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Operator: Good day, and welcome to the California Resources Corporation 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 Joanna Park, Vice President of Investor Relations and Treasurer. Please go ahead. Joanna Park: Good morning, and welcome to California Resources Corporation's third quarter 2025 conference call. Following prepared remarks, members of our leadership team will be available to take your questions. By now, I hope you have had a chance to review our earnings release and supplemental slides. We have also provided information reconciling non-GAAP financial measures to comparable GAAP measures on our website and in our earnings release. We will also discuss our pending Berry merger. We encourage you to read our Form S-4 filed on October 14, 2025, as it contains important information. Copies of this and other relevant documents are also available on our website and the SEC's website. Today, we will be making forward-looking statements based on current expectations. Actual results may differ due to factors described in our earnings release and SEC filings. As a reminder, please limit your questions to 1 primary and 1 follow-up as this allows us to get to more of your questions. I will now turn the call over to Francisco. Francisco Leon: Good morning, everyone. CRC delivered another strong quarter, reinforcing the disciplined performance and strategic focus that set us apart as a different kind of energy company and also positioning us at the forefront of California's energy revival. We have a lot of good news to share this morning. Here's how we're going to structure the call. First, we will open with a list of accomplishments and summarize important recent events. Next, Clio will discuss our third quarter results. Lastly, we will share some early thoughts around 2026. Let's start with the highlights. California's energy and regulatory environment is improving in meaningful ways and CRC is well positioned. The recent passage of key legislation has created the most constructive framework we've seen in more than a decade, strengthening oil and gas permitting, authorizing CO2 pipelines and extending the Cap-and-Invest program through 2045. Together, these laws help support reliable in-state production while encouraging investment in the state's rapidly rising energy demand. CRC's E&P, CCS and Power businesses can support California's need for energy security and clean energy solutions. Our E&P business continues to perform exceptionally well. Our teams are executing safely, and our assets are demonstrating strong production performance and low base declines. With our successful Aera integration behind us, we can now move our annual base decline assumption to 8% to 13%, which is down from 10% to 15% previously. This significant change strengthens our cash flow generation, improves our capital intensity and enhances the value of our large PDP reserve base. CRC's conventional reservoirs are advantaged with significantly higher estimated ultimate recoveries, when compared to shale resource plays. As many of the Lower 48 producers are moving towards lower quality locations, we are well positioned with long duration, high-quality, low-decline reservoirs. We believe that this will allow us to effectively replace reserves, maintain production with less capital and deliver consistent results through the cycle. Strong execution and smooth integration remain key strengths of our operating teams. We recently announced our merger agreement with Berry Corporation. Like Aera, this deal was well timed is progressing as planned and will add assets that are adjacent to our current positions, creating meaningful synergies that further enhance our leading operational scale in California. Through Aera, we demonstrated our ability to effectively integrate assets, improve operating efficiencies and rapidly capture value. We plan to apply that same approach to Berry. Turning to our Carbon TerraVault business. Momentum continues to build. We are well ahead of the competition and close to making history at Elk Hills with our first CCS cash flows. Our first carbon capture and sequestration project at our Elk Hills cryogenic gas plant is advancing with construction underway and first CO2 injection expected in early 2026, pending regulatory go ahead. This will be California's first commercial-scale CCS project and a critical step towards realizing the state's decarbonization goals. Now that the CO2 pipeline moratorium has been lifted, our strategically positioned CTV reservoirs across the state have the potential to provide storage solutions for existing brownfield emitters that don't have the benefit of colocation, creating a true statewide framework for emissions reduction. We are also advancing our regulatory efforts in permitting inventory to expand our statewide storage network. We currently have 7, Class VI permits under active review with the EPA and are preparing additional applications totaling 100 million metric tons across Central California. As we focus on the most attractive markets for CCS, one thing is clear, California's biggest opportunity lies in delivering clean, reliable power. The California Public Utilities Commission estimates that incremental power capacity in the state will need to double by 2035 to meet demand. Later on, the projected investment in AI inference targeting major population centers, and it's clear that California is heading towards a substantial power shortfall. While renewable resources and scalable battery storage have a role, they will not be enough to satisfy demand. California needs clean, reliable baseload power to enable data center growth, while ensuring a reliable grid. State leaders recognize this challenge and have proposed several pathways to address it. With CCS, CRC and CTV are well placed to be part of the solution. Google recently announced plans to deploy natural gas generation with carbon capture for their Illinois data centers. Here in California, the Energy Commission recently issued a report highlighting that pairing natural gas generation with CCS is a practical and scalable path to the carbonized baseload power across the state's legacy assets. It's clear that leading innovators share this vision, and so do we. CRC and CTV have an unequal portfolio of assets located in the heart of the nation's largest economy. We can readily pair existing power generation with carbon capture to rapidly unlock firm, clean baseload power in proximity to major demand centers. We are evaluating multiple opportunities today in this rapidly expanding market. First, utility and wholesale markets, where front of the meter sales could provide decarbonized baseload power directly into the grid to support system reliability and reduce emissions under the CPUC's newly proposed reliable and clean power procurement program or RC BBB. Second, we can help meet demand from existing large technology and data center operators. Based on PG&E's interconnection queue, data center request in California have now exceeded 10 gigawatts, reflecting surging energy needs tied to AI, cloud computing and electrification across the state. As the AI revolution advances from training to inference, data center sites are expected to shift from prioritizing areas with cheap abundant electricity to low latency areas near major population clusters. As the largest state in the nation with nearly 40 million people and 4 of the top largest U.S. cities, California screens extremely well. As we evaluate our options, it's important that we do the right deal at the right time to create the most value for our shareholders. We're focused on turning an evolving market opportunity into real progress. And earlier today, we took another important step in our natural gas power with CCS strategy in Kern County, as we announced a new partnership with Capital Power to develop carbon management solutions for the La Paloma power facility. This builds on our previous announcements with Hall Street and our own project, CalCapture and Elk Hill. These partnerships validate market demand expand scale from front or behind the meter data centers and highlight CRC's ability to connect firm power generation with carbon storage. With strong execution, disciplined growth and a constructive policy environment, CRC is well positioned to lead California synergy come back, one that values both reliability and responsibility. Clio, over to you. Clio Crespy: Thanks, Francisco. This quarter's operating performance once again exceeded expectations, underscoring CRC's consistent execution operational strength and financial discipline, the hallmarks of our strategy. For the third quarter of 2025 we delivered net production of 137,000 BOE per day, 78% oil, roughly flat quarter-over-quarter on a $43 million D&C and workover capital program. Realizations remained above national averages. Oil at 97% of Brent, NGL at 60% of Brent and natural gas improving to 113% of NYMEX. We generated adjusted EBITDAX of $338 million and free cash flow before changes in working capital of $231 million, reinforcing the durability and efficiency of our operating model. G&A and operating costs were within guidance and our hedge portfolio continued to provide downside protection, while preserving margins. Capital investment for the quarter totaled $91 million, squarely within plan. In October, we raised $400 million on attractive terms to refinance Berry's debt ahead of the pending merger. This financing demonstrates our ability to quickly capitalize on favorable market conditions, strategically enhance our balance sheet by lowering costs and extending duration and maintain leverage below 1x. These proactive steps kick start our synergy capture and position us well for a seamless integration once the merger closes. Our balance sheet remains a key strength. At quarter end, net leverage is at 0.6x and total liquidity exceeded $1.1 billion, including $196 million of cash and an undrawn revolver. In October, we used available cash to redeem the remaining $122 million over '26 senior notes at par. Since then, we've rapidly rebuild our cash balance, ending October with more than $170 million, excluding the high-yield proceeds reserved for the very closing. We have no near-term debt maturities. The next comes due in 2029. Rating agencies have taken notice. Moody's upgraded CRC's corporate family rating to Ba3 and Fitch assigned a positive outlook, citing our consistent cash flow generation, low leverage, disciplined capital allocation and the improving regulatory environment in California. In addition, our borrowing base was reaffirmed in October at $1.5 billion, while existing and new lenders increased their elected commitments by $300 million to $1.45 billion, further enhancing our financial flexibility. CRC's balance sheet and capital framework remain among the strongest in our sector, giving us flexibility to fund disciplined growth, while sustaining meaningful shareholder returns. During the quarter, we increased our dividend by 5%, reflecting continued confidence in our business and cash generation. Year-to-date, we returned more than $450 million through dividends and share repurchases. Under our current authorization, we have over $200 million of remaining capacity for share repurchases through mid-2026. The fourth quarter is shaping up extremely well. We expect to benefit from continued stable production, lower costs and new efficiencies. Capital spend will be modestly higher than in the third quarter, mainly reflecting the catch-up of deferred projects and a strategic scope change to our CCS project at CRC's Elk Hills cryogenic gas plant. As we've advanced this project, we've identified an opportunity to upgrade facilities to serve both Belridge and Elk Hills. Improvements that enhance NGL recovery and increase operational efficiency as we prime the facility for carbon capture. This once again demonstrates our team's innovative approach and our focus on value-enhancing initiatives through integration. Importantly, full year capital expenditures are still expected to remain within our previously disclosed annual guidance range of $280 million to $330 million. As we look ahead, CRC is poised to enter 2026 with a premier balance sheet, a flexible capital structure and a resilient production base, all supporting durable free cash flow and long-term shareholder value. Furthermore, roughly 2/3 of our expected 2026 production is hedged at a Brent floor price of $64 per barrel, ensuring the stability of our cash flow. Our preliminary 2026 plan assumes an average of 4 rigs supported by our strong hedge position and our inventory of existing permits. We plan to operate these rigs using both current permits and those expected following SB 237 enactment. As always, we will remain disciplined and agile, adjusting our capital program as commodity prices and market conditions warrant. Importantly, our current outlook does not yet include the impact of the pending Berry merger, where we anticipate meaningful synergies once the transaction closes. CRC remains focused on consistent performance, disciplined growth and competitive shareholder returns as we move into 2026. And with that, I'll turn it back to Francisco. Francisco Leon: Thanks, Clio. 2025 is proving to be a remarkable year for CRC with strong momentum as we head into 2026. We're posting wins across multiple fronts. Robust reservoir performance, the structural improvements in our portfolio, lower cost, a more resilient capital structure and greater alignment between industry and the state to achieve common goals. For the second consecutive year, we will grow our production through strategic transactions and disciplined reservoir management. More importantly, we expect these actions to position us for sustained cash flow per share growth in 2026 and beyond. We're excited about what lies ahead from closing and integrating Berry to advancing Carbon Teravault and CalCapture and expanding our power and CCS partnerships. Together, these initiatives will allow us to unlock meaningful value for our shareholders. Our focus remains clear, creating considerable and sustainable value for shareholders. We believe California is entering a new era for locally produced energy, one defined by abundance, affordability and sustainably produced solutions. California's energy landscape is improving and CRC intends to play a leading role in that transition. CRC is a different kind of energy company. Operator, we're now ready for your questions. Operator: [Operator Instructions] Our first question comes from Kalei Akamine from Bank of America. Kaleinoheaokealaula Akamine: I want to start with the MOU on -- with Capital Power. It's been our view that brownfield emitters power plants in your vicinity would need to get involved to underwrite the CTV development. So yesterday's announcement in our view was a positive step. My question concerns your PPA efforts from this going forward. 200 megawatts, one could argue that maybe it's not big enough, but if you're collaborating with others and presumably, there's more megawatts on offer. So as you think about developing in this business, there are others in the area that you can perhaps pull into this joint effort. So maybe just kind of stepping back, can you talk about maybe next steps for the PPA? Francisco Leon: Kalei, thanks for the question. Yes, we -- the market is getting hot. We're seeing far more opportunities today than we did 12 months ago. And I think the -- as we mentioned in the remarks, having 1 of the hyperscalers, Google going into natural gas powered with CCS is similar to when you hear the hyperscale is going into nuclear, right? So it's a big moment. It's a big market signal. So the vision that we've had for Kern County, which is on Slide 7 on our deck, is to build a hub for -- to serve their data centers or the grid but at big scale. And yes, our CalCapture project, our excess power at our own plant is a big component to that. It's an anchor element to it. But now we're -- as we move with partnerships with both Capital Power and Hall Street, we're putting a significant scale on the map. So as these hyperscalers are looking now for more inference, low latency you have a site here that can serve the LA market at scale and decarbonized. So it's coming together. It's coming together nicely and it's the story of not only building data centers or increasing power, which is what everybody is looking for. But we're particularly well positioned on both the gas supply, natural gas supply that we have in basin. But also take away the CO2 emissions and store them on our side. So it's a nice integrated project and with great partners like Capital Power is a fantastic independent power producer. I think the signal is CCS is here, and this site is going to be an attractive place for us to grow that power demand. So excited about the next steps. And yes, there's a lot more to come. I think the site continues to -- we continue to find ways to grow different power elements to it and the things are coming together nicely. Kaleinoheaokealaula Akamine: I appreciate that, Francisco. Maybe for the next question, going to your '26 soft guide you highlight a 2% entry to exit decline. When I think about your assets, projects like floods require some time to activate a production response. So I'm wondering about the cadence of that decline. Is it isolated to maybe the first half of the year, while second half of '26 firms up as those projects come to bear? Francisco Leon: Yes. It's really been building an exceptionally good 2025 in terms of reservoir delivery and the team's performance in managing the assets. We will have -- our plan is to have 4 rigs on 1/1. So January 1, by then, we would have 4 rigs running and no, we expect that to be the entry to exit plan as we lower our base decline assumptions, we're putting capital back to work, primarily in the form of workovers and sidetracks permits that we have in hand. We expect that to be a fairly steady performance throughout 2026. Operator: Our next question comes from Betty Jiang with Barclays. Wei Jiang: It's really great to see the momentum across the portfolio. My first question is on the upstream side on the PDP decline. It struck me that your PDP decline improved from 10% to 15% to 8% to 13% since like this natural decline don't typically change. So can you just speak to what's driving that improvement? Is that a function of the portfolio or anything else you're doing operationally? Francisco Leon: Yes, it's a combination of things. It really is an answer that has several components, Betty. But it's first of all, it's owning great assets and conventional assets are just good rock in assets that our team knows how to manage really well. So as we move the decline rates and now that we are a year plus with the Aera assets, and we can see that this team can really bring the most out of it, we feel comfortable changing the corporate assumption. In terms of tangible things that the team is doing, if you look at 2025 and the composition of our activity, a lot of it was focused on injection and injection at Belridge. So with pressure support in these great reservoirs the oil flows nicely. So the Belridge field is performing extremely well, an asset that we acquired from Aera. We also, on Elk Hills, it was more about technology, and it's about remote surveillance. So it's -- I mean, it's an AI component of being able to identify wells when they fail and quickly repair those wells, right? So any well that's down, it's cash flow. So our team has been seeing some improvements in that surveillance and that leads us to be able to manage the down list that you have in conventional assets and manage that more effectively. So and those are the 2 biggest fields. So Belridge and Elk Hills, if you're able to move those reserves, those decline rates shallower that cascades to the rest of the portfolio, right? So -- and it's really just -- I mean, I really want to comment on the team's performance. I mean, they are just completely on the ball and doing the right things in terms of managing the asset base. So that's how you get conventional assets to perform better. It's just this blocking and tackling, it's things like surveillance, things like injections that ultimately pay off big dividends. Wei Jiang: Great. My second question is on the Kern County decarbonized power opportunity. As you highlighted in Slide 7, it's really great to see the capital power MOU. But what strike me also is this emerging hub of opportunities that's in Kern County with multiple power plants on top of the CO2 reservoir. So can you speak to the vision that you see that's emerging in this area? How could a potential hub decarbonized power scenario could look like? And what needs to happen to really catalyze that development? Francisco Leon: Yes, Betty. So a lot of things have come together very nicely. So -- but it's also a reminder that the California market operates different than other parts of the U.S. Here, you have a lot of the infrastructure already exists. And it's been -- natural gas fired generation has been sidelined as more and more renewables have come in. But then if you take the growth expectations of California power, right? So where we're looking to double in 10 years and triple in 20 years, that growth is not going to be all served by renewables and batteries. So you're going to have to bring in baseload, you're going to have to bring baseload at scale. So we have the ability to take these plants in retrofit for CCS to make them decarbonize so they can participate in this growing market. So in Kern County alone, and this is all very close to our -- either within our field boundaries or next to it, we see 2.4 gigawatts of power generation that could serve a growing market. Now when we also saw pipelines, the more autonomous CO2 pipelines being lifted, that brought forward that brownfield idea that we had and b, we're now able to connect -- we'll be able to connect these power plants with our storage sites. And as you see on the map, these are very short distances and some 5 to 20 miles for all these power plants to be able to get to one of our reservoir. So we're building scale on power. We're building scale on emissions. On an aggregate basis, we see about 5.5 million tons of emissions from these plants. And if you look at our inventory of permits, we're up to about 9 million tons that we are in some part of the permitting process all in the Central Valley. So it's all coming together. The big part that we were waiting for is that market signal. And the market signal already talked about Google, but also California is looking for decarbonized power, understanding that we're going to have to bring incremental sources. And we feel retrofit of existing plants that are already there producing power is going to work much better and faster than having new build of any power generation in California, right? So really well positioned to create this hub. L.A. is within 100 miles, 100 miles is important because of latency requirements as you look for inference. So this is all starting to take shape, where before we talked about a single site with single pore space. Now you can see that it's multiple sites, multiple plants and third parties are coming -- looking for a solution that only CRC can provide. Operator: Our next question comes from David Deckelbaum with TD Cowen. David Deckelbaum: Francisco, Clio and Omar and team on several of the milestones achieved to date. I'm probably going to ask you more questions around a lot of things you're going to be asked on today. I want to go back to just the PDP decline. Curious like as we approach sort of year-end reporting for Francisco or Omar, how you think about are we recovering more oil in place at this point with performance revisions? Or are we shifting more recovery into earlier parts of the reservoirs economic life at this point? Francisco Leon: David. I'll turn it to Omar to give any incremental highlights. But yes, these are some of the largest oil fields in the country. And if you look at oil in place, they are in the billions of barrels of oil in place. If you look at the ultimate recovery factors, these are sandstones that have both good permeability and porosity. So the ability to, in a lot of cases, maintain pressure support or to go through a bypassed oil enhances those recoveries. But -- so this is different than shales, right? Shales is all about drilling and completion and about how effective can you make that single event of drilling. Here, you're managing the reservoir and now that we have both permits and a very strong backdrop or from our ability to allocate capital to these projects, we're able to really work on life of field plans to maximize that output, bring a lot of that production forward. But maybe I'll turn it to Omar to see if he wants to add anything. Omar Hayat: Yes. Thanks, Francisco. And thanks for the question, David. One thing I would add to Francisco's comments is just where we are with these reservoirs in their life cycle. We have a long history of operating these reservoirs. So we have steamfloods that started steaming back in '70s, waterflood back in '80s. And the point I'm making is that we understand the behavior very well. So there are very little surprises as you manage PDP. And then you can look for incremental opportunities to shallow the decline. And it's basic blocking and tackling with the EOR projects, you're not going to get 2,000 barrel wells, you have a lot of 20, 30 better wells that you manage well and you work on them to gain another barrel or 2? And just given the number of wells they add up to a shallower decline. So the 2 things that Francisco mentioned earlier, we have been focused on improving the injection side of EOR, both in steamfloods and waterfloods. That was most of the work we did in the first half of the year. And then we are focused on getting to the wells that fail quicker through technology. And AI is a big help. It's eliminating a lot of human error. It's eliminating a lot of human lag and we are getting to those opportunities faster. So it's never a single silver bullet. It's a combination of all these factors. Where we are in the reservoirs life cycle where the declines are very predictable. Application of basic blocking and tackling and leveraging technology. David Deckelbaum: And then maybe Francisco, can I ask on just the high-level thoughts on the '26 plan, which I think was a pleasant surprise for everyone, just given the capital efficiency. It appears as you kind of approach a maintenance level, I'm curious as with the pending opportunity now for increased permits. It seems like your approach to capital allocation is still very much rooted in maximizing free cash per share, if I have that correct. And I guess how do you think about that in the context of now more or less receiving a call from local governments to increase production in the state? Francisco Leon: Yes, David. It's a great question. So you're absolutely right. Our focus is on growing cash flow per share. And so you do look at production as 1 of the components, but it's not the only one. So the way we're thinking about 2026 is a disciplined ramp-up on capital and we have a lot of flexibility. And 1 of the things that we talked about, the type of assets that we have, but the ownership of the assets, it's also create a key advantage that we have. We own 100% of our fields. And so we controlled the spend depending on the commodity cycle. So it allows us to be very efficient. And as you make these assets better, as we've talked about, then your capital deployment becomes 1 of the highlights -- so the way we thought through it is, as we look for the best and optimal way to grow cash flow per share, it's really through a combination of drilling and also leaving cash to that we can opportunistically buy back shares, right? So I think the combination of 2 -- of the 2 with a foundation of a very, very strong hedge book, we have 64% of our oil hedge into 2026. And that's only going to improve once we close the deal with Berry. So that gives us a really good place to start delivering we need to showcase the inventory, and we have a significant runway of great inventory to go after. But we've been in a permitting constrained scenario, right? So the reactivation needs to be measured, thoughtful discipline in a way that we can showcase what this business is capable of. But you're right, in terms of the signal from the government is we need more California production. We need more Kern County production in particular. So as the state is looking for increased activity in Kern County, we will look to participate as we look to, first, grow cash flow per share and look for inventory that gets developed. We will look to participate and our contribution is going to be to effectively double our rig count for now. But we'll continue looking and we'll obviously have to see where oil prices are. We'll have to see where our share prices are as we continue to think about capital allocation. But the way we are leaning into 2026, it's a good balance between buybacks and investing in our business. Operator: Our next question comes from Josh Silverstein with UBS. Joshua Silverstein: Maybe just sticking on the decline rates. You had previously discussed around a 6 to 8 rig, $500 million capital program in order to keep production flat. Now that you've had this reduction in the base decline rate I was curious if you could just kind of give us some color as to what that new maintenance level may be for CRC going forward? Francisco Leon: Josh. Yes, I mean, we're below $500 million, clearly. I think with our 2026 preliminary guide. That's the number that you can triangulate around. Now as we mentioned, these numbers do not include the Berry assets. So as we bring -- we closed the Berry merger, we'll refresh that number inclusive of their assets and we'll provide a full corporate number to maintain -- the maintenance capital to keep production flat. But on a stand-alone basis, so CRC and Aera assets given the improvements that we showcased in the earnings call today, we're clearly now below $500 million. We've seen Berry be able to maintain their production, total capital, and that's all of the capital with about $70 million, but we need to be able to close the transaction and provide a refresh to the market, but the baseline assumption is improving. Joshua Silverstein: Got it. And then it's been a while since we've gotten an update on the Huntington Beach assets and what you guys are doing there and what the permitting and that process looks like. If you could just provide an update, that would be great? Francisco Leon: Yes, absolutely. So things continue to progress well with Huntington Beach. We've made a number of public filings around preliminary development plans, 800 units that could be ultimately built at the site, once it's fully approved. That's all part of the process of engaging with the City of Huntington with all the local and regulatory agencies around the project. So things are marching forward. We have a dedicated rig abandoning the wells there as we go. We continue to produce, we have abandoned the wells as we get all the permitting lined up. As we said before, we think this project is going to be ready 2028 time frame. That doesn't mean that there's not a monetization sooner. But as we looked at this project in the past, the -- as you re-entitle the land for its best use, which is residential housing and you are able to abandon the -- abandon the wells, you're going to get to an optimal price, where the market appetite will be there. We provided guidance on the cost around $200 million to $250 million to abandon the property. That was a 2023 number. We have already made number of abandonments. So that number will come down as we look for that point to monetize the asset in 2028, but things are progressing well. Operator: Our next question comes from Nate Pendleton with Texas Capital. Nathaniel Pendleton: Congrats on yet another strong quarter. Looking at Slide 8 with your existing power generation portfolio and with some of your investments to date, can you talk about your willingness to lean further into the power generation space beyond Elk Hills such as additional plan ownership or additional investment in some more leading-edge power generation solutions? Francisco Leon: Nate. So I would say for right now, the focus is going to be on the feedstock, which is natural gas, low methane emissions gas and certified -- third-party certified gas, which we think is going to be very attractive and we're the largest natural gas producer. And then on offering a CCS solution on the back end. And that's the way we're positioning the company. I don't anticipate owners of -- ownership of natural gas combined cycle plans beyond what we have at this point. We are looking for other ways to bring power forward, things like fuel cells and geothermal, there's a lot of prospectivity in California for -- for geothermal, there's a lot of appetite on fuel cells to have a CCS solution. So we're looking to see what's the right mix of providing this both the carbonized, but also baseload power that we need to be able to serve the growing market. So -- but we are the solution on CCS, and we are the feedstock on natural gas. That plays to our strength, and that's where we're going to continue to advance. And as we continue to bring some of these ideas forward more and more technologies, more and more hyperscalers. I think we'll start looking at what we have and to build that vision for a Kern County power platform that we talked about earlier. Nathaniel Pendleton: And as a follow-up from an earlier question on connecting the emitters on Slide 7 with the recently passed legislation. Are there any underutilized pipelines right of way around those assets that could be brought in-house or repurposed to serve as the connective tissue there? Francisco Leon: Yes, absolutely. So as you look at Slide 7, and you can see that we showcased the footprint fairly well that has both the fields and the current pipelines. So you can see that this is -- these are right of ways that are owned either by CRC or by other E&P companies. These fields are adjacent to ours sort of these power plants are also adjacent to ours. So it's a particularly good place to be able to decarbonize this whole kind of micro grid. And so definitely, there's advantages as we talked about, we own a lot of land. We own a lot of surface ourselves and that we have partnerships with others that own that land as well. So -- so this is something that -- now that we have the moratorium on [ pace ] lifted, that's what we were really waiting on to be able to connect all of these assets, and that's what we're working with Capital and Power and others to try to figure out. Operator: Our next question comes from Noel Parks with Tuohy Brothers Investment Research. Noel Parks: I have a couple of questions. So sort of as a reality check, how long has it been, since you've had the activity levels at Elk Hills that you're going to be ramping up into starting next year? Francisco Leon: Yes. We've been in a permitting constrained environment, since the beginning of 2023. So the improvements that we've had in the past few months around the regulatory framework is a significant milestone for the company. Now we have been able to execute capital workovers and sidetracks effectively over that time, but it's new well bores that we haven't had permits to pursue. But now we have SP 237, so a brand-new law that not only allows for permits in kern County, but it also gives us duration. So it's effectively a 10-year tied to the Kern County EIR. So a 10-year runway -- so how much -- when the last time we had as much support and as big of a runway, it's been a very long time. So as we mentioned in our slides, and I think we mentioned publicly before, the state is looking for local production to ramp back up to about 25% of the supply of the state. We've been trending down over the years. We used to be 40%, 50% of the local suppliers, local E&P companies to the state. That's trended down to about 22%. So the call from the government is to bring more of that California low CI production. And so meaningful changes and meaningful improvements and in terms of the stage view towards local production and as the leading producer in the state. We have -- we want to do our part to help stabilize the fuel markets and look forward to bringing more production forward. Noel Parks: Great. And I'm just sort of thinking that there are so many irons in the fire and different types of catalysts you have at work right now. And with sort of the message of trying to the need to double the state's power production by 2035. So when do you foresee a ramp-up in production for your gas assets as you look ahead? Francisco Leon: Yes. It's a function of capital allocation, where the best returns are. And if we look at our 2026 plan with the 4 rigs, we're going to focus on primarily oil. About 80% of the anticipated contribution from '26 activities is oily. So that means 20% gas and NGLs. So that's just a matter of where we are in terms of the returns, again, supported by a very strong hedge book. We see great returns in the projects, the returns that we've outlined before. So natural gas will come if we get either stronger natural gas prices or we have supply agreements to all these groups that need power. Certainly, that will be the call to drill more gas. We have a lot of prospectivity. We have -- we're sitting on these great basins. And depending on what you are in the state, you could have heavy oil in the shallow reservoirs and then deep gas, a few thousand feet below that, right? So -- you have a lot of stacked pay and a lot of flexibility in how you can run the assets and allocate capital. So we're looking for where the best returns are. And right now, we're seeing them in oil. But as again, as the market demand changes or increases in particular for natural gas, we will be ready to also pursue some gas on a go-forward basis. Operator: [Operator Instructions] Our next question comes from Leo Mariani with ROTH. Leo Mariani: I wanted to ask a little bit about on the capital plan for 2026. So as you're talking about running 4 rigs continuously for roughly $280 million to $300 million of D&C plus workover capital -- but if I just look at your kind of E&P spend in 2025, it was 200 -- I think it's $245 million to $275 million for kind of 1.5 rigs. So just the proportion seems a little bit out of whack there. So can you kind of help me just kind of square up the numbers a bit there? Francisco Leon: Yes. I think you may be mixing Leo total capital versus D&C. So the D&C for '25 is lower. We have like you said, 2 rigs, and we didn't start the year with 2 rigs. We stepped into 2 rigs later. We do have a different facility spend and the facility spend that we talked about in this quarter, which is to bring the NGL project forward from Aera. And so what we're doing is we're building a pipe from Aera to Elk Hills to bring rich wet gas to Elk Hills run it through our cryogenic plant and extract the 1,000 barrels of NGLs. It's a particularly good project because it just follows the natural gas that's already in place. It's just a more efficient way to extract incremental value from the project. But in terms of the D&C numbers, they're definitely lower for 2025. I don't know, if -- what is the number, Clio? Clio Crespy: Yes, absolutely. Leo, you're comparing, obviously, our total capital versus what we're disclosing here related to the activity pickup. But for 2025, capital, we're effectively lining up to stay within our guidance. We haven't changed that. And that spend is all encompassing. It includes, obviously, the oil and gas spend as well as our carbon management spend and so that's where you're seeing the delta here as well as our corporate level spend. But going forward, there's definitely significant capital efficiencies those gains have been through the merger with Aera, consolidating those gains has been the story for 2025. And in 2026, you're seeing that come through in the numbers and the efficiency that we're able to get from that capital spend in the $280 million to $300 million range, that's really yielding a very significant arrest of the decline. Leo Mariani: Okay. And is that largely going to be workovers, which maybe are less capital intensive? Is there kind of a component of new drilling there? Do you have an estimate of that? Just trying to kind of get this a little bit apples-to-apples here? Francisco Leon: Yes, 2026 will be -- will continue to be primarily workovers and sidetrack. Roughly speaking, 60%, 70% of the D&C will be in that category. So the rest would be in new wells as new permits start coming in for those. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Francisco Leon for any closing remarks. Francisco Leon: Thank you. Thanks, everybody, for joining us today. We really look forward to seeing you in upcoming investor conferences during the winter season. Thank you so much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, everyone, and thank you for joining the Cencora Fiscal 2025 Fourth Quarter and Full Year Results Call. My name is Lucy, and I'll be coordinating your call today. [Operator Instructions] It is now my pleasure to hand over to your host, Bennett Murphy, Senior Vice President of Investor Relations to begin. Please go ahead. Bennett Murphy: Thank you. Good morning, good afternoon, and thank you for joining us for this conference call to discuss Cencora's Fiscal 2025 Fourth Quarter and Full Year Results. I am Bennett Murphy, Senior Vice President, Investor Relations and Enterprise Productivity. Joining me today are Bob Mauch, President and CEO, and Jim Cleary, Executive Vice President and CFO. On today's call, we will be discussing non-GAAP financial measures. Reconciliations of these measures to GAAP are provided in today's press release, which is available on our website at investor.cencora.com. We have also posted a slide presentation to accompany today's press release on our investor website. During this conference call, we will discuss forward-looking statements about our business and financial expectations on an adjusted non-GAAP basis, including but not limited to EPS, operating income, and income taxes. Forward-looking statements are based on management's current expectations and are subject to uncertainty and change. For a discussion of key risks and assumptions, we refer you to today's press release and our SEC filings, including our most recent 10-Q. Cencora assumes no obligation to update any forward-looking statements, and this call cannot be rebroadcast without the express permission of the company. [Operator Instructions] With that, I will turn the call over to Bob. Robert Mauch: Thank you, Bennett. Hi, everyone, and thank you for joining Cencora's fiscal 2025 fourth quarter earnings call. I will begin today by expressing my gratitude to our team members who power our results, advance our strategy, and lead with purpose. In fiscal 2025, Cencora achieved strong financial performance with adjusted operating income and adjusted diluted EPS growth of 16%, driven by our strategic positioning in Specialty, thoughtful investments to enhance our solutions in fast-growing areas of the market and continued strong pharmaceutical utilization trends. The results our team members deliver demonstrate the unique value we provide to our leading customers, both pharma manufacturers and providers, as an end-to-end health care services company. As a reflection of our confidence in continued market growth, the strength and positioning of our business, our successful investments in key growth areas like specialty, and conviction in our continued execution, we are pleased to be raising our long-term guidance for adjusted operating income growth to 6% to 9% and our adjusted EPS growth to 9% to 13%. During the year, we made considerable progress in strengthening our role as a leading health care services provider through our disciplined focus. Our strategy going forward centers on three growth priorities: leading with market leaders, enhancing patient access to pharmaceuticals, and strengthening our position in specialty, as well as four strategic drivers enabling our execution. First, prioritizing growth-oriented investments. We are committed to advancing our leadership in the health care industry, which requires us to invest significantly both organically and inorganically in the areas that will strengthen our strategic positioning and drive long-term value. Second, improving the customer experience by leveraging advanced data analytics and technologies. We are enhancing how we utilize technology and analytics to expand our services and solutions while also generating actionable insights to inform our industry partners. Third, driving a best-in-class talent experience. Our people are our most important asset. At Cencora, we're committed to empowering our talent with the skills and experiences they need to build meaningful careers as our industry and work continue to evolve. And fourth, identifying ongoing process and capability improvements. We are focused on enhancing our productivity, becoming even more integrated and efficient in serving the dynamic pharmaceutical supply chain. Today, I want to highlight the intersection of strengthening our position in specialty and how we are strategically prioritizing growth-oriented investments. I will begin with how Cencora is prioritizing growth-oriented investments to fuel our long-term growth. Cencora is making investments that align with our pharmaceutical-centric strategy and elevate our offering. And we regularly evaluate our portfolio to ensure we are focusing on areas that advance our long-term vision. As announced this morning, we undertook a thorough review of our portfolio as part of our approach to prioritize growth-oriented investments. This review led us to sharpen our focus for the businesses included in both our U.S. and International Healthcare Solutions segments. We identified specific areas of the business that do not align as closely with our strategy going forward. Specifically, our Animal Health business, MWI, our legacy U.S. hub services, our equity investment in Profarma in Brazil, and certain components of PharmaLex. As a result, we are evaluating strategic alternatives for these businesses and are grouping them as "other" in our financial reporting to provide additional transparency for our investors. By evaluating alternatives for these businesses, we will identify the right long-term partners to help the businesses within "other" capitalize on the strength of their offerings while we focus on executing against Cencora's strategy in our remaining businesses. We believe this prioritization will allow us to effectively deploy resources against our growth priorities. For example, strengthening our position in specialty. The acquisition of Retina Consultants of America, RCA, is a recent investment that reflects our commitment to strengthening our leadership in specialty. Since the acquisition closed earlier this year, RCA has continued to demonstrate the unique value the platform provides for physicians, while our joint teams have been identifying areas where we can augment the RCA value proposition. The MSO relationship is key for providers. With RCA now a part of Cencora, and our pathway to full ownership of OneOncology, we are excited about our ability to drive growth while contributing positively to patient outcomes by increasing time physicians can spend with patients, enhancing access to innovative treatments through renowned research capabilities, and informing best practices in community-based care. We are also prioritizing internal investments. In order to continue to lead with market leaders, Cencora is expanding and enhancing our supply chain infrastructure to support our customers' continued growth and innovation. This morning, we were proud to announce significant investments totaling $1 billion through 2030 to amplify our distribution network, including opening a second National Distribution Center and expanding our existing specialty distribution capacity. These investments will allow us to better support our customers with additional cold chain storage as the specialty market grows. This commitment builds on our track record of successful investments to expand our infrastructure and will enhance the resiliency and efficiency of our supply chain to ensure we are well-positioned to handle the rising demand and complexity of pharmaceutical treatments. We are confident we have the right culture and strategy to ensure we continuously strengthen our business to support growth. I will now turn the call to Jim to discuss our fourth quarter and fiscal 2025 results, fiscal 2026 guidance, and Cencora's updated long-term guidance. Jim? James Cleary: Thanks, Bob. Good morning and good afternoon, everyone. Before I turn to a review of our fourth quarter and full year fiscal 2025 results, as a reminder, my remarks today will focus on our adjusted non-GAAP financial results unless otherwise stated. For a detailed discussion of our GAAP results, please refer to our earnings press release and presentation. Fiscal 2025 was a pivotal year for Cencora, as we took decisive steps to advance our strategy guided by our strategic priorities and growth drivers and delivered impressive results due to our team members who remain committed to our customers and patients. To reflect our strong execution, intentional positioning in, and prioritization of growth-oriented areas and positive core fundamentals, we are pleased to be raising our long-term guidance for adjusted diluted EPS and operating income, which I will discuss in more detail following a review of our results. Turning now to our fourth quarter results. We completed the quarter with adjusted diluted EPS of $3.84, an increase of 15%, driven by strong performance in our U.S. Healthcare Solutions segment. Consolidated revenue was $83.7 billion, up 6%, driven by growth in both reportable segments, primarily due to continued volume growth. In the quarter, GLP-1s were a less meaningful contributor to revenue growth than in recent quarters and represented a 40 basis points contribution to our consolidated revenue growth. Moving to gross profit, consolidated gross profit was $2.9 billion, up 18%, largely driven by gross profit growth in the U.S. Healthcare Solutions segment. Consolidated gross profit margin was 3.47%, an increase of 37 basis points, primarily due to the gross profit contribution from our acquisition of Retina Consultants of America. Consolidated operating expenses were $1.9 billion, up 18%, primarily due to the RCA acquisition and in support of our overall revenue growth. Turning now to operating income. Consolidated operating income was $1 billion, up 20% compared to the prior year quarter. The increase in operating income was driven by continued strong growth in our U.S. Healthcare Solutions segment, which I will discuss in more detail when reviewing segment level results. Moving now to our net interest expense. Net interest expense was $78 million, an increase of $57 million, primarily due to the $3.3 billion in debt raised to finance a portion of the RCA acquisition. In the September quarter, we repaid $500 million of our existing term loan. As a result, we have now already repaid $700 million of the $1.5 billion three-year term loan, which was issued in January as part of the RCA financing. Moving to effective tax rate. Our effective tax rate in the fourth quarter was 20.6% compared to 20.3% in the prior year quarter. Finally, our diluted share count was 195.3 million shares, a 1% decrease compared to the prior year fourth quarter, primarily driven by opportunistic share repurchases completed earlier this fiscal year. This completes the review of our consolidated results. Now I'll review our segment results for the fourth quarter. U.S. Healthcare Solutions segment revenue was $75.8 billion, up approximately 6% versus the prior year quarter, as we continued to benefit from strong utilization trends. Sales of GLP-1 products increased $876 million, or 10% year over year, representing a 50 basis point contribution to segment revenue growth. As a reminder, we indicated on our third quarter earnings call the moderation in U.S. Healthcare Solutions segment revenue growth was expected and then was reflected in Street consensus. Turning now to operating income. U.S. Healthcare Solutions segment operating income increased by 25% to $872 million due to growth across our distribution businesses and the contribution from RCA. During the quarter, we continued to see good volumes in specialty across health systems and physician practices, as our partnerships with leaders in both channels drove solid growth, more than offsetting the previously disclosed loss of an oncology customer that occurred at the end of June due to its acquisition by a peer. Turning now to International Healthcare Solutions segment. In the quarter, International Healthcare Solutions segment revenue was $7.9 billion, an increase of 8% on an as-reported basis and an increase of 6% on a constant currency basis, primarily driven by revenue growth in our European distribution business. International Healthcare Solutions segment operating income was $151 million, a 2% decrease on an as-reported basis and a 6% decrease on a constant currency basis, primarily driven by continued pressure in our global consulting services businesses, partially offset by growth in all other business units in the segment. In our European distribution business, we saw continued strong demand for our 3PL services, which includes logistics for specialty products, and signed a number of new contracts. Additionally, during the quarter, we were encouraged to see a rebound in our global specialty logistics business, where shipment volumes returned to growth. Before turning to our full year fiscal 2025 results, I would like to take a moment to discuss our GAAP operating income results in the fourth quarter which includes a $724 million goodwill impairment related to PharmaLex, as noted in our press release. PharmaLex has continued to experience persistent demand challenges, which resulted in the business falling below our original expectations and declining year over year. We have taken steps to better position PharmaLex for long-term success. As part of the strategic review Bob mentioned in his remarks, we have made the decision to simplify PharmaLex's business and will now only be focused on three main areas where we are better positioned: pharmacovigilance, market access, and regulatory affairs. We are evaluating strategic alternatives for PharmaLex's other service verticals. That concludes the discussion of our fiscal fourth quarter financials. Now, I will turn to a discussion of our full year fiscal 2025 results compared to the prior year, beginning with revenue. Our consolidated revenue was $321.3 billion, up 9%, driven by U.S. Healthcare Solutions segment growth of 10% and International Healthcare Solutions segment growth of 6%. Consolidated operating income was $4.2 billion, an increase of 16%, driven by growth in the U.S. Healthcare Solutions segment, where we continue to benefit from volume growth, particularly growth in specialty and three quarters of contribution from the RCA acquisition. Concluding the discussion of our full year fiscal 2025 results, during the year, we generated $3 billion of adjusted free cash flow and ended the year with a cash balance of $4.4 billion. During the year, in addition to investing in our business through capital expenditures and furthering our strategy through M&A, we continued to prioritize returning capital to our shareholders through dividends and share repurchases that totaled close to $900 million. This morning, we were pleased to announce our twenty-first consecutive annual dividend increase, with our Board of Directors approving a 9% increase to our quarterly dividend, once again aligning our dividend growth rate to the low end of our long-term guidance for adjusted diluted EPS growth. This completes the review of our full fiscal year results. Before I turn to a discussion of our fiscal 2026 guidance and updates to our long-term guidance, I will take a moment to discuss our updated financial reporting structure that Bob mentioned in his remarks. Beginning in the first quarter of fiscal 2026, in addition to our two reportable segments, U.S. Healthcare Solutions and International Healthcare Solutions, we will begin reporting certain businesses that we are exploring strategic alternatives for under "other." Through this increased transparency, we hope to provide our investors with additional visibility into the strength of our go-forward business performance and trajectory as we prioritize growth-oriented businesses aligned with our strategy. As Bob mentioned, "other" includes MWI Animal Health, our equity stake in Profarma, legacy U.S. Consulting hub services, and components of PharmaLex. We are committed to finding the right strategic fit for each of these businesses to drive mutual success and value for all our stakeholders. For recast comparable segment results for fiscal 2024 and fiscal 2025, I would refer you to our investor website and Form 8-K we furnished this morning. Turning now to discuss our fiscal 2026 guidance expectations. As a reminder, we do not provide forward-looking guidance on a GAAP basis, so the following metrics are provided on an adjusted non-GAAP basis. We have also provided a detailed overview of guidance on Slides 1 and 12 of our earnings presentation, including constant currency guidance for our International Healthcare Solutions segment. Starting with EPS, we expect adjusted diluted EPS to be in the range of $17.45 to $17.75, representing growth of 9% to 11%. Now I will provide some details on the items contributing to this EPS growth. Beginning with revenue, we expect consolidated revenue growth to be in the range of 5% to 7%, reflecting U.S. Healthcare Solutions revenue growth in the range of 5% to 7%, International Healthcare Solutions revenue growth in the range of 6% to 8%, and other revenue growth in the range of 0% to 4%. Turning to operating income. We expect consolidated operating income growth to be in the range of 8% to 10%, reflecting U.S. Healthcare Solutions operating income growth in the range of 9% to 11%, International Healthcare Solutions operating income growth in the range of 5% to 8%, and other operating income decline in the range of 1% to 4%. Before turning to our additional guidance assumptions, given our updated reporting structure, I wanted to provide some additional context on the makeup of "other" to assist in your modeling. First, MWI Animal Health represents nearly 70% of "other's" revenue based on fiscal 2025 results. In the fourth quarter, the business continued its strong performance and ended fiscal 2025 with full-year revenue growth of 6%. Second, Profarma, a stand-alone pharmaceutical distribution business in Brazil, represents about 1/4 of revenue in "other" based on fiscal 2025 results. As a reminder, given the nature of the equity stake we hold in Profarma, we consolidate its financials and eliminate a portion of net income not attributable to Cencora through our non-controlling interest line. Now moving to interest expense, we expect our interest expense to be in the range of $315 million to $335 million. As a reminder, we issued a majority of the debt related to the RCA acquisition in December 2024, with the acquisition closing in January 2025. As a result, our interest expense will be higher in fiscal 2026 due to the incremental quarter of higher interest expense. Turning to income taxes, we expect our effective tax rate to be in the range of 20% to 21% for fiscal 2026. Moving now to share count, we expect that our full-year average share count will be approximately 194 million shares for fiscal 2026. This contemplates approximately $1 billion in share repurchase over the course of the fiscal year. Regarding our capital expenditure expectations, in fiscal 2026, we expect capital expenditures to be approximately $900 million. While the CapEx dollar spend is elevated relative to recent years, as a percentage of gross profit, it aligns with historical periods when we have made significant investments in our infrastructure. In addition to the U.S. supply chain infrastructure investments Bob mentioned, we will be making IT investments to support our digital transformation. As it relates to free cash flow, we expect adjusted free cash flow to be approximately $3 billion for fiscal 2026. Before I conclude my remarks and provide an update on our long-term guidance, while we do not provide guidance on a quarterly basis, there are a few things to keep in mind on our quarterly operating income cadence as you review your models. First, as we have discussed, at the end of June, we lost an oncology customer following its acquisition by a peer. This impact was fully reflected in our results in the fourth quarter of fiscal 2025. However, we will have a headwind related to this loss for the first 3 quarters of fiscal 2026. As you update your quarterly models to reflect the fiscal 2026 guidance, we would expect growth to pick up in the fourth quarter of our fiscal year as we begin to lap this customer loss. Second, we completed the RCA acquisition at the beginning of the second quarter of fiscal 2025 and will begin to lap the inclusion of RCA in our results. The loss of the oncology customer and incremental quarter of contribution from RCA represent a net headwind of 1% for our U.S. Healthcare Solutions segment in fiscal 2026. To conclude, Cencora has clearly delivered strong performance over the years as our pharmaceutical-centric strategy and positioning in specialty have allowed us to capitalize on positive industry trends driven by our team members' focus and execution. In recognition of this performance track record and underlying industry fundamentals, including continued innovation and demographic trends, we are pleased to be raising our long-term adjusted operating income growth guidance to a range of 6% to 9% from our prior range of 5% to 8%. This is driven by our increased expectations for our U.S. Healthcare Solutions segment, where we are now calling for adjusted operating income growth of 6% to 9%, up from our previous range of 5% to 8%, powered by our strong positioning in specialty and our efforts to augment our solutions offerings to our customers. With our long-term EPS contribution from M&A and share repurchase unchanged at 3% to 4%, we feel we are strongly positioned to grow EPS over the long term in the range of 9% to 13%. Before we open the line for questions, I will turn the call back to Bob for his closing remarks. Bob? Robert Mauch: Thank you, Jim. Fiscal '25 was a pivotal year for Cencora as we strengthened our leadership in specialty through the acquisition of RCA and took key steps to sharpen our focus and execution in alignment with our strategy. It is our obligation as a healthcare company to continue to champion innovation and efficiency. We are focused on driving continued strong growth for our enterprise by leveraging our robust infrastructure, differentiated capabilities, and continued investment in specialty, including our MSO platform. Cencora's growth priorities are clear as we are leading with market leaders, enhancing patient access to pharmaceuticals, and relentlessly strengthening our position in specialty. Once again, I want to thank the Cencora team members. It is due to their disciplined execution and commitment to our purpose that Jim and I are able to report strong results and guidance. As we look ahead, we are positioning ourselves for long-term growth and value creation. Informed by our strategic drivers and growth priorities, and guided by our purpose, we are united in our responsibility to create healthier futures. With that, we will turn the call over to the operator for Q&A. Operator? Operator: [Operator Instructions] The first question comes from Lisa Gill of JPMorgan. Lisa Gill: When I think about the business, Bob, and I look at how well you have done the last few years, and we appreciate you updating the long-term guidance. Can you maybe just spend a minute strategically how you view the business? You are now taking some of these businesses, putting them into "other." I would assume looking at potentially selling them as you talked about or partnering with others. So how do I think about, one, your strategic priorities going forward? You talk a lot about specialty. You are clearly a leader there. Two, like the MSO business, should we expect that you will do incremental acquisitions there? So just if you could spend a couple of minutes from a strategic standpoint as we think about '26 and beyond. Robert Mauch: Yes. I think what you see in our actions and what we are discussing today is our attempt to be very focused in our strategic execution. So when you think about what is in the U.S. Solutions segment and International Solutions segment, we feel we are better positioned now to make sure that we are dedicating resources, allocating capital, both human and financial capital, to make sure that we are investing in the areas that best align with our strategy going forward. It does not mean that the businesses that we have identified through our strategic review are bad businesses or troubled in some way. We are just being disciplined and focused in making sure that we can focus on where we have been really clear about where we are going to continue to differentiate ourselves. And Lisa, you mentioned the MSOs, and I think that is a really good example of as we have the successful acquisition of RCA, which is going really well, and the pathway to full ownership of OneOncology, we want to make sure that we are able to continue to invest in those businesses and that we have our management team focused. We have our financial focus there. And the result of that really is allowing the MSO value proposition to be most evident. And that value proposition is really making care easier for patients and making care easier for physicians. And you know, that is what we want to do, as you know, over a long period of time. We have focused resources in multiple areas actually to support providers, to support small businesses within health care. And what you are seeing here today is just us being disciplined and focused and making sure that as we go forward, we have our capital deployment very broadly well defined, but also specifically on our growth areas, and you know, specialty is certainly top of mind, and then the MSO platforms within specialty are something that we will continue to invest in. James Cleary: Lisa, one thing that I will add there is as we look at our performance in the fourth quarter and our performance in fiscal year '25, one of the things that we benefited from was the strength of the results in RCA and the organic growth there and the inorganic growth there also. And then we are seeing the same things from our investment in OneOncology, which really reinforces the strategy that you were asking about and Bob was talking about. And so on top of the strong organic growth, OneOncology has continued to grow inorganically, and this has positively contributed to our distribution and GPO business, and our sales to OneOncology are a really good example when we talk about the strength of our sales to physician practices. And so we have been very excited about RCA and what it adds to the business and also excited about OneOncology and the pathway to full ownership and what we can do with full ownership across our MSO platform alongside RCA, which is what Bob, you know, was talking about and you were about with respect to our strategy. Operator: The next question comes from Elizabeth Anderson of Evercore ISI. Elizabeth Anderson: Maybe to double click on what you were just talking about, Jim, in response to Lisa's question. You know, as you have owned RCA for, you know, almost a year and, you know, OneOncology, what are the next steps in the evolution of the MSO platform? What, I guess, maybe in your allusion to what you were just talking about in terms of things you cannot do while it is not consolidated, that would be sort of helpful to hear and just kind of increment learnings as we are lapping the first year of contribution. Robert Mauch: Hey, Elizabeth. It is Bob. I will take the first pass at that. You know, when you think about at some point when we can bring things together, there are very real capabilities and strengths within each of the MSO platforms that we are going to be able to leverage across all of Cencora's MSO platform. And if you think about clinical trial expertise, you know, that is something that can be shared across both retina and oncology. There is a very real opportunity for that we are excited about. And then there are, you know, some back-office activities like revenue cycle management that, you know, we will also be able to leverage across the MSO that will, again, make the ability for these physicians to provide care, not have to worry about the back-office activities as much and also, you know, provide the highest level of care through the clinical trial access is something that we are really excited about. So the next phase is, you know, really looking at the things that we will be able to do together across the platforms. And that's where we will be focused next. James Cleary: And, you know, one thing that I will add there, Elizabeth, is that, you know, when Bob was talking about this strength of RCA with clinical trial sites, from a financial standpoint, that is one of the things at RCA that has really exceeded our expectations during the first year from a financial standpoint, but also in the way it has helped attract fellows out of training to RCA, which is one of the key things that has been benefiting the inorganic growth there is the opportunity for fellows out of training to practice and also be involved in the clinical trials. Operator: The next question comes from Michael Cherny of Leerink Partners. Michael Cherny: Maybe if we can just hone in on the U.S. AOI performance in the quarter. Usually, we are not used to distributors putting up mid-20% plus EBIT growth on a two-quarter basis. Obviously, RCA, as we all know, is in there. You lost FCS this quarter. As you think about the durability of growth there against the backdrop of your new LRP, what is driving that level of magnitude of growth, and how durable do you feel like the drivers behind that are appropriately embedded in the updated long-range plan? James Cleary: Yes. And of course, you know, we had exceptional results in the U.S. segment during the fourth quarter. We had adjusted operating income growth of 25%, and I will provide some additional detail for you. If we look at it ex-RCA, it was growth of 13%, and that was in spite of a COVID headwind during the quarter of $15 million and in spite of the headwind from the loss of the oncology customer that was acquired by a peer. And so, you know, in '25, we saw exceptionally strong growth in the U.S. Healthcare Solutions segment with broad-based performance across the portfolio. And as we look towards fiscal year '26, we still see strong performance across the business, but in our guidance, we do not have the same level of outperformance that we have seen recently. One thing that I will add, looking at our guidance for fiscal year '26, when excluding the additional quarter of RCA, our guidance still contemplates growth within our new long-term guidance range of 6% to 9%, even when considering the oncology customer loss. And so you asked about our long-term guidance also and our increased U.S. Healthcare Solutions segment long-term guidance and the increase in our consolidated long-term guidance for adjusted operating income and EPS, it reflects the confidence and the strength of our business and our team's ability to continue executing at a high level. Of course, we do have a lot of confidence in our long-term guidance ranges. Operator: The next question comes from Charles Rhyee of TD Cowen. Charles Rhyee: Thanks for taking the question. Jim, maybe I can just follow-up on what you responded to Mike's question is, obviously, you said 30% growth ex-RCA, but you included the impact of COVID as well as Florida Cancer. I mean, you normalize for those, the core growth is actually still quite strong, probably north of 20-something percent by our estimation. I guess maybe when you think about your planning then, it is fair to think that your long-range, you know, your LRP here, that has been obviously increased is, you know, reflecting the potential for, you know, kind of events to occur, you know, now and then into the future, right? You know, a peer acquires somebody or, you know, some of those events happen, but fair to think that they are, like, the, you know, ex that the core strength is still quite, you know, above what the LRP at the moment is. Is that a fair understanding of how to interpret the results right now? And then, you know, when we think about the, and just if I could add on the capital deployment of 3% to 4% in your long-term range, does that already contemplate sort of the, you know, that the next step in the OneOncology transaction? Is that already kind of embedded into that? James Cleary: Yes. And so let me address the questions that you asked, and I will start with FY '26. And then I will move on to the long-term guidance for both adjusted operating income and EPS. In FY '26 in the U.S., our guide for adjusted operating income growth is 9% to 11%, but when we take a look at the net headwind that is caused by the extra quarter of RCA, which is a tailwind and offset by the loss of the oncology customer due to the acquisition for kind of the three-quarter impact that has on FY '26. That is a net headwind of 1%. So if we look at it, excluding that net headwind, our guidance in the U.S. for fiscal year '26 is 10% to 12%. And as we look at our long-term guidance, as I said, we have a lot of confidence in our long-term guidance, and we think we are really well-positioned to continue to drive value for our stakeholders through our core and pharmaceutical distribution and the other services. We are pleased to increase that long-term guidance. But I think probably one way to address your question is there is the law of large numbers, and we are just, you know, continuing to grow at such a rate that law of large numbers has an impact at some point in time. But having said that, you know, we do have a great deal of confidence and have the strength of our businesses and our ability to execute. And I will also say, you asked about capital deployment. There is no change in our capital deployment priorities in our long-term guidance, and a lot of our capital deployment is unspoken for because, you know, it is highly likely that, as we have talked about before, that we will acquire the risk of OneOncology, and that is, you know, included in our long-term guidance. Operator: The next question is from Erin Wright of Morgan Stanley. Erin Wilson Wright: Can you talk a little bit about the overlap with your core business across some of those other businesses that are now in the other segment? For instance, like MWI, I guess, sounds like it is not really integrated with much of the infrastructure today, but you know, where you see the overlap, it is human generics or otherwise across Animal Health, can you reconcile with that and how easy it is to separate some of these? And when you took a step back and you looked at your commitment to like World Courier or European wholesale business, how do you think about that? Any sort of key findings when you were looking at the synergy opportunities across those businesses? James Cleary: Sure. I will take the first part of that. And so you asked about MWI and overlap with the rest of the enterprise, and you asked with regard to some of the other businesses and other also. And one thing I will say about MWI, and this applies to the additional businesses and other, is MWI is a great business but one thing I will say is that it does not provide a competitive advantage to the balance of the enterprise. And by [ placing ] it in "other" and starting to explore strategic alternatives, I think we can better position the business for long-term success in its market. And, you know, the same thing applies to some of the other businesses that we have placed in "other," such as Profarma. And these are very good businesses, but businesses that by starting to explore strategic alternatives, can better position them for long-term success. Robert Mauch: Yes. And, Erin, I will take the second part of your question in terms of, you know, things that are in the business going forward. And specifically, you mentioned World Courier, but I will just hit on a couple of the businesses that are not in "other." So if you think about Alliance health care with a very good foundation in distribution and, importantly, a significant footprint in 3PL, which is where the specialty growth is in Europe. So that is, you know, how we are continuing to stay dedicated to differentiation and specialty. World Courier is a very strong business over a long period of time with a differentiated footprint and differentiated solutions like cell and gene therapy that we are excited about. And NMR is a business in Canada that has a strong reputation with the pharmaceutical manufacturer community, providing both Hub and Spoke services within Canada. So just a couple of solutions and a couple of examples of things that we are keeping, you know, within the core business. And I will just mention at the end of that, Erin, as you would expect, you know, the strategic processes, you know, it is an outside-in process. It is we are looking at markets first. We are looking at services. We are looking at where Cencora really has the ability to differentiate and win. So all of that goes into these assessments. But at the end of the day, if you think back to us, you know, following specialty growth in the markets where we can play, I think you will see, I would say human health specialty growth. You will see some rationale in the decisions that we are making. Operator: The next question comes from Allen Lutz of Bank of America. Allen Lutz: Really strong quarter in U.S. health care. I think you talked about 10% to 12% AOI growth in that U.S. health care segment in fiscal '26. Should we think about the relative growth rate between specialty and generics? I would assume that the specialty growth rate is probably accretive to that 10% to 12%. And then the generic a little dilutive. Is there any way to frame the relative growth rate of the generics business? Is that growing mid-single? Is that growing closer to where the entire business is growing? Any way to frame how the generics business is performing or expected to perform in fiscal '26 and maybe comparatively to 2025? James Cleary: Sure. And we do not specifically break out those numbers, but let me talk generally about it. As we talked about for some time, you know, we are benefiting from utilization trends, and we are particularly benefiting from the strength of our sales to specialty physician practices and health systems. So as we look over the longer term, whether we look in the past or going forward, specialty, of course, has been very much accretive to our operating income growth. And over time, we expect that to continue to be the case given the innovation in the specialty markets and given our continued investments in our MSO strategy. Now I will also say that one of the strengths about Cencora is the breadth of our portfolio and the breadth of our offerings. And as we talked about for several years now, we have really rebalanced our contracts so we make a fair return on brand, generic, and specialty. And one other thing I will add with the specialty market is we talked for some time now about the moderation -- excuse me, one thing I will add about the generic market is we talk for some time about the moderation of generic deflation, and those trends that we talk about continue to be the case. And so while specialty is really accretive to our growth, really all parts of the business are good for us, brand, specialty, and generic. Operator: Next question comes from Eric Percher of Nephron Research. Eric Percher: Thank you. I would like to pivot to the international business. And if I am reading the recast correct, it looks like the businesses that you are pulling out of the segment maybe have a little bit better growth than the negative 10% in fiscal year 2025. So your perspective on what is enabling the pivot to 5% to 8% growth in '26 and enables the long-term guide at that level? James Cleary: Yes. And so, let me first talk about, you know, the guidance and, of course, our long-term guide that we have for international is 5% to 8%, and the long and the, and that is our guidance also for the upcoming fiscal year. And then the guidance for the upcoming fiscal year for "other" is a decline of minus 1% to minus 4%. And just a quick comment as I talk about that minus 1% to minus 4% in "other" for our guide this year. We are expecting profit growth in MWI and Profarma, so it is the balance of the businesses and other that we expect to decline. So let me kind of go on to the key part of your question, which is our confidence in the long-term guide for International of 5% to 8%. If we look at the most recent quarter, the decline in international was due to PharmaLex. And as I said in my prepared remarks, all of the other businesses in International grew profits in the fourth quarter. And we really saw a rebound in our global specialty logistics business, World Courier, which had been the underperformer along with PharmaLex this past few quarters that rebounded in the fourth quarter. And had revenue growth and profit growth during the fourth quarter. And so if we look at our long-term guidance or our fiscal year '26 guidance for the International segment, it contemplates and assumes the international segment returns to growth in '26. And then we have, you know, confidence because we are starting to see benefit from the market demand rebounding for our global specialty logistics business. And we also have some easier comparisons in a more tailored portfolio, moving some of the PharmaLex assets into "other." Then we have some, you know, core businesses there, which have been performing well, such as Alliance, and then parts of that business which are performing particularly well, and that is 3PL. And we expect the 3PL to be growing at a really nice rate over the long term because that is how a lot of the specialty products are distributed internationally. And so thank you for the question. And those are some of the things that give us, you know, confidence in that 5% to 8% long-term guide. Operator: The next question comes from Steven Valiquette of Mizuho Securities. Steven Valiquette: So I guess within the "other" segment, with most of those businesses under strategic review, most of us are going to assume likely to be divested. So I guess I am curious should we think about the potential accretion or dilution related to any asset sales which we assume that you would most likely use sale proceeds to maybe do buybacks to just avoid or mitigate dilution. Also, are all these businesses in the "other" segment profitable right now? Or any of them unprofitable where a sale could be immediately accretive? Just curious to get your thoughts around all this. James Cleary: Yes. That is a great question. And as we said, we are currently beginning to explore strategic alternatives for the business and "other," though no path has been determined at this time. And, you know, that being said, if we look at some of the businesses and "other," sale of a business could be dilutive in the short term. But over the long term, we believe our portfolio being more focused on higher growth businesses would allow us to have a more strategic prioritization of investment to drive better long-term returns and long-term accretion. And you asked about the profitability of the businesses. And "other," and I mentioned that before, we are expecting in fiscal year '26, we are expecting profit growth at MWI and Profarma, and then the balance of the businesses or what is causing the decline in fiscal year '26. But some of the businesses there have been performing quite well. For instance, MWI had 6% revenue growth this past year and had good operating income growth. And then to address part of the question you asked, while some of the businesses and "other" are not showing profit, we are not expecting profit growth this year. All of the businesses in "other" are profitable. Operator: The next question comes from George Hill of Deutsche Bank. George Hill: And Jim, I want to zoom out for a second because if you look at the U.S. business for a decade or more, it's basically been a business that has seen margin erosion as lower margin brand drugs have outpaced higher margin generic drugs. Now with the business mix into the MSO segments and the expansion into specialty, we seem to be at the inflection point where now the higher margin faster growth specialty segment is outpacing, what I would call regular way brand and regular way generic. My question is, has the business inflected to a point the margin expansion, as indicated by the guidance this year, operating earnings growing faster than revenue growth is sustainable on an ongoing basis? And should investors be looking at that segment going forward? Continuing to expect operating earnings growth to outpace revenue growth? James Cleary: Yes. Excellent questions that you asked there, and I will add, you know, just a couple of key things. I think your, you know, your focus on margins is key because, of course, that is a really important part of the business. But I will also add that, you know, one of the key metrics that we focus in on is return on invested capital. And even some of our lower margin businesses in the core distribution business, given our expertise in managing working capital, can be lower margin but still can be really good return on invested capital businesses. Now to get more to the specific question you are asking, you know, of course, there are so many moving parts that can impact our gross margin and operating margin every year. And we really stay on top of those. One thing that we benefit from in specialty is all of the wraparound services that we offer, and this is in Part B, such as GPO, and that is kind of one of the key things in specialty that has been accretive to our margins. And then, of course, the MSO strategy is the natural evolution of our highly successful specialty business that offers more services, of course, that is accretive to our margins also. Operator: The next question comes from Kevin Caliendo of UBS. Kevin Caliendo: Jim, I know how conservatively you always guide and how thoughtful you are around the outlook for the business. And so raising the guidance and raising the LRP is, obviously, meaningful. I guess we are all trying to figure out underlying what has changed. And I just want to ask you, is your macro assumptions of your end markets different, or is this being driven by your own mix and the fact that you have more now, you are more levered to that? I am just wondering if anything has actually changed in the marketplace, or if your positioning and your assets have changed, and that is what has driven, you know, the sort of upside that we have seen in the macro and your ability to raise your guidance. James Cleary: Yes. I would not say it is a change in the macro. You know, we have been experiencing strong utilization trends for some time, and we have been, you know, benefiting from our strength in specialty for some time and, you know, the growth in the specialty market. So I would not say that it is a change in macro, but it is, you know, based on our historical results, which have been great, and our expectations for future results. And I think Bob has things he would like to add. Robert Mauch: Yes. I will add a bit because I think it is important to take a step back and think about how, you know, we have been building capabilities and evolving the footprint of Cencora over a long period of time. So the fact that, you know, the specialty market has become what it is not a surprise to us, and I do not think it is a surprise to anybody. And we have been, you know, very carefully working and investing to make sure that we were well-positioned for this moment, which will, you know, which will continue as you, we believe, will continue as you can tell from our tone, our results, and from our guidance. And I will just reiterate something that Jim said earlier is that, you know, going back to, you know, 2016, 2015, when, you know, the generic market really changed significantly. We very actively, you know, worked to balance our portfolio so that we were not in subsidized, you know, pricing models. So as mix changes over time, we are getting a fair return for the work that we do. Our customers are getting a fair price for what they receive from us, and that we both have predictability as we go forward. And that is an important part of the story as well. But if you put those two things together, I think you see, you know, the consistent performance from Cencora based on the fact that the market has been performing well on its own. The utilization trends, specialty market growth that we have discussed. Operator: Our final question comes from Daniel Grosslight of Citi. Daniel Grosslight: I want to focus back on capital deployment priorities in the near term. You obviously have a step up in CapEx. You are increasing your dividend and hence your repurchases next year. And then you have the OneOncology call option exercise coming up. How are all these factors informing your near-term M&A strategy? Outside of oncology, do you think we will see a slowdown in some of the larger M&A given these competing priorities? And then just on oncology, can you remind us when you expect to exercise that call option? James Cleary: Sure. So, you know, first, let me say, most importantly, that our capital deployment strategy, it is focused on four key areas. Internal investments in the business, and you know, as we have indicated and Bob indicated earlier, and the company has said is that, you know, we are making significant investments in infrastructure, in the businesses and then also technology investments. And then, of course, we are focused on strategic M&A, and RCA and OneOncology are examples of that. We will always look at opportunistic share repurchases. And I think over the last few years or so, we have done a very good job in repurchasing shares as WBA was selling shares. And then we will maintain a reasonable growing dividend, and of course, we announced today that we increased our dividend growth rate to 9% growth, which we feel very good about given, you know, our previous growth rates. And then with regard to OneOncology, of course, we have been very pleased with the business. We experienced very good growth in sales to OneOncology this year, which is one of the things that is driving our increase in sales of specialty products. And then, of course, OneOncology is a business that is owned 35% by ourselves and then 65% by a private equity firm in the practices and the physicians at OneOncology. And we have a put-call structure in place, so we ultimately will, you know, expect to own all of OneOncology. And now I will turn it over to Bob. Robert Mauch: Thanks, Jim. Just to close, everyone, thank you very much for joining the call today and your interest in Cencora. Our strategic positioning in specialty, our thoughtful approach to refocusing our portfolio, prioritization of growth-oriented investments are enabling us to capitalize on positive industry trends. Cencora will build on our track record of strong performance and continue to create value for all of our stakeholders through our focused execution, and strategic progress in the year to come. We are confident that with the strength of Cencora's positioning, demonstrated track record of execution, and continued market growth, we will deliver on our updated long-term guidance. Thank you, everyone. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: " Stacie Selinger: " Michael Sacks: " Jonathan Levin: " Pamela Bentley: " Kenneth Worthington: " JPMorgan Chase & Co, Research Division William Katz: " TD Cowen, Research Division Tyler Mulier: " William Blair & Company L.L.C., Research Division Operator: Good day, and welcome to the GCM Grosvenor Third Quarter 2025 Results. [Operator Instructions]. As a reminder, this call will be recorded. I would now like to hand the call over to Stacie Selinger, Head of Investor Relations. You may begin. Stacie Selinger: Thank you. Good morning, and welcome to GCM Grosvenor's Third Quarter 2025 Earnings Call. Today, I'm joined by GCM Grosvenor's Chairman and Chief Executive Officer, Michael Sacks; President, Jonathan Levin; and Chief Financial Officer, Pamela Bentley. Before we discuss this quarter's results, a reminder that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements. This includes statements regarding our current expectations for the business, our financial performance and projections. These statements are neither promises nor guarantees. They involve known and unknown risks, uncertainties and other important factors that may cause our actual results to differ materially from those indicated by the forward-looking statements on this call. Please refer to the factors in the Risk Factors section of our 10-K, our other filings with the Securities and Exchange Commission and our earnings release, all of which can be found on the Public Shareholders section of our website. We'll also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of non-GAAP measures to the nearest GAAP metric can be found in our earnings presentation and earnings supplement, both of which are on our website. Thank you again for joining us. And with that, I'll turn the call over to Michael to discuss our results. Michael Sacks: Thank you, Stacie. We are pleased to report another strong quarter for GCM Grosvenor, led by strong investment performance, strong fundraising and financial results that exceeded expectations. For the quarter, our fee-related earnings, adjusted EBITDA and adjusted net income were up 18%, 16% and 18%, respectively, as compared to the third quarter of 2024, and the results are similarly favorable on a year-to-date comparison. We're also seeing strong momentum sequentially with third quarter fee-related earnings and adjusted net income growth of 13% and 16% over the second quarter of 2025. Our fee-related earnings margin for the quarter was 45%, which is approximately 350 basis points higher than it was in the third quarter of last year. We ended the quarter with a record $87 billion of Assets Under Management, a 9% increase compared to the end of the third quarter of 2024. Investment performance remains solid across each of our business verticals. Our Absolute Return Strategies (ARS) has delivered particularly strong performance to clients with our multi-strategy composite generating a 14.2% gross rate of return over the last 12 months. In addition to the strong ARS performance, we also enjoyed year-over-year portfolio appreciation across each of our private market strategies. Looking ahead, our teams remain focused on investing client capital and deploying our $12 billion of dry powder. On the capital formation side, our positive fundraising momentum continues. Year-to-date, we raised $7.2 billion, higher than our total fundraising for the full year of 2024. Over the last 12 months, we've raised $9.5 billion, the highest trailing 12-month fundraising period on record for Grosvenor. Infrastructure and Credit led our growth during that period. Jon will cover fundraising drivers and pipeline shortly, but I do want to note that in the quarter, we closed on a $490 million collateralized fund obligations that will be invested in private Credit secondaries. Beyond the management fees that we will receive from this vehicle going forward, we generated $2 million of transaction fees that were recognized in the third quarter. Importantly, in general, activity levels are high and our pipeline remains quite full. Our gross unrealized carried interest balance stands at an all-time high of $941 million, up $32 million or 4% from the end of the second quarter with approximately 50% of that belonging to the firm. During the quarter, we realized more than $24 million in carried interest, which is the highest level of quarterly realized carried interest we've seen over the last 2 years. While carry realizations are clearly trending in the right direction, and we're optimistic about 2026, it's worth noting that typically, the third quarter carry realizations are seasonably the highest of any given calendar quarter. A few weeks ago, we hosted our 2025 Investor Day, and we were thrilled to welcome investors and analysts to hear directly from the leaders who drive our business every day. The goal of the day was to provide a comprehensive look at GCM Grosvenor, who we are, how we've evolved, where we're going. Our team led by Stacy Selinger and August Klatt did a great job putting that day together. The deck and video are available on our website, and I think they're helpful in understanding the company. That said, I do want to highlight a few of the key themes we covered. First, we made clear that GCM Grosvenor is central to the alternatives ecosystem, bringing more than 5 decades of innovation, execution, growth and relationships to bear across Private Equity, Infrastructure, Credit, Real Estate and Absolute Return Strategies. Second, we showed that our investment platform is broad, built for performance and importantly, highly scalable. Across the firm, we have the capacity to deploy multiples of our current capital base using our existing investment engine. That scalability, combined with a rigorous and repeatable investment process has produced attractive risk-adjusted returns for clients in each of our verticals. Third, our growth outlook is compelling across each of our investment strategies. Each of our verticals from Credit to Infrastructure to Real Estate to Private Equity and Absolute Return, has a path to substantial AUM growth over the next 5 years. We highlighted the fact that our team's execution over the last 5 years has translated into earnings growth with fee-related earnings having grown more than 90% since 2020. Importantly, we spoke about our path to double 2023 fee-related earnings to more than $280 million by 2028 and to drive 2028 adjusted net income per share to more than $1.20 per share. We also announced an increase in our quarterly dividend to $0.12 per share, reflecting continued confidence in our growth trajectory and our strong free cash flow generation. Finally, the day underscored what truly differentiates GCM Grosvenor, our client-first culture that is rooted in teamwork and alignment and is a key competitive advantage, delivering high re-up rates and significant growth. We hope that for anyone who participated or subsequently dove into the materials, it is clear that we are well positioned strategically, financially, culturally with multiple growth engines, a scalable operating model and a clear line of sight to meaningfully higher earnings and cash flow in the years ahead. We have a high degree of confidence that we can compound value for shareholders over the long term. And with that, I'll turn the call over to Jon. Jonathan Levin: Thank you. As Michael noted, I will focus my remarks this quarter on our strong fundraising results and healthy pipeline. We covered this during the Investor Day, but the beauty of our business is in many ways we have to win with all types of clients. Our business diversification in terms of geography, asset type, client type and implementation style is reflected in the diversification of our fundraising results. Looking at the record fundraising over the last 12 months, there's a few things I'd call out. First, Infrastructure and Credit together accounted for nearly 2/3 of our capital raised. These strategies are where we're seeing the highest demand in the market. In Infrastructure, we benefit from the market tailwinds generally and our broad platform that offers various strategies and numerous vehicles to meet the unique needs of investors. In Credit, our success is rooted in helping investors access the markets that they don't necessarily have the ability to access on their own, which means strategies outside of traditional direct lending and investment implementation styles outside of regular way fund investments. Our direct-oriented strategies in both Infrastructure and Credit are driving a significant percentage of our growth. Second, Absolute Return Strategies generated $1.5 billion of fundraising over the last 12 months. As Michael shared, the pipeline here is the best it's been, in years on the heels of very strong investment performance. While we aren't changing our flat net flows budgeting assumption, the backdrop for ARS is increasingly encouraging, and we believe we can compound AUM growth through strong performance. Finally, Insurance clients accounted for approximately 14% of capital raised over the last 12 months and 40% of Q3 capital raised, driven by the almost $500 million collateralized fund obligation that will be invested in private Credit secondaries. Looking ahead to our pipeline, I want to emphasize the strength and predictability of our Separate Account business. We are perpetually in the market raising Separate Accounts from existing investors through re-ups and from new investors. If we do our job well taking care of our existing clients, re-ups and cross-selling into new strategies are our best sources of new capital. As is usually the case, we're also in the market with several specialized funds. We held our first close of our Private Equity Secondary fund, GSF IV. We also held the first close of our inaugural Real Estate fund, REV, which now allows us to offer our real estate investment strategy and specialized fund form, expanding our addressable market for that strategy. One particular interesting note on REV is that one of the primary anchor investors in the first close is an RIA. We're also preparing to launch the fourth vintage of our diversified Infrastructure fund, Critical Infrastructure Strategies IV, CIS IV, which will hold its first close in the coming months. We're also successfully executing on our growth plans for the individual investor channel. Our distribution joint venture, Grove Lane, is rapidly ramping up with new hires and has already sourced dozens of new relationships for the firm year-to-date, around 40 of which have already contributed to an investment product. Flows for the Infrastructure interval fund are increasing week-over-week and the traction is very encouraging for what we believe is a highly differentiated product in the market and a significant opportunity for us over the long term. We're also preparing to launch a fund for Private Equity assets in the coming months, which will follow a similar model to CGIF, and we believe also has differentiated positioning given its expected high diversification and middle market focus on co-investments. So the punchline here is that we have a clear strategic plan, and now it's a matter of executing well. Something we talk about a lot as a team is the importance of relentlessly focusing on execution for our clients as investors and as business owners. And with that, I'll turn it over to Pam. Pamela Bentley: Thanks, Jon. We are pleased with our third quarter results, which Michael highlighted, and I will cover in more detail. Given our strong fundraising and investment performance this quarter, Assets Under Management grew to $87 billion and fee-paying AUM grew to $70 billion, a 9% and 10% increase year-over-year, respectively. Our contracted not yet fee-paying AUM grew 17% year-over-year to $9.2 billion, providing a foundation for continued organic growth as that capital converts to fee-paying AUM over the next few years. Private Markets management fees year-to-date and for the quarter grew 10% and 7% year-over-year, respectively, from a combination of solid fundraising and conversion of contracted not yet fee-paying AUM. Absolute Return Strategies continued its strong investment and business performance. ARS management fees for the quarter grew 6% year-over-year. Our multi-strategy composite returns were a strong 3% in the third quarter, putting year-to-date growth performance above 9%. Total management fees for the quarter were $101.4 million, an increase of 7% year-over-year. We expect total management fees for the fourth quarter to be approximately $1 million higher than the third quarter. Our year-over-year fee-related revenue in the third quarter grew 9%, driven by strong business performance. As Michael noted, this quarter's FRR included $2 million of transaction fees related to the Credit collateralized fund obligation. This will not be recurring next quarter. That said, we do expect to launch additional structured solutions in the future. Turning to expenses. Our compensation philosophy is centered on attracting and retaining top talent by aligning their interest with those of our clients and shareholders. We do this through a combination of annual and long-term incentives, including FRE compensation, incentive fee-related compensation and equity awards. We remain disciplined in managing expenses and third quarter FRE compensation and benefits remained stable at just over $37 million. We expect slightly lower levels of FRE compensation in the fourth quarter. Non-GAAP general, administrative and other expenses declined from last quarter to $20 million. We expect non-GAAP general administrative and other expenses in the fourth quarter to return to the levels we saw in the first and second quarter this year. Pulling together these factors, our fee-related earnings for the quarter grew 18% year-over-year, and our third quarter FRE margin expanded to 45%. Turning to incentive fees. Our gross unrealized carried interest balance increased to an all-time high of over $940 million. And this quarter, we realized $25 million of total incentive fees, including $1 million of performance fees and more than $24 million in carried interest. Given our strong ARS investment performance year-to-date, we have approximately $33 million in unrealized performance fees as of quarter end in addition to the $7 million we've already realized this year. Third quarter carry realizations are generally seasonably higher and the improving realization levels are encouraging as we head into 2026. Our financial position is strong and our decision to raise our already healthy quarterly dividend to $0.12 per share reflects our consistent and growing cash flow generation. In addition, as of quarter end, we had $86 million remaining in our share buyback authorization. That said, our primary focus remains on strategically investing for long-term growth, and we remain confident in our goals to double our '23 FRE by 2028 and more than double our adjusted net income per share over the same time period. Thank you again for joining us, and we're now happy to take your questions. Operator: [Operator Instructions] And our first question will come from Ken Worthington with JPMorgan. Kenneth Worthington: I guess I'll try 2. First, on the CFO raise, you mentioned the $2 million of fees upfront. Are there ongoing fees for that product as well? Or is it the way it's structured, the fees just come in that upfront chunk? And then are these CFOs something you might regularly come back to market with more regularly? Or is what we saw really a one-off this quarter? Michael Sacks: So thanks for the question, Ken. It's Michael. The CFO is absolutely a regular recurring management fee recurring management fee with some carry building over time, pool of capital. So, it's a $490 million raise, and we'll earn an annual management fee on that. And hopefully, we'll earn some carry on that as well. In addition to the normal fees that would accompany a $500 million raise, there was an upfront fee, and we specifically mentioned it so that when you saw it on the financials, you knew what it was and you knew that, that was not recurring. But we will start next quarter to enjoy management fees from that pool of capital. They will be recurring. Kenneth Worthington: Okay. Great. Michael Sacks: And the second question was, yes, we do hope to, and if I didn't say that, I meant to, we do hope from time to time to launch other fund obligations. This is our second as market conditions, investor demand line up and make sense to do it. Kenneth Worthington: Great. And then just on ARS, you mentioned that we see a better turnaround the business, good returns. We saw better flows to start the year. It's been sort of quiet since, and we're going into what I think is typically the seasonally weak 4Q when we see bigger redemptions. So, I guess the question is, if things are going well and things feel good, why isn't this yet being seen in the net flows picture? And I guess, how is 4Q shaping up given it's seasonally a weaker quarter, but the environment feels better and you're doing better? Like how do we sort of add up Michael Sacks: Jon, maybe you can talk a bit more about pipeline. But what I would say, Ken, and we talked about this at Investor Day, there is no question that the interest level is higher and the opportunities for us to drive flows are higher. And that's just, that is a fact. So I don't know, Jon, how much; we're not going to make news, but go ahead. Jonathan Levin: Yes. I would just step back, Ken, and say we've obviously held to the convention from a budgeting, forecasting and guidance standpoint, we've had, frankly, since we went public 5 years ago, and we've been wrong about that in both directions, but kind of not really wrong about that in the aggregate. So if you look at the earnings presentation, for example, where we go through the flows picture and the supplemental information, you can look at 9 months in 2024. You can look at the 9 months year-to-date today, you can see how that's been an improving picture. If you look at year-to-date Absolute Return Strategies through the first 9 months, when you look at contributions versus withdrawals, distributions are a little bit of an anomaly because those are sometimes self-liquidating vehicles. It's slightly net positive. I think that the, so the trend and the attitude and the environment because of performance, because of investor interest, all of that is better. I don't know that I would, as Michael said, I don't know that we're changing our Q4 picture. I don't think that there's much, it might be an accident in history. I don't think there's much seasonally that you should actually look into a ton around the ARS business for the vehicles that have liquidity quarterly, that could be any quarter's activity. But I would say that you heard it, as Michael said, live at the Investor Day. David Richter, who runs that business, is feeling very good about things. And Michael, Pam and I are also feeling good about things, but also waiting to see that picture change before we change how we talk about the forecasting and the guidance around the business. Operator: And our next question will come from Bill Katz with TD Cowen William Katz: Just maybe, Michael, just unpack a couple of things on the realization outlook. Forgive me for not knowing this already, but why is the third quarter seasonally so strong? And then as you look into next year, where do you see the greatest opportunity for those realizations? If I look at your disclosure, which is terrific, so thank you for that. A lot of it sits in funds 2017 forward. So, one of the themes we're hearing from some of your peers is like there's still some vintaging and aging and seasoning that need to go on along the way. So, I'm just trying to triangulate between the very strong realization commentary and what might actually flow through the P&L as we look out to next year or so. Michael Sacks: Yes. So, I think the fact that the carry or the average distribution of the carry, if you will, has aged and it's in these 2017-plus buckets is somewhat overwhelmingly a good thing for us. And let me just start with that. So, I think it's a good thing for us. It's a good thing for us because when you have more recent vintages, these are you can, you have some carry that's got some value at a mark from 2008, but it hasn't exited yet, you're sort of skeptical about when it's going to exit, et cetera. You have carry in that 17-plus bucket that's kind of normal, that's supposed to be there, that's healthy and that's good. You're confident that your marks are appropriate and conservative. And so that's very much kind of live carry. The other reason that's a good thing is we own more of that. And so, we own a higher percentage of that 17 bucket than we do the earlier buckets. And I think those are both good things for us. I don't think we have any ability to generalize about when that carry might be realized or when it might accelerate aggressively. I think our carry revenue experience is pretty much consistent with what you're seeing and what we're observing from a macro perspective across the industry. And we are so well diversified in our carry on so many different lines that just when that, those realizations pick up, and they have picked up. So, as they continue to pick up and they continue to accelerate, we will participate. But there's nothing like we can't look at one big deal that's going to generate carry and determine the outcome for a year. It's too diversified, which we think is a benefit for the stability and the strength of that carry, but it makes it like harder for us to point to timing. The last thing is the seasonality of the third quarter is related to when tax carry is paid in the industry in general. So a lot of the carry that you see in the third quarter for most of the sponsors you follow will include tax carry distributions that they're receiving that tend to take place in that quarter to a greater degree than they do the rest of the year. The carry from actual exits is much, I think, more random and spread throughout the year and doesn't necessarily have any predictable seasonality. William Katz: Okay. That's helpful. And maybe one for Pam. Just as I think through next year, can you give us a sense of how we should think about both stock-based compensation issuance as well as maybe the direction for share count despite the buyback, it did go up pretty substantially quarter-on-quarter. Pamela Bentley: Sure. Thanks, Bill, for the question. In terms of our stock-based compensation, we expect it to be at similar levels or slightly higher depending on the stock price at the time we grant any awards generally as part of our year-end compensation cycle. But don't expect any unusual anomalies. What I would say on both share count and how we manage dilution there, we've, from stock-based compensation and from stock-based awards, we've enjoyed less than 3% dilution over the last 5 years cumulatively. So we're very actively managing dilution, through both buybacks and settlement options to make sure that we're very diligent and careful around the share count. The other item, as you may recall earlier this year in the summer, we had issued about 2% dilution. We raised $50 million in proceeds from a strategic partner that invested in the business from a primary offering. So that was the other, just less than 2% of dilution that you see in our numbers. So we're going to continue to, again, actively, we have $86 million remaining in our buyback. We're going to continue to actively manage dilution through the buyback programs and really don't see any significant changes in the near term. Operator: [Operator Instructions] And we'll go back to Bill Katz with TD Cowen. William Katz: So just, Jon, maybe one for you. You ticked off a fair amount of data on or just details on the retail business, and I was trying to keep up with you. Could you maybe unpack a little bit of your disclosure? You mentioned that you're getting on to a number of additional distribution partnerships, I think, and that you're seeing really nice growth week-on-week. Can you provide maybe just level set of where you are in terms of AUM and what products specifically you're in the market for? Just trying to make sure we have a full accounting of the opportunity set in front of us. Jonathan Levin: Sure. So I think let me just kind of start with level setting on some data. And some of the data, Bill has not obviously changed materially from a couple of weeks ago when we had our Investor Day and had a few slides on this, just in case you want to go back to it after the call. But it's about $4 billion of AUM today, just in general from the individual investor channel. A pretty significant percentage of that has been capital that's been raised over the past several years. That capital that's been raised over the past several years, most of the past several years has been for separately managed account for institutional 3C7 kind of private closed-end funds, largely across the wire houses. I think what we've highlighted at the Investor Day and what I tried to highlight on the call is if you look and while it's not material yet to our economic profile, and as Michael has kind of gone to pains to mention on many calls in the past, like this is the type of thing that we're super excited about is growing, but it will take time for it to really move our needle. But if you look over the more recent period of time, what's been exciting for us is the partnership with Grove Lane, which is meant to focus on RIAs, and that partnership is less than a year old, and we have picked up another probably 3, 4 dozen RIA relationships over the past several, couple of quarters, which in a long sales cycle business is tremendous momentum to us even if it's not huge dollars yet. We are still marketing separately managed accounts, which we think will be a competitive edge for us in the Individual Investor Channel. We're still marketing kind of traditional closed-end private funds in that channel. And as you know, we also launched our Infrastructure interval fund, which goes alongside interval fund product or I should say, registered product that we have in the Absolute Return Strategies space. That's very early days, but it's raising money every day and raising money through the RIA channels, both from our partnership with our distribution partner as well as through Grove Lane. And then the other point that I think we mentioned at Investor Day or certainly mentioned on the call or mentioned right now is that we expect to also follow on our Infrastructure product with something similar in the private equity space. And so I just think it's all good. It's all investing more of our time and resources and all just building towards kind of momentum and platform such that we can take advantage of what we see as our role in that ecosystem and the opportunity set in that ecosystem, which is to help individual investors build diversified portfolios across different market cap size, across different implementation styles to complement what they're already doing in kind of the mega cap space. Operator: And the next question will come from Tyler Mulier with William Blair. Tyler Mulier: The collateralized fund obligation raise from the private Credit raise. It seems like the noninsurance raise would have been a little lighter and there have been notable bankruptcies in the Credit space. Just curious if you've seen any concerns from clients or changes in the landscape there on private Credit. Did you hear that, Michael? Michael Sacks: Yes. I think that the first couple of words, Tyler, that you said didn't come through, but I think you were saying, were you saying excluding the Tyler Mulier: Yes. Michael Sacks: So I guess a couple of things. One is we're not seeing Private Credit slowing down. And we're not seeing that slowing down. There's all this talk about Credit quality. There have been a couple of high-profile Credit issues. I think those were all, or the biggest ones were Credit issues where it wasn't strictly direct origination private. There were plenty of traditional lenders in there, I think, as well. And that, we're just not seeing those issues. So there's a lot of conversation there, but that the asset class is growing, the allocations are growing. They're going to continue to grow. It's going to continue to be a fast-growing strategy for us. And I would just say that pretty much every strategy goes through cycles where people are questioning its future and questioning what's happening. And these are just very good solid ways to invest, have been over very long periods of time through different cycles, and that's not changing and you're in a kind of a major, I think, uptrend, upswing in the allocations to Private Credit. There was a significant amount of capital that came from insurers inside that structured product. And so, we are still seeing a productive insurance sector, and we believe that the insurance sector will also will continue to be productive as we go forward. Is that helpful? Operator: And that does conclude the question-and-answer session. I'll now turn the conference back over to you for any additional remarks. Thank you. Pamela Bentley: Thank you for joining us again today. We appreciate all of the time and the interest. If you have follow-up questions, please feel free to reach out to our team. If not, we look forward to speaking with you again next quarter. Thank you. Have a good day. Operator: Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
Operator: Good morning, and welcome to Ocugen's Third Quarter 2025 Financial Results and Business Update. Please note that this call is being recorded at this time. [Operator Instructions] I will now turn the call over to Tiffany Hamilton, Ocugen's Head of Corporate Communications. You may begin. Tiffany Hamilton: Thank you, operator. And good morning, everyone. Joining me on today's call and webcast is Dr. Shankar Musunuri, Ocugen's Chairman, CEO and Co-Founder, who will provide a business update and an overview of our clinical and operational progress. Ramesh Ramachandran, our Chief Accounting Officer, is also on the call to provide a financial update for the quarter ended September 30, 2025. Dr. Huma Qamar, Chief Medical Officer, will be available to answer questions following the presentation. This morning, we issued a press release detailing associated business and operational highlights for the third quarter of 2025. We encourage listeners to review the press release, which is available on our website at ocugen.com. This call is being recorded and a replay with the accompanying slide presentation will be available on the Investors section of the Ocugen website for approximately 45 days. This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties. We may, in some cases, use terms such as predicts, believes, potential, proposed, continue, estimates, anticipates, expects, plans, intends, may, could, might, will, should or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Such statements include, but are not limited to, statements regarding our clinical development activities and related anticipated timelines. Such statements are subject to numerous important factors, risks and uncertainties that may cause actual events or results to differ materially from our current expectations. These and other risks and uncertainties are more fully described in our periodic filings with the Securities and Exchange Commission, the SEC, including the risk factors described in the section entitled Risk Factors in the quarterly and annual reports that we file with the SEC. Any forward-looking statements that we make in this presentation speaks only as of the date of this presentation. Except as required by law, we assume no obligation to update forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise after the date of this presentation. Finally, Ocugen's quarterly report on Form 10-Q covering the third quarter of 2025 will be filed today. I will now turn the call over to Dr. Musunuri. Shankar Musunuri: Thank you, Tiffany. Thank you all for joining us today. I'm pleased to share an update on our modifier gene therapy platform and would like to recognize that in just over 3 years, we brought our lead candidate, OCU400, from initial Phase 1/2 dosing to nearing Phase 3 enrollment completion. The OCU410ST Phase 2/3 pivotal confirmatory trial is following close behind, and we are on track to complete enrollment in the first quarter of 2026, lining up for our planned biological licensing application, BLA submission, in the first half of 2027 for OCU410ST. This rapid progress is somewhat unheard of in the industry and not only reinforces our commitment to file 3 BLAs in the next 3 years, but it also brings us closer to addressing the incredible unmet medical needs that exist for patients facing vision loss. While all 3 programs are moving along on schedule, we received additional, positive news in the third quarter that the Committee for Medicinal Products for Human Use, CHMP, of the European Medicines Agency confirmed the acceptability of a single U.S.-based trial for submission of MAA in Europe for OCU410ST. This alignment allows us to maintain the same timeline and budget efficiencies in Europe as we have with the OCU400 pivotal trials. To fund clinical trial progress, we continue to pursue opportunities to increase our working capital and in August, closed the registered direct offering with Janus Henderson. The gross proceeds were approximately $20 million, which we anticipate will extend our runway through the second quarter of 2026, and we will receive $30 million of additional gross proceeds if the warrants are exercised in full, extending our runway into '27. The OCU400 Phase 3 liMeLiGhT clinical trial remains on track for BLA and MAA submissions in 2026. It is the only broad retinitis pigmentosa RP gene-agnostic trial to address multiple genetic mutations with a single therapeutic approach. And it's important to note that this is the largest known Phase 3 orphan, gene therapy trial. There are approximately 300,000 people in the U.S. and Europe combined living with RP, which affects more than 100 genes. Ocugen's gene-agnostic approach has the potential to treat multiple gene mutations associated with RP with a single, one-time, subretinal injection. Currently, the only approved gene therapy for RP targets a single gene RPE65, which accounts for 1% to 2% of RP patient population. This product achieved peak sales of $52 million in 2023 with a patient population of approximately 2,000. We believe OCU400 has far greater commercial potential as it is intended to provide a therapeutic option for the remaining 98% to 99% of RP patients. We anticipate commercialization in 2027. Process validation and manufacturing activities are progressing well in support of the BLA. Brand planning and marketing initiatives led by Abhi Gupta, our EVP of Commercial and Business Development, are scaling up as well. We will begin rolling submission of the OCU400 BLA in the first half of 2026 and release Phase 3 top line data in the fourth quarter of 2026, in line with our commitments. As we prepare for what will ultimately be a global rollout for OCU400, we're pursuing regional partnerships that preserve Ocugen's rights to larger geographies to maximize total patient reach while also generating return for our shareholders. In September, we announced an exclusive licensing agreement with Kwangdong Pharmaceutical Company Limited for the rights to OCU400 in South Korea. Under the agreement, the company will receive up to $7.5 million in upfront and development milestone payments plus sales milestones of $1.5 million for every $15 million of sales in South Korea, projected to reach $180 million or more in the first 10 years of commercialization. We will also earn a 25% royalty on net sales generated by Kwangdong and will be responsible for manufacturing and supplying OCU400. There are an estimated 7,000 individuals in the Republic of Korea with RP, which represents approximately 7% of the U.S. market. OCU400 provides the opportunity for our partner to help thousands of patients facing vision loss. Upon regulatory approval of OCU400 in Korea, we believe Kwangdong will become a leader in the field of ophthalmic gene therapy in South Korea. Now let's move on to OCU410ST. OCU410ST has the potential to target over 1,200 pathogen mutations in the ABCA4 gene associated with Stargardt disease and other ABCA4-related retinopathies with a single, onetime, subretinal injection. As I mentioned earlier, enrollment in the Phase 2/3 GARDian3 clinical trial is ahead of schedule. The strong response underscores the significant, unmet medical need among Stargardt patients who currently have no approved treatment options available. Stargardt disease affects approximately 100,000 people in the U.S. and Europe combined and approximately one million people globally. With CHMP acceptance of U.S. trial data for the MAA submission, we'll maximize resources and streamline development efforts with the goal of bringing OCU410ST to patients in Europe sooner than originally anticipated. The 12-month data from all available Phase 1 subjects showed highly encouraging results with a 48.2% reduction in lesion growth and a meaningful online 6-letter gain in visual acuity in evaluable treated eyes compared with untreated eyes. All treated eyes also demonstrated stabilization or improvement in visual function, highlighting a consistent and tangible therapeutic benefit. Interim data from ongoing Phase 2/3 study is expected mid-2026, further advancing our goal of bringing OCU410ST to patients in need. Finally, OCU410 is specifically designed to address multiple pathways implicated in the pathogenesis of dry age-related macular degeneration and offers a promising advantage for current treatment options that target only one pathway, the complement system, which does not fully address the disease progression and underlying causes of vision loss. Currently approved treatment options require frequent intravitreal injections about 6 to 12 doses per year and are accompanied by various safety risks. For example, roughly 12% of patients develop wet AMD following treatment. With approximately 2 million to 3 million geographic atrophy patients in the U.S. and Europe combined, OCU410 represents a significant market opportunity. Current therapies have notable limitations, and there are no treatments approved for GA in Europe, as existing FDA-approved options failed to demonstrate meaningful functional outcomes. OCU410 is therefore well positioned to address this critical, unmet, medical need. At 12 months, available subjects in the Phase 1 study showed a 23% reduction in lesion growth, along with a 2-line or 10-letter stabilization or gain with visual equity in treated eyes. Preliminary results from 6-month interim analysis demonstrated a 27% reduction in lesion growth and preservation of retinal tissue in the treated eyes when compared to untreated control eyes. This reduction is over twice that observed with currently approved, intravitreal therapies at 6 months, monthly and every other month PEG citicoline injections, which showed only 13% and 12% reductions, respectively, highlighting OCU410's potential to provide a significant and meaningful therapeutic benefit to patients with a onetime treatment. In addition to the greater lesion reduction, a single subretinal injection of OCU410 demonstrates greater efficacy in preserving retinal tissue surrounding GA lesions compared with monthly and every other month PEG citicoline treatments. We plan to provide full 12-month data from the Phase 2 study, including both structural and functional outcomes, in the first quarter of 2026 and anticipate initiating the Phase 3 study next year. I will now turn the call over to Ramesh Ramachandran to provide an update on our financial results for the quarter ended September 30, 2025. Ramesh Ramachandran: Thank you, Shankar. The company's cash, cash equivalents and restricted cash totaled $32.9 million as of September 30, 2025, compared to $58.8 million as of December 31, 2024. With the recent $20 million financing in the third quarter, we believe our current cash position provides sufficient runway to operate through the second quarter of 2026. Total operating expenses for the 3 months ended September 30, 2025, were $19.4 million and included research and development expenses of $11.2 million; and general and administrative expenses of $8.2 million. This compares to total operating expenses for the 3 months ended September 30, 2024, of $14.4 million that included research and development expenses of $8.1 million; and general and administrative expenses of $6.3 million. That concludes my update for the quarter, Tiffany, back to you. Tiffany Hamilton: Thank you, Ramesh. We will now open the call for questions. Operator? Operator: Your first question comes from the line of Michael Okunewitch with Maxim Group. Michael Okunewitch: Congratulations on all the progress. So, I guess to just start out, I'd like to ask a little bit about OCU400 and in particular the timing of the BLA completion. You mentioned that you are going to be starting that in the first half of 2026, enrolling BLA. But then how quickly do you believe that you can turn around the pivotal data over to the FDA and complete that filing? Shankar Musunuri: As soon as it in, we're nearing completion as we stated. And we'll have resources ready to turn around in weeks. Michael Okunewitch: All right. That's great to hear. And then in terms of your manufacturing, are there any other items that you need to do to get ready for commercial manufacturing before you can start submitting that and start the rolling BLA process? Shankar Musunuri: Yes, good question. Our PPQ, our process validations runs, are going very well. They're on target. In fact, all the material we're making in support of the registration, they can be commercialized. So, we will have lots made ready to go. Michael Okunewitch: And then just one more for me, and I'll hop back into the queue. For OCU410ST, with the upcoming interim readout, what endpoints are you expecting to release? Or is that going to be an internal DSMB review? Shankar Musunuri: I mean for endpoint for the Phase 2, yes, it's already in the clinical protocol. We are looking at lesion growth compared to untreated control group. We do have untreated control group. And the secondary, we're looking at visual equity. Michael Okunewitch: But I'm specifically referring to the interim release that you're expecting midyear 2026. Will that be publicly released or is that going to be internal? Shankar Musunuri: That's a good point. Yes, there will be limited information publicly. The DMC looks at it, and then we'll be informing the agency. However, we will give some indications about the clinical trial. Michael Okunewitch: I appreciate the update. It looks like there's a lot to look forward to Ocugen. Operator: Your next question comes from the line of Boris Peaker with Titan Partners. Boris Peaker: A couple of questions for me. Maybe let's start with the OCU400. Can you just remind us exactly what the statistical kind of design of the liMeLiGhT study is, what the assumptions were? And I'm just curious if you've had kind of recent discussion with the FDA to make sure that it's still acceptable. And I think this question comes in the context of what we've seen just recently with uniQure, where it sounds like the FDA may have moved the goalpost a little bit in their gene therapy. So, I think I just want to get a sense to make sure that similar dynamic doesn't happen here. Shankar Musunuri: Yes. Good question. I'll start, then Huma will chime in. So first and foremost, I want to distinguish all our clinical trials, including our Phase 2 GA trials, we have a control arm within the study. Typically, FDA -- that has been a tradition. Most of the clinical trials, FDA really looks for control within the study, not using some external controls or very rarely natural history. So I think I really want to differentiate that from what you mentioned about uniQure. So, we do have our OCU400, OCU410ST total trials, including even OCU410 GA clinical trial, we have untreated control subjects in the clinical trial. So that's what we're using to compare. And Huma, go ahead on the clinical trial design. Huma Qamar: Yes. Thank you, Shankar. So, the clinical trial design is we have 150 subjects that we are planning to enroll for the study, 100 in the treatment and 50 in the control, 75 in the rhodopsin and 75 in the gene-agnostic arm with 50 being active and 25 in the control. We have 97% power for this study. We have assumed 50% and 10% treatment effect in the treated and the untreated eyes. And there is a 2:1 randomization, which means there is -- we are treating both the eyes as they meet the inclusion/exclusion criteria with the worst eye being dosed first. This is the only trial that is globally available with clinical and/or genetic diagnosis of RP with syndromic and covering non-syndromic forms. Boris Peaker: And maybe a question on OCU200. You mentioned the milestone that we'll see completion of enrollment by the end of the year in Phase 1. Can you comment when we'll see the data? And what would that initial data include? Huma Qamar: So we are on track for our OCU200 enrollment for our Phase 1. Our periodic safety updates are there. There are no serious adverse events related to the product listed as of right now. Yes, in the beginning of next year, we will be providing some more updates on the safety and efficacy of OCU200 as soon as it becomes available. But as this is a Phase 1 first-in-human, there are no serious adverse events related to the investigational product reported as of right now. Boris Peaker: And how many patients will you have in that initial update? Huma Qamar: So, we have a dose-ranging, dose escalation portion of the study. So, that would be almost 9 to 12 subjects. Operator: Your next question comes from the line of Swayampakula Ramakanth with H.C. Wainwright. Swayampakula Ramakanth: So, a couple of quick questions. The first one on OCU400, as you're nearing to the point where you're putting not only your application together, but also thinking about commercialization, what sort of investments are you making within the commercial infrastructure so that you're allocating appropriately within your budget for pre-commercial activities? Yes, let me start with that. Shankar Musunuri: Yes. I think, I mean, based on 2027 launch next year, we will be ramping up slowly for U.S. commercialization. Obviously, our goal is to continue to look for partnerships just like we announced one in South Korea and other regional partnerships in Europe, Japan and elsewhere. But U.S., we are looking still into because it's a good market. We have a good handle. We created a lot of the centers for excellence, which will be part of the commercialization for subretinal delivery. Therefore, we will have more information provided next year, but we'll slowly ramp up. We'll be allocating a carefully limited budget starting with. But we're looking into other revenues to beef that up next year. Swayampakula Ramakanth: Okay. And then on the ST, with the comment that it's reaching 50% enrollment on the GARDian3 trial, what's the cadence of enrollment there? Just trying to understand how the enrollment is going. Are there any geographies where you're seeing less of an enrollment? How many patients you're screening so that you get the enrollment moving? Shankar Musunuri: Yes. I'll let Huma take that. Huma Qamar: So, this trial includes 51 subjects, 34 in the treatment, 17 in the control. We are almost 50% and above in our enrollment. We have completed that, and we are on track. So, there are no geographical restrictions here. Actually, I would say, this is basically the disease of the pediatric population, and we are covering early to late stages of Stargardt, also 3 years of age and above. That's why we are pretty confident we are going to meet the enrollment goal. In fact, we do have almost half of what we have enrolled more than that in the screening queue. So, we are on track for completion of our enrollment. But there is no geographic restrictions. There are almost 15 centers that we have equally covered across in the U.S. and all of them have the screening metrics for those patients as well. So, we are on track. Swayampakula Ramakanth: Shankar, if I may, can I ask one quick one on OCU400 itself? Having looked at the data from the earlier studies and the patient characteristics, have you folks identified any of the patients? Obviously, there are some who are high responders and some who are non-responders. In general, how are you thinking about what the real potential is for OCU400? And what could your commercial strategy be so that you try to get the highest adoption that you could get? Shankar Musunuri: So RK, I mean, our design clearly outlines based on the strong scientific basis, we are targeting entire RP from early-stage to advanced pediatric to adult, and that's the coverage. And I mean, we are including in our Phase 3 clinical trial all major components of RP. That means some of the mutations with high prevalence rhodopsin or XLRP, [ RUSHERS ] and PDE6B, all those mutations are included with good representation. So our goal is to look at the data holistic and get the broad RP indication, so that we provide a treatment potentially for all RP patients, not restricted to specific genotype. Operator: Your next question comes from the line of Robert LeBoyer with NOBLE Capital. Robert LeBoyer: Just as a follow-up from some of the previous questions, my understanding of OCU400 is that it's a regulatory gene that affects the entire gene network downstream, restoring homeostasis. So, early-stage, late-stage, child, adult, specific mutations really wouldn't matter because it's affecting the whole downstream pathway that leads to blindness. So please let me know if that is the correct way to think about it. Shankar Musunuri: Yes, absolutely, Robert. You stated it. Robert LeBoyer: Okay. And secondly, the OCU410 in GA is also ongoing. And could you just go over some of the endpoints and what to expect in that trial? Shankar Musunuri: Yes. Huma? Huma Qamar: So, we have completed our ArMaDa enrollment Phase 1/2. The Phase 1 was a typical dose-ranging, dose escalation, 3 plus 3 design, 9 subjects there. And also we had a Phase 2, where we had a high dose, medium dose and a controlled, which means that we enrolled 17 subjects in high dose, 17 in the medium dose and 17 in the controlled. Also in terms of the endpoints in Phase 2/3, which is important, it's Stargardt atrophy lesion growth reduction from baseline and also looking at low luminance visual equity over the period of time as well, which is functional we have been consistently releasing the data on that, and we are on track for following up those patients until early part of next year. Shankar Musunuri: So there is a 1-year time point, Robert, to clarify. Our GA trial is a 1-year trial. Operator: Your next question comes from the line of Elemer Piros with Lucid Capital Markets. Elemer Piros: So, Shankar, you talked about OCU410ST and your agreement -- OCU410ST, your agreement with the European agency that the U.S. trial would be sufficient. Do you have a similar agreement related to the RP program as well? Shankar Musunuri: Yes. We have a similar agreement with [indiscernible], with EMA, on RP program. Elemer Piros: Okay. And what would be the regulatory path in South Korea for OCU400? Shankar Musunuri: Yes. Currently, it looks like South Korea and the rest of the world, typically for orphan gene therapies, they are following FDA closely. And once we get FDA approval, based on the FDA approval, we get approvals in those countries. So most of these countries don't need any additional clinical trials. Elemer Piros: I understand. And one housekeeping question, how much of the $7.5 million or up to $7.5 million that you received from Kwangdong is included in the cash balance that you reported? Ramesh Ramachandran: The $7.5 million is not included in the cash burn at this point of time. It is going to be in future. So that's not part of our cash burn at this point of time. Elemer Piros: And could we project some into the fourth quarter in terms of the initial payment? Ramesh Ramachandran: The $1 million, which we received from Kwangdong, that is already in the cash projection, but nothing more than that. Elemer Piros: Okay, $1 million. Okay. And lastly, could you talk about your manufacturing capacity, Shankar, especially when we think about much larger indications such as OCU410 for geographic atrophy? Shankar Musunuri: Yes. The manufacturing capacity, we have ex-U.S. partner with plenty of capacity. I mean, we have our own facility in our backyard in Malvern, Pennsylvania, and that facility will be ready. Our plan is to get that ready by 2027. And when we get the first approval, it's called a prior approval supplement with the U.S. FDA at the site. And our goal in future is to produce all U.S. supply from our U.S. manufacturing site. Elemer Piros: But you mentioned also that you have an ex-U.S. partner as well, manufacturing partner. Shankar Musunuri: Yes. That's right. Yes, currently. And we have plenty of capacity, global capacity. Operator: Final question comes from the line of Daniil Gataulin with Chardan. Please go ahead. Daniil Gataulin: First on OCU400, the trial, as we know, you have 2 arms, one with RHO mutations, one with RP gene-agnostic mutations. For the gene-agnostic arm, are you disclosing how many different mutations are included there? And in terms of the enrollment, did one arm see a more robust enrollment than the other? Shankar Musunuri: Go ahead. Huma Qamar: So actually, it's an assessor-blinded study. So, at this point, we cannot disclose. Gene agnostic means that all the major mutations will be covered, which is more than 95% geographically look at it in U.S. and globally. So we are going to cover that in the gene agnostic and all forms of rhodopsin are going to be in the rhodopsin arm. So that is the first one. And yes, there is a robust enrollment randomization that we are proceeding with. As we stated, clinical and/or genetic diagnosis, syndromic, as well as non-syndromic forms. Daniil Gataulin: In terms of prep for BLA filing for OCU400, what are the outstanding CMC -- or what is the outstanding CMC work that needs to be completed before you file? Shankar Musunuri: Yes. With the RMAT designation, Daniil, we have opportunity to initiate rolling submission, as we stated, in the first half of next year. And so you can submit nonclinical and CMC sections. So, as far as CMC is concerned, we have to complete our process validation runs for drug substance and drug product, and it's progressing really well, and we're on target. So, those sections will be submitted before we submit the clinical section. That will be the last one late next year. So somewhere in the middle of next year, somewhere we'll be submitting the manufacturing section. We'll start with nonclinical, followed by CMC, followed by clinical. Daniil Gataulin: And one last question for LCA. Is that on hold for now or is that completely off or out of your pipeline? Or what are your plans for LCA? Shankar Musunuri: From a market perspective, Daniil, it's very small. What we'll do is -- right now, it's not in our plan. And obviously, once the RP gets into the market, we can always look into that for Phase 4. Operator: This concludes the Q&A portion. I will now turn the call back over to Chairman, CEO and Co-Founder, Dr. Shankar Musunuri. Please go ahead. Shankar Musunuri: Thank you, operator. The third quarter was marked with important clinical progress, strategic business development and essential financing accomplishments. We are poised to close 2025 on a strong note and look forward to early 2026 catalysts that will further advance Ocugen's position as a biotechnology leader in gene therapy for blindness disease. Have a great day. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Daniel Segarra: Hello, everyone. My name is Daniel Segarra, and I serve as the Head of Investor Relations and Sustainability and Vice President at Grifols. Welcome to our review of the company's business results for the third quarter of 2025. Today, I'm joined by Grifols' Chief Executive Officer, Nacho Abia; the President of Biopharma, Roland Wandeler; and Grifols' Chief Financial Officer, Rahul Srinivasan. A few logistics before we get into the details. Today's call will last about an hour, including a Q&A session. As a reminder, this call is being recorded. You can find additional materials, including today's presentation, in the Investor Relations section of the Grifols' website at grifols.com. The transcript and a replay of the webcast will also be available on the Investor Relations website within 24 hours. Turning to Slide 2, please note that this presentation includes forward-looking statements regarding, among other things, the company's future operating and financial performance, market position and business strategy. These statements are based on current expectations and available information as of the date of the recording, and they are subject to certain risks and uncertainties that may cause actual results to differ materially from those projected. Grifols financial statements are prepared in accordance with EU IFRS and other applicable reporting provisions, including alternative performance measures or APMs, prepared under the Group's financial reporting as defined by the European Securities and Markets Authority. Grifols management uses APMs to provide financial performance as the basis for operational and strategic decision-making. These APMs are prepared for all the time periods presented in this document. Now moving to today's agenda, and I will turn the call to Nacho to kick it off. Nacho? Jose Ignacio Abia Buenache: Thank you, Danny, and hello, everyone, and thank you for joining us. The results we are presenting today demonstrates the continued commitment to delivering on our value creation plan. The performance achieved in the first half of the year has carried through, resulting in solid operational and financial results for the third quarter. This quarter reflects the sustained underlying demand of our products, solid market dynamics and disciplined execution, while we continue to navigate exchange rate headwinds and the anticipated impact of the Inflation Reduction Act. This progress also stems from the operational focus and financial stewardship we established in our road map at the beginning of the year, which remains the central pillar of our plan. Our core business continued to perform well through the third quarter, led by the immunoglobulins franchise. This top line performance has supported margin expansion, while tight cost management and focus on free cash flow generation have driven meaningful improvement in our free cash flow. While we acknowledge the challenges of the complex global operating environment, Grifols has performed with consistency and confidence. Our structural advantage, including scale, solid vertical local integration in key markets and a globally diversified footprint have enabled us so far to adapt effectively, mitigate external pressure and sustain solid performance across key markets. Regarding exchange rate headwinds, the impact was reflected at both revenue and EBITDA levels, but it did not extend to our leverage ratio or free cash flow due to the significant levels of natural hedges within our business. In any case, we continue to implement mitigating actions and maintain vigilant oversight of evolving external conditions. As we track towards year-end, we remain attentive and measured in our approach. Year-to-date performance has been solid and in line with our expectations, reflecting disciplined execution and resilience. Looking ahead, we recognize that the external environment remains complex and dynamic, we continue to actively manage the factors within our control. By leveraging our structural strengths and maintaining discipline, we remain on track to meet our 2025 objectives. Before we move on, I want to pause and take a moment to thank the entire Grifols team for their ongoing commitment, focus and passion in executing our plan and advancing our mission. And with that, let's move to Slide 5. On a year-to-date basis, we achieved revenue of EUR 5.5 billion, representing a year-over-year increase of 7.7% and 10.5% like-for-like after IRA and gross-to-net adjustments, both at constant currency. Third quarter adjusted EBITDA of EUR 482 million built on a strong first half, bringing our year-to-date adjusted EBITDA to EUR 1,358 million, up 11.2% and 17.3% like-for-like, both at constant currency. Both figures are well ahead of revenue growth. Improved operational execution translating directly into a positive year-to-date free cash flow pre-M&A and pre-dividends of EUR 188 million, marking a significant EUR 257 million year-over-year improvement. This ramp-up in cash generation highlights our sustained financial discipline, keeping this as a top priority. Finally, deleveraging remains a critical financial priority, too. And at the end of Q3, our leverage ratios per credit agreement landed at 4.2x, representing nearly 1x improvement over the prior year. We continue to reinforce our structural foundation and these year-to-date results position us soundly to execute our capital allocation priorities and continue strengthening our balance sheet, ensuring we can create sustainable long-term value for all our stakeholders. As we have mentioned many times, the core tenets of our value creation plan are guided by 3 key levers: commercial growth, margin expansion and pipeline execution. Starting with commercial growth, we continue to build on the existing market demand and our robust commercial capabilities to expand sales across our portfolio. This includes deepening our penetration in existing markets and expanding into new geographies. Margin expansion remains a core priority, supported by operational leverage, optimized plasma sourcing and manufacturing efficiencies. And through pipeline execution, we continue to drive the innovations that define and sustain Grifols' leadership in plasma-derived therapies, while our Diagnostic division advances its 3 cutting-edge platforms currently in advanced development. These levers are supported by 2 critical enablers: our plasma supply and industrial footprint and our innovation strategy, as highlighted on the slide. Our resilient, diversified plasma manufacturing network represents a decisive competitive advantage in the current global environment. It ensures reliable plasma supply and production capacity, allowing us to effectively meet growing global demand. Turning to innovation, I'd like to provide an update on our pipeline. We remain on track to launch fibrinogen in Europe by the end of 2025 with a planned U.S. launch in the first half of 2026. In the U.S., we are proceeding with the FDA biological license application for congenital fibrinogen deficiency, for which we expect a decision in late December as planned. For acquired fibrinogen deficiency and based on conversations with the FDA, we have decided to build additional clinical evidence before seeking regulatory approval. This will help us well to strengthen an even more solid case to sustain the market development efforts we envision in the U.S. market for the years to come. Roland will share more details on fibrinogen shortly, but I want to mention that this decision does not affect our current Capital Markets Day plan in any meaningful way, nor does this change our long-term strategy or the significant opportunity we see ahead. Other than Fibrinogen, we are maintaining disciplined investment in R&D while advancing clinical programs across both life cycle management and new product candidates. Key initiatives, including SPARTA and alpha-1 with subcutaneous formulation are progressing as planned, underscoring our commitment to sustaining innovation, patient impact and long-term value creation. And with that, I will hand this over to Roland to expand on these and other market and business updates. Roland Wandeler: Thank you, Nacho. I am pleased to share an update on our biopharma business and highlight the key factors driving our performance this year. As we continue to deliver on our value creation plan, I am proud of the dedication, the passion and commitment our team shows every day to deliver for patients and drive forward towards the goals we set out in terms of commercial growth, margin expansion and innovation. With that, let's turn to Slide 8 for our commercial performance. In the third quarter, our biopharma portfolio grew by 10.9%, lifting our year-to-date growth to 9.1%, both at constant currency. Our immunoglobulins franchise led the way, outpacing the market with 18% growth in the quarter and 14% year-to-date, both at constant currency. This performance was driven by GAMUNEX and XEMBIFY with IVIg and subcu Ig delivering 12-month growth of 13% and 62%, respectively. We remain confident in XEMBIFY's strong trajectory, supported by continued strength in the U.S. and expansion into new markets in Europe. I'll dive deeper into our Ig franchise on the next slide. Turning to albumin, third quarter volumes remained solid, but were offset by ongoing pricing pressure in China as market demand slowed down in face of government-imposed cost controls. This resulted in a contraction of 4.5% for the quarter and 3.9% year-to-date, both at constant currency. While these dynamics were anticipated, we continue to work with our local partner, Shanghai RAAS, on how to best manage market dynamics and sustain a strong position in China as the principal market for albumin. At the same time, we are working on strengthening our presence and unlocking additional growth opportunities in the U.S. and other markets in order to help us balance albumin with our IgG growth over time. Looking at our Alpha-1 and specialty proteins franchises, we continue to make solid progress. In the third quarter, revenues grew by 3.3%, bringing growth to 4.3% year-to-date, both at constant currency. These results reflect our continued market leadership in alpha-1 and HyperRAB. I'll share more detail on this franchise in a later slide. Now let's turn to immunoglobulins or Ig as the main growth driver of our business on Slide 9. Over the last 2 years, we saw an opportunity to use our strong Ig inventory position to accelerate Ig growth, build momentum in key markets and win back market share in the U.S. We have since delivered on this plan. We have strengthened our U.S. organization and commercial capabilities, expanded subcu Ig penetration through XEMBIFY and leveraged the strong profile of GAMUNEX as a leading IVIg to win share in strategic accounts. These actions have delivered clear results. Our Ig business has posted double-digit growth over these last quarters, ahead of the market and driven by demand as we regained share in the U.S. and Europe and thus reset our position in the Ig market. Looking ahead, from this higher base, we now expect to grow more in line with or slightly ahead of the market, consistent with the 6% to 8% CAGR range we shared as part of our value creation plan. The fundamentals for continued growth of Ig remain strong, as key indications continue to be underdiagnosed and increasing global awareness of Ig as the treatment of choice in many conditions means that more patients get to benefit from our medicines with a long track record of proven efficacy and safety. Looking at our 3 main indications, growth remains solid in primary immunodeficiency, where increased awareness and better diagnosis are expanding access to therapy. In secondary immunodeficiency, the largest growth opportunity within Ig, demand continues to rise, driven by an aging population and an increase in immunocompromised patients. And in CIDP, we are seeing continued growth, albeit at a lower level after the significant step-up in diagnosis last year with the entrance of FcRns, which has helped expand this market. CIDP is a complex neurological condition with multifactorial origins, meaning the disease can present very differently across patients. This is precisely where Ig therapy stands out. With its broad and well-established range of immunomodulatory and immune-supportive modes of action, Ig can address multiple disease mechanisms and improve functional outcomes across a wide range of patients. As we build on this strong foundation, innovation continues to be a cornerstone of our Ig strategy. We're advancing next-generation products, new formulations and expanded indications that strengthen our competitive position and enhance patient experience. In terms of next-generation Igs, YIMMUGO, our novel IVIg from Biotest has launched in the U.S. in the fourth quarter of 2025, adding another differentiated therapy to our portfolio. XEMBIFY continues to gain strong traction, growing more than 60% over the last 12 months, and we're expanding into new markets through 2026. In terms of life cycle management, we are advancing new delivery formats, including XEMBIFY and prefilled syringes to improve convenience and adherence. In parallel, we are progressing with our studies to expand indications in the U.S. with GAMUNEX-C and XEMBIFY advancing in SID and XEMBIFY in CIDP. Together with our ongoing improvements in end-to-end Ig yield and operational efficiency, which will help us expand margins, this focus on innovation will ensure that our Ig franchise remains a cornerstone of sustainable and profitable growth for Grifols. Now turning to Slide 10. Let's take a closer look at our alpha-1 franchise and our strategy and progress in this area. Grifols has established itself as a leader in alpha-1 with today approximately 70% market share across both the U.S. and ex U.S. Our position is testament to Grifols' leadership in building this market, our best-in-class patient support programs and our unique testing capabilities. Despite important progress throughout these last decades, we are today still only treating about 10% to 15% of the alpha-1 patient population across the world, leaving a large unmet need and untapped market opportunity. Testing is the key to unlocking this potential. We have, over the last years, complemented traditional screening with the rollout of our point-of-care and at-home direct-to-patient screening kits. Still, we only see a part of physicians systematically testing their COPD patients for AATD. We believe that we have a possibility to change this and dramatically increase the number of diagnosed patients with the readout of our outcome study SPARTA, continued advances in AI-enabled screening of electronic medical records to highlight patients at risk as well as increasing awareness in the market for new entrants. Raising awareness and improving diagnosis remain critical levers to enhance patient outcomes and enable market growth. As a company that firsthand gets to see the continued unmet need and the difference our medicines can make for the grievous illnesses we get to treat, we always welcome innovation that raises awareness and might provide additional options for patients, especially in a condition where the vast majority remain undiagnosed and untreated. As a leader in this space, we want to meaningfully contribute to this innovation, both through our outcome study that will address important questions for the field as well as both the subcutaneous and a long-acting treatment option in our pipeline. SPARTA is the largest efficacy study ever conducted in alpha-1 antitrypsin deficiency and is designed to show clinical outcomes in real-life lung tissue preservation different from other studies primarily focused on pharmacokinetic endpoints. The results of this study have the potential to significantly strengthen the clinical and payer value proposition for augmentation therapy, increase testing awareness and improve patient access in the U.S. as well as support broader reimbursement in Europe. The trial also includes a double-dose regimen, which could represent an important advancement in treatment. We expect the readout of SPARTA in the second half of 2026. In parallel, we are advancing a 15% subcutaneous formulation and a next-generation alpha-1 therapeutic to enhance patient convenience, expand access and continue strengthening our position in this growing market. In summary, we remain confident in the continued success of PROLASTIN, supported by its value proposition and proven 30-plus year track record of safety and efficacy. Turning to Slide 11, innovation is at the heart of our business. Our pipeline reflects a focused and disciplined approach to advancing high-value programs that drive life cycle management, expand indications for our existing medicines and bring new products to market both within plasma as well as beyond plasma. We have already covered the innovation underway for our Ig and alpha-1 franchises. Turning now to fibrinogen, as Nacho mentioned, we have refined our go-to-market approach to maximize our long-term opportunity. In the near term, the largest opportunity for fibrinogen lies in Europe, where markets such as Germany and Austria have adopted fibrinogen concentrate as standard of care. For these markets, we are on track for our launch of this product later this year. We have received the end of procedure notice from Germany and are awaiting approval in this key market shortly to be followed by additional countries in Europe. We are confident that our differentiated product positions us well to effectively compete and gain share over time in these markets. Longer term, the largest opportunity remains in the U.S., where the use of fibrinogen today, though, is still low and the market has a long way to go to fully embrace this more targeted approach to bleeding management as standard of care. Here, we are on track with our BLA for congenital fibrinogen deficiency or CFD, with a PDUFA date end of December. We expect to launch this indication in the first half of 2026. As Nacho mentioned, following conversations with the FDA and observing the slow growth of fibrinogen in the U.S. over the last year, we have decided to focus our BLA on CFD for now and use the time to further strengthen our body of evidence with U.S. patients for an sBLA for acquired fibrinogen deficiency or AFD at a later point in time. While this delays our indication for AFD in the U.S., this staged approach allows us to provide access to our medicines for U.S. patients with CFD in the first half of next year, while giving more time for the market to evolve, further strengthen our position for a possibly differentiated label in AFD and set us up for a leading position in the U.S. over time. As Nacho noted, these updates do not affect our guidance and the long-term goals outlined during our Capital Markets Day, nor do they change our broader development efforts and our conviction in a meaningful opportunity ahead as the standard of care continues to evolve toward concentrate-based therapies. We remain confident in the program's progress and long-term success as we continue to invest in its global rollout for the benefit of patients. Taking a step back, while we certainly look forward to the launch of fibrinogen, our pipeline reflects our focused and disciplined approach to advance innovation and create value across all our therapeutic areas. We've already covered our advancements in immunology and pulmonology. In infectious diseases, our trimodulin Phase III trial in severe community-acquired pneumonia is progressing steadily. With its innovative polyclonal antibody profile, trimodulin has the potential to address a significant unmet need. And in ophthalmology, our ocular surface Ig program for dry eye disease in Phase II has the potential to expand use of Ig into new therapeutic areas. In the earlier stages of development, our pipeline spans both plasma-based and non-plasma programs, including a next-generation GAMUNEX process with improved yield, recombinant therapies and novel treatments for infectious diseases. Overall, our pipeline reflects a balanced mix of near-term launches and long-term innovation aligned with our value creation plan and reinforcing Grifols leadership in plasma-derived medicines aimed at driving sustainable, profitable growth for years to come. With that, I now hand it over to Rahul to provide more details on our financial performance. Rahul Srinivasan: Thanks, Roland. On Slide 12, the words continued resilience sum up not just the Grifols' financial performance, but also very aptly describes both the Grifols business that has been built over many decades as well as the Grifols spirit of our over 24,000 teammates and our shared commitment towards the Grifols mission. Slide 13. From a financial performance standpoint, Q3 was a robust quarter across the board that presents an equally robust across-the-board year-to-date picture. There have been some favorable phasing and mix benefits that have contributed to this robust year-to-date financial performance that I will elaborate on in the upcoming slides. As a reminder, our reported figures included the impact of IRA and the fee-for-service GPO reclassification, which could distort the underlying performance and hence, to improve comparability to prior periods, we will continue to disclose the like-for-like column for the remainder of the year, which we believe will be helpful to all our stakeholders. Starting with Q3 financial highlights. Net revenues of just under EUR 1.87 billion, up 9.1% versus Q3 '24 on a constant currency basis, led by Biopharma, and adjusted EBITDA of EUR 482 million, resulting in an adjusted EBITDA margin of 25.8% for the quarter. And a slightly higher impact on group profit than was the case in Q2 this year. And free cash flow pre-M&A pre-dividends for the quarter of $203 million, up meaningfully versus Q3 '24. Moving on to year-to-date financial performance. Net revenues of over $5.5 billion, up 7.7% on a constant currency basis, led by Biopharma that, as Roland mentioned earlier, is up 9.1% on a constant currency basis. Year-to-date adjusted EBITDA of over $1.35 billion is up 11.2% versus 2024 on a constant currency basis despite the impact of IRA, albeit benefiting from some phasing and favorable mix that I referenced earlier. Both gross margin and adjusted EBITDA margin are up versus 2024, notwithstanding the impact of IRA. Year-to-date group profit of $304 million is up over 245% versus year-to-date 2024. Free cash flow pre-M&A pre-dividends is up $257 million versus year-to-date 2024, and I will elaborate on the drivers of this free cash flow improvement a couple of slides later. Furthermore, the leverage and liquidity picture has significantly improved versus Q3 2024. And with secured leverage at only 2.6x, we have almost 2 EBITDA turns of secured leverage capacity, giving us material flexibility, thus rounding out the robust and improving balance sheet that is referenced in the title of the slide. And finally, I have deliberately not dwelled on the like-for-like performance that you see on this slide as we consider the impact of IRA as part of our regular cost structure now. But the numbers in this column are eye-popping, and are helpful context to the underlying momentum of the business. Slide 14. Notwithstanding the impact of IRA, year-to-date revenue growth was up 7.7% on a constant currency basis, whilst clearly Biopharma led, we also had a positive contribution from our Diagnostics business that continues to execute in keeping with our plan. As Roland alluded to earlier, the Biopharma revenue growth continues to benefit from robust underlying Biopharma demand on the back of continued Ig momentum as well as progress from our alpha-1 and specialty protein franchise. Albumin, however, is an area that we continue to keep a close eye on. And finally, year-to-date performance has benefited from some phasing-related gains that have also contributed to a 9.1% constant currency growth versus 2024. Slide 15. Year-to-date adjusted EBITDA in 2025 is at $1.358 billion, up from $1.253 billion in 2024 after absorbing the year-to-date IRA impact of $75 million with adjusted EBITDA up 11.2% on a constant currency basis and adjusted EBITDA margins improving versus 2024 by 60 basis points to 24.5%. The EBITDA growth was mainly led by Biopharma, supported by each of the following: strong volume growth aided by some phasing benefit, a favorable geographic mix adding to the phasing benefit with a proportion of EBITDA from the U.S. better than expectations and up meaningfully year-to-date, continuing improvements in CPL and finally, continued focus on OpEx discipline and driving the benefits of operational leverage. As for the IRA impact, it is broadly in line with the guidance we provided in Q2, and we expect full year impact to be between $100 million to $125 million. Whilst the impact on EBITDA of a weakening U.S. dollar is considerably more sheltered than revenues as a result of the various natural hedges in our cost structure, it has still been a stiff headwind. Whilst the weakening U.S. dollar has been the main issue from an FX standpoint, other currencies have also contributed to the total FX impact versus the FX rates embedded in our guidance for the year as set out in our Capital Markets Day presentation. Slide 16. Over the last number of quarters, we have talked about our expectation for continued convergence between adjusted and reported EBITDA on a cash basis or said another way, focusing on reducing the amount of cash adjustments between adjusted and reported EBITDA. And we are pleased to see that convergence trend on a cash basis continue over the last couple of years, and there are 3 specific outcomes that I would like to call out. Number one, continued reduction in cash adjustments between adjusted and reported EBITDA. And as you will see on this page and the detail on Page 30 in the appendix, there has been a 56% reduction in cash adjustments on an LTM basis, primarily due to lower cash adjustments pertaining to restructuring costs and transaction costs. Number two, reported EBITDA is growing at 15.7% on a constant currency basis, faster than adjusted EBITDA despite its robust 11.2% growth on a constant currency basis. And finally, three, the gap between reported and adjusted EBITDA margins is reducing. And as at Q3 '25, this gap has narrowed to 120 basis points, having been 210 basis points at the end of 2024 and 340 basis points as at the end of 2023, mainly on the back of lower cash adjustments and the convergence tends to happen rapidly, often within around 6 to 7 months, validating the credibility of these cash adjustments. We also want to proactively flag the potential of noncash adjustments in Q4 that importantly do not at all have any impact on the go-forward EBITDA growth story or free cash flow growth story. These potential noncash adjustments are simply the other side of the capital allocation discipline coin, where prioritizing our valuable capital mainly on the projects that we talked about at our Capital Markets Day in February this year, means that some other projects remain dormant or on hold and potentially there could be an impact on their carrying value. But to be clear and to repeat, we are confident that these potential noncash adjustments will not impact our go-forward adjusted EBITDA growth or free cash flow growth story. Slide 17. A quick update on our progress towards our free cash flow pre-M&A, pre-dividends goal for the year. As you will recall, we improved our free cash flow pre-M&A, pre-dividend guidance at H1 from $350 million to $400 million up to $375 million to $425 million, considerably up from the $266 million free cash flow outperformance in 2024, and we expressed our confidence that the business could do meaningfully better over time. And finally, recall that unlike EBITDA, free cash flow pre-M&A, pre-dividends is more insulated from euro-dollar volatility. The punchline on our year-to-date free cash flow performance is that we are tracking well versus our improved free cash flow guidance provided in our H1 call, as at the end of Q3, we are EUR 257 million better than we were in 2024 at the same point. The principal driver of the improving performance is greater vigilance on cash flow across the entire organization. In addition to that, improved EBITDA contribution, lower cash adjustments, tight working capital management, disciplined CapEx and capitalized IT and R&D spend and an improvement in cash interest expense as a result of debt paydown in 2024 and significantly lower utilization of RCF has supported our year-to-date progress on the free cash flow front. And more on free cash flow guidance for 2025 on the next slide. Finally, on Slide 18, updates on both capital structure and our outlook for the year. First, on capital structure. The clear tightening of our longest-dated bonds in our capital structure by over 200 basis points in just the last 3 to 4 quarters is evidence of the clear progress in the re-rating of the Grifols story. And by that, we mean not just from a credit perspective, but also our clear focus on progressing on the immense equity re-rating opportunity we believe there is. And it is also pleasing to see a number of our banking partners further corroborate the re-rating progress implied by our tightening bond yields by proactively offering meaningful upside support for a potential upsized RCF as part of the refinancing that we are targeting in H1 2026. All very helpful steps forward on the capital structure front and preparations are ongoing. We have also just a short while ago launched a harmonizing exercise to align the documentation of the 2 bonds we currently have maturing in 2030. As I alluded to before, both bonds continue to trade very positively, hence, the launch of this nice-to-have action. Before speaking about outlook, it might be helpful for us to contextualize our year-to-date performance. Notwithstanding very stiff FX headwinds and the IRA impact, our performance has been robust for the reasons we have already discussed. We have also benefited from some positive phasing and mix gains and thereby accelerating aspects of our EBITDA performance for the year, which we expect will partly reverse in Q4. When considering year-over-year comparison to Q4, please remember that we are lapping our best quarter in history from an EBITDA perspective, a quarter that itself back then benefited considerably from phasing. And taking that together with IRA and the FX headwinds, we expect a robust Q4 '25. However, it will compare less favorably to Q4 '24 in absolute terms. The team remains very focused on ensuring that we execute with the same discipline and intensity as we have all year. It is also worth reminding the market of our updates in prior quarters of the impact of a weakening U.S. dollar and how that headwind reduces as we move down our P&L as a result of the natural hedges embedded in our business, from a weaker U.S. dollar having a significant impact at the revenue level to being broadly neutral at the net income or group profit level and indeed broadly neutral on free cash flow, too. And absent any abrupt movements in FX, euro-dollar in particular, as we move to the end of the year, we expect it to be broadly neutral on leverage, too, which then leads me to the final section on guidance. On the right-hand side, we compare our updated guidance to the original guidance we provided at our Capital Markets Day on 27 February 2025 at guidance FX rates. And on the left-hand side, we estimate the full year FX impact to be roughly around EUR 70 million on adjusted EBITDA if FX rates stay as they are currently for the rest of the year versus the guidance FX rates in order to assist all our stakeholders with their analysis. As you will see on the right-hand side, our updated guidance at guidance FX rates compares favorably to the original guidance we provided at our Capital Markets Day, improving updated guidance at guidance FX rates for both revenues and free cash flow pre-M&A, pre-dividends. And on the latter, we are once again improving our guidance further to EUR 400 million to EUR 425 million. And adjusted EBITDA guidance FX rates is reaffirmed to be consistent with the original guidance provided and that we are currently tracking very comfortably within the guidance range provided, which, as I mentioned at the start of the financial performance section, speaks to the resilience of the Grifols business, notwithstanding the highly dynamic markets that we have navigated well thus far this year. With that, let me hand it back to Nacho for his concluding remarks. Jose Ignacio Abia Buenache: Thank you, Rahul. I would like to conclude today's presentation with just a few final remarks. Our third quarter results confirm that the strategic road map we set in motion this year is delivering results. The value creation plan is driving measurable progress from continued market share gains and sustained top line growth to a significant improvement in free cash flow generation. This performance underscores our focus on strengthening financial fundamentals and executing with the discipline required to turn a strategic vision into financial performance. We have also further strengthened our balance sheet through deleveraging, enhanced free cash flow generation and a disciplined financial and capital allocation. This combination provides the flexibility to invest in growth while maintaining a prudent approach to leverage and liquidity. As we approach year-end, we remain vigilant as market conditions continue to be dynamic with foreign exchange pressure and other external factors still present. These potential headwinds are being closely monitored. And as in previous periods, we are confident in our ability to respond with resilience and execution. Therefore, we reaffirm full year 2025 revenue and adjusted EBITDA guidance and the exchange rate presented at our Capital Markets Day and updated free cash flow guidance to more than EUR 400 million. Finally, I want to recognize once again the dedication of the entire Grifols team whose commitment to our value creation plan continues to drive this company forward. We are executing with focus, accountability and discipline and remain fully committed to creating long-lasting value for all our patients, donors and stakeholders. Thank you, as always, for your continued support. And with that, Danny, back to you. Daniel Segarra: Thank you, Nacho. Now let's turn to the Q&A session. [Operator Instructions]. Let's start with Charles from Barclays. Charles Pitman: Just first one on fibrinogen. Just I want to clarify what the driver there is behind the fibrinogen and AFD being delayed to the U.S. Is this kind of FDA pushback on -- is that reflective of their internal resourcing? Or is it reflective of the quality, quantity of your supporting data for the indication? Just because thinking about this asset previously, a key differentiating factor for Grifols was to be the first U.S. approved asset with both forms of the disease as part of the label. So just to your point about not impacting the midterm guidance, kind of how do you expect to be able to continue to differentiate against the competition? Or is this just set to be a very short delay? And then my other question is just for Rahul on the refinancing. Just coming back to terminology there, you're highlighting the harmonization process of the 2030 bonds. Can you confirm whether this means that you're also considering refinancing of these 2030 maturities as part of the 1H '26 targeted refinancing for the '27 maturing bonds? And just wondering, as part of that refinancing as well, is there any potential to renegotiate the terms of the GIC deal? Jose Ignacio Abia Buenache: Thank you, Charles. On fibrinogen, I think that we always have stated and have been aware of the fact that in the United States, we would need to change the standard of care, which currently is based on cryoprecipitate in order to boost the sales of fibrinogen to the level that we expected. This is a mission that we are very committed to do. We believe, based on what we see in other markets that, that certainly will bring benefit for patients. But as I mentioned, based on the conversations with FDA, we feel that it's important to bring even more solid clinical information and clinical data with U.S. patients in order to help with that standard of care. At the same time, I think, obviously, our focus in the short term is going to be to develop markets outside of the U.S. And in the U.S., obviously, with the congenital fibrinogen deficiency, certainly, we will start working with physicians for them to know and be more aware about the benefits of fibrinogen versus other alternatives. I don't know, Roland, if you want to add anything else? Roland Wandeler: Perhaps just commenting on how this compares to the plan that we laid out at the Capital Markets Day. As mentioned, today, the largest opportunity is in Europe, north of 200 million. And there, we remain on track for our launch in Germany this year, and we believe that we can differentiate and gain share in this market and actually have some opportunities in ex U.S. -- ex Europe market as well to gain share. In our considerations, the U.S. was always a slower build. And therefore, a delay of AFD at this point does not materially change our outlook in the near term. And at the same time, we believe that with a possibly differentiated label at the time of launch of AFD in the U.S., we have an opportunity to still lead that market and capture the long-term potential of north of EUR 800 million that we laid out at the Capital Markets Day. So that's where the comments come about that we don't see a change in our outlook. Rahul Srinivasan: And Charles, on the 2030 bond harmonization, that's just a harmonization exercise between the conditions or the documentation, if you like, between the 2 bonds. Your comment around 2030 refinancing, of course, we have the optionality if we so choose to refinance those. Those bonds are callable on the 1st of May 2026, if I recall correctly, which just gives us -- we have that optionality. And clearly, as you can see with where those bonds are trading today, there is value as we think about refinancing those in due course. But it is a part of refinancing options that are available to us. It doesn't have to be in 2026. We can decide on the right time for that. And then finally, on GIC, you're absolutely right, there is -- those are 8% dollar bonds and the way we look at that is at sort of unsecured risk. There is value there. Again, we -- in terms of the right time to optimize a possible redemption of that, we'll decide that in close partnership with GIC. GIC has been a partner of us for some time. We'll work through that at the right time. But clearly, there is also possible value there. In due course, we can seek to capture that from a redemption and refinancing standpoint. Daniel Segarra: Now let's move to the next one, Jaime from Santander. Jaime Escribano: So a couple of questions from my side. The first one, could you elaborate a little bit more on the dynamics of the albumin in China? Basically, if this pricing pressure comes from the offer side, so more competition? Or is it the demand or the reimbursement or the social security there that is putting lower prices? And the second one regarding also fibrinogen, just for my understanding, so it seems that there are 2 segments, so AFD and CFD. So out of the $800 million addressable market, how much is AFD and how much is CFD? Basically, my question tries to understand the short-term opportunity when you launch for CFD versus the [ additional ] indication, AFD? Jose Ignacio Abia Buenache: Thanks, Jaime. And let me start with the second one, and then Roland will address the one about China. So on the fibrinogen, I mean, it's not possible to see or to assess really what is the market opportunity right now because the market development effort needs to be done. I think that we know that at this point, the use of fibrinogen in the U.S. is limited. It's very limited. It's small. And we know as well that what is the potential that fibrinogen can have. If we managed to get the standard of care at the levels that we see in other markets like Germany or Austria. So at this point, both AFD and CFD are small. And our work is going to be to really prove and bring clinical evidence that those markets will develop to the level that we expect they will be of this $800 million Europe that over time, we are confident it will happen. And on China, Roland will comment now. Roland Wandeler: Yes. On China, the key underlying driver are the government-imposed cost controls that we talked about across the whole health care sector. That had an impact on prices and also had an impact in terms of the demand in the market slowing down. But it is important to note that while we see this impact at this moment, China remains to be the key market and the prices actually still compare favorably with other parts of the world. Also, as we think about China for the future, it's a key market for us. It's important. We believe that our partnership, our strategic partnership with Haier and Shanghai RAAS puts us in a strong position to navigate this market, and we are working to seize opportunities to realize growth in other parts of the world, particularly U.S. and ex U.S. to see how we can aid to continue to balance our albumin with the Ig growth that we foresee. So in terms of the driver, it's really coming down on this market. It's a dynamic situation, but we believe that we are in a good position to navigate this with our strategic partnership. Daniel Segarra: Now we will go to Alvaro Lenze from Alantra, please. Alvaro Lenze Julia: The first one is on the EBITDA guidance for the year. If I take the range you provided and I subtract the EUR 70 million expected FX impact implied Q4 in the lower range would be about EUR 450 million adjusted EBITDA and on the upper range would be around 500 -- sorry, EUR 500 million. That is on the low end, a 15% decline, and that would put Q4 less than either Q3 and Q2. So I don't know if there is any phasing there. I know Rahul explained the comparison base for Q4 last year is quite tough, but still in absolute terms, the low range of the guidance would look a bit underwhelming. So I was just wondering what your thinking process for that guidance was. And then a second question would be, you mentioned some impairments for Q4. I just wanted to know what sort of assets are you thinking of for the impairment and when did those assets join the balance sheet, just to understand whether you are looking at past or very old investments that you no longer think are as valuable as represented in the balance sheet or if it's more recent investments that you're cutting? Rahul Srinivasan: Sure. Let me start with the second one on impairments. It's certainly, as you -- as I mentioned in my prepared remarks, we laid out at our Capital Markets Day, R&D and innovation plan and none of those from our standpoint are impacted at all. This really is some of the efforts in our portfolio that perhaps have not had the prioritization from a capital standpoint. And all we're doing is proactively flagging that. But importantly, Alvaro, this does not impact our go-forward adjusted EBITDA growth story or indeed our go-forward free cash flow growth story. So just to give you an idea that just in terms of lower prioritization in terms of -- from a project standpoint. So that's on the second question. On the first question around guidance and ranges, I said 2 things on our -- as I described the guidance. One, I said we are very comfortably within our guidance range for adjusted EBITDA. And then the other thing I said is we expect a robust Q4 2025. The only thing I caveated there was that the absolute comparison versus Q4 '24 that also benefited meaningfully from phasing last year is something that we just wanted to make sure that we prudently guided on. But from our standpoint, as you look at those ranges, I think the bottom end of the range that you feel very comfortable about managing and beating, and, as we've always done, focuses head down on execution with discipline and intensity. So we'll see where we get to, but we're tracking on that basis. And what we want to do is make sure we flag the phasing aspects as we've done. Daniel Segarra: Thank you so much. Now we would like to get Charlie Haywood from Bank of America. Charlie Haywood: Charlie Haywood, Bank of America. Two questions, please. First one, unless I've misunderstood, could you clarify what the FX headwind to your reported revenue guide would be for the full year? And then just on the sort of FX impact, what specifically on FX has changed since second quarter when, I guess, guide was reiterated and there wasn't an implied FX impact there? And then the second question, just wanted to get your thoughts on, obviously, the competitor readouts we've had in alpha-1, your confidence in rebuttal of that, especially on the margin level, which I understand is slightly higher than your standard products and given also fibrinogen delay today might lead to more of a margin impact. So just high-level thoughts on how you can rebut that impact. Rahul Srinivasan: Thanks, Charlie. I'll take the first one. So if you go back to our Q1, go back to our Q2 and indeed repeating now in Q3, we've been consistent around the headwind of U.S. dollar weakening on EBITDA. But remember, it remains broadly neutral from a leverage standpoint and indeed broadly neutral from both the group profit, bottom line net income and from a free cash flow standpoint. Number two, you will also -- if you go back to each of those presentations, you will also see that we have been reiterating, I think, Q1 and Q2, we've always taken you back to the basis on which guidance was provided, and there's no change in that respect now in Q3 either. So that's why we're always saying is that as you compare our our guidance or implied guidance now relative to -- on a guidance FX rates basis, we continue to track well from a revenue and free cash flow standpoint, in fact, improved and maintain the -- or reaffirmed guidance from an EBITDA standpoint. Equally, we want to make sure that we are being completely upfront. We provided a sensitivity analysis in Q2. And what we're trying to do now is just give you a number if the rates as at the end of Q3 persists through to the end of the year, what that implies from an adjusted EBITDA headwind. The question around revenue impact, we've not provided that. But I mean -- but if you just assume that roughly about 2/3 or 65% of our revenues is U.S. dollar-denominated. And if you do the rough math around that, depending on what your exchange rate assumptions are for the rest of the year, that could have an impact of anywhere between $300 million to $400 million, give or take. But on the basis of the guidance FX rates, we are guiding to an improved revenue guidance for the year. So let me leave it at that. And on the second question, I'll hand it over to Roland. Roland Wandeler: Yes. On alpha-1, we always, as part of our plan, assumed positive top line data of the pharmacokinetic endpoints. So this was as we expected. What we hear from thought leaders are basically 2 questions at this point. One is waiting to see the detailed data and understanding safety of this recombinant approach. And the second question is around the pathway to approval. And we're obviously also eagerly waiting to see what this means. But as we think about Alpha-1, we just want to bring it back to the immense opportunity that still remains. We only are treating 10% to 15% of patients today, which means 85% of patients are undiagnosed. And we just saw with CIDP how a new entrant can actually dramatically improve and accelerate diagnosis. Beyond that, we know that with our outcome study, SPARTA, we have it in our hands to raise awareness of this disease in the U.S. and ensure that we can have a broader reimbursement in Europe, which gives us a growth lever. And then lastly, as we mentioned, we're excited about our subcu treatment, 15%, which we're advancing into Phase III and planning to submit an IND there in the coming months and our long-acting option. So as we look in -- at this market, a new entrant, but most importantly, the growth opportunity that this market has, we remain committed and confident about alpha-1. And as you think about fibrinogen concentrate, as we outlined, the path to growth is not materially affected by what we just shared. We are still in a position to compete and possibly accelerate our uptake ex U.S. and we have an opportunity to strengthen our positioning in the U.S. and see that we can lead in this market in the long term. Daniel Segarra: Thank you so much, Roland. I appreciate the question, Charlie. Next up is Thibault from Morgan Stanley. Thibault Boutherin: Just on the free cash flow guidance, so obviously, versus beginning of the year, EBITDA and change at constant currency, I mean, using February FX as a base, free cash flow guidance has been upgraded a couple of times since. If you can just remind us the moving parts in between for the free cash flow improvement and any risk of seeing some of these elements reversing in the future? So for example, working capital, if you could comment on your expectations for working capital position at the end of the year and what it means for potential reversal in Q1 next year? Rahul Srinivasan: Yes. So just -- so your question is on just the various constituent parts of our free cash flow improvement. You're absolutely right in that we have improved our guidance on free cash flow a couple of times this year. The drivers of that free cash flow improvement come from the improved EBITDA on a year-to-date basis, our adjusted EBITDA is up meaningfully. And even if you eliminate some of those cash adjustments, they continue to track very well compared to 2024. On a net working capital basis, we talk about tight working capital management, notwithstanding the impact of a depreciating dollar on just sort of inventory levels and so on, our inventory levels continue to be managed on a tight basis as is the case on both from a receivables and payables standpoint. So that is tracking well and tight. As you look at CapEx and capitalized IT and R&D, clearly, we are -- as we anticipated at our Capital Markets Day, we saw 2024 as being a sort of a peak from a total CapEx. And here when we talk about CapEx, I also include what we used to refer to as extraordinary growth CapEx previously. So the total CapEx number to sales was at a peak in 2024. And all that's happening here is it's playing out as we expected, prudent and disciplined CapEx spend. And then finally, as you look at interest cost, we had the significant deleveraging benefit in 2024 from the partial disposition of our Shanghai RAAS stake that has helped leverage, helped debt redemption. And in addition to that, what has also helped significantly is our meaningfully lower utilization of RCF from a financing standpoint. So all of that translates to free cash flow improvement of $257 million versus last year. As I look at the picture for the rest of the year, we remain confident about executing on our improved guidance of $400 million to $425 million for free cash flow pre-M&A, pre-dividends for 2025. And then -- and with respect to the impact in 2026, we will cover that off when we provide guidance in -- at the end of February next year. But certainly, we're not anticipating significantly different variations. If you recall, in Q1 this year, we had a meaningful improvement from a free cash flow standpoint versus Q1 2024. And one of the things that we will seek to do is maintain that to the extent possible. But that's something that we'll pick up in a bit more detail when we provide our guidance for 2026 at the end of February next year. Daniel Segarra: Thank you so much, Rahul. Very clear. Guilherme, I think that you were waiting. Guilherme Sampaio: Yes. So 2, if I may. The first one, I assume that the Ig growth acceleration was positively impacted by some pricing benefits that you alluded to, but also some volume gains in the U.K. You're guiding for a slowdown in terms of [indiscernible] growth going forward. Just to understand a bit how going to be the phasing between Q4 and Q1, taking Q1 as a potential reference for going forward. So this 6% to 8% is something that we should consider only for Q1 and Q4 could be a bit below these references? Or is the run rate -- the 6% to 8% is the run rate that we can assume going forward? And second question regarding 2026. So from your comment, I assume that we should expect a lower underlying growth, at least in Biopharma. But the FX typically has a positive impact in terms of margins, the weaker U.K. U.S. dollar. So at the Capital Markets Day, you guided for a uniform margin progression across the plan. This less favorable effects on the absolute EBITDA standpoint could impact positively margins. So we might have in 2026, a faster margin expansion than what you were planning in the Capital Markets Day? Roland Wandeler: Guilherme, happy to add a bit more color on the Ig side. As you may recall, in our Capital Markets Day, we said that we aim to grow Ig in line or slightly ahead of the market and gave that 6% to 8% CAGR rate, which just reflects the potential that Ig has, and we expect it to be in there. The other part that I want to just bring up again is you may recall that in the 2023 call, leadership at the time announced a plan to win back share in the U.S. During the pandemic, we have lost share in the U.S. and we have announced that we want to win it back. We have since executed on this plan using a strong inventory position that we had at the time, and that translated into this double-digit growth, well, well ahead of the market during this time. We have since regained the market share and at this higher market share, we now expect to grow in line with the market or ahead of the market. So from that perspective, I would look at these last 2 years as our ability to actually reposition us in the market and from here to grow with or ahead of the market moving forward. Rahul Srinivasan: And then finally, on the question around margins. No real change in terms of the building blocks driving our margin improvement story over the coming years. And with respect to what we had guided from a margin standpoint for 2025 was adjusted EBITDA margins to be in line with 2024, having fully absorbed the impact of IRA. And year-to-date, we're doing exactly that. You can see on a like-for-like basis and even on a year-to-date basis, our margin improvement is up. So that remains the story for 2025. And with respect to 2026 and beyond no change, we will update the market with respect to 2026 guidance specifically when we come to it at the end of February. Daniel Segarra: Thank you, Roland. Thank you, Rahul. We have time for the very last question. It's going to be Justin from Bernstein. Justin, please. Justin Steven Smith: Yes. Justin from Bernstein. Just a quick one on fibrinogen, and apologies if I've missed some remarks here. But when you talk about the new evidence that you need to bring, are we talking about new clinical data? If so, could you just share some thoughts on execution risk there? I mean, is it a case with acquired patients? It's quite difficult to locate those patients and run the trial. So any thoughts there would be very helpful. Roland Wandeler: Yes. The one thing to highlight is that we are obviously looking at the study in the U.S., and we have different proposals on the table, and we'll be looking at the best way with an eye on making sure that this obviously helps us with speed to the market at the same differentiation possibly in our label. And we do not see an execution risk there. We see the need and interest to conduct a trial like that. Daniel Segarra: Okay. Thank you so much, Roland. I say that was all for now. Thank you so much for all your questions and for joining us today. If there is any follow-up, please let us know. There is an IR team dedicated for that. Thank you so much.
Operator: Good day, and thank you for standing by. Welcome to the Fortrea Q3 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Tracy Krumme, Fortrea's SVP of Investor Relations. Please go ahead. Tracy Krumme: Thank you. Good morning, everyone, and welcome to Fortrea's Third Quarter 2025 Earnings Conference Call. With me today on the call is Anshul Thakral, Chief Executive Officer; and Jill McConnell, Chief Financial Officer. Before we begin, please note that this call is being webcast. There is an accompanying slide presentation, which can be found on the Investor Relations section of our website, fortrea.com. During this call, we'll make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to significant risks and uncertainties that could cause actual results to differ materially from our current expectations. We strongly encourage you to review the reports filed with the SEC regarding these risks and uncertainties, in particular, those that are described in the cautionary statement concerning forward-looking statements and risk factors in our press release and presentation that are posted on our website. Please note that any forward-looking statements represent our views as of today, November 5, 2025, and that we assume no obligation to update the forward-looking statements even if estimates change. During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or a replacement for the comparable GAAP measures, but we believe these measures provide investors with a more complete understanding of results. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and the earnings call presentation, which is provided in connection with today's call. Lastly, I would like to add that Anshul, Jill and I will be attending the Citi and Evercore Healthcare Conferences on December 2 and 3, respectively. If anyone would like to meet with us on these dates, please contact me or a sales representative from the firm. And with that, I'd like to turn the call over to Anshul Thakral, Chief Executive Officer. Anshul, please go ahead. Anshul Thakral: Thank you, Tracy. Good morning, everyone, and thank you for joining us today. As I mark my first 100 days in this role, I want to begin by expressing my gratitude for the warm welcome and support I have received from colleagues at Fortrea, our Board, our clients and our broader community of stakeholders. I'm pleased to share that Fortrea delivered solid results in the third quarter, in line with our expectations. Revenue for the third quarter was $701.3 million, adjusted EBITDA was $50.7 million and backlog is over $7.6 billion. Our book-to-bill ratio improved to 1.13x, up sequentially from the second quarter, and our trailing 12-month book-to-bill ratio of 1.07x remains in line with the CRO sector. These results, combined with the continued strength of our pipeline position us for continued backlog growth. Overall, we saw demand for our services grow. Our win rates improved significantly, reaching the highest level in 6 quarters. Specifically with biotech clients, our win rates doubled compared to the prior quarter. Decision-making time lines for biotech clients have continued to improve from a low in the first quarter of 2025. We saw continued strong RFP flow across clinical pharmacology and full-service clinical development and have a robust pipeline that is balanced across biopharma and biotech clients. While we saw a slight increase in our cancellation rate, it remains within our historical range. The overall demand environment is showing signs of improvement with growth in clinical trial starts so far this year and increased biotech funding in Q3. Biopharma remains resilient and continues to advance its development portfolios, reflecting the underlying strength of the science. Our cash position is robust, bolstered by the receipt of the second and final milestone payment of $25 million from the divestiture of our enabling services business. We continue to focus on debt paydown, including a recent tender offer to repurchase up to $75.7 million of the company's outstanding senior secured notes, funded in part by our improved cash position. These actions underscore our commitment to maintaining a healthy balance sheet and financial flexibility. We also welcomed Bill Sharbaugh to our Board of Directors this quarter. Bill brings a wealth of experience from his long tenure as an executive in clinical development at Bristol-Myers Squibb and PPD. I have had the privilege of working with him previously. His insights will be valuable for our Board as we execute our strategic plans. Let me provide some details on our new business wins in Q3. We secured several significant awards with new and repeat clients that underscore our differentiated capabilities and strong client relationships. Our clinical pharmacology business continues to grow with robust wins from leading pharma partners as well as biotechs. Average contract size continues to increase, consistent with our expertise in managing complex early phase clinical trials. Our portfolio continues to see growth in metabolic disease, neurodegenerative disease, immunologic and rheumatologic diseases. We also see growth in studies, including patient cohorts, which we are increasingly able to execute internally within our own clinical research units or what we call our CRUs. This is true for later-phase studies as well, where we are able to leverage our CRUs as multipurpose research sites. Our global clinical development business saw diverse awards across multiple therapeutic areas -- our new to Fortrea Biotech awards in the quarter included a Phase II study in a rare neuromuscular disease. We won repeat business from several clients in the quarter. These wins included two Phase III ophthalmology studies from a biotech client, a Phase III complex respiratory disease study from a midsized pharma and a Phase II oncology study from a large pharma client. In addition, we were delighted to secure 2 new strategic partnerships with midsized clients. Turning to client and operational highlights. We are pleased to report another sequential improvement in Net Promoter Scores in Q3, reflecting our ongoing focus on client satisfaction and operational excellence. Our NPS improved further year-over-year, supported by measurable delivery achievements, including reducing the time to site selection by 33%, accelerating recruitment in a high-priority complex respiratory study by 3 months and finishing enrollment 5 months early in a Phase II Alzheimer's study. This is the execution excellence that drives client trust. With our culture of innovation, we continue to make strides in technology and AI adoption, delivering productivity gains that are expected to improve efficiency, quality and client delivery. I'll highlight some of the innovations that are part of our Fortrea technology strategy focused on digital modernization of our workflow. Earlier this year, we launched Accelerate Risk Radar, including an AI-powered agent designed to enhance risk-based quality management in clinical trials. It uses AI and ML to automate risk identification and suggest mitigation strategies, reducing manual effort and improving efficiency and patient safety. Start My Day is a new digital experience that brings actionable insights and prioritize tasks into a single intuitive persona-based interface for CRAs and study teams. This tool is designed to improve daily productivity and decision-making. It's in pilot stage now with broader deployment planned in 2026. As part of our strategy to modernize CRA workflows, we are broadening the rollout of our ICRA mobile app and digital assistant following successful pilots. We are integrating the app with our Accelerate platform to provide smart reminders, digital site check-ins and risk metrics. Early users report 5% to 10% efficiency gains, which should increase as we add further functionality, tangible proof that our strategy is delivering. These initiatives streamline processes, reduce manual effort and foster a culture of continuous improvement, positioning Fortrea for operational excellence and scalable innovation. Now I'd like to share more color about our progress on our strategic plans. As I mentioned on our last earnings call, my first 100 days at Fortrea were focused on 2 priorities: deepening client-facing activities and employee engagement. To that end, I traveled extensively across the United States with members of our executive team as well as to India, China, Japan, the U.K. and Bulgaria, meeting with clients and colleagues. These visits included discussions with many of our top clients to strengthen partnerships as well as joining our sales efforts by attending bid defenses and numerous meetings with biotech executives as part of our new client acquisition actions. Client feedback on Fortrea has been overwhelmingly positive. Both large pharma and biotech clients value our global delivery, quality, executive attention and operational improvements. Biotech clients, in particular, appreciate our balance of scale, agility and the focus on client intimacy. With that said, we, of course, like all CROs, can continue to get better in project management and overall client relationship management. We held in-person employee town halls across various geographies and offices, engaging with about 1/3 of our workforce. We saw firsthand a hackathon in India, showcasing grassroots innovation from our study team. We are instilling a culture amongst our colleagues to continue to focus on efficiency across all aspects of our workflow. I am proud of our employees' deep experience and their commitment to our mission of bringing life-changing treatments to patients faster. The team moved quickly through our leadership transition without missing a beat, and there is a strong emphasis on employee engagement. They have worked with tireless dedication to serve our clients and position the company for future success. My first 100 days also reaffirmed that our strategy should center around 3 critical pillars for the business: commercial excellence, operational excellence and financial excellence. Commercial excellence is how we return to growth, built on the 3 Rs: reach, relevance and repeat. We must continue to expand our reach by growing our pipeline of new opportunities and acquiring new clients. We must also leverage our recognized therapeutic and scientific expertise in ways that are relevant and resonate with clients, doubling down on areas where we are already strong. Lastly, we're growing our roster of repeat clients through sticky relationships and enhancing our account and portfolio management capabilities. Operational excellence is how we deliver quality and productivity consistently for our clients. We are optimizing project management, streamlining our structure and bringing therapeutic experts closer to delivery. We're also enhancing our biotech operating model and empowering our operational teams to accelerate studies with better technology, tools, training and infrastructure. Financial excellence means continuing to rightsize our organization while driving margin expansion. While cost actions have begun to reduce our expense base, we are implementing further targeted initiatives to ensure that these translate into margin improvement in 2026. The ability to tightly match resources to demand must remain in Fortrea's DNA. We continue to optimize our capital structure. We remain focused on positive cash flow and stay committed to keeping our DSOs in the low to mid-40s. We're closely monitoring the pricing environment to balance winning new business and achieving attractive margins amid competitive pressures. I will now turn the call over to Jill for a deeper dive into our financial results. Jill McConnell: Thank you, Anshul, and thank you to everyone for joining us today. In my prepared remarks, I'll cover the primary factors that influenced our third quarter performance and share an update on our 2025 guidance. I'll highlight our progress against our previously shared cost optimization initiatives. Additionally, I'll spend a few minutes highlighting improvements in our cash flow this quarter and our expectations regarding liquidity and our sound capital structure that position us well as we move forward. These results demonstrate that our actions are beginning to deliver results. I wanted to be clear that we are continuing to take appropriate actions to improve our financial performance and capital profile. As Anshul stated, we delivered a solid third quarter. For the quarter, we delivered revenue and adjusted EBITDA that continues our momentum towards our margin optimization initiatives, including delivering nearly 2/3 of our $150 million in gross savings targets in the first 3 quarters of the year. We generated strong positive operating and free cash flow, and we delivered a 13-day improvement in DSO versus the second quarter as we have now fully unwound the impact of the invoicing costs related to the launch of our new ERP system during the first quarter. Now I'll cover the financial results in more detail. Third quarter revenue was $701.3 million, 3.9% higher than the prior year quarter, driven by increases in both our clinical pharmacology and clinical development businesses with a small benefit from foreign exchange. The increase in our Clinical Pharmacology business was primarily driven by higher demand as well as study mix that is resulting in increased levels of pass-through costs. The clinical development increase was driven by recent net new business awards, including higher pass-through costs, partially offset by lower FSP revenue. On a GAAP basis, direct costs in the quarter increased 9.9% year-over-year, primarily due to an increase in pass-through and stock compensation costs as well as the negative impact of lower research and development tax credits. This increase was partially offset by lower headcount and personnel costs, which declined despite the reintroduction of variable compensation as we carefully balance investing in our employees while delivering on our transformation efforts. SG&A in the quarter was lower year-over-year by 21.6%, primarily due to lower TSA and IT-related costs. If you look at underlying controllable SG&A sequentially, SG&A in the third quarter is 7% lower than in the second quarter of 2025 and 20% lower than our fourth quarter 2024 run rate. This also includes the absorption of reintroducing variable compensation. I'll discuss progress on our ongoing transformation efforts across the organization later in my remarks. Net interest expense for the quarter was $22.6 million, broadly in line with the prior year quarter. Turning to our tax rate. We recognized income tax benefits of $12.8 million, which resulted in an effective tax rate of 44.6%. The effective tax rate for the 3 months ended September 30, 2025, was higher than the company's statutory tax rate, primarily due to an increase in the company's U.S. operating losses, partially offset by nondeductible compensation expenses, valuation allowance and withholding taxes on our non-U.S. earnings. Our book-to-bill for the quarter was 1.13x, significantly improved from the second quarter as we navigated the brief period of leadership transition. Book-to-bill for the trailing 12 months was 1.07x. Our backlog is over $7.6 billion. Although cancellations were slightly higher in Q3 than in the last few quarters, they have continued to be in line with our historical trends. Adjusted EBITDA for the quarter was $50.7 million compared to adjusted EBITDA of $64.2 million in the prior year period. The reduction versus the prior year quarter is driven primarily by lower margin related to project mix, including a higher proportion of pass-through costs, the reintroduction of variable compensation and a reduction in R&D tax credit. Moving to net loss and adjusted net income. In the third quarter of 2025, net loss was $15.9 million compared to a net loss of $18.5 million in the prior year period. In the third quarter of 2025, adjusted net income was $11.7 million compared to adjusted net income of $20.7 million in the prior year period. For the current quarter, adjusted basic and diluted earnings per share were $0.13 and $0.12, respectively. Turning to customer concentration. Our top 10 customers represented 60% of third quarter 2025 revenues. Our largest customer accounted for 19.8% of revenues during the quarter ended September 30, 2025. As I comment on cash flows, note that all references to prior year cash flows are for the entirety of Fortrea as we had not segregated cash flows from discontinued operations for the businesses sold in June 2024. To more clearly see year-to-date and third quarter cash flow metrics, please refer to the investor presentation we posted to our website this morning. For the 9 months ended September 30, 2025, we reported negative operating cash flow of $15.6 million compared to positive operating cash flow of $245.7 million in the prior year period. The positive cash flow in the corresponding prior year 9-month period was attributed primarily to the initial sale of receivables under the securitization program initiated in June 2024. For the third quarter of 2025, we generated positive operating cash flow of $87 million and free cash flow of $80 million, which exceeded our expectations. Days sales outstanding from continuing operations was 33 days as of September 30, 2025, 13 days lower than June 30, 2025, and 17 days lower than the same period last year. The significant reduction versus the second quarter primarily demonstrates our continued progress to improve the timeliness of our order to cash processes, although we did benefit from the timing of certain payments in the quarter. Net accounts receivable and unbilled services for continuing operations were $663.2 million as of September 30, 2025, broadly in line with the $659.5 million balance as of December 31, 2024. We ended the quarter with no borrowing on the revolver compared to $50 million outstanding as of June 30, 2025. Our positive operating cash flow in the quarter, combined with our undrawn revolver, resulted in available liquidity in excess of $0.5 billion. We currently target full year 2025 operating cash flow to be slightly negative with the first quarter negative cash flow being mostly offset by positive cash flow generation for the remainder of the year. With our targeted EBITDA and the significant add-backs available under the credit agreement, we expect that we will continue to have ample liquidity for the foreseeable future. As an important reminder, our credit agreement includes add-backs well beyond what we include in our definition of adjusted EBITDA, such as the pro forma benefits from in-flight cost savings initiatives, our public company costs and costs necessitated by the spin. The maximum net leverage ratio under the amended credit agreement ranges from 5.5x to 6x over the years 2025 and 2026 and reverts to 5.3x as of the first quarter of 2027. While we do not disclose our covenant calculation, we have considerable headroom and our covenant leverage ratio under our credit agreement is significantly better than our reported leverage ratio, generally at least 1 turn better than our reported leverage. We are currently and anticipate that we will remain fully compliant with the financial maintenance ratios of the credit agreement for the foreseeable future. Our capital allocation priorities continue to be driving organic growth and improving productivity, along with debt repayment, including the closing of our note repurchase that is required under the indenture in connection with the divestiture of our enabling services businesses in 2024, which is expected to take place in the fourth quarter of 2025. Backlog burn in the third quarter was in line with the second quarter of this year and in line with the prior year period. This was supported by growth in our faster burning clinical pharmacology business, along with our progress in moving clinical development projects into more intensive phases of their life cycle. We anticipate this trend to continue throughout the remainder of 2025. Now I'll give an update on how we're executing against our transformation plan. As previously shared, we continue to execute against our target of gross cost reduction of $150 million in 2025 with the expected net benefit of around $90 million this year as some of the cost reductions are being offset by the reintroduction of variable compensation. Year-to-date, we have captured more than $95 million in gross savings with roughly $53 million in net savings contributing to improvements in EBITDA. Year-to-date, these savings have benefited largely gross margin more than SG&A, but we are seeing an increase in SG&A savings as the year progresses, consistent with our planned timing for executing on the SG&A-specific savings program. Building on our ongoing progress to improve our cost base, through the third quarter, we have further leveraged our third-party relationships to optimize the cost of delivering services out of our SG&A functions. We expect our SG&A optimization programs to extend into 2026 as we continue our efforts to bring this spend more in line with peers. For full year 2025, we are raising our revenue guidance and narrowing our adjusted EBITDA outlook. Based on exchange rates as of December 31, 2024, we are increasing our revenue target to a range of $2.7 billion to $2.75 billion. At the same time, we are narrowing our adjusted EBITDA target in the range of $175 million to $195 million, reflecting continued operational discipline and confidence in our execution. In terms of cash flow for full year 2025, we are targeting operating cash flow to be marginally negative with positive operating cash flow expected in the fourth quarter of 2025. The team at Fortrea continues to demonstrate commitment and resilience, and we are pleased to see improving customer satisfaction scores and continued strong employee engagement amidst our efforts to optimize our profitability. We believe we have laid the groundwork to enable stable financial performance that will improve over time. We are energized by what lies ahead and our ability to be laser-focused on delighting our customers. As we advance through our transformation phase and target execution against the 3 pillars Anshul shared with you in his remarks, we look forward to demonstrating our continued progress towards delivering value for all of our stakeholders. Now we'll open the call for Q&A. Operator, please open the line. Operator: [Operator Instructions] Our first question comes from the line of Eric Coldwell of Baird. Eric Coldwell: Nice job and glad to have you here, Anshul. I got a couple. First off, in the past, the company talked about its mix of pre-spin awards burning through revenue as opposed to post-spin or next-generation style contracting. And that was -- the majority of that was pre-spin awards that's been navigating towards more post-spin awards. But I'm curious if you can give us an update on where you are and how you see that unfolding through 2026. Anshul Thakral: Eric, it's nice to talk to you. Thanks for the kind words. It's been a great first 100 days here at Fortrea. Excited for the entire team stepping up this quarter. So I'm very proud of our team here at Fortrea. I think we talked about this a little bit last time to pre-spin versus post-spin, trying to get folks less focused on that vocabulary. I think there are contracts that have been signed with Fortrea long before the company became Fortrea when it was still a business unit at Labcorp. And there's limited things that we can do in terms of rightsizing those contracts and limited work we can do. But the team is focused on everything that is possible in terms of rightsizing those contracts, and we continue to do that. And as far as -- as you call it post bid, I just look at it as independent contracts signed within the Fortrea landscape. We've been very focused, especially these last 2 quarters on ensuring that we're focused on things like out-of-scope work, things like overburns, things like ensuring that the teams are staffed appropriately, and we're starting to see some really good results from those efforts. You said you had a couple of questions Eric? Eric Coldwell: Yes. Thank you. I appreciate that. The -- it sounded like you made some progress with new to Fortrea clients this quarter. Obviously, that was a bit hampered last quarter with the original uncertainties around the CEO transition and some counter detailing by your competitors as well as just the market environment. But I'm hoping you can give a little more detail in terms of maybe, if possible, sizing or giving a count of new to Fortrea customers or any kind of quantitative metrics, if possible. But more importantly, I think talk to us about how you're approaching that marketplace. Is it new sales strategies? Is it higher level executive engagement? What is going to drive a previously inexperienced customer, someone who hasn't worked with you? What is going to drive them to come to Fortrea moving forward? Anshul Thakral: Sure, Eric. Happy to touch on that. Last time we spoke on an earnings call, I think I was on day 2 or day 3 of the job. And now having really, for the company completed the CEO transition and frankly, to a solid financial performance, though not in bookings in the second quarter, that -- all of those factors in general just helped create a level of stability around Fortrea in the eyes of our customers. That renewed confidence got reflected in the numbers we saw here in Q3. And I'll share some numbers with you, and I want to answer your real question is what are we doing differently. The thing I look at is RFP volumes from these new to Fortrea customers. RFP volume in Q3 for us was up almost 40% quarter-over-quarter with these new customers. Our win rates were where we were really having impact. Our win rates for these new Fortrea biotechs doubled quarter-over-quarter. And they've been -- our win rates in general with our biotech customers have been at the highest level we've seen in the last 5 to 6 quarters. Now your question is, what do we do? It's focus. For all of these customers, whether it's our big pharma customers or biotech customers, it's a renewed focus on account management. It's a renewed focus on how we're showing up in the sales force. I mean I'll tell you, I've spent most of my time now either visiting sites and being with some of our colleagues where I've been on bid defenses myself, so is the executive team, and I've been out at customers almost every single week that I've been here. So it's a renewed focus on our sales strategy. It's bringing a lot more medical expertise and operational expertise into the bidding process earlier. Frankly, Eric, it's a lot of just getting back to the basics. Eric Coldwell: Fantastic -- Yes, that's it. I just want to also say congrats on getting Bill Sharbaugh into the organization. It will be fun to catch up with him. He was fantastic at PPD. So congrats at that. Anshul Thakral: I'll pass on that message. Thanks, Eric. Operator: Our next question comes from the line of Patrick Donnelly of Citi. Unknown Analyst: This is Brendan on for Patrick. I want to touch on a little bit on like the bookings backdrop. I wonder if you'd be able to parse out kind of like what you're seeing there between large pharma and kind of small biotech. And kind of more recently, as we've seen more headlines on the [ MSN ] news and pharma tariffs, have you seen any increased activity or interest in moving forward previously pending projects? Anshul Thakral: Yes. Brandon, happy to answer that question. Look, we don't break down specifics around our bookings numbers between biotech and biopharma. What I'll tell you is from a trend perspective, we're seeing neutral to favorable trends in both segments, in both markets. Let's take a look at our biotech customers. Historically, let's go back to Q1 of 2025, we saw some pretty depressed decision-making time lines, things taking forever. So we're starting to see that pick up. That trend is pretty important in the biotech segment, and that's led to not just increased RFPs, but a slightly faster sales cycle for us over the course of the third quarter. As far as our biopharma customers are concerned, what I would tell you about our biopharma customers is they continue to be resilient and persevere through the ever-changing landscape, be it tariffs, be it pharma pricing, et cetera. And what we're finding with all of our biopharma customers is their prioritized pipelines that are backed by science and innovation continue to move forward. And our conversations with our biopharma customers continue to move at a healthy pace that we've seen all year. Unknown Analyst: Appreciate that. And then on the pricing environment, this has definitely been kind of a big focus of kind of the CRO industry. And I was wondering if you've seen any changes in the competitive intensity over the last several months? And how do we kind of see that moving forward? Anshul Thakral: Well, look, I think the pricing environment continues to be competitive but disciplined. Our bid margins, these are margins of the levels at which we submit our proposals and bids have largely stayed consistent this year. In our full-service CRO work, price isn't really a lever we see that wins business at the end of the day. It's leading with science. It's leading with executive engagement. It's leading with staffing the right operational teams and putting the right delivery solutions in front of the client within the desired time frame. With that said, in the FSP business, we certainly see more aggressive pricing strategies coming specifically from some of our larger CRO competitors. We tend to shy away from areas where pricing makes the business unattractive for us. Operator: Our next question comes from the line of David Windley of Jefferies. David Windley: Anshul, congrats on the first quarter. Good to hear your voice. I wanted to ask a question that meanders through a few different topics, but basically around kind of pricing strategy and margin leverage. So I heard $53 million of delivered savings to the P&L, more of that benefiting gross margin than SG&A. I think you had also talked about in meetings in September kind of a focus on maybe long term, growing revenue to drive operating leverage and improve margin. And then we're talking about new to Fortrea client wins among other wins. And so I guess what I'm interested in is, are you, one, trying to at least hold price, if not walk up price a little bit as a method to drive more operating leverage in the long term, thinking that maybe Fortrea in the past has been a little bit low on price at the outset. And then secondly, given that revenue was strong in the quarter, I'd love for you to disentangle, maybe Jill can disentangle the direct fee versus the pass-through to help us understand why that didn't benefit gross margin instead of seeing this gross margin detriment compared to the prior periods. Sorry, long question. Anshul Thakral: First of all, David, it's nice to hear your voice, too. It's nice to talk to you again. Let me start by giving some of the overarching answers. I noted down about 3 questions and 7 parts here, but I'll do my best to walk through to give you the narrative there. I think -- look, I think that's the question of the day, right? So -- and then I'll have Jill add some commentary here on the specifics. You asked several questions. It's -- the root of your question is pricing strategy and therefore, margin leverage. So let's hit a pricing strategy and let's talk about margin leverage in the quarter and what happened. My goal is to hold on price when and wherever possible. That said, it's a very competitive pricing environment. If there's some strategic reasons for a particular customer, a particular therapeutic area for us to be competitive in the marketplace, we will be competitive in the marketplace. But holding price is extremely important. I can tell you there's examples of multiple studies in Q3 where I specifically asked the team to frankly walk away at the last days of the proposal because terms and pricing aren't in congruence with what I'd like to do here is to return Fortrea back to closer to industry level margins. So being very vigilant there. And almost every deal from a pricing perspective makes it up to myself or Jill or Mark, and we discuss these things. So there's a lot of holding and being vigilant there. That said, it's -- this concept that I talked to you about growing revenue to get the operating leverage we need, that's key. But it's not just growing revenue, it's growing direct service fee revenue. I'm going to have Jill comment a little bit about this quarter so you can understand where our revenue beat is coming from, so you can start articulating that revenue beat in comparison to margin. But Jill is going to hand that over to you. Jill McConnell: Sure. Yes, David, I appreciate the question. So I think if you're thinking holistically about revenue and where it's landed this year, a couple of points. In terms of the makeup and the mix, we have seen more upside in pass-throughs than we expected. And when you think about the guidance and how the guidance has been adjusted through the course of the year, that's predominantly been because we've seen an increased mix of pass-throughs relative to service fees. We have a good handle on our service fee revenue now and have been very successful in being able to forecast that for ourselves. So that's very positive. I think like many of our peers, we're continuing to see increased pass-throughs. So that's driven a lot of the revenue change over the year, and that's why you're not necessarily seeing it either in the adjusted EBITDA dollar or the margin. Does that help answer your question? David Windley: Yes. I mean is it possible to put some numbers on that? Anshul Thakral: David, I'd love for you to lead the charge at getting the entire industry to start doing that because I spent time in prep sessions yesterday with the team saying, maybe we should just start doing that. But if you can get the rest of the industry to do it, I'll do it the same, okay? David Windley: Got it. I'll ask one much shorter follow-up. Eric asked you the question on new to Fortrea clients. I'll maybe if there's anything specific about -- you mentioned in your prepared remarks, biotech operating model. That is -- you obviously have a history there, a successful history there at your prior shop. Is there anything specific that you might add to your answer to Eric about biotech client go-to-market strategy, in particular, given your reference to the biotech operating model? Anshul Thakral: Yes, sure. I would -- I mean, I've spent a career focused on this topic. I think I started creating biotech-specific strategies and units before it was a thing or even popular in the CRO industry. What I'll tell you what I've been trying to do here at Fortrea is we just need to be bespoke. Every deal needs a bespoke approach when it comes to biotech, whether it's trying to understand the makeup of what they're trying to solve for with the particular trial so that we've got our medical and scientific experts leading the deal versus our sales reps leading the deal or we understand that they're trying to solve for a resource gap in how they've been able to build their own clinical operations resources, then it's our clinical team that's leading the deal or we're really trying to solve for something that is much more of a -- right now, we just need some estimates because we're trying to raise funding. Then we've got our sales team leading the deal. So in each one of these cases, what I'm trying to do at Fortrea and what I've done in my past is to upskill our customer-facing resources. Our customer-facing resources don't just sit in sales, upskill our customer-facing resources to get to the root cause, just like I do as an engineer, problem solve, what is our customer trying to solve for and then figure out which resource and how does Fortrea need to show up in that specific problem. I think we did that better than we have in the past in Q3. But do I think we did it at a complete level of satisfaction for me personally? No. But that's the opportunity over the next coming quarters for us to continue to approach the biotech customers in a much more bespoke way than Fortrea ever has. Does that answer your question, David? David Windley: Yes. Yes, very helpful additional color. Operator: [Operator Instructions] Our next question comes from the line of Luke Sergott of Barclays. Luke Sergott: I appreciate the talk about like rightsizing the cost structure and stuff. But as we kind of look further out, one of the questions we get asked is like the disconnect that you guys have from a margin perspective versus peers, on your normalized basis, is there any reason why you wouldn't be able to close that gap once you kind of engage all these other productivity programs, et cetera? Just kind of thinking about where these margins could go in a more normalized growth and bookings environment for you or operating environment. Jill McConnell: Yes, Luke, I think Anshul can speak here because we've actually talked about this, and I think he'll reiterate that over time, we don't see that he still doesn't see, but he can comment on that. I think part of the margin challenge, as I mentioned in the response that I had previously, some of the revenue this year has come from higher pass-throughs, which obviously bring challenges. We've been open about the fact that we've reintroduced variable compensation back this year as we try to make sure we retain our key talent and engage. So we're trying to be thoughtful about how we balance those headwinds. I think we've done it in the right way because we have managed to keep employee engagement really high, and we know that, that's very important to our customers as we -- they want to have the solidity of those teams. Over time, you're going to continue to see us focus on bringing down SG&A expense as a percent of revenue. We've made progress this year, but there's still more work to be done. And then what Anshul has been saying, and I'll let him weigh in here, we need to continue to rightsize the whole organization relative to where we are as a company. And that is something that we have spent on the journey on, but there's still more work to be done. Anshul, do you want to add... Anshul Thakral: Yes. No, that's great. Luke, I think it's as Jill said, and I said this before, now 100 days into the company into the weeds, I don't see any structural reason. I don't see any structural reason why we can't return back to more industry standard margins. But it's going to take a few things. It's not just going to take rightsizing, but it's going to take a consistent growth in our backlog. So if I look at Fortrea, where we are right now, 2.5 years into this journey, the next 2.5 years look very different than the past 2.5 years. In the last 2.5 years, we had headwinds that were market-related headwinds in terms of softening demand, our own issues and coming out of the gate, if you think about the inconsistency in commercial delivery and inconsistency in how we were building the backlog, the serious headwinds related to a spin that was probably messier than anyone could have forecasted and took longer than anyone could have forecasted. And on top of that, we had tons of counter detailing, leadership transition happening from a CEO standpoint that took some time. If I think about it, the market is starting to get neutral to positive, as you've heard from all of my peers, as you all have stated in your reports, we're starting to see green shoots of decision-making time lines and biotech getting better. You saw the funding reports came out this morning, biotech funding, while not at historical levels, is starting to return. So you're starting to see the market go from neutral to positive. You were completely out of the spin. We're a fully independent company, not encumbered by the kind of expenses and frankly, distractions. People think about the spin in terms of cost and forget how much effort it takes to complete that spin. Those distractions, CEO transition being complete. So many of the structural headwinds that have been holding us back from that type of progress are starting to subside. That said, we have a lot of work to do. I don't see any structural reasons in this company why we can't get back to more industry standard margins, but it's going to take work. It's going to take work in 2 pillars. One is a continuous rightsizing DNA that is all about being a midsized nimble CRO. And the second is a consistent delivery of book-to-bill that gets us to a consistent and diverse building of our backlog. Luke, that's probably more than what you wanted, but hopefully, that answers your question. Luke Sergott: Yes, it does. It was just more about like the structural if it was something that you guys had from either business mix or something like that. But I think that kind of gets to the crux of the issue. And then for... Anshul Thakral: I could have just said no instead of long-winded answer. I could have just said no. There's no -- I'm not giving you a long-winded answer. That's the feedback I'm receiving live on this call. I get it. Luke Sergott: That's all right. That's a good CEO right there. As we look at '26, I understand it's pretty early here. But if we kind of just assume this kind of stabilized burn rate and then continued bookings and backlog trend here, that kind of gets us to something around like low singles to mid-singles. Do you think that's a decent starting point to think about top line growth next year? Anshul Thakral: I think we're not giving any '26 guidance right now. It wouldn't be prudent for us to do that. But it's a good way to try to ask that question and sneak that in there. But we're not giving 2026 guidance right now. Let me get another 100 days under my belt. Yes. No, I appreciate it. Kudos on the try. You almost had me there, but give me another 100 days in seat, and we'll talk about guidance. Operator: Our next question comes from the line of Justin Bowers of Deutsche Bank. Justin Bowers: So Anshul, I just wanted to sort of extend on Luke's question in some ways about the industry environment. So for you, I mean, you guys, I think, did a little better than what people were thinking and peers are talking about improved industry environment as well. But are there any anecdotes you can provide for us to sort of like to qualify that in terms of maybe terms and decision-making times, et cetera? And then as a follow-up to a lot of the conversation has been focused on biotech, but I'd love to hear what you're seeing in large pharma and some of the conversations you're having there as well. Anshul Thakral: Sure. Why don't I give you 2 small anecdotes, one at each. I just got feedback from Luke of giving long-winded answers. So I'm trying to be careful here. But look, on the biotech, I'll give you one anecdote. We have a great customer of ours who awarded us 2 large Phase III programs in Q3. And this is a customer that for the longest time has been sitting on high-quality Q2 data -- high-quality Phase II data. But with some of the uncertainty happening at the FDA and some of the uncertainty happening on who's staying in their particular department and who's not and what the narrative looks like around what's going to be an acceptable approach to this particular Phase III in the back and forth. A lot of that started subsiding over the course of the last 4, 5 months. I wouldn't say just a quarter, which changed their time line, which changed their ability to make decision and it went from a, okay, we can make a decision by the end of the year to, hey, Fortrea, how can you get us first patient enrolled by January? We turned that proposal on a dime within 2 weeks and went to contract within 6 weeks. That wasn't -- that's just an anecdote. And of course, I picked a really good anecdote, right? But that's to give you a flavor of the types of conversations that are happening. And sometimes we'll be working for 9 months on a proposal with a client. And in this particular case, we had 2 weeks to turn around an entire study team and a proposal on a Phase III program where we need to get first patient in, in the first quarter of next year. So that's an anecdote in the biotech sphere. Let me give you an anecdote in our pharma sphere. In our large pharma sphere, we've had -- as -- I won't obviously mention the name of the clients, but as many of these pharma companies start negotiating their deals with the current administration in the U.S., that takes away a certain level of uncertainty. That doesn't mean it takes away risk or to their financials, but it takes away uncertainty and that taking away of uncertainty allows them to move internal processes like, okay, we can now finalize our R&D pipeline for 2026. We had one of our pharma customers go through that experience. And whether it was them negotiating it or not, the fact that somebody was negotiating with the administration allowed them to get comfortable that, okay, now it's time to lock in our R&D plans for 2026. And once they lock in their R&D plans for 2026, I'd like to say their first call is a CRO. It's really not, but it's probably their third or fourth call is a CRO to start working through, okay, these are the studies I need launched in the first quarter. Let's start putting teams together, let's start putting proposals together. Justin, I hope that gives you the sort of anecdotal evidence that you're looking for. All of that to be said, and I think all of my peers have said the same thing, neutral to positive. We still have a lot of headwinds and uncertainty in the market. We're not looking at markets that look like 2018, but certainly, there's reasons to think neutral to positive. Justin Bowers: And then just one quick follow-up on Phase I. We haven't really talked about that on the call yet. How is capacity utilization there? And any progress on bringing more of that in-house? Anshul Thakral: Yes. So I think, look, that's a great question. Thank you for asking about our clinical pharmacology business. It's a business I'm actually very proud of. I think the Phase I business, we had higher-than-expected growth over the last 2 quarters. We mentioned in the last quarter, we're mentioning it this time as well, which is great because we're seeing utilization rates. If I look at this quarter, as I look at next quarter, utilization rates are where we'd like them to be. They're healthy in our Phase I clinic. But I want to talk a little bit about this bringing the work in-house versus not bringing the work in-house. See the thing is it's really more about the mix of the work that's coming in. We have certain studies coming in, for example, large bioequivalent studies in obesity, for example. These type of studies require significant cohorts to be run simultaneously. And often, you need 4, 5, 6 sites to run because of the design of that study. And when you run those studies simultaneously in multiple sites due to the request of the customer and design of the program, we end up having to use external sites. That's not a structural thing we can't do that work in-house. It's just that x number of cohorts need to be run within the same 4-week time frame simultaneously. And in that business, we've seen, as Jill talked about, we've seen some higher-than-normal pass-through costs. Now these are -- from a strategic standpoint, this is good because we're continuing to service our customer, continuing to move their pipelines forward. And frankly, we're getting a lot of repeat business from some of these big customers. But when those kinds of large obesity bioequivalent studies come in, that's just one example of several others in the mix, you end up with some higher pass-through costs. So the mix has been really the narrative that we should be talking about in clinical pharmacology. We're doing good on our capacity front. Operator: Our next question comes from the line of Jailendra Singh of Truist Securities. Jenny Cao: This is Jenny on for Jailendra. I wanted to ask about the FSP sales team that you recently launched. Just curious on the momentum there in the past quarter. What's the traction for the dedicated FSP sales team? And are you seeing shifts in sponsor preferences between FSP and FSO? And then just a quick follow-up to that. I know you're maintaining pricing conversations in FSO, but how are you balancing pricing discipline with the competitive environment in the FSP segment? Anshul Thakral: I think you've asked several questions around FSP, Jenny, and I'm happy to try to answer them to the best I can. We're seeing some sequential increase in FSP RFPs right now. We've launched the FSP sort of relaunched our focused effort here in FSP earlier in the year. It's a bit early to see the kind of progress I'd like to see there. We're seeing an uptick in RFPs. But FSP RFPs, when you're talking about anywhere from 10 to several hundred resources, the sales cycle on these things are longer than FSO. So that's going to take a little bit more time. Though we are proceeding with a relative amount of caution because what we have to do is we have to balance the reach that we want with these customers and the business that we want in FSP with work that makes sense for us to take on. Some of the FSP work comes in levels of margins that are, frankly, not great for us. And even in this quarter, we walked away from some of that. And much of the FSP work that we are able to take on, we take on when we've got healthy margins. So it's -- let's take more time to see how that strategy plays out on FSP. Jenny Cao: That's fair. And then just a follow-up on the momentum that you're seeing in large pharma locking in or deciding on 2026 R&D plans and maybe going forward with that in Q1. In the past, I think Fortrea has talked about large pharma for the company being more back-end loaded as large pharma decide on what -- decide for the next year. So just curious on -- are you seeing decision-making being pushed out a little from back half to maybe early 2026 this year? Anshul Thakral: I think that's a great question. There isn't any consistent trend right now in decision-making being pushed out by either biotech or biopharma clients. I think we're starting to normalize a little bit on decision-making time lines and time frames. But remember, you're talking about a pretty significant -- even for us, we're the smaller of the public company CROs that you cover. Even for us, it's a pretty significant customer segment. So you've got ups and downs and puts and takes depending on the particular customer, but there's no consistent trend that I'm seeing in terms of decision-making being pushed, if that's the question. Operator: Our next question comes from the line of Elizabeth Anderson of Evercore ISI. Alan Chen: This is Alan Chen on for Elizabeth. I guess a question for Anshul. Given that you're a few months into the role, I was wondering, could you talk about what have been the biggest surprise for you in your time at Fortrea so far? Anshul Thakral: I'm sorry, I'm having a very -- my apologies, I'm having a very hard time hearing your question. It's extremely vague. Would it be okay if you could speak up and repeat that question? Alan Chen: Yes. So given that you're a few months into the role, could you talk about what have been the biggest surprises for you in your time at Fortrea so far? Anshul Thakral: Sure. I appreciate the question, and I'll do my best to answer biggest surprises. I think I'm kind of consistent in things. I wouldn't call them surprises necessarily, but pleasant surprises, if anything. As I toured many of our sites, I had a chance with my -- we have members of the executive team with me on every trip, but we had a chance to engage with close to 1/3 of our colleagues at a personal level over the course of the last 100 days, several thousand people. The -- at our workforce, the morale, the sort of commitment to Fortrea, the work ethic and commitment to their clients and the focus remains resilient and strong. And that was one of my hypothesis coming into this job. And now I've had a chance to get to multiple continents, multiple geographies and multiple countries across roles and see that at a consistent level. People are engaged, people are focused. Despite the industry level macro trends over the last 1.5 years, 2 years being difficult and of course, Fortrea spin itself being very difficult, at the ground, folks that are working on executing on our clients' programs are highly engaged, highly committed and have incredibly strong work ethics. And I got to see that from the ground across multiple continents and multiple countries. And that has been, I wouldn't say a surprise because I anticipated that. That was my hypothesis coming into it, but it's been reassuring to have been -- have confirmed that hypothesis. Operator: I'm showing no further questions at this time. I would now like to turn it back to Anshul Thakral, CEO, for closing remarks. Anshul Thakral: As we come to a close of our time today, I would like to thank all of you for your thoughtful questions and for welcoming me to Fortrea. Fortrea is well positioned as a pure-play midsized global CRO that specializes in the execution of clinical trials from first in human to post approval. We're focused and we're disciplined. That's the message. In addition to our financial progress, it would be remiss of me not to thank our team for making the short list for Best CRO at the Industry SCRIP Award. I also want to note that we earned a bronze EcoVadis rating for our sustainability program, which we have built from the ground up. Our commitment to sustainability is not just important to our colleagues around the world, but it is a requirement of our global client base. What matters to our clients matters to us. I want to thank you for joining us today, and I look forward to speaking with you soon. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Ero Copper Third Quarter 2025 Operating and Financial Results Conference Call [Operator Instructions] The conference is being recorded [Operator Instructions] I would now like to turn the conference over to Farooq Hamed, VP, Investor Relations. Please go ahead. Farooq Hamed: Thank you, operator. Good morning, and welcome to Ero Copper's Third Quarter Earnings Call. Our operating and financial results were released yesterday afternoon and are available on our website, along with our financial statements and MD&A for the 3 and 9 months ended September 30, 2025. A corresponding earnings presentation can be downloaded directly from the webcast and is also available in the Presentations section of our website. Joining me on the call today are Makko DeFilippo, President and Chief Executive Officer; Wayne Drier, Executive Vice President and Chief Financial Officer; Gelson Batista, Executive Vice President and Chief Operating Officer; and Courtney Lynn, Executive Vice President, External Affairs and Strategy. Before we begin, I'd like to remind everyone that today's discussion will include forward-looking statements, which involve risks and uncertainties that may cause actual results to differ materially. For a detailed discussion of these risks and their potential impact on our business, please refer to our most recent annual information form available on our website as well as on SEDAR and EDGAR. Unless otherwise noted, all figures discussed today are in U.S. dollars. With that, I'll now turn the call over to Makko DeFilippo. Makko Defilippo: Thank you, Farooq, and thank you all for taking the time to join us this morning. Speaking for everyone on this side of today's conference call, it is an exciting time over here at Ero. During our last quarterly update and in conversations with many stakeholders since then, we have been speaking to the fundamental transformation that has been underway at Ero this year. This work has continued to drive sequential improvements in quarterly performance and unlock new value drivers across our portfolio. These efforts are clearly evident in our Q3 results and in our Xavantina release yesterday. I will speak to both on today's call while ensuring we have sufficient time for questions. Yesterday, before market opened, we announced the result of a dedicated behind-the-scenes effort we initiated late last year to create value from within our portfolio, specifically at the Xavantina operations. This work entailed sampling, metallurgical testing, characterization and commercialization of stockpiled gold concentrates that have been produced in small but high-grade quantities since processing operations began over a decade ago. These efforts have culminated in the announcement of a maiden inferred resource of 24,000 tonnes grading approximately 37 grams per tonne, containing 29,000 ounces of gold. The estimate was based on detailed sampling of approximately 20% of the concentrate stockpile volume. Late last month, just shy of 1 year since we laid out the initial work plan for this initiative with our teams, we commenced shipping gold concentrate, resulting in our first invoice this week, which Wayne will speak to in more detail. Looking ahead, we expect to sell between 10,000 and 15,000 tonnes of concentrate during Q4 2025 at an operating cost of approximately $300 to $500 per ounce of gold. At approximately 90% to 95% payability after deductions and treatment charges, this means in practical terms that we expect to significantly accelerate the deleveraging of our business, one of our core objectives for 2025. Sampling campaigns are ongoing to better quantify the remaining gold concentrate in stockpile, and we expect to sell the full volume over the next 12 to 18 months, resulting in what we expect to be a significant boost to gold sales and financial performance. Before I jump back into the quarter itself, I'll just address what is likely the first question many of you have. How did October go? And how does that compare to underlying operational guidance ranges. While 1 month doesn't make a quarter, and we have a considerable amount of daylight between now and December 31, I am pleased to report that every single operation in our portfolio achieved not just 2025 calendar year monthly records for productivity and production, but they achieved all-time historic monthly records in October, beating some set many years ago. Starting at Caraíba, we built on the momentum of a solid Q3 and during the month of October, achieved all-time record mine tonnages from each of the Pilar, Vermelhos and Surubim mines. New high watermarks across all of our mines at Caraíba supported all-time record monthly mill throughput of just over 400,000 tonnes, implying an annualized run rate well beyond our installed capacity. We achieved this result on the back of a successful debottlenecking exercise that was initiated early this year and completed during the third quarter at effectively 0 cost. Q4 at Caraíba is off to a good start with over 3,500 tonnes of copper produced in October, on par with our best month so far this year. At Tucumã, sequential improvement in throughput volumes and grades following another sequential quarter of nearly 20% growth in copper production drove a new monthly record in October of approximately 3,300 tonnes of copper produced. Last but not least, at Xavantina, we produced just shy of 7,000 ounces of gold in October, excluding any benefits from our new concentrate sales operation. This is a particularly noteworthy result when you consider that our average quarterly production during the first half of the year was also 7,000 ounces. This result reflects the considerable effort we have put into successfully mechanizing Xavantina to make it safe and more productive. I'm very proud of what Rodrigo Fidelis and his team and the whole broader team at Xavantina have been doing to achieve these results. More broadly speaking, we have spent a lot of time this year changing the way we do things, challenging the status quo, incentivizing improvement and optimization across our organization and focusing on health and safety in order to drive productivity and operational excellence. The build we saw from a challenging first half of the year across the group, the green shoots in July and August, momentum from August into September and breaking all-time records in September and October has been energizing, and we expect many more production records to be broken over the coming months and years. I'm deeply proud of the work we are doing to achieve these results, proud of our global leadership team for their commitment and thankful to our operational leadership for achieving these results while consistently improving our consolidated safety performance. That was a long detour to our third quarter results, but hopefully, that clears up the question queue. Getting back to the quarter itself, Q3 was another record for Ero on consolidated copper production due to increased contributions from Tucumã, up nearly 20% for the second consecutive quarter. As we look to Q4 and as evidenced by my commentary on October, we continue to build on our strengths here and are expecting Q4 to be the strongest production quarter of the year across all 3 of our operations. At Caraíba, plant throughput levels reached a quarterly volume record, supported by sequentially higher mining rates across all 3 mines in the complex, momentum we have carried so far into Q4. Grade declined as expected in the quarter as we switched our center of mass to the upper levels of the Pilar mine and received more ore from the Surubim pit, a strategy shift that was discussed at length last quarter. We expect to continue to benefit from higher throughput levels going forward, the result of a multi-quarter debottlenecking effort in order to drive higher copper production. We expect strong production in Q4 to allow us to achieve the low end of our annual production guidance, and we expect cash costs to decline from Q3 levels during Q4, supporting our full year C1 cash costs in the lower half of our range. At Tucumã, production in the third quarter increased 19%, driven by the continued ramp-up of throughput at the mill, up approximately 37% quarter-on-quarter, partially offset by lower planned grades. As we look to Q4, we expect continued progress in increasing throughput levels, along with higher grades in the mine to drive the strongest production of the year. We're off to a good start in October and expect strong production in Q4 to allow us to achieve the low end of our annual production guidance. We have adjusted our full year C1 cash cost guidance at Tucumã to reflect higher-than-expected maintenance and freight costs incurred during Q3, which will be partially offset by the expected improvements in underlying costs in Q4. At Xavantina, production increased by approximately 17% quarter-on-quarter as the mine began to benefit from our investments in mechanization during the first half of the year. We mined over 50,000 tonnes of ore in Q3, a level we haven't achieved since 2022. Looking ahead into Q4, as I touched on in my October commentary, we expect higher mine tonnage, higher tonnes processed and higher grade stopes to significantly drive higher gold production in Q4, which will allow us to achieve the lower end of gold production guidance and meet full year cost guidance ranges at Xavantina. At Furnas, a central part of our growth strategy, physical work streams on site progressed well through the end of October. We have now completed approximately 50,000 meters of drilling, completing the drilling obligations set out in the agreement for both the Phase 1 and Phase 2 programs. The Phase 1 program completed early this year was drilled in support of an updated mineral resource estimate and preliminary economic analysis. Technical work streams to support the preliminary economic analysis remain ongoing, and we are on track to complete this study during the first half of next year. The drilling completed under Phase 2 of the agreement will be used in time to support the development of a pre-feasibility study. We currently do not anticipate slowing the drill program at Furnas based on the success of these programs and early insights into potential project economics. We set out this year to turn around and stabilize our operations, achieve commercial production at Tucuma, delever our balance sheet, aggressively advance long-term growth initiatives at Furnas and in due course, initiate returns to shareholders. Transformative work is nonlinear, but seeing the momentum we have carried and the results flow through to an incredible September and October makes me confident we are on the right path. Every area of our business is doing its part to achieve these goals and create additional value for all of our stakeholders out of what we believe is a truly remarkable asset portfolio. I am thankful as ever for the continued support and belief in our vision for Ero. To ensure we have sufficient time for Q&A, I will leave it there and pass the call to Wayne, who will provide more detail on our financial results. Wayne Drier: Thank you, Makko. Our third quarter financial results reflected a 24% increase in copper concentrate sales at Tucuma, which, together with stronger copper and gold prices during the period drove revenue to $177 million or $14 million higher when compared to the second quarter. At the same time, operating costs increased due to expected lower mined and process grades at Caraíba and a change in the accounting treatment at Tucuma following the declaration of commercial production on July 1, 2025. As a reminder, ramp-up costs are no longer capitalized and depletion, depreciation and amortization began to be recognized at the operation. As a result, adjusted EBITDA totaled $77.1 million in the third quarter and adjusted net income attributable to owners of the company was $27.9 million or $0.27 per share. Our liquidity position at quarter end stood at $111 million, including $66.3 million in cash and cash equivalents and $45 million of undrawn availability under our revolving credit facility. We continue to deleverage our balance sheet, paying down $9 million on our copper prepayment facility during the quarter. Combined with higher 12-month trailing EBITDA, this resulted in further improvement in our net debt leverage ratio, which decreased to 1.9x at the end of Q3 from 2.1x in Q2 and 2.5x at the end of 2024. With performance expected to be strongest across all 3 of our operations in the fourth quarter and additional cash flow from Xavantina's gold concentrate sales, we expect to materially accelerate deleveraging in the coming months. Since the beginning of Q4, we've already shipped 3,000 tonnes of gold concentrate at an invoiced value of approximately $10 million, providing early momentum towards that goal. As for our foreign exchange hedge program, our total notional position at quarter end was $290 million, consisting of 0 cost collars with a weighted average floor and ceiling of BRL 5.59 and BRL 6.59 per dollar, respectively. These extend through December 2026. The real trended stronger and below our collar range during the quarter, resulting in a realized gain of $2 million on these hedges. I'll now pass the call back to Makko for some closing remarks. Makko Defilippo: Thank you, Wayne. Before we move into the Q&A session, I want to take a moment here to reiterate our commitment to delivering on our strategy at Ero, the one that we set out in January of this year. Thank you for your continued support in our company. We look forward to speaking with you in the new year. With that, I'll now turn the call back to the operator to open the line for questions. Operator: [Operator Instructions] The first question comes from Fahad Tariq with Jefferies. Fahad Tariq: On Xavantina, on the gold concentrate, maybe it's too early to tell, but how should we be thinking about the remaining 80% that has not been sampled yet? Is the assumption -- would it be a fair assumption to assume that the concentrates are homogenous and that it could be maybe close to 144,000 ounces of contained gold? Makko Defilippo: Yes. Thank you for the question. I think everyone in this call is capable of dividing the 29,000 ounces by 0.2. We're very excited about the opportunity and what it means for our company, but I think it's too early to say exactly what that remaining volume will be. We fundamentally just need to do the work. As I -- as we outlined in our prepared remarks and in the news release yesterday, we do expect to sell the full volume over the next 12 to 18 months, which should be a very significant boost to our financial performance. But in terms of outlining specific densities and grades for the volumes that have yet to be sampled, very difficult to do. Fahad Tariq: Okay. And then maybe just switching gears to just Brazil costs in general. One of your maybe mining peers, but more on the gold side has talked about significant labor contractor inflation -- yes, labor and contractor inflation in Brazil specifically. Just curious if you've seen anything that's been popping up on that. Makko Defilippo: Yes. Look, also a great question. Let's take a step back and look over the last 8 years because I think context is important. What we saw from effectively 2017 until last year is that the rate of inflation in Brazil was outpaced by the depreciation of the currency. So I don't know what commentary or what company that came from. But it's fair to say that in U.S. dollar terms, inflation is still running high in Brazil. We do see that in our labor agreements. We see that in our contractor pricing. And over the last 2 years, we have not benefited as much from a depreciating BRL as we did in prior years, right, from 2017 to 2022. As Wayne outlined, one of our strategies to help mitigate that is to put in cost of collars on the foreign exchange, which we have put in place for a portion of our spend next year with a floor that's higher than this year or at a weaker level than this year to help offset some of the inflation that we're seeing. But again, I think whenever we talk about inflation cost in Brazil, it's important to overlay what's happening in the currency and our efforts to help mitigate that. We have a number of initiatives that we spoke to in the past that we call our full potential exercise. It's a combined effort from operations and procurement to continually seek as our business has grown over the past 2 years with integrating Tucuma and now the mechanization of Xavantina to enter into longer-dated contracts across the group. And we have seen cost reductions on a -- at a -- I don't want to say at a significant level, but at least enough to offset the inflation that we're seeing in our business. So we're going to continue that work. Again, it's fundamental to the long-term protection of our operating margins, and we'll continue that work in the future. Operator: The next question comes from Guilherme Rosito with Bank of America. Guilherme Rosito: So my first one is on the value creation strategy in Xavantina. I just want to understand like regarding the timing, why have you guys announced it now and not before? Just given when you look at the cash OpEx of these concentrates, they look super accretive even under lower gold prices. Of course, it is even more now that prices are close to $4,000. So maybe just if you could expand on why doing it now and not before, it was a matter of time and having the capability to take a look at that. And also, if you guys see potential for doing that to your other operations, which especially Caraíba, which has been running for some time and maybe has something in terms of concentrate stockpile or maybe the waste on the dams. And then finally, on Tucumã, just a quick question. How are you guys seeing the operating rates throughout 2026 between quarters? When are you expecting now to reach nameplate capacity in throughput? Makko Defilippo: Perfect. Thank you. We'll go through those one by one. Thank you very much. So the value creation opportunity at Xavantina, it's worth stressing this is not an initiative that began in earnest when gold price hit $4,000 an ounce. This is something that we've known about for a few years. I was involved in my prior role in an engineering exercise to recover value from this material. We did quite a bit of engineering work a few years ago. and we had mixed results during that time. And so we -- as you'll probably appreciate, we're fairly busy over the last few years building Tucumã. And so they sat on the back burner. With the change in leadership that we had this year, both on site and throughout our technical group, there was a few key initiatives that we outlined in late last year that were chased down in earnest. This was one of those initiatives. Again, the work that to unlock the value wasn't simply a matter of selling concentrate. It involved a significant effort in sampling, material characterization, metallurgical testing and a big effort from our commercial team to arrive at the point that we did just a few weeks ago. So I would say that the -- as a value creation initiative, it looked great when we started this and gold price was at $3,000 an ounce. It looks obviously fantastic at $4,000 an ounce, but the run-up in gold price was circumstantial with respect to timing. As I said, we started this in [ earnest ] late last year. So hopefully, that answers your first question. With respect to other opportunities across our portfolio in terms of creating value, I'd say we have a number of opportunities in terms of creating value from our operations. We're looking at a few things, one of which I'll talk about in a minute, which is at Tucuma. At Caraíba, look, we need to do the work. It's it's hard for me to say what other opportunities we have there. We need to do the work to determine if there's residual value at that operation. Obviously, we've spent the first half of this year focused on health and safety, operational excellence, detailed planning, health and safety across that -- across all of our assets and some of the value initiatives that we're working on, we're pretty excited about include some activities at Caraíba, but too early to say if that will be something similar. I don't expect the same level of opportunity. But for sure, we're chasing a few other high-value opportunities across the group. Tucuma 2026, the last question that you asked there. Look, -- we are seeing a continued ramp-up in our production rates and throughput levels at Tucuma. We're really encouraged by the progress coming out of September and October. We have a lot more work to do, as I outlined, until December 31 at midnight. It's fair to say that our -- the improvements that we've been able to make since January, February, March to now are significant. But we see those improvements as reaching terminal velocity on throughput volume because of our filtration system. So we are looking right now at adding additional filtration capacity to help alleviate that bottleneck or at least take the step-up in the rate of improvement. That work is happening right now. I wouldn't expect there to be a reaching design capacity until the second half of next year at this stage, but we'll talk about that more in January when we come out with our guide for the year. We are working on a lot of initiatives. In fact, last week, we had a mobile filter press arrive on site. And so we're pretty excited about getting that operating to help us break through some of the last challenges. It's important to note, we're not talking about large dollar investments, number one. Number two, I think silver lining here is that when you look across the rest of the asset, our crushing circuit, our grinding circuit, our flotation circuit is performing exceptionally well. And so with Gelson here and the whole team, we're looking well beyond the 4 million tonnes a year and how we can maximize the installed asset that we have as part of a debottlenecking exercise. That is an important factor when you think about the longer-term production profile at Tucumã coming off later in the mine life. If we can increase throughput levels with a relatively modest investment, that will obviously go a long ways to stabilizing production volumes over the long term. So stay tuned, more information on that to come. Hopefully, that answers your question on Tucumã. Operator: The next question comes from Emerson Vieira with Goldman Sachs. Emerson Vieira: I have 2 sets of questions. The first one on the gold concentrate sales. Can you guys please share with us what is the expected time line to sample the remaining 80% of the total stockpile volume, please? And the second one on the gold side, I just want to understand if this concentrate sales is also subject to the same conditions that the company has with Royal Gold. By that, I mean, should we assume that 25% of those 24,000 ounces shall be delivered at 40% of spot prices? And moving on to Tucumã. Can you guys share with us what has been done? And what are the next steps on the ongoing improvement of the tailings filtration circuit? And also following on Tucumã, looking at the guidance and taking recoveries and grades from [ 3Q ] as a reference, the company's throughput -- I mean, Tucuma's throughput actually should almost double in the 4Q, so you can reach the 30,000 tonnes guidance. But I understand that grade should improve and throughput has been ramping up through the quarter. So can you share with us what was the throughput figure for September maybe or any latest update on throughput figures, please? That's it. Makko Defilippo: One second, I'm just writing down your last question, so I get them all. I think we're -- yes, thanks for the question, Emerson. So starting to go through your first question, gold concentrate sales, what's the timing on the remaining volumes on sampling. But the practical reality here is that we did a large amount of work on the volume that was available to be sampled. We need to sell that volume before we continue sampling, and that's obviously what we're doing, as Wayne alluded to. Our objective is to do that as fast as possible. The reality is that we have a planned resource and reserve schedule. We believe at this point that our sales of concentrate volumes will supersede the rate of our resource update timing. And so what that means from a practical perspective is that we'll provide clarity on a quarterly basis in arrears for the concentrate volumes that we've sold next year. And we'll talk about that more next year in our guidance with respect to giving some more directional levels on the quarterly cadence of concentrate sales. As Wayne said, and I mentioned, the first sale occurred this week. So we'd like to get a few more weeks and months of sales here going before we talk about the cadence for next year. So stay tuned on that side. But as I said, the practical reality is that we're going to ship and sell as much and as quickly as we can and do that safely. And that means that we'll be providing updates quarterly in arrears as we go forward. But again, provide some additional forward-looking information on our guidance for next year in January. Are the -- second question, are concentrate sales subject to the stream? Yes, they are. That's a pretty conventional term across all streaming agreements, so nothing unusual there. But the stream gold from concentrate sales or the gold from concentrate sales will be subject to the streaming agreement. We have a great relationship with Royal Gold. They've been an incredible partner for the growth and vision of Xavantina over the years, all the way from their first investment. And so we're really pleased that these deliveries will help to accelerate the effectively pay down to the Stage 3, which is an effective 6% stream tail. And if you want more information on that, you can look at the streaming agreements that we have filed on SEDAR. But effectively, it will help accelerate to the next phase, which is a step down from the 25% gold deliveries. And then Tucumã filtration capacity, what planned -- what is planned, what's been done, what's ongoing and throughput level clarity. So as I mentioned early on, we do see this continued rate of improvement. It is slowing down, as I said, reaching terminal velocity on the rate of change, and that's just a function of requiring -- it looks like we'll require some additional filtration capacity. As I mentioned, a few months ago, we mobilized the mobile filter press on site. So that's being ramped up and operating now, which should help relieve a little bit of additional capacity. Gelson and the team are doing additional engineering work and looking at alternative sources for incremental tailings capacity to help break through that rate of change and get throughput volumes up. As you mentioned, we're still looking ahead on the back of a solid October, as I mentioned, we see that grades and recoveries are performing well. We expect that to continue into Q4, helping us to achieve the low end of our guidance range at 30,000 tonnes of copper for the year. On the throughput level itself, as I said, we are seeing continued improvement. We saw improvement in September, October. We expect to have a good month in November and December as well. I think on the last conference call, I mentioned sort of exit velocity around 80% of our design throughput. We might undershoot that by a little bit, but we've been able to continue to have high-grade feed from the mine that will help support production levels in Q4. Gelson, I don't know if there's anything you want to add on the specific work streams for the filtration capacity. Gelson Batista: Well, thanks, Makko. Thanks for the question as well. I mean you've mentioned before about sequential improvement in Tucuma. I think this is the progress for the entire year. There are various things on debottlenecking. We engage experts. They've been helping us for some time now and also optimization in the plant, but it varies from mostly on the filtration plant, but small things in the mill as well and the grinding system and also the thickener. So this is ongoing, and we'll see the results in 2026. Operator: The next question comes from Craig Hutchison with TD Cowen. Craig Hutchison: Just on Xavantina, it sounds like it's a good start to Q4. But can you give us some guidelines in terms of what the mining rates are maybe on a quarterly basis? And as you kind of move into next year, what is your capability now that you have the mechanized equipment? And maybe just as a follow-up question, what should we think about in terms of the grades as we kind of move into next year given the updated reserves you guys have, which I think is just under 7 grams a tonne. Makko Defilippo: Yes. Thank you, Craig. When it comes to Xavantina, there's a few things to note there. Maybe step back just a minute before I talk about specific rates. One of our objectives for the strategy at Xavantina this year, obviously, unlock value from gold concentrate sales. So check that mark, check that off the list. The second was to really extend the known limits of mineralization in the mine. And I think that was reflected really well in our resource update, specifically with the very significant increase in measured indicated resources and inferred resources. Our target was to uncover 1 million ounces. That was our objective. And when you look at what we put out yesterday, I think it's fair to say that we achieved that objective of 1 million ounces. Some of the last drill holes in the underground mine. We're looking at a recent intercept this morning that came out a few weeks ago, 15 meters at 11 to 12 grams per tonne. So we're seeing a significant increase in the potential for Xavantina, and that makes us very excited. So again, coming back to the strategy for the year, mechanize the mine, make it safer, extend the limits of mineralization. Obviously, over the next few years, we've started this work now. We need to do additional infill drilling to confirm those resources, which are not yet mineral reserves. But we've been really happy with the effort on mechanization and what that means for Xavantina. We talked a little bit about mining rates in Q3. Obviously, you can see that from an ore process perspective, big increase, right? So going up to 50,000 tonnes mined and processed during Q3. That implies a rate just over 15,000 tonnes. We've been able to at least match that in October, much higher grades, just a function of where we are in the ore body coming in at -- coming in at about 17 grams per tonne in October. So very high grade. When we think about the variability in that deposit still exists, the mechanization has allowed us to increase the mining rate substantially and do it at a lower cost while making it more productive and safer at the same time. Craig Hutchison: Okay. 17 grams per tonne in October, well, okay. And then, I mean, obviously, probably not sustainable at those grades, but into next year, I guess, we'll look for updates with respect to those grades as well. Makko Defilippo: Yes. Look, Craig, I mean, I think if you go back in history and you look at what we've been able to do, again, we do get volatility month-on-month that tends to smooth out over a quarterly basis. So we're still expecting high grades in Q4, just as -- in particular, as a result of the excellent performance in October, some of the areas that we have available to mine. Again, we're doing at a lower cost today. We're doing it safer. And so I'm incredibly proud of the team at Xavantina for what they've been able to do this year. Operator: The next question comes from Anita Soni with CIBC World Markets. Anita Soni: Just a couple of follow-ups to Craig's questions on Xavantina. So in terms of the -- I guess I was just looking for a split in the new reserve estimate, how much of it is sublevel stoping and how much of it is your typical room and pillar as a percentage? Makko Defilippo: Yes. Thank you. There is very little remaining room and pillar mining. It's going to be immaterial in the context of our total reserves. We're 100% focused on sublevel stoping. There's a little bit of residual room and pillar, but the overall majority is going to be sublevel stoping. Anita Soni: Okay. So then when we look at the cutoff, I guess, in the cutoff analysis on resources, which is generally a little less conservative than what you would have on reserves, I think you used a consolidated mining and processing number of USD 107 -- is that a -- I mean, what should we be thinking about in terms of mining costs and processing -- I mean processing costs, I guess, will be the same, but the mining cost, what kind of savings would we get versus the mining costs that you're delivering right now? Makko Defilippo: Yes. Thanks. Good question. We look at this in detail. I'd say that we're early days on mechanization. [indiscernible] back to, the original plan was to complete the mechanization of the mine by June of next year. It was such a resounding success. We accelerated that time line. Our last Jack Lake mining crew left site in September, and so we're 100% mechanized. I think to give a specific cost reduction number is probably a bit immature given that we're still optimizing. But what we've seen so far, again, I wouldn't peg this for the long term, but something in the order of 30% to 35% reduction in mining costs is what we've seen so far in terms of BRL per tonne. Obviously, it's going to impact by FX and a few other variables there, but so far, about a 30% reduction in mining unit cost. Anita Soni: Okay. And so can you just tell me what the processing costs are right now? Makko Defilippo: I don't have that right in front of me. We can certainly follow up on the call, yes after the call. Anita Soni: Okay. And then just one last question. A bit on the -- it's on the Matinha vein. As I look at what -- how the resource went to reserve, it's more than the 23% dilution that you were -- that I think you guys were using in the estimate. Can someone provide some color on what happened with that specific vein? I think the other vein looks -- the San Antonio vein looks kind of in line with the 23% dilution that you were talking about. But this one went from 11 gram per tonne in resources down to 6.65. So that's kind of close to half or 40% down. So is there anything in particular there that I should be thinking about? Makko Defilippo: Yes. Obviously, the right, the 23% is average across. I think when you get to specifics, and we can address this offline, too. I think it's probably a better form. But when you look at the planned stopes that we have with sublevel stoping, they're obviously larger than room and pillar. And so that tends to increase planned dilution when you look at any kind of variability in the ore body in terms of its orientation, dip, any contours, you tend to pull in more planned dilution when you're using larger stopes. And so again, that 23% is the average across the ore body. So we can talk more specifically about the Matinha vein and some of the impacts there in the update offline. But hopefully, that gives you kind of a rough sense of what we're looking at. Anita Soni: Yes. And then just a last question. Are you going to file a 43-101 on this one? Or did you do it already? I'm sorry, I'm on the road right now. Makko Defilippo: Yes. No worries. No, we will within 45 days of the -- when the news release went out yesterday. So expect that before year-end. Operator: The next question comes from Roald Ross with Clarksons Securities. Roald Ross: Congrats also on the record production. I wanted to ask about the costs this quarter and maybe some commentary if there are any cost pressures in the business right now. So on Caraíba, it appears to be an 8% increase in mining costs and 28% increase in processing costs, while at Xavantina, there seems to be a jump in sustaining CapEx, so is there a trend of increasing costs or any color to add to that increase? Makko Defilippo: No, none other than what we outlined in the call. Obviously, we did increase production volumes a lot at Caraíba, which had an impact. But if you normalize that for volume, I think you see that it's pretty comparable quarter-on-quarter. Obviously, we had a higher grade in Q2. So Q3 was a bump up. We expect that to come down in Q4, as I outlined on the call at Caraíba. Xavantina, I think there's some timing differences there on capital. So I wouldn't read too much into that in terms of increasing cost. I think I commented on one of the earlier questions about inflation in Brazil. That's a reality of all operations, I think not just in Brazil, but globally, quite frankly, and we're working hard to make sure that we offset that -- those inflationary pressures with hedges on the BRL so we can protect our operating margins going into next year. Roald Ross: Okay. Great. Second and final question also. It appears that the company is in a phase now where everything is sort of centered on getting Tucuma at the nameplate capacity. But after sort of achieving that later next year, how would you describe the vision of the company and sort of the next phase of the company? I expect that the furnace growth leg is a bit further into the future. How would you describe sort of that next phase for Ero? Makko Defilippo: No, that's exactly right. I mean I know we don't get asked a lot about it a lot anymore. But when you look across our portfolio, we still have a number of value-generative projects that are ongoing or in process. Gelson and I were on site at Caraíba over the weekend and reviewing the progress on our shaft project to access a higher-grade zone in the Pilar mine, which we think will transform the productivity and obviously, margins for that asset when that comes online in 2027. That's a big investment that we've committed to. We've been working that over a number of years. The shaft right now is about 870 meters below surface. And right now, it takes about 5 minutes to get down to that level in the kibble compared to almost an hour driving down the ramp. So that will make a very significant improvement in our company later on in 2027. Xavantina to that part of the portfolio. Obviously, big value creation exercise, incredibly proud of what we've been able to do there, not just in terms of unlocking value from gold concentrates, but also the mechanization of the mine. If you look at the planning and effort and execution of that -- those investments and that project, it's been a big success this year. And again, very proud of the work that we're doing there. We do see with keeping that 1 million ounce target in mind, we see opportunities there to eventually increase production. Obviously, that needs additional studies. There's ventilation, there's drilling, there's development involved in that and some infrastructure. And so we're working on studies to help support that for the future. But clearly, with 1 million-ounce potential and growing. Again, I mentioned some of those deeper drill holes and the very strong mineralization we continue to see in San Antonio. We for sure see opportunity to expand that operation. That's something that we're working on for the next year. And then you hit on the head for us. It looks like a very compelling opportunity. Obviously, we're working hard right now on the preliminary economic analysis and the drilling, which we remains on track for the first half of next year. So if I take a big step back, I've had the distinct privilege of being the first employee at Ero Copper 9 years ago and to watch what's happened this year and see our teams firing on all cylinders here at the end of Q3 and early into Q4. It's been an incredible year of transformation and pretty exciting to see the results that we've been able to produce. As I said, nothing is a guarantee or a layout for sure. We have a lot of daylight between now and December 31. But when I look at beyond December 31 in this year, I'm incredibly excited about the legwork that we've done and where we're heading. Operator: [Operator Instructions] Since there are no more questions, this concludes the question-and-answer session. I would like to turn the conference back over to Makko DeFilippo for any closing remarks. Please go ahead. Makko Defilippo: Yes. Thank you, everyone. Thank you for participating. For those of you that are traveling back from various site visits, safe travels. I look forward to following up over the coming days and weeks and giving an update on our outlook for 2026 early in the new year. Thank you very much. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Unknown Executive: Thank you very much for attending the briefing session by Eisai Company Limited. We will now begin financial results and business update session by Eisai Company Limited for Q2 fiscal 2025. Today, this is held in hybrid format combining in-person attendance and virtual attendance. For those attending in person, we have distributed flash report financial results and deck of slide presentation. Those of you who are participating virtually, please download these materials from the website. The presenter today is Mr. Haruo Naito, Representative Corporate Officer and Chief Executive Officer. Mr. Naito, CEO, please. Haruo Naito: Let me begin our presentation for the first half of FY 2025. So let me look at the results for the first half. As you see at the very first bullet point, inorganic business of us. Pharmaceutical business has shown steady growth in profits as well. Most of the profits are from the frontline business, which is Pharmaceutical business and we could achieve increase in both revenue and profits. I believe that that is the most important point that I wanted to share with you today. And regarding our forecast for the full year results, I believe that there are various opinions. So when we see the stock price trend after announcement, I was disappointed. However, I believe that there are some requirements for the second half that is written in the second bullet point. Anti-Tau antibody and narcolepsy treatment, these are the 2 next generation neurology area promising projects of Eisai into which we are making investment of resources into this because clinical trials and studies are now reaching the peak. And on top of that, there are structural reforms in Europe and in line with such structural reforms, there will be various expenses to be incurred. Therefore, we do not intend to revise the full year forecast. So we did not make any revisions to the full year forecast. In the red box, revenue was JPY 400 billion. Compared to the previous year given the stronger yen trend, we could achieve about 4% increase in revenue year-on-year. And as I said earlier, in the next line Pharmaceutical business revenue JPY 393.3 billion is shown here. And most of the JPY 400 billion in revenue was generated from our organic business. Cost of sales, given the impacts of domestic drug price revision and changes in the product mix, were offset and the cost of sales was managed within the planned range. Gross profit was increased by about 3.0 percentage points from a year earlier. R&D expenses accounted for 18.9% of the revenue. Therefore, R&D expenses were managed under 20% of the revenue. We were able to manage these expenses as such. One of the reasons for this was the clinical study expenses for LEQEMBI have peaked out, which have started to show decline and in the previous year, there were some restructuring including the headcount reduction. Therefore, R&D expenses ratio to the revenue was controlled within 20%. Now for SG&A expenses increased by 3.6%. As you see below this line, Lenvima grew very steadily. Therefore, expenses regarding shared profit of Lenvima paid to Merck increased and SG&A related to R&D. We are still in the phase of increasing the resource investment into the LEQEMBI. Therefore, operating profit was JPY 34.4 billion, which has shown the significant increase of 23.6% from the previous year. And operating profit estimated for the full year is reported to be JPY 54.5 billion and most of which is going to be generated from Pharmaceutical business. So in other words, the profit structure of Eisai has shifted to be more dependent on the organic business in order to increase and record profits and we have started such a transformation of our profit structure during this first half in this fiscal year. The Pharmaceutical business is grown by 3 global brand products. LEQEMBI, which has grown 153% year-on-year. We believe that this was a significant growth. It's about 2.5x the size recorded last year and details of this will be explained later. And for Lenvima, in main markets for us in the United States, there was a negative impact of Inflation Reduction Act. There were some suppression caused by this act, but this negative impact was offset and for all the cancer types we were able to grow Lenvima business. Therefore, Lenvima has been able to maintain its growth so far. And Dayvigo as well, the impact of drug price reduction in Japan was offset and 15% growth was shown. Now looking at the breakdown of changes in operating profit, JPY 27.8 billion last year. Gross profit increased JPY 9.1 billion. R&D expenses, because of the reasons I mentioned earlier, was controlled better by JPY 6.2 billion. SG&A expenses increased JPY 7.1 billion thus reducing the operating profit. And other income and expenses include some changes from the previous year, therefore, recorded minus JPY 1.7 billion. And we recorded JPY 34.4 billion operating profit, which was 8.6% operating profit margin. Today, I would like to focus on LEQEMBI, but I prepared just 1 sheet of the slide for Lenvima. Since its launch, 10 years have passed and it has been approved in 81 countries and marketed in those countries and already we have been able to contribute to 580,000 patients in the world and it has been indicated for 7 indications in 5 cancer types. And due to the favorable court decision and settlement agreements to resolve litigation of the high-purity patients in the U.S., generic versions of Lenvima will not be launched until July 1, 2030. As you see, JPY 166.5 billion was the total revenue. But you can see in this pie chart, sales by cancer type is shown here and the largest revenue is generated from the indication of RCC, which has been the driver of growth. For RCC, there are 2 studies which have been conducted together with Merck, LITESPARK-011 study and LITESPARK-012. With these 2 studies, the top one is for second line of RCC, Lenvima with belzutifan, Merck's anticancer treatment combined with Lenvima and the primary endpoint was the extension of a progression-free survival. This primary endpoint was already met. And together with regulatory authorities, including FDA, discussions for preparation of the potential submission have begun. And the bottom one is the first-line trial for RCC and this is based upon the assessment variation of the treatment pembrolizumab, KEYTRUDA was added to the above mentioned combination and with the same regimen conducted in the first-line study for RCC. And compared to that, favorable results were obtained and ESMO was the place where the results were published. And these studies are ongoing steadily in this expansion of the label based upon this base RCC indication. So we believe that this is going to be very positive factors for further driving the revenue. LEQEMBI has been recently approved in Canada. Therefore, LEQEMBI has been approved in 51 countries and territories. So the requirements to be the truly global product have been met through building such a foundation. For us, we understand that Alzheimer's Disease is a progressive disease and may be potentially fatal disease. Therefore, removal of Abeta plaque is confirmed through amyloid beta PET, but it is not the end of a treatment and the neurodegeneration process will continue and the cognitive decline will continue. That has been shown by data. Therefore, for this kind of disease, the early initiation of treatment and maintenance of treatment should be continued and that is the key to treat such disease. That is the key point that we have been continuing to have in our mind and I believe that this has expanded the basis for this treatment. As you see, the administration methods are shown at the bottom. During the first 18 months after initiation treatment was started, the IV once every 2 weeks are provided and after that, maintenance treatment period will be started. In the past, there was only 1 option to dose through IV once a month. But this time, LEQEMBI IQLIK self-administration method is approved and launched with a great option of once a week dosing. Therefore, it has made maintenance treatment much easier through the launch of LEQEMBI IQLIK. Now value proposition by LEQEMBI is being enhanced. Regarding administration period and dosing, as I said earlier, in the genre of maintenance treatment that has been cultivated by LEQEMBI. And when it comes to safety, particularly incidence of ARIA, based upon the real-world data in the United States and also Japan's all case surveillance, including over 10,000 patients. Based upon such a large scale data, the incidence of ARIA and the severity or seriousness of ARIA are all within expectation described in label. So we did not belittle the importance of ARIA. However, based upon this safety data, we believe that ARIA can be manageable. That has been confirmed. And now if you turn to efficacy aspect. Above all, Clarity AD has been conducted during the open-label extension study for 4 years and CDRSB difference against placebo over 48 months and this is the difference from the reference of ADNI and CDR difference has been expanded to 3x or 4x. So toxic substance is shown to being removed through disease-modifying effect of this drug in your brain. That has been shown by this data and AIC was the place the U.S. real data, 2-year real-world data was shown and 8.8 out of 10 was shown in terms of satisfaction score and 87% of the patients were continuing LEQEMBI treatment and 84% of patients had not progressed to the next stage of the disease. Such very quite robust data results were obtained from this real-world evidence. And in the daily lives, how cognitive function has been maintained or improved. Humanized message was utilized in order to show that in an easy-to-understand manner in explanation to patients. Now you can see here the first half results in revenue of LEQEMBI. Please look at the very bottom line. JPY 41.1 billion was recorded as the global revenue, which was 153% of the result recorded in the previous year. As we have been reporting to you, in China due to the geopolitical risk, the stockpiling for the period until the end of this calendar year. By the end of December, distributors have purchased to secure the inventory up until the end of calendar year. Therefore, JPY 7.7 billion was recorded in Q1. And in parenthesis, you can see the actual demand excluding such stockpiling by distributors in China are recorded and JPY 2.7 billion was recorded in the Q2 and the JPY 5.1 billion in the total first half. So considering all this, JPY 38.3 billion was recorded based upon the China's actual demand basis. Even with this 135%, very high growth ratio was recorded from a year earlier. In all regions, high growth were recorded exceeding plans for all regions. And JPY 76.5 billion has been shown here as the forecast for full year and our progress to date against this forecast exceeded 50%. Therefore, we are deepening our confidence in achieving this full year forecast. Now turning to LEQEMBI IQLIK. I have brought this with me here. This was the first ever commercial unit produced. This is the real thing, real product, very valuable products. I would like to decorate this in frame or box in my office. So this is the memorable and commemorative first-ever products and this was launched on October 6 this year. And what are the benefits for patients? First, the patients or care partners are able to administer at their home within approximately 15 seconds or so on the average and they don't have to drive or visit the infusion centers in person. We believe that this will be a great benefit for them. For medical institutions, on the other hand, they don't have to do a lot of monitoring or preparation for IV infusion, securing [ chairs ] or monitoring by nurses or health care providers involved in the administration. These medical resources can be reduced. This will be a significant saving and they will be able to expand the capacity to accept new patients. At the time of launch, we started the LEQEMBI Companion program. LEQEMBI IQLIK is to be covered under Medicare Part D. The reimbursement shall be conducted by private insurer. Although they are still under the supervision of CMS, but private insurers will be in charge of reimbursement and private insurers have set the cycle of formulary introduction at 15 months. Therefore, in January 2027, the formal formulary will be putting this LEQEMBI IQLIK on their list and there is a program called the Medical Exception Process in the meantime until the IQLIK will be put on the formulary. So under this Medical Exception Process, the reimbursement can be allowed and this has been used widely in the United States and this process will be applied to LEQEMBI IQLIK as well. Information and support related to this process are provided by our area reimbursement managers and nurse educators are providing in-person or online support to patients for dosing and providing demo kits for dosing training. This is the demo kits. And 4 weeks have passed since launch and IQLIK initial delivery has been conducted at 34 facilities in the U.S. and demo kits for administration training were provided to 341 facilities and they have started preparations for use. And Medical Exception Process, under which I believe that most of the patients have applied for this and we anticipate a smooth reimbursement process to be conducted under this process. So as regards to the reimbursement for LEQEMBI IQLIK, we do not have any concerns and we believe that the reimbursement process will be smoothly conducted. Regarding initiation treatment for IQLIK: during the first 18 months and submission for this initiation treatment has been started in the United States and a rolling submission process has been utilized. And the last such submission will be conducted in December this year. And we were expecting to receive priority review status if that is approved and then in 6 months approval may be provided in first quarter of FY 2026 for both for initiation treatment and maintenance treatment. For both periods of treatment, LEQEMBI IQLIK may be utilized before dosing. So that is approaching. And in Japan, we are prioritizing the submission for the initiation treatment for SC-AI. This will be conducted by the end of this December. On the right hand side, you can see that this IQLIK has been selected by TIME Magazine as one of the best inventions of 2025. Now another topic I would like to talk about is the confirmatory tests using BBM in the United States. There has been a significant advancement during the past 6 months. In July, AIC was held in Toronto, Canada. Alzheimer's Association of the U.S. put forth BBM Clinical Practice Guideline. And BBM tests with 90% or higher sensitivity and specificity can be recommended for confirmatory amyloid beta diagnosis. That has been proposed and published through this guideline. And Fujirebio's BBM was approved before this. Based upon the composite score, this BBM was granted the IVD clearance and this achieved the above criteria of 90% or higher sensitivity and specificity. Under this practice guideline, Fujirebio's BBM is now allowed to be used as confirmatory diagnosis. LabCorp and Quest Diagnostics or other leading clinical laboratory companies in the U.S. have introduced this as a test item. Therefore, confirmatory testing has been started utilizing this BBM. C2N as well, based upon different methodology, submitted FDA regulatory filing for BBM. And CMS for Medicare, a new national payment rate of $128 per test for BBM has been decided and it will be applied as effective from January 2026. That has been already announced. We believe that this will drive the use of BBM further as a tailwind. Currently, already for amyloid beta confirmatory tests, about 10% of such tests are estimated to be conducted utilizing BBM. Outside of the box, triage test. Roche BBM using pTau-181 was granted IVD clearance. This is particularly for PCP, primary care physicians, who may use this for triage. Now I am showing rather complicated diagram I'm afraid, but I would like to use this for explanation. What I would like to say is by introduction of BBM test, amyloid beta test particularly confirmatory test, and how the number of such tests and the number of positive cases will change up until FY 2027. Rather based upon the robust data, we would like to present our estimates. First of all, please look at the bottom blue line, solid line. This shows the number of amyloid beta confirmatory tests based on BBM. This shows the trend of increase in the number of such tests. If you look at FY 2025, as I said earlier, about 10% of the confirmatory tests is being conducted using BBM. And then over '26 and particularly after 2026 with higher likelihood, the BBM-based confirmatory tests are expected to increase. And next, please look at the orange solid line. This shows the number of amyloid beta confirmatory tests using PET and CSF only. So during FY 2024, PET and CSF were the only approaches for the amyloid beta confirmatory test. So this shows the trend of number of such tests based upon the conventional methods. And once the BBM confirmatory tests are launched and then orange line, the curve will be less steep. And the purple solid line shows the number of amyloid beta confirmatory tests of all 3 methods: PET, CSF and BBM. The total number of confirmatory tests are shown. And above that, if you look at the red solid line, preclinical triage utilizing the ones like Roche's BBM. And the total number of BBM tests is shown here for both triage and confirmatory tests and this has shown an exponential increase. Based upon this, if you look at the pink bar first, the pale pink bar shows the amyloid beta the confirmatory test. The total number shows for 2024 only PET and CSF were used and in 2025, the BBM is added and going forward, the number will increase. And the pink arrow shows the number of amyloid beta positive cases, which is expected to be increasing. And the number of confirmatory test as well as the positivity rate are also considered to be increasing. And the positivity rate was 50% in 2024. But in 2027, it's expected to be reaching 80% as positivity rate. Why? In triage or prescreening, BBM will be used and the PET CSF positivity rate will be between 50% to 70%. And then that is the 1 step to increase the positivity rate. And BBM confirmatory test becomes available and then for example PCPs will be able to utilize this for diagnosing and ordering the test and the results of the test will return it to them and their proficiency will be enhanced. Before ordering the confirmatory test for BBM, the confirmatory test precision for the cognitive function test will be increased. So their proficiency level will be enhanced based upon this and the positivity rate is expected to reach 80% or so. So amyloid beta cases will increase significantly and actually, there has been quite a high correlationship between this numbers and growth rate of LEQEMBI. I believe that this is another evidence to show that LEQEMBI is expected to grow further towards FY '27. The other day we've presented that there are 3 options for modified AD continuum that only Eisai can deliver. I would just like to share with you once again the gist of this. First, with the current LEQEMBI, suppression of cognitive decline after AD onset. The biggest characteristic here is long-term administration. We have 48-month long-term data. Efficacy was demonstrated and expansion of efficacy was demonstrated. Why is that possible? It is shown in the third bullet point. There is low immunogenicity neutralizing antibody incidence of lecanemab. This allows for long-term administration. Because of this advantage due to property, it is possible to suppress cognitive decline after AD onset. And before MCI, the earliest stage, preclinical AD or stage is tested in the trial. As shown in the middle, the biggest characteristic of our trial is shown in the second bullet point. Pure preclinical AD patients are selected. Global CDR is 0 not 0.5, but 0. Abeta accumulation is measured with Abeta PET, it is greater than 40 centiloid. This is preclinical AD as determined under the guidelines. These patients are selected in this trial. That is showing the precision and accuracy of a preclinical AD trial. This duration of a preclinical AD stage is very long. So low immunogenicity and neutralizing antibody incidence can be utilized for long-term administration. And the final bullet point, data endpoint is PACC5. Preclinical AD clinical conditions or symptoms are most precisely reflected in PACC5. Such endpoint is used. And this is also based on the guidelines determined by FDA and EMA. And therefore, this is very legitimate. For regulatory purposes, we have conducted a Phase III study. That is the characteristic of AHEAD 3-45 Study. And finally, combination with etalanetug. This goes without saying that there are 2 major pathologies of Abeta and Tau. We are able to approach both. This is a treatment that is epoch making in that sense. We are aiming to maintain cognitive function after AD onset. This cannot be done by anyone in the world. No one can come near us. This is the unique option that is available from Eisai. Etalanetug has obtained clinical proof of mechanism with DIAD population. 202 Study with sporadic AD is enrolling patients steadily. Biomarker is used mainly for optimal dose and target population, biomarker evaluation is used mainly. This is a study design, which is quite epoch making in that sense and first data readout is expected in fiscal 2027. As for preclinical, data readout from Phase III is scheduled for fiscal 2028. Preclinical AD, what is preclinical AD? This shows the summary concept. Early AD is shown on the left, prevalence is 240 million people. That is the estimated prevalence. A large number of people are estimated to have early AD. Preclinical AD and in order to calculate people who are eligible for AD-DMT, we use a Phase III study criteria and number of patients eligible for AD-DMT is estimated to be 2.3 million people. What I'm trying to say is that we also have a very large potential market in preclinical AD. It is quite near us. In addition to early AD, there is a huge market potential of preclinical AD, which is right in front of us. Now nationwide in the United States, National Education Program is being held, 1,000 people participated. Shown on this photograph, the left 2 are patient and family, they are smiling; and 3 people on the right side are U.S. leading AD experts. We have a very large volume of data and they were confirmed once again. We also have IQLIK, a breakthrough administration method. These were discussed in this program with many people responding actively. On the right side, this is a medical program. This is on the concept of smoldering Alzheimer's disease. AD continues to smolder. Plaque removal is not the end of the story. Toxic species continue to increase. Continuous treatment, therefore, is necessary and such campaign is continued. Another major initiative is targeting PCPs, primary care physicians. Primary care physicians are very important. Many MCI patients first visit PCPs and there should be correct diagnosis and speedy referral to the specialists in order for treatment to start. So in the second half, PCP specializing representatives are assigned. 3,500 targeted PCPs are the primary targets. The key message is shown as an example on the right side. This is the cover of the brochure. Early referral can mean early intervention with LEQEMBI. Early referral to specialists and that would mean early intervention with LEQEMBI. That is the message. And therefore, PCPs will have to be able to quite accurately diagnose MCIs and refer patients to nearby IDNs, which is a group of clinics with a number of specialists. There should be quick referral to such institutions. We would like to help PCPs by establishing a standard procedure for referral and IQLIK and BBM developments will also be a strong tailwind. For similar purpose to promote treatment, we have a targeted DTC TV campaign. This is not a normal TV campaign, but it's targeted. Who are the targets? Early AD diagnosed patients. These patients are not taking the next steps such as the tests or informed consent. That is understood to be the case. So targeted DTC TV campaigns were conducted. We were able to see good results in the first half. We will double the effort so that there will be next steps taken by the patients to move on to informed consent and actual infusion. This campaign has already started. In other markets, we are also seeing good progress. In Japan initial introduction, there are 800 initial treatment facilities and there are 1,600 follow-up facilities. 800 initial treatment facilities will be treating for the initial 6 months. And as shown in the middle of this, we have done TV campaigns to increase awareness of the disease. About 1 in 3 of Japanese population is aware of MCI now, what MCI is as a disease. Such disease awareness initiative campaigns effects are shown. This is wonderful. And 330,000 have visited specialists and close to 30,000 have received Abeta tests. The speed of referral from PCPs to specialists has also increased by about fourfold. On the right side, LEQEMBI in China. Yin Fa Tong through collaboration with JD Health is a digital platform for promoting visits to clinicians and diagnosis and follow-up. Yin Fa Tong is now used by 620,000 people and cumulative consultation number is 26,000. Digital means it is used to build the pathway and much progress is seen. And next bullet point is extremely important. In China, currently we are focusing on self-pay market. Towards the market with self-pay patients, we are promoting. But for true expansion, it is important to be listed on the NRDL. The Chinese government recently decided to leverage private commercial insurance for innovative drugs. Such a new scheme is being introduced or proposed by Chinese government. We would like to respond to this and in China, we would like to improve our access to very huge market in China. As for Europe: LEQEMBI in Europe. In Germany and in Austria, we were able to launch very smoothly. In Germany, the drug is reimbursed at discretionary price. In Europe, commercial and medical activities. The first bullet point it mentions CAP, controlled access program, is obligated in all European countries by the authority. And what needs to be done here is that prescribing doctors and prescribing facilities have to satisfy certain conditions as prescribed under CAP. So satisfying doctors and facilities need to be registered and LEQEMBI can be prescribed in these registered facilities. That is the scheme. 350 facilities, 420 doctors are registered in case of Germany. Number of facilities registered and number of doctors registered, there is no limit for LEQEMBI. There has to be prior registration for certain products. In that sense, large clinics and specialists are starting to prescribe smoothly. And I have 3 more slides before I end. Eisai's mission in AD is to make AD diagnosis and treatment familiar for patients and encouraging them their standardization and widespread adoption. IQLIK and BBM are the potential 2 innovations to achieve this. This example was seen in rheumatoid arthritis. BBMs appeared, major disease-modifying drugs instead of IVs were made available, SC-AI formulation emerged leading to a major transformation. So this could be repeated. We see great potential in both early AD and preclinical AD. With that, I would like to conclude and thank you very much for your kind attention. Unknown Executive: We will now move on to Q&A session. We will be entertaining questions from analysts and investors before entertaining questions from the members of the media. If you have question, please give us your name and affiliation before your question. If you have a question, please raise your hand. Hidemaru Yamaguchi: My name is Yamaguchi. I'm Citi. I have a question about the performance and the actual results as you explained at the outset, but there are still others. And if you include that number in the revenue generated from other businesses than Pharmaceutical business and I believe that if you add that number, then there will be further upside to the second half. But inclusive of that considering the restructuring in Europe and also R&D so the upside will be used for those expenditures. But inclusive of that potential upside, there are still uncertainties. That's why you have kept your full year forecast unchanged. Haruo Naito: The first one, the onetime is going to be offset by onetime factors. So actual revenue from organic business or profits, JPY 54.5 billion. That is the number that we believe that we are going to approach. Hidemaru Yamaguchi: So JPY 54.5 billion is the number that you are going to keep as it is. Haruo Naito: But under this number, the most will be brought about by the organic business. I see. Then the shortage not depending on the onetime factors. Hidemaru Yamaguchi: Understood. On Page 11, I was interested in this diagram. I have 1 question. The total number of tests increased and hitting rate or positivity rate. So these are the 2 functions and how these 2 are going to play out? Could you please give us the dynamics? Haruo Naito: For your question, Mr. Toyosaki is going to respond. Hideki Toyosaki: I am in charge of medical affairs in the United States. My name is Toyosaki. In FY 2024, we have taken this data from the claims data. And for FY 2025 this year, similarly based upon the claims data, amyloid beta tests and number of BBM tests and the positivity rates that has been already confirmed to be increasing. This trend of increase is one thing and on top of that, as has been explained in presentation with the spread of BBM, there are several positive events. First of all, clinical practice guideline was published and based upon certain criteria, there has been a recommendation to use BBM as the confirmatory test. Fujirebio's BBM has been granted the clearance. Therefore, there are requirements that have been met by the BBM. And LabCorp and Quest and leading laboratory companies have added this in their menu of the testing. And in January next year, the CMS national payment rate will be applied and about $130 per test will be applied throughout the country and BBM reimbursement will be consistently applied. These events are being conducted and happening in the United States one after another. So considering this, first of all, the use of BBM as confirmatory test will significantly increase. And for PCP, the triage BBM tests have been granted from Roche. Therefore, not only for neurologists, but also for PCP, the test of BBM as a triage will be increasing. And in 2027, we believe that there will be such an increase in the number of BBM-based tests. Seiji Wakao: I'm Wakao from JPMorgan. First question is about returning to ROE of 8% for next year. That is the target and could you elaborate on this? Up to second quarter, the actual business is performing very well. So ROE of 8% level to be achieved, I believe you are making positive progress. So how do you see the situation currently? Having said so, in the next fiscal year, would you require sales from other businesses? Pharmaceutical business is performing very strongly. So with major products, do you expect to be able to achieve 8% return on equity? Haruo Naito: That question will be addressed by Mr. Iike. Terushige Iike: Thank you very much for your question. This is Iike speaking. Last fiscal year and the fiscal year before that in the so-called other businesses, operating profit was about JPY 40 billion. And we wanted to wean ourselves from relying on that and so that is what we are seeing in this fiscal year. In this fiscal year, as CEO mentioned, especially in the second half we are planning to make expenditure in structural reform mainly in Europe. There were more reliance on onetime factors in the past 2 fiscal years. But without relying on these onetime factors, we want to achieve the figure as we informed in guidance. LEQEMBI in the past and up to this fiscal year is still incurring loss as a single product, but the margin of loss has been reduced substantially since last fiscal year and there will be a continuation of positive trend. And therefore, in terms of operating margin, we expect a significant increase and we would like to be able to meet the expectations of shareholders for ROE. And beyond that, we would like to return to double-digit figure and we are on the way to achieving. We are in the process of achieving this as we see the situation. Another point, this was not discussed much, but China. In China, we have LEQEMBI and Dayvigo and Urece, this is the gout treatment drug. We have these 3 products in China, NRDL listing or stage before that, coverage by commercial insurance. If this can be achieved, there is a potential for rapid expansion. In the past in China, Lenvima was the driving force pushing up the company-wide performance. So we would also like to continue to make much efforts in China market so that it can be a factor for growth. Seiji Wakao: I have 1 more question. On Page 9, SC coverage is shown quite extensively. Based on the presentation today, LEQEMBI IQLIK; in terms of sales increase, it may be after January 2027 that sales increase will be observed from LEQEMBI IQLIK. Is that correct? And initial dosing indication may be approved in the first quarter next year? And from January 2027, do you expect to book sales for that indication as well? Haruo Naito: Medical Exception Process we believe will be applied to about 80% to 90% of the patients. In January 2027, listing of official formulary is expected. But before waiting until then, high probability we believe that patients will be able to be reimbursed for the insurance. Between Eisai and insurer, we will have to agree on this or negotiate. So Medical Exception Process, it says exception, but it's not exceptional. Regularly this scheme is utilized. I believe your concern is that we may have to wait until then to see large sales, but that is not the case. Please follow up, Mr. Haruna. Katsuya Haruna: Thank you very much for your question. I'm Haruna responsible for U.S. business. I would like to add to what CEO said. Commercial insurers, patients and HCPs are giving us very positive feedback. As for insurance reimbursements, earlier CEO Naito mentioned, in January 2027 it may be listed in formulary. But before waiting until then, through this process we believe that it can be made more widely available. Easy example to understand is IV reimbursement rate and the current SC level is similar. Therefore, we do not see this as a bottleneck at all. The initial treatment in next year, if that is achieved, I believe that will be a major game changer. With the launch of IQLIK, long-term treatment will become easier and that is also a major benefit. For patients, it is a huge benefit. Kazuaki Hashiguchi: My name is Hashiguchi from Daiwa Securities. Regarding your forecast for the results. At the beginning of the fiscal year, onetime expenses were not included, but onetime revenue was included. But regarding the progress for first half, the cost of sales ratio was lower than planned. In my reading and R&D expenses compared to full year forecast, the progress seems to be slower. These trends are expected to continue into the second half. And even without onetime revenue, you will be able to get closer to JPY 54.5 billion in operating profit excluding onetime factors. Haruo Naito: R&D expenses, whether these expenses will be contained with this level, we are not sure yet. But as I said earlier, we are going to put resources into the forecast projects and we are sure that we needed to continue to invest resources into these main themes. The more efficient expenditure of R&D expenses should be secured. As Mr. Hashiguchi mentioned, that is almost the same scenario we have in our mind. Kazuaki Hashiguchi: Another question is about etalanetug Study 202. Data readout is expected in fiscal year 2027 and clinicaltrial.gov shows the primary completion date is December 2026. And so this shows that the progress has been slower than expectation. But do you think this is different from what you say here from the primary completion date and what kind of events do you foresee for fiscal year '26 and '27? Haruo Naito: Mr. [ Horea ] is going to respond to your question. Unknown Executive: I am in charge of translational science. My name is Horea. Let me respond to your question. Regarding Study 202, the completion of the study as described in clinical.gov is scheduled to be at the end of December 2026. But after that, the samples will be analyzed and the results of the biomarkers will be summarized and inclusive of the statistical analysis and readout from the trial is expected in the first half of fiscal year 2027. Thank you for your question. Unknown Executive: Are there any other questions? Yes. Fumiyoshi Sakai: I am Sakai from UBS. About Medical Exception Process. In the past, SC formulation when it was near launch, Medicare Part D to Medical Part B switch was mentioned. By cutting our process, sales can be booked earlier. More clinics will be using SC, more institutions will be using SC. Is that what you are saying? And as for Medical Exception Process, is this introduced in practice? Can you cite some actual example? Haruo Naito: IQLIK was to be applied to Medicare Part D. It will be applied to Medicare Part D. Did I mention switch from Medical Part B to Part D? From Part D to Part B, did I really mention that? I trust Mr. Sakai so I may have mentioned that. But Medicare Part D will be applied. That is the category of the product. So please understand that Part D will be applied. And as for Medical Exception Process, details will be given. Katsuya Haruna: This is Haruna speaking. First, about maintenance treatment of IQLIK, IV LEQEMBI will be Part B and from Part B IV, they will be switched to IQLIK which is applied Part D and that switch is actually occurring. When you are switching to Part D, Medical Exception Process is used for insurance reimbursement. And to add a little more, LEQEMBI IQLIK is already being prescribed and patients are receiving IQLIK treatment already. Is this common practice? MAP is very common for MS or diabetes Medicare Part D drugs, anticancer drug is not included. But in most drugs when new drugs are launched, this process takes place and many use this process. Neurologists, we conducted a market research of neurologists before the launch of IQLIK and more than 80% of neurologists have used MAP process before. We are also providing information, but physicians are already familiar with this process. And by providing ample information, reimbursement is taking place very smoothly. Fumiyoshi Sakai: I also have a question on reimbursement in China listing on NRDL. What is the timing that you expect to be listed and how will you apply? I understand that there is stockpiling of inventory, but what is the timing for NRDL listing? Haruo Naito: Ms. Sasaki will respond. Sayoko Sasaki: Thank you, Mr. Sakai, for that question. I am Sasaki responsible for China business listing on NRDL. And as I introduced on the slide for innovative drug, Chinese government is introducing a way to increase access by leveraging commercial insurance usage. We are considering the market environment, including competitive landscape and expansion of the use of BBM. And when we decide that we are able to use this, we would like to make use. In self-pay market, we will achieve growth and by utilizing such program, we believe we can accelerate the growth. NRDL and related initiatives, these are announced by the authorities in China. We cannot say the timing on our part. So I hope Mr. Sakai will also pay close attention to announcements by Chinese authorities. Fumiyoshi Sakai: Understood. But price will be lowered so how should we understand the offsetting impact? Haruo Naito: This is preaching to the converted, but sales equal price multiplied by number of units sold. So naturally that will have to be taken into consideration. Otherwise, we will be scolded by investors. Unknown Executive: We would like to receive questions from participants online. Operator: Mr. Tony Ren from Macquarie Securities. Tony Ren: Tony from Macquarie. Can you guys hear me clearly? Unknown Executive: Yes, we can hear you. Tony Ren: Perfect. So first one, a simple one. So it appears that your gross profit margin declined a little bit. On Slide #1, that is attributed to product mix and the drug price revision. Just wanted to see if you could provide a little bit more color on the extent of the price revision and the degree of product mix change. Haruo Naito: For your question, Mr. Iike is going to respond. Terushige Iike: Thank you very much for your question. This is Iike speaking. I would like to respond to your question. As you commented, there was a drug price revision in Japan and due to this in terms of ratio, that was the biggest factor in terms of percentage of contribution to the decline in the gross profit. And the biggest product for us, Lenvima, there was a Medicare Part D redesign in the United States. The gross to net has been lower to what it was in the past. And it is also related to the growth of LEQEMBI. But in terms of ratio, these 2 had the larger portions in the contribution to the lowering of the gross profit. So that's why I mentioned the product mix. Tony Ren: Okay. How should we think about gross profit margin going forward in the second half of this year and possibly into next fiscal year? Haruo Naito: Mr. Iike is going to respond to your question. Terushige Iike: For this fiscal year, as we have already reported to you, we believe that the gross profit margin is going to be controlled within the guidance. Towards next fiscal year, it will depend on the product mix, but we do not believe that there will be significant change and we will be able to control as we do. Tony Ren: Okay. And if I may, also just want to go back to ask about the Medicare Part D Medical Exception Process here because if we have to wait until January 2027, that does appear to be quite far away. So out of the -- we understand the current approval rate is pretty high. Just want to quantify that. So out of 100 patients or doctors applying for the Medical Exception Process, what percentage of them will be successful today? Would that be something like 50% or more like 70% or even higher? Haruo Naito: For your question, Mr. Haruna is going to respond. Katsuya Haruna: Thank you very much for your question. First, generally speaking about -- well, it may depend on what data you refer to, but 70% or 80% is the current success rate. But it's only 4 weeks since it was launched. Therefore, there will be some fluctuations in data, but we have observed already over 90% success rate. So we have seen steady progress. And going forward, we expect to see increased number of patients over longer term and then the data may be fluctuating. But as an early signal now, we believe that we are very confident in providing this products or drug to patients. Tony Ren: Okay. 90% is a very good number. Thank you very much. Operator: Ms. Sogi, Sanford Bernstein, please. Miki Sogi: First question, I believe you have heard from the people in the field. The other day we were able to speak with early adopter doctors. And clearly amongst the patients, early stage patients when they are given LEQEMBI or Kisunla, stronger efficacy, higher efficacy is observed. And the doctor said that the doctor is treating more MCI patients. So clearly efficacious or clear responding patient segment is becoming clear. I think this is very important for the adoption of the drug. Real-world evidence indicating such data, is Eisai collecting such data? Regarding early treatments, do you plan to run campaigns? Haruo Naito: Mr. Toyosaki will respond. And regarding Japan, Mr. Yusa will respond. Hideki Toyosaki: Thank you very much for your question. I would like to mention 2 things. The first is, as you rightly mentioned, early treatment. Early start of the treatment and early diagnosis and early treatment and maintaining through maintenance treatment. Such treatment will offer the optimal outcome to our patients. That is our belief. As for clinical studies in CLARITY AD trial, irrespective of Tau level, pathologically very early stage patients, low Tau patients or Tau level negative patients are included in the study. In this population when we look at Tau substudy results over 4 years, more than half of the patients were able to maintain their stage or have shown improvement. I believe that is one of the uniqueness of lecanemab. And therefore, early treatment and patients who received early treatment can expect to maintain the disease condition over long term. So long-term continuation of the treatment is the focus. Currently, in the United States in 9 institutions and we will increase the number of institutions, but we are in the process of collecting real-world evidence. Interim analysis will be presented in summer this year at AAIC and we will continue to collect the data and we plan to present the final analysis data next year. So I hope you will look forward to that data. That is the situation in the United States. Toshihiko Yusa: Thank you for your question regarding Japan. I'm Yusa responsible for Japan business responding. As for data creation in Japan, as you know, all patient study and registry survey are underway. And as you pointed out MMS score, what level of patients are responding in what way. Such data is collected and Phase IV is also planned in Japan. Earlier stage patients in campaign, whether campaign was planned was also a question. We are conducting TV commercials focusing on MCI in DTC. This was explained by CEO Naito earlier in November last year and May this year. And in August this year, we have run these 3 campaigns. So this has led to increased awareness of MCI. Haruo Naito: Ms. Sogi, you've also mentioned that when LEQEMBI is started early and MMSE, the higher the score of MMSE, the greater the efficacy is and ability to maintain MMSE and CDR scores. That is what we are also told from the physicians. And as for LEQEMBI, 29 to 30 score of MMSE, only LEQEMBI is indicated for this segment of patients. So in particular, we are looking at this very early stage MCI patients and we would like to lead to early diagnosis and early treatment of this segment of patients. Miki Sogi: Another question. On the other hand, in the United States, Kisunla and LEQEMBI are included in formulary in some of the clinics. Both are available. Patients are increasing. There is an infusion capacity issue. With the same capacity, double the number of patients can be treated with Kisunla. I hear that oftentimes institutions are using Kisunla for that purpose. The number of accounts, there can be only accounts – Kisunla only accounts and accounts with both LEQEMBI and Kisunla and it may be due to the balance of these numbers. But until spreading dose starts in the accounts with both LEQEMBI and Kisunla, one may be preferred over the other. But as far as the trajectory is concerned, before IQLIK is used more widely, is there a potential for slowdown for LEQEMBI? But of course market overall may be growing so I hope that there will be no slowdown. What is your expectation? Haruo Naito: That question will be addressed by Mr. Haruna. Katsuya Haruna: Thank you for your question. This is Haruna responding. First, about the U.S. market overall. Regarding market share, LEQEMBI has the majority of the market share in particular amongst IDNs where there are neurology specialists, we have received very high marks. LEQEMBI's value and positioning are not affected we believe. And as you rightly pointed out, on the other hand, the competitor, Kisunla is once monthly treatment. Treatment may be discontinued after 12 months to 18 months and some medical institutions may prefer this. We are fully aware of that. What is important is that LEQEMBI has a solid position in the market and it's growing and Kisunla is used by those who prefer once-monthly dosing and that is also growing as a new market. So overall, AD market is growing. AD market on a quarter-by-quarter basis continues to grow at double-digit pace. So we have seen this substantial growth. If I may focus more on LEQEMBI. LEQEMBI growth has not stopped and we do not believe it will stop. It will accelerate. Looking more closely, LEQEMBI prescribing physicians, more than 50% of AD treating doctors are prescribing only LEQEMBI. Majority of prescribers are prescribing LEQEMBI only according to the data. So we believe LEQEMBI has established a very solid position. When I visit health care providers, certainly there are some who say that they prefer once monthly dosing and some patients and health care professionals prefer discontinuation after 12 to 18 months, but treatment effect was observed through the course of LEQEMBI treatment. And there are patients who are given Kisunla who are struggling to decide whether it is truly good to discontinue treatment and we have seen increased number of inquiries into Eisai because of that. IQLIK launch: without IQLIK launch, it's not that the position of LEQEMBI will change. We have a very strong potential and we expect continuous growth. We are confident that growth will continue, and we hope to be able to demonstrate that with actual fact going forward. Haruo Naito: If I may add to that. As Mr. Haruna mentioned, donanemab is it eroding rock solid market of LEQEMBI? We do not think so. Very solidly established, LEQEMBI market is not affected. There are patients who may wish to discontinue treatment after 12 to 18 months and there may be such health care providers as well. And initial treatment can be given with a monthly dosing, that may be preferred by some patients and health care providers. That is a market that is newly created as donanemab market. So donanemab is achieving growth by creating that donanemab market. But we have a very solidly established market. This market includes IDNs who are the core health care providers in the United States. I will not mention the names, but universities with well-established medical schools have their group and they apply the same standard and provide the same treatment. Such integrated IDN network provider treatment and AD treatment is conducted in these core IDNs. We believe that our share is about 80 versus 20. We have a very solid share with LEQEMBI in IDNs. As for AIC, ambulatory infusion centers and group practices, these are also important health care providers in the market in the United States. Here Kisunla advantage may be seen relatively more so in comparison to IDN. But it is not at all the case that we have less than 50% share versus the competitor. That is not occurring looking at the data. What I am trying to say is that with Kisunla, will our core market be eroded? That is not at all the case. And Kisunla is creating its own market. That is occurring naturally. As we have presented today, initial treatment indication for IQLIK may be approved as early as in the first quarter of 2026. So once monthly IV infusion or weekly auto-injection at home will be the options. And when that becomes a reality, which will be chosen by patients and health care providers. And looking at that, we have to make utmost efforts. As for the possibility to end treatment after 12 to 18 months and we are taking the opposite approach. Our antibody has property that allows for long-term administration because immunogenicity is low and neutralizing antibody incidence is low and because of that, long-term administration is possible. As for the 48-month data that I've mentioned before, toxic Abeta oligomer continues to be removed with long-term administration and CDRSB effect size becomes larger as a result. That is demonstrated and the reference is Adoni data. These are predefined patients. Before the start of Phase III, Adoni patients are selected in baseline. So the study is not biased. It is quite transparent and we have selected a reference, which allows for high quality comparison. This disease is a progressive disease. It continues to progress. Under Abeta PET after confirmation of plaque removal, can treatment be ended? Is that the right concept? Our position is that for AD, the right option is continuous treatment, which is the right option. I believe sooner or later patients and health care providers will make a decision. Unknown Executive: We would like to receive questions from the media. If you have any question, please raise your hand. Hinako Banno: My name is Banno. I am from Nikkei Newspaper. Regarding the situation in United States, I have a question about tariffs. I don't think there have been any recent movements for tariffs. But based upon the currently available conditions, what impact do you foresee for your business? And I believe that in China, you are stockpiling or increasing the inventory level. But to what extent or by when do you think you have secured the inventory level? Haruo Naito: For your question, Mr. Iike is going to respond. Terushige Iike: Thank you very much for your question. In terms of systems, we have not seen any secure or certain things. Given this situation, as we have indicated, the inventory -- I'm sorry, Mr. Yasuno, please. Could you please respond to the question? Because you are here traveling all the way from the U.S. Tatsuyuki Yasuno: I am in charge of the United States. My name is Yasuno. As you know, the tariffs for the pharmaceutical products are out of the scope of reciprocal tariffs according to the Section 232 of the U.S. Trade Expansion Act. And there has been an investigation being conducted in order to make decision whether there are any impacts on the national security. Based upon this, the Executive Order from President Trump has not been issued yet. And using the SNS, President Trump mentioned that he intends to impose 100% tariff rate on to the pharmaceutical products. Other than that, there has been no announcement. So there are lots of uncertainties. Therefore, for us, we have not been able to calculate what impact we foresee because of this on our business yet. But on the other hand, as Mr. Ike mentioned, going forward the pharmaceutical products to be imported into the United States to prepare for the potential tariff, we are conducting various measures such as inventory management and supply chain measures. Regarding the pharmaceutical products, which are necessary for the U.S. market, up until far into the next fiscal year, we have secured inventory. Therefore, for the time being, we do not think that we will be impacted by tariffs. Hinako Banno: I have another question. This is a question I'd like to ask CEO. Regarding MFN Pfizer and AstraZeneca, other leading companies have reached agreement with the U.S. government. How this rule is going to be implemented is not known yet. For you, how big this can be a threat for you? How serious threat do you think this can be for your business? Haruo Naito: I think in countries of OECD whose GDP per capita is at 60% or higher than that of the U.S. is going to be the criteria. I mean the minimum price should be in those countries to be applied to the U.S. market. But it will depend on whether this is going to be the listed price. And this will be based upon -- reimbursement will be based upon the cost effectiveness and this will be forced by the government agencies. Therefore, there is no room for discretion by companies. Unless you accept that price reimbursement, you are not allowed to deliver your products to patients in need. The mission for pharmaceutical companies is to deliver stably their pharmaceutical products to patients who need them. That is the fundamental mission for us. We have to deliver that mission. If it's going to be listed price and then the price level set by ourselves will be -- has been deployed throughout the EU and LEQEMBI is priced as that in the U.S. price. In Asia as well, the price of LEQEMBI is at the same level or even higher than that in the United States. So which price level will be referred to, it's going to be very important. For that, very severe decision-making may be necessary. That caused our concern. Mr. Yasuno, do you have anything to add? Tatsuyuki Yasuno: Yes, I am in charge of U.S. business. My name is Yasuno. As our CEO mentioned, that is the stance of the company. What is happening in the U.S. now? I believe you know the situation there. President Trump have sent the direct letters to 17 companies, out of which 3 companies have reached some kind of agreement that has been announced. According to the speculation, by the end of this week, 2 other companies may be announcing their agreements with the government. That is the information we received from our DC team in Washington, D.C. So those 17 companies which received the letters from the President Trump or U.S. government have started discussion with the U.S. government. But on the other hand, U.S. Association of Pharma Companies, PhRMA, before adopting this middleman or PDN or 340B reform. These are considered to be challenges. That is what PhRMA is explaining in its advocacy activities. We of course are closely watching what is happening day by day. Through such monitoring, we would like to prepare ourselves. Unknown Executive: It is now time. We would like to end the earnings call by Eisai. Thank you very much for your time. Thank you for your kind attendance. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning. Welcome to Wesdome Gold Mines' conference call to discuss the company's financial and operating results for the 3 and 9 months ended September 30, 2025. As a reminder, this call is being recorded. Your host for today is Trish Moran, Wesdome's Vice President of Investor Relations. Ms. Moran, please go ahead. Trish Moran: Thank you, operator, and good morning, everyone. Before we get started, I'd like to point out that during today's call, we may make forward-looking statements as defined under Canadian securities law. I ask that you view our slide presentation for cautionary language regarding forward-looking statements and the risk factors pertaining to these statements. Please note that all figures discussed on this call are in Canadian dollars, unless otherwise noted. Our press release, MD&A and financial statements are available both on SEDAR+ and on our corporate website, wesdome.com. With us on today's webcast is Anthea Bath, Wesdome's President and CEO; Philip Yee, our Chief Financial Officer; Guy Belleau, Wesdome's COO; Jono Lawrence, SVP, Exploration and Resources; Raj Gill, SVP, Corporate Development and IR; and Kevin Lonergan, SVP, Technical Services. Following management's formal remarks, we will then open the call to questions. And now over to Anthea. Anthea Bath: Thank you, Trish. Good morning, everyone. Financially, it was a strong quarter, our best yet. Exceptional production performance amplified by accelerating gold prices translated into record revenues, net income, EBITDA, net cash from operating activities and free cash flow, which at almost $80 million boosted our cash balance to more than $265 million. Eagle River is having an outstanding year. Annual production is projected to be the highest in the mine's 30-year history. There is strong momentum across the operation. Ramp development in the 300 Zone is running a full year ahead of production plan, an outstanding achievement by the team. We've also seen a meaningful reduction in dilution, and that's having a direct positive impact on grade and productivity. Costs continue to trend downward, and we're now in a solid position with more than a month's worth of ore stockpile on surface, supported by almost 3 months of developed underground inventory. The Eagle River team is seasoned, capable and they know what great performance looks like. While 2025 results are tracking well, the journey continues on what remains a multiyear transformation. The team's focus is firmly on building the next chapter of success. Kiena has had its own wins this year, despite its challenges. I'm pleased to report that we are now in 3 mining horizons a little ahead of what we told you before, giving us more operational flexibility. As well, as a safeguard, we have temporarily increased operational redundancy by bringing on additional labor and equipment on an interim basis. Step by step, we're resolving the challenges. October was Kiena's best month of the year so far with production of more than 9,500 ounces. Despite progress made, we're adjusting Kiena's full year guidance again this quarter, because we need to ensure the consistency remains there. In mid-August, our outlook suggests we could recover the shortfall stemming from July's infrastructure downtime. While Kiena Deep delivered strong performance through August and September, we couldn't catch that gap completely as contractor execution challenges and underperformances at Presqu'ile limited our ability to fully close this gap. Importantly, there are no new issues. Our focus remains on executing against the known challenges, particularly around operational discipline and flexibility and driving performance to the levels that we expect. October results demonstrate that we're making clear progress in the right direction. Our commitment to the market remains clear. We're strengthening how we plan, manage and mitigate operational risk. And we're maintaining transparency so you have a clear view of the steps we're taking and our progress. In terms of guidance for 2025, on a consolidated level, we're comfortable that we will achieve the mid- to upper end of our new production range of between 177,000 and 193,000 ounces. To achieve our guidance, it is anticipated that Eagle River will finish the year near the top end of its production guidance, which, as you remember, was raised in August. Kiena is now expected to come in between 72,000 and 78,000 ounces and cost guidance has been increased to reflect the short-term fixes to create redundancy. With ore from 3 mining horizons, Kiena Deep, Presqu'ile and the 136-level and more than 9,500 ounces in October being mined, we believe that we've been very prudent with our revised production guidance. With respect to 2026 guidance, we're in the middle of the budget process and we'll issue an update in mid-January. In terms of CapEx next year, as part of the work for the upcoming technical report, we're looking at the infrastructure at both Eagle River and Kiena through a long-term lens to ensure we are well positioned for the future. Some of those capital requirements may be reflected in the 2026 guidance. Looking ahead over the next 6 to 12 months, there are major initiatives underway that will enhance our future success. At Kiena, the advancement of the Presqu'ile ramp towards the Kiena ore body is a top priority. The July hoist disruption demonstrated just how critical it is to have a secondary way to move material and people. The breakthrough of the ramp is scheduled for completion in Q1. The main ramp at Kiena Deep continues to advance towards level-142, which will open another new mining horizon in 2027. At Eagle River, the global model work is progressing rapidly with drilling underway to convert the first batch of targets. We're very encouraged and excited by what we're seeing. We're moving as quickly as we can ahead of the December '26 drilling cutoff date for the technical report. We split the drilling into 2 phases. The first phase will finish this year, just highlighting the scale of the opportunity that we have ahead of us. On the exploration front, the excitement is just beginning. And remember, we're only in the first year of our 5-year program. Both exploration results and the global model work will go into next year's updated technical report as we look to showcase the potential of our very special mines. Lastly, we have taken an important step in our commitment towards delivering long-term value and returning capital to our shareholders. A couple of weeks ago, we announced a normal course issuer bid, and we've now received TSX late last week. And now I'd like to introduce our new Chief Financial Officer, Philip Yee. Although Phil really needs little introduction as he's well known to many of you. Phil has many years of senior financial experience and he is highly respected in the industry. We're absolutely thrilled to have him on our team. With that, over to Phil to walk you through the quarter's financial highlights. Philip Yee: Good morning, everyone. Thank you for the warm welcome, Anthea. After serving as an independent director and Audit Chair of Wesdome, it's a pleasure and certainly a big change to be here as part of the executive team. The company has substantial growth potential, and I look forward to helping advance our strategic initiatives and continuing our long record of creating value to shareholders. Now let's go to Slide 8, which provides a summary of Wesdome's key financial highlights for the 3 and 9 months ended September 30, 2025. It was another record-breaking quarter for the company, driven by all-time high quarterly production, together with an average realized gold price of more than USD 3,500 per ounce. The result was a significant improvement in Q3 2025 financial KPIs over the comparative quarter in 2024. Revenues increased by 57% to $230 million. Net income more than doubled to $87 million, or $0.58 per share. EBITDA grew by 77% to $150 million. Net cash from operating activities nearly doubled to $118 million, and free cash flow grew by 2.5x to $79 million, or $0.52 per share. We have one of the highest free cash flow yields in the gold industry, clear proof of our ability to generate meaningful cash while fully self-funding our organic growth. And one more point on cash generation. It's especially relevant with the recent surge in spot gold prices. For every USD 100 increase in the gold price per ounce, our annualized free cash flow rises by roughly CAD 15 million to CAD 20 million. Moving now to Slide 9. On a consolidated basis, for the third quarter of 2025, cash costs increased by 7% year-over-year to USD 944 per ounce, while AISC averaged USD 1,419, essentially unchanged from the same period in 2024. Eagle River is beginning to make meaningful progress in transforming its cost structure, delivering AISC of USD 1,203 per ounce, a 29% reduction in just 1 year. In contrast, Kiena's AISC increased to USD 1,899 per ounce, primarily due to the cost of interim measures taken to enhance operational redundancy on a short-term basis and a significant decrease in the number of ounces sold. As we work to improve execution at Kiena, we expect elevated costs to continue through to the end of the year. Likewise, we expect Eagle River's AISC to increase in Q4 due to the timing of planned sustaining capital expenditures. Turning to Slide 10. As at September 30, 2025, our cash balance was $266 million, an increase of $143 million since the end of 2024. Including our revolving credit facility, Wesdome's total liquidity now exceeds $600 million. With a strengthening balance sheet and a commitment to disciplined capital allocation, we've developed a framework to guide spending decisions. First and foremost, we will continue to fund high-return organic growth initiatives such as mine life expansion, exploration and asset optimization to ensure our infrastructure is ready for the next phase of growth. Next, while still retaining financial flexibility, as announced on September 21, our plan is to return capital to shareholders through opportunistic share repurchases. To sum up, Wesdome's financial position is solid. Our return on invested capital ranks in the top 3 across both our peer groups and the seniors. We intend to protect that position by continuing our long record of disciplined capital allocation. With that, I will now turn it over to Guy to review our operations. Guy Belleau: Thank you, Phil. Good morning, everyone. Let's move to Slide 12. Eagle River continues to perform well. The team produced over 34,000 ounces in the third quarter, beating its previous production record by more than 10%. More tonnes were mined and processed than in any other quarter in the operations history, driven by improvement in extraction efficiency. Eagle River is also delivering strong grades, thanks to significant reduction in dilution and positive grade reconciliation. Year-to-date, development over grade and stope dilution are down more than 10 and 20 percentage points, respectively, compared to 2024. For context, a 20-point reduction in stope dilution boost average grade by over 10%, directly supporting stronger operations and the bottom line. Eagle River is strategically positioning itself for future success. We are a full year ahead in ramp development within the 300 Zone. Underground, we're maintaining a healthy 3 months of developed inventory. On surface, our 25,000 tonne stockpile is helping us balance production volumes and optimize grades. At the same time, we're making measurable progress on cost improvement and operational efficiencies and the results speak for themselves. Eagle River's all-in sustaining costs for the third quarter were USD 1,203 per ounce, the lowest of the year so far. While absolute costs increased with higher tonnage, they were more than offset by stronger gold sales and efficiency gains from our continuous improvement program. One of the more impactful of these initiatives has been the gradual shift to bringing more development meters in-house. Our goal was 50%, and I'm proud to report we've now exceeded that mark for 3 consecutive quarters. This move not only reduces our cost per meter as our crews are more cost effective than contractors, but also ensures we maximize the return on the capital invested in our equipment. Eagle River has evolved into a stable, reliable operation, and it's now starting to reap the benefits of the last 12 months working, optimizing costs and improving efficiency. The team is on track to achieve the top of its production guidance, which was revised upwards last quarter. As Anthea mentioned, the team is already focused on taking steps towards its next phase of growth. Now let's move to Kiena on Slide 13. In mid-August, our forecast indicated we were on track to meet revised guidance of 80,000 to 90,000 ounces with high-grade material actively being milled. Actual performance did not align with the forecast. Kiena's production of approximately 16,200 ounces was the lowest of the year despite the fact that Kiena did operate well during the month of August and September. This trend continued into October, Kiena's best month of the year so far as production surpassed 9,600 ounces. Additionally, only 1 high-grade stope was delayed from Q3 in the sequence and was successfully mined in October. So all this to say, the problem in Q3 was not Kiena Deep. The problem was at Presqu'ile due mainly to underperformance by the development contractor. They were under-resourced, resulting in lower process tonnage and ounces produced. There are 2 takeaways. First, we're currently transitioning from contractors to in-house teams and will be there within this month. This will improve productivity rates and get our development meters back on track. Second, we've factored the delay into our updated guidance. Overall, we're comfortable with our updated guidance at Kiena to 72,000 to 78,000 ounces, supported by contribution from Kiena Deep and Presqu'ile as well as development ore from our 136 level. With respect to cost during the third quarter, Kiena's all-in sustaining cost was USD 1,899 per ounce. These elevated unit costs reflect temporary increases in resourcing and equipment as well as a lower number of ounces of gold sold. Turning now to Slide 14, I'd like to reiterate what we're doing to improve Kiena. As of today, we're mining across 3 different areas, a vast improvement from just a couple of months ago. We're progressing with our independent review of critical infrastructure. Maintenance practices and equipment availability have improved to the levels required to maintain the plan going forward. By the first quarter of next year, there will be 2 major advancements, a new ramp to surface to augment our shaft, providing 2 independent ways to move people and materials to surface, plus 3 new exploration platform. Towards the end of next year, the ventilation upgrade is expected to be completed. Several improvement initiatives are underway at Kiena, and we look forward to sharing the results as they materialize. And now over to Jono to discuss exploration. Jono Lawrence: Thank you, Guy. Good morning, everyone. Starting on Slide 16, Eagle River. Drilling at the 6 Central Zone has progressed well and is delivering exactly what we hoped it would. Since we started drilling this zone late in 2023, we have extended the deposit to over 600 meters down plunge. What's exciting is that the high-grade results we're seeing are reminiscent of early day results at the top of the high-grade 300 Zone at similar depths. The location of the 6 Central near existing infrastructure makes drilling very efficient. During the third quarter, we also continued drilling the 720 Falcon and 311 zones from underground to evaluate the lateral and up plunge continuity at 720 and down plunge continuity at 311. Initial results have been positive in both zones and drilling will continue through year-end. Now over to Slide 17. The global model is central to our fill-the-mill strategy, evaluating Eagle River holistically while reviewing differential cutoff grades. The global model initiative targets incremental underground material near existing infrastructure. While high-grade ore in the current plan remains untouched, this material offers a chance to add incremental tonnage at attractive margins due to its location. Initial work identified 32 targets and ongoing analysis continues to reveal additional opportunities. Since quarter 3, 4 drill rigs have been dedicated to the first phase of drilling, a 40,000-meter program testing approximately 60% of these targets. Progress has been strong. 45% of the planned meters completed on 20 targets and encouraging results so far. Drilling will continue through year-end with results feeding into the updated 2026 technical report. The second phase of drilling will commence early next year on the remaining targets. Slide 18 shows how our regional exploration program is shaping up. In quarter 3, drilling wrapped up at Dorset. Data processing is underway with an updated resource estimate expected early Q1 2026. The Dorset rig has moved to Magnacon, where it is verifying historic underground surveys, assessing potential mineralization beneath existing workings, twinning historic holes, and evaluating continuation of higher grades. At Mishi, drilling to test logical, geological and structural concepts is nearing completion. This includes deeper targets for high-grade mineralization beneath the open pit. The proximity of Mishi and Magnacon to the plant, combined with limited down plunge exploration and potential for higher grades highlight strong upside potential. Mishi/Magnacon area is emerging as a prime target for further significant mineralization, especially reinforced by recent structural and lithological mapping along the Mishibishu deformation zone that has identified fold-related controls on mineralization. Next steps include additional mapping as well as pole-dipole IP surveys and follow-up drilling. At Cameron Lake, drilling continues to test the continuity of higher-grade zones and extend non-mineralization along trend and at depth. So far, the zone has been traced over 1,000 meters at surface, with previous results highlighting broad lower grade bulk tonnage potential. Regional exploration is in full swing and excitement is building around the potential. We expect to issue an exploration news release before year-end, showcasing updates from our work. Now let's turn to Slide 19. As highlighted last quarter, the completion of new underground drilling platforms is unlocking exciting opportunities at Kiena. Drilling is now underway from the new Level 134 platforms, including much improved angles to test both Kiena Deep and the B Zone. At Kiena Deep, drill results continue to better define the Footwall zone, extending known lenses and increasing confidence in the validity of the geological model and high-grade nature of the lenses. Drilling at B Zone continues to support the interpretation of multiple mineralized lenses with some localized visible gold. The area presents an important opportunity to advance Kiena's fill-the-mill strategy, as it has potential to provide incremental tonnage near existing infrastructure. Development of the 109-level exploration drift extension commenced in the third quarter and drilling of the VC Zone and nearby North zone targets are scheduled to commence in the first quarter of 2026 after the new development is completed. The VC Zone remains a top priority as it historically returned a high-grade intercept at the base of the mineralization wireframe, is open at depth, and it demonstrates mineralization style analogous to Kiena Deep. The standout development at Kiena this quarter was our summer barge drilling program. With a short window to execute, it was critical to hit the ground running, and the program has exceeded expectations. In Q3 alone, we drilled 23,000 meters from barges, targeting the Northwest zone, the 134 Zone, the West Zone deposit along the Northern Corridor and Dubuisson. Beyond drilling, we have also completed a high-resolution drone magnetic survey across the entire Kiena land package that will give us more granularity into the geology and structures on the property and their association with gold mineralization. Zooming into Dubuisson on Slide 20, our summer drilling program focused on a couple of key objectives, completing infill and geotechnical drilling to support an updated mineral reserve in 2026 and testing lateral and down plunge continuity of the ore body. The surface rig at Dubuisson completed 30 holes in Q3, leading to 2 critical outcomes. First, the new drill core analysis shows Dubuisson veins dip shallowly to the north, meaning past underground drilling potentially ran parallel to these veins, not across, limiting the effectiveness of prior testing. Second, surface drilling intersected a new mineralized zone located between and below the Dubuisson North and South zones. This discovery is exciting given the thickness and grade and it underscores the potential for bulk tonnage mineralization at Kiena. Along with the Shawkey South Zone, Dubuisson now represents 1 of 2 significant diorite hosted systems identified to date. Additional drilling is underway to confirm these 2 findings and if validated, future drill programs at Dubuisson will be redesigned to target the deposit from north to south at optimum angles from surface. Given these new insights, drilling Dubuisson from underground has been paused to refine our geological model with resources retasked to support the Shawkey drill programs. The Shawkey 22 mineralized area and the potential link between Shawkey Main and the Wish zones are becoming a key focus area for exploration drill testing from the level-33 exploration drive. The general area presents an opportunity to find significant mineralization with the potential to provide incremental tonnage near infrastructure. More assay results from the summer program are pending, and we anticipate releasing an updated press release on Kiena before year-end. To wrap up, our long-term exploration strategy is just getting started. Over the next 3 to 5 years, we'll be focused on growing resources and making new discoveries. The momentum is strong. The opportunities are significant, and we can't wait to share more results as we drive forward. Operator, you may now open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Ralph Profiti with Stifel. Ralph Profiti: Two questions for Anthea and Guy on Kiena, if I may. There was one particular stope that was given us issues in Q2 as it related to poor delineation and dilution. Just wondering what's become of that particular stope? Has it now been delineated to give us some predictability on dilution? And is it still in production over the next several quarters? And how are we looking overall on Kiena Deeps as it pertains to getting ahead on delineation? Anthea Bath: Thanks, Ralph. Great question. And just on that stope, that stope is no longer in production. And we've used that stope to understand a little bit more about our practices and procedures and ensure that the procedures are strong going forward. So that stope is no longer in mined and hasn't been mined since Q2, if I'm not mistaken. Guy Belleau: Correct. Anthea Bath: In regards to our delineation program going forward, I'm going to let Jono just give you an update quickly. Jono Lawrence: Yes. So delineation has been completed for Q4, and we're starting to drill the stopes in the budget for 2026 programs commenced. Anthea Bath: It will be ready by when? Jono Lawrence: We've commenced now. We should be finished by about January on those programs. Anthea Bath: So it will be fully delineated at that point. Ralph Profiti: Great. Very clear. I appreciate that. As a follow-up, you mentioned in some of your prepared comments about some of the steps that you've been taking at Kiena looking into 2026. And I'm just wondering, over the last several months, have you tried to get ahead of the preliminary findings of the external infrastructure review? Or do you expect incremental steps need to be taken? And I'm just wondering where do you expect that independent review to take us on issues like ventilation and development? Anthea Bath: Another really good question. I think the program itself is holistic. I mean I think what it's going to tell us is short-term opportunities to improve infrastructure beyond. We're obviously getting results on time likely. Guy Belleau: Correct. Anthea Bath: In the program itself and taking into consideration. I think the last one has taught us that we're learning too much around our infrastructure where we don't like to. So we need to get to the bottom of really understanding criticality and the risk associated with current infrastructure setup. So I think the answers will come out, but I don't expect it to be something that's going to be profound or I don't believe it will be. It will probably encourage us on accelerating and improving the robustness of the systems relative to the risk profile we'd like to operate at. Guy Belleau: Yes, it's part of continuous improvement. We don't expect any major findings. I think that we're already aware. It's part of continuous improvement and looking forward to the conclusion of the investigation. Operator: Your next question comes from the line of Wayne Lam with TD. Wayne Lam: Maybe if you could just provide maybe a bit more detail on the progress made with the development of the Presqu'ile ramp. And has there been a delay in the access to the level-33? And then if so, is the prior guidance at Kiena for 2026 that you guys had provided still achievable next year? Or will that be reevaluated? Anthea Bath: Wayne, thanks for the question. Presqu'ile ramp itself will break through in quarter 1, but it hasn't delayed access to the entry into the Presqu'ile ore body, which is developing, which we mentioned to everybody we're a bit behind on. Kiena 136 level we have come in when we said we would come in, in fact, maybe a little bit ahead of what we said to you before. So that's continuing as it is. Regarding the guidance for 2026, we're currently reviewing all the plans. We're going through the mine planning right now and doing a more detailed risk review with the team on that, and we'll get back to the market with an update. Wayne Lam: Okay. Great. And then just want to confirm in terms of the additional mine fronts coming online and the development having been spent on that now, as we look to next year on the growth capital spend at Kiena, should we be modeling something like a much more meaningful reduction relative to the $65 million spent this year? Anthea Bath: Yes, I would believe so. I would believe that with Kiena, Presqu'ile ore body coming into production, commercial production at some point in the year, and then it will -- we should see the growth capital reducing as there's no -- we're not starting significant development anywhere else on a new ore body. Wayne Lam: Okay. Great. And then maybe just last one. Just wondering at Kiena, whether you have been seeing greater turnover at the mine. And just wondering if you had just a bit more detail on the cost pressures you're seeing on the labor side there? Anthea Bath: Yes. I think that's a great question. Turnover is one of our biggest concerns at Kiena and we've seen high turnover. In fact, you saw it in other contracts. Our contract experiencing the same. Yes, it's something we continue to work on. It's something that we worry about all the time. But yes, it's nothing different from what we've seen before. We just sort of keep assuring that -- your second question, Wayne was on the bottleneck? Wayne Lam: No, it was just on labor cost pressures. Anthea Bath: I think from a labor cost perspective, the thing is when you don't have your -- when you've got high turnover and you're having to fill vacancies you're using contractors, which is higher cost obviously for the operation. And then also you're building site redundancy as well when you're managing this change. So it certainly has impacted us. We've seen it in our numbers. But I've got to say all the efforts that are going in, understanding the people strategy and how we actually differentiate Wesdome hopefully will come into play and we'll get more stickiness from that perspective and enhance this going forward. Operator: Your next question comes from the line of Don DeMarco with National Bank Financial. Don DeMarco: Welcome to Phil. So congratulations on the continued buoyant free cash flow another quarter. But my first question, I think I'll just continue on with the -- some of the labor challenges that you've commented on. What do you think the root cause is there? I mean is Agnico -- is it just a competitive place to be with respect to Agnico or are there other industries that are pulling labor away? And what is the source of that competitiveness in the labor? Anthea Bath: I think the market is extremely competitive as a whole for labor across the country, Don. And I think we're seeing it very strongly in Val d'Or at the moment. I think there's also a challenge there on sort of accommodation those things that you’re building this out. Challenges are getting a bit harder. So I don't believe it's unique to Val d'Or alone. I think the market is buoyant as we know across multiple industries. I don't know if that helps at all. Don DeMarco: Okay. Yes, that's understood. So to my next question then, Phil, you mentioned Wesdome's strong free cash flow yield. And we see this quarter, cash and liquidity is increasing again. Can you share your strategy with respect to capital allocation? Like I see the NCIB that was announced post quarter. Are you looking to build up a kind of a war chest to cash? Or what are you thinking here in terms of going forward in the next 12 months or beyond? Philip Yee: Don, I think the NCIB is really, I think, a very practical and relevant strategy to return capital to shareholders, and it's limited at 2%, which at today's share price, it's around $60 million. So that's a reasonable percentage of the free cash flow generation. And we also have to be in a good position to support the growth strategy. So a lot of the cash, the free cash flow buildup and liquidity will be available to help this company grow internally as well. So I don't think that's really changed in terms of the overall strategy going forward. Don DeMarco: Okay. And with respect to that growth strategy, particularly looking at M&A, can you provide some color on maybe the type of assets that you might consider in terms of jurisdiction, stage, underground or open pit? And we saw recently that Core put a bid in for Probe. Was Probe an asset that might have fit Wesdome's M&A selection criteria? Anthea Bath: I think as we've always said, we do things that are going to be accretive and value adding to our shareholders. We don't need to do anything urgently. Our focus, as we've said to the market has to date to Canada and mostly playing to the strength of Wesdome largely. We obviously review this consistently as well. I'm going to hand over to Raj to add a couple more comments here. Rajbir Gill: Yes, Don, I think what you can see is the general trend of Canadian assets trading at a premium. And I think Wesdome is well positioned from that standpoint, right? We continue to be conservative and really focusing on industrial logic and want to act from a position of strength, ultimately, right? Operator: [Operator Instructions] Your next question comes from Allison Carson with Desjardins. Allison Carson: I think most of the questions around Kiena have been answered. I just had one more remaining. The mining permit at Presqu'ile hasn't been received yet and it's expected in Q4. Is there a chance you don't get it going into Q1? And what does that mean? Does it mean you can't take stope to Presqu'ile? Or can you continue to use the bulk sample permit? Anthea Bath: Yes. I mean the bulk permit as we told the market before was around 17,000 tonnes, and that's what's going to be mined in this year. So we -- as you know, it's going through its normal process and it's following. It will continue. We were hoping to get it at the end of October and it's obviously slightly delayed. Does it affect Q1? Yes, it would. Certainly affect Q1 because we would have really mined through the bulk permit at that point in time. So it is definitely a risk, but something we're not unaware of and something we're working hard to keep doing whatever we need to do to make sure we get it through. Operator: That concludes our question-and-answer session. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good day, and welcome to the Global Medical REIT Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jamie Barber, Global Medical REIT's General Counsel. Please go ahead. Jamie Barber: Good morning, everyone, and welcome to Global Medical REIT's Third Quarter 2025 Earnings Conference Call. My name is Jamie Barber, and I'm Global Medical REIT's General Counsel. On the call today are Mark Decker, Jr., Chief Executive Officer; Alfonzo Leon, Chief Investment Officer; Danica Holley, Chief Operating Officer; and Bob Kiernan, Chief Financial Officer. Statements or comments made on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company's actual results may differ significantly from those projected or suggested from any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings. Additionally, on this call, the company may refer to certain non-GAAP financial measures. You can find a tabular reconciliation of these non-GAAP financial measures to the most currently comparable GAAP numbers in the company's earnings release and in filings with the SEC. Additional information may be found on the Investor Relations page of the company's website at www.globalmedicalreit.com. I would now like to turn the call over to Mark. Mark Decker: Thank you, Jamie. Good morning, everyone, and thank you for joining us today as we share the results of our first full quarter together as a management team. As you review our materials, I hope you'll find growing evidence of our focus on driving shareholder value. We're going to achieve this by delivering internal earnings growth, demonstrating disciplined capital allocation and capital markets acumen and executing on external growth opportunities when they present themselves. The team was highly productive on each of these fronts during the third quarter. The portfolio performed well, posting 2.7% same-store NOI growth. This is our first quarter reporting on this key metric and an improved focus on property performance will help our asset management team deliver stronger and more consistent results. On the balance sheet, we were able to address our upcoming debt maturities by recasting the revolver to 2029 and extending our $350 million Term Loan A and dividing the term loan into 3 distinct loans while extending our weighted average debt term by 3 years. Thanks again to our lending group and great work by our finance team. In investments, Alfonzo and team have built a pipeline of highly desirable opportunities, which we will only act upon with a green light from the market. Our current cost of capital dictates that we will remain disciplined, pursuing only our highest conviction ideas and funding those transactions with proceeds from asset recycling, but we hope that will soon change. More broadly, our full team is in the midst of developing a strategic plan to deliver outsized shareholder return in the years ahead. We're excited to share more when we're able to. On the whole, it's been an outstanding first 4 months as a new team. I'm appreciative to everyone for their pedal to the metal efforts. The journey is just beginning, but I'm ecstatic with our progress so far. Before passing the call to Bob, I'd like to comment on the large outpatient medical transaction recently announced by one of our public sector peers. First, the transaction demonstrates the meaningful institutional demand that exists for health care infrastructure assets, a huge plus for our existing owners. Second, we've been asked by many investors for a read-through on the mark-to-market value of our own real estate, which is a fair question. Answering that question requires agreement on what defines quality. We believe that quality assets are those that deliver cash flows that are predictable, reliable and growing. By that yardstick, we like our portfolio quite a bit. The GMRE portfolio is 95% leased with over 5 years of remaining WAULT. Our leases have an embedded annual escalator of 2.1%, and this quarter's 2.7% same-store print is repeatable and achieved without any carve-outs for redevelopments or assets that we don't wish to count. We'll let others speak to what that means in terms of cap rate, but any reasonable assumptions would indicate that we trade at a substantial discount to the fair value of our assets. Bob, can you please run through the numbers? Robert Kiernan: Thank you, Mark. During the quarter, we delivered funds from operations of $14.5 million or $1 per share in unit. Adjusted funds from operations, which excludes straight-line rent among other noncash and nonrecurring items, was $16.2 million or $1.12 per share in unit. Each of these metrics grew 4% on a per share basis relative to the prior year equivalent. Year-to-date, funds available for distribution, which accounts for CapEx, tenant improvements and leasing commissions, totaled $39.2 million, resulting in a payout ratio of 84% in our current annual dividend rate. In October, we amended our credit facility to extend the term of our revolver to October 2029 and to extend the term of our $350 million Term Loan A by breaking it up into 3 tranches with maturities ranging from October 2029 to April 2031. The amendment also removed the 10 basis point SOFR credit spread from all of our credit facility borrowings. We are extremely pleased with the execution of the facility amendment, I would like to thank our lending group for their support and confidence. In connection with the credit facility amendment, we entered into forward starting interest rate swaps to hedge the SOFR component of our Term Loan A through its new maturity dates. Based on the current leverage levels, the weighted average fixed rate on these new swaps will result in a weighted average effective interest rate of approximately 4.8%. It's important to note that our previously existing swaps on Term Loan A will remain in effect until the maturity in April of 2026. As discussed last quarter, we are also looking to expand our sources of debt capital to include longer-term debt providers such as insurance companies. By diversifying our lender and tenor mix, we will improve the quality of our earnings and broaden our access to debt capital. This diversification alongside our extended debt maturities and sound dividend coverage ratio has fortified our balance sheet and marks an important step on our journey toward earning an investment-grade credit rating. Danica? Danica Holley: Thank you, Bob. The third quarter was a productive one for our asset management team, headlined by same-store NOI growth of 2.7% for our portfolio. This performance was supported by positive year-to-date absorption and the successful re-leasing of our 85,000 square foot facility in Beaumont, Texas that was previously leased to Steward Health. Beyond Beaumont, we're seeing positive leasing outcomes across the portfolio as high construction costs have constrained new supply, enhancing our leverage when negotiating lease renewals. We disposed of 2 assets during the quarter, including 50,000 square foot freestanding health system administrative facility located in Aurora, Illinois. Following this disposition, our portfolio exposure to dedicated health system administrative space is reduced to less than 2% of total ABR. As of quarter end, the GMRE portfolio was 95.2% leased with a remaining term of 5.3 years. We have strong visibility on our near-term leasing pipeline and expect occupancy to trend towards 96% at year-end. CapEx and leasing costs have totaled $9.7 million on a year-to-date basis, putting us in a position to land within our full year guidance range of between $12 million and $14 million. I would now like to turn the call over to Alfonzo to discuss our investments. Alfonzo? Alfonzo Leon: Thank you, Danica. On the investments front, we have remained patient on new acquisitions in light of our cost of capital. Still, the team has been busy underwriting deals to keep an active pulse on the market, evaluating $11.5 billion in prospective transactions so far this year. This deal flow has provided us with a near-term pipeline of almost $500 million in potential deals at first year cash returns that blend to a 7.5% to 8% range. For now, execution on those deals will be limited to those which we can fund via asset recycling, but our team remains ready to pounce on this attractive market opportunity once we receive a green light from the capital markets. Mark? Mark Decker: Thanks, Alfonzo. I've been involved in the outpatient medical sector since 2001 and I don't think the setup for our niche has ever been better. We're poised to benefit from increasing demand for outpatient services, rising construction costs that limit new supply and competitors that are either out of the game or have lots going on internally. GMRE has the right team and skill set to drive FFO and FAD earnings growth, especially if pricing power continues to come our way. That said, we know that we'll need to keep on executing to earn a currency that enables external growth and we're ready and excited to do that work. Operator, let's open it up for Q&A. Operator: [Operator Instructions] your first question today will come from Wes Golladay with Baird. Wesley Golladay: I have a question on the -- you talked about the positive leasing momentum. Can you talk about the pipeline of leases that you have signed but will still need to commence rent over the next few quarters? Would you have like an ABR number for that? Mark Decker: I don't know that we have an exact ABR number, but Danica, do you want to speak to that? Danica Holley: Yes. I think in terms of an exact ABR number, I'm not sort of comfortable nailing that exactly down, but I would give you encouragement that the performance of the portfolio will continue to be consistent with what we reported out this quarter and that there's no surprises or any sort of bogeys in there. So I hope you're able to sort of go from that. Wesley Golladay: Okay. And then when you look at -- you mentioned about maybe sourcing insurance debt. Would you have, I guess, a framework for thinking about timing of when you may pursue that? Mark Decker: Yes, Wes, I mean, honestly, I think it would be to our benefit to have it sooner rather than later. It's just another market and another place where we could get financing and it allows us to go past 5 years. So I mean we have urgency around it but I mean, the trick is it's sort of binary. We're either able to access the market or not and it comes down to the view of our credit. It's our belief and expectation that the counterparty will price us like kind of a BBB- credit. And so if and when we can get that as we work through it, we will. And if we can't, we'll have to do a few things here and there to get ourselves in position for that, including possibly going to the agencies. But we feel like it's within reach to get that done. Operator: And your next question today will come from Juan Sanabria with BMO Capital Markets. Robin Haneland: This is Robin Haneland sitting in for Juan. I was curious what drove the occupancy increase during the quarter? And then on top of that, is it the year-end occupancy of 96% that is driving the sequential benefit to FFO in the fourth quarter or something else? Mark Decker: Yes. On the occupancy, I mean, it was mainly just driven by selling the empty facility at Aurora. That's the kind of math of it. And in terms of sequential Q4, it's probably the benefit of CHRISTUS but I don't know, Bob, do you want to chime in? Robert Kiernan: From an occupancy perspective, Q4 will have lease-up in it. We've got a number of lease-ups that are projected to come in during the fourth quarter. From an earnings perspective, we'll continue -- I think it is CHRISTUS, from a property NOI perspective, again, continuing that into the fourth quarter. This was our first full quarter with that in the numbers and we'll continue on that path. Robin Haneland: And then on the acquisition front, how low do you think leverage would have to get for you to look to flip to being a net acquirer? And what scale could you possibly be a net buyer? Mark Decker: Yes. I think, Robin, for how low do we want to leverage, I mean, our overall target leverage, I'd say, in the near term is sub-6x. And ideally, we could be in a spot where we could fund with permanent capital and then put it on our line, take it off with permanent capital and some longer-term debt would be an ideal state. We're not there today. I mean if we had access to capital, I think we could easily put $200 million to $500 million of external growth up per year and that would be mathematically compelling, I think, and as well as just improving the overall quality of the business. But for now, we're going to be kind of -- we're going to get a little bit less levered ideally and then probably be funding from recycling. Robin Haneland: On the topic of recycling and deleveraging here, could you maybe just help us understand the quantum of assets you're considering selling? And maybe like any rough expectations on yields would be helpful. Mark Decker: Yes, it really depends on type, but I'd say we have some things that we think would sell in the low 6s and others that we would put probably closer to 7, and we would be seeking to redeploy that kind of plus 100 to 200 basis points, taking the 2 ends of those spectrums. Operator: And your next question today will come from Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: So Mark or Alfonzo, you highlighted the pipeline of acquisition opportunities as much as $500 million that sort of meet that criteria in the 7.5% to 8% cap rate range. I mean, how big is the disposition pipeline today that you think that you could sort of execute on that, maybe the near-term opportunity of capital recycling at a positive spread? Mark Decker: I think near term, it's probably 50 to 100, and we could probably do more -- I mean it all depends, Austin, because we have to get the sale we like. And so it's a lot of triple net leases that we have to kind of pull off to get the sales and the buys we like. But I mean, everything we have, I think, is salable. It's just a question of trying to manage it all together, the leverage, earnings and so forth. But I'd say we won't get at that $500 million in full without some meaningful change. So my guess is -- my hope would be we get 20% to 40% of that done. Pipelines, as you know, evolve. So if we have something nailed down now, we can't move on unless we have a sale pretty close to wind up. Austin Wurschmidt: Fair enough. Are there other assets in that disposition pool that are underleased or the lease yield is meaningfully below where it kind of helps both deleverage as well as allows you to reinvest at a positive spread? Mark Decker: The more likely scenario is, I'd say the underleased ones probably aren't as attractive a sale candidate. So our best sales will be well leased sort of sleep at night type items. And we actually probably will get -- I mean the way our leverage is counted in our facility is actually on a gross book basis. So if we bought something for $1 and we sold it for $1.15 as an example, we'd actually be chipping away a little bit more at our leverage just on the margin. So that would work kind of both ways for us. So yes, I'd say there's a little of that possible but it's more likely the fuller assets, not the opportunistic ones. Austin Wurschmidt: Appreciate it. And then maybe the last one. You mentioned the team is in the early stages of developing the strategic plan. But since you teased out the idea, anything you can share for just the central tenants of the plan at kind of a high level? Mark Decker: Yes. I mean, honestly, the central tenants will be unsurprising to you. It will be about capital allocation and balance sheet management and just execution. But yes, I guess I'd rather wait. But I don't think there'll be a huge reveal. We're not going to start getting into the metal stamping business or anything like that or data centers. We'll be focused in kind of what we would call health care infrastructure. Operator: And the next question will come from Rob Stevenson with Janney. Robert Stevenson: Bob, how much -- so the implied fourth quarter guidance is $1.13 to $1.23, if I'm doing my math right. When you're taking a look at that sort of $0.10 range, you talked about lease-ups benefiting fourth quarter earnings, but is that basically the predominant driver? Or is there some other stuff in there? Because that's like $700,000 plus sequentially just to get you to the midpoint of that. Robert Kiernan: I think it's a combination of things, Rob, but it's certainly -- I mean, it's some elements of the lease-up activity. It's -- there's a number of moving pieces to it. So it's really hard to flag any in particular. But from a run rate perspective, this -- the run rate that we're on from an AFFO perspective, this quarter, the incremental growth, I think the number is maybe a little bit lower than what you're citing in terms of what we need to get towards that range. But we have a number of opportunities from both rent growth and also from a cost side to fall into that range. Robert Stevenson: Okay. Because I mean, it looks like from the supplemental that you guys are $3.37 of 9-month AFFO and the guidance is $4.50 to $4.60. So my math is failing me here is that it just seemed like a big jump sequentially even if you got -- because you -- it's not like you're going from 80% occupancy to 95% or some sort of huge jump because you don't have that much vacancy. Robert Kiernan: The one other piece to keep in mind is interest also. I mean with the curve -- with some of the rate reductions that are there, that does have a pickup for us. The credit facility refinancing, we also pick up -- we no longer are subject to the 10 bps SOFR credit spread adjustment. So that's a piece there as well. Robert Stevenson: Okay. And then I don't know who's best to answer the question, but you guys talk about the tenant credit watch list today. I mean, even if it's not who's on it, but is that watch list expanding, shrinking? How should we be thinking about that at this point in time given some of the re-tenanting, given a couple of sales, et cetera? And how are you guys thinking about that internally? Mark Decker: I mean I'd say on the whole, Rob, it's shrinking. Our 2 main issues there, we're obviously Steward and Prospect. And I mean, we're always watching what our tenants are doing obviously to the extent we can. But those -- that was a pretty good size event for us. And for the portfolio, we don't have anything brewing that we're aware of at this time. Robert Stevenson: Okay. And then just last one for me. Mark, how are you and the Board thinking about preferred? Is that to you guys, is that expensive debt? Is that quasi-equity? Is that something with the common here that you could expand either reopening the existing or a new issuance to fund? How are you thinking about that capital stack, assuming that the -- if the common equity stays here for any prolonged period of time? Mark Decker: Yes. Candidly, I'm amazed at where the common is, but I guess we're in a decent company. The REIT market as a whole is pretty challenged. And among them, we are some of the most challenged as it relates to earnings multiples. But Listen, I like preferred. I think it is equity and I will go to my grave arguing that with anyone. It's -- we don't have to pay it back. So I can't understand how it would be debt. And in our capital stack, I think it's possible today that would be attractive equity. So I mean, I'd say it's definitely something we'd consider. And I would say the people who would argue with us that this said don't probably own our stock right now anyway. So... Operator: And the next question will come from Gaurav Mehta with Alliance Global Partners. Gaurav Mehta: I wanted to ask you on your occupancy comments. I think you mentioned 96% by year-end from 95.2% as of this quarter. Does that assume any sale of any vacant property? Mark Decker: No. Gaurav Mehta: Okay. And so when you say 96%, does that mean that the tenants are paying the rent? Or is it like you're signing 96% and tenants will probably start paying the rents later? Mark Decker: Those are all -- Gaurav, thanks for the question. It's really -- those are kind of leases that are underway. We're trading paper. So those are situations where we have a line of sight and have belief that it will get -- the lease will get signed by the end of the year. And by the way, I think we did sell one small building, although it wouldn't meaningfully move occupancy. So I retract my firm no. I think we sold a very small asset actually just yesterday. So... Gaurav Mehta: Understood. And as a follow-up on the G&A for fourth quarter, should we expect that to be in line with where third quarter was? Robert Kiernan: Gaurav, yes, it's -- from a cash G&A perspective, we're forecasting in that same type of range and similar on the cash. Operator: And your next question today will come from John Massocca with B. Riley. John Massocca: Maybe thinking about the buyback and kind of where your stock is trading today, as you look at dispositions and kind of capital recycling, how are you kind of thinking about utilizing the buyback, paying down debt or actually buying assets? I mean, kind of where are we today maybe within those 3 options? Mark Decker: Yes. Good question. Look, the stock is really attractive right now. We're trading over a 9% cap on an implied basis and that we can't find a portfolio that we have so much information on for that price. So that's a very attractive option. Obviously, that's permanent capital. It's precious. We have a lot of respect for that and are not trying to shrink it. But if -- but you could say the universe is telling us to sell assets and buy our stock back, and that's certainly under consideration, we'd want to do it. I think we talked about when we announced the buyback on a leverage-neutral basis. And just -- yes, so I guess I'd say that. So I mean, ideally, we could do a little from each delever, buy some stock back, buy some assets that are accretive, that would be ideal. That's what I'd say we're working on generally. John Massocca: As we think about and this maybe even be part of the strategic plan, I mean, is there an opportunity set to sell big chunks of assets within the portfolio? Or should we expect kind of disposition activity near term to be kind of granular like it has been in quarters past? Mark Decker: I think it's possible we could do big chunks. I mean it's just about getting a buyer you like. And I'd say the bigger it is, just the more complex it is because it really -- it really affects our corporate math. So -- kind of time that well. John Massocca: And then longer term, particularly as you're thinking about kind of strategy for GMRE, is there potential to do investments maybe outside of the traditional aperture or traditional focus of MOB? What are your kind of big longer-term thoughts on where you want to focus property level investments? Mark Decker: Yes. I mean I think that's a great question. I think the long term for us, I mean, we're trying to manufacture the best cash flow stream we can. And by that, we mean really FAD and ideally free cash flow generated back to the company to start to fund some internal growth, which we're really able to do for the first time, I think, in the company's history this quarter, albeit a modest amount. And so I think we would look at health care broadly, and we're not, I think, in most people's definition, a pure-play MOB or we're not pure-play medical office already. And I think that's an opportunity. And so yes, we are exploring that. And I'd say thinking where else in health care, we think we could craft an edge. Where I think our sort of strength as an investment team is, and I think this is real is we have some very thoughtful folks that know the business well and really go deep on underwriting and those are skills that are transferable. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mark Decker for any closing remarks. Mark Decker: I'll just pause on to thank everyone for spending time with us this morning. And hopefully, we'll see you this winter. Thanks so much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to the LTC Properties, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Before management begins its presentation, please note that today's comments, including the question-and-answer session, may include forward-looking statements subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in LTC's Properties' filings with the Securities and Exchange Commission from time to time, including the company's most recent 10-K dated December 31, 2024. LTC undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this presentation. And please note that this event is being recorded. I would now like to turn the conference over to LTC management. Thank you. You may begin. Clint B. Malin: Hello, and welcome to LTC's 2025 Third Quarter Earnings Call. After some brief introductory remarks from me, you'll hear from Cece Chikhale, our Chief Financial Officer; followed by Gibson Satterwhite, LTC's Executive Vice President of Asset Management; then Dave Boitano, our Chief Investment Officer. Pam Kessler, LTC's Co-CEO, will close out our formal remarks. It's been a busy and productive 10 months for LTC. We've been executing on every front, initial cooperative conversions from triple net lease to SHOP, external growth through investments, capital recycling and transformation through SHOP. Following the announcement of our SHOP initiative in late 2024, we moved quickly to build our investment pipeline, outperforming our own expectations and growing the pipeline fourfold since the beginning of this year. As Gibson will detail later, today, we are raising our 2025 SHOP NOI guidance. We have closed about 85% of our projected $460 million investment pipeline, more than $290 million of which was in our SHOP segment. We expanded operator relationships and reduced the average age of our portfolio. Today, we have 6 SHOP operator relationships, 4 new to LTC. By the end of the year, we expect SHOP to approach 25% of our investment portfolio with an average age of less than 9 years. Our primary thesis for launching SHOP was the realization that LTC was effectively excluding itself from a vast opportunity set of new investments. With the robust volume of new investments we've made in 2025 and the backdrop of favorable demand fundamentals and supply constraints, our external growth trajectory remains strong. The transformation we've accomplished since the second quarter of this year is delivering meaningful results and positioning LTC to continue creating long-term value for our shareholders. Pam, Wendy and I want to extend a sincere thank you and express our gratitude to the LTC team. They have stretched themselves by tackling new tasks and responsibilities and are working together tirelessly and professionally to successfully execute on LTC's strategy. Now I'll turn the call over to Cece. Caroline Chikhale: Thank you, Clint. The numbers I'll be discussing today are for the third quarter of 2025 compared with the same quarter in 2024, unless otherwise noted. You can find a more detailed description of our financial results in yesterday's earnings release, our supplemental and our Form 10-Q. Core FFO improved to $0.69 from $0.68, principally due to an increase in SHOP NOI from Anthem and New Perspective compared with rents we received before those leases were converted from triple net, new SHOP acquisitions and a decrease in interest expense. These were partially offset by an increase in reoccurring G&A. Core FAD improved by $0.04 to $0.72 versus $0.68 last year. The increase primarily related to the same factors impacting core FFO as well as the turnaround impact of rent assistance provided to ALG in the third quarter of 2024, cash rent increases from escalations and CapEx funding in our triple net portfolio. These were partially offset by an increase in reoccurring G&A. During the quarter, we took a noncash write-off of Prestige's straight-line effective interest receivable balance of $41.5 million, resulting from the loan amendment that we discussed on last quarter's call. The amendment gives Prestige a penalty-free prepayment option on their $180 million loan within a 12-month window beginning in July 2026. Additionally, during the third quarter, we wrote off $1.3 million of straight-line rent receivable related to the Genesis Chapter 11 bankruptcy filing. During the third quarter and subsequent, we sold a total of 1.5 million shares under our ATM for net proceeds of approximately $56 million. Our pro forma debt to annualized adjusted EBITDA for real estate was 4.7x, and our annualized adjusted fixed charge ratio was 4.6x. Our pro forma liquidity stands at nearly $500 million. We have increased the low end of our full year 2025 core FFO guidance by $0.01, which now stands at $2.69 to $2.71. For the fourth quarter, we expect core FFO in the range of $0.67 to $0.69. Guidance excludes asset sales and includes only those transactions closed to date or expected to close over the next 60 days. Additional assumptions underpinning this guidance can be found in our earnings release, which is posted on our website. Now I'll turn the call over to Gibson. J. Satterwhite: Thank you, Cece. We're repositioning our portfolio with purpose, recycling capital from noncore assets, adding new operators and expanding SHOP to drive long-term value. At the close of the third quarter, SHOP included 21 properties with 5 operators, 3 of them new to LTC, including LifeSpark, Charter Senior Living and Discovery Senior Living. The portfolio's gross book value is $447 million or approximately 20% of our overall portfolio with average occupancy of 87%. We expect to convert 2 seniors housing communities in Oregon from our triple net portfolio into our SHOP segment on or before December 1. Upon conversion, we will terminate the triple net master lease with the operator and enter into a management agreement with Compass Senior Living, a partner new to LTC. The contractual rent under the lease agreement is approximately $2.5 million and the SHOP NOI run rate is approximately $1.2 million, which is expected to grow to exceed the contractual rent over the next couple of years. For the 13 properties originally converted to SHOP, we are increasing guidance to $10.9 million to $11.3 million, up from $9.4 million to $10.3 million. At the midpoint of guidance, pro forma NOI growth for these properties for the full year 2025 over '24 would approach 18%. For the remainder of the SHOP portfolio acquired through today's call and expected to convert, we expect fourth quarter NOI of $4.8 million to $5.2 million. While we are not providing formal guidance for 2026 today, we do expect continued strong SHOP NOI growth given the competitive position of our SHOP assets. Our expectation for rent from the 14-property portfolio, subject to market-based rent resets, remains steady at $5.7 million, which represents a 64% year-over-year increase. We will continue working to optimize value in this portfolio over the next 12 to 15 months. We have completed the sale of a previously discussed portfolio of 7 skilled nursing assets, generating net proceeds of approximately $120 million and a resulting gain of $78 million. Now I'll hand the call over to Dave for a discussion of our investment activity. David Boitano: Thanks, Gibson. The fall NIC conference echoed a powerful theme, confidence in the future of senior housing. LTC is poised to capitalize on this robust industry updraft and build upon our solid cornerstone of 2025 investment success, a foundation of strong senior housing operator relationships and accelerating deal flow. We're gaining strong traction, not only in the volume of potential investments, but in the quality and depth of opportunities we're seeing. Our conversations with potential and existing SHOP operating partners continue to generate a strong pipeline, including off-market deals sourced from LTC's deep industry relationships. Our current opportunity set stands at roughly $1 billion, and we already have nearly $110 million under LOI with a target close in January 2026. The majority of our 2025 pipeline is closed with more than $290 million in SHOP transactions completed since May. We expect to ramp up that pace in 2026 as we focus on executing on the substantial opportunities we are seeing with both existing and potential new SHOP relationships. I want to take a moment to thank Gibson for the over $100 million in sales proceeds that we're quickly redeploying into quality senior housing communities. Through the end of the third quarter, we closed 3 SHOP investments totaling nearly $270 million. After quarter end and as just recently announced, we acquired a stabilized senior housing community in Georgia for $23 million that is being managed by a new LTC operator, Arbor Company. These stabilized assets were underwritten to generate threshold year 1 yields of about 7% and unlevered IRRs in the low teens, tangible proof of our ability to source, structure and execute high-performing investments. And as with all our SHOP relationships, LTC's management agreements provide incentives for our operating partners to surpass base underwriting assumptions. During the third quarter, we also originated a $58 million 5-year mortgage at 8.25%, providing strong current returns and portfolio diversification. SHOP has proven to be a true external growth engine for LTC, built on disciplined underwriting, strong partnerships and consistent execution. As the market continues to evolve, we're focused on maintaining balance between opportunity pursuit and execution discipline, ensuring LTC's growth remains both sustainable and strategic. I'll now pass the call to Pam. Pamela Shelley-Kessler: Thanks, Dave. LTC's strategy today is clear and forward focused. We're building a company defined by growth, quality and consistent performance. Over the past year, we've established a strong foundation, and now we're focusing on scaling it by expanding our SHOP platform, deepening operator partnerships and driving long-term accretive returns. We're intentionally building a SHOP portfolio of newer assets with staying power, one that will compete well as the industry continues to evolve. The bifurcation between high-quality modern assets and older, less competitive properties is becoming more pronounced across all real estate asset classes, and seniors housing is no exception. By concentrating on newer, well-located communities operated by experienced partners, LTC is positioning itself to outperform over time. Underpinning all of this is a strong balance sheet. We maintain solid liquidity, a conservative approach to leverage and a disciplined payout ratio that gives us the flexibility to pursue growth while preserving financial stability. That foundation allows us to move decisively when opportunities arise. Our momentum is strong, our strategy is working and our opportunities ahead are significant. We're executing with discipline and confidence, and I couldn't be more optimistic about what's next for LTC. Operator, we're ready for questions from the audience. Operator: [Operator Instructions] The first question comes from the line of John Kilichowski with Wells Fargo. Unknown Analyst: This is [ Jesus ] on for John. Just looking at the guidance here to get started, looking at the moving parts, just talk about the underlying assumptions here for the low end and the high end of the range. Caroline Chikhale: Yes, [ Jesus ] it's Cece. The low range, we included all investments that have closed to date and then the high is all that we expect to close within the next 60 days. Unknown Analyst: Perfect. And let's talk about the pipeline as well and the makeup here. Are you purely focusing on SHOP deals at the moment? Or are you looking at other triple net and loans as well? David Boitano: So this is Dave. Predominantly SHOP. Certainly, we will consider other opportunities across our desk, but our primary focus is SHOP. Operator: And the next question comes from the line of Juan Sanabria with BMO Capital Markets. Juan Sanabria: Maybe just to start to piggyback on the prior question. Could you provide any color on expected yields and growth for $110 million in the pipeline to close in January and $70 million over the next 60 days? Clint B. Malin: So Juan, this is Clint. We've guided to 7% yields on our SHOP acquisitions, and you should think of the same for the $110 million deal we disclosed on our earnings release. Pamela Shelley-Kessler: Initial yield. Clint B. Malin: Initial yields. Juan Sanabria: Okay. And then just you guys -- or how should we think about funding the incremental capital that you've outlined? And then how do you think about your marginal cost of capital, both debt and equity? Pamela Shelley-Kessler: Yes. Thanks, Juan. This is Pam. So we have proceeds coming to us in the first quarter in the form of loan payoffs and purchase option exercises that we disclosed in the supplemental. And so that's about $90 million of proceeds and then funding the remainder on the -- with equity on the ATM. We've been very disciplined this year in issuing equity to match-fund our investments. And so you can anticipate that going forward as well. Juan Sanabria: Great. And just last one, if you don't mind. Any other options of prepayments that we should expect in 2026 or '27 that you think realistically would be executed? Clint B. Malin: The only thing you should think about is Prestige, which we talked about previously. And we gave them a prepayment window starting in July of '26, and they have improved performance, and we have been in communication with them, and they are going to be making loan applications in early '26. So at this point, we would think that they should be on track for hopefully 7%, Juan. It may take a little bit longer, but that's $180 million. Pamela Shelley-Kessler: And also -- so Juan, you should also think of this in the context of, this is all part of our -- the loan payoffs and the purchase option part of our strategy to recycle out of older skilled nursing properties and into higher-performing SHOP assets. And we also point out we have an accordion feature on our line of credit that we could also execute on in 2026 to increase our availability. Operator: And the next question comes from the line of Rich Anderson with Cantor Fitzgerald. Richard Anderson: So this is all very exciting. The pipeline growing $1 billion is not a number we've heard associated with LTC in the past. So congrats on that. But the thing that I think I find more valuable is the growth profile of the company in year 2 and onward after the investment. So can you can you talk about what happens to the overall growth of the organic growth of LTC? Let's say, you get to 30%, 40% SHOP in the next year or so, let's say, legacy LTC was growing 2% or 2.5% on escalators on triple net. Like what's the incremental growth picture for the company after the investment, not from the investment? Pamela Shelley-Kessler: You're talking about the growth through SHOP because if you're not looking at... Richard Anderson: The whole company, like if the company was growing at 2.5% prior to your RIDEA sort of movement, what do you see the growth profile, the organic growth profile of the company because that's what you're buying, right? You're buying a better growth story longer term. So that's the basic genesis of the question. J. Satterwhite: Yes. That's right, Rich. This is Gibson Satterwhite. Yes, going in at 7% cash yields, I think we communicated before that we expect a very minimum of 3%. That's just basically to keep up with inflation. So if you think about our cost of capital as that's adjusting as we're repositioning away from skilled nursing assets, considering the overall blended cost of capital, that's the minimum growth rate that we use to price these deals for newer assets to build out our SHOP portfolio. But certainly, we expect greater growth than that. We've targeted low digit -- low double-digit IRRs. And we do expect more than 3% growth with the supply-demand imbalance that's been much discussed in the industry. Preliminary conversations we're having with operators where they expect going into 2026 that RevPOR will outpace expense growth. We're working through budgets right now, so we can't quantify that exactly for you. But we expect that to play out and to have a greater growth profile to hit those low double-digit IRRs. Clint B. Malin: And Rich, in addition to that, the average vintage right now of the deals we're acquiring in SHOP in '25 is 2019. So we are buying and bringing newer assets that we think we're going to have pricing power continuing on into future years. And we've purchased assets that are stabilized from an occupancy standpoint but have further room to grow from their positioning in the markets for revenue growth and dropping to the bottom line for NOI growth. Richard Anderson: Okay. Yes. So I did note the 87% occupancy. Some of your peers are doing mid teens and more same-store NOI growth, a lot of that is occupancy lift. But on a RevPOR basis, do you think you could be sort of mid-single digits? Is that sort of the -- I know you said 3%, but what's the upside from there, again, with a mind towards growing -- creating a growth year story for shareholders. Is it -- is that... Clint B. Malin: Well, people are certainly targeting -- I'm sorry, Rich. Richard Anderson: Yes, please go ahead. Clint B. Malin: Yes, people are certainly targeting more than 3% RevPOR growth. And that would at least keep up with expense growth. We expect expense growth to be below that. So in the kind of 5-ish percent. People are talking about base rates of going up anywhere 6% to 8%, doing different things with levels of care. So that could all blend down to RevPAR growth of, call it, 5-ish percent. And so we don't -- we're not getting a lot of feedback from operators going into next year that they are seeing really acute wage pressure, which is the majority of your cost structure. So if you're starting at, I don't know, 4%, 5%, whatever that is, we'll know that when we get through budget season with our portfolio. We do expect that to outpace expense growth. So yes, I think mid-single digits is a fair assumption. Richard Anderson: Awesome. And then quickly for me, last one. You mentioned the conversion of -- to Compass previously, $2.5 million rent, $1.2 million SHOP with an expectation to pass that $2.5 million. Is that the typical model when you do a conversion where you're sort of giving up short-term rent? Or do you kind of sometimes start at a higher number on a SHOP execution versus the previous net lease structure? Just curious how typical that math is for other conversions. Clint B. Malin: This one is a little bit of an anomaly, Rich, and it's a fair question. So as you know, as I disclosed in my prepared comments that the current NOI run rate was lower than the contractual rent. So this was a specific operator issue that we dealt with that we had to address. We're really excited to start the relationship with Compass. These 2 particular properties have covered that contractual rent before, and we've just seen performance deteriorate. So we looked at this as a good opportunity, and we're really glad to have SHOP, the RIDEA platform and the toolkit to address a situation like this. So we really are confident that Compass is going to be able to drive NOI to more than exceed that contractual rent such that the value creation is going to more than offset the temporary reduction in our income. So if you think about the other conversions, Anthem that was cooperative, New Prospective cooperative, strategic. Those were really strategic important pieces for us to start our platform. And as you're seeing as we increase guidance on those, that it's really paying off for our shareholders. Operator: And the next question comes from the line of Michael Carroll with RBC. Michael Carroll: Yes. Maybe aligns with those last questions. I guess, Gibson, how many of the assets that you have in the portfolio were recently transitioned or how many of the acquisitions that you guys have are recent acquisitions where you're transitioning out the old operator and bringing in a new operator? And with regard to those, should we expect some type of disruption, so higher expenses or lower revenues as there's always some type of disruptions with those? David Boitano: This is Dave. So, so far, on our existing external acquisitions, the operator has remained in place, and it's actually been, as far as I'm concerned, sort of a twofer because we get to buy a great piece of real estate and we get to establish a great relationship with an operator. There will be some situations where we do have transitions. And obviously, we're very careful to plan well in advance with the operator to avoid disruptions. But predominantly, so far, we've been able to keep the operator in place on deals that we've executed. Clint B. Malin: And right now, Mike, on our pipeline, we only have one deal in our pipeline where there would be an operator transition, but that was a smaller operator that was a real estate owner that's exiting that. So it's cooperative transition. Michael Carroll: Okay. So there's nothing really in the existing shop right now where you just did a transition and we should expect some type of disruption. So like you've kind of already realized that in the numbers in the third quarter? Clint B. Malin: Yes, correct. Michael Carroll: Okay. Great. And then I guess, related to Prestige, I know you provided and I appreciate the color, Clint, earlier in the call. What do they need to get done to exercise that purchase option? I mean, is it just obtaining the loans? Or do they need to drive better results so they can get, I guess, better underwriting with any potential, I guess, HUD-type debt? I mean, do they need to drive performance in order to exercise that? Or is it just getting the loans done? Clint B. Malin: Driving a little bit more performance. And that's why we gave them a year to go ahead and to prepay. But they have been improving substantially, and we think they're on track to be able to -- we've been analyzing their financial performance. They've improved substantially. And for right now, it looks positive for us. They'll be able to exist and it brings down our -- oh yes, the interest rates going down, too, could be a benefit for them. So we feel good about that. We feel good about our decision to allow this prepayment to be able to redeploy that capital into higher quality assets. So we are keeping close tabs on it, and it looks positive right now for middle of the year next year. Michael Carroll: Okay. And how many trailing or how long of a trailing P&L do they need to get HUD debt and should we think about them utilizing HUD to take this out? Or could they find a bridge loan and get HUD at a later date when their financial results are more stabilized? David Boitano: So this is Dave again. So generally speaking, HUD's looking at a trailing 12, which you're right, there are bridge lenders out there that would probably happy step into the situation. So there'll be optionality for them as they approach that point. Michael Carroll: Okay. All right, great. Clint B. Malin: Mike, they're just seasoning through the remainder of the year. So the current -- as Clint mentioned, their current performance, we -- that looks like it's at a level to allow them to take it into HUD. So they're just seasoning through the remainder of the year to submit the application in Q1. Michael Carroll: Okay. So once you kind of get... Clint B. Malin: And then also... Michael Carroll: Sorry, go ahead, Clint. Clint B. Malin: Sorry, just one other good thing about because the trailing 12, so they had more challenging months that are in that trailing 12. So just as you continue in time, it's going to improve the underwriting. So -- and the other thing that Prestige was waiting for was their rate letters, which they got just to confirm their Medicaid rates, which were as expected. So that helps the consistency. But then within the portfolio that we have with them that will remain, they are the largest vent provider in the state of Michigan, and vents are expecting substantial Medicaid rate increases. So when you look at our portfolio that will remain with Prestige, we feel good about reimbursement that would be coming for the remainder of the portfolio because there are vent units within some of the remaining buildings we would have with them. Operator: And the next question comes from the line of Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: Yes. So much talk on SHOP. Let's talk a little bit about skilled nursing. Curious, again, when you take a look at your skilled nursing portfolio at this point, if there are opportunities to also try to improve your earnings growth from your current portfolio? Again, one of your peers did something really interesting with one of their operators. Again, not wondering again, are you guys looking at structures like that, that could also kind of help you generate better earnings growth from the skilled nursing portfolio? Clint B. Malin: We have not looked at that, Tayo, as an option. We've mentioned previously on our calls, we've been selective looking at skilled nursing, and we have focused on more transitional newer transitional care, newer assets. And we continue to be in discussions with companies about that. So that would be what I'd see us selectively growing on skilled nursing. Omotayo Okusanya: Got you. That's helpful. And then anything from a regulatory perspective as well on the skilled nursing side, you guys are watching at this point? Clint B. Malin: Nothing new at this point. I mean I think everything that's been discussed as far as the staffing mandate, that's in the rearview mirror now. So no major issues that we're aware of on skilled nursing other than there has been a few states that have touched on potential Medicaid rate reductions. So that's -- I guess -- and that's a narrative that's out there in select states. We don't know if that will continue to grow or not, but that has cropped up in a few cases. Omotayo Okusanya: Do you have exposure to those states like North Carolina and some of the other guys you've talked about it? Clint B. Malin: Correct. Omotayo Okusanya: Okay. Got you. Clint B. Malin: Thank you. Operator: And the next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: Pam, I appreciate some of your earlier comments around kind of the available liquidity. But going back to that earlier question on funding plans, you've talked about in the past over-equitizing the investments or at least kind of on a leverage-neutral basis. So just wondering how patient you're willing to be on the capital markets, just given this -- what seems to be a pretty substantive set of investment opportunities in front of you. Pamela Shelley-Kessler: Yes. Thank you, Austin. Yes, I mean, we will look to match fund. So you're asking about how much we'll issue on the ATM. I mean we will look to match fund. We do have the proceeds coming back in the first quarter, as I talked about, and then possibly Prestige in third quarter if they meet their open window period. So with that backdrop, there's not a ton of pressure on us. But we have been disciplined this year in executing on the ATM when the backdrop was favorable for us to sell shares. And so we would continue that discipline into 2026 as well. Austin Wurschmidt: Appreciate that. And then just how are you guys balancing the regional densification or sort of a clustering strategy and the benefits of scale within SHOP versus geographic diversification and just kind of thinking about those future SHOP investments. Clint B. Malin: Yes. I think that we're going to continue to evolve into that, Austin, but we've been out meeting with operators for upwards of a year now premarketing this. And I think where you see where the pipeline and our investments to date, this has been a result of that very intentional effort of going out and meeting with operating companies. So as we continue to work with these companies, I mean, we will look at density being a factor of concentrating in certain markets with certain operators. Pamela Shelley-Kessler: And we've done that. The operators that we're partnering with in our acquisitions, they are the market leaders in their area. And so that is a strategy of ours. Austin Wurschmidt: Helpful. Has the competition changed at all to a point where you felt you've had to increase your growth underwriting in sort of the 3 years out? I think you were in sort of the low to mid-single-digit growth you referenced last quarter with the expectation they would exceed that, of course. Clint B. Malin: Yes, I -- it's very competitive in the market as far as deals, and we've been focused on -- smaller transactions, we've been fortunate to be able to secure a couple of portfolios, but it is definitely competitive. But we feel we feel very good about our momentum and our positioning in the marketplace to be able to succeed on investments. And I think our investments to date plus our new investment we announced for '26 is evidence of that we're able to compete in the marketplace. Austin Wurschmidt: And last one for me. The transitions this quarter, I mean, it didn't sound like there was any other immediate kind of transitions that were available, but I think you'd referenced maybe evaluating some assets in the market-based rent reset, those 14 properties. Anything in the near term there that you're evaluating on maybe transitioning some additional assets from triple net or to the SHOP structure? J. Satterwhite: Sure, Austin, this is Gibson. Yes, we're certainly considering that as we look into 2026. We have a few options as it relates to those properties. We continue to work with current operators and set permanent rents. As a reminder, these are -- there were 14 properties that were all set up in short-term leases, basically 2 years in duration on average with regular market rent resets. And so there may be certain situations where we keep those with the operators once we're satisfied that we're at an occupancy level and margin that makes sense if that fits that relationship. But we'll certainly look at some of those assets to transition to SHOP. You'll probably see a little bit of movement on that early next year. And then we may make some decisions on a few as to whether or not we dispose of them. But those are our options to -- just to maximize value in that group of assets, and we certainly see upside in that portfolio from here. Operator: There are no further questions at this time. And I would like to turn the floor back over to Clint for any closing remarks. Clint B. Malin: Thank you, everyone, for joining us today. 2025 has been a pivotal year for LTC so far, and our focus on driving growth is working and will continue. We look forward to sharing our progress with you next quarter. Thank you. Operator: And thank you, ladies and gentlemen. That does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, welcome to the Fortitude Gold 2025 Third Quarter Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Jason Reid, CEO of Fortitude Gold. You may begin. Jason Reid: Thank you, and good morning, everyone. Thanks for joining Fortitude Gold Corp's 2025 Third Quarter Conference Call. Following my brief comments and associated presentation for those who joined online, we'll have a brief question-and-answer period. Joining me on the call today for the Q&A portion will be Ms. Janet Turner, our Chief Financial Officer. Let me remind everyone, certain statements made on this call are not historical facts and are forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in this earnings release that we issued yesterday, along with the comments on this call, are made only as of today, November 5, 2025, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find a reconciliation of non-GAAP financial measures referred to in our remarks and in our Form 10-K filed with the SEC for the year ended December 31, 2024. Second -- excuse me, third quarter financial results and highlights includes $4.7 million net sales, $0.2 million net income or $0.01 per share, $11.7 million cash balance at September 30, 2025, 1,384 gold ounces produced, $28.5 million working capital at September 30, 2025, $2.5 million mine gross profit, $1.6 million exploration expenditures, 1,244 total cash costs after by-product credits per ounce sold, $1,956 per ounce total all-in sustaining cost, $0.7 million dividends paid, 619 ounces of gold rounds or bullion at September 30, 2025. At Isabella Pearl project, we continue to move waste from the [ pro ] pit layback. We begun to access the top of the mineralized gold zone trending Southeast deep from the bottom of the pit. [indiscernible] leach of our heap leach pad and the mineralization in the [ propane ], both areas are expected to provide the bridge, putting our County Line project into production. We are pleased and excited to now have all our County Line permits. We think the pro business and pro-mining Trump administration that is working through the permit backlog. After the brutal 4 years in the Biden desert, we finally have all the necessary permits and the bonding is in place for our County Line project. We have begun drilling the water well and are planning for other infrastructure projects in the near term. We hit water and our pump testing and developing the well now. It's looking promising that we have enough adequate water for the project. We are looking at the possibility of taking a few pieces of equipment over soon and mining some gold in historic pit as initial mining before the larger pit layback and waste removal. It's nice optionality to have and we see -- and we will see if we ultimately use it. Look to take advantage of this permanent momentum and are pushing permits for Scarlet South. The government shutdown hasn't helped but we feel we are closing in on a permit to mine that mineralization. In an ideal world, that permit would drop in soon, and we would take advantage of the mining equipment at Pearl and cycle the equipment back and forth between Scarlet and Pearl. Scarlet South permit, take too long, we would then place -- or didn't plan to move our focused County Line, but the possibility of mining Scarlet before County Line is attractive for numerous reasons, including efficiencies and extra runway to bring County Line online. We are pleased to announce we have brought our mining in-house and have leased a brand-new fleet of Komatsu equipment. We'd like to thank our previous mine contractors for their work, with the near-term movement of equipment to various mines, it made more sense to bring the mining in-house. We received our power grid permit and await NV energy to begin, the power line installation have been on site, and we're optimistic they will begin construction soon. We look forward to the energy cost savings by connecting to the power grid. We now have our heap leach expansion permit and look to acquire mine permits for North Scarlet and Golden Mile as well as an exploration EA for East Camp Douglas. We target permitting as many projects as possible under the Trump administration so that we have numerous mines to build and operate for many years in the future. This would allow us to weather another 4 years in a Biden equivalent desert if the next election cycle goes against the mining and business. With gold having reached record highs recently, I believe this pullback in the gold price is healthy as no market should go straight up. It's been my experience that pullbacks to fill in the market are important for the next leg higher. So we are not at 4,300 gold highs today, but rather closer to 4,000, and that is still a wonderful price to be selling gold at. Mainstream media is quick to tell you that the gold bull is over and they may be right. But there was a mainstream media -- where was the mainstream media in giving us the heads up that the big bone move was coming in the first place. More signs point to a higher gold price after this pullback concludes. Continue to defensively position the company to overcome the challenges created by the Biden administration while targeting to offensively position the company to permit and build our next mines under the Trump administration. With that, I would like to thank everyone for their time today on this conference call. And operator, if you could open up the lines if there are any Q&A. Operator: [Operator Instructions] Jason Reid: Operator, while we wait for questions, if there aren't any live. I have quite a few written ones. So let's get to some of those first. The first 1 being from Ray Lieb. Question, now that the permits are in hand for County Line, is there a production projection for the rest of '25 or '26? Answer to that is no, not yet. The second part of your question is AISC expected to remain around $1,956 per ounce? The answer to your question is no, that was a little high due to some CapEx. Yes. Third part of your question, there was a equipment purchase lease of $17 million on the cash flow. What is that? You heard me just mention that we decided to bring mining in-house. We've thought of this for a long time. It makes sense to do it now just because we're getting some permits. We expect to be at several locations, and it just made all the sense in the world to do that. Plus we're in control of our own destiny, and we really like that. Another question. Let's see, this is again is from Ray Lieb. Is there any progress on permitting for exploring Scarlet North. Are there any other outstanding drill results waiting asset? I don't believe there are any outstanding results, but we are actively working to permit exploring and ultimately, hopefully, producing Scarlet. We've hit some pockets of mineralization up there. But as you guys recall, we were only giving 1 NOI by the past administration, and we ended a gold program in ore or in gold, a drill program, and we want to follow that up and to find more. But we're actively working toward ultimately permitting Scarlet North. The more near term, as I mentioned in the conference call would be Scarlet South. It makes all the sense in the world with all the equipment and Pearl deep. If we can get that permit, hopefully, before year-end or early next year, we can cycle equipment back and forth. That will be really good if we can get that done and mine gold that's at Scarlet South. Next question from William [indiscernible]. Sorry if I mispronounced your last name. How much money would the company saved by paying dividends quarterly? William, we wouldn't save a whole lot. That would be nominal. I don't have the exact number, but we don't -- we have the dividend kind of on autopilot to pay monthly, and it's really not a big deal. If anything, it's just a little more administrative. So it would be nominal, any savings. Next question is from Richard Erickson. Has deep pit layback ore been collected and added to leach pad yet? If not, how soon will this be done? We are at the top of it, and we're making an access to get to the final couple of benches. And yes, then the Pearl will be done. But it's exciting that up until this point, this year, we've been removing waste for the bulk of it, and we are excited to get into the ore, but we're just about there. Richard. The next one, again for Richard Erickson, how many tons of ore contained in the deep pit layback, in at 1 average grade? I had this question before, and we're not going to give our estimates in large part, they weren't ever in a resource. To remind everybody, we never expected to mine this. We needed to mine it to create the bridge when we couldn't get any permits under Biden. And the gold price allowed us to go deeper and remove all this waste. So while we know there's gold there, it's not in a form of resource. We have some internal numbers. But ultimately, it's not going to matter until we actually mine it. That's the ultimate sample. So I don't have probably numbers for you on that. Next question from Scott McLeod. In a perfect world, if Scarlet came online, how many ounces do you think we'll be producing a month? I'm not going to speak to monthly yet as every production or even annual for that matter, as everybody knows, Biden administration knock us off of our horse, we're trying to climb back on. Now that the Trump administration is back in. So as our presentation -- corporate presentation stated for 4 years now, that we don't have an outlook. It's to be determined as a function of getting these permits. Let us get some -- our feet under, let us get this mine up and running, then we'll come out with some forecast. But until then, yes, we're just -- chopped up to be being knocked off our horse by the mining administration. Craig Hooper. Jason. Can you provide some details on how you manage the throughput of the expected recoverable ounces on the pad in 2025 and going forward into 2026? What determine the ounces coming off the pad each quarter? Time under leach or is it based on pad capacity. All good questions. Pad is almost like a living entity of its own. You have multiple levels. You have the -- that's just following the checkerboard of cells that you're putting each cell under leach, under various times. It's good to pull them off of leach and then put them back on. So it's very complicated. But we manage it as a function of just operations. General Manager has a handle on what we think we need to put under leach, at what time and put back on the leach. But now pads are very complicated. The long and short of it is we're still pulling residual leach, which is good. I hope that gets the most of your question. Another question by [ Barry Van Dam Bo ]. Apologies if I mispronounce that. What do you expect to produce at Isabella Pearl in the coming quarters? Again, I'm not going to speak to any production estimates, as a function of -- we just got our permit from County Line. Working on Scarlet. Let us get our feet under this and then we'll come out with projections. Operator, are there any live questions that we should get to? Operator: You do have a question coming from John Bair with Ascend Wealth Advisors. John Bair: Glad to see things starting to fall under place here. So I've got a couple of questions. Number one, when might you or will you make any kind of a press release as to -- once you decide, determine when you think County Line might be up and running? Do you anticipate putting out any kind of news release as to construction beginning and so forth? Jason Reid: Yes, that's a high likelihood. As the comments, and I'll just reiterate them here. But as the comments in the call, we had hoped that we were going to get Scarlet South permit in an ideal world that helps the mining, and let me explain a little bit why that is. As we go deeper in the Pearl, the space available is very limited. So when you're trying to do your blast haul cycles, you've got a lot of downtime with equipment up top. So it would be great if we can bounce back and forth and do each of those cycles from Scarlet -- equally at Scarlet South and the Pearl. That's -- that would be ideal. We thought we're on the cusp of getting that and then the government shutdown. So man, you talk about weathering 4 years of Biden and then the government shuts down. But hopefully,, they get back up and running. And hopefully, we get that permit. If that doesn't happen in time. when we're done with the Pearl, then we're going to go over to County Line with full force. We -- as we mentioned, we already started drilling the well where we're doing some road infrastructure, et cetera, and preparing for that. But because that's in flux, let us get a little clarity and then likely permit that we're -- or excuse me, PR that were officially "County Line". John Bair: So real activity on County Line doesn't get started until these other 2 fall into place. Is that -- that's [indiscernible]. Jason Reid: Well, it could start right at the end of Pearl though if Scarlet South doesn't fall into place. We try to bake in a lot of optionality. You guys have always heard me say, we have Plan A, but plan A, rarely works. You've got a B, C, D and E. And so we have all this optionality. Plan A is Scarlet South, that would be wonderful just as an efficiency and moving equipment back and forward because it's only about 500 meters away. I would have loved to have had that answered, if the shutdown wouldn't happened, we might have had that answer. But at this point, with the shutdown, let's wait until that stops, let's see when we get the permit. And if it doesn't come in at Scarlet South soon enough, we'll just move everything over to County Line and hit that hard. But yes, you should expect some sort of press release in that regard. John Bair: Okay. Very good. Second question, how long are the lease -- the equipment obligation. Is that an actual outright purchase or a lease purchase? And how long is that -- what's the duration of all that? Jason Reid: Yes, it's a lease, and they're all short term. And the reason being is kind of like what we do with a lot of our light rolling [indiscernible] trucks, smaller trucks like Ford F250s, et cetera. We lease them short term and then the owner, which in this case is Komatsu, doesn't want it to go up certain hours -- over certain hours and then they come and get it and switch it out. So we're doing a similar thing with this heavy equipment. So it's all short-term lease. The way we view this is that the mining contractors were doing the same thing, but then obviously, they up charge us because they're doing it. And then the delta that they were making working for us. Now that it's under our umbrella, we hope to keep. So it makes a lot of sense to do this. And if everything works as half of what we planned. We should see some benefit both in directing our own future and not having to [ baby sit ] as much et cetera, but more importantly, holding on to some of that built that they were making for us. So it just makes all the sense in the world. Also, we're going to be moving equipment in a lot of places. And it's not uncommon when you do that with groups that own equipment that they get you mob and demob charges and use that as a means to renegotiate. And we're not going to happen to address any of that because we're -- we brought it all in-house. Basically hired the same team of people because they're local, and now they work for us. So I mean, it's just -- it's something we always envision doing. It's just a lot to do early on, but now it just makes all the sense. We have -- we get Scarlet south, we're going to have multiple mines, we've got multiple locations, makes a lot of sense to do. John Bair: Yes. No, I agree. That sounds interesting. Last question. Do you have any active drilling going on exploratory type? There was some modest expense in this most recent quarter. And if you do, where are you doing it at? Jason Reid: No, anything you see on our expense line item is not drilling for the most part. Yes, we're not doing any... John Bair: I thought there was like $1.7 million in exploration. maybe I misread that. Jason Reid: No, no. You didn't misread it, but a lot of exploration costs aren't just drilling. Just when you see an exploration cost, it doesn't mean just drilling. We have an exploration team. They're not doing a lot of mapping. They're doing other studies, they're doing other things. We're not -- we don't have an extensive exploration program by any means. We just don't, in large part, having been knocked off a horse, we've cut back on things trying to weather and get these other mines up and running. So no, we have not split the switch to go back to exploration drilling yet in any material way. John Bair: So no drills. Yes, no active drilling going on. Jason Reid: No. John Bair: Do you have any assays that are out there that you're waiting on results for? Jason Reid: We had that 2 tranche of assays that were stuck in the lab for a long time and came back from long drilling quite a while ago. I don't believe we have any more. But what was wonderful about those assays, and they all had to do with County Line, for anybody listening that didn't see that. County Line has 2 pits and that drilling told us that there's expansion potential, not only in the pits, but south of the east pit for sure. This is an area that hasn't been mined before. Also very exciting over there, 1 of our best targets, our VP of Exploration, tells us is this hill or knoll, that's north of the County Line big pit, that's never been drilled. And structurally, that's the biggest target. So between those drill assays that point to additional gold ounces. And it's 1 of the reasons why we mentioned, and have mentioned, and I'll mention again that we're looking to possibly update that resource because we think we added ounces over there. But they're working on that right now. They're working on the County Line 1. So County Line has a lot of upside as well, which is great. But no, we have not gone back any exploration in a material way for new areas. Operator, if there's another call, we'll take it live otherwise, there's a couple of more written questions. Operator: There are no questions in queue. [Operator Instructions] Jason Reid: Okay. [ Barry Van Dam Bo ] has another question. Can we expect to see the dividend back at $0.04 per month or probably much higher as the gold price is now much higher compared to a year ago? Great question. we'd love to go back to that. That's not going to happen in the near future in any form or fashion. Again, I think if you haven't heard it, you're going to hear from me again, we're trying to get back on horse, having been knocked off by the Biden administration. So let us get that done before we do that. I mean right now, we're tightening our belt. You heard me talk about not exploring. We're not doing all these other things. We're still paying a nominal dividend. So 1 could argue, should you even be paying a dividend right now when you're trying to keep your belt as tight as possible. We're trying to walk that fine line. And so yes, in an ideal world, we love to go back to the dividends of old. But right now, we need to take our capital and focus on getting back on the horse fully. So that's what we're going to do. So no, I don't expect dividend increases in the near future. And we don't tie it to the gold price. It's not a function of the gold price. It depends on what you're doing. We're about to build mines. That takes some money, even though the mines we're going to build are inexpensive in as much as the hub and spoke that we're trying to do where we don't build everything at each facility. We're trying to just direct ship ore and such. It will be some of the cheapest CapEx is -- for a mine in the industry, but it's still CapEx. So we've got to keep our belt tightened. So hopefully, that gets to your question. Ray Lieb came back with another question. Is there any progress getting electrical power to the site? Not a lot, Ray? They have come out. There was a little bit of issue on their end with a couple of groups talking to each other on their end, not us. We think they have that sorted and we are just itching to hear a construction start date. I think that's the best update I can give you. I would have liked to have had the line done by now. But as you guys fully know that have been following us, we've been trying to get this power line for over 5 years. And we got nowhere during the Biden administration. So Trump gets in and all of a sudden, it just popped out of the blue. We kind of -- I don't want to say given up, but we just quit pushing on them because we're getting nowhere. And all of a sudden, we get boom, trumps in and boom, this drops in. So I credit his administration with that and his Department of Energy with pushing projects and we're part of that, I think. And it's -- at least it's moving, but it takes a while when you've gone from a standstill to a walk or run, and that's, I think, what's happening with the power line. But at least it's moving. So that's good news because we will save on energy costs when we get hooked to the power grid, which will be wonderful. And it also might free up 1 -- at least 1 of our diesel generators to take to our satellite deposits, if you will. So a lot of good things to come with that. Okay. Probably the last question we'll do today because it's running a little long. So let's make this our last question from Tom. Does the launch -- does the leach pad at Isabella Pearl have enough capacity for expected increases in mining activity? Great question, Tom. It does for the foreseeable future and a very large percentage of County Line. We'll be able to be put on that as well as all of Scarlet South. But when you combine them both, we're getting toward the max. So we will be expanding the heap pad at some point in the future. We're actively gearing up for that. And yes, but we're not in a race right now. We're going to be out of space. And we fully expect to have the expansion complete before we need it. I guess, is probably the cleanest way to answer that. Okay. That went much longer than I thought. So let's go ahead and conclude. If you were either on -- in the queue on live or I didn't get to your question, please call back, probably just call Greg, he's available. I am traveling right now. So less available, but if you can get me on myself, great. But call us if you have any questions at any time. Apologies if we didn't get to your question, but we're always available. So very good. With that, I'd like to conclude the call, and we'll talk to you guys next quarter. Thank you. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. Jason Reid: Holly, thank you for your time.
Operator: " Michael Castagna: " Christopher Prentiss: " Olivia Brayer: " Cantor Fitzgerald & Co., Research Division Unknown Analyst: " Andreas Argyrides: " Oppenheimer & Co. Inc., Research Division Yun Zhong: " Wedbush Securities Inc., Research Division Brandon Folkes: " H.C. Wainwright & Co, LLC, Research Division Anthony Petrone: " Mizuho Securities USA LLC, Research Division Operator: Good morning, and welcome to the MannKind Corporation Third Quarter 2025 Financial Results Earnings Call. As a reminder, this call is being recorded on November 5, 2025, and will be available for playback on the MannKind Corporation website shortly after the conclusion of this call and available for approximately 90 days. This call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from these expectations. For further information on the company's risk factors, please see the Form 10-Q for the quarterly period ended September 30, 2025, the earnings release and the slides prepared for this presentation. Joining us today from MannKind are Chief Executive Officer, Michael Castagna; and Chief Financial Officer, Chris Prentiss. I'd now like to turn the conference over to Mr. Castagna. Please go ahead, sir. Michael Castagna: Good morning, and thank you for joining our Q3 2025 earnings call. Let me start with the Q3 highlights. We delivered a record revenue quarter of $82 million. We also strengthened our portfolio with the acquisition of scPharmaceuticals. On the pipeline side, Afrezza supplemental BLA was accepted for review with a PDUFA date of Q2 2026. We also saw strong performance from Tyvaso DPI, which contributed $59 million in royalty and manufacturing-led revenue, reinforcing the durability of our revenue streams. Chris will review the details of our third-quarter results shortly. We're excited to have completed the acquisition of scPharmaceuticals and are pleased to welcome their talented team to MannKind. Together, we're focused on unlocking the full potential of FUROSCIX as well as the advancement of inhaled bumetanid, Aka MNKD-701 for fluid overload in CKD and heart failure as our target indications. We are encouraged by the momentum across our clinical development programs that we've been working on the past 5-plus years in terms of MNKD-101 and 201, which I'll discuss at the end of our call. Now let me bridge to our near-term growth catalysts. Building on the hard work and dedication of the entire MannKind team, we have a unique near-term opportunity to accelerate growth and deliver meaningful value through catalysts across our commercial products and pipeline programs. I'll point to a few of these milestones. The sNDA for FUROSCIX auto-injector was submitted to the FDA in Q3 as planned, with an expected PDUFA date of Q3 '26. The Afrezza sBLA was accepted for review, and if approved, will be the first new insulin for pediatric patients in 100-plus years of diabetes therapy. We've also completed enrollment into our midterm target for ICoN-1- NTM Phase III ahead of schedule, allowing us to confirm the sizing of the trial mid next year. Now I want to bridge over to our commercial highlights, starting with Tyvaso DPI and our collaboration with United Therapeutics. In Q3, we recorded our highest revenue quarter for Tyvaso DPI, earning $33 million in royalties and $26 million in manufacturing-related revenue. As UT noted on its call, we have developed and produced an 80-microgram cartridge, which allows patients to take 15 nebulizer equivalent breaths in a single dose, improving convenience for patients. Following UT's positive TETON 2 data, we anticipate that the company will pursue a DPI bridging study in IPF, which would have the potential to expand the Tyvaso DPI label to include IPF and/or PPF contingent upon FDA approval. Additionally, UT recently exercised their option to expand our collaboration, and we've begun formulating a second investigational molecule as a dry powder platform using MannKind's proprietary Technosphere technology. In Q3, Afrezza grew 31% in new prescriptions and 27% in total prescriptions year-over-year. As we shifted our focus to type 1 diabetes in preparation for pediatrics, our units per script have declined by about 15% year-over-year, as the average person with type 1 diabetes requires less insulin than the average type 2. The impact you can start to see it reflected in the difference between our net revenue growth being lower than our TRx growth. On the revenue side, Afrezza grew 23% in Q3 2025 compared to Q3 2024. We're focused on driving prescribing among top prescribers and continue to see strong engagement from health care providers, especially with the potential to expand into pediatrics if approved. Ahead of that opportunity, we've enhanced our messaging and expanded our field force, which includes medical science liaisons, local field salespeople, as well as key account managers who will be focused on the top 50 pediatric centers. I'll now turn to FUROSCIX, a product we're very excited about. FUROSCIX is a high-potential brand that expands our footprint into cardiorenal medicine, and we now have the opportunity to merge scPharma's experienced team with the MannKind team. This addition enhances our commercial scale, accelerates growth, and aligns with our strategy to expand into adjacent therapeutic areas while delivering innovative patient-focused solutions. Fluid overload remains a significant burden, and FUROSCIX addresses a critical gap in care by helping break the cycle of hospital admissions and readmissions. scPharma invested heavily in building a high-performing sales organization, expanding from about 40 representatives to more than 80 by early 2025. Establishing a sales force is a substantial undertaking that requires a significant financial and operational commitment. That investment laid the foundation for the strong adoption we've seen in 2025. The expanded sales team, combined with more focused territories and stronger engagement with healthcare providers, is driving broader coverage and deeper prescriber interactions. These strong results are reflected in Q3 performance with over 27,000 doses dispensed, up 153% from the same quarter last year, reflecting continued prescribing adoption and growing confidence in FUROSCIX. With the demand continuing to rise, let's turn to the financial impact. For the year-to-date period, FUROSCIX revenue reached $47.1 million, a 95% increase over the same period in 2024, indicating the investment in driving share of voice is accelerating product adoption. For the third quarter of 2025, unaudited FUROSCIX revenue was $19.3 million. FUROSCIX revenues will be included in MannKind's financial results commencing with the close of the acquisition, i.e., Q4. Now I want to focus on a large unmet medical need in heart failure and CKD, which is what we saw as we evaluated the scPharmaceutical acquisition. To put the growth we're seeing in perspective, let's look at the size of opportunity in heart failure and CKD, areas with significant unmet need. Heart failure is a large unmet need, and market research shows 80% of heart failure costs are tied directly to hospitalization. There are 2.1 million addressable heart failure episodes in the U.S., mostly driven by congestion from worsening heart failure. And for patients 65 and older, heart failure is one of the top reasons for hospital admission. This represents a large addressable market and a significant portion of the Medicare Part A and Part B spend. This is where FUROSCIX makes a difference. Its key feature is to allow patients to treat edema at home and reduce hospital admission time and/or readmissions. Now I'd like to talk about the FUROSCIX opportunity for intervention. scPharma achieved success in FUROSCIX by focusing on community physicians who treat CKD and heart failure often before a patient shows up to the ER, which is on the left side of the slide. By intervening early, physicians have the potential to reduce hospitalizations and break the cycle of hospital readmissions. As we look post integration, we're now expanding our focus to the post-discharge period, where readmissions risk is the highest, creating a significant opportunity for FUROSCIX to improve outcomes and reduce costs. This approach aligns with CMS's proposed ambulatory specialty model for heart failure care, which begins in January 2027 and introduces mandatory 2-sided risk for cardiologists in select regions with performance tied to quality, cost, and care coordination. These changes underscore the importance of early intervention and strengthen FUROSCIX's role as a key enabler for providers to meet quality and cost targets under CMS's new risk-based payment model. Beyond revenue growth, we remain focused on innovation to enhance patient experience and drive long-term value. Building on FUROSCIX's momentum, we will expand our hospital strategy by adding key account managers critical to helping ensure discharge protocols will include FUROSCIX and enable local access with the major health systems through meds to bed programs. This positions FUROSCIX for far greater utilization in hospitals and post-discharge settings. We're also planning to increase our share of voice in cardiology and nephrology to raise awareness amongst clinicians and patients, supporting sustained adoption in the community prescribing level. A key milestone this quarter was the sNDA submission for the FUROSCIX ReadyFlow auto-injector. If approved, this device will simplify admissions, expand treatment options, and reduce cost of goods significantly freeing up capital to reinvest in growth, strengthen our portfolio, and improve margins. Additionally, we're advancing bumetanid DPI MNKD-701 into preclinical development, another example of our commitment to innovation and long-term growth, as we believe FUROSCIX will be the standard of care, but a subpopulation may prefer to inhale versus inject. Our Technosphere technology should provide comparable bioavailability based on our historical development programs in insulin, treprostinil, and migraine, where we get IV-like onset and sustained efficacy in the short term. A DPI formulation of bumetanid could offer a rapid noninvasive, and highly portable solution, enabling patients and providers to manage flute overload without hospitalization. I'll now turn the call over to Chris to review our third quarter results. Christopher Prentiss: Thank you, Mike, and good morning, everyone. In the third quarter, total revenues grew 17% over the prior year to $82 million, driven primarily by royalties earned on Tyvaso DPI. These royalties increased 23% to $33 million, reflecting the continued strong performance of Tyvaso DPI under our collaboration with United Therapeutics. Collaboration and services revenue was $27 million, up 14% from the prior year, and consists primarily of manufacturing revenue based on production volumes sold through to UT, as well as the recognition of deferred revenue. During the quarter, we announced a new collaboration with United Therapeutics and received a $5 million upfront payment. We will begin to recognize revenue related to this agreement in the fourth quarter as the development activities progress over the next several quarters. Afrezza net revenue rose 23% to $18.5 million, while VGo contributed $3.8 million, down 19% over the prior year period. The performance of VGo is consistent with our expectations as we no longer actively promote the product. On the expense side, quarterly research and development expenses increased $1.1 million or 9% over the prior year period, driven by the enrollment ahead of plan in the ICoN-1 trial of inhaled clofazimine and preparations for the INFLO Phase II IPF study, which is expected to begin enrolling in Q1 2026. These increases were partially offset by the completion of the INHALE-3 and MNKD-201 Phase I studies in 2024. Selling, general, and administrative expenses increased $5.2 million or 22% in the third quarter versus the prior year period. As we continue to invest in Afrezza to support the potential pediatric launch, we have higher headcount and personnel-related costs, including the deployment of the medical science liaison team, as well as additional sales reps. SG&A for this quarter also included $3.7 million of acquisition-related expenses. Q4 SG&A expenses will include costs related to our October key account manager team build-out to support the Afrezza pediatric call point. Additionally, transaction costs associated with the close of the acquisition of scPharmaceuticals will be reflected in the fourth quarter. As a reminder, our fourth quarter results for our commercial product sales will include sales of FUROSCIX as of the deal close, as well as expenses incurred in their respective categories. Related to the transaction, I'd like to note that we utilized $133 million of our $286 million of cash and investments as of September 30 to fund the transaction and have borrowed an aggregate of $325 million on our 5-year term loan facility with Blackstone. For the year-to-date period of 2025, total revenues reached $237 million, representing 14% growth compared to the same period last year. Our commercial product sales, consisting of Afrezza and VGo, account for 27% of our total revenues for the year-to-date period. With the addition of FUROSCIX in Q4, our commercial product sales will be a more meaningful component of our growth. On a pro forma basis, if FUROSCIX was included for the year-to-date period, commercial product sales would have been 39% of our total revenues. Considering the continued growth we anticipate in royalties we earn on Tyvaso DPI as well as meaningful and stable revenues from our collaboration and services, we have never been more excited about our revenue growth potential. I'd like to finish with GAAP net income for Q3, which was $8 million compared to $11.6 million in the prior year. After adjusting for noncash and one-time items, our non-GAAP net income was $22.4 million, up from $15.4 million last year, and non-GAAP EPS of $0.07, up from $0.06 in Q3 of 2024. This reflects strong operational performance of our business lines even as we are making significant investments in future growth drivers. I'll now hand it over to Mike to discuss clinical updates, starting with our Afrezza pediatric indication. Mike? Michael Castagna: Thank you, Chris. As we broaden our impact across cardiometabolic care, we're also advancing innovation in diabetes, starting with Afrezza's potential to offer the first noninjectable insulin for pediatric patients in 100-plus years of diabetes therapy. We're extremely excited about this opportunity that lies in front of us. Now let me bridge to inhale. First, our naive treatment for pediatrics. We're focused on generating additional clinical evidence to support Afrezza's role in children with type 1 diabetes. This is why we're initiating the inhaled first study, which positions Afrezza as the very first choice bolus insulin for youth aged 10 to 18 who are newly diagnosed with type 1 diabetes, either upon discharge in the hospital or arriving at the doctor's office within 7 days. This study will evaluate the safety and efficacy of inhaled insulin plus basal and up to 100 patients across 10 leading sites, including the Barbara Data Center in Denver, as well as the Joslin Diabetes Center in Boston, who will be our first 2 sites to dose patients to ensure our dosing protocol and training materials are meeting expectations. This is what we did in our gestational trial, and the first 10 test patients confirmed our expectations, and that trial is expanding to full enrollment. In the inhaled first trial, we plan to introduce a 2-unit cartridge for titration and utilize MannKind's BlueHale tracking dose in this trial. Some of you haven't heard from BlueHale in a while, and I want to show you the updated version of the product as well as some screenshots that you can start to see how this is going to absorb the dose, integrate with CGM and remind you when you took your last dose and how much Afrezza is on board and start to show you your time and range by day, night and time of week. We're looking forward to testing this device here and having this ready for the pediatric launch. We're also advancing programs in orphan lung indications that leverage our inhalation technology to address serious unmet medical needs. I'll first discuss our ICoN-1 global Phase III study in NTM, where the market is expected to exceed $1 billion by the end of the decade. We achieved our interim enrollment target ahead of schedule in the study. Our focus will be on the U.S. and Japan, which have the largest populations and the greatest growth potential. It's also the 2 markets that we've seen the highest enrollment rates in our trial. This is a global health concern and a real issue in these 2 countries. I'd like to remind you that this trial is a co-primary endpoint in the U.S. of sputum culture and patient-reported outcomes, but for the ex-U.S. market, it's just sputum culture conversion. Our next trial, Nintedanib DPI, is our INFLO Phase II study, also known as MNKD-201. We have initiated the INFLO Phase II with the first patient enrollment expected in Q1 '26. This randomized placebo-controlled trial will include 210 patients with IPF and will evaluate 2 dose regimens totaling 8 milligrams of nintedanib a day over 12 weeks, followed by a 6-month open-label extension. The primary objective is safety and tolerability with FVC as the key efficacy endpoint. Doses are designed to achieve exposure levels consistent with or above prior studies, supporting our confidence in this program. More importantly, based on the positive TETON-2 results, we've modified our trial design to include a QID arm instead of a TID arm, which preserves the option for future combination approaches and simplification for patients who will likely be on multiple products to manage their IPF in the future. Before we move to Q&A, I want to highlight the upcoming scientific medical, and investor conferences where we'll have a presence. These events are important opportunities to showcase our progress and strengthen our relationship with key stakeholders. As we look at our pipeline, I'll close with the updated pipeline slide that reflects the addition of FUROSCIX into our portfolio, as well as 3 additional programs we discussed today: MNKD-102, a DPI formulation of clofazimine, Bumetinib DPI, also known as MNKD-701, and our new collaboration with United Therapeutics. Consistent with our DPI license agreement, this program, if successful, will generate $40 million in total milestones and earn a 10% royalty on net sales of the product, providing yet another exciting growth opportunity for MannKind. With that, I'll turn the call over to the operator to answer your questions. Operator: [Operator Instructions] Our first question comes from Olivia Brayer with Cantor. Olivia Brayer: Can you share any thoughts on the recent approvals from FUROSCIX competitors? And if you could help contextualize the pricing differences and how that actually funnels down in terms of actual out of cost. Or out-of-pocket cost to patients? And then just in terms of FUROSCIX growth, when do you think we'll actually start to see a bigger inflection in growth from all of the different initiatives that you're doing to help drive greater adoption? And then I've got a follow-up question on IPF. Michael Castagna: So I think on the competitors, when we were going to due diligence, we knew these 2 competitors were in the wings. And I think we felt the product differentiation stood on its merits, along with the life cycle management of the auto-injector. So that's been the key focus for us. And then I think in terms of the nasal one that got approved, we could see how skinny that package was and how quickly that could get to market, which played into our decision to advance an inhaled butmetinide on our FTKP platform. And the reason is we know our platform has IV-like responses and good bioavailability. And we felt that's exactly what you're looking for in this fast onset of diureysis, especially as you read the VuMex branded label, you can see the quick onset with IV, and the diuresis starts pretty much within 15 minutes or so. So that really allowed us to create another differentiated product as a part of this acquisition, which we wouldn't have done had we not bought scPharma. So I think from a competitive viewpoint, we'll be able to compete nicely with the new people come on the market. I think just like we see in the case of Liquidia launching in treprostinil, the market size grows with more share of voice, more noise, and more reminders of this opportunity. The market is severely underpenetrated, and scPharma had to fund all this on their own. So having more noise out there and more options, I think, ultimately is going to the market and the believability of this opportunity. In terms of pricing, I mean, these companies have stated a price, but they have not yet actually publicly loaded their prices to my knowledge. And I think let's see what happens when they do. But the pricing of the product is not going to change the biggest barrier in Medicare, which is somebody's out-of-pocket cost. So whether it's $500 or $1,000 or -- the out-of-pocket cost and the deductible is the same on Medicare, which is the majority of these patients in treatment. So the real issue is not the WACC price of the product, but it's the net price to the patient. Unless somebody is doing smoothing, the payers aren't going to just cover any of these products really, nearly because they're going to be up against generics in the marketplace. So you're going to need reimbursement support. You're going to need to figure out the smoothing and the prior refill. So I think I like the SC model. I like that we know where our patients are. We know when they get a refill. We know when the prior auth expires. So I think the system that they have in place is good. You'll hear some complaints that people want to access locally, and that's a lot of the IDN contracting. So I think that we'll continue to watch it. We'll be competitive if we got to make changes. But I think in the end, we feel pretty good about our price point and our net pricing. On the growth inflection, I mean one of the things you'll start to see next year is increasing the share of voice. And I think you could see in the 6 months plus of their sales force expansion, you started to see that kick in, in Q2, but really kick in, in Q3, and ultimately Q4. So I think from the time we make these investment decisions, you can expect to start to see impact 6 months -- within 6 months there. So hopefully, you'll see the TAM expansion that will take at least 6 to 9 months in terms of really starting to make impact in the health system. They don't change overnight. But in terms of rep share of voice, I think we could see an impact on prescribing sooner. And I think that will be our focus is to kind of minimize disruption with customer relationships, but expand the share of voice on cardiologists and nephrologists as we go into '26. Olivia Brayer: And then for the Tyvaso bridging study in IPF, what can you guys tell us at this point? It sounds like it maybe is confirmed that a bridging study will be run, but any sense of timing and whether you still expect it to look similar to the BRE study? Michael Castagna: I don't want to speak for you, T. So I think they've said it could be a BreezE-eng study. So I think with that communication, go to the FDA now, they have the TETON 2 results, and I expect them to move this as quickly as possible to the FDA for clarification and discussion. Operator: Our next question comes from [indiscernible]. Unknown Analyst: Just wanted -- I had 2 questions. One, just on thinking about the scPharma acquisition and FUROSCIX. Could you comment a little bit on the integration process with respect to the field force, how that's been going? And if you have any updated thoughts on kind of what the field force composition will look like across your kind of multiple commercial brands now? That's the first one and then I have a follow-up as well. Michael Castagna: Sure. I'd say, first, as we got to integration, it's only been closed about 3 weeks, and it feels like we've already met most of the employees once or twice. I personally was at 5 of the regional sales meetings. Nick, our President, was at the other 3. We had multiple days of integration calls getting ready for '26. So I think the integration is going very smooth. Culturally, the companies are very similar. So there's not a lot of friction. We already have put some of their people in key positions on our side. and integrating them into our leadership team and our processes. So I think overall integration, we don't see much disruption. Sales continues to look strong in Q4 here. So we're very happy to date with the teams and the integration as it goes. You'll see scPharma continue to be independent through the end of the year in terms of their name and job postings, things like that. You'll start to see that integration fully in '26 starting in January, all the way through any packaging changes, et cetera. So we're trying to make sure we're smart about it. We're not looking to waste money on changing the name on a box for no reason. So we'll try to phase those things in as we think about like the autoinjector launching, things like that. So I think that answers the integration question. Unknown Analyst: And then just on the balance sheet, how should we think about sort of your guys' kind of like relative priority between like investing in the launch of Afrezza and Peds, FUROSCIX, delevering the balance sheet, and kind of maintaining operational profitability? How do you kind of balance like these 3 different goals? Michael Castagna: Yes. I think if we see -- we're already preparing for the Afrezza peds launch, you're seeing some increase in expenses this year with MSLs, key account managers, some commercial prelaunch investments. So I think you'll see that tick up. I think on FUROSCIX, we're also going to place a few bets here to grow the brand faster as we go into '26. So we feel like these are the right decisions, and we think investors want faster growth, and we think we can deliver that in '26 with what we have coming. I'll let Chris comment just on the deleveraging and some of the that we're thinking about. Christopher Prentiss: Yes. The key item to deleverage is really on our convert. We have a $36 million stub that's due March 1, 2026. So we'll certainly be addressing that in the near term. And in terms of what Mike said, I think the priority right now is investing in growth. And so you're seeing us make that a priority, but still doing that in a sustainable way and making sure that we are in a good position to certainly continue to pay our obligations with our new debt facility. Operator: Our next question comes from Andreas Argyrides with Oppenheimer . Andreas Argyrides: Congrats on the progress in the quarter and the closing of the scPharma deal. Just following up from some previous questions, how are you thinking about the peak sales opportunity for FUROSCIX? And then on NTM, what do you attribute to the faster pace of enrollment? And can you remind us of the powering assumptions for that study? Michael Castagna: I think on the peak sales for FUROSCIX, we looked at the deal, there was not guidance by the company, but there was analyst reports out there, and put it in the $500 million-plus range. And I think that until we give guidance there, I wouldn't quote anything beyond what we've seen out there in the public domain prior to the acquisition. Chris, I don't know if you have anything else to add before. Christopher Prentiss: I think Andreas was asking about the pediatric opportunity. Michael Castagna: Sorry. On the pediatric side, we are just finishing up some research right now to get us ready for next year. And I think that will -- one of the things we know what the peak upside could be. We said roughly 10% market share is about $150 million in net revenue. And we've gotten research that would indicate up to 25% could be possible. I think the question is how fast is that trajectory going to happen? And we haven't yet given guidance on that. So I think that's really what I'll be focused on to get ready for '26 is we look at some of the competitive pump launches that happened this year, and they're seeing nice, significant uptake in those markets. And so I think there is an opportunity to grow Afrezza meaningfully faster post peds, but I think we got to make sure our market research triangulates what we're thinking before we go public. A question on NTM and then a follow-up on that one as well. Yes. I think on the NTM, a lot of -- Japan was going nicely. I think in the U.S. starting to pick up a little bit. The team has met at several conferences year, just raising awareness amongst KOLs to continue enrollment. So I think that's there. And then we just got recently the FDA to re Lucen the EKG monitoring requirements on entry in terms of the screening criteria so that we're implementing as we speak. And then in terms of powering, I think we're 90% powered, and that's why we have the interim is to really make sure that we would be on track as we look at the patients. Remember, we're seeing people roll over to the open-label extension. So these will all be important aspects as we go out. What are the -- and just a follow-up there. Andreas Argyrides: What are the different outcomes for the interim readout, like the potential for increasing sample size, for example? Can you give us some color there? Michael Castagna: Yes. I mean one is the sample size. So if we're close and you want to increase the sample size, that could be it. The other one is the safety database, making sure we're continue to go in that direction. Then you'll have the futility, meaning it just is not delivering what we expect, and that could also be an outcome as well as just you're on track to meet the 180. And that said, in Japan, we only need 180 in the U.S., we're evaluating the total safety database required still with FDA. Operator: Our next question comes from Yun Zhong with Wedbush. Yun Zhong: scPharma acquisition, did I hear correctly that you said there was going to be ongoing sales force expansion? Is that mainly on the scPharma side on the commercialization of FSI? And then once you report sales starting from fourth quarter, how -- can you remind us how do you expect the addition to impact the SG&A line in the income statement, please? Michael Castagna: I'll let Chris take the second one. I'll start on the first one. So I think we'll be a little quiet on the sales force expansion and share of voice, but what we expect -- one of things we looked at is last year when SC split some territories, how quickly did you start to see that growth rebound? How disruptive was that to the sales force? And you could see in the first quarter, some of that disruption was true, but I think the bigger part was the co-pay resets from Q4 to Q1. So as we look at this year, we'll expect a similar phenomenon is that patient resets happen and then the co-pays pretty much go to 0 as people hit their deductible. So we want to get that sales force share of voice up as we go into the new year and really prepare for that Medicare transition period. But that will be important. I think we can definitely see share of voice does increase sales per customer per territory. So we feel like that track record is there from when they went from 40 to 80, and we won't comment yet on the expansion because we're still finalizing some of that, but we do have some plans we met with the team prelimarily, you'll see -- the #1 thing is the key account manager expansion. We think that's the nearest term low-hanging fruit. And then there'll be some additional ways that we can incorporate FUROSCIX in the increased share of voice. Christopher Prentiss: Yes. In terms of the expense line for Q4, if you think about the selling side, I would just emphasize that this is a bolt-on acquisition from a commercial perspective. And so I would expect most of those costs to be that they have experienced previously on the commercial side is what we'll be reporting in Q4 as well, plus the investment in CAMS that Mike just talked about. On the G&A side, you're seeing quite a bit of synergies are realized right away as we think about public company costs, as we think about systems and tools that we all use in common. Yun Zhong: Okay. Then on Afrezza, you talked about this sales not growing as fast as TRx. Do you expect the same pattern in fourth quarter? And at some point, would you expect sales to catch up with the TRx? Michael Castagna: I would -- Q4 should be pretty strong. A pattern may exist because of the NRx trends impacting TRx. But in general, in Q4, we see a lot of refills. So a lot of those baseline patients in our business will refill before the end of the year, co-pays reset. So I think it will be pretty decent in Q4, but I would expect the trend to bottom out sometime over the next 6 months and then start to be stable, more in line as we get through Q1 next year. But I think that as we look at the growth, the growth in outflows, growth in scripts plus any price changes, once that volume per script starts to even out, we'll be there. But it dropped -- I don't see it dropping much more, but I'm sure it will drop another quarter or 2 a little bit. So it's not another 20%, but it's probably single digits. Operator: Our next question comes from Brandon Folkes with HCW. Brandon Folkes: Congratulations on the results. Maybe just for me on Afrezza, can you just help us think about the potential tailwind you expect from the Afrezza conversion dose label update and how you expect to leverage that label expansion to drive Afrezza growth? You put a lot of good context around the peds side of Afrezza. But just any help in terms of that label expansion? Michael Castagna: So the label expansion was kind of 3-month delay from November to January. We expect the draft label in December based on the latest communication. And that's fine. I mean we were going to launch the label change anyway in January. So that timing is not that far off. The key thing about the label expansion is it really allows us to talk about the postprandial control. And our #1 adverse event is lack of effect, and that's because doctors do not titrate up fast enough or they don't convert at the appropriate dose. So our top prescribers, this is generally an issue, and that's what drives most of our business. But as we expand the sales force, those new prescribers who don't have a lot of experience, that's where we see the mistakes happen. That's where we see the patient dropouts happen faster. So as we continue to expand, we want to get this fixed. We want to get this right so that patients start up on the right dose the first time. And so that's really our goal. The data is published, so we can still disseminate it through our medical liaisons through medical response letters and through reactive responses with the sales force. So we do feel our top prescribers know the information, but it's really the new prescribers that will be important. And that sales force expansion for Afrezza is just getting out there over the next month or so, so call it, December, January, when the label change happens, the timing still mirrors up nicely. So if people start off better, they'll stay on the drug longer, they'll be happier, and the doctors will write more, right? So it's got a self-going prophecy here in the end. Brandon Folkes: And then one more for me, if I may. Can you just elaborate a little bit on the development path you're thinking about Nintedanib DPI? Michael Castagna: Yes. So when you -- I think at a high level, what got us excited is you can -- it looks like you can choose to -- first, the tox studies won't be chronic because it's an acute drug. So call it 28 days of tox roughly. And then you'll have a PK study, which will not be -- need to be multiple time period. So you probably look at single maybe multiple days, but not a 10-day or like that. So the PK studies are pretty straightforward. And then the only thing about bmetinide that we like is you can give it, I'll call it, it works -- it's got a very short half-life. So you could give it really quickly get a quick diarysis going, and then decide 6, 8 hours later, if they want to give another dose, you'll have more flexibility in the way VuMax' label is written versus today in the nasal, you don't look like you have that flexibility because a max daily dose. But on an inhaled version, which will have -- should have greater bioavailability, we should have more flexible dosing as we look at the labels. And FUROSCIX, I think, does get you that 24-hour diarysis and looks strong, whether it's in the auto-injector or the infuser. So we feel like we'll have 2 products out there in this space. So depending on how people want to treat, we'll be competitive on both angles here over the near term. But we don't look at this as a very long development program. Probably the long palls in the will be scaled up and stability more than the trials themselves. So the team is just starting to get the formulation work moving. And as soon as we feel pretty good, we'll be able to formulate it relatively quickly. But then we got to meet with FDA in parallel and try to get that alignment, which we think we know what that's going to look like, given the history of 06. Operator: Our final question for today comes from Anthony Petrone with Mizuho. Anthony Petrone: A few on scPharma, just on the SCP-111 sNDA submission that's already taken place. Just want to know if there's any early questions from FDA. The bioabsorbability profile looks good. Maybe just probability of success on getting that through. And then I'll have a couple of quick follow-ups on the Fur 6 to SCP-111 transition. Michael Castagna: Yes. I think on the FDA, I can tell you they're full stream active despite the government shutdown, whether it's factory inspections or inquiries on the various programs we have in front of them. So we feel they're -- they're on top of the submissions. I'm glad we got the submission in September, we didn't do anything. But that is allowing IRs to come in already, and the ones that have come in seem like they're pretty minor, and they're not uncommon questions. We've either gotten them on Afrezza or we're getting them on SC. So it does look like they're checking the boxes going through the file. And so far, there's no red flags. And that's true for the pediatric filing as well when we got the -- the PDUFA letter, they identified the same thing we already knew, which is that one outlier in the trial. And so that we feel is pretty straightforward as we go forward. I'm sure there'll be more inquiries as we review everything. But in general, it seems like the reasonable request so far from everything we can see. Anthony Petrone: And if we think ahead to a positive outcome here, the ReadyFlow injector dramatically reduces the admission time. What do you think could happen to unique prescribers if you get this on market? And when you think about that auto-injector relative to the current delivery device, what do you think it could actually do to margins for this product again? Michael Castagna: It's been a few weeks, so I don't want to comment too much still working with the team to think about the right segmentation. But I think we look at this as market expansion. So when you look at the audience today, some may like the infusion for various reasons, and we'll make sure we understand those targets and the reasons to support that. But the real opportunity is the expansion, right? There's a lot of people, whether their nursing homes or in discharge protocols or elderly patients being taken care by their kids, where people would much rather use an auto-injector. And so that to me is the upside that we're looking for in an inflection that could spark faster growth. That's one reason we want to get the share of voice up, right, is get the awareness up of the product. And we still see -- I want to say there's like 40,000 cardiologists. So the team is targeting 5,000 to 7,000. So we think we can boost up the number of cardiologists aware of the product and the conferences and education. This is still, I think, the first inning of a baseball game, hopefully not an 18-inning baseball game, but a baseball game that I think is going to be well played and competitive, but I think the patient demand and the unmet need in CMS, all the things are going in the right direction and our ability to compete, whether it's going to be anetinide day or the FUOSC auto-injector or OModDyFuser, I think we'll be able to provide a lot of solutions to the various patient types. So I wouldn't look at one replacing the other as much as we're looking at how we can grow it faster. Operator: That concludes the question-and-answer portion of today's call. I will now hand back the call to the MannKind team for closing remarks. Michael Castagna: I just want to say thank you to everyone in the company for working on the integration, preparing for the call. It's obviously a little more complex with the integration. But overall, the company is operating in every facet you can imagine. Thank you for all the investors and your belief in the management team and the direction we're going, and I look forward to seeing many of you at the Jefferies Conference in London, as well as the scientific people at the conferences coming up. So thank you again, and we'll try to close the year strong and talk to you next year.
Operator: Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Triple Flag Precious Metals Third Quarter 2025 Conference Call. [Operator Instructions] I would now like to turn the conference over to Sheldon Vanderkooy, CEO. Please go ahead. Sheldon Vanderkooy: Thanks, John. Good morning, everyone, and thank you for joining us to discuss Triple Flag's third quarter results. Today, I am joined by our CFO, Eban Bari; and our Chief Operating Officer, James Dendle. 2025 has been an exceptional year so far, and Triple Flag has achieved another record quarter in Q3. We recorded 27,000 GEOs in the quarter, which drove record adjusted EBITDA of $79 million and record operating cash flow per share of USD 0.39. Shareholders are directly benefiting from the higher gold prices through higher cash flow per share. We should continue to benefit in Q4 and beyond as well as current gold prices are well in excess of the average gold price realized in Q3. We expect to achieve 2025 GEOs between the midpoint and the high end of our 2025 guidance range. I am very pleased with the additions we have made to the portfolio year-to-date. Year-to-date, Triple Flag has now deployed over $350 million of capital over 5 investments. In H1, we announced our investments in the Tres Quebradas lithium mine in Argentina, the Arcata silver mine in Peru and an additional interest in the Johnson Camp copper mine in Arizona, all of which have now started production either in line or ahead of our investment case. Early in the third quarter, we completed our acquisition of a 1% NSR royalty on the Arthur project in Nevada operated by AngloGold Ashanti. And most recently, we have acquired a royalty package on Pan American's producing Minera Florida gold mine in Chile for $23 million. James will provide further details on Minera Florida later in the presentation. This is exactly the sort of royalty that drives shareholder value over time in the royalty sector as we have open-ended exposure to top line revenues and resource expansion over time. Together, our investments year-to-date are providing near-term increasing cash flows as well as longer-dated optionality. They are also located in the right jurisdictions. The bulk of the value is in the Western United States and the remainder is in Chile, Peru and Argentina. I will now hand over to Eban to discuss our financials for the third quarter of 2025. Eban Bari: Thank you, Sheldon. As noted by Sheldon, we had an excellent third quarter with just over 27,000 GEOs. This puts Triple Flag on track to achieve between the midpoint and high end of our 2025 GEOs guidance. These strong volumes in Q3 were delivered in the backdrop of strong metal -- precious metals prices, which reached a record quarterly average of nearly $3,500 per ounce for gold and nearly $40 per ounce for silver. Accordingly, we are pleased to highlight that operating cash flow per share, the single most important metric we focus on as a company, has increased by over 25% year-over-year. Lastly, I'd like to comment on our balance sheet. We exited the quarter with essentially 0 net debt despite deploying significant capital during the third quarter for the acquisition of the Arthur Gold royalty and the Minera Florida royalty. Today, we're in a net cash position. Overall, strong balance sheet, record operating cash flow and total liquidity available of nearly $1 billion provides us with the capital to continue deploying dollars into accretive opportunities to drive future growth for our shareholders. It also allows us to continue returning superior returns to shareholders, and we're pleased to declare a quarterly cash dividend of USD 0.0575 per share. Triple Flag remains focused on top-tier precious metals assets with revenue that's nearly 90% sourced from mining-friendly jurisdictions in both Australia and the Americas. Northparkes and Cerro Lindo continue to be 2 largest contributors to revenues in the third quarter with Northparkes achieving another record quarter due to continued processing of higher open pit grades from stockpiled ore. Triple Flag sales mix remains 100% derived from precious metals, including nearly 3/4 from gold. We do not expect this to materially change, and this will continue to provide investors with exposure to the strong gold and silver price environment. I will now turn it over to James to discuss the producing Minera Florida gold mine in Chile. James Dendle: Thank you, Eban. Minera Florida is located approximately 75 kilometers southwest of Santiago in Chile and is owned and operated by Pan American Silver. It's an underground mine that produces gold and silver ore with the zinc concentrate byproduct. During the third quarter, we were pleased to acquire a package of 3 net smelter return royalties on Minera Florida, ranging from 0.8% to 1.5% for a total cash consideration of $23 million from a third party. Minera Florida has a long history of consistent performance, continuous operation and reserve replacement and has produced over 2.5 million ounces of gold and 14 million ounces of silver since commissioning in 1986. The mine has always operated with a relatively short reserve life. Over the last 20 years, the mine has had approximately 0.5 million ounces of gold in reserves at any one time, which equates to about 4 to 5 years of visible reserve life. Historic annual production at Minera Florida has ranged between 75,000 and 100,000 ounces of gold per annum. Driven by mill expansion potential to increase the nameplate capacity, Triple Flag expects GEOs for Minera Florida to increase to approximately 1,000 ounces by 2028. The exploration potential of this mine is significant. And given Minera Florida's impressive track record of reserve replacement since 1986, we see this asset continuing to perform for decades to come. I'll pass it back to Sheldon for closing remarks. Sheldon Vanderkooy: Thank you, James. In closing, Triple Flag is performing very well and is positioned to continue this performance going forward. Our shareholders are benefiting from our strong current production and the increase in gold prices, which are translating into record cash flows per share. I am very pleased at our success in reinvesting those cash flows in further streams and royalties, which will benefit our shareholders for decades to come. There are a number of near-term catalysts across our portfolio. First, Johnson Camp mine, Tres Quebradas and Arcata have all recently started production and will continue to ramp up into 2026. Second, on the project front, economic studies for Arthur and Hope Bay are on track for completion in the first half of 2026, and we look forward to ongoing exploration updates on the Fletcher zone from Beta Hunt. And finally, the Koné project continues to make good progress, targeting production in 2027. That concludes our presentation. Operator, please open the floor to questions. Operator: [Operator Instructions] Our first question comes from the line of Fahad Tariq with Jefferies. Fahad Tariq: Just on the deal pipeline, maybe talk a little bit more about how the Minera Florida transaction was sourced. Was this -- I mean, it was a third-party royalty from a family. Just curious if there was any sort of process? Or was this a relationship that was like preexisting? Any more color there would be helpful. James Dendle: Yes, I can take this. Yes, it was, I think, a fairly concentrated process. We developed a bit of a report with family over the course of negotiating the deal. And that was good because we actually were able to undertake a site visit. And very often, as you know, with these third-party royalty sales, you can't do that, whereas we actually have a team down in Chile earlier on in the year, spending a couple of days at site. So we had access to Pan American Silver in this instance and the whole mine sales team. Fahad Tariq: Okay. Great. Yes, that's helpful. And then maybe just switching gears to the ATO stream. It looks like there was an international arbitration that was started in early October. Can you maybe just give us an update on how the discussions are going with Step Gold? And what's Triple Flag's expectation for a potential resolution? Sheldon Vanderkooy: Fahad, it's Sheldon. I'll take this one. We tried to be really transparent in the press release and give everyone like direction on the legal proceedings we've started. I'm a little limited in what I can say, but I can provide some background and direction to you in the market. First of all, I'm going to start by saying we're just extremely confident in our legal position. We're owed about USD 10 million. STEP's market cap is a little over CAD 500 million. They have production, they have cash flow. They clearly have the ability to pay. We are in dialogue with Steppe's controlling shareholder. There is no doubt in my mind that they are building Phase 2. And the last thing I'd note is we're going to land in the top half of our guidance range even if we don't receive a single ounce from Steppe Gold here to the end of the year. I really can't go any further into how this is going to get resolved, but we are in discussions, and we are very confident in our legal position. Fahad Tariq: Okay. And then just -- sorry, just maybe a follow-up, if you can answer this part. You're in discussions with the largest shareholders. Are you in discussions directly with Steppe Gold? Sheldon Vanderkooy: I would take the largest shareholder as being in discussions with Steppe Gold. Operator: Your next question comes from the line of Sam Overwater with Scotiabank. Sam Overwater: I just had a question on the transaction opportunities. I think the last time we spoke, you guys were evaluating opportunities between $100 million and $300 million. I just wanted a little bit more color on that. Like what geographies and jurisdictions are these opportunities in? What are the structures of these deals, debt equity stream, et cetera? Is there any royalty opportunities -- and then on top of that, too, like what are the -- a lot of the purposes on the transactions in terms of asset sales, construction funding, et cetera? Sheldon Vanderkooy: Yes. Thanks, Sam. I appreciate that. Yes, the opportunity set, I think, still is squarely in the $100 million to $300 million. Obviously, we've done deals that are smaller than that. We'll look at those. There are larger ones as well. It's probably instructive to look at what we've done already year-to-date. We've done $350 million of deals year-to-date. It's a pretty good mix of smaller royalties than we had the larger Arthur transaction, which is actually a corporate transaction, which is just another way to find good assets at reasonable prices for our portfolio. The opportunity set, it's a real mix. I mean, it's streams, it's royalties. I would say it's concentrated in jurisdictions that investors will be very happy with, I would say, like the Americas traditional mining jurisdictions. And the use of proceeds or what's driving it, it really runs the gamut. I think you kind of summed it up pretty well. It's -- people need money for various things, and that creates the opportunity for companies like ours to step in with financing. Sam Overwater: Great. And then just on top of that as well, corporate transactions. How are you guys assessing corporate transactions relative to sort of other opportunities in the current landscape? Is there anything you're currently considering? Sheldon Vanderkooy: Yes. I mean I don't view a big distinction between corporate transactions and other transactions. I mean we acquired that Arthur royalty. It was via an acquisition of Origin and then a spinout. The Maverix acquisition was a way to acquire a great portfolio at a reasonable price. So we're always looking for ways to add good assets to our portfolio at returns that are attractive and accretive to shareholder value. Sam Overwater: Great. And then lastly, does Triple Flag currently have like an equity portfolio to sell? Are you considering any sales in an equity portfolio or anything like that? Sheldon Vanderkooy: No. Operator: Your next question comes from the line of Brian MacArthur from Raymond James. Brian MacArthur: I just wondered if you can comment a little bit on Prieska and what's going on there. I mean there's a statement Orion looks like they've signed a term sheet with Glencore. But what actually needs to happen there for you to move that forward post -- other than the South African regulatory approvals? James Dendle: Brian, it's James. I'll pick that up. So as you'll recall, Prieska was always contemplated as a single integrated project comprising 2 zones, what they refer to as the Uppers, which is the upper remnant areas of the historical mine and the Deeps, which is the sort of untouched sulfide ore body. The Deeps is of great interest to us because it hosts the precious metals. It also has the exploration upside and it's the part of the ore body we're most focused on. The company through looking to stage their capital expenditures has disaggregated the project to the Uppers, which they'll develop first and the Deeps that they'll develop progressively thereafter. There is a dewatering component to that. And as you noted, they've received, I think, a very supportive nonbinding letter of intent from Glencore, which they're working through at the moment. So that is all very positive. Given our primary economic interest is in the Deeps, we will be evaluating the right but not obligation to fund the stream into the Deeps when they actually are at the stage to make a final investment decision on that project. So we expect the company to make an investment decision on the upper this year and an investment decision on the Deeps next year. So as a reminder, we have no obligation to fund the stream, but we like the asset. So it's a funding decision for Triple Flag in 2026. Brian MacArthur: But just to be clear, so can you -- I mean, do they develop the upper, if you think of it that way with the money they have and you just get the option to wait and then just come in on the lower? Or do you have to execute once they make a decision to do the upper, if I want to look at it that way. That's what I'm trying to figure out is when you're I get it, you've got -- you have the option to do it or not do it, but I don't know if there's a drop dead part of the contract that makes you decide or whether you can wait and see how the second part goes if you see what I'm saying? James Dendle: Yes, we can wait until the second part is ready to go. The nice thing is that the company will be progressing with the dewatering of the Deeps while mining the Uppers, so that they continue to derisk and develop the project whilst we get the opportunity to wait to make the investment decision on the Deeps. So there's no drop debt in that sense. We just have the opportunity to wait a little longer. You'll recall we have a small royalty on the project as a whole. So when the upper start producing, obviously, the royalty will pay because that applies to both zones. Operator: Your next question comes from the line of Derick Ma with TD Cowen. Derick Ma: On the El Mochito stream disposal, you got a fair amount of consideration to perhaps a win-win situation for both parties. But could you discuss how the situation arose and how you evaluate these types of situations versus retaining optionality in the portfolio? Sheldon Vanderkooy: Yes. Sure, Derick. It's Sheldon. I'll speak to that. El Mochito, it's a fairly small mine. It's based in Honduras. We acquired as part of the Maverix portfolio. It was undercapitalized and they were having difficulty servicing the stream as part of their operations. Eventually, what we did, and we're close to the operator. They're a private company, and we were looking for ways to get additional capital that was not our capital into that project so they could be in a position to start paying out on the stream. Basically, I think this is a win-win-win situation where we found the outside capital, they're bringing that in, and then we're structuring ourselves to come out on these terms. It's good value for us, and I think it allows them to move forward without the stream in place. Derick Ma: Okay. And how do you kind of evaluate these type of situations versus retaining optionality when you look across your portfolio when other opportunities come up like this? Sheldon Vanderkooy: I mean every situation is different. I think -- I put it this way, I'm very happy with the structure of this -- and the way this is being resolved. It's getting us good value out. It allows them to go on. Generally, we're not looking at selling streams, but this is essentially a structured sale of a stream, but it's really based on an asset-by-asset basis. Operator: [Operator Instructions] Our next question comes from the line of Cosmos Chiu with CIBC. Cosmos Chiu: Maybe my first question is on Minera Florida. James, you mentioned that you were on site. My understanding is that this past quarter or this past year, there's been some issues in terms of negative grade reconciliation, unplanned mine sequencing into lower-grade ore zones. I think you mentioned that as much as well in your guidance. You said, I think Minera Florida long term was capable of doing 75,000 to 100,000 ounces. This past year, 78,000 to 90,000. So the top end is lower. So I guess my question is, James, how much of that have you factored in into your valuation? And is it just really a one-off and it's really going to bounce back? Or how do you look at it? James Dendle: Yes, Carl, good question. The valuation and the production assumptions over a short period of time, of course, you consider what's actually happening on the short term as a guide for the long term. But the interesting thing is, as you know, about Minera Florida is there's a very long history of operations here. So we actually had access to the full history of production records that gave us great confidence in the forecast. And at the end of the day, quarterly variance in a gold mine is not a new thing. So for sure, there's quarterly variance on-month scale that exists, and I'm sure it will occur in the future. But in the long term, we think the mine will operate in accordance to how it's operated historically, which is in the range we stated. Cosmos Chiu: Maybe switching gears a little bit, bigger picture. Sheldon, as you mentioned, you reiterated in your release as well, 2029 guidance outlook. Outlook is you're still looking for 135,000 to 145,000 ounces GEOs. That's a very good increase from what level you're at today. Could you maybe summarize for us what goes into that thinking? What needs to come on for you to hit that growth into 2029? James Dendle: Yes, sure. Carlos, I can take that. We've got a few assets ramping up. There's some new assets, too. Sheldon mentioned the Arcata silver mine, that has literally shipped concentrate for the first time this week. That will be ramping up into 2026. There are other assets, obviously adding Minera Florida is a small addition, 3Q, Johnson Camp all ramping up. Montage is building Koné, which will be additive to that outlook. But there's also -- we expect production increases from some of the operating mines. We expect after a lower year next year from Northparkes that to start building back up again. We expect increased volumes from [indiscernible], although incremental. Same with Beta Hunt, Westgold has been very public with an expansion to Beta Hunt 2 million tonnes per annum, which is on track. So all of those additions build up to the outlook number. So there isn't one specific asset that drives that increase. It's actually nicely diversified across a large suite of well-positioned assets. Cosmos Chiu: Great. And then maybe one last question, the 2025 GEOs. The gold/silver ratio you've used is 85:1 in terms of the calculation of GEOs converting silver into gold. I just want to confirm, silver has actually outperformed a little bit compared to gold into 2025. That benefits Triple Flag. Am I correct in the sense that I think there's a good percentage of your revenue actually coming from silver. That's number one. Number two, it also benefits your GEO calculation, if I'm not mistaken, if you can confirm that as well. And then third, when do you consider, I guess, changing that ratio? Or I guess, it's not too late in 2025, it's not needed in 2025, but how do you consider that into 2026? Sheldon Vanderkooy: Carl, it's Sheldon. I'll take that. 85: 1, that's pretty close to what it is right now. Obviously, it's volatile. It moves around. It's been various places during the year. I think year-to-date, and you're right, obviously, as the silver price is stronger relative to gold price, that helps GEOs and the opposite when the opposite occurs. The year as a whole, we've actually had a bit of a headwind on the average silver price because of just the timing of when the silver price ran. And I think that's come across in ourselves and all our peers. We always make an allowance for that. We're pretty conservative when trying to set our guidance. And so we just accommodated that within our production. Right now, it's coming in line. And in terms of assessing it, I mean, we just -- every time we put out a new guidance or anything like that, we look at what the current gold/silver ratio is and make sure we're not too far out of line and that is properly conservative. Obviously, when we do our 2026 guidance, we'll look at what the conditions are at that time and react accordingly. Cosmos Chiu: Yes. Sounds like a good plan. And I guess the important part, Sleldon, as you mentioned, is that you're now aiming for the top end of guidance for 2024. Sheldon Vanderkooy: That's right. silver prices all the way through. Cosmos Chiu: Congrats on the solid Q3. Operator: At this time, we have no further questions. I will now turn the call over to Sheldon Vanderkooy for closing remarks. Sheldon Vanderkooy: Yes. Thanks, everyone. Q3 was another good quarter, and we're actually having just a great year in 2025. Really appreciate the support from all of our investors. Thank you all. Bye. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines. We thank you for your participation. Have a pleasant day.
Operator: " Robin Sidders: " Wasef Jabsheh: " Waleed Jabsheh: " Michael Phillips: " Oppenheimer & Co. Inc., Research Division Operator: Good day, and welcome to the International General Insurance Holdings Third Quarter and Nine-Month 2025 Financial Results Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Robin Sidders, Head of Corporate Relations. Please go ahead. Robin Sidders: Thanks, Bailey, and good morning, and welcome to today's conference call. Today, we'll be discussing the financial results for the third quarter and the first nine months of 2025. You will have seen our results press release, which we issued after the market closed yesterday. If you'd like a copy of the press release, it's available in the Investors section of our website. We have also posted a supplementary investor presentation, which can be found on our website on the Presentations page in the Investors section. On today's call are Executive Chairman of IGI, Wasef Jabsheh; President and CEO, Waleed Jabsheh; and Chief Financial Officer, Pervez Rizvi. As always, Wasef will begin the call with some high-level comments before handing over to Waleed to talk through the key drivers of our results for the third quarter and the first nine months of 2025 and finish up with our views on the market conditions and outlook for the remainder of this year and the upcoming January 1, 2026, renewals. At that point, we'll open the call up to Q&A. I'll begin with some customary safe harbor language. Our speakers' remarks may contain forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking words. We caution you that such forward-looking statements should not be regarded as a representation by us that future plans, estimates, or expectations contemplated by us will, in fact, be achieved. Forward-looking statements involve risks, uncertainties, and assumptions. Actual events or results may differ materially from those projected in the forward-looking statements due to a variety of factors, including the risk factors set out in the company's annual report on Form 20-F for the year ended December 31, 2024, the company's reports on Form 6-K and other filings with the SEC, as well as our results press release issued yesterday evening. We undertake no obligation to update or revise publicly any forward-looking statements, which speak only as of the date they are made. During this conference call, we use certain non-GAAP financial measures. For a reconciliation of non-GAAP financial measures to the nearest GAAP measure, please see our earnings release, which has been filed with the SEC and is also available on our website. With that, I'll turn the call over to our Executive Chairman, Wasef Jabsheh. Wasef Jabsheh: Thank you, Robin, and good day, everyone. Thank you for joining us on today's call. IGI once again delivered excellent results both for the third quarter and the first nine months of 2025. We generated net income of $33.5 million and $94.9 million for the third quarter and first nine months, respectively. And this resulted in an annualized return on average equity of 20% for the third quarter and 19% for the first nine months of the year. We continue to outperform and deliver superior results even in what is becoming a more competitive marketplace. We have consistently demonstrated our ability to perform well no matter where we are in the market cycle through focus, discipline, and consistent execution. That really is the hallmark of our strategy and why we have successfully managed the cyclicality of our business for well over two decades. Our value at IGI is in our ability to actively manage our capital so that we generate consistently high-quality returns in any stage of the market cycle. So far, in 2025, in addition to strong earnings, our active capital management has resulted in us growing book value per share by almost 10% to $16.23 per share in the first nine months of the year and returning a total close to $100 million to shareholders in dividends and share repurchases. Before I hand over to Waleed, I want to congratulate all of our people at IGI on the tremendous news of our S&P financial grade upgrade to A with a stable outlook. When we started writing business back in 2002, we were unrated. It was only three years later, in 2005, that we assigned our first rating of BBB from S&P. To see how far we have come since the early days of IGI through sheer hard work and decision focus gives me immense pride. We have grown largely organically from $25 million of initial capital to almost $700 million in shareholders' equity. This is quite an achievement. I will now let Waleed discuss the numbers in more detail and talk about market conditions and our outlook for the remainder of the year, and I will remain on the call for any questions at the end. Waleed, please go ahead. Waleed Jabsheh: Thank you, Wasef, and good morning, everyone. Thank you all for joining us on today's call. Just reiterating what Wasef emphasized at the beginning, we had an excellent third quarter with strong underwriting and investment performance, leading to a very solid bottom-line result. As Wasef indicated, I mean, we're in our strongest position ever as we close out 2025 and look ahead into 2026 in what is becoming a more challenging environment. But before I go through the numbers in detail, I'd like to highlight a couple of important points to begin with. First, as Wasef mentioned, the recent announcement from S&P that they've upgraded our financial rating to full A, I mean, this really is a fantastic achievement for us. And while it's very difficult to quantify the short-term benefit, the upgrade undoubtedly will open more doors for us to new business and more clients and cedents as well. Like Wasef, I'm also extremely proud of this outstanding achievement. And I congratulate all our teams on the strong track record and the foundation that we have built together at IGI. I would note that this doesn't really change anything about the level of capital we hold. We've always held capital to the highest level of S&P's capital adequacy and confidence level requirements, and we'll continue to do so. Second, you will have seen our announcement this morning that our Board has authorized a new $5 million common share repurchase authorization, now that we've exhausted the prior program of 7.5 million shares. We view share repurchases as a strong value generation lever. And at current levels, we believe that repurchasing our shares is highly accretive and excellent value for our shareholders. So as always, we're working with all the tools we have in our toolbox, and that's really what cycle management comes down to. Now moving on to the results of the third quarter and the first 9 months. We'll start with the top line, where gross premiums written in Q3 were just over $131 million, reflecting a decrease of about 5%, driven by a slightly lower volume of GWP in our reinsurance segment and much more so in our long-tail segment. And now this is a segment, as we've been saying for several quarters now. It's a segment where competitive pressures are more prevalent and where we also made a decision, as mentioned on last quarter's call, to non-renewal large PI account. For the first 9 months, gross premiums were up marginally to just over EUR 525 million, and that was primarily driven by growth in the reinsurance segment and, to a lesser extent, the short-tail segment. Net premiums earned were just under $115 million for Q3 versus just over $126 million for the same period last year. For the first 9 months, net premiums earned were $342.5 million versus $362.5 million for the previous year. For the first 9 months of 2025, the net premiums earned included the impact of reinstatement premiums. We've mentioned on previous calls, reinstating premiums is are loss-affected business, mainly on losses incurred in the early part of the year, which amounted to just over $11 million. I'll say again that we are strategic buyers of reinsurance to help mitigate really the volatility in some of the high-severity lines of business we write. Combined ratio for Q3 was 76.5%, and that had the benefit of about 4.5 points of positive currency revaluation in the quarter due to the strengthening of the U.S. dollar. The third quarter was also relatively benign from a large loss perspective. That's versus the 86% combined ratio for Q3 of last year. We noted the impact of currency revaluation on our results during last quarter's call as well as the previous quarter's call. During Q3, the U.S. dollar strengthened against our major transactional currencies. So this had the opposite impact during the quarter than what it did during the first 2 quarters of the year when the U.S. dollar weakened. The impact, however, during the third quarter is much less significant and much more immaterial. For the first 9 months, the combined ratio was just over 87% with a combined ratio of just over 87% includes the negative impact of about 7.5 points of currency revaluation, which, as I said a moment ago, had a negative currency impact for the first 2 quarters, slightly offset by the positive one in the third quarter. Again, as well as the lower volume of net premiums earned, from the reinsurance impact I mentioned earlier. This is versus an 80.5% combined ratio for the first 9 months of 2024. All in, we delivered net income of $33.5 million per share for the quarter versus $34.5 million for the same period in 2024. That resulted in $0.75 for both quarters per share, net income of $0.75 per share. For the first 9 months of the year, we generated net income of just under $95 million or $2.14 per share, versus just over $105 million or $2.31 per share for the first 9 months of last year. The period-over-period decline in net income for the same reasons in the first 9 months results lower level of underwriting income due to the currency revaluation movements and again, the higher level of net reinstatement premiums paid on our outwards reinsurance programs. Core operating income was $38.6 million or $0.87 per share in Q3, compared to $30.7 million or $0.67 per share for the same period the year before. First nine months of '25 core operating income was just under $81 million or $1.82 per share, versus just under $104 million or $2.29 per share. With the difference primarily attributable to the lower level of underwriting income, which for that period was negatively impacted by almost $24 million of currency revaluation movements, as well as heightened loss activity from the beginning of the year, which amounted to about 13.4 points of current accident year CAT losses in 2025. Prior year development was favorable in Q3, amounting to about $10.5 million versus unfavorable development of $7 million for Q3 of 2024. For the first nine months, prior year development was favorable by $30 million versus $34.4 million for the same period last year, with the lower volume in 2025, primarily attributable to currency revaluation of about $20 million. So on a constant FX basis, we would have seen favorable development of approximately $50 million for the first nine months of this year. The G&A expense ratio was 21.3% and 20.5% for the third quarter and first nine months of '25, respectively, which, when compared to the same period in 2024, were just impacted by the lower level of net premiums earned. A few comments on our segment results. I'll start with the short-tail segment. Gross premiums were up 2% in Q3, down 2.7% for the first nine months of the year when compared to the same periods in 2024. Net premiums earned were down about 10.4% and 8.1% for Q3 and the first nine months of '25, respectively, compared to the same period last year. The decline for the nine-month period reflects the lower level of written premiums as well as the impact of the reinstatement premiums on our reinsurance purchases. Underwriting income was down 14.7% in Q3 versus the same period last year, largely due to the lower level of net premiums earned again. For the first nine months, underwriting income was just over $80 million, down 12% when compared to the first nine months of last year. I mean, similar to what we said on last quarter's call, we continue to see new business opportunities in a number of lines, particularly engineering and construction, and marine lines, and to a lesser degree, contingency and property lines. Broadly speaking, pricing remains adequate. Engineering, in particular, continues as a healthy growth opportunity with infrastructure projects and opportunities coming to many of our markets across the globe. And we're seeing a healthy pipeline of deal flow in this line of business, though competitive pressures are there. The reinsurance segment, as we've said, is well diversified geographically and by business line, and generated gross written premiums of just over $11 million in Q3, slightly below the same period in the same quarter last year. In the first nine months now Q3 is not a significant renewal quarter for us. So in the first nine months, which is a more accurate representation, gross written premium growth was almost 25% on the reinsurance segment to just under $98 million when compared to the same period in 2024. Conditions generally remain strong, pricing adequate in the business that we write here. But as I'm sure you've heard from everybody else, there's increasing evidence of competitive pressures, which is also what I noted in my comments earlier. Earned premium was generally flat in Q3 this year versus last year, but more than 21% in the first nine months of this year when compared to the same period last year. Underwriting income was up 35% and almost 50% for Q3 and the first nine months of '25, respectively, when compared to the same period last year. The significant increase in underwriting income in this segment reflects really the shift in focus, which we always talk about that we made a year ago to higher margin areas of the business, in this case, obviously, the reinsurance business, and we're now seeing this flow through the financial results. Long-tail segment continues to be the area of our portfolio that has definitely been the most challenging for the past several years, with increasing competitive pressures and consistently declining rates and thus, obviously, margins, albeit from high levels. We, as you can see in the numbers, have steadily contracted the book during that time. I mean, you'll recall on last quarter's call, we announced the decision to non-renewal a roughly $50 million GWP professional indemnity account where the profitability profile was simply not meeting our requirements, was out of step with our required threshold, and unlikely to improve in the near-term. From a top-line perspective, this had some effect in the third quarter and resulted in a big chunk of the overall decrease in GWP in Q3. But the most significant top-line impact of this, which is roughly going to be about $25 million, will be seen in the fourth quarter of 2025. And as we said on last quarter's call, the rest will be spread out over the first 2 quarters of next year. In the third quarter and first 9 months of '25, gross premiums in this segment were down 12.6% and 7.5%, respectively. We recorded underwriting income of around $11.5 million for the third quarter versus an underwriting loss of $1 million for the same quarter last year. For the first 9 months, we recorded underwriting income of $1 million versus just over $25 million for the same period in 2024. And as we mentioned in the first 2 quarters with the difference was largely due to the negative impact of currency revaluation movements, and that amounted to about $17.5 million in the first 9 months of the year. The one thing I would say here is that the pace of rating decline continues to slow in the lines of business that we're writing. And whilst it would be a bit premature to predict any turnaround in these markets, we're hopeful that there will be signs of improvement in 2026 and into 2027. Obviously, that comes with a big caveat. Turning to the balance sheet. Total assets increased by just over 4% to $2.12 billion. Total investment cash was $1.32 billion. Our allocation to fixed income securities, which makes up approximately 80% of our investments in the cash portfolio, generated just over $13 million in investment income in Q3, which was flat in the same period in '24. For the first 9 months, investment income increased just under 7% to $40.6 million with an average annualized yield of 4.2%. And we hedged out our duration slightly to 3.7 years during the quarter just to lock in higher rates on new bonds. In Q3, we repurchased almost 800,000 common shares at an average price per share of $23.79. As of the end of Q3, we had exhausted the $7.5 million repurchase authorization. And as I noted at the start of the call, we announced that our Board has approved a new repurchase authorization of 5 million common shares. Total equity was just under $690 million at the end of Q3, and that includes the impact of $53.8 million in share repurchases and the payment of just over $44 million in common share dividends, including the special dividend that we distributed earlier this year in April of $0.85. This compares to the total equity of just under $655 million at the end of last year. Ultimately, we recorded a return on average shareholders' equity of about 20% for the third quarter and about 19% for the first 9 months of 2025. So from a total return perspective, we grew book value per share by almost 10% in the first 9 months up to September 30, and we returned a total of about $98 million to shareholders in share repurchases and dividends in that same period. So all in, it was an excellent and great quarter and first 9 months of the year for us. Now turning to our outlook for the remainder of the year and the next major renewal period at 1/1, which is only a few weeks away now. The story is fairly similar to what we've said on last quarter's calls. There's very clearly an elevated level of competitive pressure across much of the market. But I would characterize it mostly as orderly and quite disciplined up until now. Given our size, our relative position in the market, the makeup of our portfolio, and the actions we've taken in recent years to enhance our visibility and our scope of offering, we're confident that we will continue to find opportunities to grow our portfolio, write new business. Obviously, there are pockets where there's more pressure than others. But as we've always said, we have that ability to shift focus to those areas where we believe the best returns are going to be generated. And that's always part and parcel of how we conduct our underwriting business. We continue to see rate adequacy across much of our portfolio. And I think with our strong network of relationships, we're continuing to pursue opportunities to enhance our distribution capabilities, and that will ultimately generate additional margin and add value to our proposition. We're focusing on those lines and markets that remain healthier. And where necessary, we're reducing our exposures in areas where we can't generate an acceptable level of risk-adjusted return. Again, all part and parcel of the dynamic cycle management required. I mean the benefit of our diversified strategy, both by line of business and geographical territory, means that we can still and will still find profitable opportunities to write new business across many lines and geographies within our portfolio. I mean, we've done a good job of uncovering these opportunities, and I commend our underwriters for their efforts on really getting out there and working their relationships and pushing to find those opportunities. And without a doubt, the rating upgrade from S&P will benefit us here and again; it surely will open doors for us and move us up the so-called league tables and what is acceptable security, which is critical, given where we are currently in the market cycle. So the timing of this upgrade is not lost on us. And I would say it is particularly fortuitous. Having said all that, given that the market, broadly speaking, is softening, it would definitely be a reasonable assumption that we're likely to see some contraction in top line in certain areas of our portfolio where we decide to walk away from business that simply does not meet our embedded profitability and/or coverage targets. And that's the discipline we talk about so often. We've talked on prior calls about the strengthening of domestic markets across the world and the growing desire and the ability to retain business in those domestic and local markets. Our strategy, as we've said all along, has our people with the required expertise, a specialist expertise situated in most major regions across the globe, which is a clear benefit when we're on the ground, have the ability to interact face-to-face, and understand the dynamics of how business is transacted in those local markets. I mean, if we look at specific segments of our portfolio, I'll start with the reinsurance lines. Margins here remain very healthy and carriers are mostly behaving, as I mentioned earlier, in a relatively disciplined manner from a structure, terms, and wording perspective. Because of this, this is also where we're seeing the greatest push for market share. You may recall our recent announcement that we brought on board a seasoned London market specialty treaty underwriter last week, and this will complement our existing U.S. and international treaty team, while also developing our specialty treaty business with a focus on certain lines such as marine, energy, terror, PV, as well as aviation and cyber. This is where we've had a limited presence, and we haven't really had any dedicated resources to focus on these areas. And definitely, again, here, in particular, the S&P upgrade will help quite a bit. Our short-tail portfolio, as you know, is traditional property, energy, marine books, as well as some other pure specialty and niche lines. That remains a bit of a mixed bag as it has been for several quarters now, and overall continues to be a little tougher than a year ago. I mean, similar to reinsurance, where carriers tend to take big lines, the most significant pressures continue to be on property and energy, where the line sizes in those lines of business are, by nature, larger. We recently added senior talent to our property team focusing on the U.S., and we're adding to our energy team, specifically in downstream and power, and renewables. And that is a reflection of the opportunity we believe continues to be there in these lines of business. As I mentioned earlier, I mean, we continue to see healthy opportunities in some of the more specialist lines like construction and engineering, specifically some of the smaller projects in the U.S. and also in other regions like Asia Pac and the Middle East as well. Elements of the marine book, cargo, in particular, continue to be steady and present new opportunities to us, especially in the niche segment of the cargo market that we focus on. Contingency has been a great line of business for us in a very bright spot. And you'll recall that we entered that market after COVID. And since then, we've built a market-leading book with an amazing team. In our long-tail segment, net rates overall are still relatively adequate, but that adequacy is reducing as rates come down. But as I said earlier, the pace of rating decline continues to slow at a modest rate. And again, I don't want to go out of the NIM here, but there are indications there may be some brighter news later in 2026 and in 2027. Again, this comes with a big caveat. The PI business, which is the largest portfolio in this segment, is, as we've said before, largely facilitized. But I mean, there's been a fair bit of talent movement here with underwriters moving or setting up shops. And that with our relationships across this business, that's providing us some new opportunities and a good deal of flow, especially in the more niche segments of the PI market. In the geographic markets, I'll say a few words here. Again, a similar story as last quarter. The U.S., whilst competitive pressures are increasing, remains a big focus for us and presents probably one of the bigger opportunities for us to write new business, especially in our specialty treaty and short-tail portfolios. I mean, simply also because of the sheer size of IGI compared to the sheer size of the market. We also remain focused on building our profile, as we've mentioned many times before, across Europe and growing the profile in the MENA region and Asia Pac markets. As I mentioned earlier, they're all retaining more business locally, and we've got the network to capitalize on that. So our expanded presence and capabilities on the ground here will definitely continue to pay benefits. So we're clearly, I mean, at the stage of the broader cycle where portfolio and exposure management is critical. I mean, I cannot emphasize this enough, so I'll keep saying this again that we will not sacrifice the bottom line for the benefit of the top line. It really is all about discipline right now. intelligent risk selection, paying attention to the small print, and being aware of what's going on around us. That's what the prudent management of the cycle and sound management of the cycle is all about. I mean, we're coming off 5 years of excellent profitability. And I say that not just about IGI, but the broader market as well. It's not difficult, in all honesty, to do well during a hard market. But good underwriters don't just do well in hard markets. They do well throughout any and all stages of the cycle. And that is what we have at IGI, and that is the talent we attract and retain, and that is the discipline we exercise. We have the right strategy and the right footprint. We've built great teams and put the right people in the right places, and we've built a very solid foundation, a very well-diversified portfolio, particularly given our size. And all this is backed by a fully unlevered and solid balance sheet. We have a proven track record, and IGI's visibility in the market has improved dramatically over the last few years. That is what's earned us our recent upgrade, and that is what gives us the resilience to succeed throughout market cycles. So, rest assured, we'll continue doing what we do best, which is to focus on generating superior value for the long term with a razor-sharp focus on underwriting profitability, quality, and bottom line. I'm going to pause here, and we're going to turn it over for questions. So, operator, we're ready to take the first question, please. Operator: [Operator Instructions] The first question comes from Michael Phillips with Oppenheimer. Michael Phillips: Well, I always appreciate all your comments on the market conditions. I guess another good quarter on the margin side, you're fighting the tape that the industry is fighting on the top line. I guess with that, on the long-tail side of your business, the segment there, can you talk about are you closer to the point with rates declining? I think you said in your ending comments there that the pace of decline is starting to slow; maybe it's not good news. But are you closer to the point where the nonrenewal account that you did last quarter? I know you constantly look at that. Are you close to the point where there might be others that are not meeting your threshold that you kind of have to walk away from? Waleed Jabsheh: Michael Phillips, thanks for the question. The simple answer is no. That book of business that we walked away from had its particular characteristics and segment that you can simply isolate in terms of the niches and the behavior of the market in that regard. So outside of that, no, there isn't anything on our screens that we are contemplating walking away from. If anything, we're identifying other segments of the PI market. As I mentioned on the call, people moving shops, wanting support, whilst I can't go into lots of details at the moment, but these are underwriters that we know very well, have some of the strongest track records in the market, understand their businesses inside out, and are looking for support. We're trying to capitalize on those opportunities where we can access portfolios of businesses that we deem extremely healthy that can more than make up, especially on a net written premium basis, can more than make up for the PI account that we walked away from. Michael Phillips: I guess maybe turn to the reinsurance segment for a second. There, it seems like we're getting closer to 1/1 renewals here. And as you said, year-to-date, you're up, and the third quarter is not a big renewal period for you. But as you look at the beginning of the year here, do you think that there's going to be more pressure on the top line for your reinsurance book than what you've seen in 1Q each quarter each year for the past couple of years has been pretty strong. This quarter this year might challenge that. I guess what are your thoughts on reinsurance if we enter 1/1? Waleed Jabsheh: I mean, listen, Q1 this year was strong. Q1 last year and the year before were very, very strong because we were in a different stage within the cycle for the reinsurance market. There's no doubt about that. Is that going to continue? Of course, it's not going to continue because you're seeing pressure coming in, where, following a very benign wind season this year, we've got less than 2 months left in the year. If barring any major events in that time period and ahead of discussions and negotiations for the 1/1 business, the market is going to generate another great set of results, generate excess capital, and that's going to put pressure on feeling that capital. Is Hunger going to increase as we stand today at 1/1? I have no doubt that it will. One thing that you need to take into consideration, number one, we're adding the specialty bit. So that's a new source or relatively new source of income for IGI. And number two, our book is so diverse by business line, by geography. It's not your traditional large reinsurer type portfolio, not your traditional European reinsurance portfolio, traditional Bermudan reinsurance portfolio, or U.S. reinsurance portfolio. So, we've got a lot of levers to pull here. And we've said this before, and I'll say it again, Mike, ultimately, this is not a top-line game. We are in this for underwriting quality, underwriting profitability. And I think I recall a comment I said to you a couple of quarters ago, I'd rather write a $700 million book generating 80% combined ratio rather than $1 billion book generating a 90% or 95% combined ratio. We are underwriters, plain and simple. We manage the cycle. But I do see runway for us in reinsurance, definitely, as we, would you call it, enter into new areas, not just in specialty, but others. We've got a team across the globe, honestly, that pretty much understands what they're doing. And you can see that in the results. We put emphasis on reinsurance a couple of years ago, and we said that's where the area where we think the healthiest returns will be generated. And as you're seeing now, that's exactly what's happening. Michael Phillips: And I'm glad you reminded me of the quote that you gave a couple of quarters ago. That was one of my favorite quotes all the time. You'd rather focus on the bottom line, and you guys do that. I guess, given your comments, your reinsurance book, as you said, is not traditional large reinsurance. So maybe just lastly, to the extent you can comment on industry comment here, in the U.S., we're hearing a mixed story. Some reinsurers are saying that large account property has reached a floor and will start to improve from here. Others are saying, heck, a way, it's still going to continue to decelerate from here on large account property in the U.S. I don't know if you have any perspective on that or not. I appreciate it. By large account property, you mean risk covers or cat covers? Waleed Jabsheh: Risk covers, yes. Michael Phillips: Risk covers. Waleed Jabsheh: I don't think it's bottoming out, to be totally honest with you. That's not what we're seeing. But again, that's not an area we play in hugely, especially on a reinsurance basis. But I think the hunger will continue to be there at 1/1. I don't anticipate things turning in the opposite direction in that area. But again, I would say I'm not the best person to answer that question. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Waleed Jabsheh: Just some final words. Again, thank you for joining us today. Thank you all for your continued support of IGI. If you have any questions, as always, you can contact Robin, and she'll be happy to assist. And we look forward to speaking to you on next quarter's call. In the meantime, I wish everybody a Merry Christmas and happy holidays. I know it's a bit early, and happy New Year to all. Thank you. Operator: The conference has now concluded. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Boardwalk Real Estate Investment Trust Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Wednesday, November 5, 2025. I would now like to turn the conference over to Eric Bowers, Vice President of Investor Relations. Please go ahead. John Bowers: Thank you, Joelle, and welcome to the Boardwalk REIT 2025 Third Quarter Results Conference Call. With me here today are Sam Kolias, Chief Executive Officer; James Ha, President; Gregg Tinling, our Chief Financial Officer; Samantha Kolias-Gunn, Senior VP of Corporate Development and Governance; and Samantha Adams, Senior VP of Investments. We would like to acknowledge on behalf of Boardwalk, the treaties and traditional territories across our operations and express gratitude and respect for the land we are gathered on today, and we now know as Canada. We respect indigenous peoples and communities as the original stewards of this land. We come with respect for this land that we are on today for all the people who have and continue to reside here and the rich diversity of First Nations, Inuit, and Métis peoples. Before we get to our results, please note that this call is being broadly distributed by way of webcast. If you have not already done so, please visit bwalk.com/investors, where you will find a link to today's presentation as well as PDF files of the Trust's financial statements, MD&A and quarterly report. Starting on Slide 2, we would like to remind our listeners that certain statements in this call and presentation may be considered forward-looking statements. Although the expectations set forth in such statements are based on reasonable assumptions, Boardwalk's future operation and its actual performance may differ materially from those in any forward-looking statements. Additional information that could cause actual results to differ materially from these statements are detailed in Boardwalk's publicly filed documents. I would like to now turn the call over to Sam Kolias. Sam Kolias: Thank you, Eric. Starting on Slide 4, affordable multifamily communities have always been an essential product and service. Together with our resident members, our associates, investors, partners, capital, environment, community are all essential and interconnected with our Boardwalk family forever at our core with our true north where Love Always Lives. A keyword in community. is unity as reflected in our diagram. Together, we go far. Welcome everyone to our Boardwalk family forever and to our Q3 2025 results. Next slide, our culture. From our humble beginnings, our resident members remain at the top of our organization. Our leaders put our team first and our team puts our resident members first. Guided by the golden rule, we have a peak performing customer service culture that creates exceptional results as we can see on our next Slide 6. Our continued impressive performance with GAAP and non-GAAP measures increasing from the same quarter last year, same-property rental revenue increased 5.1% and same-property net operating income increased 8.6%. Our operating margin increased by 220 basis points as well as our funds from operation per unit increasing by 10.8%. I would like to now pass it over to Samantha Kolias-Gunn. Samantha Kolias-Gunn: Thank you so much, Sam. We are extremely grateful for our team's perseverance, performance and continued commitment to our purpose, bringing our resident members home to love always. Continuing on to Slide 7, our operational stability and commitment to affordable housing. Rental market fundamentals in our core markets are balanced. Demand continues for more affordable housing despite supply deliveries focused on higher-end luxury product to justify high construction costs. We are well positioned to deliver on our commitment to provide much-needed affordable housing in a more competitive environment with our experienced peak performing team, exceptional product quality from the $1.5 billion invested since 2017 in rebrand and repositioning efforts and dedication to our Boardwalk family has responsible community providers. CMHC and our federal government have emphasized the need for 430,000 to 480,000 more homes by 2035 to restore affordability in Canada. Affordability continues to drive positive population and leading economic growth in our core markets, Alberta and Saskatchewan reflected in our appendix. Québec has delivered exceptional results, further evidencing the strong demand for affordable housing. Ontario remains stable. We are strategically in all the right places at the right time. Please refer to our appendix for more data on the resilience of the Alberta economy. Our self-regulation provides us with continued steady results as we strategically moderate our rental rates within a resident-friendly renewal rate band, producing greater stability in occupancy and reputation. Paired with our strong financial foundation, minimum distribution policy resulting in maximum reinvestment and free cash flow, strategic repositioning, unparalleled customer service and on our foundation of strong family values, we remain in a position to deliver solid performance. This is what sets us apart, bringing you home to where love always lives. Boardwalk strives to be the first choice in multifamily apartment communities to work, invest and call home with our Boardwalk family forever. Moving on to Slide 8. Our strategic rebranding enhances our resident member experience and exceptional quality at an affordable price, keeping our occupancy high at just below 98%. Per Rentals.ca data, our average occupied rents of $1,582 for a 2-bedroom apartment are attractive, especially relative to the Canadian average of $2,279. We would like to now pass the call on to Gregg Tinling, who will provide us with an overview of our quarter results, strong balance sheet, fair value and ESG. Gregg? Gregg Tinling: Thank you, Samantha. Beginning on Slide 9, occupancy remains strong, supported by continued growth in occupied rent. While vacancy loss increased slightly, the Trust effectively reduced leasing incentives, which contributed to the higher rental revenue reported in Q3 2025 compared to the same period last year. These results reflect the success of our strategic initiatives aimed at maximizing free cash flow and diversifying our product offering, delivering meaningful financial performance. The decline in rental revenue from the previous quarter is due to property dispositions in Q3 that had previously been included in the same-property portfolio as reported last quarter. Slide 10 provides an overview of leasing spreads for new and renewed leases under our self-regulated resident-friendly centric model. This approach continues to drive strong retention and referrals while keeping turnover and operating expenses low. On a year-over-year basis, leasing spreads have moderated, reflecting a more balanced supply-demand environment. Increased supply in select portfolio markets, particularly at the higher price points, has led to greater competition and vacancy. In Alberta, renewal spreads reached 3.7% in September 2025. New lease spreads in Calgary were slightly negative as we strategically prioritized occupancy in the city's more competitive, higher-priced segments. Edmonton by contrast, continues to deliver positive new lease spreads, supported by sustained development for our high-quality affordable housing offerings. Overall, Alberta's blended leasing spreads for September were 2.3% with portfolio-wide spreads at 3.3%. We remain focused on maintaining high occupancy and maximizing resident retention. This strategy reinforces our commitment to providing affordable, resident-friendly housing in our core markets while also reducing costs and steady operational performance, delivering long-term value for all our stakeholders. Slide 11 shows sequential quarterly rental revenue growth, including 1.5% growth in Q3 2025 compared to the previous quarter. The change over each quarter is a reflection of Boardwalk's strategy, striving toward balancing the optimum level of market rents, rental incentives and occupancy rates in order to achieve its NOI optimization strategy. During Q3, the Trust closed on acquiring the other 50% interest in our Brio property located in Calgary. Calgary results include 100% of Brio effective August 6, 2025, excluding Brio altogether, the same-property rental revenue growth for Q3 2025 compared to the previous quarter would be 1.1% for Calgary and 1.4% on a total portfolio basis. Turning to Slide 12. Same-property net operating income increased by 8.6% in Q3 2025 compared to the same quarter last year, supported by revenue growth of 5.1%. Alberta, the Trust's largest region, contributed meaningfully to this performance with a 5.1% increase in rental revenue, driven by stronger in-place occupied rents and reduced leasing incentives. Total rental expenses declined by 1.8% year-over-year, primarily due to lower utility costs with the removal of the federal carbon tax earlier this year, alongside reductions in property taxes and insurance premiums. Slide 13 highlights that administration costs and deferred unit-based compensation remained relatively stable quarter-over-quarter. The year-over-year increase in administration expenses is primarily attributed to inflation-driven wage adjustments implemented at the beginning of the calendar year, along with higher profit sharing and bonus accruals, reflecting strong year-to-date performance across the portfolio. Slide 14 outlines Boardwalk's mortgage maturity profile. The Trust's debt portfolio is well staggered with approximately 96% of the mortgage balance carrying NHA insurance through CMHC. This insurance remains in place for the full amortization period and backed by the government in Canada, enables access to financing at rates below conventional mortgage levels with a current estimated 5-year and 10-year CMHC rate of 3.35% and 3.90%, respectively. Although current interest rates are above the Trust's maturing rates over the next few years, the Trust's maturity curve remains staggered, reducing the renewal amount in any particular year. Lastly, the Trust had an interest coverage of 3.10 in the current quarter. Slide 15 provides an overview of our 2025 mortgage program. To date, the Trust has renewed or forward locked $294 million in financing at an average interest rate of 3.83% and with an average term of 6 years. Current underwriting criteria in our most recent submissions to CMHC and our lenders has remained in line with our historically conservative estimates. Please refer to Slide 55 for additional details. Slide 16 illustrates the Trust's estimated fair value of its investment properties, excluding adjustments for IFRS 16, which totaled $8.8 billion as of September 30, 2025, compared to $8.2 billion as of December 31, 2024. The increase in overall fair value is the result of new acquisitions during the year and increases from rental rate growth, while being slightly offset by dispositions of non-core assets, along with an upward adjustment for vacancy assumptions in Calgary to reflect a more balanced market. Current estimated fair value of approximately $242,000 per apartment door remains below replacement cost. And in consultation with our external appraisers, the Cap Rates used in determining Q3 2025 fair value were unchanged from Q4 2024. As it does every quarter, the Trust will continue to review completed asset sales transactions and market reports to determine if adjustments to Cap Rates are necessary. Most recent published Cap Rate reports suggest that the Cap Rates being utilized by the Trust for calculating fair value are within their estimated ranges. Slide 17 highlights our ESG initiatives. We'd like to highlight our 2025 GRESB score of 72, which represents a 7.5% increase compared to the prior year. Using a disciplined capital allocation approach, we are focused on reducing emissions through reduced utilities consumption and therefore, reducing utilities costs while always promoting social and governance initiatives. We encourage our stakeholders to view our 2024 ESG report available on the Trust's website. I would like to now turn the call over to Samantha Adams to highlight our capital allocation and discuss our development pipeline. Samantha Adams: Thank you, Gregg. Throughout 2025, we have maintained a disciplined approach to capital allocation, focusing on value-add rebranding initiatives, targeted dispositions and acquisitions and our NCIB. Slide 18 highlights our reinvestment of free cash flow back into our current communities, which enables us to drive market share and enhance the experience for our resident members. Our goal for 2025 is to complete the rebranding of 15 communities. And by the end of this year, 77% of our communities will have been renovated. These upgrades, including rebranding initiatives, common area improvements and value-add amenities deliver exceptional value to our resident members with minimal impact on per suite rents. Slide 19 outlines the $733 million of real estate transactions announced year-to-date. This includes $221 million in dispositions of our non-assets with an average vintage of 1987 and average Cap Rates in the low 5% range. We have also completed $512 million in acquisitions comprised of townhomes, mid-rise and high-rise assets in our target growth markets acquired at Cap Rates ranging from the high 4s to the low 5s. From these sales, we have generated $120 million in net proceeds. Slide 20 details how we have strategically redeployed this capital into new acquisitions and our tactical unit repurchase program. The strength of our balance sheet has provided us with the remaining equity required to complete the transactions. And just a quick update on the Aspire, our development in Victoria, BC. We remain on track to welcome our first resident members December 1 with the remaining building scheduled for completion in early Q1 of 2026. For the balance of the year our focus will remain on dispositions and executing our unit repurchase strategy, while other development opportunities remain paused. Slide 21 demonstrates the ongoing disconnect between our unit price and the value of our portfolio. Our NCIB continues to be a key capital allocation tool. And to date in 2025, Boardwalk has invested $37 million in unit buybacks, including a recent $7 million repurchase of 102,000 units at an average price of $66.74. This tactical investment represents approximately a 6.9% FFO yield, providing an accretive use of our capital. Slide 22 summarizes our Q3 dispositions, 6 non-core properties located in Edmonton and Québec City with a weighted average Cap Rate of 5.3% and an average vintage of 1987. These successful transactions at pricing in line with our fair value have allowed us to upcycle the equity into high-quality assets with strong cash flows and lower CapEx requirements in addition to providing capital to support our unit repurchase plan. Slide 23 showcases the previously announced acquisition of Central Parc in Laval, Québeca 541-unit 3-tower community delivered between 2019 and 2022. With condo quality finishes, U.S.-style amenities, destination retail and a strong suite mix, Central Parc offers affordable luxury at approximately $2.30 per square feet. The acquisition price of $249 million or $460,000 per suite is well below replacement cost and the property benefits from attractive in-place financing at a blended sub-2% rate. Laval continues to be one of the stronger submarkets within the Greater Montreal area, supported by its connectivity to transportation networks and relative affordability. Slide 24 introduces our latest acquisition, 639 Main Street, located in one of our strongest growth markets, Saskatoon. The province of Saskatchewan has one of the lowest unemployment rates in the country, is one of the strongest markets globally for mining investments and offers food, fuel and fertilizer, all of which the world needs. 639 Main Street is well located and close to downtown, the University and Saskatoon's main retail strip. Acquired for $39 million from the developer at a Cap Rate of 5.5%, this fully stabilized community enhances our product offering in Saskatoon, will benefit operationally from being in close proximity to our other communities and is expected to generate strong cash flows. I would now like to turn the call over to James to discuss our track record of creating value and our updated 2025 guidance. James Ha: Thank you, Samantha, and thank you to our entire Boardwalk team for your service and commitment to our resident members while continuing to deliver consistent and strong performance that our team is sharing. Slide 25 provides an update to our outlook for the remainder of the year. The strength of our platform and ability to outperform in a more balanced housing market continues to show through as the demand for affordable housing remains resilient. And as a result, our outlook for the year has further improved. Our team and platform continues to maintain high occupancy and strong blended leasing spreads. Expense optimization has been a priority as demonstrated in our performance to date. As we move forward toward closing out 2025, we are anticipating a continued solid revenue profile paired with strong performance in our operating expense management. These lower expenses will help to ensure that our high-quality affordable housing remains the best value for our resident members. With the completion of the third quarter, our 2025 outlook has further improved toward the upper end of our estimates with same-property NOI growth guidance adjusted to 8.5% to 10%, while also increasing our FFO per unit outlook to $4.58 to $4.65. The increase in our FFO per unit outlook is a result of contributions from our strong NOI performance as well as our accretive capital recycling in both acquisitions and our NCIB. This guidance is forward-looking in nature, and we look forward to providing our final results for 2025 and the introduction of our 2026 guidance in February with our year-end results. On Slide 26, we have confirmed the payment dates of our next 3 regular monthly distributions equating to $1.62 per trust unit on an annualized basis. This represents a 12.5% increase from our distribution a year ago. Since 2021, our distribution has increased at an annual average growth rate of over 12% while still retaining an industry high proportion of our cash flow to reinvest and compound growth. This formula and operating model has extended our FFO per unit track record, and we are positioned in 2025 to more than double our FFO in just 8 years. Please note, as we near our year-end, our team is in the process of finalizing and conducting our tax review and we'll provide any special distribution update prior to the end of the year to reflect the taxable gains from our dispositions. Our regular distribution review is also conducted at year-end and any increase to our regular distribution is expected to be announced with our year-end results in February. On Slide 27, this FFO growth, along with our approach to maximum cash flow retention has improved our leverage metrics to provide Boardwalk with one of the strongest and most flexible balance sheets. In the quarter, we assumed an attractive low-cost mortgage as part of our Central Parc acquisition that Samantha highlighted earlier, and this has slightly increased our leverage for the period. As our platform optimizes the NOI from this community and we continue to deliver organic growth from our existing portfolio, we anticipate a continuation of our leverage improvement trend. This solid financial foundation, which includes our current significant liquidity position with over $100 million of cash, provides us with the flexibility to take advantage of opportunities that arise. One of these opportunities is shown on Slides 28 and 29, which highlights the exceptional value that our trust units represent. Our current trading price equates to less than $190,000 per apartment door, and a mid- to high 6% Cap Rate on a forward basis. Both metrics are exceptional when considering our product quality, locations, spread to financing costs and cash flow growth as shared in our outlook. Recent private market transactions continue to be supportive of our estimated net asset value of $242,000 per door or $98 per trust unit. With this current attractive implied valuation, we anticipate in the near term, our deployment of capital will be focused on investing in our own assets and platform through our normal course issuer bid. In closing, our team continues to be focused on delivering the best quality and value in housing to our resident members. Our unique operating platform continues to demonstrate our ability to create value for our stakeholders as we consistently deliver leading organic and FFO per unit growth that is increasing our free cash flow. Thank you again to our resident members, our team, our partners and all our stakeholders for making Boardwalk your first choice in providing the best quality homes and communities, and we are looking forward to continuing our track record of growth. We would now be happy to take questions from the line, Joelle. Operator: [Operator Instructions] Your first question comes from Jonathan Kelcher with TD Cowen. Jonathan Kelcher: First question, just, James, you finished on capital allocation, so I figure I'd start there. You guys have been selling assets and upgrading through buying newer stuff. It sounds like the NCIB is going to be more of a focus. Will you -- are you going to consider -- are you going to continue rather to sell assets in order to fund that? Samantha Adams: Jonathan, it's Samantha Adams speaking. I can take that question, if you don't mind. Yes, the plan is to continue our disposition program into 2026. And today, where our cost of capital is, obviously, those net proceeds would be used to buy our stock back. But we will remain active through 2026. James Ha: Jonathan, it's James. Just to add to Samantha's comments, we're seeing a lot of interest and bid and value-add acquisitions. CMHC financing is a big part of that as well. And so our team has done a fantastic job in 2025 meeting the market there as well as finding and unearthing opportunities for us to recycle that capital. We've made some great acquisitions that have provided very additive results to our overall performance. In addition to that, taking what the market is giving us, we're seeing huge opportunity in buying back our stock, and we've done that through September and October and as discussed, expect to continue to do that through the balance of the year. Jonathan Kelcher: Okay. Would you -- given that you are going to be selling some or looking to sell some assets into next year, would you take your leverage up near term to fund the NCIB? James Ha: I don't think we need to right now, Jonathan. We've got over $100 million of cash on the balance sheet. Our liquidity is as strong as it's been in a long time. And so that provides us the opportunity and optionality to deploy that capital. And as we said, buyback is that best place right now. We're having a tough time finding a better place than 6.5-plus Cap Rates today for our portfolio. Jonathan Kelcher: Okay. Fair enough. And then just secondly on -- I know it's a little bit early for 2026 guidance. But how should we think about revenue growth into next year and expense growth, at least on a high-level basis? Gregg Tinling: I can start with the expense side, Jonathan. And you're right, it is still too early. Normally, we don't give formal guidance until February when we release our year-end results. But I can say that through our preliminary late work and discussions we've had, we are expecting property taxes to be higher next year. James Ha: Yes. Just to add, Jonathan, to Gregg's comments, it's James. We're seeing very consistent results. Multifamily, especially affordable residential housing is quite consistent in terms of the demand for our product. You're seeing that through our leasing spreads as an example, pretty well throughout the year, we've seen consistency. And so I would expect that from our team. Our team is always striving for that. We'll keep occupancy high. We'll continue to provide affordable adjustments when we're negotiating our rent adjustments. And from what we're seeing so far, we expect consistent results from what we're seeing here. Operator: Your next question comes from Mike Markidis with BMO. Michael Markidis: Just with respect to the Gregg property tax comment being higher next year. I guess what are the drivers? And can you remind us, I think there's been a phase out of the premium on multifamily, and I think it's Edmonton, maybe the rest of Alberta, but just sort of the dynamics at play. James Ha: Yes, Mike, we've -- we're very supportive and thankful to our municipal leaders and provincial leaders. We saw very reasonable property tax increases this year. In fact, we saw declines in certain municipalities in Western Canada, and that's a testament to the strong financial position that our provinces have. As we look forward to next year and as we know, property taxes are a product of assessment and tax rate. What we're seeing here is increased assessments in multifamily apartments. So as a result of that, there is some potential we're going to see some property tax increases. Our team is working really hard right now in engaging with municipalities and negotiating assessments so that we all have sustainable increases for next year so that we can continue to provide and deliver sustainable and affordable rents to our residents. Michael Markidis: Okay. And are you concerned at all that -- sorry, go ahead. Sam Kolias: Mike, it's Sam. And we work really hard with our policymakers, and we're very vocal about supporting more government or less taxation. And that's a proven public policy because we ask everybody who can spend our super hard earned after-tax dollars better than we can. And we haven't found anybody yet that says somebody else can. So less taxation is a proven public policy that works for everybody. And we're super happy with a big change in our municipal leadership that believes the same because it helps everybody to keep more of our money in our pockets. And so we're super happy with the results. We've seen positive support and signals from our newly elected policymakers in our municipal governments, both in Calgary and Edmonton because we, the people have spoken. We all believe less taxes is better for all of us. So we're cautiously "optimistic" as per our newly elected mayor in Calgary as about our budget, too. James Ha: I just want to go back and add to Gregg's comments on -- as we're thinking about next year, another place where we've had a great track record is delivering below inflation expenses. Last year was not the only year of that. We can go back many years and thank our team for finding innovative ways to reduce that expense growth. Next year is not going to be any different. We're in the midst of working through our budgets now for 2026, and we are striving and pushing our team to look for continued efficiencies so that we can continue to deliver these great results into next year and that's all expense line item. Michael Markidis: Yes. No, no, that's great. Just I guess a couple of things before I turn it back. So number one, just on Railroad, it looks like there's a recap there. You pull a little bit of money out, refinanced the construction loan. And I think you had effectively negated the construction loan by extending a loan to the JV on your books. Is there any material change in the FFO contribution from that asset moving forward based on the recap? Gregg Tinling: No, we're not expecting that any material change. Basically, even our profit this quarter was $900,000 from that asset, and we're projecting for the year-to-date to be around $1.5 million. James Ha: Huge -- I know some -- from our team in Ontario are listening in on this call. And so a huge shout out to them. Our 45 Railroad project in Brampton is full. And so great work to that team for leasing that up over the last couple of months. Michael Markidis: Okay. Wonderful. And just last one for me, $100 million of cash. So you've got great liquidity. You did push leverage up. This was a consequence of the net investment activity. I guess with the special, is there anything that precludes you from doing it in kind? Or are you going to anticipate you'll have to give some cash back to unitholders would be question one. And then question two, you earmarked for the NCIB, but I guess is there any appetite to bring leverage back down? Or are you just happy to run at a higher leverage on a go-forward basis? Gregg Tinling: Mike, I'll answer question one for you. Like you're right, given the dispositions we've had in 2025, there will be tax implications of capital gains and recapture. We know we're going to have to do a special distribution by the end of the year. Right now, it's still premature. The team is still working through assessing the full impact, and we'll be planning to get a special distribution before the end of December. But we're right now just going through the analysis required. James Ha: And on the leverage front, Mike, as we said in our prepared remarks, we do anticipate our leverage to continue to follow the similar trend we saw previously in terms of that downward trajectory. In this case, we did see leverage tick up this quarter with that Central Parc acquisition, but it was extremely attractive financing. I think as we continue to bring in our platform into Central Parc and you continue to see the growth in our own existing portfolio, we do expect that leverage to continue to tick downwards. Operator: Your next question comes from Kyle Stanley with Desjardins. Kyle Stanley: Just looking at your incentives for a second. It looks like there was a more significant decline in incentives this quarter. Just given the broader market softness we're seeing, how have you been successful on the leasing front while rolling those incentives back? Is it just adjusting rental rates where needed instead of extending further incentives? Or what maybe is it that you're doing to keep occupancy high? James Ha: Kyle, it's James. Again, really proud of our team for reducing those incentives over the past several years. We're on the cusp of having that almost an immaterial number, which has always been our goal. The incentive declines are primarily coming from our renewals and retention and just eliminating those past discounts that were given. On the new leasing front, where you are seeing some incentives in the market across the country really is just at the upper end of the market, more expensive rents. Our approach and our leasing team's approach has really been more so just to reduce market rents if we are seeing more competitive environments. And so we're not using incentives as much in our leasing activity, really just focused in on that net rent. And just a reminder for everybody, all of our disclosures, all of our leasing spreads, all of our occupied rents are always net rents. Sam Kolias: Mike, it's Sam. Kyle, sorry. It's Sam, and there's 1,582 reasons why our incentives are so low, and that's the average occupied in-place rents. And it's always in demand. Larger 2-bedroom unit on average at that low price is always in strong demand. And that's why it's so important for us to continue our self-regulated approach, keep our rents as low as possible, our value proposition as high as possible, our locations, our renovations, our schools that we're nearby, hospitals, employer and employee source locations is what keeps us occupied and our rents being adjusted close to and around inflation is how we continue to do that. Kyle Stanley: Okay. And maybe just on that self-regulation, we've seen your renewal spreads trend slowly lower, but it seems like we're kind of nearing a trough here. So I'd just love your thoughts on where do you see those renewal spreads trending in the year ahead? James Ha: I think very similar to what we're seeing here today, Kyle. On average, our renewal spreads across the portfolio were in the 4s. That's kind of the inflation plus that we've talked about in the past. It's very sustainable, both from us as a community provider and covering our expense growth as well as from a resident standpoint. But first and foremost, we're always going to be flexible. Every resident's case is unique. And of course, we're going to be flexible with any residents who aren't able to afford that. But we're not seeing that and as the various slides that we have in our appendix and all the macro slides that we've gone through in the past, affordability is not the issue here in our core markets of Alberta and Saskatchewan. We remain some of the most affordable... Kyle Stanley: Okay. That makes sense. And then just last one. You mentioned strong interest for value-add assets in the market today and looking to continue on the disposition program in the year ahead. Would you say is it still primarily like the smaller mom-and-pop type buyers that are active in the space today? Or are you seeing signs that institutions are beginning to step back in? Samantha Adams: Kyle, it's Samantha Adams, and I'll take that question. Yes, we're receiving a lot of inbound calls. Some days, we're almost inundated with inbound calls with interest in our value-add communities, some of our non-core assets. To date, it's been mostly the private buyers, I would suggest, some family offices. But we're starting to hear that perhaps some of the institutions are going to come back into the space, whether they're interested in some of our sort of non-core properties will remain to be seen. But we are starting to see I would say a slightly elevated interest from what we're being told. But to date, the buyers of our communities have been the private buyers. And that interest is still very strong. Operator: Your next question comes from Brad Sturges with Raymond James. Bradley Sturges: Just following up on that line of question around the disposition program. Now that, I guess, it could go through to the end of '26. I guess how much is left to do in terms of either dollar amount or percentage of the portfolio that you would deem to be non-core that could be considered for divestiture? Samantha Adams: Well, where we're sitting today, I mean we've had a very successful 2025 on the disposition front. And I think you could expect us to be as active through 2026. A lot will depend on the market and where interest rates go through the next, call it, 12 months. But I think it'd be fair to say you can expect us to be as active as we've been in 2025. Sam Kolias: And it really depends on our stock price, too, Brad. It's very opportunistic right now to continue selling our non-core assets at really the equivalent of a 90-plus unit price and reinvest that at today's unit price in the 60s. That's an incredible window of opportunity. And so that gap is something that we can continue to sell with the high demand of our value-add and non-core apartments and redeploy back into our repositioned and portfolio overall at a big discount. So what a great opportunity. Bradley Sturges: Okay. That makes sense. Maybe just high level, the budget came out last night, obviously had some different elements between immigration and on the housing side. Just any general thoughts in terms of the implications for demand and supply for the Canadian apartment sector and particularly in your core rental markets? Sam Kolias: High level, we really need to increase our productivity. And the more we invest in increasing our productivity, the more jobs we're going to have, the more economic growth we're going to have in prosperity and affordability. And the one really positive is the skilled migration. We need more skilled migrants to build more infrastructure, more affordable housing, more schools, hospitals and energy corridors. We really need to continue to provide, as Samantha Adams noted, fuel, fertilizer and food, really core products. And we have all of that in Canada. And the more we invest to provide more Canadian energy infrastructure to more Canadian energy and more fertilizer and food, the more productivity and not just Canadian energy for more Canadians, but Canadian energy for our entire world. We need more affordable energy that will drive our economic growth. That's a proven public policy and investment that's always done very well for all of us. And so that's on a big high level what we continue to advocate for. Operator: Your next question comes from Sairam Srinivas with Cormark Securities. Sairam Srinivas: Sorry, guys, I know it's kind of turning out to be a long call, but just one question from me. When you look at the opportunities ahead in '26 in terms of acquisitions and dispositions, and when you think about your preferences across geographies, can you marry the 2 and kind of just comment on where do you see more non-core disposition opportunities versus markets where you would like to expand there? Samantha Adams: It's Samantha Adams. We're -- in terms of the opportunities we're seeing from an acquisition perspective, we've been fairly, I think, transparent in terms of where our target markets are. Obviously, our home markets in Saskatoon and Calgary being top there. We announced a beautiful acquisition in Laval as well and the Québec economy continues to grow, positive population growth and job growth. So I suspect it will all depend on the opportunities. But from that perspective, you will probably see some growth there. And then in terms of the dispositions, it really depends on what the market is doing. But given our size in Edmonton, you'll probably see a few more non-core assets sold out of the Edmonton market. And we're working through our disposition strategy now through for 2026. So I think it -- we'll be able -- be in a much better position to comment on that next year. James Ha: Yes, it's James. Just to add, it's going to remain opportunistic as well. To Samantha's point. I think we've got great platforms in each of those markets. There are markets that we like. And we've shown which of those markets are this year with our great upcycling that has been done. But we can't reiterate this enough. As of right now, there is no better opportunity than buying back our stock today. Sam Kolias: And then the dispositions, just a little bit more color with respect to the size and the location, typically very small off the beaten path, more difficult to attend to for just that smaller community size. So that's really what we're doing here is increasing our efficiencies and scale and making our whole communities and our team way more efficient to be able to spend way more time with our resident members and our communities than driving from site to site to service small community sizes. And by the way, small providers are awesome at hands-on operating small communities. And that's where we grew up and came from is with small communities. So it works great. It's a win-win for us. It's a win-win for the smaller operators that are buying our communities. And so it's really a great way to create value, especially when we can buy our apartments all back at a big discount. Operator: Your next question comes from Mario Saric with Scotiabank. Mario Saric: I wanted to circle back just on the spreads. On the renewal spreads, the kind of 3% to 4% or so. I think going into September, October, the range was closer to 3% to 7%. So I just wanted to confirm whether that's indeed the case where you've seen the kind of the top end of the expected renewal spreads come down a little bit? And if so, is that simply due to seasonality? Or are you seeing maybe a little bit more pressure in select markets? James Ha: Mario, it's James. It's very market dependent. We're seeing in our most affordable markets continued ability to deliver kind of the upper end of perhaps not that range, but above our average. And then other markets where we have more expensive product where it is more competitive, and we have to also compete on those spreads, and you're seeing the lower end or below our average range. And so it's very market dependent, Mario. At this juncture, though, as you can see over the past several months, we're seeing fairly consistent results. And with renewals, as you know, as we do them 2, 3, 4 months in advance, we expect it to be fairly consistent at this point. Mario Saric: Okay. And then maybe just on the new lease spreads, I think they were close to 2% this quarter. You've highlighted affordability is not necessarily an issue within the portfolio. Most of the portfolio is in markets where rents are some of the lowest in the country, as you point out. What do you think is going to be required to see that 2% inch up over the next 6 to 12 months? Is it supply deliveries coming online? And if so, what's the inflection point from a timing perspective there? Just curious to hear what could be the catalyst to get that number up a little bit. James Ha: I think continuing to deliver strong results. As you know, into this -- into the fall here, there is a return to seasonality in the market. We've noticed that. We see that in terms of traffic flow. So is that going to inch up here this winter? Likely not. We're going to focus in on occupancy. We're going to focus in on affordability come this spring, as we start to see more traffic we'll come to the market and see if there is potential to bring that up. But our focus is on retention, Mario. Retention and renewals represent 70% to 80% of our deal flow. And so that's really going to continue to be where we focus. Mario Saric: Okay. My last question is more of a technical question. Just during the quarter, there was a nice sequential revenue bump up to 1.4% for the portfolio relative to prior quarters, which were closer to 1% growth. How much of that delta would have been driven by Québec this quarter? James Ha: Mario, it's James. Great point in Québec, exactly the reason why Samantha and team and we are all very excited about Québec and huge opportunity from that value standpoint. We estimate that in July, if you strip out Québec, it represented about -- was it 0.7% of that sequential revenue growth in -- and just for context, about 1/3 of our deal flow in Québec occurs in the month of July. Operator: Your next question comes from Jimmy Shan with RBC Capital Markets. Khing Shan: Just one question with respect to Calgary. What are you expecting in terms of new supply, whether it's condo or purpose-built rental over the next 12 months? I'm just trying to get a sense of where we are relative to peak delivery. John Bowers: Jimmy, it's Eric. I can speak to that. So Calgary specifically, I think we have at the moment about 11,000 rental units under construction. I would see the deliveries over the next 12 months being pretty close to that range in general. Calgary, specifically, we have seen a little bit of an increase on the condo supply side. Bear in mind that only, call it, 30% of that would go to the rental market. But generally, I would say that's fairly consistent with what we have under construction today. Khing Shan: Okay. And that 11,000 of rental units, how would that compare to a year ago roughly? John Bowers: I'd say you're probably up about 10% to 15% year-over-year on an absolute basis. What I would say though is in terms of location of deliveries, Jimmy, I would say a year ago, a lot of those deliveries would have been in the Beltline Central core area. And I would say now there's more product being delivered in the more suburban locations of the city that would be outside of our ring road in Calgary. James Ha: I'll just add, Jimmy, it's James. We had the Calgary Real Estate Forum here in town last week or the week prior, and it was busy. There was record attendance. But I'll say that the general consensus was that development economics are challenged, and this is no different than any other place across the country right now. If we run that math, hitting performance is going to be tougher. The yields, the already very small yields for developments have compressed even further. And so -- we think we are hitting peak development economics right now for multifamily construction. Everybody we talk to seems to be pens down on development. And so we would anticipate at some point that the under construction numbers are going to start to tail off, purely just on economics. And again, that's just a little bit of color from what we're hearing from the development community in Calgary. Operator: [Operator Instructions] Your next question comes from Matt Kornack with National Bank. Matt Kornack: This call has been pretty thorough, so I don't have much. But turnover did seem to come down sequentially, and it seems like skips and evictions are down, but maybe there's an increase in kind of people leaving for transfers and assignments. At this point, is it population growth that's driving demand? Or is it employment growth? And how are your markets faring on the employment side? And just given the reduction in turnover sequentially, is that by design essentially going into the winter months on your part? Sam Kolias: Yes. Matt, it's Sam. And it's really important to come and see us and feel our energy and our economic vibrancy. We have a lot of jobs here. And we're seen a lot of employment, a lot of tech investment in Calgary, a lot of distribution, a lot of moves from Ontario, BC, affordable housing. And everybody seems really busy. Our restaurants, our stores, it just is a good economy. And that is really what we see and feel and affordability continues to be a big driver. And so yes, we're doing well relatively speaking on our economy and especially Saskatchewan, that is a real -- we attended the Saskatchewan real estate Forum and Samantha Adams shared with everybody, fuel, fertilizer and food. We just don't have enough of it for our planet. And we do have a lot of it in Saskatchewan and Alberta. And so our regional economies here continue to be very strong. Then if you look on Slide 53 in the appendix way back in the back section, average rents of Québec, $1,416 it's so affordable. And when we visited our team and our communities in Québec, it's same very vibrant, restaurants are busy and our economy in Québec seems to be doing really, really well, too. So a lot of increased hiring in teachers, nurses. That's what we need more of, too. And so we're seeing a lot of jobs that are important jobs that are being created. Ontario, we've held our rents really low in London and Kitchener, Waterloo, we're all full in Brampton. You know what there's a shortage of really big low-priced apartments. That's what there's big demand for. And that's what we got. That's what we've been focusing in on for 40 years. Samantha Kolias-Gunn: Sorry, Matt, just to expand on that as well. Alberta has experienced a record high immigration for the past few years. So there's simply not enough homes for all these people to live. And the continued economics of affordability will increase the amount of people being attracted to our province. And Alberta is diversifying. As you can see, as Sam pointed out, the slides in our appendix, the jobs in health care, professional scientific and other diverse sectors, we've talked to in past conference calls like the Lufthansa Technik and WestJet partnership continuing to bring jobs in aviation and engineering. We have the skilled labor force to provide to provide those really exceptional well-paying jobs and transform and be the energy superpower in Canada and hopefully, the world. James Ha: Yes. The second part of your question, Matt, it's James. On the skips and evictions, awesome observation, that is by design and our team's part as well. A big reason for it is the affordability that Sam and Samantha was talking about and the exceptional value that we offer. But we have to give credit to our team and our screening processes and always being flexible with residents. And so we're happy to see that number decline. Overall turnover has decreased as well. We've seen that trend happen over the past several years. Again, that's by design. It costs a lot of money to turn over suites. It costs a lot of money to acquire new residents. Why aren't we -- strategically, our strategy there is just to keep residents within our Boardwalk portfolio for their entire rental lifespan, and our team is doing a good job of that. Operator: Your next question comes from Dean Wilkinson with CIBC. Dean Wilkinson: Hopefully, I can make this quick. On the topic of affordability, how are you guys looking at the sale of the older assets, which I believe would probably have a more affordable and lower rent versus replacing those with the newer, more amenitized higher rents? Is that affordability metric the same across the assets? Or does it shift over time as you sort of new grade the portfolio? Sam Kolias: Dean, it's Sam. And just seeing and we're really looking forward to sharing our Central Parc community in Laval with everybody, really big units at really low price per square foot. And so there's affordability everywhere and especially affordable luxury. That's our nicest community now. And again, we're big fans of the Four Seasons. It's a Canadian brand. And what I'd like to say is if the Four Seasons was ever going to develop an apartment, it would be Central Parc and so inspired by our partners that we purchase from and the value proposition and the insight to build such big apartments and to rent them at such a low and affordable price. So Main Street in Saskatoon, same, very affordable brand-new product. And so we're all about affordability in every single category. And so it's building up on that. The smaller communities that we are selling, they're older. We would invest a lot more in value-add than some of our competitors would and smaller operators. And so we have a different expectation with respect to our older communities and invest a lot more than most of our competitors in our older communities. And so we think the smaller, older communities are best and smaller providers and our competitors that take a different approach and provide a product that we call and are proud of classic product. And it's just like classic Coca-Cola always in demand. And so affordable, classic, affordable linoleum carpet, older product has a purpose in our marketplace and provides that choice. And it's all about maximum choices. So it's all about affordability, Dean. James Ha: And it comes back, Dean, it's James. Just to add, this comes back to what we were talking about with Matt and trying to retain residents within our Boardwalk portfolio for their entire rental cycle. And part of that is having that diversified product offering. We continue to have -- most of our portfolio remains affordable. But even Central Parc, which we're referring to here, average rents of $2.30 a foot for Four Seasons like model. Again, that's highly affordable and Samantha wants to jump in. Samantha Adams: Sorry, James. I was just going to say, I think that when you look at the acquisitions we've announced this quarter and then the most recent one, obviously, being 639 Main Street, our average rents per square foot range from just over $2 a square foot up to sort of $240 a square foot. So I think when you put the Canada-wide lens on rents per square foot, even our new product is still very affordable. Dean Wilkinson: That's great. Everyone loves the classic. I think we're all looking forward to the trip to Laval. Operator: There are no further questions at this time. I will now turn the call over to Sam Kolias for closing remarks. Sam Kolias: Thank you, Joelle. As always, if there are any further questions or comments, please do not hesitate to contact us. With gratitude, we'd like to thank our entire team that puts the extra ordinary day in and day out, our team is truly extraordinary. Thank you, loyal residents, CMHC, our lenders, partners and of course, our unitholders from far and wide and local. It really is all about our Boardwalk family forever, whose huge shoulders we stand. And as leaders, we continue to do everything we can to support continued growth and extraordinary. We really can't thank our extraordinary team and great leaders enough. We are pleased with our improving results on a foundation of exceptional value, service and experience we continue to provide our family resident members, our investors and all our shareholders and stakeholders. We conclude home is where our heart is, our heart is where our family is and our family is where love always lives. Our occupied rent average, $1,582 our Love Always priceless. Welcome home to Love Always. Our future is Boardwalk Family Forever. What can be more important when choosing where to call home. God bless us and now more than ever, grant us all peace, our greatest prize of all. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to the Avanos Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Wednesday, November 5, 2025. I would now like to turn the conference over to Mr. Jason Pickett, Vice President, Corporate Finance and Treasurer. Please go ahead. Jason Pickett: Good morning, everyone, and thanks for joining us. It's my pleasure to welcome you to Avanos' 2025 Third Quarter Earnings Conference Call. Presenting today will be David Pacitti, CEO; and Scott Galovan, Senior Vice President and CFO. Dave will review our third quarter results and the current business environment. Scott will share additional details regarding these topics and update our 2025 planning assumptions. We will finish the call with Q&A. A presentation for today's call is available on the Investors section of our website, avanos.com. As a reminder, our comments today contain forward-looking statements related to the company, our expected performance and current economic conditions, including risks related to ongoing tariff negotiations and our industry. No assurance can be given as to future financial results. Actual results could differ materially from those in the forward-looking statements. For more information about forward-looking statements and the risk factors that could influence future results, please see today's press release and risk factors described in our filings with the SEC. Additionally, we will be referring to adjusted results and outlook. The press release has information on these adjustments and reconciliations to comparable GAAP financial measures. Now I'll turn the call to Dave. David Pacitti: Thanks, Jason, and good morning, everyone. I'm pleased to report we had a successful third quarter as we made great progress on our key strategic and operational goals in Q3. I would like to share with you our strategic imperatives, which guide us in how we operate the business. Our strategic imperatives are to accelerate growth in our strategic business segments, manage and mitigate the impact of tariffs, realize more operating efficiencies, improve or divest underperforming assets and acquire businesses that are synergistic with our Specialty Nutrition Systems and Pain Management and Recovery strategic segments. Let's take a few minutes to address each of those imperatives in a bit more detail, starting with our financial performance. Driven by the great execution of our commercial team, we achieved strong growth in our life-sustaining Specialty Nutrition Systems or SNS segment, with each of our SNS businesses delivering double-digit and above-market growth in the quarter. We also showed continued progress in our opioid-sparing Pain Management and Recovery segment, which posted positive year-over-year growth in the quarter, led by double-digit above-market growth in our radio frequency ablation business. For the quarter, we achieved net sales of approximately $178 million, adjusted for the effects of foreign exchange and the impact of our strategic decision to withdraw from revenue streams that did not meet our return criteria, organic sales for our strategic segments were up 10% compared to a year ago. Additionally, -- we generated $0.22 of adjusted diluted earnings per share and $20 million of adjusted EBITDA with adjusted gross margin of 52.8% and adjusted SG&A as a percentage of revenue of 40.6%. Given the strong sales momentum and effective cost discipline measures delivered during the first 3 quarters of the year, we are raising and narrowing our full year revenue estimates to $690 million to $700 million. Furthermore, we are raising and narrowing our full year adjusted EPS estimate to $0.85 to $0.95 per share. Moving on to portfolio management. We made solid progress on that front. As you may recall, we divested our hyaluronic acid business in July 31 as returns and growth outlook for that business fell well below acceptable thresholds. This divestiture represents an important step towards our goal of enhancing the future sales growth and profitability profile of our company. Following the sale of HA, I am pleased to report that we acquired Nexus Medical, a privately held medical device company based in Lenexa, Kansas. This acquisition expands our presence in the neonatal and pediatric settings and provides entry into a growing $70 million market. As indicated in our press release, we expected the acquisition to be immediately accretive to both revenue growth and earnings per share. I want to thank all those in the company who are involved in the Nexus transaction. It is already proving to be a great addition to our company. Moving on to our cost improvement efforts. I also have good news to share on that front. As I noted during our last earnings call, I tasked the team with identifying opportunities to optimize costs without impacting our commercial effectiveness. With this backdrop, we have recently taken steps to accelerate our decision-making, improve our new product development process and realize long-term cost-saving opportunities. We expect those efforts will deliver $15 million to $20 million of run rate annualized incremental cost savings by the end of 2026. We anticipate onetime cash charges related to those expanded program of approximately $10 million, with the majority to be incurred in the fourth quarter of 2025. Now on to the tariff front. We are executing on solutions to mitigate the impact of tariffs on our business and gross margin profile. We expect the current tariff environment will continue to impact the company in 2026. Our team is hard at work on implementing a range of strategies focused on tariff mitigation actions, including internal cost containment measures, pricing actions, leveraging previously issued temporary tariff exemptions for portions of our portfolio and lobbying efforts with AdvaMed and other third parties that have interactions with the administration. Lastly, we have prioritized supply chain investments to accelerate our exit from China, which will result in slightly higher-than-anticipated capital expenditures in 2025. With this additional strategic investment, we expect to be out of China for our neonatal syringe production by midyear 2026. And with that, I'll turn now the call over to Scott for a more detailed review of our financial results. Scott Galovan: Thanks, Dave. I'll spend the next few minutes discussing our strong third quarter results at the segment level. Our Specialty Nutrition Systems portfolio delivered outstanding above-market results, growing 14.5% organically versus prior year, reaffirming our market-leading positions in long-term, short-term and neonatal enteral feeding. Demand for our enteral feeding products remain strong, and our underlying growth continues to exceed market levels. Please note that we benefited from higher-than-expected distributor orders during the third quarter resulting from our go-direct transition in the United Kingdom. While trends are expected to remain solid going forward, we anticipate the fourth quarter will reflect normalization of inventory levels. Our short-term enteral feeding portfolio posted another robust quarter of double-digit growth globally during the quarter. These results were fueled by the continued expansion of our U.S. CORTRAK standard of care offering. Furthermore, adoption of our recently launched CORGRIP tube retention system designed to reduce the risk of tube migration and dislodgement has delivered higher-than-anticipated sales results. Finally, our neonatal solutions business delivered another excellent quarter, growing by double digits compared to the prior year. As we have previously signaled, we anticipate lower but still above market growth for our NeoMed product line over the next few quarters. Nonetheless, we expect lower year-over-year growth in the fourth quarter as in 2024, we benefited from an unusually large international order from an existing OEM partner and also capitalized on sales opportunities that arose from a competitor's backorder challenges during the quarter. From a profitability standpoint, operating profit for our Specialty Nutrition Systems segment for the third quarter was 20%, a 130 basis point improvement compared to a year ago, reflecting a higher volume of sales, partially offset by unfavorable tariff impacts. Now turning to our Pain Management and Recovery portfolio. Normalized organic sales for this quarter were up 2.4%, excluding the impact of foreign exchange and our previously announced strategic decision to withdraw from certain low-growth, low-margin products. Our radiofrequency ablation, or RFA, business continues to deliver outstanding results, posting double-digit growth this quarter compared to the previous year. We experienced sustained growth in our RFA generator capital sales in the third quarter, enabling us to capture higher procedural volumes, particularly within our ESENTEC and TRIDENT product lines. Additionally, we are encouraged by the progress of our COOLIEF offering internationally, leveraging reimbursement tailwinds in several geographies, including the United Kingdom and Japan. Our surgical pain business was flat in the third quarter compared to the prior year. While the implementation of the reimbursement decision afforded by the NOPAIN Act is taking longer than anticipated, the NOPAIN Act provides hospitals, ASCs and caregivers with improved options to administer non-opioid postsurgical pain relief. I would point out that we offer some of the few devices approved under this legislation. We are excited to support better patient care through our ON-Q and ambIT product line offerings. Finally, our Game Ready portfolio, while down year-over-year, posted similar revenue levels as the first 2 quarters of the year. As Dave noted on our Q2 call, we are in the process of enhancing our go-to-market model for this business. As part of the strategic assessment, we made the decision to transition the U.S. rental portion of this business to WRS Group. This transaction structure encompasses a strategic partnership in which WRS will manage the rental business through a distribution arrangement with Avanos. We believe this structure enables our team to focus on our core sports and rehab channels. Importantly, we expect this structure will enhance our profitability. Operating profit for our Pain Management and Recovery segment was 3%, a 200 basis point improvement compared to a year ago, which demonstrates our recent top line and cost management execution. Finally, our hyaluronic acid injections and intravenous infusion product lines reported in Corporate and Other declined over 20% during the third quarter, primarily due to the divestiture of the HA business at the end of July. As previously shared, we will continue to manage the IV infusion product line for cash and anticipate fully exiting this product category in early 2026. Moving on to our financial position and liquidity. Our balance sheet remains strong and continues to provide us with strategic flexibility with $70 million of cash on hand and $103 million of debt outstanding as of September 30. We have maintained leverage levels meaningfully below 1 turn for several quarters and will continue to be good stewards of our balance sheet. As illustrated with our recent Nexus Medical acquisition, we can continue to maintain healthy liquidity levels and balance sheet strength while also deploying capital towards strategic acquisitions that can bring accretive revenue growth and operating margin accretion. Free cash flow for the quarter was $7 million. Cash generated by operations was partially offset by higher capital expenditures supporting our strategic supply chain initiatives, as highlighted earlier by Dave. We anticipate generating approximately $25 million to $30 million of free cash flow for the year, including the onetime charges related to our transformation efforts and the impact of tariffs, which I'll address in a few minutes. Now turning to our 2025 outlook. Given our robust sales performance during the first 3 quarters of the year, along with favorable currency positions, we are raising and narrowing our full year revenue estimate to $690 million to $700 million. This projection is inclusive of the impact of our hyaluronic acid divestiture and Nexus Medical acquisition, which will contribute approximately $5 million to 2025 revenue. We remain confident in our ability to deliver on our originally communicated full year mid-single-digit growth target across our strategic segments despite anticipated headwinds in the fourth quarter, primarily in our Specialty Nutrition Systems segment due to one-off tailwinds in the prior year. Now regarding tariffs. The environment remains dynamic. We currently estimate the P&L impact of incremental tariff-related manufacturing costs, primarily related to products with country of origin from Mexico and China to be approximately $18 million due in part to the impact of higher sales. As we noted in our first quarter earnings call, we entered 2025 with challenges in our product portfolio as well as uncertainties related to tariffs. We made progress reshaping our portfolio with the divestiture of the HA product line and the Game Ready rental transition. We have put in place mitigation strategies that will address tariffs on a longer-term basis and are pleased with our overall commercial progress thus far this year. As a result, the company is raising and narrowing its 2025 full year adjusted EPS estimate to $0.85 to $0.95 per share, inclusive of the impact of our hyaluronic acid divestiture and Nexus Medical acquisition. I'll now turn the call back to Dave for his closing comments. David Pacitti: Thanks, Scott. As you have heard today, we are in the midst of a successful transformation of the company. I'm proud to be part of this dedicated and skilled team who has a clear understanding of our goals and objectives, and Avanos has the financial strength to execute on them. Our underlying business trends are steadily improving. Nonetheless, some of the progress is being obscured by the impact of tariffs. We are confident in the steps we are taking to address tariffs, and we believe we can enhance the value of Avanos by delivering a more attractive growth profile. I would like to thank all of those at the company who contributed to this successful quarter. The work you do makes a positive difference and helps patients get back to things that matter. With that, we are now ready to take your questions. Operator, please open the line. Operator: [Operator Instructions] Your first question comes from Danny Stauder with Citizens. Daniel Stauder: Congrats on the quarter. So I guess, first, I just want to ask on that cost improvement plan that specifically the $15 million to $20 million annualized cost savings. You mentioned a few different things there, a few different levers. So I was just hoping you could go into that a little bit more in detail and give us a little bit more color on what's driving that, what's different, what you're changing and what that looks like as we move through '26? David Pacitti: Danny, thanks for the question. So as we stated in the -- on the call, we expect these efforts around $15 million to $20 million to be realized by the end of 2026. We've been really focused on streamlining the overall organization, the management structure that we have, really trying to make it a much more effective and improve decision-making and also accelerate things within the organization. So there has been a reduction in our senior management organization. We also are looking at our R&D organization much differently than we had in the past. A lot of that is to improve getting new products out the door faster. So we've streamlined and revamped that organization as well. And that was probably the biggest part of the reduction. And we've taken the majority of those actions that we expect to realize next year already. Daniel Stauder: Okay. Great. I guess to follow up on that, you mentioned R&D. Just as far as the product development pipeline, is there anything you can call out that we should be looking for as we move into the end of '25 or into '26? Or is it a little further out than that? Anything that I think is worthy of calling out there that could drive sales? David Pacitti: Yes. So as we looked at the model that we had, the one thing we wanted to do, Danny, was go to a hybrid model, which is when I say hybrid, I mean, some of the projects that we'll do are going to be internal projects, especially those that are much closer to completion. But as we look at some of the further down the road projects, we'll definitely go to a hybrid model where we'll do outside contracting with other companies to do the work for us. We believe that this will allow us, number one, to help somebody extremely accountable. We think that there are institutions that can probably do some of this better than we can do it. We can focus on the products that we can make that we know we have the skill set. But as we continue to grow the portfolio, there are probably other entities that could do it better than us. So with this hybrid model, we'll still have an internal R&D organization, and we're committed to that organization, but they'll be focused on certain projects. But other projects where before we took everything on. And now we will contract out some of these other projects. Our belief is it will improve our speed to market with products. So we're not just relying on acquisitions, but we're also bringing out new products as well. Daniel Stauder: Okay. Great. And then I just want to move to M&A. It's nice to see you close on the Nexus acquisition. And I know you called out previously 2 other bolt-ons earlier in the year. So I was hoping you could give us a little more insight into how you're thinking about this and your appetite for more deals? Do you feel like this is enough for the near term or for now? And would you consider something larger? Just any more color on that front would be great. David Pacitti: Yes, absolutely, Danny. And thanks for the question. So again, a big focus for us is continue to find synergistic M&A opportunities. And we said that we would do that both in SNS and in pain management recovery. I think there'll be -- you'll see more focus on -- in the short term on the SNS business. And yes, we have an appetite to do more. And as we stated previously, we expect to do more. I can't say it will happen this year, but we expect to do more M&A, and we're actively seeking those opportunities. Daniel Stauder: Okay. Great. And then just one final one, more housekeeping. I just want to make sure. So for the free cash flow assumption, $25 million to $35 million, I just want to be clear, that includes the $18 million in tariffs and the $10 million onetime cash item from the cost improvement plan. Is that the right way to think about it? Scott Galovan: Yes. So it's $25 million to $30 million is the plan for '25. It does include the charges related to this recent transformation efforts that we've executed on. It also includes a little bit more CapEx than we had originally planned, and that's in order to accelerate our China exit plan. So we think that's good investment dollars to accelerate and reduce the impact of tariffs in '26. Operator: There are no further questions on the phone line. I will turn the call back over to Mr. Pacitti for some closing remarks. David Pacitti: Well, thanks for the questions, and congratulations to the organization for a really strong quarter. We appreciate it. We look forward to continuing the dialogue, and thank you very much. We appreciate the continued interest in Avanos Medical. Thank you. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.
Operator: Greetings, and welcome to the Select Water Solutions 2025 Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Garrett Williams, VP, Corporate Finance and IR. Thank you. You may begin. Garrett Williams: Thank you, operator, and good morning, everyone. We appreciate you joining us for Select Water Solutions conference call and webcast to review our financial and operational results for the third quarter of 2025. With me today are John Schmitz, our Founder, Chairman, President and Chief Executive Officer; Chris George, Executive Vice President, Chief Financial Officer; Michael Skarke, Executive Vice President and Chief Operating Officer; and Mike Lyons, Executive Vice President and Chief Strategy and Technology Officer. Before I turn the call over to John, I have a few housekeeping items to cover. A replay of today's call will be available by webcast and accessible from our website at selectwater.com. There will also be a recorded telephonic replay available until November 19, 2025. The access information for this replay was also included in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, November 5, 2025, and therefore, time-sensitive information may no longer be accurate as of the time of the replay listening or transcript reading. In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States federal securities law. These forward-looking statements reflect the current views of Select's management. However, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listener is encouraged to read our Annual Report on Form 10-K, our current reports on Form 8-K as well as our quarterly reports on Form 10-Q to understand those risks, uncertainties and contingencies. Please refer to our earnings announcement released yesterday for reconciliations of non-GAAP financial measures. Now I'd like to turn the call over to John. John Schmitz: Thanks, Garrett. Good morning, and thank you for joining us. I am pleased to be discussing Select Water Solutions again with you today. During the third quarter of 2025, we advanced key strategic objectives across each of our segments. In Water Infrastructure, we secured incremental contracts to enhance long-term water infrastructure scale and cash flow generation. In Water Services, we continued our consolidation and divestment efforts to drive a focus on long-term margin enhancement and efficiencies. And finally, in Chemical Technologies, we increased our market share gains, driving strong sequential revenue and margin improvement. I'd like to start with some of the key third quarter highlights, then provide an overview of several additional long-term contracts before addressing the forward outlook in more detail. In the third quarter, we maintained steady consolidated margins despite a weaker activity environment, driven by another strong margin quarter for the Water Infrastructure segment and improved Chemical Technologies margins. While general industry activity levels have been down, the produced water challenges our customers face continue to grow, creating the necessity for durable solution from commercial water midstream players. Pore space availability and seismicity-based curtailments remain a concern for traditional disposal solutions, which are driving tailwinds behind the continued demand for Select's recycle first solutions. Accordingly, we continue to advance our end-to-end water midstream offering with new contracts, organic expansion and bolt-on acquisitions. The Permian Basin remains the most active basin in the industry, but it still lacks the necessary infrastructure and solution to support future operator plans and expected produced water volumes over the coming years without additional development. We continue to scale our infrastructure operations to meet this demand and are proud to be recycling nearly 1 million barrels of water per day in the Permian Basin with the vast majority flowing through our fixed facilities. Every day, these recycling solutions create significant operational efficiencies and economic value for our customers by providing synthetic disposal capacity that alleviates the need for significant produced water volumes to be injected into subsurface reservoirs. We expect to exceed our produced water recycling targets again this year with an active backlog of projects currently under construction, we expect strong growth into 2026 as well. Supporting this future growth, in the third quarter, we signed several new midstream contracts in the Permian Basin to add over 65,000 additional acres under long-term dedication across both Texas and New Mexico. We now have added nearly 800,000 additional acres under dedication during 2025 alone and are highly confident that we will continue to add incremental dedications to this inventory backlog before the end of the year. Something else that I'm very excited about, during the third quarter, we signed a new long-term contract for water transfer, our last mile temporary pipeline and logistics services in the Permian Basin. The existing water infrastructure contracts we signed in the Delaware Basin in the second and third quarter of 2025 paved the way for this expansive water transfer agreement with a key customer. This contract enhances more than 300,000 acres under existing dedication with newly contracted water transfer services alongside existing water recycling, gathering and disposal dedications. I believe this shows the strengths of Select's unique integrated value proposition and our customers' trust in our automated water transfer and logistics services. While produced water gathering, recycling and distribution remains the primary growth driver, we also continue to responsibly grow our Permian disposal capacity to complement this recycling footprint. With ever-growing produced water volumes, the Permian Basin demands comprehensive and flexible water midstream solutions going forward. Our produced water systems incorporate large diameter dual gathering and distribution pipelines that are connected to both centralized recycling and disposal facilities, providing optionality on how we manage produced water for our customers. Disposal is and will continue to be a cornerstone of produced water management, and we will continue to add disposal capacity as needed to balance our overall system. Our growing disposal network operates in unison with our recycling capabilities to provide comprehensive long-term solutions that bring stability and enhanced takeaway assurance for the long-term contracted water inventory volumes of our customers. As our network continues to scale, this optionality will further expand over time and will play a critical role in our long-term beneficial reuse solutions as well. Treated produced water offers a unique and cost-effective starting point for both desalination and mineral extraction and provides enhanced flexibility and capacity [ as an ] alternative disposal outlet. We remain at the forefront of developing these new technologies and scalable solutions and are actively partnering with key customers, regulators, universities and other stakeholders on advancing the framework necessary for these beneficial reuse solutions. Elsewhere on the technology side, we continue to advance our mineral extraction efforts that are very synergistic with our existing water midstream footprint and future beneficial reuse solutions. This includes the recently announced groundbreaking of Texas' first commercial produced water lithium extraction facility in the Haynesville Shale in East Texas. This facility will be funded, designed, constructed and operated by our partner, Mariana Minerals, a leader in domestic critical mineral resource development. This project will leverage Select's extensive produced water gathering pipeline and disposal infrastructure in the Haynesville to source, transport and manage produced water streams critical to the extraction process. For this, Select will receive reoccurring royalty payments. Based on the near-term goal to deliver up to 70,000 barrels per day and expected fixed price contracts, we expect royalty payments of about $2.5 million per year beginning in early 2027, ramping up to $5 million per year once the refinery is producing at full efficiency and capacity. With nearly 1.3 million barrels per day of produced water moving through our infrastructure on average during 2025, there remains tremendous mineral extraction potential across Select portfolio, and we expect to grow this royalty-based cash flow over the coming years. To update on some of our other ongoing strategic initiatives, our municipal and industrial project in Colorado is steadily progressing as expected. Additionally, on the peak rental side, demand for our distributed power solution continues to grow and stakeholder engagement remain constructive. We are aiming to establish a distinct path forward for peak before the end of the year. While two very different initiatives, the underlying strategy and message is consistent. We are focused on delivering to our shareholders a streamlined water infrastructure-focused company with more predictable and stable long-term earnings. Ultimately, we have high confidence in what we are building. And even in a lower commodity price environment, our Water Infrastructure segment is demonstrating growth and resilience. We expect Water Infrastructure to grow by 10% in the fourth quarter and more than 20% during 2026. We believe that in a lower commodity price environment, more than ever, our customers will look to us to unlock incremental economics and efficiencies. Large-scale water balancing and recycling is a prime example of the combinations of good stewardship and good economics as it mitigates potential reservoir pressure impacts from produced water injection while also serving as a cost advantage alternative to legacy disposal. In addition to reducing lease operating expenses for our customers, recycling also provides a cheaper source barrel for our operators' completion needs as compared to traditional freshwater supply, thereby also reducing their capital expenditures for new well development. While the current activity environment may present some challenges for more of our completions-oriented offerings in water services and chemical technologies, we believe our market-leading positions in these segments will allow us to outperform the market and continue to generate solid free cash flow to fund our overall growth. In summary, I am pleased with the ongoing advancement of our strategy and the way our organization responds to the challenging environment. One of the key statements and tenets we tell ourselves at Select is that we have to do more with less with better results. The current market environment and our customers effectively demand this from us. But most importantly, we demand it of ourselves every day, and we are committed to delivering that for our stakeholders. Looking ahead, I think the fourth quarter will be a good demonstration of these efforts, and I appreciate the continued dedication of our employees and the ongoing trust and support of our long-term shareholders. With that, I'll hand it over to Chris to speak to our financial results and outlook in a bit more detail. Chris? Chris George: Thank you, John, and good morning, everyone. In the third quarter, Select exhibited resilience in light of declining activity levels and made steady progress in advancing its strategic objectives. During the third quarter, we achieved another quarter of strong water infrastructure margins, sizable increases in Chemical Technologies revenue and gross profit before D&A of 13% and 29%, respectively, and cash flow from operating activities of $72 million, outpacing our adjusted EBITDA. Looking at our third quarter in more detail, Water Infrastructure revenue decreased 2.5% with margins of 53%, modestly below prior quarter levels, but in line with our expectations. The modest reductions were primarily driven by reduced skim oil sales and lower realized oil prices as both disposal and recycling volumes held fairly steady during the quarter. Looking ahead for our Water Infrastructure segment, we anticipate revenue and gross profit growth of approximately 10% in the fourth quarter compared to the third quarter. Furthermore, with our sizable backlog of ongoing construction projects and our latest contract wins, we expect continued growth well into next year, driving more than 20% annual growth in 2026 compared to 2025. We expect to maintain gross margins before D&A consistently above 50% in both Q4 and throughout 2026 as well. In the Water Services segment, in the third quarter, we saw revenues decrease by approximately 23% sequentially. This decrease was heavily impacted by the divestment of legacy trucking operations associated with the Omni transaction, which closed in early July. This divestment accounted for more than 1/3 of the overall decline with the remainder driven by lower customer activity levels during the quarter. While sizable, this decrease was better than our prior revenue guidance of an expected 25% decline, though our gross margins before D&A and services of 18% came in slightly below our expectations during the third quarter. We expect the impacts from ongoing lower activity levels and typical fourth quarter seasonality to result in sequential revenue declines of low to mid-single digits in Water Services with margins before D&A improving to 19% to 20% in the fourth quarter of 2025. Moving on to Chemical Technologies. This segment achieved a sequential revenue increase of 13% during the third quarter, significantly above our guided expectations as ongoing successes with new product development initiatives drove market share gains. Importantly, gross margins before D&A also materially exceeded our expectations, coming in at 19.9% in the third quarter, resulting in gross profit before D&A of $15.2 million, a 29% sequential increase. During the fourth quarter of 2025, we expect steady revenue with gross margins of 18% to 20% as continued market share gains and product mix contribute to notable outperformance versus the expected activity levels in the key markets and regions we serve. On a consolidated basis, SG&A increased to $42 million during the third quarter, driven primarily by severance and deal costs, including from the Omni transaction and ongoing peak efforts. We expect SG&A to return to approximately $40 million in the fourth quarter, and we will continue to look for opportunities to reassess the cost structure of the business in conjunction with the ongoing rationalization efforts in Water Services. Altogether, adjusted EBITDA came in at just under $60 million during the third quarter of 2025, at the high end of our previous guidance. For the fourth quarter of 2025, we expect consolidated adjusted EBITDA to grow to $60 million to $64 million as strong sequential growth in the Water Infrastructure segment is expected to more than offset typical fourth quarter seasonality. I'll now hit on a few below-the-line items and cash flow details before we wrap up. Looking at our other costs for the third quarter, D&A increased approximately $2 million in Q3 to approximately $45 million. With the continued build-out of our growth capital projects, we expect D&A to increase in Q4 to approximately $46 million to $48 million. Interest expense should remain relatively steady, and our book tax rate applied to pretax operating income should stay in the low 20% range with cash taxes on the year remaining consistent with prior guidance of $10 million or less. Given recent federal legislation, we would expect our cash tax obligations to remain relatively muted across the next couple of years as well. On the cash flow side, cash flow from operations of $72 million meaningfully exceeded our adjusted EBITDA for a second consecutive quarter as we continue to improve our working capital profile. Growth CapEx increased to $95 million during Q3, primarily in support of contracted infrastructure growth projects, resulting in negative free cash flow of $19 million in the third quarter. We also incurred $35 million of cash outflows for acquisitions in the quarter related primarily to the Omni transaction as well as the acquisition of other disposal assets in the Permian and Northeast regions to strategically support our market-leading recycling and disposal networks in those basins. For several quarters in a row, we have seen our large backlog of water infrastructure opportunities materialize into actionable contracts. Following the recent project wins and continued pace of development, we are modestly increasing our 2025 net CapEx guidance range to $250 million to $275 million, up $25 million since the prior update. While near-term cash flow is expected to be impacted by elevated growth CapEx spend associated with our new contracted infrastructure growth projects, we maintain a very healthy balance sheet overall. We are well underway in executing our strategic commitment to streamline our overall business and deliver to our shareholders an industry-leading water infrastructure and midstream growth platform comprised of strong free cash flowing assets while upholding our commitment to a low leverage balance sheet. We maintain our expectation of $50 million to $60 million of annual CapEx going towards ongoing maintenance and margin improvement initiatives in the near-term, although this could come down over time with additional services rationalization. Absent the ongoing sizable growth capital outlays, we have a very maintenance-light capital model. Our operating assets have significant free cash flow generating capabilities and flexibility to manage maintenance spend in accordance with market conditions without impacting our overall operational performance. In summary, we advanced our strategic initiatives in the third quarter and remain confident in our overall strategic outlook. We are proud to have positioned the company with strong liquidity, resilient earnings and growing contract coverage, and we look forward to continuing to deliver on our strategy. With that, I'll hand it over to the operator for any questions. Operator? Operator: [Operator Instructions] [Technical Difficulty] Unknown Analyst: Congrats on a nice result and continuing to advance the ball on contracting water infrastructure. John, I think we all pretty well know kind of your strategy around the infrastructure side with what you're doing in recycling, building out the networks and kind of controlling the water. And you mentioned -- I think both you and Chris mentioned adding some disposal capacity this quarter and something you'll do going forward just to support what you're doing. I'm curious how you feel like you're positioned there versus -- obviously, there's a lot more water volume coming out of the Permian than you can recycle. So maybe spend a minute on how you think about disposal. John Schmitz: Well, I guess the first thing to say about it is it's the thing we continue to be -- to say is we always want to do our best to make an optionality of recycle first. We think it's the best economics to our customers. It's a very good profile for profitability for us. But we have to backstop that network, those volumes with that relief and that relief is that disposal, [ Jim ], that you're asking about. As I think about it, and we continue to find it, I mean, we announced and have continued to get exposure to and find opportunities to buy what I would call stranded assets. So as we put these networks together and you get an ability to hook one piece of pipe or one storage, one recycling to other pipes and storage, you go across asset bases that we have been able to buy and those are stranded disposals. And that disposal comes to us in the network to fit within the equation of water balancing in a big way. And that has showed up and continues to show up, and we expect it to continue to be an opportunity for us as this network gets built out, Jim. Unknown Analyst: Appreciate that, John. And the other kind of exciting thing, I think, or at least really interesting is the mineral extraction and you kind of mentioned beneficial reuse and you guys are working on that. Maybe just talk about kind of what inning you're in, in the beneficial reuse and maybe what is the opportunity set of beneficial reuse and mineral extraction over the next 5 years, just kind of thinking about how this compounds the growth in water infrastructure. John Schmitz: Sure. I'll let Mike Lyons and Michael Skarke throw in here. But logically, with the announcement of what we did in East Texas, extremely excited to be able to spread that across more volumes that are in our control in our networks. And then the beneficial reuse our partnership with regulators or universities or upstream major players, we're very excited about taking a piece of that water and repurposing it. But Mike, please, I'll turn it to you. Michael Lyons: Yeah. Thanks. So I think, Jim, the big win for us here is we spent a lot of -- we spent the last couple of years really digging in and characterizing our portfolio. And so we're really glad to seeing it pay off. And this is a commercial scale facility. So I mean, we're in the early innings of creating revenue around this, but I think we're farther along in that from a technical perspective and making sure that these projects make sense commercially. We cast a pretty wide net to find partners who are good operators, who are well capitalized, have a competitive advantage and are committed, quite frankly, to moving beyond pilot scale because none of this means anything to us unless we can make money on it. And so the -- our water infrastructure networks, particularly recycling is what is so attractive to these partners, and it's what is going to create this value. And so we have -- we do have concrete plans in place to monetize the rest of the portfolio as well. And of course, we'll continue to share that as they are put in motion. We like to talk about the stuff that's happening, not just talk about plans. And so I think we are clear on how this particular project will ramp, but you should expect to see more. And I think, Michael, on the desal side, if you want to say a few words, but I think recycling there provides a great starting point as well. Michael Skarke: No, sure. I appreciate it. So Jim, on that point, we are looking to monetize the expansive network we have in New Mexico by providing traditional disposal in that way, we can be a recycling first provider, but still really monetize our position and make sure we solve the total water problem with traditional disposal. As we look forward, there's issues with in-basin disposal, there's distant disposal and there's beneficial reuse, and we think it's going to be all of the above. So there's not going to be one answer to the proverbial water that's going to come in the Delaware Basin and the Permian more broadly. So we continue to work with strategic partners, like John mentioned, operator partners, universities and others on beneficial reuse solutions. We think this is coming. We've had some success at different levels and hope to have an announcement at some point in the future when we're further along in the process. Operator: The next question is from Bobby Brooks from Northland Capital Markets. Robert Brooks: So Chemical Technologies was a bright spot. Sales up 13% sequentially, the 20% margin, and that was versus a mid-single -- the guide of a mid-single-digit decline and 15% to 17% margins. I know, Chris, you had mentioned share wins via new products was kind of the drivers of strength. But I was just curious if we could hear a little bit more, like was the new products, the entire driver of market share gains? And do you think you can keep -- you can maintain those market share gains? And maybe just discuss why those new products saw such strong adoption? Chris George: Yeah. No, I appreciate the question, Bobby. Obviously, we were very, very excited to see the performance of the segment during the quarter here in -- the Chemical products, the R&D side, we've got a very strong technology team. And I think one of the core drivers is the continued advancement of efficiency that John mentioned from our customers. That comes in a number of different ways. In some ways, it's extending lateral wellbore lengths. In some ways, it's trying to decrease the number of days on pad and increase that overall efficiency. But at the end of the day, all of those things translate into, I would say, new technical requirements around chemical products as well. The type of chemistry required to get out to the end of a 4-mile wellbore lateral as well as the type of chemistry required to push through a simul, trimal or quad frac, all of that translates into, I would say, advancing technical requirements, particularly when integrated with produced water and recycled produced water. And I think that works really well in our favor when we're talking about the scale of our recycling capabilities here and the technical experience we have on managing that water resource as well. So those are some of the primary drivers here. And I think that as we continue to look forward, we think that the recent success is going to continue, and we're proud of the team's ability to continue to progress those products in line with the market demand around efficiency. Robert Brooks: Got it. That makes sense. And if we think about the kind of soft guide you've given of greater than 20% growth for water infrastructure next year, which is up from the 20% growth on the 2Q call you mentioned. Could you just break down maybe how much of that is going to be coming from the dozen or dozen plus new infrastructure projects you've announced this year versus how much of it is higher utilization on existing assets? Chris George: That's a very good question. It's definitely a combination of both. As we've conveyed previously, we generally look to underwrite these projects with a core anchor tenant customer and commercialize as they come online with additional contracted counterparties and interruptible volumes as well to balance the system effectively. Given the pace at which new projects are coming online over the fourth quarter through the -- really the first three quarters of next year now, we think it's going to be a steady cadence of both new projects coming online as well as the commercialization of the investments we've made over the course of '25. So it's going to be a mix of both. I would say there should be a steady cadence of growth throughout the year next year. And with the new projects we added online this quarter, that's adding capital backlog for us well into the third quarter of next year. Robert Brooks: Got it. And then just on the lithium extraction news from the inter-quarter press release put out. Obviously, really exciting. But I was just curious to maybe get a sense of how many more opportunities you feel like you have across your portfolio? It seems like you've kind of been in some deeper discussions. Just was hoping to get any additional color on how to think about the opportunity set there. Chris George: Yeah. As we mentioned, obviously, we've got well north of 1 million barrels of water moving through our infrastructure every day, and that's going to continue to grow as we look forward into next year, like we talked about. We've spent a good bit of time looking at the content and the quality of the water and the minerals across the full portfolio. We've got leading positions in many basins here. But Mike, maybe hit on some of the more specific opportunities that are prioritized. Michael Lyons: Yeah. I think coming on the heels of this, I think next year, you'll start to see some more tangible progress around our recycling facilities. And I think if you put 2030 as a goal out there, I think this total business can be somewhere in $10 million to $15 million of margin contribution. And I think what's unique about it is often our partners are serving a very unique role for the offtakers. They're essentially a natural hedge with domestic lithium or iodine. So they're valued in the market. Often the contracts that we are signing LOIs around or signing commercial contracts around our partners are signing can be fixed price and fixed volume in nature. So these royalty streams are obviously -- they're 100% margin and they're stable. So we think it's a really unique, low-risk, repeatable, predictable cash flow stream to add to the business. And it's because of our infrastructure networks and our high concentrations of water that we can -- that we are uniquely positioned to be able to deliver this kind of business and this kind of value to our partners. So I hope that answers your question, Bobby. Robert Brooks: Definitely does. Operator: The next question is from Don Crist from Johnson Rice. Donald Crist: I wanted to start out by just asking a kind of more detailed question about how you're building out the Northern Delaware infrastructure. And as I appreciate it, your infrastructure is kind of built out to where with the flip of a valve, you can move between recycling and disposal. And the genesis of my question is, how does that kind of play out when you're talking to potential customers on acreage dedication and whatnot? And how does that factor into contracts going forward? Does that give you a leg up over some of your competitors? John Schmitz: Yeah. Thank you for the question, Don. And you're exactly right. So we started our infrastructure in Lea County really in 2025. We've been expanding it into Eddy County. And in '26, we're going to be connecting our expansive systems in Lea County and Eddy County. They're all dual pipeline kind of large diameter systems, so we can move water in both directions in large quantities at high rate to really maximize optionality and expansion opportunities. And this is in an area where completion water is scarce and where production water has a hard time finding disposal because the state of New Mexico is not permitting more disposal. You're undercapacity, you have all the seismicity and pore space issues that are becoming more and more talked about. So the fact that we have large diameter dual pipes and significant storage in place is really critical in solving the solution. And where I think it gives us a leg up is we're able to take the water from the operator. They have a need to get rid of that water, and we can take it. And we're recycling first. We said that first to everyone, and that's well known. And the reason we're recycling first is we think it's a better economic model for us and for our customers. And so we do better when they do better. So it really is kind of a true win-win. But to the extent that we can't recycle it across a very vast system spanning most of Lea and Eddy County, then we'll flip it to disposal. And that way, there's the surety that we can continue to take their water and be that commercial backstop and fully monetize the contract and the assets we put in the ground. Donald Crist: I do appreciate that color, and it seems like you do have a leg up over some that are just disposing of water, not recycling. Kind of along those lines on the disposal side, are you only disposing of water in New Mexico or do you have kind of pore space outside of New Mexico into Texas where you can move water if and when that becomes necessary? John Schmitz: We have disposal operations and pore space in both New Mexico and Texas. So we do have that optionality that you're alluding to Don. Donald Crist: Okay. And one final question for me. On the Haynesville, what kind of discussions are you having as we kind of move into kind of the back half of '26? I mean all of us energy analysts believe that there's going to be a whole lot more gas drilling, particularly in the Haynesville? And kind of what are you hearing on the customer front in that regard? Chris George: Yeah, that's a great question, Don. I think certainly, in the current market environment, there's definitely a strong optimism around the bull case on the gas side of the market. The LNG demand that's going to continue to ramp is very well suited for first volumes out to come out of the Haynesville. As we've mentioned before, we're the largest commercial disposal provider in both the Haynesville and in the Northeast in the Marcellus Utica. And so we're very well-positioned to capitalize on any advancing activity growth in either of those basins. But I think in particular, in the Haynesville, you're going to see that first initial ramp to support that outlook. And I think we're well-suited to satisfy that demand. But more importantly, many of our customers are already looking forward in terms of how they're going to meet not only their activity development cadence that they're planning for, but some of their obligations that are in place for that LNG offtake. John Schmitz: And we're in the middle of those discussions with kind of the market-leading position of disposal in the Haynesville. We're a part of those, and we've seen some strengthening in the Haynesville this year where other basins have seen some softness. And most of the research analysts or like yourself are getting more bullish on gas, and we're seeing that through the lens of our customers when we look into 2026. Operator: The next question is from Scott Gruber from Citigroup. Scott Gruber: I want to touch on the review that you're undertaking on the opportunity set in distributed power for your Peak business. What type of end markets are you contemplating? What type of assets could be required? Just some color on the potential growth avenues for Peak that you're contemplating, that would be great. Chris George: Yeah. Good question, Scott. So obviously, as we mentioned, that process is underway, and we'll certainly update you guys as we get further along here, but certainly looking to have a path forward by the end of the year. But we continue to see demand growth for those solutions, both on the nat gas generation side as well as the battery storage side. We've continued to add to the backlog of the capital program there. And effectively, every unit we get delivered goes out, many of which under contract. And we've seen that both in support of Select infrastructure build-out in New Mexico as well as commercial counterparties on a number of different outlets. But John, do you want to speak to it? John Schmitz: Sure. Yeah. So on the market and what we are targeting, First of all, Select has been in this business a long time. It was on distributed power. It was diesel generated, and it was primarily in fairly large scale into the drilling and completion support. That's where that mechanism is. So the footprint that we have to support that is already in place. What we have now took advantage of and start to develop is applying battery storage along with that distributed power and what you can do with peak powers and the clean application of electricity into certain pieces of equipment because of that battery system. That's going really well. And then we also want to bridge with the same MSAs that we have in place for long periods of time that customer that we were doing business with on the drilling and completion side, we now are doing business with them on the production side. And a lot of that is the distributing natural gas generations that we're putting in place for production facilities, which is way longer-term application for that piece of equipment. And we also believe that even though it's a larger power consumption, that battery solution will fit into that application in the production side as well. So that's the targeted position that we are executing on today. Scott Gruber: All right. Interesting opportunity. As you think about deploying capital into the business? Obviously, there's some competition for capital within the portfolio given the growth opportunities on the produced water side and into recycling assets. Just how would you frame up that competition for capital within the portfolio across all these growth opportunities? John Schmitz: Yeah. So I mean, we are very focused on water infrastructures and contracted and our position in these networks and water balancing, real value-add long-term contractual, high gross margin, very good profile returns. We believe that thesis fits into the franchise of Peak with their distributed, electrical and battery storage. But it is a different thesis than what's inside of Select, and we are very focused on making sure that both of it is answered. And that is the process that Chris talked about earlier when we first started to answer your question. Chris George: To kind of put a bow on that, Scott, I mean, at the end of the day, we think it's a great growth opportunity set within Peak and the distributed power side, but we don't want it to limit or compete for capital on the water infrastructure side where our primary growth opportunity set lies, and that's the reason we're undertaking the process to ensure that it has the ability to capitalize on its own market opportunity in the correct way within the portfolio. Scott Gruber: And the others in the expanding in the power space have used their balance sheet to amplify growth and get in the queue for assets. Just how do you think about using the balance sheet on the power side? Would you limit yourself in that regard or would you put it to work? Chris George: Yeah. It's a good question. To date, it has not been a limitation for us. But obviously, the pace and the opportunity set at which that can grow is going to be, I would say, determined by the outcome of the undergoing review process we're taking. And so I think part of the outcome there is going to drive the pace at which capital can drive that growth as well. So to the extent that the opportunity set comes at us differently or faster, we'll make that assessment. But our primary is to ensure that it has its own capital availability that's going to support that growth profile outside of the scope of the water business. John Schmitz: I think one thing to point out is a lot of the companies that are -- have high growth capital profiles going into the distributed power business, they're businesses that they're transforming from is not the same profile as our water infrastructure. Our Water Infrastructure business is a very good, stable capital return, high gross profit, long-term contracts in a space that we are a value-add and recycle first profile. So we're very focused to make sure that we protect that and capitalize it properly. But at the same time, we do recognize that, that distributed power and battery business has the same type of thesis in the profile of returns and long-term relationship to production facilities or compression facilities or water transfer facilities in an area that it's very valuable to the customer and to us of being able to use natural gas or peak power battery application. Operator: The next question is from Derek Podhaizer from Piper Sandler. Derek Podhaizer: Just wanted to ask a question about the water transfer and logistics service contract that you announced. You talked about water infrastructure paved the way to secure this new contract. So maybe just talk to us about the strength of this integrated approach that you have between infrastructure and services and how it's a differentiating factor for you versus your peers? Michael Skarke: Sure. No, thanks for the question, Derek. So I mean Water Transfer is part of our Water Services business, and it's traditionally a call-out service. So the fact that we can get a multiyear contract for all of the water transfer services is new and unique and something that, as John mentioned, we're particularly excited about. It was enabled by our water infrastructure contracts and the success we've had executing with that operator. I mean, without that, the contract would not have been available. And just because of that execution, the operator was happy to expand the scope of our relationship into that full custody and water [ delivered to ] location, which I think is reflective of the position we have on water transfer. So we're the largest water transfer provider. We have automation capabilities and an asset base that is second to none. And with produced water jobs becoming more complex, longer, more highly engineered and the environmental sensitivities around that, I think we were a logical choice for this operator to really expand the scope of our relationship. And as we kind of look specifically to the New Mexico, but more broadly, across our asset base, I think other operators will see it similarly and that you have a best-in-class water transfer provider who can provide care and custody of that barrel all the way to location at a fair market rate and reduce the liability and any uncertainties. And so we're hopeful we can continue to leverage that strength and that synergistic relationship. John Schmitz: Yeah. I think it's a great question, but it really does completely fit within the value add to both our company and our customers from water infrastructure, large containment to delivery to job site. And we put together a Control Center that I want Mike Lyons to talk about a little bit because it really tells you why these things could work. It work together and bring a lot of value throughout the system. So Mike, you might walk through our efforts with the automation. Michael Lyons: Yeah, sure enough. So we call it the [ ROC ]. It's our Remote Operating Center. It's staffed 24/7, covers all of our assets across all Lower 48 -- so every disposal well, every treatment facility and any active water transfer jobs are monitored by folks that often have worked in the field now are essentially board operators, and we have 2-way communication and monitoring of every job. And that allows us to sense and interpret and find leaks often before they happen to prevent that leak. And as Michael was saying, I mean, the full care and custody of the barrel is of critical importance. And as we are still deploying a lot of layflat hose and doing a lot of water transfer, often 50, 60, 70 jobs at a time, that is a critical part of how we operate now. And as we become, I would say, more focused and majority focused on infrastructure, we're putting hundreds of miles of pipe in the ground, and we have to be able to check and monitor and look after every foot of that network. And that is a big priority for our operating partners knowing that, that water is safe and contained. And it's also, for us, a big value unlock because the network optimization piece of that as you build a bigger and bigger network, we can create value that others can't. It's because we watch the barrel every second of every day. Derek Podhaizer: Got it. That's all very helpful color. And then maybe just on the Water Services, maybe the margin profile here. So I'm just trying to think about how we should think about these margins moving into 2026. So obviously, they came down quite a bit. Maybe talk to us about that. I'm not sure if that was related to the recent divestiture within the segment. Top line is coming down in the fourth quarter, margins are improving. So if I think about 2026, do you expect to get back above that 20% level, same levels that we saw in the first three quarters of 2024? Chris George: Yeah. It's a great question, Derek. And obviously, with the rationalization efforts we've undertaken in Water Services, a fundamental part of that initiative is margin improvement over time. We've been able to continue to improve the consolidated gross margins with the continued growth in Water Infrastructure, great outcome in growing the margin profile in chemicals. And so obviously, we have not yet executed on that in services, but that remains the, I would say, the #1 priority for that segment. We've got a market-leading position across generally everything we do in that segment. And so we've got, I think, a lot of opportunity to pull that margin profile up over time as we've divested and rationalized out of some of the more commoditized lower-margin operations. And what we were just talking about in terms of the integrated water services contract with Water Infrastructure is a great example of how we can add efficiencies that benefits not only the customer but benefits us as well. If we can integrate that last mile logistics with our infrastructure, that's generally going to help save our -- save money for our customers, and it's going to improve the margin profile of our operations as well in Water Services. But the short answer is we very much believe that segment needs to get back into the mid-20s in the near- to medium-term to generate an appropriate return on its capital. It's already generating a good free cash flow profile for us. And anything we can do to move that margin profile up over the next year or two is going to continue to benefit that cash flow profile. Operator: The next question is from Derrick Whitfield from Texas Capital. Derrick Whitfield: I wanted to start with the M&A environment. In the release, you guys are highlighting the success you're having with strategic infrastructure acquisitions during the quarter. As I think about the upstream sector, less M&A tends to occur in the $60 per barrel or lower price environment. Having said that and understanding that E&P-owned assets could transact in a lower price environment, how would you guys characterize the A&D environment for water infrastructure at present? John Schmitz: Yeah. So Derrick, this is John. I would characterize it as -- as you put networks together and you find assets that fit that network, as a standalone, that asset earnings profile is considerably less than if you can incorporate that into a large network and move water and water balancing to a new level of application with the intensity that's happening in the marketplace right now. We continue to find that. We continue to find either stranded assets or assets that as we put networks together, get more acreage under dedication, build more pipe, build more storage that the value of bringing those assets into that network is real. Even to the level that now some of the commercial agreements that the team has put together and negotiated, some of the operators that we're getting under contract in those negotiations actually give us some of their assets to bring in that network. And we think there's going to be more of it. Some of it in one-off single assets and some of it potentially in large networks that fit together and can be utilized as well as customers' assets that are way underutilized because they were built for single application. That application is long past and this piece of pipe that goes from one area to another area can be incorporated and it's fully underutilized. So we think there's real value in that market to continue to build this out. Michael, you got any addition? Michael Skarke: What I would say, Derrick, is we're looking at smaller accretive acquisitions off of our expansive network. And that's very different than kind of new projects or large organic step-outs. And so what John is highlighting is whether it's replacement CapEx or an acquisition, if we can tie it into a larger system, it becomes very attractive to us. And you've seen us do a fair bit of that this year. And I think that we will continue to look for those opportunities going into next year. Derrick Whitfield: Makes sense. And for my follow-up, I wanted to focus on the competitive landscape in the Delaware. During the quarter, you guys achieved exceptional success with signing new contracts. How would you characterize the competitive landscape post ARIS being acquired by WES and the opportunity you see to continue your third quarter momentum into 2026? Michael Skarke: Yeah. So I mean, water is a hot topic, and the market is getting more competitive. We're aware of all of the people out there and what they're doing. We understand their strengths and weaknesses in their value proposition and how it fits with ours. I mean, fortunately, we're, as I mentioned, recycling first provider, and that's got a superior economic model. And we think that's going to keep us to be very competitive in this market, kind of regardless of what happens. The system we built out, I mean, we were fairly early in building out a robust system across Lea and Eddy County, and that's helped us become the market-leader in total water management in the Northern Delaware. And so I think that's going to be a real value add and something that will be attractive to our customers regardless of their consolidation and help us be competitive in the market regardless of what our competitors are doing. Operator: The next question is from Jeff Robertson from Water Tower Research. Jeffrey Robertson: If I could go back to the beneficial reuse concepts. John or Michael, if you think about commercializing beneficial reuse, is that an arrangement between Select and the upstream customer who's putting water into your system or is it an arrangement between Select and a downstream customer, excuse me, who's taking water for beneficial reuse? Michael Skarke: I think -- I mean, it's a market that hasn't fully formed, Jeff. And so we're going to have to see the way it plays out. I suspect overtime it will be both. But I can tell you that initially, my belief is it's going to be a direct relationship between Select or someone like Select and an operator partner. Chris George: I would add that ultimately, the first stage of that, that Michael is referencing, that's really alternative disposal. So finding a way to treat that barrel to a usable quality to discharge back into the environment as a form of alternative synthetic disposal or alternative disposal outside of typical injection. That's going to be the first one. Longer term, those barrels do have a recognizable value in the marketplace that could go into other non-oil and gas markets. And I think that's where you're going with it, Jeff. And obviously, to the extent we get there, that's obviously alternative or additional revenue potential. And it also provides the ability to solve water challenges in other markets as well. So the industry could be a net added contributor to the water supply chain versus a consumer. So that's ultimately where we think it goes long-term. But obviously, it's going to probably have a staged trajectory over the next couple of years. John Schmitz: I'll let Mike talk a little bit about it. But actually, it's very interesting. We're actually finding our customers that could be on both sides of your question. They have produced water as a waste stream. It actually is an area that they need water for other operations and we can put beneficial reuse application to work to convert a portion of that waste stream and replace freshwater sources they're using in their other operations. But Mike, you? Michael Lyons: Yeah. I think John is referencing, I think, a couple of current real opportunities that we're chasing. And in both of those, we've worked very hard with our operator partners to find the right spots to apply this. And typically, the right spot will be an area where there is some waste heat available, where there is disposal or our own disposal or recycling solutions to take the concentrated brine, but then a natural home for the clean water. It could be as a part of a chemical process in one example, it could be part of a cooling water need. All these systems require water and water is increasingly hard to come by, especially at the quality spec that you need for industrial and chemical applications. So I think -- and it is easier from a regulatory standpoint because that water can be used by an industrial or chemical customer out of the gates. So those are the right now opportunities that we are chasing. Of course, we'll say more on them as they become commercially solidified. But we continue to even find opportunities where it's a chemical plant, a data center, gas plant, like these are the kind of customers that we're actively engaging in. And then beyond that, as you think about land application, whether it's for irrigation or direct into -- on to land for tributary release, et cetera, I think those are the longer puts, but those are the puts that the industry needs to make, and we're playing actively in that space to make sure water quality specs are clear to make sure that we're aligned with regulators. It's a big material shift for the industry, but it's a high priority, and it's absolutely a long-term goal to achieve that scale, and it fits exactly within our company and our networks. So I think we're very uniquely positioned in this space. Jeffrey Robertson: I go back to the Haynesville. I think, Chris, you and Michael talked about it, but you've talked about increasing utilization on your existing assets there in the past. At what point do you -- or are you starting to see opportunities for new growth projects in that basin over, say, '26, '27 type timeframe? Chris George: Yes. We -- Jeff, we had some growth opportunities when gas was higher a couple of years ago, and then it's cooled off the last two years, and those conversations have started back up with the outlook that we discussed earlier today. I mean we have a pipeline gathering and distribution system that can't be replicated, leading to the market-leading position in that basin. And so we're logically the first conversation when operators are looking to expand their platform, the drilling completion schedule and looking to manage that water. And so those conversations are being had. We are talking about expanding our network, and it's a good time to be the market leader in the Haynesville. Operator: The next question is from John Daniel from Daniel Energy Partners. John Daniel: Thanks for keeping the call going. I want to dig a bit deeper into Don's earlier question. But I guess -- and it's a 2-part question. Just how much more incremental infrastructure do you think the Western Haynesville is going to require? And then second, when we look at recent Select press releases, there are all sorts of awards and contracts for Permian projects. I'm just curious, do you think when we read your press releases 12 to 18 months from now, we're going to see a similar level of contracts awards in Haynesville development -- Western Haynesville development? Michael Skarke: I'll maybe start on it, John. I think that the Haynesville has obviously seen a lot of consolidation and I would say, acreage shuffling and positioning here over the last couple of years. And I think that you're going to continue to see folks try and figure out what the opportunity set looks like to continue to expand out from what was historically the Tier 1 acreage and the more mature parts of the basin into other areas that I think are proving to be expansively economically viable. So I think there's definitely going to be continued application of need. I think that the benefit of our existing asset footprint is the challenges that are undertaken on disposal in Louisiana. And as you move Westward, that gets it into our network efficiently and into our system. I think the Western Haynesville is definitely underdeveloped compared to some of the other areas. And so it's going to have an additional need and ultimately an expansion effect on water as well. Chris George: And maybe, John, to address the second half of your question just more broadly. So as I look at the press releases, I think back on the press releases from this year, we've been more successful than I thought we would be coming into the year, particularly given that it's been a flat to down year. So I'm really excited about the success we've had. Obviously, we can't continue to have this level of success indefinitely. I mean, there's a point where that rolls. Our backlog is still strong. We still announce some deals on a quarterly basis, seemingly every quarter. But at some point, that is going to roll and the CapEx will curtail materially and then the cash flow flips. And so it's still a little unclear exactly what month or quarter that happens. But this -- the excitement we have right now with aggressively chasing the really intrinsic value proposition we have around recycling and building that out to support total water management disposal. I mean, there is a finite window there. Michael Lyons: One thing I would maybe add is as that asset footprint gets developed and you move from those large greenfield chunky build-out footprint projects and get into the brownfield development opportunity set and the economics continue to improve over time as you benefit from that invested capital profile. So we're already fairly mature in that investment in that traditional Haynesville area. And so I would say the return profile of incremental capital deployed in the basin is going to be very attractive compared to greenfield development. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to John Schmitz for closing comments. John Schmitz: Yes. Thanks, everyone, for joining the call. We appreciate your continued support and interest in learning more about Select Water Solutions. We look forward to speaking to you again next quarter. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to Ashland's Fourth Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Sandy Klugman. Sandy, please go ahead. Sandy Klugman: Thank you. Hello, everyone, and welcome to Ashland's Fourth Quarter Fiscal Year 2025 Earnings Conference Call and Webcast. My name is Sandy Klugman, and I recently joined Ashland as the company's Director of Investor Relations. I'm excited to be stepping into this role at a pivotal time for Ashland and our stakeholders, and I look forward to connecting with many of you in the months ahead. Joining me on the call today are Guillermo Novo, Chair and CEO; William Whitaker, CFO; as well as our business unit leaders, Alessandra Fassin, Life Sciences and Intermediates; Jim Minicucci, Personal Care; and Dago Caceres, Specialty Additives. Please note that we will be referencing slides during today's call. We encourage you to follow along with the webcast materials available at ashland.com under Investor Relations. Please turn to Slide 2. As a reminder, today's presentation contains forward-looking statements regarding our fiscal 2026 outlook and other matters as detailed on Slide 2 and in our Form 10-K. These statements are subject to risks and uncertainties that could cause future results to differ materially from today's projections. We believe any such statements are based on reasonable assumptions, but there is no assurance these expectations will be achieved. We will also reference certain adjusted financial metrics, both actual and projected, which are non-GAAP measures. We present these adjusted figures to provide additional insight into our ongoing business performance. GAAP reconciliations are available on our website and in the appendix of these slides. I'll now hand the call over to Guillermo for his opening remarks. Guillermo Novo: Thanks, Sandy, and welcome to everyone joining us. Today, I'll provide an overview of our fourth quarter performance, discuss our strategic priorities and share our guidance for fiscal 2026. Please turn to Slide 5. Let's begin with a summary of our recent performance. Ashland's fourth quarter results reflect our disciplined approach and ability to deliver in line with expectations despite ongoing macroeconomic challenges. We maintained strong margins and achieved revenue and EBITDA consistent with our prior guidance. Our continued focus on execution, along with momentum across our globalize and innovate initiatives helped offset areas of competitive intensity and muted demand. Q4 sales were $478 million, down 8% year-over-year, primarily due to portfolio optimization initiatives. Excluding these actions, sales declined 1%. Adjusted EBITDA was $119 million, down 4% year-over-year, including an $11 million impact from portfolio optimization. On a comparable basis, adjusted EBITDA increased 5% with margins expanding to roughly 25%. Importantly, these results reflect the early benefits of our strategic actions and position us well to improve performance. Please turn to Slide 6. Now let me briefly summarize the performance of our business units. Life Science delivered steady performance, reflecting the benefits of our sharpened focus on higher-value pharma. Demand remained resilient with continued strength in cellulosic excipients, tablet coatings and injectables. There was some weakness in nutrition in the quarter, but the team has recently secured share gains that support a return to growth next year. Our innovate and globalize strategies are supporting quality growth and strong margin durability. Personal Care generated broad-based gains across end markets and regions while maintaining strong profitability. Disciplined execution and a sharpened commercial focus are driving results in a muted environment. Investments in bio-functional actives and microbial protection delivered momentum with both lines returning to healthy growth in Q4. Specialty Additives executed well in a mixed market, increasing quarter-over-quarter EBITDA. All end markets outside of coatings improved, including performance specialties, construction and energy and resources. Our gains were more than offset by weaker coatings in China, India and Middle East and North America. We continue to direct resources towards high-value applications, strengthening our position ahead of the coatings recovery. Intermediates faced headwinds from lower pricing and production volumes, which impacted profitability. The team remains focused on optimizing its operations against a challenging market backdrop. Stepping back from the segments, I want to highlight how our transformation efforts are shaping Ashland's path forward. Portfolio optimization and restructuring are complete, and the organization is focused on consistent delivery. As we've discussed before, approximately 85% of our portfolio serves consumer-facing end markets. These areas tend to be more stable and less exposed to economic cycles, providing a measure of consistency and resilience in the face of the broader macroeconomic volatility. The $60 million manufacturing optimization program is helping margins, though the timing of the P&L impact is later than what we initially expected. William will discuss the drivers later. In the quarter, Life Science and Personal Care each delivered EBITDA margins close to or above 30%. Specialty Additives achieved its highest margins of the year, while Intermediates continued to face margin pressures in a challenging market. On a comparable basis, adjusted EBITDA increased year-over-year across all business units, except Intermediates. Our globalized platforms returned to healthy growth in Q4, and we outperformed our innovation targets. In summary, even as external conditions remain unpredictable, we continue to drive results through disciplined execution and clear focus on our priorities. With our focused portfolio, cost actions gaining momentum and growth initiatives taking hold, Ashland is well positioned to deliver resilient long-term value. I'd like to now turn over the call to William to provide more detailed review of the fourth quarter financial performance. William? William Whitaker: Thank you, Guillermo. Please turn to Slide 8. Sales were $478 million, down 8% from last year, with portfolio optimization actions accounting for a $38 million reduction. Excluding those changes, sales were essentially flat, down 1% with steady demand in most areas. We saw volume gains in Personal Care, which helped balance softer results in Specialty Additives, while Life Sciences held steady. Pricing was down about 2% overall, mainly reflecting targeted pricing adjustments in Life Sciences from Q2 and continued pressure in Intermediates. Excluding Intermediates, pricing was down just 1% and foreign exchange provided a modest 1% lift. Adjusted EBITDA came in at $119 million, a 4% decrease year-over-year. Portfolio actions accounted for an $11 million headwind. But if you set those aside, underlying EBITDA improved by 5%, marking a return to growth on a comparable basis. Lower SARD from restructuring actions contributed to margin expansion alongside improved mix. These gains were partially offset by lower pricing and production volumes, while raw material costs remained stable. Our adjusted EBITDA margin expanded to 24.9%, up 110 basis points from last year. This was our most profitable quarter of the year and in line with our long-term margin target of 25%. Adjusted earnings per share, excluding acquisition amortization, was $1.08, down 14% from the prior year, disproportionately impacted by a higher effective tax rate in the quarter. The increase reflects jurisdictional tax changes and limited use of foreign tax credits. We expect our effective tax rate to be in the mid-20s next year. We delivered another quarter of solid cash generation with ongoing free cash flow totaling $52 million. That's a healthy conversion of adjusted EBITDA, reflecting our disciplined approach to capital spending and working capital. While Q4 ongoing free cash flow is down year-over-year, primarily due to higher accounts receivable from strong September sales, they remain consistent with recent expectations. At quarter end, our total liquidity stood at just over $800 million, providing us with plenty of flexibility. Net leverage was 2.9x and with the $103 million tax refund received in October from our nutraceutical sale, net leverage is now closer to mid-2s. This positions us well to continue investing in our strategic priorities while maintaining discipline in capital allocation. Now let's turn to our business unit leaders for a closer look at segment performance. Alessandra, over to you for Life Sciences. Alessandra Assis: Thank you, William. Good morning, everyone. Please turn to Slide 9 for Life Sciences. Life Sciences sales were $173 million in the fourth quarter, down 10% from last year. The decline was primarily driven by the divestiture of the nutraceuticals business and exit from low-margin nutrition offerings. On a comparable basis, sales were generally stable, declining 2% year-over-year, reflecting a mix of volume and price. Turning to demand trends. Pharma remained resilient across most regions, achieving low single-digit sales growth year-over-year. This momentum was driven by innovation and demand for high-value cellulosic excipients and sustained growth in our globalized business lines, tablet coatings and injectables, in line with our long-term strategy and growth objectives. Nutrition end markets were softer, but recent business wins are expected to support a return to profitable growth in fiscal 2026. On pricing, year-over-year headwinds narrowed sequentially with pricing generally stable throughout the quarter. Foreign exchange provided a $3 million tailwind to sales. We continue to advance pharmaceutical innovation, highlighted by the launch of vialose sucrose, a high-purity excipient for injectables and the expansion of our low-nitrite excipients to help customers mitigate nitrosamine risk. The new offerings reinforce Ashland's commitment to delivering high-quality solutions for the evolving needs of the pharma industry. Now let's look at profitability. Adjusted EBITDA was $55 million, representing a 32% margin and a 2% decline versus $56 million last year. The year-over-year decrease primarily reflects a $3 million impact from portfolio optimization actions, which shifted the segment's portfolio towards high-return applications. Excluding this impact, adjusted EBITDA increased $2 million, driven by mix and reduced SARD expenses, which more than offset lower pricing compared to last year. As Guillermo mentioned, reaching an adjusted EBITDA margin above 30% for the full year is a first for Life Sciences. This is a milestone that highlights our strategic focus and disciplined execution and the strength of our margin foundation. Please turn to Slide 10 for Intermediates. Intermediates continued to face pricing and volume pressure in the fourth quarter with merchant sales and NMP and BDO volumes broadly lower year-over-year. Lower production volumes also impacted profitability and competitive intensity from Chinese overcapacity and exports remain a key market factor, particularly in Europe. BDO pricing remains near a cyclical low. Sales were $33 million, down 8% from the same period last year. This included $23 million in merchant sales and $10 million in captive BDO sales. The year-over-year sales decline was primarily driven by lower overall pricing and merchant volumes. Intermediates generated $5 million in adjusted EBITDA, representing a 15.2% margin, down from $10 million and a 27.8% margin in the prior year. Margins compressed both sequentially and relative to the prior year, reflecting lower pricing and production. The team continues to manage the business with discipline and a focus on efficiency as we navigate a challenging market environment. Now I will turn the call over to Jim to discuss Personal Care. Jim? James Minicucci: Thank you, Alessandra. I'll now highlight our Personal Care results. Personal Care sales were $151 million in the fourth quarter, down 7% year-over-year, primarily reflecting the divestiture of the Avoca business. On a comparable basis, Personal Care delivered 5% sales growth with strong volume gains, outperforming a stable, but muted market environment. The team executed well and delivered broad-based growth across all end markets and regions. As expected, both globalized business lines delivered robust growth this quarter and are set to continue their performance as strategic investments, innovation and a renewed commercial approach continue to gain traction. In biofunctional actives, sales were up double digits. Performance was driven from a stable base and multiple new customer launches utilizing our innovative actives. Microbial protection delivered its fourth consecutive quarter of sequential growth and resumed healthy year-over-year expansion. Europe delivered robust growth and all regions converted major customer wins. In addition, our commercial excellence efforts in the care ingredients portfolio continue to deliver performance in both hair and skin care across regions. Personal Care advanced our innovation pipeline with 2 new product introductions based on the transformed vegetable oils platform. Turning to profitability. Adjusted EBITDA was $43 million compared to $47 million in the prior year, representing a margin of 28.5%. The year-over-year decrease was primarily due to portfolio optimization, which reduced EBITDA by $7 million. Excluding this impact, adjusted EBITDA increased $3 million, driven by higher organic sales, partially offset by lower pricing. In summary, Personal Care delivered strong growth, resilient profitability and visible traction in our strategic priorities, setting a solid foundation for continued improvement in fiscal year 2026. Now I'll hand it over to Dago to review the results of Specialty Additives. Dago? Dago Caceres: Thank you, Jim. Please turn to Slide 12. Specialty Additives sales were $131 million in Q4, down 9% year-over-year and consistent with Q3. The exit of low-margin construction business reduced sales by approximately $4 million or 3%. Excluding these actions, segment sales declined 6%, reflecting continued coating weakness in China, competitive intensity in export markets, such as the Middle East, Africa and India and softer demand in North America. Most of the volume decline was due to last year's share loss in China, where overcapacity and weak demand continue to weigh on volumes and intensify competition. While coatings demand remained soft, most regions saw stable sales sequentially. Performance specialties, construction and energy outperformed the market supported by share gain initiatives. Pricing remained stable year-over-year and foreign exchange contributed a favorable $2 million impact to sales. Adjusted EBITDA was $29 million, consistent with the prior year and up $3 million sequentially as favorable cost offset lower volumes, resulting in the strongest margin of the year at 22.1%. Portfolio optimization actions reduced EBITDA by $1 million. Excluding this, adjusted EBITDA increased $1 million with improved cost efficiencies, driving the year's strongest margin performance. Following the HEC production closure in Parlin, we rebalanced the network and prioritized high-value applications to stabilize margins in a lower demand environment. Looking ahead, Specialty Additives is well positioned to capitalize on a coatings recovery, driving outsized margin gains as demand improves. With that, I'll turn the call back over to William for some additional commentary. William? William Whitaker: Thanks, Dago. Please turn to Slide 14. As we close out fiscal '25, I want to highlight the meaningful progress our teams have delivered. We completed our $30 million restructuring program, realizing $20 million in savings this year with another $12 million expected in fiscal '26. Our $60 million manufacturing optimization initiative is well underway with $5 million in savings this year and $18 million projected next year. A major milestone was the full closure of Parlin, consolidating our HEC operations. VP&D cost actions continue to progress, and we remain on track to achieve our fiscal '26 run rate target. We have also closed 2 smaller plants as a part of our consolidation efforts and expect to complete the process in fiscal '26. Productivity improvements continue across the VP&D manufacturing chain. As continued throughout the -- as communicated throughout the year, while strategic initiatives are largely on track, P&L realization is extending beyond initial expectations, reflecting current operating realities. First, cost improvements are flowing through more gradually due to weighted average inventory accounting and elevated inventory levels tied to consolidation and tariff mitigation. Our initial assumptions on timing proved ambitious, and we are adjusting accordingly. Second, higher costs at our consolidated site, partially tied to the accelerated HCC time line are impacting unit costs. We're actively addressing these pressures. Third, lower Asia Pacific volumes have reduced plant loading. While we've shifted network volume to maintain utilization, this has lowered U.S. production and additive savings. Overall, manufacturing network optimization benefits are expected to range from $50 million to $55 million under current conditions. We continue to target the full $60 million opportunity, which remains achievable as China volumes recover. Despite timing adjustments, the program is already supporting margins and remains a key lever for future improvement. These actions are strengthening our cost position and support margin expansion. We remain agile in responding to market shifts and our restructuring actions are already helping offset softness in select end markets. In addition, we are enhancing our financial systems and forecasting capabilities to improve accuracy, drive accountability and strengthen performance in operations. Looking ahead, our priorities are clear: finalize the cost savings program and continue to drive productivity and operational excellence through our streamlined footprint. With that, I'll now turn the call back over to Guillermo. Guillermo? Guillermo Novo: Please, turn to Slide 15. As we wrap up fiscal 2025, I'm proud of the resilience and agility Ashland has demonstrated. Our teams exceeded our innovation targets and advanced our globalized agenda, which began delivering visible results in Q4. We saw steady sequential momentum in our globalized platform throughout the year as investments took hold. While the base business was down on the year in Personal Care globalized segments, Q4 marked a turning point, growing double digits in the quarter. We have clear goals to sustain and accelerate this momentum in fiscal 2026. Regarding our innovate strategy, our teams outperformed our innovation targets driven by core technology advancements. As showcased at the recent Innovation Day, we continue to strengthen our new technology platforms that are central to Ashland's long-term potential. The energy around our innovation pipeline is growing, and we're pleased with the traction we've established. These achievements reinforce our confidence in the long-term value of our portfolio. Looking ahead, we will continue to disclose targets transparently. We believe openness around the goals is essential as we pursue high-quality growth. We are committed to sharing both successes and challenges openly. This approach is fundamental to building credibility and confidence in our strategy, ensuring you have a clear view of our progress and the path forward. For fiscal 2026, we are targeting $20 million in incremental globalized sales and $15 million in innovation-driven growth as we scale platforms and advance recent launches. Please turn to Slide 16. As we look ahead to fiscal 2026, our focus remains on disciplined planning and consistent leverage. This marks our second consecutive quarter of meeting EBITDA commitments, an important step in building credibility going into the new year. Our guidance is grounded in prudent assumptions and reflects a continued emphasis on execution, consistency and transparency. Importantly, our planning reflects a return to growth, signaling a constructive shift in trajectory and renewed momentum across our businesses. Ashland expects full year sales of $1.835 billion to $1.905 billion, representing organic growth of 1% to 5%. Portfolio resets are minimal, roughly $10 million due to owning Avoca for Q1 of fiscal 2025, making this year's result easier to baseline. Adjusted EBITDA is projected between $400 million and $430 million, with free cash flow conversion of 50% and CapEx near $100 million. This supports an attractive free cash flow yield and provides flexibility for capital deployment. Next year, we expected adjusted EPS to grow double digits plus and meaningfully faster than EBITDA, driven by operating improvement and lower depreciation from portfolio optimization. Our assumptions reflect current market realities. Life Science and Personal Care remain resilient, supported by innovate and globalize momentum. Specialty Additives and Intermediates, Specialty Coatings continue to face pressure. While macro factors like interest rates and housing turnover could support recovery, we've tempered upside in our outlook. We expect to outperform underlying markets through share gains, innovation and disciplined execution. Tariff-related uncertainties persist. We're actively managing sourcing, production and logistics and pricing. Input costs remain stable with steady raw materials and well-functioning supply chains. On the cost side, our manufacturing network optimization program continues to advance. Most plant actions are complete, and we remain on track to deliver $50 million to $55 million in savings under current conditions. The full $60 million opportunity is still intact and achievable as China volumes recover. As William noted, timing shifts will reduce the impact in fiscal 2026, but the contribution remains meaningful. Key factors included in our 2026 guidance, approximately $30 million of restructuring and network optimization from our $90 million program. About $20 million related to resetting performance-based compensation and merit increases, approximately $10 million impact driven by repairs and network-wide operational and working capital efficiency measures following the Calvert City outage. We're also increasing our R&D investment by $4 million to accelerate innovation in some of the leading disruptive opportunities. Overall, our fiscal 2026 guidance reflects a prudent view of market conditions. We remain focused on advancing innovation, scaling globalized platforms and driving cost and productivity initiatives to support high-quality growth even in muted markets. With consistent execution, mix improvement and disciplined capital allocation, Ashland is well positioned to deliver resilient performance and long-term value creation. Please turn to Slide 17. In closing, I want to highlight a few key priorities as we look ahead. Fiscal year 2025 ended on a healthy note with our teams delivering on operational and strategic goals despite the challenging macro. The completion of portfolio optimization and network consolidation has made Ashland more focused, resilient business, well positioned for growth in high-value markets. We enter 2026 with momentum. Cost actions are yielding early margin gains with full P&L impact expected to follow. Innovation remains a growth catalyst. We're focused on accelerating commercial success. Recent investments are driving renewed progress in our globalized platforms, reinforcing our confidence in the long-term opportunities. Our priorities for fiscal 2026 are clear: delivering on safety, profitable growth, free cash flow and asset returns, advancing network optimization and inventory performance, accelerating innovation, scale globalized platforms and foster a productivity culture, strengthen systems such as S&OP, costing, planning and leveraging AI, prioritizing talent and organizational stability and engaging our investors through transparent and consistent execution. Fiscal 2026 will be about converting transformation into sustained performance. With a focused platform and resilient core, Ashland is positioned to deliver greater value across stakeholders. Our core businesses have demonstrated stability through challenging periods, and we've strengthened our margins and improved our asset returns. The foundations we've built give us confidence as we pursue our strategic priorities. Thank you to the entire Ashland team for your resilience and teamwork. We're focused on translating opportunity into performance. Operator, let's open the line for Q&A. Operator: [Operator Instructions] Our first question comes from the line of David Begleiter from Deutsche Bank. David Begleiter: Guillermo, just on volumes, what were volumes in Q4? And why are your volume assumptions at the high and low end of the EBITDA guidance range for next year? Guillermo Novo: Thanks for the question. So on the volume side, we had pretty nice pickup in volume. If you look at our Life Science and Personal Care, those were the biggest drivers. If you look at SA, the coatings side specifically, you probably -- it was a mix by region. The coatings business, we have to look at it region-by-region. Some were up, some were flat and some were down. China obviously being the most down year-on-year. And Intermediates did not recover. It stabilized. I think pricing has been the biggest challenge there, some volume, but pricing has been a bigger issue. As we look forward, what's going to be on the lower end or the higher end? On the higher end, I mean, half the growth in our target, if you look at our midpoint, is globalize and innovate gets you around 2%. So we're only looking at about 1% at the midpoint of market growth or share gains within the market. So on the low end is that the market gets muted and the competitive intensity increases that we would cannibalize our growth in globalize and innovate. And on the upside that we get a more robust recovery in some of the markets. David Begleiter: And just on the cadence of next year or this year, should Q1 EBITDA be up versus Q1 last year? William Whitaker: Yes, David, it's William. So a couple of the moving pieces as you compare to last year. In fiscal '25, we pulled forward a lot of maintenance activity, if you recall. So that was a $25 million headwind last year. Q1 is typically where we'll do a lot of our annual compliance shutdowns. So we have about half of that this year, about $12 million. But then we've also shared that Calvert City outage. So that's a $10 million impact in Q1. So as you look at the puts and takes on the manufacturing side, I would expect sales volume to be in line with how we've talked about the guide in terms of year-over-year. Life Sciences should have a nice comp in terms of the sales volume in Q1 as compared to last year. And then pricing trends have been stable. And so year-over-year pricing should be a more modest headwind. So if you put that all together, we're roughly flat, flattish versus the prior year. But I would say that the key element of that is the Calvert City action that we've shared late last month. Operator: Our next question comes from the line of John McNulty from BMO. John McNulty: So in Life Sciences, you spoke to some weakness in the nutrition side and then also spoke to some wins that will help to offset that. I guess, can you flesh out both of those a little bit more? Where was the weakness on the nutrition side? What were some of the business or parts of the business that were a little bit softer? And then also speak to what drove the wins? Where should we be thinking about that in terms of some of the traction that you're getting there? Guillermo Novo: John, let me ask Alessandra to answer this question directly. Alessandra Assis: Yes. So the weakness, it was mostly in North America and Europe. in Europe with a customer of ours, them losing market share. But as Guillermo mentioned and I also commented on the prepared remarks, we are -- we are gaining some traction with share gains. And this is -- it's mostly on the Klucel, and we will see that reflected in our results in the coming quarters, but we expect to see the recovery showing in the first quarter already. Guillermo Novo: And the share gain we got already, it already started this -- it's already -- we've already gotten orders and it's already impacted. So it's not to come. It's already gained. John McNulty: Okay. Got it. No, that's helpful. And then just a question on the cash flow side. You've got CapEx set for $100 million now. I guess how much of that is growth CapEx? And you had the big Innovation Day where you highlighted a bunch of pillars where some of them are going to need some capital, some of them aren't. I guess, how much should we be thinking about in terms of growth CapEx tied to some of those innovation pillars that look like they're pretty close to turning the corner and starting to commercialize? Guillermo Novo: So let me just quick comment and William, you can give a little bit more detail. But the big drivers are going to be things around globalize that we're still investing in India and even just finishing some of the projects in Europe. And I would say also, as we look at the HEC projects that we've done getting out of Parlin, there are investments we're pacing them because just the demand is a little bit softer, but there are some capital projects that we're going to be adding to increase capacity in the U.S. Given it's a little bit more muted, we're going to be managing through that at a slower pace, but those are part of the plan. But William, do you want to give a little bit more detail? William Whitaker: Yes, John, it's a good question. It fits really into the strategy of what we're doing on the asset side. So first, from a CapEx perspective, maintenance CapEx is coming down. So as we've rightsized the footprint, stay-in-business capital is probably down $15 million. So $55 million will be staying in business of that $100 million. From there, there are some things that we like to do from a cost savings perspective that debottleneck the plan. So that's probably another $15 million. And then on top of that to get to the $100 million is the growth projects. And to Guillermo's point, that's supporting the globalized initiatives. So specifically microbial protection as well as the OSD tablet coatings business gets us to the $100 million. And then going forward, to your question on the new technology platforms, that's something that we've contemplated in the plan. I think a key element of that for us is, right, as we rightsize the footprint, what can we be doing to repurpose the assets in the future in terms of optionality. And so we're not at any point now where we're making a meaningful -- what I'd say, a meaningful bridging item because we're able to efficiently access that capacity with the internal assets that we've rightsized. Operator: [Operator Instructions] Our next question comes from Chris Parkinson from Wolfe Research. Christopher Parkinson: Just when we're taking a step back and look at the Personal Care markets, the results are pretty good for skin and hair. However, some of your customers are speaking positively about high-end customers, negatively about lower-end customers. In some cases, there are signs of life in Asia for the first time in several years. But it just seems like the overall outlook is still pretty mixed. Is that what you're generally hearing? And how are you thinking about that in the near term versus how are you thinking about the growth algo relative to market for your portfolio over the intermediate to long term? Guillermo Novo: Chris, I'll ask Jim to comment on that in more detail. But there is a lot of difference depending on where -- what segments you're on and the regions. So there is a lot of variation. And you can see that in some of the earnings calls of other players, some are up in North America, down in Europe. So there's a lot of variation going on. It really depends on your business profile, what customers, what segments you're in. So for us, Jim, if you want to comment on how it affects us. James Minicucci: Sure. Thanks, Guillermo. Chris, so maybe starting with the last part of your question in terms of near term and then medium to long term. So as we look at our business and what we've shared around our activities and globalize and innovate, we feel we have a lot of levers in the portfolio. We have a very broad product portfolio across different segments where we can outperform the market. That's our medium to long-term view. Specifically, in terms of what we're seeing in the market right now, I think you captured it well. It is a mixed environment where your position with customers can really play into the performance that you're seeing. And if we do maybe a quick walk around the world, North America is a bit of a mixed environment. In Q4, we saw stable performance versus prior year there with skin and hair continuing to hold up quite well. In Europe, we've seen a continued acceleration in Europe throughout the year, and that continued in Q4, especially in skin and in sun. If you look at sell-in versus sell-out, that channel has really improved in the sun care market as inventories have come down, and we've seen nice growth in our film formers within sun care. Within Asia and in China specifically, we've continued to focus on local regionals. As you mentioned, we are seeing stabilization and some growth in the prestige segment as well. And so there, our biofunctional actives business performed really well in our other segments within skin and hair. In Latin America, I would say Brazil is a bit of a mixed environment right now. Skin was quite strong and hair is a bit mixed. And Mexico and Argentina were both strong in personal care and home care. When you look at our business specifically, what I'd say is, and we've talked about this throughout the year, our 2 globalized business lines, biofunctional actives and microbial protection, we've done a tremendous amount of work. The team has done a great job really driving the commercial activities there, and we have been very successful having new customer launches with our biofunctional actives and share gains in our microbial protection. Specifically in biofunctional actives, as we've shared, that part of the business has been impacted by some customer-specific headwinds. We've lapped that. As we said in the last call, that has stabilized, and we do expect some incremental growth there. And now you're starting to see the new customer wins really come through externally, where it was masked in the past. And then similarly, microbial protection, the base has stabilized and the new wins that we've converted throughout the year are coming through in our results, and we expect that to continue as we go into fiscal '26. Christopher Parkinson: Got it. And just a quick follow-up on some of the questions. For Life Sciences. You mentioned in your remarks, I mean, low single-digit growth, and it seems like a two-part question. One, can we confirm that we finally lapped a lot of the other kind of headwinds that we are looking at with a European competitor? And two, you do mention that growth came from both cellulosics as well as injectables. Is that just off of a very, very slow base? Or is there a new product that's contributing to that? And just how to think about the bifurcation of the growth of cellulosics versus injectables over the intermediate to long term would be very helpful. Guillermo Novo: So Chris, the cellulosics have always been strong. So there's variations. There's probably more around customer orders and inventory, but not -- I mean, those businesses have been performing. Our issue was more on the VP&D side, and that has stabilized. But Alessandra, do you want to give a little bit more color? Alessandra Assis: Yes. And both, I mean, the cellulosics and tablet coatings and injectables, this is pretty much aligned with our strategy, focused on positioning to globalize and innovate. So that's our growth strategy. If you look at injectables, starting with the injectables, so we are consistent -- consistently performing above market growth. We launched -- last quarter, we talked about the medical resorbable polymers for medical devices that we launched now just last month. We launched for injectables, vialose sucrose to expand our offering on -- with high-purity stabilizers for critical biologic applications. So basically, injectables as part of our globalized has been outperforming market, and we have been growing nicely, not only showing the results from a revenue standpoint, but also very important, our pipeline, our sales pipeline in terms of dollars and in terms of customer programs has been increased over 30% in the last year compared to the year before. Then on tablet coatings, we are seeing the momentum and also operational gains with our manufacturing facility. So we announced we are making -- we made the investment in Brazil. We started that new facility in April. We have a facility in China. We have a facility in the U.S. We are building a new facility in India. And so we are seeing the momentum with double-digit year-over-year growth, specifically in Q4. That was for both injectables and film coatings, we think globalized, it was very strong and also the pipeline growing nicely for film coatings. And as Guillermo mentioned, I mean, cellulosics is part of our innovate. It's part of our innovation metrics, and we have been growing nicely with that as well. So overall, Life Science, we exceeded our targets from an innovation standpoint, and it's really was driven by adoption of high-purity solutions across not only OSD with cellulosics, but also on injectables. Guillermo Novo: Can you comment on the VP&D stability? Alessandra Assis: Yes. So VP&D, we are -- you asked the question compared with the competitor that years ago, there was some disruption in the market. Yes, we have seen that stabilize. So it is currently, both from a volume and price standpoint, it is currently stable. We are entering the contract season in Europe. So there could be some plus and minus some movement, but it's -- currently, it is stable. Operator: Our next question comes from the line of Steven Haynes from Morgan Stanley. Steven Haynes: I wanted to, I guess, follow up on the Life Sciences pricing piece. Are you able to, I guess, just provide a bit of color around what percent of your, I guess, book or however you want to frame it is coming up for renegotiation each year in terms of the price contracting? Guillermo Novo: We don't talk about the exact business mix and by customers. But I would say most of it -- the bigger thing is Europe. Europe is where some of the bigger players, they tend to do it at the same time. So it would cover everything, VP&D, cellulosics. So it's the entire portfolio. You do contract with all the products there. And obviously, from a sales perspective, the cellulosics and VP&D are the biggest part of the mix. Tablet coatings and injectables would be the newer stuff with very different technology. Steven Haynes: Okay. And then maybe as a follow-up, the $4 million of the incremental R&D spend that you flagged in the guide, was that R&D spend kind of originally in your plan? Is it being pulled forward? And are you able to kind of provide a bit of color on where that incremental spend is going in terms of the kind of several platforms that you highlighted at Investor Day? Guillermo Novo: Yes. As we highlighted at Investor Day, the two things as we launch these and work with customers and developing the two questions is investment for manufacturing, the CapEx. And fortunately, we have capital that we've idled that we can repurpose, and that's the focus. But the other part, just a recognition that, hey, as these things really start moving, we probably will need to add resources to really develop the products depending on what the customer wants or the applications. Right now, most of that is on the new technology platforms. The TVO, the transformed vegetable oil is the one that has the broadest legs. If you look at it, it's going into almost every business in Life Science, in tablet coatings, in ag, it's hitting a lot of areas in many, many applications in personal care and in coatings. So we're adding both resources. We're trying to add resources so that we can scale this capacity. So not every business needs to double the work. So right now, part of it is going to be in the coatings area. We have some really exciting technology developments with TiO2 efficiency and with alkyds and a few other areas. So on the polymerization side, we're adding some of the capabilities that will help all the businesses, but we're centering it there because that team is a little bit more focused and we have more capabilities there. And then another part of it, we're doing on our central R&D, again, to support there's more requests for -- from customers for modifications. The core technology, we're getting validation. The issue now is converting them into specific products that our customers want. And that will take a much greater engagement with customers. So that's what we're going to add. But we're going to pace ourselves. As we said, we're not going to just throw R&D. We want to see where things are advancing and then we will drive the investments. I think on the other areas like super wetters and pH neutralizer and all that, we are -- we've added resources, but it's really been more shifting within the businesses of people that they had on other projects supporting them as they go. So we'll be providing more color on the innovation side. Operator: Our next call comes from the line of Jeff Zekauskas from JPMorgan. Jeffrey Zekauskas: I think you expected $100 million from your innovation pipeline in 2027. What do you expect from it in 2026? Guillermo Novo: For the '26, what we've outlined right now is it was $15 million of new innovation and mostly still core. The launches, as we said in the Innovation Day for the newer technologies would probably be starting more in the '27 and beyond range just based on the developments with customers. William Whitaker: And Jeff, it's a cumulative target in terms of incremental sales. So we did $13 million this year plus the $15 million, so roughly $30 million in terms of -- since the Strategy Day in terms of the cumulative commitment at this point through '26. Guillermo Novo: And just to be clear also, Jeff, is just -- we've kept it very simple on the globalized side. So the globalized, we just put everything in there. So it does like injectables. There is a lot of innovation there. We just wanted to make a very clear story because we're investing differently in the globalized. There's assets. There's other things that we need to do. They're very unique for all the areas. So that sort of you get the full -- the net picture, this is how that's doing. Tablet coatings and biofunctionals and microprotection all have a lot of R&D and technology going. So right now, when we're calling innovation, it's core and then the new technology platforms that don't fall in those 4 segments. Jeffrey Zekauskas: Okay. On your cash flows, I think you said that you expected 50% conversion in 2026. Does that include the $100 million that you received as tax refund? And as far as your inventories go, they've sort of moved up from about, I don't know, $530 million at the beginning of the year to $570 million or so at the end of the year, even though your sales are down, I don't know, 15%. So do you have to cut your production to get your inventories to a more reasonable level? Guillermo Novo: Do you want to answer on the... William Whitaker: Yes. So Jeff, in terms of the 50%, that does not include the $103 million tax return. So just to give you a sense of the bridge, right? So it's the EBITDA midpoint. There's not a lot of movement on cash tax and cash interest working capital for the full year. There's certainly an opportunity, right? VP&D in Q1, there's going to be an impact of $16 million to $18 million release because of the Calvert City outage. But then also in HEC, right? We closed Parlin and in advance of that, we build inventory to facilitate that transition. And so we do think inventory is an opportunity. We've traditionally been at 2.5 turns over the last couple of years. But in terms of hitting the 50% commitment, it roughly equates to maintaining working capital at a consistent level. So as sales grow, we'll have an investment in accounts receivable, of course, but then there'll be some offset on some of the actions that we're taking on inventory. Guillermo Novo: And Jeff, on the inventory side, the 2 big areas that went up a little bit is, one, HEC. With the closure of Parlin, we had -- we have to -- it was part of our plan. We had to build inventory because we need to transition as we start up. We got to qualify the new plant. So we built enough inventory. So it will be coming down. It's not about shutdowns now. The HEC network, just to be very clear on the total because that's probably on the network optimization, the pushback dollars to next year, it's really around the HEC network. And it's several things that are happening. One, our flow-through average accounting, I mean, our calculation is probably -- we're a little bit too aggressive on some of that. That's part of it. I think the inventory build impacts that. So it delays a little bit. But more importantly, I think it's going to be, one, the benefits are there. The plant is closed, right? So we have the benefit. Part of it is probably 2/3 will come through flow-through this year and next year as we move forward. The 1/3 will come, I think, later. It's not that it's gone. That's the part that with the lower demand in China, we have rebalanced our network. The network now is pretty full in a down market. So we're much more stable in how we run. But we shifted volumes that we were inclined to make in the U.S. to China, and China now is -- our plant in China is exporting now to other parts of the world. So we've rebalanced the network. From my view, the one I'm looking at is about 1/3 of their goal in HEC is probably going to be delayed until China recovers and we can take that volume back into the plants that we had planned originally. China is bottoming. It's still soft. It's still hypercompetitive, but we are starting to see opportunities to gain share to move some volume up, but it's going to take -- it's going to be a journey up there. Operator: Our next question comes from the line of Laurence Alexander from Jefferies. Laurence Alexander: Two things. One, with the comments about competitive intensity, particularly from Chinese competitors, are you seeing that focused on the same consistent areas? Or is it broadening out to more parts of your portfolio? And secondly, on the innovation pipeline, can you give a little bit of a sense of the horse race in terms of which platforms your customers are saying are most important even if they're on a slower burn? Guillermo Novo: Yes. So on the first question, the China competition, it's really the same areas for us. I mean I know that this is a broad theme for many companies. For us, it's really mostly been VP&D and HEC. They're different, I think, for us. One is our global competitors actually are supplying from China. They have multiple plants. And so when we say China, it's not just Chinese players, it's China sourcing. We're the -- of the big volume of the market, we're the last non-China producer really of size in a lot of these areas. So that's what we see in VP&D. In HEC, I think it is a combination of overcapacity in China, but also the down market that the exports have been pretty aggressive. Most of it we're seeing in Middle East, Africa and India is where we've seen most of it. So the pressure for us and where we're going to be exporting from China is we'll keep China to support China, but also to play in the Middle East, Africa and India type segments. If you look at the innovation side, the interest is everywhere. I think the issue of the technology of the transformed vegetable oil has the greatest functional flexibility. So we're going to really a number of very different directions. If you look at what Life Science or pharma or ag is looking at versus what personal care and coatings are looking at. As we -- each of them advances their technology, what they're doing in terms of functionality, we can apply it into other markets, and that's very helpful. I think that's going to be the one that we're really most focused on, on how do we drive scale. And that means we've got to focus on a few of the bigger opportunities to create scale because longer term, this is something that, like I've said in the Innovation Day, this is more a technology akin to acrylics or whatever, something that can be much broader. And so that's the one that attracts a lot of interest. I think the additive side of things in terms of the super wetters, those are more additives. I've been personally very surprised on how many new applications the teams -- they've modified it. We're going into ag. We launched just now in Brazil into -- as we presented into the bioprocessing, personal care with some really exciting opportunities in both skin and hair. And in coatings, these could be really scalable opportunities of size. So those are areas that I think we're very excited about. The starch is another one that's very good, mostly for personal care, but I think it will have a home later on as we look into the Life Science space. Operator: Our next question comes from the line of John Roberts from Mizuho. John Ezekiel Roberts: Maybe help us separate seasonality in the Specialty Additives business from trend line here. The 6% decline that you just reported for the September quarter, and that's essentially all volume. If things have stabilized kind of to normal levels, we would be down 6% in the -- I know you don't want to give guidance for the December quarter specifically, but is that an easy comp that minus 6% that normalizes? Or are we still trending down below trend line? Guillermo Novo: So the -- let me make some comments and then I'll ask Dago to comment. The answer is going to be vary by region, as I said. So clearly, the North America is where we've seen -- it's not that the market is coming down, but the expectations have come down from our customers, both in DIY and contractors. I think China is different. It's down, and it's not picking up. Those are, I would say, are the 2 big ones. But Dago, why don't you give some color? Dago Caceres: Yes. I mean that's a very good question. So what I would say, I mean, if I look at where we are, in China, we don't see a recovery, quite frankly, I wouldn't say in the next 1 or 2 years. The reason for that is that China needs to go through structural issues that they need to fix on the property sector, and we continue to see actually deacceleration on the investment in the property sector, which very much drives the coatings market in China. So we will continue to see some. I think it's stabilizing more at the bottom, but we will continue to see some softness, I would say, into 2026. And then when you think about North America, I mean, the key drivers in the coating markets, I would say is two. Is the sales of homes and those can be existing homes or it can be new construction and, let's call it, repaint, remodel kind of market, right? And when you look at sales of existing or sales of homes, that's driven by interest rates and that's driven by housing prices. And interest rates are still relatively high and housing prices are also relatively high. So I don't think that it's going to be -- there is -- that's why there is some conservatism in the market about those two. But then when you look at the repaint and remodel, the do-it-yourself market, that one continues to be pretty flat. And the price is slightly better, but not really picking up momentum a whole lot. If you look at our customers, if you look at what the market is saying, I mean, they tend to kind of follow this view that maybe the first half of 2026, calendar year 2026 is going to be soft because of these conditions. Now having said that, I've been surprised in the past, the market can recover, can pick up if the construction market picks up, and we'll have to be ready for that. But for now, what we're seeing is Europe is pretty stable. North America is stable. China, we know the story. And then we'll see some competitive pressure in Middle East, Africa, India and rest of Asia that we've been managing kind of throughout the last year. Guillermo Novo: And I think, John, the upside that everybody has to not kill the hope is North America that there is a pent-up demand for homes, construction, all that kind of stuff, but it's a macro that we don't control. So we're going to follow what our customers are saying at this point in time. Operator: Our next question comes from Josh Spector from UBS. Joshua Spector: First, I wanted to just ask on the pricing side. I mean you kind of hit it on the Life Sciences side earlier, saying that you're seeing stabilization there. But on the Specialty side, I mean, year-over-year, you said pricing was flat, but I think you alluded to potentially increased pressure. Do you think about that more on the volume side of things? Or do you still see some downside risk on pricing as you're looking into fiscal '26? Guillermo Novo: Let me -- just one comment and -- my personal view is pricing and where to see the pressure is China and exports is so low now. Nobody is making money. There is a bottom at the end of the day. You can't go down, it's not worth it after a while. So I do think it's -- there is some stability. The issue is going to be more export markets, and this is the whole issue, I think, in the impact in exports to Europe and all that, that we're seeing in different products, not just SA, but in other areas. But you want to comment a little bit more? Dago Caceres: The way I would look at this is, in general, the United States, it's going to be -- North America is going to be a pretty stable market from the pricing standpoint. And I would say it is the same case for Europe. So those are our 2 largest markets. And there, we see the typical normal kind of performance in terms of volume and pricing equation, but I would say relatively stable versus what we saw in fiscal year 2025. And again, that's by and large our 2 key markets. Then when it comes to the rest of the world, we're just being very careful and we always do the volume price balance to determine where it makes sense for us to hold prices, and we do that on a regular basis. That's why you didn't see our pricing come down in the last quarter or if we want to selectively go after certain share gains, right, if we want to balance the network better. So I would say we will continue to see some pressure in 2026, again, especially areas like Middle East, Africa, India, but I would say it's pretty similar to what we are seeing so far. And the good news continues to be that customers value very much what we bring to the table. They value quality, they value innovation. They value our overall value proposition. So we believe that with the right mix, I mean, we'll be able to hold on to what we have. Joshua Spector: And just quickly, Guillermo or William, I mean, what are your thoughts around capital allocation here? Do you need to get leverage down before you think about resuming buybacks? Or is that something you think about doing more near term? Guillermo Novo: So I'll let William give the more detail. But we have flexibility right now. I think as William said in his comments, we can do both. I think we will be pragmatic as we've been in the past. I mean there is a value side right now and where the share price is. But we also -- in this uncertain environment, we want to make sure that we're balancing that out with how we manage our debt. But do you want to comment a little bit more? William Whitaker: Yes. Thanks, Josh. So the capital allocation priorities are unchanged. First, we're going to fund the high-quality organic growth investments that's included in the $100 million CapEx and the productivity agenda as well. That's a key area for us to improve the cost structure at the plants. The other piece is leverage is important. We want to keep that within our target range and preserve balance sheet flexibility. Thereafter, we return the excess capital -- excess cash to shareholders. We have a stated dividend policy at 30% payout. We're a bit above that. So I'd expect dividend increases to be more moderate from here. Post dividend, we'd look to be balanced in our capital deployment like we've done in the past with episodic share repurchase activity. I think one thing that you can gather from the outlook is we do expect to generate good free cash flow in the year ahead. So as you roll forward the tax return that we just talked about plus the free cash flow, we'll be down in the low 2s if you roll that forward and deliver the midpoint of the EBITDA guide. So plenty of flexibility, and we'll continue to be balanced and disciplined in how we approach it in the year ahead. Operator: Our next question comes from the line of Abigail Edwards from Wells Fargo. Unknown Analyst: I just wanted to confirm timing on portfolio optimization headwinds. When should we expect to see those fully lapped? William Whitaker: I can take it. Yes. So Abigail, I think that's the good news is going into next year, it's -- there's a little bit of an impact in personal care in Q1. It's about $10 million in sales, $1 million in EBITDA, and then that's it. And so for the first time in quite some time, it's a very clean baseline and our reporting should be if we grow 2%, we grow 2%, and there's not necessarily this adjustment on things that we've rationalized or sold in the past. So it's a very clean setup going into next year. Unknown Analyst: Okay. Great. That's good news. Also, just another timing question. You expect a recovery nutrition mid- FY '26, maybe later, maybe earlier? What's the timing on that? Alessandra Assis: So nutrition, as Guillermo mentioned, it's already happening as we speak in the month of October. So we -- those wins, specifically with Klucel, it has happened. We started to receive orders towards the end of fiscal year Q4 and have already been delivering products in October, now in November. So it's real. It's happening already, and we expect to see nutrition coming to closing the gap that we saw in Q4. As I mentioned, it was a share gain of our customer in Europe. And of course, as a consequence, we ended up losing share as well. But it's Klucel coming with new wins, and it's a profitable win. Guillermo Novo: And I would highlight that the mix that what we lost is more lower margin material. What we're gaining is better quality material in terms of the margin profile. So net-net, it will be positive. Operator: Our final question comes from Mike Harrison from Seaport Research Partners. Michael Harrison: Just wanted to follow up a little more on the network optimization. My question is more on the time line of the benefits that you kind of pushed out here. But I'm just curious, what needs to happen in order to realize some of those benefits more quickly? Is it as simple as better demand? Do you need better demand in specific regions or product lines? Or are there any other actions? I know you mentioned it sounds like maybe some incremental VP&D actions. Are there other actions you can take to maybe help accelerate some of those benefits? Guillermo Novo: Yes. So if you look at the actions, Mike, the small plant, it's a smaller number. Most of that are done within the first half of this year. Those will be done, and they'll just flow through. HEC, as we discussed, is the one that's creating more of the flow-through timing issue. And that one is those 3 stages of, hey, the action is done. The assumption on the flow-through from an average accounting was probably too optimistic, more delayed. But the inventory and the revenue. So sales will be the big issue and the big catalyst. If sales pick up, we can move a lot more of the material. So that flow-through just accelerates. The part that we do want to be transparent is part of it, about 1/3 of the HEC volume. I'm glad we did it, but it's holding up our position in China. It's now -- instead of being incremental, we would have had a deterioration of our business in China, and this action has helped it already, right? So we're getting a benefit. It's just not incremental. For it to become incremental, that's what we say that China has to pick up where somebody else needs to pick up to offset that so that we can rebalance the network. So that's the one that has the most timing issues because it's done. I think the VP&D, we're working across. We have several -- 2 plants. We worked on one. We're going to start working on the other one through a lot of actions and timing. So that one, the conclusion of the events will dictate the timing of those things. Michael Harrison: Right. And then the other question I had was for Dago. I was hoping you could give an update on some of the efforts to expand your applications or opportunities in industrial coatings I think most of your commentary addressed the architectural side. And I was just wondering, are there some new business wins or applications that you're pursuing? Dago Caceres: Yes, absolutely. And a very good question and very much at the heart of what we're doing at the heart of this strategy, which is innovation. We're doing a couple of things. First, we're looking at quick wins. And what we mean by quick wins is that we already have a pretty robust portfolio where what we really needed was application data that can be used into industrial coating applications. So we're doing a lot of that. And with the portfolio that we have, we want to go after those industrial customers. We know who they are, we know how to get there, and we have an existing portfolio. So that for us is really a quick win an area that we're looking into a little bit more to accelerate the monetization of our innovation efforts. And then longer term, it's twofold. It's also the core business. It's also the core portfolio. But then we have areas like easy-wet. For instance, easy-wet, we just launched another product a couple of weeks ago, and it's ready to go, and we are already seeing pretty good traction from our customers. It's one customer at a time. It's talking to the customers, making sure we're meeting their needs. But I would say that area is advancing quite well. And we continue to find opportunities. I think the challenge that we're going to have moving forward is to make sure that we focus and we allocate the resources we have into the right opportunities where we can get a bigger bang for our buck. But it's going pretty well and hopefully more to come on that one. Thank you for the question. Operator: This concludes the question-and-answer session. I would now like to turn it back to Guillermo Novo for closing remarks. Guillermo Novo: Well, thank you, everyone, for your participation and interest. As I said, I want to congratulate the team, a lot of a very dynamic external environment. And I think we've delivered on a lot of the things that we committed to. So we feel very good about that. We still expect the external environment to remain volatile and with a high degree of uncertainty. Positive and negative. So there could be some positives as well. I don't want to be just looking at the negative. There is just uncertainty. I think this really drives us to focus on the things that we can control. We go back to our strategy is relevant for this environment. I think the actions we took on our execute, the portfolio optimization, even if they're delayed are helping us in driving performance in the near term, making us more competitive in all our core businesses. So we're focusing on the things we can control. That's about the execution of our portfolio optimization and productivity and operating discipline. It's about driving globalized and driving innovation to really drive top line growth. And if we do that, we feel very confident about the future even in these environments. If things get better, we have a huge potential for higher leverage of our manufacturing assets and all that. So that would be really the bigger catalyst that we would see in terms of momentum if we see some market recovery there. But with that, we look forward to seeing you in the coming weeks, and thank you. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Good morning, and welcome to the Sabre Third Quarter 2025 Earnings Conference Call. My name is Olivia, and I'll be your operator. As a reminder, please note today's call is being recorded. I will now turn the call over to the Senior Vice President of Finance, Roushan Zenooz. Please go ahead, sir. Roushan Zenooz: Good morning, and welcome to our third quarter 2025 earnings call. This morning, we issued an earnings press release, which is available on our website at investors.sabre.com. A slide presentation, which accompanies today's prepared remarks, is also available during this call on the Sabre Investor Relations web page. A replay of today's call will be available on our website later this morning. We advise you that our comments contain forward-looking statements that represent our beliefs or expectations about future events, including results of our growth strategies, transactions and bookings growth, commercial and strategic arrangements, the effects of the sale of our Hospitality Solutions business and our financial guidance, outlook and expectations, pro forma financial information, free cash flow, net leverage and liquidity, among others. All forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the statements made on today's conference call. More information on these risks and uncertainties is contained in our earnings release issued this morning and our SEC filings, including our Form 10-Q for the quarter ended September 30, 2025. Throughout today's call, we will also be presenting certain non-GAAP financial measures. References during today's call to adjusted EBITDA, adjusted EBITDA margin, normalized adjusted EBITDA and normalized adjusted EBITDA margin have been adjusted to exclude certain items. The most directly comparable GAAP measures and reconciliations for non-GAAP measures are available in the earnings release and other documents posted on our website at investors.sabre.com. Normalized amounts have been adjusted for estimated costs historically allocated to our Hospitality Solutions business, which was sold on July 3, 2025. We are also presenting certain financial information on a pro forma basis to give effect to the sale of the Hospitality Solutions business and we have removed the impact of the $227 million payment in kind interest that was recorded in conjunction with the refinancing activity in the second quarter of 2025 from pro forma free cash flow. Unless otherwise noted, results presented are based on continuing operations. Participating with me are Kurt Ekert, President and CEO; and Mike Randolfi, CFO. With that, I will turn the call over to Kurt. Kurt Ekert: Thanks, Roushan. Hello, everyone, and thank you for joining us. Earlier today, we reported third quarter results and provided an updated outlook for the remainder of the year. 2025 has been a dynamic year, and I'm encouraged by recent positive commentary from airlines and believe the broader travel environment is stabilizing compared to what we saw earlier this year. Third quarter operational results met our expectations as we focused on controlling what is within our control. I commend our team members for their continued progress against our strategic priorities, generating free cash flow and delevering the balance sheet and driving sustainable growth through innovation. We delivered positive air distribution bookings growth in the third quarter, driven primarily by strong performance in September. Based on our progress around the implementation of new business and our outlook for the remainder of the year, we remain confident in our ability to continue to drive air distribution bookings growth going forward. We have strengthened our balance sheet by growing adjusted EBITDA, generating free cash flow, extending debt maturities and proactively using cash to reduce debt. We have made significant progress over the last 2 years on our strategy for delevering, and we anticipate reducing our net leverage by approximately 50% by year-end 2025 compared to year-end 2023. While there is more work ahead to achieve our long-term leverage goal, we are proud of the progress we have made. Innovation is key to Sabre strategy, and we have been leveraging AI to transform travel. This quarter, we announced two industry firsts, agentic APIs for travel, enabling a new era of AI-driven retailing and Continuous Revenue Optimizer, an offering within our modular AI-native SabreMosaic platform. Further, our payments business continues to see strong customer demand and is growing at a very healthy rate. We have extended our industry-leading position with 41 live NDC integrations. New agency wins and renewals, first-mover product launches and continued innovation increase our confidence that we are well positioned competitively. Moving to Slide 5. I will provide some detail on our third quarter results. Overall, operational and financial results were positive. Total distribution bookings grew 3% year-on-year and air distribution bookings increased more than 2%. Consistent with broader airline commentary, we experienced softness in July air bookings and then saw improvement through the balance of the quarter. September finished strong, up 7% year-on-year. The acceleration in air bookings was primarily driven by contributions from newly converted business as a result of our growth strategies. In July, air distribution bookings from our growth strategies totaled $2.5 million. And in September, that grew to over $3 million. For the third quarter, air bookings from our growth strategies contributed 10 percentage points to total air bookings growth. This growth was partially offset by two notable headwinds. First, GDS industry air distribution bookings declined approximately 1 percentage point year-on-year. Second, Sabre's air booking mix was a headwind in the third quarter. This reflected Sabre's higher exposure to U.S. government and military and corporate business as well as the impact of regional mix. We continue to believe these headwinds are transitory, and we are encouraged with the improved performance of certain regions as we move into the fourth quarter. Hotel distribution bookings growth increased 6% in the quarter, and the attachment rate to air bookings increased over 100 basis points year-on-year. Within IT Solutions, passengers boarded grew 3% year-on-year. Solid operational execution resulted in third quarter revenue growth of 3%. Top line growth, combined with ongoing expense management resulted in normalized adjusted EBITDA growth of 23%. Normalized adjusted EBITDA margin improved over 300 basis points to 21%. Moving to Slide 6. We are transforming our broader platform into a modern open travel marketplace that seamlessly integrates and normalizes content and capabilities from a wide range of sources. In multisource content, Sabre continues to demonstrate industry leadership. We are leading the industry with 41 live NDC connections, providing seamless shopping, booking and workflow integration. We are also on track to launch our new low-cost carrier solution in the first quarter of 2026. Our distribution expansion strategy is progressing well. In addition to adding new agencies and significant conversion volumes, we recently announced that World Travel Inc. has expanded its strategic partnership with Sabre and is converting substantially all of their volumes onto the Sabre platform. This momentum further advances Sabre's position as a strategic technology partner to leading agencies around the world. Hotel B2B distribution gross booking value transacted through the platform continues with an annualized turnover of over $20 billion, a 7% increase year-on-year. Our digital payments business also continues to scale rapidly, and I will provide a deeper look into this business on the next slide. We are also making considerable advances related to AI, which I will touch on shortly. Overall, we are making significant progress against our strategy and transforming the business to capture long-term value in the dynamic and evolving travel marketplace. Moving to Slide 7. Sabre Payments is an integrated fintech hub. It is one of our fastest-growing businesses, processing over $20 billion in annual transactions and quarterly gross spend grew over 40% year-on-year. Payments provides travel-focused solutions that simplify operations, enable global payment flexibility and automate risk and fraud management for our customers. The fintech hub is comprised of two key components: Sabre Direct Pay and Conferma. Sabre Direct Pay is our travel payment service that streamlines financial operations across the travel industry. Travel payments and automated chargeback management services run through a single integrated interface. This interface provides customers with greater efficiency, faster dispute resolution and improved win rates. Conferma is a virtual card and payment platform providing issuers, corporate buyers and suppliers with real-time control, enriched data and automated reconciliation. This enables faster, safer, broader business payments. We are scaling this business quickly and seeing strong growth in digital wallets and virtual cards. By the end of this year, we expect to have approximately 100,000 connected hotels. Conferma is developing new API integrations that we expect could accelerate additional virtual card deployments and further adoption. We believe strong ongoing customer demand positions our payments business for continued robust growth. On to Slide 8. AI represents an incredible opportunity for the travel industry and for Sabre provides a road map for future growth. We have leveraged our deep partnership with Google to embed AI within our platform in three ways: First, optimization AI, which delivers value today. Sabre IQ already powers live AI-driven products, which generate measurable ROI for airlines and agencies today. These include Lodging cross-sell, which intelligently recommends hotels with air bookings and e-mail parser, which automates traveler requests and agent actions and dynamic pricing, which optimizes fares and ancillaries in real time. Next, generative AI, the current phase of acceleration. We have built digital assistants and chatbots to make travel planning and servicing more intuitive. As a trusted content provider, Sabre's Gen AI solutions help ensure accurate and contextual information across customer touch points. And finally, Agentic AI and consumer LLMs. This is our innovation horizon. Agentic AI anticipates traveler needs and takes actions on their behalf. We believe this new conversational commerce will be how consumers search, shop and experience travel servicing in the near future. That is why we have taken a first-mover position with Agentic-ready APIs and a proprietary MCP server. These Agentic solutions make the language of travel understandable to any AI agent. Google has spotlighted Sabre's latest AI innovations at its global events, drawing strong industry acclaim. On to Slide 9. Moving to our outlook for air distribution bookings for the fourth quarter and full year. The chart on the right shows reported quarterly air distribution bookings growth for the first 3 quarters of the year and our outlook for the fourth quarter. Our view for the fourth quarter is largely consistent with what we have said previously, excluding the anticipated impacts from the government shutdown. We exited September with strength that carried into early October. However, the government shutdown impacted October air distribution bookings by approximately 3 percentage points, and we expect this impact to carry through the fourth quarter. As a result, we now anticipate fourth quarter year-on-year air distribution bookings growth of between 6% and 8%. The commentary around the broader travel industry is encouraging and could signal a normalization of trends going forward. We continue to believe the challenges we have navigated during 2025 are largely transitory and as volumes from our growth strategies accelerate through the end of the year, we are well positioned for growth. Additionally, we are optimistic that our positive momentum as well as the launch of our LCC solution in early 2026, positions Sabre for mid-single-digit air bookings growth in 2026. In summary, we are focused on controlling what we can control, namely delevering the balance sheet and driving sustainable growth through innovation. With continued execution, the development of our AI solutions and opportunities in adjacent spaces such as payments and hotels, we believe Sabre is well positioned for long-term growth. Thank you. And now over to Mike. Michael Randolfi: Thanks, Kurt, and good morning, everyone. Please turn to Slide 11. For the third quarter, Sabre reported revenue of $715 million, up 3% year-on-year, consistent with our guidance range of low to mid-single-digit growth. Distribution revenue grew $24 million, driven primarily by an increase in air and hotel distribution bookings as well as an increase in product revenue. IT Solutions revenue of $140 million was flat year-on-year as growth from passengers boarded was offset by a decrease in license fee revenue. We continue to expect fourth quarter IT Solutions revenue to remain in a similar range of $140 million to $145 million. On a normalized basis, gross margin decreased 130 basis points in the third quarter versus the prior year. The decrease in gross margin is due primarily to two items: lower-than-expected revenue from certain higher-margin product sales and continued FX impacts of the weaker U.S. dollar, where Sabre generates revenue in dollars but pays some agency incentives in local currencies. Looking forward, we expect these gross margin pressures to continue into the fourth quarter. Third quarter 2025 normalized adjusted EBITDA of $150 million increased 23% year-on-year with normalized adjusted EBITDA margin expanding by 340 basis points to 21%. Pro forma free cash flow was $13 million, and we ended the quarter with $683 million of cash on the balance sheet. Moving to Slide 12. As Kurt outlined, third quarter results were largely in line with the expectations we outlined on our second quarter earnings call. Revenue growth of 3% met our guidance for low to mid-single-digit year-on-year growth. Normalized adjusted EBITDA of $150 million was at the high end of our expectations. Pro forma free cash flow of $13 million was below our expectations. The variance was driven approximately 1/3 by lower receipts and 2/3 by higher disbursements. Receipts were lower due to the cadence of the quarter. There is roughly a 30-day lag between bookings and receipts. July and August air distribution bookings were relatively flat year-on-year, which was lower than our forecast and virtually all bookings growth in the third quarter occurred in September, which did not benefit third quarter receipts. Regarding higher disbursements, certain payments that were forecasted to be paid in the fourth quarter of 2025 and in 2026 were paid in September. Based on our updated working capital forecast, we now expect free cash flow for the full year 2025 to be approximately $70 million. Turning to Slide 13. Over the past 2 years, we have made significant progress on our capital structure, lowering overall debt and extending our maturities. This year, we have paid off over $1 billion of debt. As part of that, in the third quarter, we repaid approximately $825 million of debt from the proceeds of the Hospitality Solutions sale. We have pushed out maturities as well with over 60% of our debt maturing in 2029 or later. With our current outlook, by the end of 2025, we expect our pro forma net leverage will be approximately 50% lower versus year-end 2023. We regularly look for opportunities to efficiently refinance our debt and extend our maturities. As we look to 2026 cash interest, we expect 2026 to reflect our projected 2025 full year interest expense of $441 million that is included in our GAAP to non-GAAP reconciliation, plus the impact of any potential refinancings as well as any changes in the forward curve. On to Slide 14 and our outlook for the rest of this year. We anticipate fourth quarter air distribution bookings growth of between 6% and 8% with a midpoint of 7%. This compares to our prior fourth quarter guide of 6% to 14% with a midpoint of 10%. The 3 percentage point reduction in the midpoint of our guide is driven primarily by the impact of the government shutdown. We expect low single-digit fourth quarter year-on-year revenue growth, and we expect pro forma adjusted EBITDA of approximately $110 million. Our fourth quarter adjusted EBITDA guidance incorporates a $10 million to $12 million impact from the government shutdown. We expect to generate pro forma free cash flow in the fourth quarter of approximately $130 million. As a reminder, the fourth quarter is typically our highest free cash flow quarter due to the seasonality of working capital. Our full year outlook for air distribution bookings growth is positive and is within the guidance range we shared on our second quarter call. With our updated outlook for the fourth quarter, we expect full year air distribution bookings growth to be near the low end of our previously provided range of 0.5% to 3.5% -- we expect full year 2025 pro forma adjusted EBITDA to be approximately $530 million, representing year-on-year growth of 9%. We have not made any changes to our assumptions for either CapEx or cash interest. We expect full year 2025 pro forma free cash flow of approximately $70 million and to end the year with a strong cash position of approximately $800 million. In closing, we are making progress on our strategy to generate free cash flow and delever the balance sheet and drive sustainable growth through innovation. We expect the anticipated acceleration of volumes in the fourth quarter will provide solid momentum into 2026. And with that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question coming from the line of Josh Baer with Morgan Stanley. Josh Baer: I was hoping we could just run through the updated FY '25 guidance again and help bridge from what it was last quarter to this quarter. And really focusing on EBITDA and free cash flow. I know you called out some of the headwinds from government shutdown, but really just wondering why EBITDA is now $20 million lower from the midpoint and free cash flow $50 million. And I know you were talking through some of the receipts and disbursements. I would think some of that would sort of normalize or those September receipts come in, in Q4. And so why the bigger move in free cash flow versus EBITDA? Michael Randolfi: Yes. So I'll take that question. So if you go from the midpoint of our guide last time at $550 million to $530 million, the biggest component of that is going to be the $10 million to $12 million impact from the government shutdown. The other difference is, as you look from Q3 to Q4, as we highlighted in our prepared remarks, we did have lower margin from FX and lower high-margin product sales. We do expect that to continue into the fourth quarter. And so that's essentially your difference between your $550 million and $530 million. If you recall, your -- what correlated in terms of free cash flow to $530 million of EBITDA was $100 million of free cash flow last quarter. And as I articulated this quarter, there was a difference between our expectations of around $27 million. We expected to come in around $40 million of free cash flow. Instead, we came in around $13 million. And to be clear, about 1/3 of that was due to receipts, 2/3 was due to disbursements. On the receipts, the way to think about that is as we came through the third quarter, as we articulated, receipts are essentially determined by the prior couple of months in the quarter. And August, in particular, fell short. And we had a strong September, which would bode well for receipts in October. However, we had a step down in bookings that wasn't in our original projection because of the government shutdown. So that gets offset in the fourth quarter. So when you get into early next year, because we would expect this quarter to be back-end loaded, we would expect to have slightly higher receipts than we would have otherwise, but it won't necessarily show up in the fourth quarter. On disbursements, essentially, there were elements there that were timing. So of the disbursements, the way I would think about it, is there's a portion of our disbursements that were made in September that we either contemplated in forecasted for Q4 or early 2025. However, because of timing of work, because of timing of combination of invoices, commercial negotiations, disbursements were slightly different. For example, we had a $7.5 million disbursement in the September month that we originally had forecasted for Q1 of 2026, and it was tied to an agency commercial agreement. But because of what was best for the commercial agreement overall, the payment was made in September. So you don't necessarily get that back this year, and that's what drives you from the $100 million to the $70 million. Josh Baer: Okay. That's really helpful. And just to clarify on the government shutdown impacts, maybe everyone else knows this, but is this because of like staffing, airport and safety? Is it actual government travel spend that's impacted? Or is it more related to the impacts to the consumer and the macro when you quantify that? Kurt Ekert: Yes. Thanks, Josh. To date, the impact is almost entirely travel by government employees and/or U.S. military. We have a high concentration of the U.S. military and government as a component of our business. Just for clarity, for example, in 2024, U.S. military government represent about 4% of our global air distribution volumes. That number is quite de minimis in terms of current trading volumes. To date, we've not seen a material impact in terms of the overall industry. But obviously, if you look at operating issues in airports with air traffic control, that is a risk going forward, but not something that's, again, material to date. Operator: Our next question coming from the line of Victor Cheng with Bank of America. Unknown Analyst: This is Carla for Victor Cheng at Bank of America. Two questions from my side. The first one is what's the mix of your air bookings that is tied to the U.S. government travel? And how can we think about the impact of bookings in Q4 if the shutdown continues? And second question, do you have any updates on your current NDC mix? Is it still in the low single digits? Kurt Ekert: Yes. Thank you, Carla. For clarity, when you say what is the mix of U.S. military and government, can you clarify what you're asking there? Unknown Analyst: Yes. So just the mix of your air bookings that is tied to the U.S. government? And how can we kind of forecast our bookings estimates based on the shutdown? Kurt Ekert: Okay. We don't break out the details of our military and government if you're asking domestic versus long haul, for example. Again, if you go back to last year, that was about 4% of our air trading volume in the distribution business. That number is quite de minimis in terms of current trading right now. NDC remains a low single-digit number for us. That's between 2% and 3% of our air distribution volumes. It is growing at a rapid rate. We do expect it to scale as we go forward. And I will emphasize, as we noted during our prepared remarks, we now have 41 live NDC connections. These are the same API connections that you would get if you were a direct connect or any other provider. We have leading functionality that is facing buyers and travel agencies. We feel we are very well positioned in this two-sided market as NDC scales to be a grower. Operator: Our next question coming from the line of Jack Halpert with Cantor Fitzgerald. John Halpert: Just two quick ones, please. So kind of coming back to the government travel piece of this. I think you're pretty clear about the headwinds for 4Q. But I guess, historically, when there's been government shutdowns and they kind of come to an end, like do you typically see like an immediate payback in demand? Or is there sort of a bit of a lagged recovery? That's kind of the first one. And then second one, just quickly on payments. Obviously, growth there has been pretty solid the past couple of quarters, and you had the slide about it in the deck. But can you talk a little bit more about the strategy here and how incremental you think you can -- this can be to your business going forward? And then maybe talk about sort of the margin profile of the business as well. Kurt Ekert: Thanks, Jack. On the government, -- we don't know obviously when the shutdown will be resolved. We imagine it will happen in the fourth quarter, but who knows. We anticipate being back to normalcy in the first quarter, but it will probably phase its way between here and there. With respect to payments, the payments business, again, which is comprised of Sabre Direct Pay, which is a set of product capabilities that we have both in our distribution and our IT business as well as our Conferma Virtual Payments business. That business is scaling at a 40% top line rate. Really, it's very compelling what we have there. We have not, at this point, broken out the revenue or the margin details of that business. That may be something that we do prospectively. But we think the value opportunity and the scale opportunity there is tremendous versus our current position. Operator: [Operator Instructions] Our next question coming from the line of Alex Irving with Bernstein. Alexander Irving: Two for me, please. First, on Agentic API. Could you please help us to understand how you intend to monetize this? Specifically, are airlines unable to do their own Agentic API to do the same thing essentially for free. So who's going to pay you and for what specifically? Second, on booking growth for 2026, I think you mentioned earlier about being positioned for mid-single-digit bookings growth. What assumptions underpin that? If you could please break that down between, say, known new business migrations, specific headwinds lapping and your expectations for underlying industry growth? Kurt Ekert: Thank you, Alex. Let me deal first with the booking growth for 2026. As we indicated, we expect mid-single-digit bookings growth in 2026. That assumes a flattish GDS or distribution marketplace and then strong organic performance by Sabre with continued converted business as well as the implementation of our incremental low-cost carrier solution. With respect to Agentic AI, it is very early. I think you're going to see, number one, Agentic AI emerge as a new channel in and of itself, maybe similar to the way online travel agents emerged starting about 30 years ago. And I think that will take share away from both intermediary and supplier direct channels. What we have developed in terms of our API solution is, we think, the leading intermediary API solution for the marketplace. This can sit directly behind an API, Agentic API agent and/or a large tech platform. And it's also fit for purpose that it can be used by our travel agency and our airline or hotel customers to help them power their Agentic AI profile going forward. In terms of what is the commercial model, obviously, we think the largest opportunity is for us to be an intermediary distribution player, but there may be an IT element to this as well. That will become more apparent in the quarters as we go forward. Operator: And our next question coming from the line of Dan Wasiolek with Morningstar. Dan Wasiolek: So two, if I may. The first, your booking fee looks like it was pretty strong and stable this quarter at -- I think, around $6.06. Just wondering how we should think about that as we look into 2026. And then wondering if you could maybe provide some more detail in your prepared comments, you kind of talked about a stabilization in the overall industry and industry demand, just the conversations maybe you're having with your partners and customers to kind of arrive at that? Michael Randolfi: I'll take the booking fee. If you look at the strength in our booking fee year-over-year, it was driven by significant nontransactional revenue that's benefiting us. So it's not necessarily tied to a specific booking. And we expect that to continue to be additive over time. With regards to 2026 booking fee, at this stage, we're not going to provide any other commentary beyond what was in our prepared remarks with 2026, but we'll give you a lot more context on that in the February call. Kurt Ekert: Thanks, Dan. With respect to industry demand, it's a bit of a mixed bag. What you're hearing and seeing from commentary from many different intermediaries and then supplier customers, and this is underpinned by a lot of private conversations that we've had with our clientele is leisure demand is positive year-on-year, fairly robust. Our corporate demand, what you're seeing is prices elevate or strong yield, and you've seen some improvement on a sequential basis in corporate demand, but it is still negative year-on-year on a unit basis. And so a lot of the commentary you hear from suppliers is around yield accretion or yield improvement relative to where we were 6 months. The volume environment has improved, but it's still -- when you look at the mix of corporate plus leisure is mixed. It's not that positive. As we go forward, our expectation is typically, what you see in this industry is GDP growth and airline volumes tend to approximate one another. If that is the assumption next year, you're at low single-digit passenger growth in the United States and globally. The question will be what the mix is, and we're going to learn our way into that. But again, our expectation for our volume assumptions next year in distribution are that the intermediary industry is relatively flat and that we're growing share against that metric. Operator: Our next question coming from the line of James Goodall with Ruschild. Rothschild & Co Redburn. James Goodall: So firstly, just coming back to Slide 9 and focusing on the Q3 air booking growth of 2%. I think your original guide was 2% to 6%, which was based on a negative 9-point impact from mix in industry and plus 13 from growth strategies. Just given that the industry improved to down 1% from down 4% through Q3, what caused Q3 to be at the bottom of the range despite the fact that industry got better through the quarter? Was it that plus 13% of new wins coming on more slowly? And then -- in terms of my second question, just coming to the low-cost carrier launch for next year. Can you give us a flavor of how many incremental bookings you're expecting that to drive on an annual basis? And how many LTCs you currently have signed up or in the pipes to be signed up? Kurt Ekert: Yes. Thank you, James. When you look at Q3 volumes, what we saw was that both July and August were relatively flat in terms of our intermediary bookings. September was actually up 7%. The very good news there is that when you look at the quarter, there was positive 10 points of volume performance tied to the implementation of new business that was converted this calendar year. And in fact, that number was 12% in September, so that continues to ramp and accelerate. We indicated that was 3 million bookings during the month. Why was that below the prior estimate? Despite the GDS, the improvement in the GDS number, it comes down to the mix of our business. Number one is we are adversely impacted as compared to the industry by our exposure to both the U.S. military and government. We have nearly a full share there. And two is a vast majority of corporate and TMC business globally goes through Sabre. And that was still down several percent year-on-year in the quarter and then the impact of regional mix as well. With the launch of the low-cost carrier platform, there's two important components here. One is similar to if you're familiar with Travelfusion, which is a non-GDS aggregated solution in the market, and there are a number of these kind of solutions. What we are launching is a new platform that integrates 50-plus new low-cost carriers. That is with a bit of a different technical and commercial model. We will be in full production launch in the first quarter of next year. Separately, we've also signed up a significant number of new low-cost carriers that we did not have in our system previously that are participating in more traditional means, either [ EDIFACT ] or Direct Connect versus this new low-cost carrier solution. Long term, we expect this could contribute multiple tens of millions of transactions to our business. It will be a subset of that for next year as we ramp this up. We're not going to go into detail on the specific number. Operator: And there are no further questions in the queue at this time. I will now turn the call back over to Mr. Ekert, CEO, for any closing remarks. Kurt Ekert: Thank you so much, everyone, for the continued interest. We look forward to sharing additional progress next quarter and in the years ahead. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.