of breakage and the evolution of the retail media front. SG&A fell to 19.5% of net revenue, an improvement of 0.3 percentage points, and we kept nominal expenses stable even in the face of inflationary pressures and a more competitive environment. This result reflects above all the effectiveness of the cost and expense reduction initiatives we have been implementing, combined with strict budget management. I could also highlight that in Q3 '25, we moved forward to the second stage of our administrative structure simplification process. This new phase accounts for annual savings of BRL 90 million, added to the first stage implemented in Q4 '24 totals annual savings of nearly BRL 190 million. As a result, adjusted EBITDA margin rose to 9.1%, possibly the best margin in Brazilian food retail, even in a challenging environment. This consistent evolution reinforces the strength of our operation and give us the flexibility to calibrate promotional levers, balancing profitability and competitiveness. Finally, on Slide 5, I'd like to highlight that this quarter, we reversed the sequency of previous losses and recorded a net profit from continuing operations of BRL 145 million. This was possible by the federal -- the BRL 480 million losses accounted in the line on the liquid net. This recognition was possible due to the changes in the federal regulatory environment, which expanded the possibility of using these credits, including as a form of payment in federal tax transactions. It's worth noting that between '24 and '25, the company has already monetized BRL 374 million in tax loss credits to settle agreements and debts of this nature, which reinforces the consistency and rationale for additional recognition made this quarter. It's also important to mention that in the beginning of this year, we settled tax contingencies using BRL 200 million in loss credits. The settlement was possible due to a casting vote decision by CARF. The credits used in this transaction have already been approved by tax authorities. At the end of the period, added to the amount recognized in the third quarter, the total balance of credits of this type activated in the balance sheet reaches BRL 1.2 billion with expectations of use over the next 10 years. In addition, the company maintains another BRL 1.2 billion in credits not yet recognized on the balance sheet, which may be reevaluated and activated in the future as new transaction opportunities arise, raising the total potential credits to be monetized to BRL 2.4 billion. Now I move -- I give the floor to [ Rodrigo ], who will discuss the results. Unknown Executive: Thank you, Rafael. Good morning to everyone attending our earnings call. On the next Slide #6, we present the management cash flow for the last 12 months, a period in which we generated BRL 1.4 billion in operating cash flow. This performance was driven by a significant improvement in adjusted EBITDA pre-IFRS 16, which reached BRL 853 million, an increase of BRL 158 million or 23% when compared to 2024. We also had efficient management of working capital for goods, generating BRL 480 million in the period, resulting from a 12-day improvement in the working capital cycle compared to the previous period, mainly reflecting specific negotiations with suppliers and reduction of excess inventory in stores. Next, CapEx totaled BRL 675 million, a slight increase of 2.3% compared to the previous period. This increase still reflects the most significant investments made in expansion, technology and renovations in the previous quarters. A good benchmark for assessing the trend is the CapEx carried out in the quarter, which reached BRL 146 million, a 20% reduction year-on-year, already reflecting the discontinuation of the expansion target, the reduction in store renovation and the greater rationalization of investments in technology. Moving on to other operating expenses. We continue to observe reductions compared to the previous year. The line totaled BRL 718 million during the period, a decrease of BRL 83 million. Of this total, BRL 146 million corresponds to recurring effects, while BRL 570 million are extraordinary items, mainly related to tax agreements, labor lawsuits and restructurings. Finally, the total net financial cost amounted to BRL 806 million, an increase of BRL 194 million compared to the same period of the previous year. This variation mainly reflects the rise in SELIC interest rates, the higher level of net debt and the renewal of surety bonds linked to tax-related disputes. Approximately 1/3 of these guarantees were renewed this year. And in many of them, the premiums are paid in advance, which puts pressure on cash flow at the time they are contracted, though the accounting recognition occurs gradually. On Slide 7, I will present details of our financial leverage. As the chart shows, net debt increased by BRL 660 million in the last 12 months, mainly impacted by extraordinary effects already mentioned in other operating expenses and net financial costs. Pre-IFRS 16 financial leverage reached 3.1x in the quarter compared to 2.9x in the same period. I now hand over the floor back to Rafael, who will detail other initiatives aimed at generating cash flow. Rafael Russowsky: On Slide 8, I would like to highlight the main factors on which we've been concentrating our efforts to build a cash generation trajectory that is positive in the coming quarters. As you might have seen in the publication yesterday, the top management approved the plan that was to be implemented throughout 2026. This plan has 2 main verticals. The first, an expressive reduction of CapEx between BRL 300 million and BRL 350 million. The second, a reduction of at least BRL 450 million in expenses connected substantially to support of stores and administrative structure. And in working capital, we'll continue capturing optimization opportunities by reducing excess inventories and managing suppliers and receivables more efficiently. Moving on to CapEx. We have identified significant opportunities in the past few months and the discontinuation of the expansion plan may lead to BRL 200 million. We have also initiatives to reduce over BRL 100 million based on being more strict in IT and technology processes. In the cost and expenses vertical, we have already observed a series of initiatives to optimize our operational support and administrative support. Among the main initiatives, we have the reduction of personnel already made in the previous month, the optimization of costs in communication, publicity and advertisement channels, reduction of facilities contracts, reduction of consultancies of freight and IT expenses. We have organized these initiatives into 3 main blocks: eliminations, reductions of consumption and alterations and optimization of scope. I highlight that we have an execution plan to sell nonstrategic assets in the totality of the -- they will be given to the reduction of the debt -- the growth debt so we can reach more stable levels. On Slide 9, I reinforce our sustainability agenda, which continues to be transversal and cross-cutting in the business decision. In this quarter, we launched our GPA's new sustainability strategy built on a comprehensive materiality analysis and fully aligned with the strategic pillars of our business. This new agenda reinforces our commitment to nourishing dreams and lives based on 4 main areas of action: respect for people, food, the environment and business. So this concludes our presentation of financial results. And now I propose that we open our Q&A session. Operator: [Operator Instructions] Let's move on to our first question from Lucca Biasi, analyst of UBS. Lucca Biasi: I have 2 quick questions on our side. First is related to the CapEx announcement considering the significant reduction for 2026. We would like to understand how we are going to look at the maintenance CapEx down the road. And my second question is related to tax credits. We would like to confirm if it would be possible to use those BRL 2.4 billion credit even with the company not being profitable. And we would also like to understand how could be the utilization curve of this credit in the short-term? Rafael Russowsky: Luca, thank you very much for the 2 questions you asked. CapEx. As to CapEx, we are reducing it quite significantly. As I mentioned, there are some items that were completed last year. And because our expansion guidance was discontinued, we had a reduction, which was quite significant, BRL 150 million of expansion that we removed from the scope because of the mentioned discontinuation. And in addition to that, we had some renovations in Extra Mercado stores, 67 stores that were renovated. And we are also renovating the headquarters that consumed about BRL 35 million. So we can see that this amount has been reduced due to those reasons. And as I mentioned, we are being more selective in terms of projects, especially those associated with logistics and IT. So we hope to have savings amounting to BRL 100 million. So we are referring to a reduction of BRL 300 million in a mechanical manner. We should have a maintenance CapEx from BRL 200 million to BRL 250 million. And we believe that all the renovations completed and after all the moves of selecting the best stores and associated reductions, we might not need to repeat those amounts constantly. So we believe that the maintenance level would range from BRL 200 million to BRL 250 million and BRL 50 million or maybe more depending on how everything plays out, depending on the growth projects we implement. So basically, this is what I had to say about CapEx. In relation to tax credits, we'd like to make it clear that we use those credits as a result of some agreements and some settlements related to past contingencies. As I mentioned, in the last 12 months, we settled about BRL 374 million by means of loss-related credits. And this was a result of some agreements that we made with the federal government, and we settled some specific cases. I would like to mention one in particular, which was a settlement that we made in the beginning of this year because it was related to quality in the CARF that allowed us to make such settlement by using loss-related credits. There's always a period where you present the credit for the settlement and there's a period for the proper approval. So this approval period was very accelerated for that specific settlement. And that gives us confidence that the government is accepting those credits for settlement purposes. And the approval happened quite in a fast manner, providing us with the confidence that we are going to have different opportunities in the future so that we can go after different agreements. You know that we have a number of contingencies to look at. And as create those opportunities and as law also permits us to use those credits, we are going to use all those credits as money. So we have this amount of BRL 1.2 billion in the balance sheet, and we have another BRL 1 million in the books that are not activated yet. If there are potential agreements in the future that would allow us to use those credits in a more assertive manner, without a doubt, we are going to bring into our assets, and we're going to use them to -- for settlement purposes. And we will consider what we can do with the federal credits. I just would like to add something related to the recognition that you mentioned. If we look at our notes, we have BRL 660 million that are being discussed with likelihood to be approved. And so, we also look at considering the history track that we have, there is a great likelihood to use those credits when those probable amounts that we must pay, we are going to use those credits. Operator: Our next question comes from Kevin [indiscernible], Itaú analyst. BBA -- Itaú BBA analyst. Unknown Analyst: I have a question on my side related to the efficiency plan. Could you provide more color on the main initiatives related to the BRL 450 million cut? And how can we ensure that this cut has no impact on the stores operation? Rafael Russowsky: Perfect. So yesterday, we had a plan. So we -- there are 2 pillars for this plan. One is CapEx. I've already mentioned some about it, some information about it. We had this CapEx reduction. And the first move that we announced was the interruption of the expansion plan that was announced a month ago. And in itself, it would be a very important step towards the new CapEx target that we're going to execute from now on. There are other initiatives that involve as I've already mentioned, some reviews in logistics I mentioned and IT as well, where the expenses are very high. In relation to costs, we are not talking about store operations, but we are talking about supporting operations. I'm going to list some of them so that you can understand what we are talking about. By the way, it's important to see this very clear so that we can follow this and the market can understand. So we have BRL 14 million. That is the minimum target for reduction. One step would be for elimination. Second would be consumption reduction and the other is to review the scope. When we talk about elimination, we are including some things like headcount reduction as announced previously, simple things like the use and distribution of leaflet. Today, we use outsourced company for leaflets, and we are going to create a more rational system so that this material can be sent to the hubs and to the warehouses. And the material will be distributed by means of our own structure, noncore systems such as internal systems that we are optimizing, and we are trying to find a way to optimize the internal systems in the stores. In this optimization front, we are considering a reduction of about BRL 104 million. As for consumption, we are focused on reducing consumption of using some services in a more rational way and we refer to logistics efficiency, reductions of some systems and also reduction of consulting services. And this can amount to BRL 100 million. And as for the scope that I mentioned, we would include an additional BRL 180 million. And we are in-sourcing some services that today we use by outsourced companies, and we are going to in-source into our activities. Advertisement, for example, we are going to direct our advertisements, and we use different channels for advertising purposes. We are going to optimize this. We are going to go after a more optimized ROI depending on the advertisement that we want to focus on. So the idea is to look at the structure to review what we can, review the scope and the consumption. We are going to be much more cautious, as I mentioned. And we are going to bring this mindset to execute our business plan in a more austere way. Operator: Our next question comes from Pedro [indiscernible], XP analyst. Unknown Analyst: Thinking about breaking down how the growth has been happening in the quarter. Could you provide more color on the mix and price in relation to volume? And also thinking into the future next quarters, considering the brands? And what's the consumer behavior considering how the feeding dimension? Do you see any elasticity in prices? Promotions have been bringing good results. Could you provide more information about the competitive dynamics, as mentioned in the release? In terms of gross margin, is there any impact coming from the items that I mentioned? I think this is my question. Rafael Russowsky: Pedro, in terms of the dynamics, we have been noticing some improvement, slight improvement in the consumer behavior. Last quarter, we had -- we noticed a behavior, and this is applicable to all retail sector, as you probably saw. In spite of all the difficulties that the macro scenario has posed to us, we had expressive growth. Of course, we have to consider the performance of our competitors and the situation we're living in. So we had a like-for-like 4% increase. We are very happy with this performance. But of course, we have to consider the relative scenario that we are in. So little by little, we have been noticing an improvement in the consumer behavior. And we have also seen stable prices and volumes stable as well. As you saw in our release, we reported market share stability and that reaffirms this view, this vision into the future and provide support to my argument. In terms of price elasticity, yes, of course, we are operating in a commodity-related sector and what happens to our group. We operate in a more affluent level of society. We have some brands which are more focused on premium channel, premium population. And the problem -- the thing is that, there is less elasticity when we consider this type of consumer. As you saw, in spite of all the hurdles and all the difficulties, we managed to grew 4% on the same-store level. And at the same time, we managed to remain our gross margin without changes. We saw 26.7%. And this quarter, we are delivering 26.6% in terms of performance. And this is a very important achievement, showing especially the strength of our brands, our commercial strategy and the resilience related to our value proposition and also how the consumer sees the value in the proposition we deliver. Operator: Next question comes from Ruben Couto, analyst from Santander. Ruben Couto: Just a quick follow-up, and then I'll ask a question. Well, considering the expense reduction plan, do you estimate any level of nonrecurring costs that end up generating throughout 2026 because of the whole plan of staff structure, headcount structure that have affected this in the past 2 years. Do you have an idea of how this current plan can go into 2026? But my question is that, well, Rafael, the company is going through several changes in control management since the last composition of the council. Can you give us an update on what we can expect in terms of management composition and what is -- how will the company focus change besides these efforts on efficiency have been changing best practices? How can you help us understand this new moment besides these efforts on efficiency that you discussed? It will be great. Rafael Russowsky: Well, Ruben, that's an excellent point you made. And that's the reality. We do have a paradigm shift moving forward. We see that. And the council, I mean, the Board through André, our Chairman and other Board members have brought into the company set of mine and an idea to work more actively. André has worked more actively and has tried to dive into the accounts to precisely understand where we can look for better efficiency. And this has helped us greatly to, quite frankly, reflect upon the status quo. This is a big company, an open company, open market company, we needed a more regional perspective. André has brought this and has brought details on prices on the number of 1,000 bags or if you should hire a truck driver or should buy the truck in itself. I mean, it's a more regional view, a more precise view on how the operation really works. And bringing this perspective into the company, into the Board, once again, helped us to reevaluate our paradigm here. In the past few weeks, in spite it's a short period, it feels like it's longer than that and has helped us to move towards this new pathway. It has helped so much, and it's a present management. As I said, it is -- I mean, for those who are in retail, they like to be -- to understand about the operation on the store operation, how cost management, they go into detail. This has helped us enormously, and this will keep us helping us and -- I mean, moving forward, too. Regarding your question, Ruben, on administrative costs, I believe that was your question. Let me remind you that we made a very important reduction movement in the headcount by the end of last year and the beginning of this year. And we have this on an annualized basis in a savings of BRL 100 million. And recently, we have complemented this action with a reduction of over 700 people, especially in the head office here. And this may bring BRL 90 million, additional BRL 90 million and a combined effect of these 2 movements in annualized result of BRL 190 million. Let me remind you all that we are coming from a very large company some years ago when we had large supermarkets, we had almost BRL 90 billion in turnover. We are still a very great company, BRL 20 million in turnover but we need to adapt to the new phases of the company with its specific needs of this company. So this is a movement we have been implementing. And in a way, it looks like it was already cut and it has been cut in the past few years. But when we look in detail, we always find new things we can do and many of them, we will see in this BRL 450 million as we have set as a minimum target for 2026. Operator: Next question comes from João Pedro Soares, Citi analyst. Joao Pedro Soares: Just a quick question, just to guide us. Now looking into these additional credits, if we consider them in terms of remaining contingency and how much of this in terms of billions of reais, how much of this is interest on fines? And if we can think of this activation of BRL 400 million in tax credits, how much we could look into realistically speaking in terms of you paying? Maybe you won't need to pay this fine on this interest rate, you may renegotiate that. If possible, can you discuss this? Rafael Russowsky: That's a sensitive matter because we talk about very significant amounts which change or have the potential of deeply changing the perspective -- the company perspective from now on. But what I have said in the past earnings calls and in meetings with investors and analysts is that, we have tried, and this is a priority given to us by the Board. We have looked for a solution for BRL 40 billion -- almost BRL 15 billion that we have in terms of federal contingencies in the company. And to remind you all, this is -- we have inherited this. Well, I just mentioned the size of the company, and this comes as a legacy of the different changes in the company, changes we have gone through in the past few years. And then we kind of inherited this gigantic contingency that we're trying to -- been trying to solve. But once again, this is a top priority for the Board, for the company as a whole, for the investors as a whole. We have actively trying to find a solution for that. And as I mentioned, we have active discussions with the PGFN but it clearly depends on a hard discussion. PGFN, let me tell you, this is a group of people who are extremely serious people, extremely competent people. They know -- they deeply know tax issues on the companies and they understand the importance of companies in the market, in the ecosystem where they operate. They understand the social importance of companies. So they are pretty sensitive to these matters. And what I can tell you is that, of all of these people we have interacted with in these meetings is that they are highly competent and they deeply understand these issues and the importance or how important it will be for us to solve these issues. To tell you about fines on interest rates, the interest, they represent or they account for 70% of the total contingencies we have today. Why? Because when these fines or these penalties are applied, they usually are applied with a fine or it can be an aggravated fine, a simple fine or an aggravated fine, varying between 75% to 150% of the original value. So we start with inflated amounts much higher than the main or the original value that is owed. Also, these discussions, these disputes, they take years to reach a solution. And most of them, they rely on SELIC annually on the principal amount. So these amounts are updated. -- significantly, too. So to answer your question objectively, nearly 70% of the amounts represent fines and interest, and we have been actively worked towards a solution for that. We do not have any specific timing. That's a long discussion, tough discussion depending on laws and understandings. But what I can repeat here is that, the people we have discussed and talked with in this meeting, they are highly competent professionals and they understand this and that within the legislation, within the law, they have a constructive perspective towards finding solutions for these measures. Operator: Next question comes from Andrew Ruben from Morgan Stanley. He's an analyst of Morgan Stanley. Andrew Ruben: I'd just like to get a bit deeper on the comments on competition, specifically when you consider the different segments, different consumers with Pão de Açúcar versus Extra versus Proximity, how the competitive backdrop varies between the 3? And again, just your outlook for how that's going to evolve. Rafael Russowsky: Thank you, Andrew, for your question. Well, competition, the competitive backdrop is what you can see in the results that are being reported by the companies. This is a moment in which consumers, they suffer more pressure. They are more selective consumers now. We have sustained interest rates that are extremely high for several months for a very prolonged period. And even if Brazilians are used to -- I mean, unfortunately, Brazilians are used to such high interest rates. But there comes a time in which the debts in the credit cards, they accumulate and it happens pretty quickly. And then it has a higher impact on the appetite of the consumers. What I can tell you about our business is that, we have same-store growth, Pão de Açúcar growth around 3%. It's superior growth if compared to other competitors, especially public competitors. We have seen a growth of Extra Mercado of 5.5% also on same-store basis, in Proximity 2.8% growth. So this shows our multi-format strategy has prepared us really well to face scenarios like this. We can capture these changes in customers in each of the banners -- in each of these groups of more high-end people or consumers that look more towards price, so we can work and capture these movements in a competitive manner. But what we can show based on this growth movement we have seen in this quarter is that, precisely, we have a migration of more premium basis into the more mainstream basis. So we see this difference of growth. If we compare the premium banner Proximity, most of it, is also a premium banner and is also included into more high-end neighborhoods. And also Pão de Açúcar, which is a premium banner, and we see the growth of these 2 businesses. This is a little lower to the growth we see in mainstream outlook that can capture this when we have more focus on price and more competitiveness, it captures better. So this is what we see in terms of movements. We hope all of us, we hope that there will be a change in the economic scenario turning point that we can change the interest rate outlook, so we can find the balance again among this clientele, this customer base, which is divided into these 3 main form, the 3 main banners we operate. Unknown Executive: Just an information, an additional information on market share. It's also important to highlight that we see premium market share, 0.6% drop in 12 months according to Nielsen data. So we have seen this Pão de Açúcar value proposition and Proximity value proposition in spite of this more challenging scenario of the market. But -- and also the Proximity segment, we still continue to gain market share in the segment, 1.6 percentage point when we consider this perimeter of smaller supermarkets here in the city of São Paulo. So you asked about the competition, and we see that we have in this premium and Proximity strategy, a significant advance as well as what Rafael talked about Extra. Operator: Our next question comes from Nicolas Larrain, JPMorgan analyst. Nicolas Larrain: I have 2 questions on my side. First is the efficiency plan. The BRL 450 million already include the BRL 190 million from the first round and the second one that you are announcing for the third quarter. I would also would like to know about the working capital. You said there's room for improvement. Could you help us understand to quantify how many days would improve so that the cash flow conditions would improve? Rafael Russowsky: Thank you, Nicolas. Let me make it clear. There are 2 moves that were implemented that will cause impact as of this year. Last year is the first move amounting to BRL 100 million, and this is not in the efficiency plan. The other move, which is much more recent that took place in the past 2 months, especially, there is an impact. And this amounts to BRL 90 million. And this is the objective answer to your question. In relation to the working capital, maybe we had mentioned this before, but today, we run the operation. Well, when you look at the average with an inventory of BRL 1,850 million. So we have a big dispersion of store per -- of inventory per store. There are some stores that operate with a very much more optimized inventory level with the number of days much more significant than the average. We operate at an average of about 42 days, just to make it recorded here. But there are some stores that operate at 60 and some stores operate at 35 and maybe even less than those. There are some Proximity stores that have been recently opened, and the inventory level is 0. So as to say, what I mean to say is that, the inventory is very optimized. All the goods are on the shelves. So when we look at all the parameters that define the ideal inventory level, we should operate at an inventory at about BRL 1,550 million. So there is an effort underway. And on this quarter, we see the results as a result of the plan of really going to an ideal inventory level in a more direct way. Our plan is to search for the improvement in the inventory levels on average. Of course, year-end inventories are higher. But on average, BRL 1,850 million and we want to operate at about BRL 300 million less. We have BRL 40 million for each day in inventory. So we can go after something like 2 or 3 days to improve the average. And this is something that is feasible considering all the exercises, all the efforts we have been putting in, in addition to what we have already announced and disclosed with you for this quarter. Operator: Our next question comes from [indiscernible], Bank of America analyst. Unknown Analyst: I have 2 questions on my side. The first one is about the strategy for assets for sale. You mentioned the Proximity in the operations. How are you considering assets for sale of stores or any other type of assets? My other question is related to -- I would like to understand how can we think about the level of B2B dimension. Rafael Russowsky: Perfect. Okay. Sale of assets. We have a commitment of selling some assets, particular assets stores or other assets. There's a willingness to sell some specific assets, more relevant assets, and we have made headway in this front, and we are going to bring information to the market at the right time. But we have a very well-defined pathway for the completion of a more significant transaction. I hope that this will happen in the short-term. And I'm being cautious enough to say what I can say without disclosing too much information about this transaction. And this is a point we are after. There is another initiative. Maybe I made some comments about it in other calls. For example, we have a project to sell or we would like to have a broker, a captive broker for us. We buy lots of insurances, collaterals and other property insurance policies, and we buy insurance of more than BRL 200 million. And we pay commissions for different brokers who help us in transactions, Willis, Aon, and other different insurance companies. They are our partners. What the European-American markets do? They do something that they refer to as cap insurance. So I establish a partnership with a broker, and we have an exclusivity agreement. And from this transaction, I may sell my exclusivity of brokerage activities. And with this movement, I can have 2 results -- 2 financial results in addition to other good results as well. The first one is with the upfront, for example, we have sales of financial services operates in a very similar way in terms of business. We sell the exclusivity, and we can anticipate some amount of present value. And we receive an amount because of this exclusivity point. And I create a system where I pay commission to that new group that was established, and I'm part of that group. So part of the commission that I pay will come back to me. So what is a center of expenses will be transformed into a center of revenues. So this is something we are also considering. And we are -- if everything goes well, we are likely to disclose to the market what we have done. In relation to allies, allies is not the core of our business. Our core is retail. Aliados is a B2B transaction considering commercial representatives to small merchants. And it's still an operation which is focused on our negotiation capacity. And considering the competitive that we see, especially in the retail market and B2B in general, we see that this competitiveness reflected in our own business of Aliados. So what's the purpose? The purpose is to take advantage of this channel as a potential possibility to reduce costs. And this is what has been happening in the past few periods. And considering the competitiveness and the reduction in the sales level, we understand that this is a more competitive business. So we are likely to have a more expressive reduction up to the end of the year in the line -- along the lines of what we have seen along the year. But next year, we are likely to have more stability in this business. Of course, in the beginning of last year, when we prepared the budget for this year, we didn't have back then the visibility of all those movements of competition that we experienced this year and the impact of Aliados as a result of the higher competitiveness, especially in the B2B and the retail market. But this is what happened along the year. So we expect that this is going to be leveled off up to the end of the year, but we keep on watching the movements in the market so that we can understand what's going to happen next year. Operator: The Q&A session has come to an end. And now I would like to turn the floor back to Rafael for his final remarks. Rafael Russowsky: Thank you once again for being here in our conference. Well, we are now entering the 2 most important months in retail. 30% of our total sales are made in this quarter and with the end of the year approaching. We are confident in the value proposition we've built in our different formats and different labels to meet the needs and requirements of our consumers and achieve an expressive results in the next quarter. Before I close, I would like to thank the entire team that remains committed and focused on delivering the strategic plan we have developed and set out for this year. I reinforce my commitment towards working together with the support of the Board of Directors. They have been extremely important and supported us entirely in our actions so we can move forward with consistency and focus on long-term delivery. Thank you very much for your attention, and I wish you have a good day. Operator: So this video conference is here now -- is hereby closed. The IR team will be available to answer further questions. And thank you very much, and enjoy the rest of your day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning, and welcome to the Champion Homes Second Quarter Fiscal 2026 Earnings Call. My name is Keith, and I will be recording your call today. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to your host, Jason Blair, to begin. Jason, please go ahead. Jason Blair: Good morning. Thank you for taking the time to join us for today's conference call and review of our business results for the second quarter ended September 27, 2025. Here to review our results are Tim Larson, Champion Homes' President and Chief Executive Officer; and Laurie Hough, Executive Vice President, Chief Financial Officer and Treasurer. Yesterday, after the market closed, we issued our earnings release. As a reminder, the earnings release and statements during today's call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations. Such risks and uncertainties include factors set forth in the earnings release and in the company's filings with the Securities and Exchange Commission. Please note that today's remarks contain non-GAAP financial measures, which we believe can be useful in evaluating performance. Definitions and reconciliations of these measures can be found in the earnings release. I will now turn the call over to Champion Homes' CEO, Tim Larson. Timothy Larson: Thank you, Jason, and good morning, everyone. I'll talk more specifically about our results in a moment, but first, I will share some operational highlights from the quarter and how I believe executing our customer-centric strategic priorities helped us exceed expectations in Q2. Our strategic priorities will continue to provide the foundation for Champion's operational effectiveness in the near and long term. As I previously shared, one of our priorities is innovating and differentiated the products and services by customer segment and at the right price value. During the quarter, we continued introducing new home designs to provide a range of price points and value for today's customers. We have included examples of some of our latest products on our socials and an investor deck on our website. I continue to remain impressed by our team's ability to create stunning homes with relevant floor plans and features that are making new homeownership a reality for more consumers. Increasing awareness, demand and advocacy for our brands and homes is another strategic priority for Champion. In the quarter, we continue to advocate for the ROAD to Housing Act, which includes a specific title section that highlights Congress' support for off-site built homes. We are pleased that this bill has passed the Senate and on its way to the House. We will continue to monitor the legislation as it goes from the House to the President and then to HUD for implementation. On a local level, in New York State and as reported in September by the New York Times, Champion is collaborating with New York State Homes and Community Renewal as part of their affordable housing strategy, reflecting New York State Governor Hochul's 5-year plan to create or preserve thousands of homes statewide. The pilot program in Syracuse, New York demonstrates Champion's ability to provide affordable housing solutions with speed to market. The homes were installed on land provided by local land banks with the cost to build and install under $250,000 and taking less than 6 months to complete. This project reflects the momentum and increased awareness we are seeing across federal, state, and local governments and highlights off-site construction's benefits of speed, cost, and quality. Now I'll turn to the recent quarter's performance. Second quarter year-over-year net sales increased 11% to $684 million, and homes sold during the period increased 4% to a total of 6,771 homes. The increased sales through our company-owned captive retail stores and at independent retailers were supported by effective cost management, delivering strong gross margin and earnings growth in the quarter. Our teams continue to thoughtfully pace production with demand in each market. Manufacturing backlog at the end of September totaled $313 million, up 4% sequentially. The average backlog lead time ended the quarter at 8 weeks, which is within our target range. From a channel perspective, sales to our independent retail channel grew compared to the prior year period. We've been successful in adding independent distribution points in the quarter, and we believe the marketing support we provide our dealers, including digital capabilities are helping to drive success in this channel. At captive retail, sales increased versus the same quarter last year. We remain pleased with our acquisition of Iseman Homes, which helped drive this increase along with an increase in average selling price, which has been driven by our retail team's execution of new products and home features resulting in a mix shift to more multi-section homes compared to the prior year period and the sequential first quarter. Moving to the community channel. As expected, our community sales were down slightly in the second quarter versus the same period last year. Based on the balancing of inventory levels in this channel that align with moderating order rates and softening consumer confidence, we expect order and production rates in the community channel to be mixed and impact near-term sales. Sales through the builder developer channel grew in the second quarter versus the same period last year. We added several new customers in this channel and continue to see our pipeline grow. We take great pride in the work we do with builders, including providing education and support on the best practices to maximize off-site construction. I had the opportunity to see this firsthand at our builder event in Cleveland in September. Champion Financing continues to produce strong results and allows us to provide diverse financing options for our retailers and our consumers. Our retail loan programs are enabling our teams to connect buyers with the right home and the right payment that fits their needs. I'll now turn the call over to Laurie, who will discuss our quarterly financial performance in more detail. Laurie Hough: Thanks, Tim, and good morning, everyone. I'll begin by reviewing our financial results for the second quarter, followed by a discussion of our balance sheet and cash flows. I will also briefly discuss our near-term expectations. During the second quarter, net sales increased 11% to $684 million compared to the same quarter last year, with U.S. factory-built housing revenue also increasing 11%. The number of U.S. homes sold increased 3% to 6,575 homes compared to 6,357 homes in the prior year period. U.S. home volume during the quarter was supported by increased captive retail sales, including the acquisition of Iseman Homes. The average selling price per U.S. home sold increased by 7% to $98,700 due to changes in product mix to more multi-section units and increased pricing at homes sold through our company-owned retail sales centers. On a sequential basis, U.S. factory-built housing revenue decreased 2% in the second quarter compared to the first fiscal quarter. We saw a sequential decrease due to moderating sales volume in the community REIT channel and a focus on pacing production in certain markets as we move into our slower winter selling season. Manufacturing capacity utilization was 60% compared to 61% in the first quarter. On a sequential basis, the average selling price per U.S. home sold increased approximately 4% due to a shift in product mix. Canadian revenue during the quarter was $26 million, representing a 10% increase in the number of homes sold versus the prior year period, primarily due to an increase in demand in certain markets. The average home selling price in Canada increased 7% to $133,300 due to price increases and a shift in product mix. Consolidated gross profit increased 13% to $188 million in the second quarter, and our gross margin expanded to 27.5%, an increase of 50 basis points from the prior year period. The higher gross margin was driven by a higher percentage of total sales through our company-owned retail sales centers in the current quarter and the unfavorable purchase accounting impact in the prior year related to the increase in the carrying value of inventory acquired in the Regional Homes acquisition that did not recur in fiscal 2026. Gross margin increased sequentially from our first fiscal quarter and was higher than expectations, primarily due to lower-than-expected material input costs, including tariff impacts, higher captive retail ASPs and favorable product mix. SG&A in the second quarter increased $13 million over the prior year to $113 million. The increase is primarily attributable to higher variable compensation from higher sales and profitability, closing costs related to the previously announced plant closures and the inclusion of Iseman Homes, all partially offset by a $3.7 million gain on sale of one of our idled manufacturing facilities. The company's effective tax rate for the quarter was 23.6% versus an effective tax rate of 21.6% for the year ago period. The increase in the effective tax rate is primarily due to a projected decrease in tax credits due to the change in the new tax law. Net income attributable to Champion Homes for the second quarter increased by $3 million to $58 million or earnings of $1.03 per diluted share compared to net income of $55 million or earnings of $0.94 per diluted share during the same period last year. The increase in EPS was driven mainly by improved operating income. Adjusted EBITDA for the quarter was $83 million, which is an increase of $9 million or 12% compared to the prior year. Adjusted EBITDA margin was 12.2% compared to 12% in the prior year period. We anticipate near-term gross margin to be in the 26% range as we manage through cautious consumer sentiment and softer demand in certain markets. Variability in consolidated gross margin is expected quarter-to-quarter, reflecting shifts in product mix and the proportion of sales through independent sales channels and our company-owned retail sales centers. As we navigate the market, we continue to balance SG&A spend while continuing to drive our strategic growth priorities, including investments in people and technology. As of September 27, 2025, we had $619 million of cash and cash equivalents, and we generated $76 million of operating cash flows during the second quarter. In the quarter, we leveraged our strong cash position and returned capital to our shareholders through $50 million in share repurchases. Additionally, our Board recently refreshed our $150 million share repurchase authority, reflecting confidence in our continued strong cash generation. I'll now turn the call back to Tim for some closing remarks. Timothy Larson: Thank you, Laurie. We are pleased with our second quarter results and how they reflect the Champion team's unwavering focus on our customers and delivering on our strategic priorities. In our third fiscal quarter of 2026, we continue to navigate the dynamic macro and consumer environment with agility and steadfast execution. We are up against a unit sales shift from Q2 last year into Q3 due to the hurricanes in North Carolina and Florida, which will impact the comparable year-over-year sales. As we assess all of these inputs, we currently anticipate our third quarter revenue to be flat versus the third quarter last year. This continues to be an exciting time for Champion, and we remain confident in the strategy we're executing across our stakeholders as each directly aligns with the broader trends and policy changes that are in support of off-site built homes. Thank you, everyone, for tuning in today's call and for the Champion Homes team for their continued execution as we progress through this fiscal year. I look forward to updating you on the third quarter in early 2026. And now let's open the line for questions. Operator, please proceed. Operator: [Operator Instructions] And the first question comes from Greg Palm with Craig-Hallum Capital Group. Greg Palm: Congrats on the results. Tim, you broke up pretty hard, at least on my end when you were going into details about kind of community and builder developer. So maybe you can just go back to some of the comments and explain what you were seeing in those 2 markets specifically. Timothy Larson: Yes. As expected, community was down in the quarter as the community worked through some inventory and some softening in some markets. We certainly had some community operators up, but on the balance, it was down. And we anticipate some of that continuing in the near term. On the builder channel, that grew, and we continue to build the pipeline in the builder channel, which just reflects this emergence of that channel for us as we think about reaching more consumers through a different channel. So we're pleased with the progress in the builder channel. But those are the 2 things that we hit on those channels. Greg Palm: Okay. Perfect. And then the ASPs up, I'm just curious, can you break out the impact from both mix, singles to multi, but also more sales going through company-owned stores? And do you have like a percent of sales going through captive versus year ago periods or sequentially, just some reference point for us? Laurie Hough: Greg, so we had about 37% of our sales go through our captive retail stores versus 34% roughly, give or take, last year and in the first quarter. So that pull-through through captive retail was significantly higher for us this quarter than we've been seeing. As far as multi-wide and single-section homes, we don't disclose that publicly, but we have seen, over the last couple of quarters, an increase in multi-section. So sequentially, our ASPs are up primarily because of that mix. Greg Palm: Okay. And just any thoughts on sort of what you're seeing this quarter or expectations in terms of the mix of units going through captive, whether that is consistent or changes at all? Laurie Hough: Hard to say what that's going to be from quarter-to-quarter this early in the quarter, just given timing of closings and weather-related events and so forth. But we do expect pricing generally to be impacted more by mix than by price actions. Operator: And the next question comes from Daniel Moore with CJS Securities. Dan Moore: This backlog, despite the choppiness, held up nicely and reflect including 3% or 4% growth in shipments. Just maybe talk about the direction of how orders are trending thus far as we look into October and into early November. And I guess, I appreciate the color on sales for this quarter, flat year-over-year. Where do you expect to kind of maintain current levels of production? And are there maybe regions where we're pulling back a little bit just as we get into the seasonally slower period? Any color there would be helpful. Timothy Larson: Yes. Through October, we were hearing good reports of traffic and some order encouragement, but that is balanced against the year-over-year impact I mentioned with the shift from Q2 to Q3 last year. In terms of the production approach, we certainly are doing that plant by plant, and we look at that region market and pace the production rates accordingly. But obviously, you see our backlogs were 8 weeks, which is across the board. And so some markets, we have opportunities to work through that and others are a little bit lighter. But ultimately, we grew backlog sequentially. Obviously, it's down year-over-year, which also is what we factored into our view for Q3. So on the balance, I think the team is doing a really good job being nimble in each of those markets and executing our playbook accordingly. Dan Moore: Got it. And then piggybacking on Greg's question, crystal ball it a little bit further, but what are you hearing from both sort of REITs as well as builder developers as we think about kind of turning the calendar to '26? Are we in kind of wait-and-see mode, waiting for rates to come down? Is there a talk of more expansion given a little bit more maybe stability and visibility? Just -- again, I know it's very, very early, but what are you seeing there in terms of their midterm plans? Timothy Larson: Yes. I'll start with the builders. Given that channel is a smaller percent, we certainly see continued growth in that channel based on the pipeline that we have. And what we're encouraged by there is we had an event in Cleveland, where we brought a number of builders in from around the country that are either in-flight projects or potential new projects. And they're encouraged about the progress that they're seeing, whether it's zoning support or also what they've heard from our best practice projects around the country. So I think we're going to continue to be able to have that be a strength of ours as we go into the upcoming year, albeit within the total number of percent of our total business. On the community side, I mentioned in the near term, we anticipate some moderation there, and that really depends on the community operator and also where they are in their cycle. So I think we're pretty balanced in terms of our thought process with community. And that as we go into next year, it really is going to be term different factors, ultimately the end consumer. So if we see some more strength at the end consumer, then that obviously feeds all the way up through the community and the REITs. But we did anticipate some of that slow down a bit in the community channel for the quarter, and we saw that, and we see some of that in the near term. But I think that's more tied to the general market, and there's certainly going to be opportunities for some community operators depending on their project flow. So that's why we're taking the balanced approach relative to that channel. Dan Moore: Got it. Last for me. You mentioned the ROAD to Housing. A lot of talk lately by investors about potential benefits of specifically removing the chassis requirement, another potential legislation. I guess you mentioned the -- it's kind of moving past the Senate, moving to the House. What are your thoughts in terms of where you see the most potential direct impacts? And how do you think about the magnitude of the potential benefit of some of this legislation? Timothy Larson: Yes. I think we look at it from a macro perspective of what doors can it open up in municipalities that previously were more restrictive. The second piece is what can we do from a product perspective, whether that's 2-story as well as some different elevations that again open up the market. That's all dependent on how long it takes to get through the next phase of legislative process and then ultimately through the HUD process. So we're certainly anticipating those elements and being prepared for that. But I think it also speaks to a broader trend that we're seeing around the overall off-site build category. There's more visibility for it. There's more awareness that certainly get more attention at the legislative level. And I think that's from a longer-term trend, a positive for the industry. And so our strategies, the 5 that I've laid out, are really geared towards being in a good position to execute on those opportunities as they come about. Operator: And the next question comes from Phil Ng with Jefferies. Philip Ng: Congrats on another strong quarter in a tough environment. If we think about fiscal 3Q, Tim, should we expect ASPs to be fairly stable sequentially? I know mix is going to be a swing factor. But if ASPs are pretty stable and you're guiding to flat sales would imply volumes down, call it, mid-single digits in 3Q, which is a noticeable step down from the first half run rate. So I know there were some timing nuances at play, but anything else to call out where you're seeing trends soften a bit? I know you've given us some color on REIT and the builder side. But what about the retail side? So just kind of help us unpack the trends you're calling out for 3Q in particular. Timothy Larson: Yes. The year-over-year piece is really a driver from what happened last year Q2 from Q2. That's a key factor. And then the other piece is as far as the other channels go. So far, I said we're encouraged in October with our retail channels, but we've got a ways to go there. So at this point, we're balanced in terms of that. Because of the community impact, it's a significant percent of our total volume. That's a key driver. And then I would say in terms of the mix and pricing, what we saw this last quarter on the ASP was more mix driven from more single section to multi-section. That movement can happen -- change quarter-to-quarter just based on what's happened at the consumer level. And part of it is in this last quarter, we introduced more new products that were geared towards the multi-section. And so we had that initial response to those homes. So that balance is going to play out through the quarter. And I think that also speaks to the multi-section is a function of our consumer that may come from that single family or that new buyer. And at the same time, there's also a lot of affordability buyers that are focused in the market where you have single section. So some of that is in our thesis for the quarter. So I would say those are the different factors where we played into our view for the potential flat for the quarter. But ultimately, we're driving every day and going to do the best through the quarter through those execution priorities. But those are the key factors that drove into that. Philip Ng: Yes, that's helpful perspective. I mean you called out some of this choppiness in the REIT side already. I mean it sounds like more of the same, but I don't want to put words in your mouth. And then October trends for retail, pretty similar to what we've seen last quarter. Timothy Larson: So far, we're encouraged by both the traffic and the orders, but the traffic is a leading indicator. So we need to see that play out with the consumer in the upcoming months. And yes, the choppiness in the REITs, I mean we've got certain REITs that are growing, others that are holding back a bit. So I think that's part of where we factored in that balance. Philip Ng: Okay. And then I appreciate you don't have a crystal ball on the legislation front, but the ROAD to Housing Act is certainly very encouraging. It's out the door with the Senate already. The House obviously needs to mark up their version of the bill. But do you have any insights if there was any large differences in terms of how they're thinking about the opportunity in the bill that they're tackling? Any nuances with government shutdown in terms of timing? I know there is a steel chassis element, which could reduce the cost by $15,000 on a list price of ASP in the $100,000 range. But any other pieces that we should be mindful of where it could really reduce the cost for the end consumer from an affordability standpoint? Timothy Larson: Yes. I think in terms of the legislative process, there is some impact, obviously, with the shutdown, but there was a positive outcome in the Senate, which I think gives a good indication, plus you've seen a lot of the noise and chatter and positivity around the need for affordable housing. So I think that bodes well. In terms of some of those other dynamics in terms of the cost, there's going to be some elements of that. But what we're looking at is how does it open up the broader industry with zoning and more adoption and then how do we think about product. And so those are going to work through. There'll be adders, deleters in terms of cost as you think about the -- to create a home that really works well with that approach. But net, at the end of the day, it's going to be the price value to the consumer. We're already at a good price value to the consumer advantage. So I think it's more about bringing in more customers is the main goal. And then where we do have opportunities to get that to consumer, we will. But ultimately, there's going to be some other product innovation that comes out from it. And certainly, from a transport perspective, you're not leaving the chassis there, so you're going to get some recycling benefits from the chassis in terms of that element. So those are all factors that I think will bode well for the opportunity if that comes together. Operator: And the next question comes from Matthew Bouley with Barclays. Matthew Bouley: I want to stick with the ROAD to Housing as this is clearly progressing. My question is, what are you doing to kind of get ahead of these potential changes, whether it's the permanent chassis or otherwise? Kind of what investments might you be considering in your own manufacturing or transportation? What do you think you need to be more nimble about this if it does happen? And I'm also curious if the industry is advocating for any changes on the financing front as well. Timothy Larson: So in terms of the readiness for it, our product development teams are always evolving, innovating, come up with new products that's been helping us here through the year. So that's part of the process. And then we own our own transportation company and Star Fleet. So the benefit of that is we can directly make moves there that are necessary to support the change. The reality, though, is we'll have to see how long it takes to get through the legislative process and thus, you have to have HUD to put it in implementation. So there's those factors in terms of timing. So I would say that's kind of an approach, the balanced approach we have getting ready for it. And we do -- I think we've got the time to do it the right way. Matthew Bouley: Okay. Got it. Secondly, the captive retail and the mix to multi-width and, I guess, the higher like-for-like prices as well. I mean, it's obviously a tough consumer backdrop out there. I think mix and price is probably not something you're seeing on the site-built side right now. So I'm curious if -- from your perspective, is this more just, as you mentioned earlier, just the tough affordability out there that you're sort of potentially drawing buyers from site-built into MH? Or was there kind of a previous opportunity in your product that was available out there and you just kind of reached more for it? So any additional color on that? Timothy Larson: Yes, exactly. There really are 3 things. In our captive retail stores, we've mentioned, we didn't take price for a while. And so there was an opportunity but the larger piece that hit this last quarter was the shift to more multi-section and that relates to the new products we introduced that certainly are more of a fit for the buyer that's looking for more space, more square footage. And yes, you're right that when we bring in new buyers to our category, some of those new buyers are in that segment that's looking for those larger homes. But to your point on price point, the third piece is that we're already relatively a less price point to site built. So even though we have some gains, we're still much more affordable given our wholesale price point. So it's those factors that are really driving that. Operator: And the next question comes from Mike Dahl with RBC Capital Markets. Michael Dahl: Tim, just to add one more on to the ROAD to Housing, obviously, very topical. I believe there's a part of the permanent chassis discussion is that there would be a voluntary opt-in from states, and so you could have a state-by-state approach to whether they're opting into that chassis removal. So I was wondering if you had any insight into kind of what that would look like. And I guess the basic question is like hypothetically, let's say that this were to get passed by the end of this calendar year, how long do you think it would take to get some of the things like the space on board, the fleet and logistics and product mix? Is this a calendar '26 impact? Or should we really be thinking about this is all great, but material impacts maybe still a couple of years out? Timothy Larson: Yes. Great question. In terms of the timing, that's what I was referencing in terms of the HUD implementation, how long does that process take? And again, we're assuming that it gets through the legislative process. So I think it's fair to say there is a longer runway in that regard. What we are seeing, though, is as there's the communication about this, more states are engaging in terms of understanding how can off-site built homes be a bigger solution for affordability. I referenced in my remarks the example in New York. And so I think we get the benefit of that more in the near term, but the full benefits are going to take some time in terms of the rollout that we talked about. Michael Dahl: Okay. Got it. And then I guess shifting gears back to the near term. So I think previously, you were talking about 25% to 26% gross margin being the near-term range. Now it's about 26%. So be at the higher end of that. What are the major moving pieces? Is it really kind of the cost dynamic being less bad than feared or just -- or product mix? Can you help bucket out like what exactly is leading you to kind of the modestly higher near-term range there? Laurie Hough: It's quite a few things, Mike, actually. As you touched on, certainly lower material input costs than we expected, including the impact of tariffs. So we had mentioned previously that tariffs were estimated to be about 1% of material costs. That came in about half that this quarter. We do expect that to increase as we go into the third quarter, the impact from tariffs, but the team is still doing a really good job in mitigating those. We're also seeing the higher captive retail ASPs as we've been talking about, primarily due to product mix. And then that product mix component was actually a large piece, especially this quarter with the 37% going through captive retail. So it's a mix of all 3 of those items that we expect to continue. Michael Dahl: Okay. And -- or if I could just sneak a follow-up in, then the sequential decline versus 2Q, how would you characterize the drivers of that? Laurie Hough: Yes. It's going to be the higher costs from tariffs, as I talked about and then as well as just the slower winter selling season and the cautious consumer confidence coming into that season, coupled both together. Operator: And the next question comes from Jesse Lederman with Zelman & Associates. Jesse Lederman: Quick one on the tariff-related impact. You noted about 0.5% increase from tariffs that you expect to rise. Do you expect it to rise to the previously articulated 1%? Or do you think it will rise a little bit higher than that? And is there any impact from Canadian lumber tariffs on Canadian lumber? Laurie Hough: Yes. So we expect it to be in that 1% of material costs in the third quarter and going forward. And yes, we factored in the additional 10% on that countervailing antidumping duties in Canada. Jesse Lederman: Got it. On the revenue front, on the last call, I think that was in early August, you had 1 month of the quarter. You noted orders were tracking lower than in the prior year. So just curious, given the very strong results from a year-over-year perspective through the balance of the quarter, what changed over the subsequent couple of months relative to your expectations? And how have those kind of indicators been tracking as we continue on here into early November? Timothy Larson: Yes. As we mentioned, the community channel is consistent with what we anticipated. The 2 retail channels, independents and captive, performed stronger through the quarter and then our builder channel as well, as I mentioned. And so those contributed to the stronger performance. And then the shift to the multi-section was another driver. When you launch new products, you see what's the uptick going to be, and there was really strong response to those new products during the quarter. And so I mentioned in October so far, we're encouraged by the traffic and the early orders, but those need to play out through the rest of the way, and we're watching those in each of our channels very closely, but we do expect the community still to moderate. Jesse Lederman: Okay. So it sounds like the consumer got a little bit stronger as you went from July to August and September, and you're seeing a little bit of that continue. Does that sound about right? And perhaps some of the top line, especially from an ASP perspective, the catalyst there was maybe some of the new multi-section products. Does that all sound right? Or is there anything you'd change from that summary? Timothy Larson: Yes. I would say in the multi-section products for sure. I think in terms of the consumer, that certainly is going to be retail location by retail location, geography by geography. And so we're watching that closely. We certainly see some positive momentum in some of the markets for the new products that we're driving, but there's other markets that are not as strong. So I think that's just part of the reality of today's consumer depending on where the geography is and some of the key drivers. But I'm encouraged by the new products that we're coming out with because we've talked a lot today about multi-section, but we also have really compelling offerings on that entry level, that single section, and those are key in those markets where that's the primary buyer. So I think your assumptions there make sense, Jesse. And I think ultimately, it's the balance of that playing out through the rest of the quarter, and we'll update you that in January. Jesse Lederman: Okay. Last one for me. You touched on some perhaps market-related differences. Could you maybe expound upon which markets have been maybe particularly strong and others, even if you could summarize by region, if that's a better characterization, which have been a little bit weaker? Timothy Larson: Yes. So the Northeast and Southeast this last quarter were the stronger markets for us from a geography, some moderating in the West. I previously mentioned the West had been stronger. I think on a quarter-to-quarter basis, you're going to see some shifts depending on if there's larger community orders coming in, in those markets and also the consumer dynamic. But the Northeast and Southeast were stronger for us and then some moderating in the West. And then you can see the national data in some state by state, but we certainly are pleased with the progress in the Southeast, which is where our strongest retail presence is. Jesse Lederman: One quick follow-up on that, if I may. What do you think drives the stronger performance? Do you think it's inherent demand from the consumers relative to the products you have available maybe at retail locations in those markets? Or do you think it's supply driven and some of your stronger markets have the least amount of supply, whether that's entry-level new homes or existing home inventory or something like that? Do you think it's kind of demand related or supply related where you may be seeing some regional differences? Timothy Larson: There certainly is the demand element in terms of where the consumer is at in those particular markets. And as we introduce the new products, we can pull in more of those consumers. So that would be demand driven. There's also a channel element relative to where we are across our various channels. So if we've got a builder project that's advancing, that can drive that market for in a window. And then we've talked about the community. So it's a combination of those factors, the channel factor and those key customer buyers and then also the end consumer on the demand side. Operator: And this concludes our question-and-answer session. I would like to turn the conference back to Tim Larson for any closing comments. Timothy Larson: We appreciate everybody joining this morning and your continuous interest in Champion Homes. We look forward to updating our progress on our next call. Thanks, everybody. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Good morning, and welcome to the Iron Mountain Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mark Rupe, Senior Vice President of Investor Relations. Please go ahead. Mark Rupe: Thanks, Chad. Good morning, everyone, and welcome to our third quarter 2025 earnings conference call. Joining us today are Bill Meaney, our President and Chief Executive Officer; and Barry Hytinen, our Executive Vice President and Chief Financial Officer. After our prepared remarks, we'll open the lines for Q&A. Today's call will include forward-looking statements, which are subject to risks and uncertainties. For a discussion of the major risk factors that could cause our actual results to differ from these statements, please refer to today's earnings materials, including the safe harbor language on Slide 2 of the earnings presentation and our annual and quarterly reports on Form 10-K and 10-Q. Each of these items as well as reconciliations of non-GAAP financial measures referenced during this call can be found on our Investor Relations website. With that, I'll turn the call over to Bill. William Meaney: Thank you, Mark, and thank you all for joining us to discuss our third quarter results. We are pleased to report that our team has delivered another quarter of record financial performance and double-digit growth. We achieved an all-time high for quarterly revenue, adjusted EBITDA and AFFO, driven by strength across our business. Revenue increased 13% to $1.8 billion. Adjusted EBITDA grew 16% to $660 million and AFFO increased 18% to $393 million. Our exceptional performance in the third quarter is a result of our team's unwavering focus on meeting our customers' needs with innovative solutions and consistent execution of our strategic priorities. We are delivering revenue growth in our physical storage business, achieving record revenue in Q3, driven by consistent volume growth and higher retention rates as well as revenue management. Our Digital Solutions building business is building momentum. We are winning new contracts with our AI-powered digital solutions across industry verticals and drove record revenue and continued double-digit growth in the third quarter. We are capitalizing on robust data center industry demand with 33% revenue growth in Q3 and a strong outlook that supports more than 25% growth in 2026 based on our currently signed leases. Additionally, we saw a nice uptick in Q3 leasing and into Q4, which together with our pipeline, puts us in a good position to execute against our portfolio capacity of 1.3 gigawatts. We are driving substantial growth in our asset life cycle management business, increasing revenue with existing customers and winning new business through cross-selling, resulting in 65% reported and 36% organic growth in the third quarter. And we expanded profitability with adjusted EBITDA increasing 16% and margin improving 110 basis points as compared to last year. This clearly shows that we have strong momentum behind our commitment to sustain industry-leading revenue and earnings growth. Our portfolio of growth businesses, including data center, digital and ALM drove 2/3 of our revenue growth in the quarter or 8 percentage points on a consolidated basis. This will remain an important tailwind going forward as the growth portfolio further increases as a percentage of total revenue, expected to be nearly 30% of total revenue exiting 2025. This is on top of the strength in our physical storage business, which is growing at a mid-single-digit rate and will contribute approximately 5 points of consolidated growth in 2025. The momentum across our business, as I just highlighted, along with our foundation of established relationships and trust with over 240,000 customers, comprehensive solutions offering, reputation for security and a global footprint firmly position us to deliver our growth commitment for the foreseeable future. Based on our strong outlook and excellent 2025 results, our Board of Directors authorized an increase of our quarterly dividend by 10%. Let me now share some recent commercial wins that illustrate the strength of our synergistic business model. First, in records management in Europe, we were selected as the single vendor for medical record storage for a hospital that has been a customer for more than 15 years, displacing a competitor. Additionally, we secured a new customer with a public sector entity that could no longer manage and store its records in-house. Both of these deals were attributed to our strong reputation for secure records management and our proven ability to provide efficient and cost-effective services. In our Digital Solutions business, we continue to win new business with our DXP platform. In late October, we successfully launched our Insight DXP 2.0 platform. The new platform offers enhanced content management and smart document processing, an easy-to-use secure platform with workflow tools and AI agents. This will allow the customer to make faster and more insightful decisions as well as eliminate obsolete and duplicative data to save costs. And as it relates to our digital award with the Department of Treasury, in September, Iron Mountain was awarded a new long-term contract for digitization services. This new 5-year contract with a value of up to $714 million expands our current scope of work subsuming the contract awarded to us in April. This is a significant win for Iron Mountain, and we are thrilled to continue supporting the United States government on this efficiency opportunity. We are currently executing under the new agreement and collaborating with the department on next steps whilst preparing for the high seasonal volume expected in the spring of 2026. Let me now turn to our data center business. The data center market remains very strong, and we have seen leasing activity and pipeline pick up as hyperscalers resume their focus on building out inference and cloud capacity. We leased 13 megawatts in the quarter, including a couple of larger enterprise deals with financial services firms. And in early Q4, a key hyperscaler leased our entire 36-megawatt Chicago site, transferring and expanding the customer's previous lease of 25 megawatts in London for a net incremental 11 megawatts leased. This is a great outcome for the customer who is looking to transfer to the Chicago market and for us, given the strong interest we have in the London location they are vacating. This London site has the power coming online in 2026. We have high confidence in sustaining our data center revenue growth with the levels we have achieved over the past few years. This is underwritten by our pre-leasing backlog, strong pipeline as well as 450 megawatts, which is available for sale and will be energized over the next 18 to 24 months. These assets coming online within the next 2 years have a collective capacity, which is the size of our current operating portfolio. The large and expanding pipeline for these assets is from hyperscale customers having the highest credit quality. Turning to our asset life cycle management business. As we previously shared, ALM represents a major growth opportunity for Iron Mountain. The market is very large and highly fragmented, and we are well positioned to capitalize on growth through expanding business with existing customers, gaining new customers through our cross-selling efforts and strategic acquisitions to expand our capabilities and geographic footprint. Our results in Q3 show that we are successfully capitalizing on this meaningful opportunity. And consistent with our strategy, in September, we acquired ACT Logistics, which further strengthens our ALM market leadership position in Australia. Let me now share some of our recent ALM wins that support our confidence in the long-term opportunity. A leading financial services company with more than 200,000 employees globally has selected Iron Mountain as its ALM partner for the first time, building on our decades-long partnership for Records Management and Digital Solutions. Our established relationship, strong reputation for security and compliance and global footprint was an important factor in winning this deal. And a global company headquartered in Germany has engaged Iron Mountain to support a key decommissioning and remarketing program across 6 data centers in the U.S., Europe and the Asia Pacific region. Iron Mountain has also provided records management, digital and data center co-location services for this customer over many years. We are pleased to extend our solutions, thanks to our ALM team's operational scale and robust sustainability reporting capabilities, which are a critical requirement for this project. This relationship demonstrates the power of our synergistic business model where we successfully cross-sold all of our key lines of business to a long-term customer. In conclusion, I am proud of the exceptional results our dedicated Mountaineers have continued to deliver in 2025 and what that means to our shareholders as we announced another increase in our dividend of 10%. As you heard today, our record results are a testament to our strategic focus on customer needs, innovative solutions and consistent execution. Our strong business momentum continues to build and a tremendous growth opportunity continues to lie ahead of us. We are just scratching the surface of the $165 billion total addressable market for our services. With that, I'll turn the call over to Barry. Barry Hytinen: Thanks, Bill, and thank you all for joining us to discuss our results. As you've heard this morning, our team continues to successfully execute our strategy, driving strong revenue and earnings growth in the third quarter. We achieved record revenue of $1.75 billion, up $197 million year-on-year. This was an increase of 13% on a reported basis, 12% on a constant currency basis and 10% on an organic growth basis in the quarter. Total storage revenue was $1.03 billion, up $97 million year-on-year and up 9% on an organic basis. Total service revenue was $721 million, up $100 million from last year and up 10% on an organic basis. Adjusted EBITDA of $660 million was an all-time quarterly record and expanded $92 million or 16% year-on-year. This was $10 million ahead of the projection we provided on our last call, driven by operational strength and productivity across the business. Adjusted EBITDA margin was 37.6%, up 110 basis points year-on-year, which primarily reflects improved margins in our data center and ALM businesses. We continue to be pleased with our team's ability to deliver meaningful operating leverage, achieving an incremental flow-through margin of 47%, consistent with last quarter. AFFO was $393 million, up $61 million. This was also an all-time quarterly record and represented strong growth of 18% as compared to last year. And AFFO on a per share basis was $1.32, up 17% to last year. Now turning to segment performance. In our Global RIM business, we achieved record quarterly revenue of $1.34 billion, an increase of $78 million. RIM reported growth was 6%, including organic growth of 5% year-on-year. This was driven by revenue management, higher digital revenue and consistent organic volume. Storage revenue growth increased 5% on an organic basis and was up 6% absent a decline in Clutter revenue. As we discussed last year, Clutter's peak revenue was in the third quarter of 2024 before we began the actions to improve profitability. Global RIM organic service revenue was up 4.7% in the quarter, similar to last quarter, improving retention and consistent levels of destruction pressured revenue growth. All other services increased 7% on an organic basis, reflecting strong growth in our digital business. As it relates to the multiyear Department of Treasury contract, we recognized revenue of approximately $2 million in the third quarter and expect $4 million in the fourth quarter prior to building into tax season in the first half of next year. In the third quarter, we began to staff up to ensure we are fully ready to support the significant ramp in this contract. Global RIM adjusted EBITDA increased $29 million to $598 million, yielding an adjusted EBITDA margin of 44.7%. Turning to our acquisition in India. We are very pleased with CRC's performance with integration ahead of plan. In the quarter, CRC added $6 million to revenue, including $1.2 million to storage revenue, along with 7.4 million cubic feet of volume. For modeling purposes, it's important to note that while the margin for our storage business in India is similar to our margin in the U.S. and Europe, the price per cube is approximately 20% of our company average. As a result, the inclusion of CRC lowered our storage ASP by about 100 basis points in the quarter. Turning to our global data center business. Total data center revenue was $204 million in the third quarter, an increase of $51 million or 33% year-on-year. Organic storage rental growth increased 32%, driven by lease commencements and positive pricing trends. In the third quarter, new commencements were 3 megawatts. We renewed nearly 300 leases for a total of 11 megawatts. Pricing remained strong with renewal pricing spreads of 14% and 19% on a cash and GAAP basis, respectively. Third quarter data center adjusted EBITDA was $107 million, up $41 million year-on-year. Adjusted EBITDA margin was 52.6%, up 900 basis points from the third quarter of last year. Improved pricing, recent commencements and operating leverage were the key drivers of the margin expansion in the quarter. In the fourth quarter, we expect data center revenue growth in excess of 30%. We have high visibility to this forecast as we are commencing 36 megawatts of new leases. This will also drive meaningful EBITDA growth in the period despite beginning to lap the significant step-up in data center margin, which commenced in the fourth quarter of last year. Turning to asset life cycle management. Total ALM revenue was $169 million, an increase of $66 million or 65% year-over-year. On an organic basis, we delivered 36% growth. The strong performance was driven by our team's operational execution, particularly strong growth in our enterprise volume and component pricing trends. Our recent acquisitions are performing well and contributed $30 million to revenue. Regarding our acquisition of ACT Logistics, I should note this was completed in September and contributed less than $2 million to revenue in the third quarter. For modeling purposes, we expect the business will contribute revenue of approximately $7 million to our full year results. From a profitability perspective, our team drove expanded ALM margins in the quarter through improved operating performance across the business and acquisition synergies. Turning to capital allocation. We remain focused on growing the dividend and investing in high-return opportunities that drive double-digit growth while maintaining our strong balance sheet. In light of our performance in 2025 and outlook for AFFO, our Board increased our dividend by 10% effective with the January payout. This will mark the fourth consecutive year in which we increased the dividend and the third consecutive 10% increase. This aligns with our commitment to growing the dividend while maintaining a payout ratio of low 60s as a percentage of AFFO per share. In terms of capital investments, we invested $472 million of growth CapEx and $42 million of recurring CapEx in the third quarter. Turning to the balance sheet. With strong EBITDA performance, we ended the quarter with net lease adjusted leverage of 5.0x, in line with our expectations for both the quarter and year-end. Reflecting our strong credit profile, our team successfully raised EUR 1.2 billion in a considerably oversubscribed debt offering, achieving a 4.75% fixed coupon maturing in 2034. We appreciate the continued long-term support of our fixed income investors. And now turning to our outlook. With strong performance in the third quarter, we are well on track for the year and are pleased to reiterate our full year guidance ranges. For the fourth quarter, we expect revenue of approximately $1.8 billion, an increase of 14% to last year on a reported basis and up over 12% on a constant currency basis. Adjusted EBITDA of approximately $690 million, an increase of 14% to last year on a reported basis and up 12% on a constant currency basis. AFFO of approximately $415 million, an increase of 13% to last year on a reported basis and up 10% on a constant currency basis and AFFO per share of approximately $1.39, an increase of 12% to last year on a reported basis and up 9% on a constant currency basis. In conclusion, our team has delivered excellent year-to-date results, driving industry-leading double-digit revenue and earnings growth with record-setting performance across our business. We have strong momentum and significant long-term growth in front of us. I would like to express my thanks to our entire team for their best-in-class customer stewardship and commitment to Iron Mountain. And with that, operator, would you please open the line for Q&A? Operator: [Operator Instructions] And the first question will be from George Tong from Goldman Sachs. Keen Fai Tong: I wanted to dive into your new $714 million 5-year contract with the U.S. Treasury Department. You mentioned expectations of high seasonal volumes in the spring of 2026. Can you talk more about the planned phasing of revenues, including whether the contract will ramp linearly across 5 years or whether it will be front-end loaded into 2026? William Meaney: George, thanks for the question. Yes, I think, first, we're really excited to have the opportunity to work for the federal government on this project for the IRS. And as you can expect is that it will be linear with slight growth as you go forward as people get added to the taxpayer role over that 5-year contract. So it isn't front-loaded per se. But there is a seasonality aspect to do with tax season, right, so which is generally in the spring for most people. So we do expect a ramp. And we've already started building the capacity, obviously, upfront in terms of putting the people through the necessary clearance process so that they are ready to go when the season starts. But I think first and foremost is the thing that we're super excited about. It's another proof point in terms of the technology that we've built with this DXP platform, which, as you remember, goes back to when we were the AI/ML partner of the year 7 years ago with Google. So to me, it's another proof point that what we've built really resonates with customers. And in this particular case, the IRS, which is very sophisticated on these types of things. Operator: And the next question will come from Eric Luebchow from Wells Fargo. Eric Luebchow: Great. I wanted to touch on the ALM business. It looks like you expect about $600 million of revenue this year. I think that's a slight uptick from what you guided last quarter. And I wanted to kind of break down what you're seeing on volume versus price. We've seen a pretty significant increase in memory pricing recently in the last couple of months. Just wondering if you're starting to see that flow through at all in your results and how that could potentially influence growth rates as we look forward into 2026. Barry Hytinen: Eric, thanks for the question. ALM continues to be very strong, as you point out. And I would say you're correct. We're expecting now for the business to deliver approximately $600 million. That is up some from our guidance last quarter. If anything, we were probably being a little bit conservative with the numbers last quarter in light of the growth trajectory the business has been on. But look, 36% organic growth, and we're expecting something in that same vicinity again in the fourth quarter. So very strong performance coming out of the team. And it is volume-led and it's also enterprise volume led, as I mentioned on the call. And I think that's the important part as we build the business that enterprise business, as you know, is the higher-margin business, and that's helping drive the improved profitability that we mentioned on the call and that you see in our results as well, Eric. You mentioned memory pricing. Certainly, pricing for some components on the data center decommissioning side has continued to rise. As you know, that can be very subject to change and really component by component. So we've seen some increases on memory. We've seen some increases on hard drives, but not everything is moving in the same, let's say, velocity. And as we get into next year, we'll be happy to update you on what we're seeing as it relates to commodity prices at that time. But we're basically using a current view of pricing for the fourth quarter as we traditionally do. Operator: And the next question will be from Tobey Sommer from Truist. Tobey Sommer: I was wondering if you could elaborate a bit on the data center pipeline and demand across both enterprise and hyperscalers as we've turned the page into next year. William Meaney: Thanks, Tobey, for the question. So first, as I said in my remarks, is we have seen -- in fact, we started seeing it even on the -- in August, as I pointed out on the last call, a shift back to our largest hyperscale customers back to inference and cloud build-out. And you could see that in our leasing both in the quarter and then as we ended Q4 with the leasing out the 36 megawatts in the Chicago site for a customer that was originally taking 25 megawatts in London. So we're starting to see definitely an uptick on that. And then more broadly, if I look at the pipeline that we're building for the 450 megawatts that get energized over the next 24 months, again, the depth of that pipeline and the number of our customers coming back to that, again, for cloud build out and inference is very marked versus the first half of 2025. Operator: And the next question will be from Brendan Lynch from Barclays. Brendan Lynch: I just wanted to follow up on the treasury contract. If I heard you correctly, it's up to $714 million over 5 years. Can you talk about what would get you to the high end versus what might be the low end of what you might be able to capture? William Meaney: Thanks for the question, Brendan. It's volume, right? In other words, we have agreed pricing with the treasury, and it just is dependent on the volume and which forms that they actually send to us. But I have to say is that we're obviously preparing for tax season. So the team has been working very closely with the treasury. And the feedback from the customer in terms of what we're able to do with our models has been very positive. Operator: And our next question is from Shlomo Rosenbaum from Stifel. Shlomo Rosenbaum: Bill, I just want to go back to some of the data center leasing. It's certainly heartening to see we're starting to pick up in terms of the rate of leasing from the last few quarters to what you saw a little bit of an improvement now. I was just wondering, can you talk about how much energy capacity is expected to be energized in the next 12 months that could really spur like the near-term leasing activity? I'm trying to figure out over here is, are we going to start to go back to those quarters where you had some really large leasing numbers in the near term based on some of the stuff that's going to be lit up pretty soon? William Meaney: Shlomo, thanks for the question. Yes. So I'm going a little bit maybe granular in the 450 megawatts that I said that gets energized over the next 24 months because I think that's really the capacity that people start focus on. If I even go a little bit deeper on that, in the next 18 months is 250 megawatts gets energized. And so there's another follow-on 200 megawatts the following 6 months for the total 450. And the reason why I'm parsing it out at 18 megawatts, if you can appreciate is that most of our customers are these -- the large hyperscale customers, which are almost a build-to-suit. I mean there's a customization on that. So it's really kind of the 18-month window up to a 24-month window that they look at because that's the time that's required to get the design to their specification and obviously construct. So to answer your question, yes, I mean, I think we feel really good over the -- as we enter into '26 and we look at the first 18 months, we have 250 megawatts that we can be in active conversations with our customers and deliver almost in their minds immediately. And then if you look 6 months beyond that, we're almost doubling that again with adding another 200 megawatts on top of that. And then if I take a step back, as we say, the 25% revenue growth next year for data center is already in the bag. I mean this is stuff that we've already contracted for and leased. And then if I look at that 250 over the next 18 months with another 200 to follow the 6 months later, the total 450 is we feel really good about our ability to be able to maintain that kind of revenue growth as we get into '27 and beyond. Barry Hytinen: And Shlomo, I'll just add a couple of more granular points to support that is the assets that we have coming on that are energizing are in some fantastic markets. If you look at what we've got in London, we have over 20 megawatts energizing soon. We've got Virginia. We have 28 megawatts. We've got quite a few megawatts energizing soon in Madrid, Miami, Amsterdam. So these are really Tier 1 markets. And then as you get to the outer time frame that Bill was speaking about, you get into some very large capacity in Richmond, which, as you know, is a significantly growing development zone as considerable capacity spills over from Northern Virginia into that market. The other thing I will just add is, as Bill was referring to, the backlog that we have for revenue even beyond 2027 is like $250 million of revenue that will be coming. That's just on the already pre-leased. So we feel like we've got a very good growth trajectory going forward for leasing, Shlomo. Operator: And the next question will be from Andrew Steinerman from JPMorgan. Andrew Steinerman: It's Andrew. Could you comment anything on kind of really forward-looking CapEx targets kind of multiyear? Obviously, you raised your dividend here. I'm just really thinking that in the data center industry, there's a real shift towards these more mega projects. And just wanted to know the CapEx approach in '26 and beyond you might be doing to prepare for those opportunities. William Meaney: Andrew, thanks for the question. So let me -- I'll start and then have Barry comment more from the detail in terms of what that means for CapEx. But I mean, to ask your -- the driver, I think, behind your question is, are we going to participate in these large language model campus build-out, the 1 gigawatt. And for sure, we look at large campuses, but our target focus is for the inference and the cloud build-out. Now that's not saying that on some of our campuses that we're looking at, say, north of 500 megawatts, could someone come in and say they want to develop large language models? Yes, that's a possibility. But we're not chasing that market because the nature of our customers and our relationships is really about building out cloud infrastructure and inference. Barry Hytinen: And Andrew, I would just add that while we haven't given guidance for next year, a couple of thoughts on capital. Look, as we continue to build out our pre-leased backlog, naturally, we'll be spending CapEx on that. And as we have a very forward -- very positive forward look on the pipeline for additional leasing, you should probably anticipate that our data center CapEx will continue to gradually rise some with that expectation on additional leasing. So we -- the key point, I think, is we really are building to pre-leased assets, right? We're not speculatively building. So it's capital that's going to very high-return contracts that we've already signed with -- that are very long term with some of the highest credit quality clients you can have. I mean, think about companies that have $500 billion or more market cap. Operator: And the next question will be from Kevin McVeigh with UBS. Kevin McVeigh: Great. The one example, I think it was a net 11 megawatts leased. I guess when a client shifts like that, I guess, what drives that decision? And given kind of how diversified you folks are, would you expect more of that going forward? I wanted to start there, if possible. William Meaney: Kevin, thanks for the question. It's not usual, but I have to say that we're always happy to do that because as you noticed that in the Wall Street Journal polling recently, we won the most customer-focused or centric company in the publicly listed companies in the U.S. And that's kind of a testament -- this is a proof point in terms of the way we work with our customers because this particular customer saw their loads shift and Chicago was a more important market for them. in the near future than London was. So we said, yes, we can accommodate that for them, and we were able to do that. So we had a very happy customer. I will say from our standpoint, it also was very good. I mean the Chicago market is a very interesting market, but we took a customer that was going to do 25 megawatts in London and upsold them effectively to 36 megawatts in Chicago. And then the space they're vacating in London in the slower state, actually is a very -- we have very strong interest in that 25 megawatts and always have. And the pricing has actually improved since they've shifted over to Chicago. So it's a win-win for everyone, but it doesn't happen often. But our -- we're very customer-centric as a company. So if we can help a customer in that way, then we do our level best to do that. Barry Hytinen: And what I'd add, Kevin, just to make sure we're -- you're clear on this is the client had not commenced in London, right? So we were still -- they are still in the process of building out that site. And so you wouldn't anticipate seeing this sort of activity on deployments that have already commenced in sites. And the other thing I'll just note is in light of the timing, it's a very good asset for us to be able to lease at higher prices going forward. Operator: [Operator Instructions] The next question is from Nate Crossett from BNP. Nathan Daniel Crossett: Just on the RIM storage business, can you comment on what you're expecting for volumes and pricing into 4Q and next year? Barry Hytinen: Nate, from a volume perspective, as you saw, our organic volume in physical storage continued to rise and very much in line with our trends of, I think it was 30, 40 basis points in the quarter. We continue to have a positive outlook for organic volume, and that includes next year and frankly, for the foreseeable future, our team continues to find ways to consolidate additional volume from our existing client base. Obviously, as you know, we win new clients, particularly in some of the emerging markets. And as we talked about so often, the volume that we bring in is very much an annuity stream. The average box is staying with us for nearly 15 years, and that has not changed. From a revenue standpoint, we continue to anticipate revenue management actions in that kind of mid-single-digit range. And that would be the case for the fourth quarter as well. I'll just note, we are now lapped over the Clutter consumer storage headwind. As I mentioned in the prepared remarks, that was the peak volume in the peak revenue in the third quarter of last year. The other thing I'll just mention, since it hasn't come up yet, but you asked about the quarters is we have assumed that FX is a little bit more challenging on a sequential basis as you've probably seen the dollar has strengthened recently. So that's embedded in our guidance as well, which I think speaks to the fact that we've got a very nice outlook in light of projecting 14% revenue growth in the fourth quarter. Operator: And the next question is a follow-up from Shlomo Rosenbaum with Stifel. Shlomo Rosenbaum: Barry, I just want to get into kind of the mix of revenue. Both storage and services gross margins were down sequentially. And I assume that it's mix because that's usually what's going on, but I want to ask if you can confirm that and just give us a little bit more detail on the sequential movement. Barry Hytinen: Thanks, Shlomo. Yes. So if I break it down between the 2, on storage, it's mostly about data center, particularly power. As you know, as our clients draw more power and commence, that's a pass-through. So we generate revenue, but we don't generate incremental profit. So if it wasn't for power, it would have been up actually. And so then the other thing that I should mention on storage is data center, as I've talked about before, is a lower gross margin for us on storage as a company. But as you know, it's a very accretive EBITDA margin, and the team is just doing phenomenally well with profitability in data centers. You saw the margins up to 52-plus percent. And that's also with the headwind of power, just as a reminder, on the EBITDA margin. On service, what you saw there in terms of the decline is, as you said, it's much about mix. It's all mix actually. So the ALM business continues to perform very strong as you saw the growth that we've been delivering both year-on-year and sequentially as well as digital. And as we talked about before, both of those are generally kind of lower-margin businesses for us than our average service. And lastly, I'll just point out with better retention rates, we have less permanent withdrawals and terminations. And that's a bit of a headwind to rate as well. But obviously, that's a very good story for the long term in light of seeing retention continue to rise over the last few quarters. Thank you, Shlomo. Operator: And ladies and gentlemen, this concludes our question-and-answer session and the Iron Mountain Third Quarter 2025 Earnings Conference Call. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Ardmore Shipping's Third Quarter 2025 Earnings Conference Call. Today's call is being recorded, and an audio webcast and presentation are available in the Investor Relations section of the company's website, ardmoreshipping.com. [Operator Instructions] A replay of the conference call will be accessible through November 12 by dialing 1 (888) 660-6345 or 1 (646) 517-4150 and entering passcode 96494. At this time, I will turn the call over to Gernot Ruppelt, Chief Executive Officer of Ardmore Shipping. Gernot Ruppelt: Good morning, and welcome to Ardmore Shipping's Third Quarter 2025 Earnings Call. First, let me ask our President, Bart Kelleher, to discuss forward-looking statements. Bart Kelleher: Thanks, Gernot. Turning to Slide 2. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause the actual results to differ materially from those in the forward-looking statements is contained in the third quarter 2025 earnings release, which is available on our website. And now back over to Gernot. Gernot Ruppelt: Thank you, Bart. Let me outline the format of today's call, which you can see here on Slide 3. First, I'll give you a brief overview of third quarter results, market trends and how we are executing on capital allocation. I will then hand over to Bart, who will cover the market outlook and update you on our financial and operating performance. Thereafter, I will conclude the presentation before opening up the call for questions. Turning first to Slide 4. We're pleased to announce our third quarter results, delivering adjusted earnings of $12.6 million or $0.31 per share. Earnings increased throughout the third quarter and into the fourth, driven by record volumes of refined product on the water. Our TCE performance remains exceptionally strong, defying seasonal norms. Rates have been firming throughout the year and into the typically stronger winter period at levels more than double our cash breakeven. Our MRs earned $24,700 per day for the third quarter and $24,900 so far in the fourth quarter with 40% booked. Our chemical tankers earned $22,600 per day for the third quarter and $22,200 so far in the fourth quarter with 35% booked. We took delivery of 3 modern MR tankers during the quarter. These were opportunistically acquired during a period of market uncertainty before the summer. Secondhand prices have been firming considerably since. These vessels have been capturing strong spot markets, notable fuel savings and increased our earnings power. Meanwhile, guided by our capital allocation policy, we have fully redeemed our 30 million preferred shares, further reducing our cash breakeven. And we are declaring our 12th consecutive dividend, consistent with our policy of paying out 1/3 of adjusted earnings. In addition, we are further enhancing the value of our trading book through high-quality long-term charter contracts. We recently fixed one of our 2014-built MRs for 2 years to an oil major at $21,250 per day. Looking ahead, markets are experiencing evolving product tanker demand, significant near-term disruption and tight supply-demand balances, as Bart will cover in greater detail. Turning to Slide 5, where we highlight our disciplined and deliberate approach to capital allocation. We continue to balance returning capital to shareholders with growing the business and reinvesting in our fleet, while maintaining low debt levels. As just mentioned, we are paying our 12th consecutive dividend. We fully redeemed $30 million of preferred shares, and we took delivery of 3 high-performing MRs. With that, over to Bart. Bart Kelleher: Thanks, Gernot. Turning to Slide 7 and the market outlook. Export volumes in refined product and transit reached record levels during the quarter, fueling robust product tanker demand. In addition, ample oil supply is driving strong refinery throughput and trading activity. At the same time, high crude fleet utilization is tightening supply across the tanker industry. Notably, 50% of the LR2 fleet is now trading in the crude market, up 23% over the past year. Turning to Slide 8, where we examine how geopolitical factors are creating further inefficiencies and favorably impacting the market. 16% of the global tanker fleet is now sanctioned, significantly reducing the pool of compliant vessels and limiting available supply. Looking ahead to the start of next year, the EU is further tightening restrictions, targeting products refined from Russian crude. The map on the lower right highlights one example of notably longer voyage distances that are likely to emerge. Meanwhile, rapid changes to geopolitical conflicts, tariffs and trade disruptions are driving increased market activity. Slide 9 highlights the favorable supply dynamics with positive trends on both ends of the age spectrum, an increasingly older fleet and a shrinking order book with decelerating ordering activity. Our favorite chart on the left illustrates the continued evolution of the aging MR fleet over time. The fleet is the oldest it's been this century. Ongoing regulatory uncertainties continues to limit ordering activity with the order book now representing just 13% of the fleet. Moving to the chart on the right, the older MR fleet approaching the scrapping window is 4x larger than the current order book. As a reminder, even if these vessels are not initially scrapped, their utilization levels notably decline. Now moving to Slide 10. Here, we take a closer look at evolving trade flows and long-term demand. The global refinery base continues to shift with capacity expansion concentrated in Asia and the Middle East, while closures persist in the West. In Europe and the U.S., refinery shutdowns are increasingly requiring long-haul substitution flows from the East, driving ton-mile demand. Specifically in California, refined product imports are up 50% year-on-year with some major refineries now permanently shutting down. Meanwhile, forecasts note extended oil demand growth, supported by an increased focus on energy security and continued economic growth. Now moving to Slide 12 and turning our attention to Ardmore's strong financial performance. As previously mentioned, we've utilized our low-cost debt to fully redeem our preferred shares. As a reminder, this was from a 2021 bilateral transaction done directly with our friends at Maritime Partners. Redeeming these shares supports our evolving capital structure and focus on low cash breakeven levels. Once again, the chart on the bottom left highlights the progress we have made to reduce our cash breakeven levels to $11,700 per day. This includes CapEx for drydocking cycles. Without this, our breakeven is an even lower $10,800 per day on an operating basis. Turning to Slide 13 for financial highlights. For the third quarter, we reported EBITDAR of $27.6 million, and as mentioned earlier, earnings per share of $0.31. We continue to frame EBITDAR as an important comparable valuation metric against our IFRS reporting peers. Full reconciliation details can be found in the appendix on Slide 22. Also, please refer to the appendix on Slide 23 for our fourth quarter guidance numbers. And most importantly, our strong operating leverage positions Ardmore to take advantage of market volatility. Every $10,000 a day in additional TCE increases annual earnings by approximately $2.15 per share. Moving to Slide 14 for fleet operations. Drydocking activity for the year is largely complete with very limited dockings in the coming years, resulting in more revenue days, earnings power and cash generation. As a reminder, capital expenditures for 2025 are projected to be $37 million, nearly half of which is elective CapEx related to efficiency and tank coating upgrades, projects where we are already realizing notable early returns. Our strong spot exposure is further enhanced through high-quality charter contracts at attractive levels. We're continuing to invest in tangible AI and digitalization projects with short paybacks. For example, we're currently upgrading high-frequency data collection and transmission across our fleet to take voyage optimization to the next frontier. Our targeted use of biofuel bunker supports trading strategies in the EU, and we are achieving full fuel EU compliance across the fleet in 2025. Finally, our on-hire availability was a strong 99% in the third quarter, a testament to our seafarers working in coordination with our global team. With that, I'm happy to hand the call back to Gernot and look forward to answering any questions at the end. Gernot Ruppelt: Thank you, Bart. Moving to Slide 16. Let me summarize. Earnings have continued to strengthen through the first 3 quarters of 2025 and into the fourth quarter, supported by favorable market conditions and strong operating performance. Our recent acquisitions are capturing these favorable markets and increase Ardmore's earnings power. We are wrapping up our CapEx program for the year with a minimal drydock schedule for the coming 2 years, and we continue to enhance the quality of our trading book with compelling long-term charters. Our strong financial position enables us to be opportunistic and resilient, giving us the flexibility to both reinvest in the business and deliver shareholder returns. As always, our actions are guided by industry-leading governance. and we take an agile and responsive approach to market shifts enabled by our high-performing operating platform. With that, we now welcome your questions. Operator: [Operator Instructions] Your first question comes from Jonathan Chappell with Evercore. Jonathan Chappell: Maybe Bart, either one of you guys can answer this one. But if you look at Slide 7, the output on the water, the size it's ever been, the refinery run size it's ever been, a lot of favorable things you're talking about as it relates to sanctions. And mid-20s a day is a decent rate, but it's not a phenomenal rate. And it's also lagging, I'd say, a historical relationship with the strength of the VLCC market. So is this like things are building and you expect a much stronger winter period? Or is there some limiting factor that kind of keeps the MR spot rates from getting $35,000, $40,000 a day? Gernot Ruppelt: Yes. Thanks, Jon. I'm going to start here and then see what Bart might want to add. But you're making a good point. If you look at just sort of the short-term sort of relationship between MRs and some of the crude tankers, if you zoom out, there is a relatively strong correlation. And of course, you could argue that whatever goes into the refinery also comes out the other end. So yes, I think that point is well made. Just kind of looking at our sector, we feel pretty compelled by the significant ramp-up in earnings that we've seen from the start of the year where there's been more of a risk of approaching markets to our trading activity really going through a catch-up phase. But we're equally excited, of course, about sort of the long-term demand drivers, sectoral drivers, evolution of the demand picture of product tankers as a whole, where the market that we're facing today is vastly evolved from what it would have been 10 to 15 years ago. And of course, not to forget that we have the oldest fleet kind of on record this century. So we're quite positive about the long-term picture. And I think near term, not to kind of dive into all the geopolitical factors that are in play, but it certainly feels like the world is nowhere near an equilibrium. And while there are these shifts brought on by geopolitical tension or even by conflict, of which there are many, that creates volatility in commodity markets. And with volatility in commodity markets, you see more trading and with more trading, you have a higher demand for ships carrying those commodities and to move at increasing lengths. I think what we hinted at, what's going on right now with regard to imports really moving up significantly into California is significant. Some of the new triangulations we're seeing in the Atlantic Basin. It's just a story that's starting to play out now. We've, of course, talked at length about the displacement trade of formerly Russian diesel exports into Europe, whereby Europe is cutting that from different regions. But probably very little talked about is that Russia is now actually looking to import CPP or petroleum products from relatively far away places like in Asia to actually bridge the shortfall of their own domestic petroleum production, which has been quite heavily hit, of course, recently. So I think taking into account all of that, we feel positive about the market outlook. Jonathan Chappell: Okay. That's very helpful, Gernot. And then given that, I mean, I understand you want to balance chartering strategy and 2 years with an oil major is probably a pretty good business. But again, that's at a level that's lower than what you just did in the third quarter, what you're indicating for the fourth quarter, what you're effectively insinuating for the near term. So just help us understand the thought process behind that deal and your appetite to do others of similar duration and rate levels. Gernot Ruppelt: Yes. I mean it is, of course, a relatively small portion of the fleet, and the fleet is predominantly operating in the spot market where we can capture those favorable currents. We look at it really as a portfolio. We have been active on both the time charter in and time charter out front, sometimes simultaneously, and we'll continue to do that. This was an opportunity to lock in a really strong return with a high-quality counterparty. And as we're expanding the earnings power, we also kind of augment and solidify earnings quality with a counterparty that is well known to us, first grade, and we have a long operating history with. So we'll continue to, of course, evaluate opportunities on both sides of the table in, out as well, of course, on the S&P side of things, and it's just one part of a broader portfolio. And I think maybe taking a little cue here from your first question on market direction. I mean, this is a major oil and refining company. And for there to be the confidence to take a long-term charter at these good levels, I think also is -- reflects positively on their view of their physical needs in terms of moving their product over the -- over multiple years. Operator: Your next question comes from Omar Nokta with Jefferies. Omar Nokta: A couple of questions on my end. Just a couple for me. And maybe just following up on the first question from John. I guess, thinking about the market in, you've already talked about it. But just from maybe your vantage point, obviously, the market has gotten better this year as time has gone on, right, your results have sequentially improved, but it doesn't have that sizzle yet like we are seeing in crude tankers. And I guess just from what you're saying, is this as expected? Is this what you would have thought would have happened to product tankers given the shift in OPEC that we would see crude tankers surge, products just sort of improve? And then is it just simply a matter of time, as you mentioned, that it's just simply these cargoes now need to deliver into the refining system and then that will then create more product flow? Is it as simple as that? Gernot Ruppelt: Yes. I mean, look, if there's an abundance of oil supply, which I think is, at this point, pretty much a given, given the -- not just the strong output and OPEC+ production increases, even though they might be moderated now at the start of the year. But of course, that's always kind of a balancing act. But OPEC+, of course, are not the only oil producers at the moment. And I think we have continued to observe is there is ample oil supply that creates really strong incentives for refineries to, of course, put that to the refinery. We see already refining margins very strong. We see product on the water indeed quite firm. And just with the market -- sort of the oil market kind of flirting with the contango kind of not quite there, but dipping in and out of that, of course, that then creates all sort of interesting commodity plays, increases economic incentive for long-haul trading for the larger ships could certainly lead to some storage activity, which has a very positive cascading effect and just kind of creates that additional layer of trading demand. So to your point, I think there's still a lot of positive factors that could play out in addition to just continued trade shifts that are purely within refined products trading. Bart Kelleher: And I'd just add in, Omar, as well. Typical seasonality is always more of the discussion of is it mid-November or kind of prior to Thanksgiving. And so from that, I mean, we still do have part of the refining base coming back from maintenance period and everything, and then you have the accelerants that Gernot just spoke about. Omar Nokta: That's helpful. And I just wanted to ask maybe a bit more on Ardmore specifically strategy. Obviously, you guys have done very well in terms of strengthening the balance sheet. You've got now just looking here on your slides, no dry docks next year, you've got no real debt repayments next year, and you've paid for those 3 MRs are delivered. So you're in a great position with plenty of flexibility as we look into '26. Presumably, the market still looks fairly decent. Kind of what are you thinking now that you -- especially now that you've redeemed the preferreds, you have a lot more flexibility than you have had in the past. Does this change anything in terms of how you want to deploy capital, whether it's returning more capital to shareholders? Or do you think there's opportunities to kind of maybe replicate the sale and purchase transaction you did a few months ago with those 3 MRs? How are you thinking about that? Gernot Ruppelt: Yes. That's a great question, Omar. And I think ultimately, our next steps will be guided by the market, always, of course, underpinned and guided by our strong governance and our very balanced approach to capital allocation. We feel like we have found a way to be value-enhancing across a wide range of transactions. So of course, the 3 vessels we took delivery of just after the summer, if you just take sort of price point that we paid for the 5-year-old would have been around $38 million, just north of that. And we've seen now ships of the same age getting sold for $43 million in one case, as much as north of $44 million. So we in the money by 15% there within 4 months. And of course, we take note of that big step-up, happy with that transaction. And to what extent there are opportunities moving forward, closely, of course, connected with all sources of deal flow. It's an active market, fragmented buyers, sellers that sometimes buy and sell ships for reasons that are not necessarily only economically motivated. But at the same time, we've also found ways to reinvest in the business, not by acquiring ships, but by investing in vessel upgrades that had extremely short payback periods, whether it was efficiency upgrades that enabled really compelling fuel savings, whether it was increasing cargo versatility by upgrading our chemical tankers. And of course, across the past year, we have provided shareholder returns, not just through a dividend, but also through share buybacks when we thought there was an opportunity to lean in and all those avenues will continue to be on the table. And of course, what we did recently with the pref helps reduce our breakeven on top of kind of really rigorous cost discipline as well. And I think that will continue to be the guiding pillars of our strategy focused on the product and chemical space and looking to do value-enhancing transactions across the spectrum. And how that would look in detail, again, is ultimately guided by the market. Operator: Since there are no further questions, this concludes today's conference call. Thank you for your participation. You may now disconnect.