加载中...
共找到 39,450 条相关资讯
Operator: " Clive Kinross: " Sheldon Saidakovsky: " Devon Ghelani: " Andrew Scutt: " ROTH Capital Partners, LLC, Research Division Jeff Fenwick: " Cormark Securities Inc., Research Division Matthew Lee: " Canaccord Genuity Corp., Research Division Rob Goff: " Ventum Financial Corp., Research Division Stephen Boland: " Raymond James Ltd., Research Division Operator: Good morning, everyone. Welcome to Propel Holdings Third Quarter 2025 Financial Results Conference Call. As a reminder, this conference call is being recorded on November 5,2025. [Operator Instructions] I will now turn the call over to Devon Ghelani, Propel's Vice President of Capital Markets and Investor Relations. Please go ahead, Devin. Devon Ghelani: Thank you, operator. Good morning, everyone, and thank you for joining us today. Propel's third quarter 2025 financial results were released yesterday after market close. The press release, financial statements and MD&A are available on SEDAR+ as well as on the company's website, propelholdings.com. Before we begin, I would like to remind all participants that our statements and comments today may include forward-looking statements within the meaning of applicable securities laws. The risks and considerations regarding forward-looking statements can be found in our Q3 2025 MD&A and annual information form for the year ended December 31, 2024, both of which are available on SEDAR+. Additionally, during the call, we may refer to non-IFRS measures. Participants are advised to review the section entitled Non-IFRS Financial Measures and Industry Metrics in the company's Q3 2025 MD&A for definitions of our non-IFRS measures and the reconciliation of these measures to the most comparable IFRS measure. Lastly, all dollar amounts referenced during the call are in U.S. dollars unless otherwise noted. I am joined on the call today by Clive Kinross, Founder and Chief Executive Officer; and Sheldon Saidakovsky, Founder and Chief Financial Officer, will provide an overview of our Q3 2025 results and observations on the overall economic environment before covers the financials in more detail. Before we open the call up to questions, Clive will provide an update of our strategy and growth initiatives for the remainder of 2025 and into 2026. With that, I'll pass the call over to Clive. Clive Kinross: Thank you, Devin, and welcome, everyone, to our Q3 conference call. Building on a strong first half, we are proud to deliver another quarter of record results. Amid a dynamic macroeconomic environment, our AI-powered platform and disciplined risk management drove stable credit performance while delivering profitable growth. Before speaking about what we're observing in the broader economy and our consumer segment, I'd like to highlight our record third quarter results. We delivered another quarter of strong growth with record quarterly revenue total originations funded and ending forward momentum from the first half of the year, we experienced healthy consumer demand and stable credit performance through Q3. At the same time, given evolving macroeconomic conditions and a modest uptick in delinquencies during the quarter, we and our bank partners maintained a tight underwriting posture, particularly in the U.S., making targeted adjustments to preserve credit quality in line with seasonal expectations. Even with these prudent measures, we achieved record total originations funded of $205 million, up 37% year-over-year and record revenue of $152.1 million, an increase of 30% from Q3 2024. On the bottom line, net income rose by 43% to $15 million and adjusted net income increased by 16% to $16.2 million compared to the prior year. to what we observed in the macro environment and with our consumer segments. In the U.S., growth remains steady. However, inflation in essential spending categories such as food, shelter and health care remains elevated with each increasing more than 3% year-over-year, weighing more heavily on the consumers we serve spend a greater proportion of their income on these essentials. Furthermore, according to the Federal Reserve Bank of Atlanta, median nominal wage growth for lower income workers was 3.6% in August 2025. As a result, real wage growth for our consumers, while still moderately positive, has moderated in 2025. In addition, the resumption of student loan collections in Q2 has put additional pressure on some of our consumers. these pressures on our U.S. consumers during the quarter, we and our bank partners made proactive underwriting adjustments to ensure our credit performance was in line with seasonal expectations. This is the benefit of our AI-powered platform and the resiliency of our business model. We benefit from the quick feedback loop where slight changes to the macro environment and consumer behavior are detected immediately and we are able to adjust our underwriting instantly. Notwithstanding some of the pressures we are observing in the U.S. employment remains healthy and continued job growth across key sectors where many of our customers are employed. The resiliency of our consumers cannot be understated. The are jobs demand and often interchangeable and consequently are able to replace lost income. Overall, the U.S. consumer remains resilient. However, we are taking a deliberately cautious stance in the U.S. market to prioritize strong credit performance and profitable growth. In Canada, revenue grew by 41% year-over-year to a record level in Q3, though the market still represents approximately 2% of total revenue as we continue to scale forward. Credit performance was particularly strong and is reflective of previous refinements to our risk model, further demonstrating our ability to adjust to macroeconomic conditions quickly and the resiliency of our operating model. This performance is even more encouraging considering the backdrop of the broader Canadian economy, which has softened due to U.S. trade tariffs and with relatively higher unemployment of 7.1% the Bank of Canada cut rates by cumulative 275 bps since mid-2024 to a policy rate of 2.25%. We continue to monitor the impact of recent trade measures and are encouraged by the federal budget stronger focus on driving investments in Canada, including much needed reforms to stray. I had the opportunity to meet recently with Minister Solomon, Canada's Minister of AI. I was encouraged by the government's commitment to be a global AI leader and hope the AI strategy set the table later this year will include specific support for public companies like Propel who choose to build innovative businesses here in Canada. Turning to Lending as a Service. We achieved record revenue, which exceeded $5 million in Q3, representing growth of more than 4x from last year and sequential growth of approximately 13% we launched in additional states, further broadening our geographic footprint. This expansion in addition to strong returns has led to increased commitments from our partners, which will fuel further growth. In the U.K., we delivered record originations and revenue in Q3 while maintaining strong credit performance. Prior to Propel's acquisition of Market, the U.K.'s record monthly loan originations was approximately 7,600 has grown consistently month by 78%, totaling roughly 13,500 originations in September, demonstrating the market opportunity and our ability to successfully scale in new geographies. Our performance in the U.K. was supported by a resilient economy. The U.K. has seen inflation trending towards the Bank of England target. Unemployment remains low at 4.7% and wage growth is outpacing inflation, supporting spending and credit demand. Lastly, reflecting our continued strong results and solid financial position, our Board of Directors has approved another increase to our dividend from $0.78 to $0.84 per share annually in Cans. 8% increase represents our ninth consecutive dividend, underscoring our strong financial performance and ongoing commitment to delivering shareholder returns. I will speak more about our outlook and business development pipeline for the remainder of 2025 and into 2026. But first, I'll turn the call over to Shell. Sheldon Saidakovsky: Thank you, Clive, and good morning, everyone. We're proud to deliver another quarter of record results and of achieving strong profitable growth while maintaining our disciplined approach to credit. Given the uncertain economic environment and the uptick in delinquencies observed during the quarter, we and our bank partners operated with a more measured underwriting posture in Q3, particularly in North America. Notwithstanding this dynamic, consumer demand across our operating brands remained healthy. And together with our bank partners, we achieved record originations from both new and existing customers during the quarter. This resulted in record originations funded of $205 million, an increase of 37% from Q3 of last year. This growth drove ending CLAB to a record $558 million, up 29% year-over-year. Consistent with our disciplined underwriting posture, we and our bank partners prioritized a higher proportion of volume from return and existing customers to strengthen credit quality in North America. In addition, within our U.S. portfolios, we and our bank partners focused originations more on higher credit quality consumer segments that carry a lower cost of credit. In contrast, in the U.K., where credit performance remained very strong, we emphasized new customer originations. Overall for Propel, new customers represented 44% of total originations in Q3, consistent with prior quarters and reflecting our balanced and deliberate approach to growth across all markets. Our record loans and advances receivable balance and ending CLAB drove record revenues of $152.1 million in Q3, representing a 30% increase over Q3 last year. Our annualized revenue yield in Q3 was 113%, a modest decrease from 114% last year. This decline primarily reflects the shift toward returning and existing customers, the emphasis on higher credit quality new customer originations at lower fee tiers the continued aging of the portfolio, including graduation and the ongoing expansion of Fora. These factors were partially offset by the higher-yielding quid market portfolio and our last revenue. Turning to provisioning and charge-offs. Our provision for loan losses and other liabilities as a percentage of revenue was 52% in Q3 2025, consistent with Q3 of last year and within our targeted range. As noted earlier, we experienced a modest uptick in delinquencies within the U.S. portfolios, reflecting normal seasonal trends and the broader macro pressures on our consumer segment discussed earlier. In response, we and our bank partners implemented underwriting adjustments and moderated new customer originations to maintain credit quality and deliver strong results within our established loss rate targets. In the U.K., while delivering record originations, Quid Market continued to deliver strong credit performance. Furthermore, in Canada, where we've been operating with optimized underwriting and a tighter posture for several quarters, we experienced our strongest ever quarterly credit performance in Q3. Taken together, credit performance for Propel as a whole remained well within our targeted range, reflecting the diversification benefits of our multi-market platform and the strength of our disciplined underwriting capabilities. Credit performance also continues to be supported by, firstly, the effectiveness of our AI-powered platform and disciplined underwriting by Propel and our bank partners; and secondly, the continued scale and maturation of the loan portfolio with a higher proportion of originations from return and existing customers who historically demonstrate lower default rates than new customers. Net charge-offs as a percentage of CLAB was 12% in Q3, also within our target range and consistent with seasonal trends. Overall, both the 52% provision and 12% net charge-off ratios remain firmly within expectations and continue to support strong unit economics and sustainable profitable growth. Turning to profitability. Adjusted net income increased to $16.2 million in Q3 2025, up 16% from last year. On an EPS basis, diluted adjusted EPS grew to $0.38 for the quarter. For the 9-month period, adjusted net income increased to $58.7 million and diluted adjusted EPS grew to $1.39, both representing 9-month period records. As a reminder, all figures are expressed in U.S. dollars. The year-over-year increase in earnings reflects the company's strong top line growth, stable credit performance and disciplined expense management. I would note that our IFRS net income increased by 43% year-over-year, which is a larger increase relative to the adjusted measure. This is a result of two main factors. Firstly, a lower quarter-over-quarter CLAB increase in Q3 2025 relative to last year resulted in a relatively lower Stage 1 add-back this quarter. And secondly, transaction costs relating to the QuidMarket acquisition were expensed in Q3 last year, thereby reducing our Q3 2024 IFRS net income. On a return on equity basis, our annualized adjusted ROE for Q3 declined to 25% from 45% last year. For the year-to-date period, annualized adjusted ROE was 33% versus 52% last year. The declines were driven primarily by the CAD 115 million equity offering completed in Q4 2024 to finance the QuidMarket acquisition. We believe these metrics demonstrate strong returns to our investors as well as our ability to efficiently utilize shareholders' capital. Acquisition and data expenses increased by 41% to $18.3 million in Q3 2025, driven primarily by strong total originations funded growth and an increase in the cost per funded origination. Cost per funded origination increased to $0.089 per dollar in Q3 from $0.087 per dollar last year, while cost per new customer funded increased to $0.204 per dollar from $0.193 per dollar funded last year. Overall, these costs remain well within our acceptable range to achieve targeted profitability during a period of significant growth. Other operating expenses represented 15% of revenue in Q3 compared with 16% in Q3 last year. This reduction reflects several factors, investments in AI, driving operating efficiencies and the inherent operating leverage in our model. At the same time, these have been somewhat offset by the increased operating expenses this year due to our investments in our infrastructure to support forthcoming business development initiatives. These initiatives, several of which are nearing launch are expected to meaningfully contribute to growth and profitability as they scale. Lastly, operating expenses were impacted last year by onetime transaction costs relating to the Quip Market acquisition. Our profitability also benefited from a lower overall cost of debt, driven by recent interest rate reductions and improved credit facility terms. Combined, these factors decreased our cost of debt to 11% in Q3 from 13.4% in the prior year. Any further reductions in interest rates as we experienced in the U.S. and Canada last week will further benefit profitability. Overall, our adjusted net income margin was 11% in Q3 compared to 12% last year. The modest year-over-year decline in margin percentage primarily reflects a lower Stage 1 provision add-back and the strategic investments being made to support our growth initiatives. These initiatives are expected to drive growth and margin expansion over the long term. Turning to Propel's capitalization. At the end of Q3, we had approximately $125 million of undrawn capacity across our various credit facilities, and our debt-to-equity ratio was approximately 1.2x, reflecting a well-capitalized balance sheet and continued financial flexibility. We believe that our strong balance sheet, debt capacity and cash flow generation position us well to support the continued expansion of our existing programs, new growth initiatives and the recently increased dividend. Lastly, I want to provide an update on the integration of our U.K. business, which, as Clive mentioned, has achieved significant growth ahead of expectations. We successfully completed the integration of financial, corporate and IT systems ahead of schedule, including the identifying of enhanced acquisition, risk and analytics capabilities. We're now focused on accelerating growth through ongoing product enhancements, opening new customer acquisition channels, product expansion and the continued refinement of our underwriting and analytics strategies, all of which are helping us capture a greater share of the addressable market. Recently, Noah Buckman, our President and Chief Revenue Officer, joined me in the U.K. to meet with senior U.K. leadership and discuss new business development initiatives. These included potential strategic partnerships, marketing channels and innovative opportunities to further expand our U.K. footprint. The market remains full of potential, and we're confident the U.K. will continue to be a meaningful and growing contributor to Propel's success in 2026 and beyond. I'll now turn the call over to Clive. Clive Kinross: Thanks, Sheldon. We're now more than a month into our fourth quarter, and we and our bank partners continue to operate with a deliberate and disciplined underwriting stance. Operating in a dynamic macroeconomic environment and having observed a slight uptick in delinquencies in Q3, we proactively adjusted our underwriting to prioritize credit performance. Macroeconomic backdrop remains uncertain, particularly in the U.S. where persistent inflation in essential spending categories and moderating wage growth continue to pressure lower income consumers. The recent federal government shutdown has also temporarily impacted some consumers further tightening household budgets. When we provided our initial 2025 guidance in March, the economic backdrop look materially different. Since then, new U.S. trade tariffs, sustained inflationary pressure and slower real wage growth created a more cautious operating -- given the evolving dynamics and consistent with our long-standing commitment to profitable growth, we are maintaining a cautious risk posture. As prudent operators, we have always prioritized disciplined risk management over short-term expansion. This deliberate approach ensures we protect credit quality, sustain profitability and position the business for long-term success. Importantly, we're continuing to see the benefits of these actions with continued stability in portfolio performance despite an uncertain macroeconomic backdrop. Reflecting this disciplined stance and the resulting slower pace of NCA growth, we are modestly revising our 2025 guidance. We now expect NCAB growth to come in moderately below the low end of our previously communicated range with the adjusted margin and adjusted return on equity metrics following a similar trend. Important we continue to expect to be in line with our full year targets for revenue, net income margin and return on equity. While growth has moderated this measured approach is deliberate so that we can remain well positioned for continued profitable growth heading into 2026. Looking ahead, our business development pipeline is robust, and we are well positioned heading into 2026 with several strategic initiatives underway. Starting in the U.S., which remains our largest market, we continue to see significant untapped potential. In the weeks and months to come, we expect to announce strategic initiatives designed to expand our addressable market by introducing new products, expanding into new geographies and building new partnerships. In Canada, while the impact of U.S. trade tariffs and a higher unemployment rate are weighing on consumers, the market remains sign government of Canada recently noted there is a clear need for greater competition in financial services. We're actively pursuing partnerships across Canada's fintech ecosystem to deliver modern forward credit solutions and expand access to credit for Canadian consumers. In the U.K., strong originations and credit performance continue to exceed expectations. We now expect top line growth of more than 50% in 2025, our first full year since acquiring Markets. The business is well positioned to accelerate this momentum into 2026 and beyond as we further expand our product set, deep partnerships and further leverage our technology and analytics cap. Just over a year since joining Propel, the U.K. team has exceeded all of our expectations, demonstrating the passion, discipline, expertise and focus on profitable growth that position us to succeed in this market. A key pillar to our growth strategy is geographic expansion and through the recent performance of the U.K. and Canada, we are already seeing the benefits of that diversification strategy. AI is also central to our growth strategy and has been integral to our success. As you know, for the past decade, AI has been a differentiator to underwrite underserved consumers at scale. But with the advancements in generative AI, we go even further to embed AI into every -- over the past several quarters we've made significant investments in partnerships to enhance productivity and decision-making across the organization from improving customer service and satisfaction to streamlining marketing to accelerating software development. While these investments weigh on profitability in 2025, we are already seeing efficiencies materialize. For example, we set records for percentage of customers in Q3 this year at approximately 60%, up from 50% in the prior year. When we look at other gains made year-over-year, loans originated per agent in Q3 2025 were 53% higher in Q3 2024. The gains are in our origins Use of AI generative tools and software engineering has doubled unit test, meaning that one developer is able to produce more accurate and stable code, which in the longer term saves developer resources. We expect to see these initiatives accelerate into 2026 as we improve service levels whilst also driving increasing bottom line margins. Ultimately, while technology and AI at our foundation, it's our people that have made Propel a success. The passion and focus of our teams across North America and the U.K. turn innovation into performance and ambition into results. Our voluntary turnover is around 3%. And looking at our senior leadership team where the average tenure is more than 7 years, the turnover is even lower. People who come to Propel stay at Propel and in doing so, strengthen our company. Powered by investments in AI by our people, Propel continues to be recognized for exceptional growth and performance. In the past quarter alone, we were named to the Global [indiscernible] companies, Deloitte Technology Fast 50 and the TSX 30, where we ranked as the sixth best performing stock over the past 3 years. These achievements reflect what our shareholders already know. We've built a powerhouse that delivers quarter after quarter. It's now been 4 years since our IPO. And over that time, we've delivered consistent compounding growth, including 16 consecutive quarters of year-over-year revenue growth of at least 30% figin6000ans and serving hundreds of thousands of consumers across North America and the U.K. 50% CAGR in LTM revenues and 55% in LTM adjusted net income and dividend increases, resulting in a cumulative increase of more than 120% and we're just getting started. That concludes our prepared remarks. Operator, you may now open the line for questions. Operator: [Operator Instructions] And your first question comes from Matthew Lee with Canaccord Genuity. Matthew Lee: I want to start with the guidance. If I've done the math correctly, it sounds like a pretty big step down in origination activity for Q4, even with credit remaining pretty steady. I understand you try to protect quality, but how quickly do you think you could turn that growth machine back on? And then when we look at 2026, should we be 20% to be the growth rate we're expecting on? Clive Kinross: Thanks so much, Matt. And maybe before I answer the question, let's just take a step back to see what's going on right now in the economy. I think a lot of people describe this economy as a K-shaped economy where kind of the rich are getting richer and those that are struggling, there's more and more of them that are struggling. I was actually on a call recently with TransUnion with the top economists over there, and they were just speaking about the bifurcation in the credit market. There's a real polarization with the super prime segment of the market growing and the other big growth is happening in the subprime segment of the market in terms of applications. Everything between the two is shifting to the two poles. And it's important to think about why that's happening. The unemployment rate in the U.S. has started to trickle up a little bit -- we don't know exactly what it is in this government shutdown, but the ADP data suggested that it's gone up in the last couple of months. I recently actually earlier this morning saw that they actually said there was job growth in October. So that's encouraging. But at the same time, given this backdrop, wages are also starting to have softened a little bit or wage growth particularly for our consumer, all of which translates to lower real wage growth. So that's different to what we've been experiencing in the last few years. On top of it, we're right in the midst of a big U.S. government shutdown, the longest U.S. government shutdown in history. And the easy thing for us to understand in that context is employees being furloughed, many of whom are not customers of ours in and around Washington, D.C., Virginia places like that. So we're not really impacted by that. government shutdown has impacted other areas of the economy. SNAP benefits go out to about 40 million consumers. Some of those consumers overlap with our customer segments. You also have the Affordable Care Act where prices are set to go up currently, even though it hasn't impact consumer spending yet, those two developments are certainly impacting consumer sentiment, which in turn is driving slower spending, particularly by our consumers and slowing growth down a little bit. So that's the broader market. And until the government shutdown is over, and I suspect now that these recent elections are behind us, the government shutdown will come to an end sooner rather than later. But until they are, we need to be prudent in the face of some of these risks. And as a result of that, as you say, we're prioritizing credit quality ahead of anything else we are growing at the pace that we continue to perform in line with our credit quality standards. Notwithstanding these comments, let me provide a little bit of additional color. The steps that we've taken in further tightening our underwriting has led to declining delinquencies. So we're already seeing the improvement in delinquencies in our partly in the U.S. market, which is where the majority of the adjustments were made. But bear in mind, we moved quickly to fine-tune or to tighten our underwriting and we move a lot slower to open it up as we start to see green shoots and positive signs in the economy. So we've already started to gradually open up from where we were and I absolutely suspect that by the end of the year, our approval rate will be where we thought it would be. But that said, it's going to take a little bit of time to grow into that. Just a little bit of additional color every day when I look at our management reporting systems, which are contrasting the volume of applications relative to the initial budget that we set at the beginning of the year, I can tell you I see green on the screen every single day, meaning the number of applications that we're seeing is significant and higher than our initial expectations, which really dovetails and is consistent with my comments about the polarizing economy that we're seeing right now. There's zero issue with the number of applications we're seeing. If anything, that's growing. And I do know in every single crisis that we've seen over the last few years, the global financial crisis of '08, the oil price collapse of 2014, COVID-19, the spike of 2023, our segment of the market has grown. So we absolutely expect that at the end of the day, with the pullback in risk, our segment of the market will grow significantly. And if anything, that we absolutely expect to return to the growth metrics in 2025. Now you meant 2026, sorry. Now part of your question was speaking about CLAB growth. Bear in mind more and more of the growth in our business is also going to be reflected in CLAB. We mentioned at the Canaccord conference earlier this year that we expect as a Service program, which is the CLAB to grow at around 10% in 2026. We don't -- we still have that position. And by the same token, as brilliantly as the U.K. is doing, we expect that to accelerate as well and continue to believe that, that will produce 100% growth in 2026, even though the impact on the CLAB is not that material. The final thing I'd like to say is we have several business development initiatives that we hope to be announcing in the coming days and weeks that if anything, will accelerate the growth beyond what I just spoke to. Sheldon Saidakovsky: Matt, maybe -- I just wanted to add one data point over here just on top of what Clive provided a lot of good context. We've seen this before. the beauty of our operating model is that we can adapt and shift very quickly, tighten and then once we like what's going on, we can, as Clive said, gradually open again. We saw this earlier in 2022. In Q4, just that as a data point, in Q4 2023, we had tightened relatively speaking, where we saw CLAB growth by about 36% in that quarter. And 2 quarters later, we were growing CLAB by 44%. So just to put into context a couple of data points, how we can shift things around. We've seen this in Q4 recently. And 1 quarter later, we were right back kind of with almost 10% absolute higher growth. Matthew Lee: That's helpful. So maybe just as a follow-up on that, if we have the government shutdown stopping today, for example, and credit quality starts looking better, could you be back to kind of steady state or historical growth by December? Like is that the speed at which you guys can move that machine? Or is there other things that need to kind of come into place before we reach that kind of level? Clive Kinross: Yes, certainly. So just to be clear and just to explain in a little bit broader terms the government shutdown and if we're seeing anything, even though SNAP benefits supposedly stopped this month, the states in the U.S. have different coverage for the SNAP benefits. Some of the southern states have a higher percentage of their consumers who are eligible for SNAP benefits. And for sure, you're seeing the impact of that in those states where they have relatively higher delinquencies than we've seen in other parts of the country. All of which is to say once the government shut down once the government opens up again, I absolutely expect to see those turning around relatively quickly, which again is what we've seen in the past. One of the benefits of doing this for 14 years is that there's nothing new under the sum we've seen this before and we know when we know when to put our foot on the gas. So from a new origination standpoint, we can absolutely be at the absolute number of new originations towards the back half of December as would have been the case. But what we cannot make up, we cannot make up a slightly lower at the end of and slightly slower growth in October relative to what we thought we would be, which means we can't make up the full difference heading into the end of the year. So where we thought that the CLAB in was going to be 25%, it's going to be less than that as you can see with our revised guidance, but we expect to end the year give or take the same number of new loan originations that otherwise would have been the case, and that will serve us well heading into 2026 over and above the new initiatives that we'll be announcing soon that will further fuel that growth. Matthew Lee: That's helpful. And then I just want to sneak one last one in here. Philosophically, your shares are trading at a place that's probably too low. Would you consider a buyback to be honest. Clive Kinross: Yes, philosophic, we think that we agree with you. And when I say we, I'm really referring more to our Board and our Board discussion as recently as last night where that became a much more serious consideration given where the share prices are, given where the shares trading, notwithstanding a company that's consistently demonstrated 30% quarter-over-quarter growth since being a public company, including the most recent quarter as well as 50% bottom line growth. So that's certainly a more serious consideration. We're thinking hard about it, Matt. We need to weigh that up against some of the big investments that we've got coming down the pipe to really launch some of these big initiatives which I think [indiscernible]. Operator: Your next question comes from Andrew Scott with ROTH Capital Partners. Andrew Scutt: [Technical Difficulty] So first one for me, something in the prepared remarks as you guys are talking about potentially expanding your footprint with the market. So could you kind of remind us of the competitive environment in the U.K., the market faces and your kind of belief and ability to capture market share there? Sheldon Saidakovsky: Yes. Andrew, thanks for the question. Yes, I mean, the U.K. market is very exciting. Obviously, it was our -- we really liked it to start with, and that was one of the key criteria in our acquisition strategy. We needed to really, really like and be bullish on the jurisdiction. Just to remind you and everyone just around kind of the thesis over there, there were a lot of regulatory changes in the U.K. from the Financial Conduct Authority a number of years ago. And that the regulator kind of acknowledged that they overcorrected. It led to a lot of kind of a huge growth in illicit lending or legal lending in the U.K. and an exit of a significant amount of credit supply. A lot of big players, actually a couple of U.S. big players used to operate in the U.K. and they exited after those significant regulatory changes. Quid market actually sort of survived through that as did a couple of other strong operators. But effectively, on the other side, that led to a vast sort of undersupply of credit relative to the demand in the market. There just weren't any dominant players like, for example, a goeasy that you see in Canada or some of our competitors in the U.S. There was nothing like -- there's nothing like that in the U.K. today, although demand is growing significantly. So that's kind of the competitive aspect over there, which allows QuidMarket to have grown by the percentages that they've grown by 30% to 40% before we acquired them, really by cherry taking good quality volume in the market. Now with us on board, applying our sophisticated underwriting and technology capabilities and having their systems ultimately integrate with ours us being able to open a number of marketing partnerships and channels that they haven't had before and applying our expertise in terms of profitability modeling and product expansion and finally, having the balance sheet to finance them will enable QuidMarket to really hit its stride and start growing in the U.K. So without having integrated all of this optimization that I'm speaking about, we're sort of on a path to do so, we're still pushing the growth in excess of 50% this year. But starting next year, we're expecting to accelerate that growth much faster as we really start to put our foot on the growth side and start integrating a lot of those -- a lot of our expertise and capabilities. Andrew Scutt: Really appreciate the color. And second for me, you guys have talked a lot about preemptively tightening the underwriting. But on the flip side, I was wondering, are there any initiatives you guys can put in place on the servicing side to kind of support your customers as they're going through the stress now? Clive Kinross: Yes. Look, to the extent that customers call us and ask us for concessions, obviously, we like to accommodate those where need be. There's certainly been a slight uptick in those requests, as you would imagine. And if you said to me what's the #1 reason for it, the #1 reason for it and what we keep hearing from consumers, which is one of the benefits of our [indiscernible] and government shutdown. So to the extent that they do that where possible, we try and accommodate those concessions to keep these consumers in good standing so that it doesn't impact their credit profile. From our perspective, it's obviously a little bit detrimental for a tiny portion of our consumers in so far as oftentimes, we'll waive the next payment. But once again, it's a tiny percentage of consumers, albeit has grown a little bit in this government shutdown. Hopefully, and based on experience, that will come to a halt as soon as things open up again. Operator: Your next question comes from Rob Goff with Ventum. Rob Goff: You talked about the new product developments in the last 2 quarters. Can you talk a bit further in terms of how significant you see the geographic expansion? How impactful are the new services? Are they more fine-tuning or new introductions... Clive Kinross: Yes. Yes, it's a great question. Let me think carefully, Rob, about how to frame it up because we're getting closer and closer to be able to provide more detail. I think what I we're always very, very concerned about our credibility and we're very concerned always about doing what we say we're going to do. So everybody on this call and most people have been long-standing investors know that about us. And sorry that I'm a little bit over here. And I also know that we've always said we prioritize credit quality over everything else and profitable growth over everything else. So I know a bit over there. But these are initiatives that are going to provide geographic expansion in our biggest market, that's the U.S. market and also going to facilitate the addition of new products also for underserved consumers but different segments of underserved consumers so they will expand our geographic reach as well as expand our consumer reach by offering products to products themselves and the underwriting and risk and marketing associated with those customers is not that different to what we currently have in place, which is why we feel highly confident that when we do launch these, we'll be able to hit the ground running and they will be incremental in a fairly sizable way early on of the launch. Rob Goff: I appreciate the sit. And perhaps more for Sheldon. It's encouraging to read the discussion with respect to quid market and talks about 100% growth next year. Can you talk about the significance of partnerships there and new services? Sheldon Saidakovsky: Yes. Rob, yes, the market is, as I mentioned, it's wide open over there. And I think that right now, markets acquisition strategy and acquisition, I would say, the channels through which they acquire customers look a lot like what ours looked, call it, probably 4, 5 years ago. Now over the last number of years, as our profile has grown, our capabilities have grown, we've been able to open up new channels and spend money on initiatives and marketing distribution channels that we never had before. We've gotten to scale in a number of them in the U.S. in the U.S. market. And with that, we'll be able to bring those capabilities and open up those channels in the U.K. So notwithstanding that, the company is still growing well in excess of 50% just given their marketing channels available to them right now. The way we're going to get well beyond the 50%, I mean, you mentioned 100% that is an official guidance, but we have spoken about that before. That's certainly possible, and we'll be able to achieve that by expanding some of their origination channels and entering into some key partnerships. So that's certainly part of our immediate strategy. Operator: Your next question comes from Jeff Fenwick with Cormark Securities. Jeff Fenwick: I wanted to focus in on the relationship you have with your bank partners. You referred to that making changes in conjunction with them. I was hoping you could just give us a bit of color in terms of just the balance of decision-making. Is there ever disagreement there? Who's really sort of driving the decisions in terms of adjustments to the credit box or the volume of originations that you're doing? And I think it's probably different between your sort of traditional model that you have with CreditFresh versus the lending as a Service programs that you're structuring now. But could you just maybe offer us a little bit of commentary around that? And are you in agreement or what happens if you disagree? Clive Kinross: Yes. No, it's a great question, and it's certainly a very collaborative approach. As you can imagine, we have an exceptionally close relationship across the board with our bank partners. Several key executives and employees at Propel are in contact with our bank partners on a regular basis. So they understand exactly what's going on with the business. They're tracking daily activities of originations, delinquencies, things like that. And more often than not, they're the ones leaning in and they're the ones suggesting that we tighten up and ask us for additional data to support those decisions. And more often than not, we're on the exact same page -- that's the way it's been since day 1. And the collaborative approach ultimately with them taking the initial initiative has worked exceptionally well and continues to work well in this environment. We're getting -- we're now getting more calls from them suggesting that with the demand -- the strong demand that we're seeing in the market and delinquencies coming back in line with where we expect them to, can we open things up a little bit more. And as recently as earlier this week – was it earlier this week? Yes, earlier this week, we already started to put some of those initiatives in place. Jeff Fenwick: And I guess within the Lending as a Service program, I mean that's one where I would imagine you've got partners both on the front and the back end on the funding side of things, like there's going to be something maybe a bit more of a dynamic the way that you work with those players are in a situation where they can say let's just stop when you want to go or help us understand how that relationship works. Clive Kinross: Yes. So yes, you're right in the sense that it's a 3-way relationship. And in that sense, those loans ultimately don't go on our balance sheet, they go on somebody else's balance sheet and not dissimilar to our bank partners, the purchasers who purchase those receivables are taking the activity each and every day, loan originations, the delinquency performance. And one of the reasons that they're increasing their commitments is because they're seeing the returns that we represent that they would see. But that said, similar to what's happened in our sponsorship business. We've had to maintain a tight underwriting posture for them too, meaning the way they've continued to those returns in Q3 was through a tighter underwriting posture, meaning the 4x-over-year growth that we saw would have been even higher had we maintained the same underwriting posture. We're now in a position, again, with our bank partners and with their support where we could start to open up a little bit. And as we do, we'll continue to drive more growth over there. The good thing is because they've gotten those returns, they all -- the majority of them last their -- so we're very well positioned to continue to expand and grow that program going forward. One of the things that I've been saying on the call leading up to this point is at the early stages of this program, it really has been an exercise of bringing on the capital at the same time as we expand our geographic reach over there and our distribution partnerships. And if anything, where we were playing catch up all the time was bringing the capital to the table. Where we are right now is that's almost balanced in the sense that there's almost enough capital to drive the growth to support the market demand. Jeff Fenwick: And then maybe just last one because we are in a bit of a dynamic environment here, is that maybe what's causing a little bit of delay in terms of the expansion of lending as a service. You did say you were making progress there, which is good to hear, but is it sort of that sort of dynamic that might be slowing down the process... Clive Kinross: Just say it again, if you don't mind, I'm not sure that... Jeff Fenwick: Sure. There was commentary that you're expanding lending as a service. But I'm just wondering, we haven't seen new announcements yet on that. Is there just some concerns maybe or maybe some hesitancy on those partners given the volatility we're seeing in the U.S. market to sign on the bottom line and move forward? Or what's the dynamic there? Clive Kinross: Yes. It's one of the interesting things about running a public company is the emphasis on quarter-to-quarter. And I would say that at a high level, and what's the impact from the slowdown for the long-term growth of the company, and I'll get to your question in a minute. I think that the fundamentals of providing credit to underbanked and underserved consumers have never been stronger. The market opportunity ahead of us is going to grow at the back of this. I was watching the election results coming out of the U.S. last night. And to me, the biggest element on the elections last night was affordability. That speaks to our customers. More and more of them are the underserved market is growing, the need for this type of credit is going to grow on a go-forward basis. Given the long-term trajectory, I would say that the growth is probably going to slow us down by maybe a quarter, maybe we'll get to where we're ultimately going to get to 1 quarter later. That's kind of how I would view it in light of these developments and I the same thing as it relates to as a service. One day, we're going to look at it and think back to the early days of some of the gyrations quarter-to-quarter, which ultimately will smoothen out over time, all of which is to say watch this space, you're going to see a lot of really interesting developments in the lending service arena that will, if anything, speak to accelerated growth there on a go-forward basis. Operator: Your next question comes from Stephen Boland with Raymond James. Stephen Boland: Yes. Just one question. Sheldon, in the past, you talked about diversifying your funding sources. I know with maybe slower growth, that's not a big requirement. You did talk about term debt in the past. I'm just wondering if there's any update in terms of funding sources going forward. Sheldon Saidakovsky: Yes. Steve, yes, we're constantly looking at ways to, number one, lower our cost of debt; and number two, sort of size up our capital requirement on a go-forward basis. Firstly, I mean, our cost of debt has come down quite a lot year-over-year to 11% from close to 13.5%. And that's as a result of our renegotiated credit fresh facility earlier in the year and the reduction in the rates, in the government rates generally. So any further reductions are going to be a tailwind for us. It will reduce our cost of debt further. And also, I would say that from an overall capacity standpoint, we're pretty well situated right now. I mean our debt-to-equity ratio is lower than 1.2:1 going into Q4. So we don't have an immediate need to upsize. And hopefully, we expect further reductions in our cost of debt just given future rate changes. With all of that said, we are looking specifically at increasing our capacity on the Canadian side, in particular. Clive mentioned earlier in the call that our credit performance in Canada, in particular, just this past Q3 was our best ever. So we're feeling better and more bullish on growing the Canadian side. And with that said, we'll look to optimize the capital structure over there, reduce the debt and increase capacity. And then also the term debt or high-yield bonds -- they're always out there for us, and we're always sort of examining them on when is the right time to go in and what the best use of proceeds will be. But that will, I would say, will eventually come. We just don't have any specific guidance right now. Operator: There are no further questions at this time. I'd like to turn the call back over to Clive. Clive Kinross: Yes. Thank you again, everybody, for attending our call this morning. I would also like to thank our investors and partners for their continued support and our vision of building a new world of financial opportunity. And as always, I would like to extend a big thank you to the Propel teams in Canada and the U.K. for delivering these outstanding record results and achievements. On that note, have an excellent day. And operator, you may end the call. Operator: Thank you so much for your participation. You may now disconnect.
Operator: Good day, and welcome to InMode's Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Miri Segal, CEO of MS IR. Please go ahead. Miri Segal-Scharia: Thank you, operator, and everyone, for joining us today. Before we begin, I would like to remind our listeners that certain information shared on this call may contain forward-looking statements and the safe harbor statement outlined in today's earnings release also pertains to this call. If you have not received a copy of the release, please visit the Investor Relations section of the company's website. Changes in business, competitive, technological, regulatory and other factors could cause actual results to differ materially from those expressed by the forward-looking statements made today. Our historical results are not necessarily indicative of future performance. As such, we can give no assurance as to the accuracy of our forward-looking statements and assume no obligation to update them, except as required by law. With that, I'd like to turn the call over to Moshe Mizrahy, InMode's CEO. Moshe, please go ahead. Moshe Mizrahy: Thank you, Miri, and to everyone for joining us. With me today are Dr. Michael Kreindel, our Co-Founder and Chief Technology Officer; Yair Malca, our Chief Financial Officer; and Rafael Lickerman, our VP of Finance. Following our prepared remarks, we will all be available to answer your questions. The third quarter progressed in line with our expectation, even as we navigated a complex economic environment. Our performance this quarter reflects the strength in our diversified portfolio and the disciplined execution of our strategy. We remain focused on expanding our presence in high-growth markets and position the company well into the future. This quarter, we expanded our global footprint with opening a new subsidiary in Argentina, an important milestone, our regional growth strategy. Establishing a local presence in this key market will allow us to better serve customers through direct engagement and localized support. We are now focused on obtaining final clinical clearances and expect to begin generating internal initial revenue by the end of 2025. Following the earlier launch of our subsidiary in Thailand, we are actively building strong local team to drive sales, laying the groundwork for sustainable growth across both regions. As we noted in our Q2 update, we conducted a soft launch of the men wellness platforms to introduce it to selected users and early adopters, so we can gather initial clinical feedback. The full commercial rollout event took place during the third quarter and we expect the beginning of revenue contribution toward the end of the year. Finally, I'm excited to share some important news about a key leadership addition to our team. We recently appointed Michael Dennison as our President of North America. Michael is an entrepreneur-driven and award-winning sales leader who has built an impressive career in the medical aesthetic device industry, holding nearly every sales role along the way with over close to decade at InMode. Michael advanced from District Sales Manager to Vice President of Sales, helping to grow revenue nationally, expand market share and build a strong distribution network across North America. Looking ahead, we recognize the challenges in the marketplace, but remain confident in our competitive advantages, including our strong financial position, diverse and innovative portfolio and trusted global brand. These strengths position us as the global leader in the minimally invasive aesthetic and wellness industry. Now I would like to turn the call over to Yair, our Chief Financial Officer. Yair, please. Yair Malca: Thanks, Moshe, and hello, everyone. Thank you for joining us. I would like to review our Q3 2025 financial results in more detail. InMode generated revenues of $93.2 million. As a reminder, when comparing year-over-year results, last year's quarterly revenue of $130.2 million included $31.9 million in preorder sales. Even with the traditional Q3 seasonality, consumables and service revenues were $19.9 million, up 26% year-over-year. This growth in consumables was driven primarily by markets outside of the U.S. Our minimally invasive platforms accounted for 75% of total revenues this quarter. Sales outside of the U.S. increased slightly to $40 million or 43% of overall sales, a 10% increase year-over-year. The United States was the largest geographical revenue contributor, reaching $53.2 million. GAAP and non-GAAP gross margins in Q3 were 78%, down from 82% reported in Q3 2024. As expected, our third quarter gross margins were lower due to the anticipated impact of tariffs, which we had incorporated into our outlook. As part of our global expansion, we currently have 284 direct sales reps and distributors coverage in more than 73 countries. Sales and marketing expenses decreased to $44.9 million from $51.9 million in the same period last year. The year-over-year decrease primarily reflects the reduction in sales between the 2 periods. GAAP operating expenses in the third quarter were $51.4 million, an 11% year-over-year decrease. On a non-GAAP basis, operating expenses were $49.1 million this quarter, down from $54.4 million, a 10% decrease year-over-year. GAAP operating margin was 22%, down from 37% in the third quarter of 2024. On a non-GAAP basis, operating margin reached 25% compared to 40% last year. GAAP net income was $21.8 million, down from $50.9 million in the third quarter of 2024. On a non-GAAP basis, net income was $24.5 million, down from $54.9 million. GAAP diluted earnings per share for the third quarter were $0.34, down from $0.65 in Q3 of 2024. Non-GAAP diluted earnings per share was $0.38, down from $0.70 per diluted share in the third quarter of 2024. Share-based compensation declined to $2.7 million from $3.9 million in the third quarter of 2024. We ended the quarter with a strong balance sheet. As of September 30, 2025, the company had cash and cash equivalents, marketable securities and deposits of $532.3 million. This quarter, InMode generated $24.5 million in cash from operating activities. Before I turn the call back to Moshe, I would like to reiterate our guidance for 2025. Revenues to remain between $365 million to $375 million, non-GAAP gross margins to remain between 78% to 80%, non-GAAP income from operations to remain between $93 million and $98 million, non-GAAP earnings per diluted share to remain between $1.55 to $1.59. I will now turn over the call back to Moshe. Moshe Mizrahy: Thank you, Yair. Thank you very much. Operator, we are ready for the Q&A session. Please. Operator: [Operator Instructions] And your first question comes from Danielle Antalffy with UBS. Danielle Antalffy: Congrats on a good quarter here. Just curious, Yair, as you look at the Q4, the implied Q4 guidance based on what you provided at the midpoint, you did beat Q3. So it implies a little bit of a lower Q4 number. But I was wondering if you could level set us, sort of, as we think about the exit rate here in 2025 and look ahead to 2026, how we should be thinking about sales growth next year given the lingering uncertainties out there, I think consensus is sort of in the mid-single digit range? Yair Malca: I think it is a little bit too early for us to discuss guidance 2026. We would like to see how Q4 plays out before we discuss 2026. I think we would want to be somewhat conservative when we go into next year because of all the uncertainties, as you have mentioned. That's all I can say about 2026 at the moment. Danielle Antalffy: Okay. That's totally fair. I hear you. And then just the capital equipment environment, it looks like in Q3, international was weaker, U.S. not as weak. But in the U.S. specifically, we are in an environment now where interest rates are coming down. I mean, does this make you a little bit more optimistic as we look ahead to 2026, appreciating you want a conservative starting off point, but just maybe comments on hearing from customers? Is there increased interest now to purchase capital equipment as interest rates come down? Yair Malca: So the interest rate has come down, but not enough to see that trickle in a meaningful way into the financing of the capital equipment in the U.S. as hopefully it will continue to come down, then we will start see a more meaningful impact. And then hopefully, this will translate to additional or increase in capital equipment sales. And Moshe, go ahead. Moshe Mizrahy: No. What I wanted to say, it's not just in the United States. We don't see the end -- the light at the end of the tunnel as regard to financing capital equipment, especially medical equipment to clinics. I'm not talking about hospital and hospital is probably different. But as far as clinics who are buying capital equipment like for medical aesthetic or any other medical community, I mean, the interest rate on leasing are still very high. I know that the interest rate went down twice in the United States, 0.5%. In Europe has not yet. So we believe that sometime in 2026, when the U.S. will lead the reduction of interest rate, it will come up to other territories, but we don't see it yet. Operator: [Operator Instructions] Your next question comes from Matt Miksic with Barclays. Matthew Miksic: I had one question on the ophthalmology initiative that you've been sort of pushing forward over the last couple of years. It ran into some of your folks at AO and the general sentiment around the conference and around those specialties is significant upswing in dry eye treatment and significant interest, particularly in the optometrist channel. I'm just wondering any color or updates you have on your strategy there, the progress, contribution, if you want to go there? And then I had one quick follow-up. Moshe Mizrahy: Okay. Hi, this is Moshe. Well, let me answer your question on a couple -- 2 things. One, as regard to commercial and salespeople, we are separating the salespeople for the Envision from the rest of the aesthetic and starting 2026, it will be managed by a director who is responsible only for the Envision and the sales team will sell only to Envision to optometrists and also to ophthalmologists. We are making some progress with the American Optometrists Association. We have some agreements with them to do together some workshop in different state. And we started that at the second quarter, we continue on the third quarter and we have at least 3 events coming on the fourth quarter. In addition to that, as far as the ophthalmology, as you probably know, we still do not have the final clearance from the FDA to say that we're treating dry eye. We hopefully will -- we're still -- we negotiated with the FDA. I don't want to call it negotiated. It was a discussion with the FDA as regard to the protocol that we will do during the study to get the indication. We are in the last stage. We're doing some safety tests right now on [ Revit ]. Hopefully, they will approve it before the end of the year and we will start the study next year. It's not going to be a very long study, because you need to show some immediate effect. Hopefully, sometime towards the second quarter of 2026, we will finalize the results of the study, submit the FDA. So sometime towards the second half of 2026, we will be able to clear the indication and claim dry eye. But right now, not only in the United States, we have enough data that show the significant competitive advantage of any other modalities that deal with dry eye and we sell it without the clearance, just because we're explaining how it's worked. We do have the FDA clearance to the handpiece, either the Lumecca, the IPL or the bipolar RF. The 2 handpieces are already approved. So we sell it without the clear indication, but we have enough clinical data to show to the doctors and to the optometrists, they are also doctors, but they are ODs, to show them the advantage. And we are making progress. And hopefully, next year, once we have a distinguished and separated sales team, we will show better momentum. Matthew Miksic: That's very helpful. Just one, maybe zooming out to the broader business in aesthetics. Similar kind of question. When we all sort of, I think, have a sense of where you think the market is and waiting for sort of like this general sort of uptick or upswing in the cycle in the U.S. But in terms of new products, anything that you would call out in addition to this initiative and follow-through in optometry and ophthalmology that could start to kind of drive incremental growth in, say, early first half of '26, back half of '26? Any color on the pipeline would be super helpful. Moshe Mizrahy: Well, we have some products coming to the -- we will launch early next year, mainly in the aesthetic, some new lasers that we bring to the market. I don't want just to reveal the type of lasers and what exactly these lasers do, but they are very complementary to our aesthetic, I would say, portfolio. Two of them will be introduced during the national sales meeting in the U.S. sometime at the end of January '26. We will also present those 2 devices at IMCAS, which is the main conference in Europe, again, sometime in the beginning of February next year. Yes, we currently have enough projects on the R&D pipeline, aesthetic and wellness and we will launch them 2 at a time. Operator: [Operator Instructions] Your next question comes from [ Caitlin Roberts ] with Canaccord Genuity. Unknown Analyst: It's [ Michelle ] on for Caitlin. Can you maybe talk more about your rationale for picking Michael Dennison for the new role of President of North America and what he is working to drive in the early days in the new position? Moshe Mizrahy: Yes. Michael worked with us for more than 10 years. And before that, he used to work for Cynosure, which is another major company in medical aesthetics. He is relatively young, in the 40s. Basically, before he took the President position, he was Vice President for the East Coast of the U.S., doing very well. I would say the reason why we nominated him is because we didn't have -- we didn't want to have the East and West in the U.S. We want to combine all the territories under one management. And we thought Michael is the right guy to do it for InMode. And therefore, right now, we are combining all the territories under one manager, including Canada -- including Canada. And anything else that you want to know about him? I mean, he's well known. He knows the market, he knows the doctors. He knows everything about sales and marketing, many years of experience. As part of his taking the position of President, 2 VPs left. One was the VP West, which wanted to be a President, but we had to select only one; and also, the VP of Canada, and we're not hiring another VP for the West and VP for Canada. We rather have some sales director in every territory. We divide the U.S. into 6 territories and Canada is the seventh one and they all report to Michael at that point. Next year, we might appoint some other position for strategic planning and other, but we want to keep the entire North America operation under one roof. Unknown Analyst: That's great. And maybe one more from us on urology. How did the user meeting in late August go on the urology side? And have you begun rolling out the products or seeing revenue contribution? And then any commentary or directionality you could give us for your expectations for the urology business in 2026? Moshe Mizrahy: Urology, I understand you mean the men wellness. Yes, I mean, the August event was a user meeting that we had in Chicago and it was with something like 800 doctors. And we introduced that with the 2 lectures and presenting some clinical data that we had at that time, which was good clinical results. And now we are launching it and every aesthetic rep can sell this device as well. We are not separating yet. We want to see what will be the results until the end of the year and the beginning of 2026 and we'll make the decision later. Operator: And your next question comes from Sam Eiber with BTIG. Unknown Analyst: It's [ Alex ] on for Sam. So I just had a quick question on the OUS business. And so you mentioned that you guys opened a new subsidiary in Argentina this quarter and also have been expanding your efforts in Thailand. So can you just talk more about the strength in OUS this quarter? And how can we think about it moving forward? Moshe Mizrahy: You mean about the 2 subsidiaries that we opened this year? Unknown Analyst: And just OUS in general, like what are the trends there? Like how should we think about it, like for the end of the year and going into like '26? Like will it be more of the same or different? Moshe Mizrahy: Okay. If you're talking about OUS in general, currently, we have -- we're selling in 88 to 90 countries, out of which in Europe, we have 5 subsidiaries that cover 10 countries, Italy; Spain that cover Portugal as well; Germany cover Austria as well; France is covering Belgium as well; and U.K. is covering Ireland and Scotland. So these are all direct operations that we have in those countries, something like 10 countries. In Asia, we have 4 countries: Australia, India, Japan and the new established Thailand. And we are currently not planning to -- in 2025, we are not planning to add more countries, not in Europe and not in Asia. The only one country that we have direct right now in Latin America is Argentina. And the base we build in Argentina is also responsible to manage all the distributors in Latin America. As far as managing the distributors in EMEA, Europe, Middle East and Africa, we have a base in London with the VP sitting there and he is responsible for all of this area. In North America, you know we have Michael Dennison managing all the North American operations, Canada and the U.S. And Israel is also a country where we are considering now going direct. We used to have 2 distributors, but we want to go direct starting 2026, because it's a home base and we want to sell direct here. It's important for us. I don't know which country will develop in 2026 to become direct operation. We have not yet decided. We have several alternatives and we're exploring several opportunities, but we are just now focusing in the last 2 that we established in the last 6 months. Operator: And your next question comes from Mike Matson with Needham. Unknown Analyst: This is [ Joseph ] on for Mike. I guess apologies if this was already asked, as I hopped on from a different call. But just looking at noninvasive growth, obviously, you guys had a really large quarter in the second quarter and dropped back down this quarter. I'm just kind of wondering how should we think about the lumpiness of this division? Is it -- was there just large orders in the second quarter and it's more stabilized from here out? Yes. Any color there would be helpful. Moshe Mizrahy: You mean on the noninvasive and non-ablative. That's correct? Unknown Analyst: Yes. Moshe Mizrahy: Okay. Let me say something before. I would say that except 1 or 2 platforms that we sell, almost every platform that we sell has at least one invasive or ablative handpiece, either Morpheus body face or the Ignite or the BodyTite. What we sell noninvasive, it's what we call the commodity type product like all the other competitors, diode laser, IPL, noninvasive RF, hands-free devices. We don't have -- we have a competitive advantage in this field and we would like it to grow, because we want to be one-stop shop to every doctor. So if the doctor needs a complementary technology to our minimally invasive and ablative, we wanted to buy from us. So this is -- and currently, we are developing some new lasers which are noninvasive. So this doesn't mean that we are now doing only things that are ablative and invasive. Everything is getting the same attention and we're developing the noninvasive as well. I don't know if I answered your question, but I believe that... Yair Malca: I would like to add that this year, Joseph, we -- the 2 new products that we added happened to be noninvasive, the CO2 that we added in the beginning of the year and men health that we added after. So this is the reason for the increase that you see in the noninvasive category for us. Unknown Analyst: I see. So just a lot of orders for customers that were waiting for those new platforms and a lot of that was realized in the second quarter. No, that's helpful. And then maybe just one quick one, just touching on the consumables growth. I'm curious how many handpieces you guys sold in the quarter and just how you're thinking about growth there in procedures. Moshe Mizrahy: In the third quarter of 2025, we sold about 230,000 disposable, which means onetime use tips, either for minimally invasive or ablative. Unknown Analyst: Okay. Great. That's helpful. So it looks like a sequential increase in the quarter. Okay. Yes. That's all very helpful. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Moshe Mizrahy, InMode's CEO, for any closing remarks. Moshe Mizrahy: Thank you, operator, and thank you, everybody, who attended this call. I want to thank the InMode team, especially in all the territories. And we hope that the fourth quarter, as always, will be the strongest one and we're looking forward to 2026. Thank you very much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, everyone, and thank you for standing by. My name is RG, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2025 Seres Therapeutics Results and Business Updates. [Operator Instructions] Thank you. I would now like to turn the call over to Dr. Carlo Tanzi of Investor Relations. Please go ahead. Carlo Tanzi: Thank you, and good morning. Today, before market opened, we issued a press release with our third quarter 2025 financial results and business updates available on the Investors and News section of our website. We've also posted an updated corporate presentation. Before we begin, I'd like to remind everyone that we will be making forward-looking statements, including statements around the results of our current or planned clinical trials, studies and data readouts, our product candidates and their potential benefits, development plans and potential commercial opportunities, interactions with and feedback from the FDA, our ability to secure an R&D or other partnership and/or generate or obtain additional capital, financing or other resources, our planned strategic focus and operating plans, cost reduction actions and anticipated benefits and cash runway, the timing of any of the foregoing and other statements which are not historical facts. Actual results may differ materially due to various risks and uncertainties and other important factors described under Risk Factors in our recent SEC filings. We undertake no obligation to update these statements, except as required by law. On today's call with prepared remarks are Marella Thorell, our Co-Chief Executive Officer and Chief Financial Officer; and Dr. Matthew Henn, our Chief Scientific Officer. Additional members of the management team, including Tom DesRosier, Co-CEO and Chief Legal Officer; Terri Young, Chief Commercial and Strategy Officer; and Dr. Dennis Walling, SVP of Clinical Development, will be available during the Q&A portion of the call. And with that, I'll turn the call over to Marella. Marella Thorell: Thank you, Carlo, and good morning, everyone. We made good progress during the quarter. Our immediate priority remains advancing SER-155, our lead investigational, oral, live biotherapeutic for the prevention of bloodstream infections, or BSIs, in adults undergoing allo-HSCT into a Phase II study. We believe that results in this study, if positive, could represent a very meaningful value creation event for the company. SER-155 represents a first-in-class mechanistically differentiated approach to address infections, including bloodstream and antimicrobial resistant infections, which are among the causes of mortality in medically compromised patients. In the Phase Ib study, treatment with SER-155 led to an impressive 77% relative risk reduction in bacterial bloodstream infections, along with decreased antibiotic exposure and febrile neutropenia. The therapy is designed to decolonize gastrointestinal pathogens, improve epithelial barrier integrity and restore immune balance, addressing root causes to prevent BSIs and therefore, reduce antibiotic use, antimicrobial resistance and often severe or fatal outcomes. Based on our analysis of the commercial opportunity, we believe that SER-155 could transform how allo-HSCT patients are managed and result in meaningfully improved patient outcomes. In September, we obtained further constructive feedback from the FDA on the SER-155 allo-HSCT program, which has received Breakthrough Therapy designation Phase II protocol. Based on the feedback received, we are pleased to have alignment on multiple key study parameters, including study size, dosing regimen, primary efficacy endpoint and the interim analysis plan. We do not believe there are any gating items to commencing the study from a protocol standpoint and are incorporating FDA feedback into the protocol. Notably, given the planned study design and our experience in this therapeutic area, we expect to be able to efficiently generate Phase II data in allo-HSCT patients, and we estimate that we will obtain meaningful placebo-controlled clinical results from a planned interim analysis within 12 months of study initiation with commencement being funding dependent. Beyond the initial allo-HSCT indication, we see significant expansion potential across other medically vulnerable populations, including autologous-HSCT patients, cancer patients with neutropenia, CAR-T therapy recipients and other medically compromised patients such as those in the ICU who face similar infection risks and unmet needs. Collectively, these represent a multibillion-dollar commercial opportunity in patients facing high unmet need and where there has been limited therapeutic innovation. As Matt will discuss, we also have an ongoing investigator-sponsored study at Memorial Sloan Kettering Cancer Center, evaluating SER-155 in an indication beyond infection that is of high interest, and we look forward to obtaining initial clinical results in early 2026 that may highlight the potential of SER-155 in immune-related negative clinical outcomes. While we advance SER-155 Phase II study start-up activities, we continue our efforts to seek capital in order to initiate the study and support our broader portfolio of product candidates with applications in inflammatory diseases. Advancing SER-155 is our top priority, and we continue to strive to obtain the resources needed to move the program forward. During the quarter, we also implemented targeted cost reduction measures, including a workforce reduction of approximately 25% to extend our cash runway and focus resources on core development priorities. We believe that the cost reduction actions, the resultant operating runway extension will provide us with additional opportunities to advance our strategic priorities. With that, I'll turn it over to Matt. Matthew Henn: Thank you, Marella. Seres continues to execute its R&D strategy with efficiency and discipline with a focus on expanding the reach of SER-155 and building on key clinical insights to advance our broader biotherapeutic pipeline. Our recent successes in clinical translation and leveraging external collaborations as well as securing non-dilutive funding allows us to evaluate important new opportunities for SER-155 in additional patient populations. We are thrilled to have recently announced that Seres has received a non-dilutive award from the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator or CARB-X, of up to $3.6 million. This award represents the second CARB-X grant to Seres and will support the development of an oral liquid formulation of SER-155, which is intended to expand future access to this biotherapeutic in medically vulnerable patients who cannot easily swallow capsules, including patients in intensive care units and some pediatric and elderly patients. Furthermore, we believe that this CARB-X award underscores the global recognition of the potential of our biotherapeutic approach to address antimicrobial resistance, a major global public health issue and a top strategic priority for CARB-X. Additionally, at the recent IDWeek conference, Seres presented new post-hoc analyses from our SER-155 Phase Ib study in allo-HSCT, which provided deeper insights into bloodstream infection patterns, antimicrobial resistance and clinical outcomes across treatment groups. These data further support SER-155's differentiated mechanism and its potential to reduce serious infections in patients with limited therapeutic options. Also notably, our collaboration with Memorial Sloan Kettering Cancer Center on an investigator-sponsored trial initiated by a clinician evaluating SER-155 in patients with immune checkpoint inhibitor-related enterocolitis, or irEC, continues to progress, and the study is currently enrolling subjects. irEC is among the most frequent and severe immune-related adverse events in recipients of immune checkpoint inhibitor therapy and can be observed in up to 50% of patients with rates varying based on cancer drug and treatment regimen. Immune checkpoint inhibitors can cause a wide range of immune-related adverse events with links to T cell biology and epithelial barrier inflammation, biological functions shown in our preclinical studies and clinical pharmacology data to be positively impacted by SER-155. irEC can be a serious condition characterized by diarrhea, abdominal pain, cramping, dehydration and blood in the stool and may progress to more serious complications such as bowel perforation, toxic megacolon or death. Management of irEC includes corticosteroids and other immune-suppressive drugs and can require withholding immune checkpoint treatment. We expect data will be available from this study early next year. We also continue to explore potential R&D partnerships to advance the development of our investigational live biotherapeutics in inflammatory and immune diseases, including ulcerative colitis and Crohn's disease. These represent large patient populations with a continued need for new mechanisms of action, in particular, therapies that can target epithelial barrier-driven inflammation and that are not immunosuppressive. Clinical and preclinical data generated through support from the Crohn's & Colitis Foundation support the potential use of our biotherapeutics to address these unmet medical needs and provide a new approach to treat these conditions, either as a monotherapy or combination therapy. We continue to advance our novel biotherapeutics using highly focused data-driven approach and look forward to continuing collaboration with our clinical and academic partners to bring important new therapies to patients in need. Marella Thorell: Thank you, Matt. I'll now turn to the third quarter financial results. As a reminder, Seres has classified all historical operating results for the VOWST business within discontinued operations in the consolidated statement of operations for the comparative periods presented, and there was no ongoing activity in this quarter related to the discontinued operations. Seres reported net income from continuing operations of $8.2 million in Q3 2025 as compared to a net loss from continuing operations of $51 million in the third quarter of 2024. The results this quarter are comprised of a $22.5 million loss from operations, offset by a $27.2 million gain on the sale of VOWST, resulting primarily from the $25 million installment payment received as expected from Nestlé during the third quarter. R&D expenses for this quarter were $12.6 million compared to $16.5 million in the third quarter of 2024, reflecting lower personnel and related costs, a decrease in platform investments and a reduction in clinical expenses resulting from the completion of the SER-155 Phase Ib study. G&A expenses were $9.5 million in the quarter compared to $12.7 million in Q3 2024, driven primarily by lower personnel and related expenses, including IT-related expenses. As of September 30, 2025, Seres had $47.6 million in cash and cash equivalents. Based on the company's current cash position, remaining VOWST transaction-related obligations and current operating plans, we expect to fund operations through the second quarter of 2026. To summarize, we are disciplined in managing our expenses and continue to work towards securing additional capital to support development activities. In early 2026, we expect to obtain additional SER-155 clinical results, which could highlight therapeutic opportunities in a new patient population. We have also made progress advancing SER-155 preparation activities to conduct a robust Phase II study, commencement of which is funding dependent. Based on the design of the Phase II study and the scope of the opportunity, we believe that positive study results, if achieved, could lead to tremendous value creation. Operator, you may now open the call for questions. Thank you. Operator: [Operator Instructions] Your first question comes from the line of John Newman of Canaccord. John Newman: You have some really interesting commentary on this IST at Sloan Kettering for immune checkpoint-related enterocolitis. I wonder if you could just talk to us a little bit more about anything you can tell us regarding the study design and also how you view the commercial opportunity there? Marella Thorell: Sure. John, thank you for the question. We're very excited about the study as well. MSK initiated this study, and we're pleased to be looking at one of what could be potentially many different applications for SER-155. As you know, there is a significant unmet need in this patient population, and so we're eager for the results as well. To elaborate a little bit more on the design of the study, I'd like to turn it over to Dennis, and he can share a little bit about the significant impact to patients who are on ICI of the irEC side effect. Dennis? Dennis M. Walling: Yes. Thank you, Marella. irEC is one of the most frequent and severe immune-related adverse events that patients experience in immune checkpoint inhibitor therapy. Up to 60% of patients with rates varying depending on the cancer treatment and regimen used can experience irEC. irEC can be a very serious condition, as Matt previously described, characterized by symptoms, including diarrhea and abdominal pain, cramping, dehydration, blood in the stool and can progress to more serious complications such as bowel perforation, toxic megacolon or even death. And the patients who experience irEC are treated with corticosteroids and other immunosuppressive drugs and also have to withhold their immune checkpoint inhibitor therapy. So the impact of this condition is significant and affects a significant number of patients undergoing this type of treatment. So this is the importance of why the study was originally designed and set up by the collaborator at MSK. The study is a small Phase I open-label study. The readout from this study is expected to occur in early 2026 and will be comprised primarily of safety data, drug pharmacology data and diarrhea symptom response data, following these patients through approximately 6 weeks on the study for those who have received SER-155 for irEC. Our hope is that we could see an impact on the diarrhea symptoms. And certainly, patients who would have improvement in the diarrhea symptoms without needing additional immunosuppressive therapy medications would be a very meaningful finding. So that type of a clinical outcome paired with the safety data and the drug pharmacology mechanistic data would be extraordinarily useful for us to help us plan and inform for any future development -- clinical development opportunities in this new indication. Marella Thorell: John, I just want to spend a minute to ask Terri to comment on the second aspect of your question regarding the commercial opportunity. Teresa Young: Thanks, Marella. John, thanks again for the question. As Dennis outlined, and this is a very common side effect of a very commonly used class of medications across many tumor types in oncology, perhaps best evidenced by KEYTRUDA net sales last year of almost $30 billion and growing at 18% versus 2023. So these are highly used agents growing, will continue to grow, particularly as biosimilars become available in the class. In terms of the patient impact, just double-clicking a little bit on what Dennis said, it's not uncommon for patients to have to either pause or discontinue their cancer treatment altogether to go down this detour of addressing the enterocolitis. It frequently drives them into the hospital. It's also a key limitation on physicians' choice of using combination therapies, which may be highly effective for treating the different tumors they're trying to address. But there's this nervousness or anxiety about using combination therapy or even increasing the dose to address the cancer. So we feel like we have a big problem here and a very nice solution to address it. We're very eager to get the data. Operator: Your next question comes from the line of Joseph Thome of TD Cowen. Joseph Thome: Maybe just a couple on the potential partnership deals. Can you talk a little bit about how much capital you would need to get to that initial SER-155 data within the 12 months of study initiation? And then I guess, secondly, anything that you can do to kind of convey confidence that you'll be able to achieve something within the next 6 months within your targeted cash runway? And then maybe last, if you're able to comment, there obviously was a report during the quarter that Nestlé made a takeout offer. Are you able to comment on if that was authentic and maybe why that wasn't an appropriate choice at that time? Marella Thorell: Great. Joe, thank you for the question. So first of all, just to talk a little bit about the design of the Phase II study. Importantly, that interim analysis 12 months after the study start will allow us a capital-efficient and timely recovery of data, and we are pleased to get feedback from the FDA that they were in alignment with that approach. As to the specific capital needs, we haven't guided on that other than to say that the timing of that and the way that we've designed the study, we do feel that we'll get meaningful safety and efficacy data given the patient count in this study at that IA point. We continue to make obtaining a partnership or another source of capital as our highest priority for SER-155, our lead candidate. So we are continuing to have interactions and looking at a variety of different sources from which that capital could be obtained. So while we can't comment on any specifics as to status, it remains our most important priority. With respect to your last question, we just make it a practice not to comment on rumors, Joe, so I can't comment specifically on that. Operator: That ends our Q&A session, and we appreciate your participation. I will now turn the call back over to the management for closing remarks. Please go ahead. Marella Thorell: Thank you. Thanks, everyone, for joining us this morning, and have a great day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, and welcome to the Green Plains Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to your host, Phil Boggs, Chief Financial Officer. Mr. Boggs, please go ahead. Phil Boggs: Good morning, and welcome to the Green Plains Inc. Third Quarter 2025 Earnings Call. Joining me on today's call is Chris Osowski, President and Chief Executive Officer; and other members of our leadership team. There is a slide presentation available, and you can find it on the Investor page under the Events and Presentations link on our website. During this call, we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's press release and the comments made during this conference call and in the Risk Factors section of our Form 10-K, Form 10-Q and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. And now I'd like to turn the call over to Chris Osowski. Chris Osowski: Thanks, Phil, and good morning, everyone. This has been a milestone quarter for Green Plains, one defined by operational excellence, discipline and execution. I want to first thank our employees for their hard work and dedication through what has been a very, very busy quarter. Also to our Board of Directors for their confidence in me and our leadership team and finally, to our shareholders for their continued support of Green Plains. I'm proud of what we have been able to accomplish, and I'm confident that we can and will continue to deliver sustainable, profitable results. For the first time in years, we entered the fourth quarter with no near-term debt concerns. Our balance sheet is restructured. Our carbon capture systems are up and operational in all 3 Nebraska locations, and our plants continue to perform at record levels. We built a simpler, fundamentally restructured business, allowing us to focus on value creation and strong consistent cash flows. In order to recap the major activities since our last call, we want to highlight the following. The first, we executed on the sale of the Obion, Tennessee facility and concluded our strategic review process. We used those funds to fully repay approximately $130 million of high-cost debt. And next, we refinanced most of our 2027 convertible debt with a new $200 million facility due in 2030. We also executed on our first 45Z clean fuel production tax credit monetization agreement. And finally, we commissioned and started up the carbon capture facility at York, Nebraska with the Wood River and Central City, Nebraska locations currently in the process of ramping up capture rates as we speak. Operationally, we're continuing to deliver record performance with our network of plants hitting over 101% capacity utilization, the highest level we reported in over a decade. This has been driven by our operational excellence programs that have been working in the background to improve fermentation yields and reduce plant downtime. We are seeing the results of what a focused effort can do with record or near-record yields for this group of plants in ethanol, corn oil and protein. Financially, this quarter's results, including $52.6 million in adjusted EBITDA and $11.9 million in net income reflect the new foundation we've laid, and this is just the start. During the quarter, we began realizing benefits from the 45Z clean fuel production tax credit, and we recognized $25 million of production tax credit value, net of discounts and costs during the quarter, and we anticipate another $15 million to $25 million of benefit in the fourth quarter. As we look to 2026, we anticipate these values to grow as we expand the program to all of our plants and see the impact from policy changes going into effect January 1. We're proud of the progress that we've made to deliver on what we said we would do, which is positioning us to provide solid transparent results in the fourth quarter and beyond. With that, I'll hand it back over to Phil to review the detailed financial results, and then I'll come back with a strategic update and commercial outlook. Phil Boggs: Thanks, Chris. For the third quarter of 2025, we reported net income attributable to Green Plains of $11.9 million or $0.17 per share versus Q3 of 2024 of $48.2 million or $0.69 per diluted share. This quarter includes $35.7 million in nonrecurring interest expense tied to the extinguishment of our high-cost junior mezzanine debt. The result also includes $2.7 million in onetime restructuring charges related to our cost reduction and efficiency improvement programs. Adjusted for restructuring charges, noncash charges and inclusive of the production tax credit benefits, Q3 2025 adjusted EBITDA ended at $52.6 million compared to Q3 2024 of $53.3 million. During the quarter, we strengthened our balance sheet and liquidity through the sale of our Obion asset in Tennessee. We used the proceeds to fully retire the junior mezzanine debt and enhance our liquidity. We also refinanced most of our 2027 convertible notes through a new $200 million convertible note due in 2030 and used $30 million from that transaction to buy back stock. We now have no significant debt maturities for the next several years. Revenue for the quarter was $508.5 million, down 22.8% year-over-year. Like last quarter, our Q3 revenue was lower because we exited ethanol marketing for Tharaldson earlier this year and placed our Fairmont ethanol asset on care and maintenance in January of this year. These items naturally reduced the gallons we had to market. SG&A totaled $29.3 million, which is $2.6 million higher than the prior year Q3. Last year's results benefited from some onetime true-ups related to compensation-related adjustments and payroll tax incentive refunds, while this quarter's results included some onetime expenses related to the final earn-outs at our FQT business. We continue to expect SG&A to improve on a go-forward run rate and remain on track to exit the year at a corporate and trade SG&A target of the low $40 million area with full company consolidated SG&A run rate in the low $90 million range, significantly improved from the $133 million and $118 million we incurred in 2023 and 2024. Q3 2025 depreciation and amortization finished at $25 million compared to $26.1 million in the prior year quarter. Interest expense rose to $47.8 million, including onetime charges totaling $35.7 million tied to the extension and then the retirement of the mezzanine notes. With that behind us now, we anticipate our recurring interest costs will fall significantly in Q4 and into 2026. We had an income tax benefit of $25.6 million. Our 45Z clean fuel production tax credits are recorded here under ASC 740 as deferred tax assets and then adjusted with the valuation allowance to recognize the likelihood of monetization resulting in the benefit. As a result, we recorded year-to-date production tax credits in the third quarter of $26.5 million, net of discounts. To match our view of operating performance, we've included the production tax credits in adjusted EBITDA. At the end of the quarter, our federal net operating loss balance of $200.5 million will provide future tax efficiency. Our normalized tax rate going forward is expected to remain in the 24% to 25% range. On the balance sheet, our consolidated liquidity at quarter end included $211.6 million in cash equivalents and restricted cash, $325 million in working capital revolver availability, which is designated primarily for financing commodity inventories and receivables within our business. We had $136.7 million in unrestricted liquidity available to corporate. Capital expenditures in Q3 were $4 million, including maintenance, safety and regulatory investments. For the remainder of 2025, we expect capital expenditures to be approximately $5 million to $10 million, which excludes the carbon capture equipment for our Nebraska operations, which are already fully financed. Our balance sheet reflects the increase in the carbon equipment liability as anticipated as a natural result of progress that is occurring on the project. This now stands at $117.5 million, up from $82 million in the prior quarter. As the project reaches full completion, this will be reclassified to debt in future periods. With that, I'll turn the call back to Chris to provide some strategic updates and the commercial outlook. Chris Osowski: The balance sheet transformation we executed on earlier this year has fundamentally changed how this company operates. The sale of the Obion plant allowed us to fully retire high-cost mezzanine debt and simplify our capital structure. In October, we completed $200 million in privately negotiated exchange and subscription agreements to extend the maturity of our converts and further derisk the business. We ended the third quarter with $353 million in total debt, down over $220 million from year-end 2024. While our carbon capture liabilities will move to debt in the near future, we have no near-term debt maturities on the horizon other than the small remaining balance of the 2027 converts, leaving us plenty of runway to focus on operational excellence initiatives and delivering value for our shareholders. One of the significant operational excellence initiatives where we recently implemented is an overhaul of our CapEx policy and requirements for project justification and returns. This new rigor is aligned with our desire to be a data-driven organization that measures twice and cuts once. Going forward, we will apply these new processes as we prioritize our capital allocation strategy, which will be focusing on: number one, strengthening our plant assets and maintaining or improving throughput, reducing our plant's carbon intensity through projects such as low energy distillation or combined heat and power, debottlenecking plant assets are incrementally expanding capacity, delevering the balance sheet through targeted debt reductions and also options for returning capital to shareholders over time. We're developing a clear capital allocation matrix that weighs returns across each of these options so we can deploy capital where it drives the most long-term value. This is just one of the significant operational excellence initiatives we executed on during Q3. We've also completely revamped our plant financial models, taking into account all production scenarios and corresponding carbon intensity and P&L impacts. At the same time, we implemented a cross-functional sales and operations planning process and updated forecasting process that has equal involvement from our commercial, operations and finance teams. While in Q3, we delivered results marked by strong operational execution and one of our core expectations is continuous improvement. Previously, we mentioned in Q3, our plants achieved above 100% capacity utilization, and we feel it's time to raise the bar. As we complete our budget cycle, we will be reviewing the capacity of our fleet with an eye towards updating our baseline capacity numbers for 2026. With a focus on operational excellence, we are happy to be in a position to have to make this change. From the commercial perspective, the overall margin structure improved significantly through the second half of the third quarter and early part of the fourth quarter, driven by tighter ethanol supplies, lower input costs and stronger corn oil values. Ethanol prices rallied roughly $0.25 to $0.30 per gallon in August and September off of the early summer lows, while corn prices stayed subdued despite earlier expectations of a tight balance sheet. Favorable weather ultimately supported larger yields and a more balanced corn outlook. Corn oil prices increased early in Q3 following the 2026 RVO ruling before moderating late in the quarter. By contrast, DDGs and high protein values remained under pressure through much of the quarter given ample supply and typical seasonality. Looking ahead, with fall maintenance and peak summer driving behind us, ethanol prices have returned to more historical levels. Margins in the fourth quarter still remain attractive, and we are set up for a solid Q4 performance. We're about 75% hedged on crush in the fourth quarter and have put positions on for Q1 and 2026 following our disciplined hedging strategy that we've been executing on for several quarters now. Demand drivers are in place with healthy export volumes and a growing acceptance of E15, although we do expect to see typical seasonal volatility as we move through the back half of Q4 and into traditional weaker margin winter months. Before we move on to Q&A, I want to leave you with this perspective. Green Plains is no longer approaching an inflection point. We're right in the middle of it. With all 3 of our Nebraska facilities, Central City, Wood River and York now capturing CO2. This isn't a future of promise anymore. It's happening today. The equipment is running across all 3 locations, carbon is delivered to the pipeline, and we're generating credits. Our Advantage Nebraska strategy is operational and our overall decarbonization strategy has expanded to our entire operating platform. In closing, a lot of the heavy lifting has been done. We are entering a new chapter built on operational excellence, discipline and execution. We've simplified our business, strengthened our liquidity and have proven our ability to deliver. Our carbon strategy is now a reality. Physical CO2 is being captured and monetized and the earnings power of Green Plains is being transformed. We're confident in the path ahead as we finish 2025 on a strong note and look forward to 2026 and beyond. Operator, we'll now take questions. Operator: [Operator Instructions] Our first question comes from the line of Manav Gupta with UBS. Manav Gupta: You came in at a very challenging time, and you have seemed to turn this boat very quickly and very efficiently. I want to congratulate you on that. My question here is, sir, as you look forward for the next 9 to 12 months, what are your key challenges that you still think you have to encounter to get GPRE back at a run rate where it was probably 3 or 4 years ago? Chris Osowski: Yes, and thank you for the question. We really feel good about the actions taken over the last 6 to 9 months to manage costs in our network. We're really focused on making sure that our plant assets are competitive and the results of the operational excellence initiatives are really coming to fruition, whether it be looking at improved plant yields or reduced plant OpEx, we see these plants coming into a very competitive position. And in terms of other obstacles going forward, we are going to focus on the things that are within our control, and we need to deliver on the opportunities the carbon program is going to provide us. So we still have to run the plants, we still have to put gas in the pipe, and we still have to monetize the tax credits on top of being great at what we do day-to-day, which is buying corn, running plants efficiently and marketing our products to our client base. Manav Gupta: Perfect. My very quick follow-up is, as you move along this journey, it's becoming increasingly clear you are going from a state of cash burn to probably significant cash generation once all these plants start up and there is more policy clarity. Help us understand what could be the uses of some of those cash. As you said, you do not actually have any near-term maturities. So help us understand what could be the possible uses of this cash as you generate it in '26 and '27? Chris Osowski: Yes, sure. And first and foremost, we are going to maintain the health of our operating assets. So we're going to ensure that our plants can produce at a competitive position. And we want to drive those plants into the top 25% quartile of the industry. Next, we have numerous opportunities to further reduce our carbon intensity scores in plants, whether it be moving toward low-energy distillation technologies to further reduce natural gas or electrical consumption in plant or considerations for combined heat and power in plants. There are a lot of opportunities that are still available to us. And then debottlenecking and adding capacity where it makes sense. So these are some of the opportunities, along with further debt reduction and returning value to shareholders. Manav Gupta: Congrats on a very strong quarter. Operator: Your next question comes from the line of Pooran Sharma with Stephens Inc. Pooran Sharma: Just wondering if maybe we could talk about some of the incremental unlocks beyond your Advantage Nebraska strategy. And apologies if I missed the details in your prepared remarks. But I think the last time -- last quarter, the plan was to get about $50 million of EBITDA contribution from these assets that are non-Nebraska. And so you kind of went into detail on some of the initiatives you're working on. Now that we've gotten some visibility into 45Z contribution on Nebraska. I was wondering if you could maybe peel the onion a little bit in terms of what can you do to unlock 45Z credits in your other assets beyond Nebraska? And how do you get to that $50 million essentially? Chris Osowski: Yes, that's a good question, and I appreciate that. For the non-pipeline plants or let's say, non-Nebraska locations, we have worked very diligently to improve the efficiency of those operations. and effectively lower their CI scores to the point where we expect them to be [ sub-50 ], effectively earning 5 points of CI reduction going forward. So there are opportunities to further make those plants more efficient with additional technologies that we have opportunities to implement. And we previously gave guidance around a $50 million P&L impact for those locations. We need to adjust that now that the Obion plant is not part of the fleet. So our adjusted number is around $38 million of P&L impact just based on 120 million gallon plant with 5 points of CI reduction. So that's really where we sit, and there is just opportunities to grow that here going forward. Pooran Sharma: Great. Great. And I guess for my follow-up, just maybe wanted to see if you could walk through the rationale on the converts. I mean, I imagine there's a tad bit of like a tug and pull between potential dilution, but then also just cleaning up your balance sheet and making sure that you all have a good runway to operate. So I was just wondering if maybe you could just provide some rationale on that move? Chris Osowski: Yes. I mean I think in general, we talked about Green Plains being at an inflection point and with the desire to eliminate debt overhang and then provide the organization the opportunity to focus on execution and running the day-to-day business. We want our employees focused on being great at buying corn, being great at running plants and being great at selling products. And the rationale behind the finance moves are really just to give us the opportunity to focus on the day-to-day business operations. Operator: Your next question comes from the line of Matthew Blair with TPH. Matthew Blair: Congrats on the strong utilization, 101% in the quarter. Could you talk a little bit more about the changes you are making at the plants? We're noticing that your CapEx is pretty low here. So it seems like this is more process changes rather than throwing a lot of new money at the plant. Chris Osowski: Yes. And that's a great question. I think what you're seeing is the results of a focused effort. We are not in the process of starting up new technologies or adding complexity to our business. Our teams are focused on the blocking and tackling of running and operating the plants and driving higher yields. So we're operating at higher yields than historically would have been anticipated when these plants were built. At the same time, a focused effort on reliability-centered maintenance to reduce planned and unplanned downtime and putting in technical solutions to the things that cause us to shut down. And that's really what's driving the improvements in capacity utilization to the point now where we want to rebaseline the performance of the plants for the future. But it's a lot about setting expectation and improving the technical capabilities of both our corporate operations team and the plant management teams to run the assets as best we can. Matthew Blair: Sounds good. And then for the $15 million to $25 million of 45Z credits in the fourth quarter, is that all coming from the Trailblazer plants? Or is there some contribution from the non-Trailblazer plants as well? And then also, why the range seems a little wide. What would put you at the lower end of the range versus the upper end of the range for the fourth quarter here? Chris Osowski: Sure. That's also a great question. And it's important to note that we still need to execute on the remainder of the fourth quarter. We've got the York, Nebraska plant up and fully operational at a very high capture efficiency. And we are in the process of getting Central City and Wood River ramped up in terms of capturing all the CO2 produced and putting it into the pipeline. So we still -- it's still a work in progress, but we are very confident in our ability to execute on that piece. We just have to deliver here the remainder of the fourth quarter. And to comment on the non-pipeline plants contributing to 45Z, we are working through PWA compliance for those locations that are currently operating at a sub-50 CI score. And it's really just about executing on that piece and managing the energy consumption for those plants to drive those credit values higher. Operator: Your next question comes from the line of Eric Stine with Craig-Hallum. Eric Stine: So you're just talking about the other plants, the non-pipeline connected plants, and you mentioned the $38 million in potential 45Z. But can you give an idea of just what the investment might be? I know you're considering a number of things. I know some of those plants are already sub-50. But just some thoughts, maybe I know it's early days, but some thoughts on what that investment might look like. Chris Osowski: Yes. Good question. And we don't have a specific investment planned for any of those plants, but we do have numerous technologies we can deploy at any location now because effectively, starting January 1 with the removal of the ILUC or the indirect land use calculation on the CI score, we're going to see all of those plants effectively capturing 45Z value. So each technology that is available to our plants has an equal footing regardless of pipeline status in terms of how it can deliver. So we have a lot of options in front of us. And we're just focused on delivering this fourth quarter, generating free cash flow to give us the opportunity to then reinvest into the business. Eric Stine: Got it. So I mean, just as the calendar turns to 2026, it sounds like you do anticipate that you will start to capture some of that $38 million. It's just that there would be additional steps that you would need to take to fully capture it. Is that the way we should think about it? Chris Osowski: No. We expect to get the $38 million. That is our expectation for a 2026 run rate, independent of any additional CapEx to drive CI scores lower. Eric Stine: Got it. Got it. That is very helpful. Maybe second one for me. This is -- I mean, gosh, the balance sheet and the flexibility you've got, you haven't had for a long, long time. I know you sold Obion. I mean, any thoughts, do you kind of feel like now with your 9 plants, this is where the platform should be? Or I mean, is it still kind of -- you've got a portfolio and depending on your options, there may be other asset sales? Chris Osowski: Well, with respect to our portfolio of plants, I mean, we feel good about the assets that we have, especially with respect to the rate of improvement we're seeing in those plant assets. At the same time, we've done a lot of work to manage our total corporate SG&A. And I feel like we've gotten the organization to its fighting weight, so to speak, such that we can be competitive in the ethanol space with the assets we have. And in terms of whether it be growth of business, we have opportunities to grow volume in our existing footprint if and when we make that sort of decision. But no really anticipation of significant changes at this point in time. Operator: Your next question comes from the line of Salvator Tiano with Bank of America. Unknown Analyst: This is [ Hakim ] on for Salvator. Quick question on the 45Z agreement on with Freepoint this year. Is it subject to any contingencies and how these credits will be finalized and audited in? And lastly, have you received any cash? And if not, when do you expect to receive cash flow? Chris Osowski: Yes. Thanks for the question, Salvator. Yes, we earlier announced the completion of the 45Z production tax credit monetization agreement with Freepoint. And this is for effectively all of the carbon credits that we would generate during 2025. And we are actively marketing credits for 2026, and we feel good about the relationship with Freepoint. In terms of the cash flow, I mean, that is one that is at our discretion depending -- based on our relationship with Freepoint, and we'll leave it at that. Operator: Your next question comes from the line of Laurence Alexander with Jefferies. Chengxi Jiang: This is Carol Jiang on for Laurence Alexander. Could you add a bit more color on the status of clean sugar technology? Like what is the status and the near-term monetization path for CST given the prior comments about wrapping up the effort? And what are the 2026 cash cost implications if commercialization is kind of like deprioritized? Chris Osowski: Yes. Very good question. With respect to CST, as previously mentioned on earnings calls, the CS technology does work, and it is functional. The issue we have is additional CapEx requirements to debottleneck the technology to get the full earnings potential out of that process. And with the recent policy changes with respect to 45Z, now we see a shift in focus in terms of putting any available cash that we have to the places where it can generate the best possible returns. And as it pertains specifically to the Shenandoah plant, we expect to -- we're in a position of capturing 45Z tax credits today based on how efficiently that plant is operating in terms of ethanol yields and total plant throughput. So we have to take that into account when it comes to justifying additional CapEx in CST. And as we mentioned, I think in the last earnings call, we're going to reevaluate that mid-2026 in terms of the path forward. But once again, that additional capital investment is going to have to compete with all the other opportunities we have to invest in our plant network. Operator: Your next question comes from the line of Andrew Strelzik with BMO. Andrew Strelzik: I'm sorry if I missed this, but in the prepared remarks, you closed with a comment about the earnings power being transformed. And so I was just curious with the operational improvements you've done, the cost savings, these tax credit benefits, how do you think about the earnings power going forward? How would you frame that? Chris Osowski: Yes. If I think of -- to frame up the ongoing earnings power, a couple of comments. We've talked about the Advantage Nebraska program delivering $150 million of P&L impact on a run rate basis. And just recently, we discussed the non-pipeline plants providing around a $38 million P&L impact. So that's a significant shift for us. At the same time, we also discussed reductions in SG&A on a year-over-year basis that are significant. And we talked earlier in this year about achieving over a $50 million cost reduction target. That on top of plant OpEx is reducing by more than $0.03 in 2025 relative to 2024. We've got a lot of good news to share, and we're very excited about being able to bring it to fruition here in 2026. Phil Boggs: And Andrew, this is Phil. Just to add to that, on the balance sheet front, forward interest expense for next 12 months looks to be more in that $30 million to $35 million range with the restructuring of the balance sheet that we've done. So much improved from that standpoint as well. So as Chris noted, significant improvement in core operational expenses with that $50 million and then that combined $188 million of carbon-related 45Z production tax credits and voluntary tax credit earnings power for the full year of 2026, we do believe that we're in a significantly transformed earnings position going forward. Andrew Strelzik: Okay. That's good color and super helpful. My other question kind of on the core underlying ethanol fundamentals. I think you said you're 75% hedged for the fourth quarter. How hedged are you for the first quarter? And in addition to that, how are you guys thinking about potential contributions next year from ethanol exports and E15? Obviously, a lot of headlines, trade agreements, those types of things. Can you kind of frame what a reasonable expectation around those 2 dynamics would be? Chris Osowski: Yes. And with respect to position taking, we don't want to get into too much detail on where we sit, but we've talked about having a disciplined strategy. And effectively, we're going to be in the market every day looking for opportunities to lock in margin when the market provides that to us. So we're active in Q4 and Q1 of 2026. With respect to questions around demand drivers, we see export demand strengthening on the basis of strong numbers, 2 billion-plus gallons in 2025. We expect that to grow with, in particular, demand coming from Canada, the EU and India based on government mandates in those countries. And also with respect to E15 acceptance in all 50 states is also an important driver of demand, but we don't really anticipate that to materialize until probably the second half of 2026 into 2027 based on the needs of developing infrastructure in that part of the world. Operator: Final question comes from the line of Craig Irwin with ROTH Capital. Craig Irwin: So you were very clear that the sequestration equipment is working and you're putting carbon in the pipeline. But can you clarify for us whether or not Trailblazer is injecting the carbon in the sequestration wells? And is there any uncertainty around some of the delays there impacting the value of credits that you announced the sale of today? Chris Osowski: Thanks for the question, Craig. With respect to status of pipeline, just to recap, we have the York asset fully operational, we've got Central City and Wood River, where we've fully commissioned all of the equipment and are in the process of ramping up capture rates. And right now, the pipeline team is working on basically operationalizing the entire pipeline, sending the gas to Wyoming. So there's a little bit of a time delay between getting equipment commissioned on the capture side of things and the actual sequestration well itself. So like I mentioned, there's a little bit of time delay, but we are confident in our partners' ability to execute on the start-up and commissioning of that equipment. So we really feel good about where we're positioned. Craig Irwin: Okay. So the second question then is, do you face a potential limit on the inventory of the carbon that you're putting into the pipeline given that there is a little bit of uncertainty around the injection at those wells in Wyoming? Or is there a fairly substantive potential to continue to put carbon into the pipeline? Chris Osowski: Yes. There's plenty of capacity for all of our plants to put the gas in the well. And the range we provided in terms of carbon anticipated value in Q4 is really based around the timing and the capture efficiency of our assets and also the execution of our base plant operations through the balance of Q4. Operator: Thank you, everyone. That concludes our Q&A session for today. I will now turn the call over back to Mr. Chris Osowski for closing remarks. Please go ahead, Mr. Osowski. Chris Osowski: All right. Thank you, everyone, for your time today, and we look forward to updating you on our operational performance and financial results next quarter. If you have any follow-up questions for us, please reach out, and we'll find time to connect. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Have a nice day ahead, everyone.
Mateo Toro: [Audio Gap] [Operator Instructions] And we will answer your questions at the very end of this event. Next slide, please. Joining us today are Jorge Andrés Carrillo, President of ISA; Jaime Falquez, VP of Corporate Finance; Gabriel Melguizo, VP of the Energy Transmission Business; Patricia Castaño, VP of Corporate Strategy; and Natalia Pineda, VP of Road Concessions. The conference begins with Jorge Carrillo explaining the highlights of the third quarter of 2025. Next, Jaime Falquez will present the financial results. And lastly, Jorge will give some closing remarks and lead the Q&A session. Next slide, please. So we can leave you with Jorge. Jorge Carrillo Cardoso: Thank you, Mateo. Good morning, and thank you all for joining us today. Next slide, please. Let's look at the highlights of the quarter. Let's begin with the great news, which is the commissioning of the Cuestecitas-Copey-Fundación interconnection in Colombia, which is key for energy transition. It's the first connection in La Guajira at 500,000 volts to transport solar and wind energy of the region towards the main consumption centers. This project cost $147 million and included 270 kilometers of transmission lines and the expansion of 3 substations for the northern area of the country. The project has high social commitment and includes the latest technology to optimize space, minimize losses and reduce the environmental footprint. Next. Aligned with our strategy to be a relevant player in energy transition, in Colombia, we enabled 2 solar farms contributing to reliability and capacity of energy supply in the Colombia Caribbean. In the Atlantic Coast, we connected the Guayepo III Solar Farm to the Sabanalarga substations. It's of 200 megawatts and will generate enough power to supply about 766,000 people. While in Valledupar, we connected 3 solar farms of 19.9 megawatts each to add almost 60 megawatts of clean energy for the country and the region. Both cost about COP 55 billion. Next, let us look at expansions, reinforcements and improvements. We are constantly implementing reinforcements and improvements of the grid to keep it at optimum levels and to continue providing reliable service. During the quarter, we commissioned 22 reimbursements for the grid of ISA ENERGÍA BRASIL, and we were awarded 2 projects in Colombia. We were awarded 2 expansions. Next, please. We chose the Colombian Atlantic Coast to drive the new business of energy solutions, one of the fundamental pillars of our ISA2040 Strategy, which can represent about 23% of our investments, we have more than 40 years operating in the region and more than 100 municipalities. So with this new bet, we aim at the segment of energy solutions with solar farms for large consumers and to store energy, which has high potential in the country. Next. We will be resetting the energy business to focus and consolidate in a single subsidiary, the energy transmission in Colombia. This plan has to do with the challenges of the business and opens new opportunities to consolidate our new business, Intercolombia. Transelca will continue being the owner of transmission assets and obtaining the approval from CREG, while Intercolombia will be in charge of the construction, administration, operation and maintenance. These changes will give us benefits such as consolidation of capabilities, a new Intercolombia that will exclusively focus on the transmission business for the operation and maintenance of high-voltage infrastructure and a new Transelca for the new businesses from the Colombian Atlantic Coast, as I mentioned before. We are beginning a transformation business that will allow us to have the biggest capacities and implement efficiencies to become leaders in energy transition. Next. Moving on to sustainability. We were awarded 2 first places in the Regional Energy Integration Commission, CIER, 2025 awards in Colombia. Conexión Jaguar won the first place in the decarbonization category, and we got another award in the innovation platform category. The CIER awards recognize initiatives that transform the energy sector through innovation, social and environmental impact and value for society. During this quarter, we were included in the list of Forbes of the 50 companies leaders in sustainability in Colombia in 2025. In this list, Forbes recognize the companies in Colombia that have shown their commitment to sustainability, show concrete operations, and they consider that sustainability is an opportunity to create value on a long-term basis. Next, honoring as well the commitment we made at the COP16, we implemented the first of 2 -- more plants and native species at the Moorland of Chingaza to host 4,500 seedlings. Now let's talk about investments. During the third quarter of 2025, investments for COP 1.7 trillion were made to reach investments of COP 4.4 trillion to date, 38% more than what we invested in the same period of 2024. The graph in the middle shows the distribution of CapEx by geography and the one on the right-hand side, the distribution by business segment. So far this year, 90% of investments were in the energy transmission business, 8% in roads and 2% in telecommunications. Brazil represented 60% of CapEx with an execution in 5 projects bidded and awarded by ANEEL in the prior period and advancements of 192 reinforcements, improvements and renovations through the power grid of ISA ENERGÍA BRASIL. Colombia instead represent 18% of the investments ISA with physical developments made in 6 projects awarded by UPME, 5 currently executed by Intercolombia and 16 renovation expansion projects of the installed capacity of ISA. Peru executed 8% of investments, developing projects to enhance the grid and accelerate energy transition. Chile represented 10% of the investments made. In energy transmission, we advanced building 6 projects, including 4 expansions of the grid and 2 bidded, plus it entered the portfolio construction of the Palmas-Centella project, which was awarded the prior quarter. In roads in Chile, we still have the Orbital Sur Santiago Road as well as complementary roads. To end, 4% of the investments were destined to Panama to developments to revamp and maintain the Panamericana Este road. Next. Investments to execute from 2025 to 2030 rise to COP 31.1 trillion. On the left, we can see the distribution by geography and by business segment. It's important to highlight that we expect that these investments once commissioned, will have additional revenue of about COP 1.8 trillion. The investments consist of commitments of investment of bids and awards given in each country where we operate as well as improvements of the ISA grid in Brazil, among others. On the right-hand side, you can see the annual projections of the execution of these investments. The total of 2025 of COP 6.5 trillion includes the COP 4.4 trillion that we invested until September. Today, we advanced in the construction of 34 projects distributed at 31 projects for energy transition and 3 on roads, which add to about 5,153 kilometers of lines and interventions of 296 kilometers of roads. So now let's give the floor to Jaime Falquez, who will explain the financial results. Next slide, please. Jaime Falquez: Thank you, Jorge. Let's look at the next slide, please. Good morning, everyone. It's a pleasure to be with you again sharing with you the results of this quarter. I'd like to begin this financial chapter, highlighting the positive performance of our operating indicators, highlighting as well several special events that impacted the financial figures of the quarter and accumulated, but that do not commit the financial soundness of the company nor the execution of its investments framed in meeting the strategy. Let's remember, which were the special events. We have one that took place in the third quarter of 2024, which had an impact that was positive like in Brazil, which recognized the effect of the regular tariff revision, which had a positive net impact in 2024 of COP 875 billion and also an impact on the net profit of COP 207 billion in 2024. In that same quarter of last year, in Peru, we made an adjustment in the estimate of the reserve for major maintenance, which implied a higher EBITDA of COP 173 billion. Now if we look at the third quarter of 2025, we also have a series of special events but with an effect that's different. We see that at the ANEEL Board of Directors, this year, they decided to reconsider the calculations presented to pay the financial Basic grid (sic) [ Network ] of the Existing System component. We talked about this last quarter, which had a negative impact on the EBITDA of COP 594 billion, an effect also on the profit of ISA of COP 140 billion. Also, we still update the reserve of Air-e for a total accumulated COP 233 billion in these 9 months of 2025. Remember, the intervention of Air-e was in September last year. And therefore, in the third quarter, the reserve was much slower. As Jorge mentioned, in addition to these special events, we still increase our pace of investment to honor our commitments to 2030, reaching a total of COP 4.4 trillion from January to September of this year, 38% higher than the same period of the year before. In terms of capital structure, we keep the debt at optimal and efficient levels within the ranges suggested by the rating firms to keep our international investment degree. This is reflected in indicators like the EBITDA debt, which closed at 4.1x. To complement the above, this third quarter, Moody's ratified the risk rating of ISA as an international issuer at a rate of Baa2 with an outlook that's Stable. And it's an international rating. And remember that Fitch in March already ratified the rating of BBB also on the international scale. So with these relevant events, let's look at the next slide, please. When we look at the results on this slide, we can see the main figures for the first 9 months of the year. where we can see the EBITDA on the top of the slide and net profit on the bottom. When it comes to the same period compared to last year, the EBITDA was at COP 6.6 trillion, which shows a reduction of 13%. And in the middle, you can see the operating performance without keeping in mind the special events of 2024 and '25 that I just mentioned in the highlights. In this context, it's important to highlight the EBITDA that grew from 13% compared to the same period of 2024, explained by the commissioning of new projects, new revenue, also the positive effect of the contractual scalers, which is the update of rates in different countries and concessions because of macroeconomic effects and index that recognize the inflations, also higher revenue from co-controlled companies and higher revenues also from road concessions. In terms of the distribution of EBITDA accumulated by segment, we can highlight that Energy Transmission has a share of 83%, Roads 15% and Telecommunications, 2%. As far as the net profit, earnings of the semester added up to COP 1.9 trillion, reflecting a decrease of 17% compared to the same period of the year before because of the special events that I just explained. Excluding these events, the net profit generated by the operation would have increased 7%, explained mainly by the higher EBITDA, which I told you about and contrasted by the higher income tax and more financial expenses because we financed projects underway. On the bottom right of the slide, you can see the distribution of net profit by country. I'd like to add this slide that our operations have a positive performance. We are driving our projects, generating new revenue and updating our revenue according to applicable contractual scalers. So let's look at the next slide, please. In terms of the balance sheet, at the end of September, we can see our sound financial situation with assets COP 77.7 trillion, which showed a slight increase compared to December of 2024. Net movements of the asset are explained by the development of the construction of projects, higher yields of the concessions, which are partially compensated by the conversion effect to the Colombian pesos from the results of different countries, the decrease of cash flow as a result of the payment of dividends, the debt -- service of the debt and CapEx disbursements made. In terms of liabilities, these decreased 0.5% compared to the end of 2024, mainly explained by the lower effect by conversion and compensated with higher financial liabilities, which support the new projects to finally have an equity of COP 17.8 trillion with a stable performance compared to what we saw in December 2024. And this really obeys the -- because of the dividends decreed and the compensation of profits that we're seeing this year. Also, the minority interest grew 8%, driven by the results of Brazil and Peru so far this year, added to the effect by conversion. Next slide, please. So we could talk about the debt. As of September 30, 2025, the consolidated financial debt ended at COP 34 trillion, COP 1.5 trillion below what we saw at the end of 2024. The net movement of the debt of COP 506 billion is mainly explained by the effect of conversion, amortizations according to the schedule of payments, the issuance of debentures in Brazil, remember that the debentures are papers of debt in the capital market local and disbursements received according to the investments plan. Among the main operations of debt during the first semester of this year, we can summarize that ISA ENERGÍA BRASIL issued debentures to cover needs of investments for a total of BRL 1,980 million, which is equivalent to COP 1.4 billion. In Colombia, disbursements for the investments plan for COP 400 billion. In Peru, disbursements of bank loans of $22.5 million. And lastly, in Chile, ISA Vías Chile received a banking loan disbursement for an equivalent in Colombian pesos to COP 350 billion, mainly for contributions to new projects, especially Rut del Este in Panama. With regards to the indicator of the net profit over EBITDA, it closed at 4.1x, showing that we have proper indebtedness levels with a mean life of our debt of 9.03 years. And this is really aligned with the nature of our businesses on a long-term basis, keeping this way the stability and strength of the company's equity. So with this, let's give the floor to Jorge, who will give us some closing remarks. Jorge Carrillo Cardoso: Thank you, Jaime. Let's look at the next slide, please. I'd like to end this call highlighting that we are strengthening our structure and capabilities in Energy Solutions to prepare to be major players in energy transition. We keep a sound and growing operating performance, gaining new bids and executing our investment commitments. So far this year, we have an EBITDA of COP 6.6 trillion and a net profit of COP 1.9 trillion. We are still recognized because of our management and actions in favor of sustainability, which is fundamental for our strategy. We've increased the investment pace according to our strategy and meeting the commitments, which by 2030 will add to COP 31.1 trillion. We have financial health to continue growing and to have an investment degree rating. Thank you again for joining us today. So let's begin our Q&A session. Mateo Toro: Thank you, Jorge. Let's begin then the Q&A session. And let's begin with a question made by Florencia of MetLife. Could you give us an update on INTERCHILE and the sale of the telecommunications business? And for this, we'd like to thank Jorge Carrillo, if you could begin talking about the telecommunications business and then Gabriel Melguizo to give us an update on the Chile. Jorge Carrillo Cardoso: Sure, Mateo. In terms of telecommunications, we're still following our 2040 strategy. And as an update to date, we have not accepted any offer that we've received. Mateo Toro: Thank you, Gabriel. Could you talk about INTERCHILE? Gabriel Melguizo Posada: Thank you, Mateo. Good morning, everyone, and thank you, Florencia, for your question. Florencia, and for all, we have an update of INTERCHILE in several fronts. First, regarding the shutdown, we're convinced as we've said -- as we've heard the National Coordinator of Chile say that the assets of transmission of ISA ENERGÍA CHILE or ISA INTERCHILE was not the cause of the massive shutdown on February 25, 2025. On August 4, the superintendency of Energy of Chile charged against the national grid and 8 companies of transmission energy because of their very eventual responsibility of the massive shutdown in February. In this process, the superintendency made 2 charges against ISA ENERGÍA CHILE, and we presented our discharges. The other players involved also presented their defense. And with this, the superintendency should issue resolutions and eventually determine the sanctions. And there is no date for that yet. That's when it comes to the shutdown of February 25 of this year. Now when it comes to the business, INTERCHILE continues growing. You know that we have a big project there. And it's going very well underway. We have other projects with new technologies, Palmas-Centella is a project with new technologies with flow deviators, which really helps for the energy transition. And let's not forget that we are also part of a consortium in Chile that we're building the line of direct current that goes from Santiago to Chile to the north to the Atacama Desert. And it's assumed that it's the largest energy transmission project there. So we could update you on this, this way, Florencia. Thank you for your question, again. Mateo Toro: Thank you, Gabriel, and thank you, Florencia, for your question. We have a first question from Andrés Duarte. He says, you reserved COP 234 million of Air-e. What is the -- what do you expect for next quarter between you, ISA Colombia and Transelca? Let's listen to the answer. Jaime Falquez: Thank you, Andrés, for your question. The pace of invoicing of Air-e consolidated of the companies in Colombia is of about COP 33 billion by month, of which 14%, which corresponds to Conexión has been paid. So the accounts receivable monthly that we've reserved is at COP 28.4 billion. We're saying that by quarter, we're reserving about COP 85 billion, which is, if we continue with the trend, potentially, we can be accumulating this figure by the end of the year. Mateo Toro: Thank you, Jaime, for your response. Next question from Andrés as well, and it's for Jorge Carrillo. Can you please repeat or expand on what was said early on that 33% of the CapEx could be represented. He wants to see if he understood well. Jorge Carrillo Cardoso: Thank you, Andrés. Yes. When we created the 2040 strategy, we talked about a figure close between $25 billion and $30 billion, of which 42% of that will be destined to the energy businesses, which consists of self-generation, photovoltaic and storage and on large scale. So the percentage is correct. Mateo Toro: Thank you, Jorge. Next question, also from Andrés. He asks, when do you expect to make the first bid of storing -- of electrical storage in Colombia? How have you been doing with that technology in Brazil? Jorge, could you give us -- help us here with these questions? Jorge Carrillo Cardoso: Let me begin talking about Brazil. This is one of the best projects because of its effectiveness and its execution. This project is set in Registro in Brazil, and it was going to help with the peak demand, and it was very, very effective to the point that's become a place where everybody is visiting, regulators and even competition because they want to see the storage in operation. This was done very quickly, and it surpassed the regulators' expectations, and we're very happy to be pioneers using this technology in Brazil, and we plan to do it in the region. In 2021, this bid was not given to ISA. However, we are aware that it hasn't been able to begin the execution. There is a new project, however, from the CREG to regulate the storage. And this, of course, will open new opportunities for ISA and its companies at least in Colombia. Mateo Toro: Thank you, Jorge. We have another question from Jorge. Sorry, I'm not giving the name of the company, and it's in 4 parts. Let me just read one by one. The first, are there news of the sale of the roads business? Jorge, this -- let's hear your answer first. Jorge Carrillo Cardoso: Sure, again. First, remember what's part of the strategy? Let me begin by saying -- or the businesses that have a disinvestment were declared like in that case, in telecommunications. In the 2040 strategy, we have 2 pillars that are in effect to increase the road business strategically and to dynamically move our portfolio that includes vehicles and businesses. We're working on both pillars. We do observe that there is a particular interest to explore or that we've heard at least interest to explore in the roads business. But right now, we're just listening to their interest, but we're still determined to strategically expand this business. Mateo Toro: Thank you, Jorge. Second question, at what stage is the possible commissioning or operation of the energy transition in Argentina buying Enersa? Jaime, could you help us? Jaime Falquez: Thank you, Jorge, for your question. Within our 2040 strategy, it's important to highlight that indeed, the energy transmission business is still one of the pillars in terms of the region. So we're always evaluating opportunities and new geographies. Now for this case that you're asking us about, Jorge, we have nothing specific right now on that opportunity. Mateo Toro: Perfect. Jaime, thank you. Next question, also from Jorge. We have others, but let's answer his. Tell us about the development phase of the project in Panama. Jorge Carrillo Cardoso: Jorge, thank you for your question. When it comes to Colombia Panama, there are several things to say. First, for a project like this overall, in all of the regional integration processes, we need the will and commitment of the governments at very high level. So what we can say since 2024, the presidents of both countries have been confirming not only the strategy of this project, but explicitly, they've agreed to elevate this initiative and turn into a high-level political mandate. And this is in a major role for all the energy authorities. And we've had bilateral meetings throughout the year. The last one was made -- held in September. When it comes to that mandate and commitment, the next topic required to make a project like this is regulatory. And what's happened so far, I think you've seen in the media that both -- regulators of both countries enacted an agreement, which basically determines the frame in which we can develop the harmonized scheme. We're working together to have specific definitions and particularly to determine the interconnection, keeping in mind what was enacted in 2011, which will have some amendments. That's something we're working on. And thirdly, has to do with the technical studies made on this matter. As we've said in other calls, the basic studies have been completed. And now we are making an assessment, especially in Colombia, we have the environmental impact study. We're replying from the authorities with several requirements. And in Panama, they are answering some preliminary comments that their Ministry of Environment is making, and this will be turned in, in November. The expectation with the studies completed and discussions made with the authorities to have the environmental license next year. Mateo Toro: Thank you, Andrés, for your answer. Let's continue with the next question from Juan Felipe from Credicorp. He says, could you tell us about the schedule when it comes to your role in Energy Solutions? When do you see the changes between Transelca and Colombia? And why did you choose this business? Jorge, could you give us an answer? Jorge Carrillo Cardoso: Thank you. There are several things here. We are waiting for an authorization from the CREG, and it's a proceeding that shouldn't have any problems. And we hope to have news from this soon. No matter when we get the answer from the CREG, again, we're optimistic because it's well backed technically. This decision will be materialized as of January 1, 2026. So after that date, we'll have a single company for transmission that will represent the assets of Transelca and ISA, and it's called Intercolombia. So Transelca, in this case, will change its mission and will prepare to be our vehicle or executor for new energy businesses. Why in the Atlantic Coast? Because that's the base of Transelca. It's in Barranquilla, but also the Atlantic, it's a hub of renewable energies today in Colombia. So it made strategic sense to place it there. The business began already, although it's part of the 2030 strategy, and it was ratified in the 2040 strategy. Now we are presenting offers to different clients, and we are waiting to announce them to the market on a short-term basis. Mateo Toro: Thank you, Jorge. Let's continue with the next question from [ Simón Díaz ]. He says, thank you for the information. Although the levels of leverage are at optimal -- are optimal, what do you expect from the company's debt level? Jaime? Jaime Falquez: Thank you, Simón, for your question. It's important to highlight here that we have access to all of the financing sources, and that opens opportunities to keep financing ourselves in all the markets because we have a lot of access to the capital market. And this gives us alternatives of terms that adjust to the profiles of the different projects that we'll be financing. Also, we have the chance to finance ourselves in the currency of the revenues in each of the geographies. And along with the financing growth, we have operations to handle debt, and we'll be anticipating the maturities to always have an amortization profile that's healthy and proper. We're closing operations of refinancing in the capital market this week in Peru, we'll see operations in Chile and the different geographies that will always allow us to have a healthy profile for financing. Indeed, in terms of the balance, less than 10%, I would say, 7% of the total debt is current. The rest is long term. Mateo Toro: Perfect. Jaime, thank you. Next question from Simón Díaz. Could you give us an update on the ISA's businesses in Peru? Mr. Melguizo, could you give us a hand with this? Gabriel Melguizo Posada: Yes. Thank you, Mateo. And thank you for the question. Well, in Peru, we are doing well overall. You know that we are incumbent in electric energy transmission with a long infrastructure of energy transmission and with a global performance. Now if we look at projects, there's one that's very important that we're building right now, which is known as the 12 Yapay, which goes from Tocache to Celendín and from Celendín to [ Trujillo ]. Those are -- that's a substation. It's a project of about 1,000 kilometers, about $1 billion worth. And it's a project that right now is being built in terms of designs and contracting. In Tocache-Celendín, we completed the environmental impact studies at Celendín [ Trujillo ], we will present the study in the first quarter of 2026 with the resolution of a new environmental conservation area that is part of the phase -- the first phase. So you can say that this one is one of the main projects of transmission in the region. It's firm. And we also continue with the other projects like [ Grupo Uno ]. So we're doing very well in Peru in transmission. Thank you so much for your question. Mateo Toro: Gabriel, thank you for your answer. And with this question, we end the Q&A session. We'd like to thank you so much for joining us in this presentation of the earnings call of the third quarter of ISA and its companies. Again, thank you. See you soon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good day, and thank you for standing by. Welcome to the Summit Hotel Properties Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Milota, Senior Vice President, Finance. Please go ahead. Kevin Milota: Thank you, operator, and good morning. I'm joined today by Summit Hotel Properties' President and Chief Executive Officer, Jon Stanner, and Executive Vice President and Chief Financial Officer, Trey Conkling. Please note that many of our comments today are considered forward-looking statements as defined by federal securities laws. These statements are subject to risks and uncertainties, both known and unknown, as described in our SEC filings. Forward-looking statements that we make today are effective only as of today, November 5, 2025, and we undertake no duty to update them later. You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call on our website, www.shpreit.com. Please welcome Summit Hotel Properties President and Chief Executive Officer, Jon Stanner. Jonathan Stanner: Thank you, Kevin, and good morning, everyone. We were pleased with our overall execution in the third quarter despite the challenging operating environment, highlighted by our ability to grow market share, prudently manage expenses and strategically invest capital across the portfolio to drive future operating performance. In addition, subsequent to quarter end, we completed the sale of 2 hotels at attractive valuations to further reduce debt, fund the accretive share repurchase activity we executed in the second quarter and enhance corporate liquidity. On today's call, we will provide details on our third quarter results, update our outlook for the remainder of the year, which incorporates sequential improvement in operating trends and highlight our recent balance sheet activities. Our third quarter operating results were largely in line with the overall demand and RevPAR trends we experienced in the second quarter as the lodging environment remains generally stable. However, performance is mixed across segments. We continue to experience meaningful year-over-year reductions in both government and international inbound travel, which has required some remixing of business to lower-rated demand segments. For the quarter, same-store RevPAR declined 3.7%, which was in line with our second quarter results and driven predominantly by a 3.4% decline in average daily rate as occupancy remained essentially flat year-over-year. The pricing sensitivity we first started experiencing in March persisted through the summer, though the majority of the rate decline across our portfolio is being driven by the unfavorable shift in room night mix to lower-rated business. In certain markets, this remixing of demand has been intentional as we strategically targeted discount-oriented segments, including advanced purchase offers to build a stronger base of business and reduce exposure to cancellations and rebookings that tend to occur when pricing softens. While individually, government and international inbound demand represent smaller segments of our overall demand mix, collectively, they account for approximately 15% of occupied room nights in our portfolio. Consistent with the second quarter, demand in these segments was down approximately 20% year-over-year in the third quarter, which combined drove nearly 50% of our year-over-year RevPAR decline. While these segments have been a drag on performance for the past couple of quarters, demand trends have largely stabilized prior to the recent government shutdown, which has driven some incremental pullback in government demand in the fourth quarter. Thankfully, strong midweek demand trends in October have been able to offset much of this softness. And with the successful resolution to the shutdown, we expect a more stable foundation for next year when we will benefit from easier year-over-year comparisons. Hurricane activity in the third quarter of 2024 also created comparison headwinds this year, particularly in our Houston hotels that benefited from Hurricane Barrel-driven demand in July of last year. RevPAR in our Houston hotels declined 17% in the quarter, which reduced our overall third quarter RevPAR growth by approximately 50 basis points. Our portfolio once again delivered strong market share performance during the third quarter as our RevPAR index increased 140 basis points year-over-year to 116%, reflecting solid gains in both occupancy and average daily rate. Our focus on driving out-of-room spend through food and beverage sales, resort and amenity fees and parking charges continues to be successful as non-rooms revenue increased 5.6% in the third quarter and has grown 4.3% year-to-date. Driven by some of our recent capital investments, most notably the transformational renovation of our Oceanside Fort Lauderdale Beach Hotel, we expect non-rooms revenue growth to continue to outperform. Our operating teams also continue to do a terrific job managing expenses in a challenged top line growth environment, particularly related to labor costs. Trey will provide additional details on expense trends and margin performance later in the call, but we were pleased with our ability to manage operating expenses again in the third quarter, which increased only 1.8% year-over-year or approximately 2% on a per occupied room basis. Year-to-date, operating expenses have increased a modest 1.6% on relatively flat occupancy, which has mitigated EBITDA losses. On the capital allocation front, we closed on the sale of 2 noncore hotels subsequent to the end of the third quarter, the 107-room Courtyard Amarillo Downtown Hotel, which was owned in our joint venture with GIC and the 123-room Courtyard Kansas City Country Club Plaza Hotel. These divestitures generated combined gross proceeds of $39 million, which reflects a blended yield of 4.3% based on trailing 12-month net operating income and after consideration of approximately $10 million of foregone near-term capital expenditures. The asset sales represent a continuation of our successful capital recycling strategy that has enhanced the overall quality and growth potential of our portfolio, reduced balance sheet leverage, eliminated significant capital expenditure needs and funded our recent accretive share repurchase activity. Since May of 2023, we've sold 12 noncore hotels, generating over $185 million in gross proceeds and eliminated nearly $60 million of capital expenditure requirements. On a blended basis, the assets were sold at a 4.5% net operating income capitalization rate and had a combined RevPAR of $85, which represents a 30% discount to the remaining portfolio. Over that same time period, we've acquired 4 hotels for approximately $140 million with a trailing 12-month NOI yield of 8.5%, including required near-term capital needs. The blended RevPAR of our acquisition portfolio was $143 at the time of purchase, which represents nearly a 20% premium to the current pro forma portfolio. In addition, these assets were all acquired within our joint venture with GIC, which produces asset management fees that further enhance our return profile. As I alluded to in the opening, our outlook for the fourth quarter incorporates sequential improvement in operating trends compared to the second and third quarters of this year. As we shift out of the leisure-heavy summer travel months, we are benefiting from relatively stronger business transient trends, which have helped drive -- helped to drive midweek RevPAR growth, particularly in key urban markets. Fourth quarter pace for our pro forma portfolio is tracking approximately 2.5% behind last year, which notably incorporates several difficult special event comparisons that benefited the fourth quarter of 2024 and incremental headwinds driven by the government shutdown. For context, pace for the third quarter was approximately 10% behind last year at this time 90 days ago. October RevPAR on a preliminary basis declined between 2% and 2.5% year-over-year, which represents our best monthly performance since February of this year. It's worth noting that historically, October represents approximately 40% of our fourth quarter revenue and 50% of hotel EBITDA. We currently expect fourth quarter RevPAR growth to actualize down between 2% and 2.5% year-over-year, which would result in a full year RevPAR decline of between 2.25% and 2.5%. These expectations should be caveated by the uncertainty created by the U.S. government shutdown. While we have experienced limited negative effects across our portfolio quarter-to-date, the longer-term implications of the shutdown create additional risk for lodging demand broadly, including disruption to air travel. Looking ahead to 2026, we believe the setup is more favorable than it has been in the past several years. Industry expectations remain low and year-over-year comparisons for government travel eased significantly after March 1. In addition, the 2026 World Cup is expected to create robust demand in several of our key Sunbelt and Gateway markets, providing a unique tailwind in June and July next year as we have exposure to 6 post markets, which will feature nearly 60% of the matches to be held in the U.S. Finally, we continue to emphasize the benefits that the cumulative effect of the lack of new hotel supply growth will have on industry fundamentals. With construction and financing costs still elevated, we expect this constrained supply environment to persist, supporting healthy future supply-demand dynamics across our markets. In summary, we remain optimistic on the outlook for our industry generally and Summit more specifically. The progress we have made on several of our key strategic initiatives over the past several quarters has enhanced our portfolio, strengthened our balance sheet and created meaningful embedded future earnings growth as demand trends normalize. With that, I'll turn the call over to Trey to discuss our financial and operating results, recent capital markets activities and guidance in more detail. William H. Conkling: Thanks, Jon, and good morning, everyone. Third quarter same-store RevPAR declined 3.7% year-over-year, driven primarily by average daily rate declining 3.4% as reductions in inbound international travel and government demand resulted in a shift in our room night mix to lower-rated segments. Third quarter adjusted EBITDA was $39.3 million, and adjusted FFO was $21.3 million or $0.17 per share as the company continues to benefit from lower interest expense and a lower share count resulting from our accretive share repurchases consummated in the second quarter. From a market perspective, Summit has significant exposure to 3 of the 5 top 25 U.S. markets that generated positive RevPAR growth in the third quarter, Chicago, San Francisco and Orlando, where we own 7 hotels in total. Chicago generated strong growth despite the difficult comparison to last year's Democratic national convention as a solid convention calendar and multiple special events resulted in 8% ADR growth for the quarter. We expect that Chicago will continue to outperform as it has done all year. Orlando remains a standout performer, supported by robust leisure demand and the continued strength of the theme park ecosystem. The recent opening of Universal's highly anticipated Epic Universe Park is driving increased visitation among both new and repeat visitors, a trend we expect to continue for the foreseeable future. Combined with a robust convention calendar and recent renovations at 2 of our Orlando hotels, we anticipate 2026 to be a strong year for our Orlando portfolio, supported by a healthy balance of leisure and group demand. In San Francisco, hotel performance continues to benefit from ongoing public and private efforts to enhance the city's overall environment and improve traveler perception. While inbound international and tech-related demand remains below pre-pandemic levels, we are encouraged by improving convention trends, a gradual return of business travel and event-driven leisure demand. We expect these trends to continue into the fourth quarter, which will see outsized RevPAR growth given the calendar shift of the Dreamforce citywide event. Our newly renovated Hilton Garden Milpitas also continues to perform well, reflecting ongoing momentum in corporate transient demand, particularly from technology sector accounts concentrated in the Silicon Valley submarket. Finally, our Nashville hotels delivered a very strong third quarter, with RevPAR increasing by over 6% on the strength of an 11% increase in ADR. This significantly outperformed the overall market for which RevPAR declined nearly 4% year-over-year and reflects the positive momentum created from renewed revenue strategies at our 2 hotels in the market. Food and beverage and other non-rooms revenue outperformed in the third quarter with same-store revenue growth of 5.9% and 5.5%, respectively. Food and beverage revenue continues to benefit from the re-concepted bar and restaurant offering at the Oceanside Fort Lauderdale Beach, our recently introduced pay-for breakfast program at certain hotels and other ongoing initiatives to drive better breakfast and beverage sales. Other non-rooms revenue was driven by strong growth in resort and amenity fees as well as parking income. We are pleased with the growth of these ancillary revenue streams and are working with our asset managers to identify additional opportunities to continue these successes. As John previously mentioned, we remain intensely focused on expense management with third quarter pro forma operating expenses increasing 1.8% year-over-year or approximately 2% on a per-occupied room basis as the company continues to identify operational efficiencies. Our asset management team and hotel managers have successfully focused on managing wages, reducing reliance on contract labor and improving employee retention. Hourly wages, excluding contract labor, increased 2% compared to the third quarter of 2024. The company also continues to benefit from reductions in contract labor, which declined by 8% on a nominal basis versus the third quarter of 2024. Contract labor represents 10% of total labor costs, and we believe there is opportunity for incremental improvement given the softening of the labor market. Finally, we continue to see improvement in employee retention, which results in improved productivity, reduced training costs and greater guest satisfaction. Turnover rates in the third quarter have declined 40% from peak COVID era levels, which highlights the ongoing stabilization of the labor market. As it relates to our nonoperating expenses, we benefited from lower interest expenses in the quarter, which was offset by higher property taxes. We expect that trend to continue through year-end, given the difficult comparisons to 2024 when we benefited from a number of successful property tax refunds. Overall, we are encouraged by our ability to control operating expenses and expect to manage operating expense growth to low-single-digit increases, which we believe further highlights the strength of our efficient operating model. From a capital expenditure standpoint, through the first 3 quarters of the year, we invested $56 million in our portfolio on a consolidated basis and $49 million on a pro rata basis. Recently completed and ongoing renovations include the Scottsdale Oldtown Hyatt Place, Residence Inn Atlanta Midtown, Hampton Inn Dallas, Homewood Suites Midland and the Residence Inn Mede. It is worth noting that over the past 3 years, we have invested over $260 million in capital expenditures on a consolidated basis as we are committed to maintaining a best-in-class portfolio. Furthermore, this capital investment affords us the flexibility to preserve optionality on certain renovations without risking meaningful downward pressure on overall operating results. Turning to the balance sheet. We continue to be proactive in extending maturities, reducing borrowing costs and enhancing corporate liquidity. During the third quarter, we refinanced our $396 million GIC joint venture term loan that funded the acquisition of the Newcrest image portfolio in January 2022. The new $400 million term loan has a fully extended maturity of July 2030 at an interest rate of SOFR plus 235 basis points, which represents a 50-basis point reduction in spread versus the prior loan. After closing the loan, we entered into a forward-dated $300 million swap that fixes SOFR at 3.26%, which will accretively replace the $300 million of existing swaps priced at 3.49% and set to expire in mid-January 2026. In February, we intend to fully draw our $275 million delayed draw term loan to retire the $288 million of convertible notes maturing in the first quarter of 2026. Pro forma for this refinancing, we have no debt maturities until 2028. Due to our interest rate management efforts, our interest rate exposure continues to be effectively hedged with a swap portfolio that has an average fixed SOFR rate of approximately 3% and 75% of our pro rata share of debt is fixed after consideration of interest rate swaps. When accounting for the company's Series E, F and Z preferred equity within our capital structure, we were 80% fixed at quarter end. With ample liquidity, an average interest rate of 4.5% and an average length to maturity of nearly 4 years when adjusting for our recent refinancings, we believe the company is well-positioned to navigate near-term volatility in operating fundamentals as well as to take advantage of potential value creation opportunities. On October 31, 2025, our Board of Directors declared a quarterly common dividend of $0.08 per share. which represents a dividend yield of approximately 6% based on the annualized dividend of $0.32 per share. The current dividend rate continues to represent a modest payout ratio of 38% based on the company's trailing 12-month AFFO. The company continues to prioritize striking an appropriate balance between returning capital to shareholders, investing in our portfolio, reducing corporate leverage and maintaining liquidity for future growth opportunities. While we remain confident in the long-term fundamentals in our portfolio, near-term results are being negatively affected by increased price sensitivity and continued macroeconomic volatility. We currently expect fourth quarter 2025 RevPAR to range from minus 2% to minus 2.5% as operating trends demonstrate sequential improvement from the second and third quarters of this year. Operating expense growth is expected to range from 1.5% to 2% for the full year. It is worth noting that the recent sales of the Courtyard Amarillo and Courtyard Kansas City will result in approximately $400,000 of foregone pro rata hotel EBITDA in the fourth quarter, representing the date of sale through year-end. From a nonoperational perspective, we expect full year pro rata interest expense, excluding the amortization of deferred financing costs to be $50 million to $55 million, Series E and Series F preferred dividends to be $16 million and Series D preferred distributions to be $2.6 million. From a capital expenditure perspective, we are targeting a full year 2025 spend of $60 million to $65 million on a pro rata basis. The previously referenced nonoperational estimates do not include any additional acquisition, disposition or capital markets refinancing activity beyond what we have discussed today. Finally, the GIC joint venture results in net fee income payable to Summit covering approximately 15% of annual pro rata cash corporate G&A expense, excluding any promote distributions Summit may earn during the year. And with that, we will open the call to your questions. Operator: [Operator Instructions] Our first question comes from Austin Wurschmidt with KeyBanc Capital Markets. Joshua Friedland: It's Josh Friedland on for Austin. I wanted to ask about leisure demand trends across your portfolio. Do you expect further normalization or softening? Or has it reached a point of stabilization in your view? Jonathan Stanner: Josh, this is Jon. Look, I think we definitely felt some softness on the leisure side over the course of the summer. It does feel to me like it has stabilized. And I think one of the things that we called out in our prepared remarks is that part of what's driving better results in October, and I think a more constructive outlook for the fourth quarter is better midweek performance, particularly in urban markets. And some of that is the transition outside away from leisure towards a more BT-oriented customer. I do think that leisure demand trends are largely stable, and I wouldn't expect any further deterioration of those trends in the fourth quarter. Joshua Friedland: That's helpful. And as you look into next year, I know you called out a couple of markets in the opening remarks, but which markets are you most optimistic about? And kind of what factors are driving that confidence? Jonathan Stanner: Yes. I mean I think as we look into 2026, I mean, clearly, I think we believe the World Cup is going to be a large driver of demand. And as we alluded to, we've got 6 markets that will benefit from the World Cup, Atlanta, Boston, Dallas, Houston, Miami and San Francisco. San Francisco is also going to host the Super Bowl next year. We think that Boston will benefit from kind of the America's 250 celebration. We'll host the Final 4 in Indianapolis next year. So, we do have a portfolio that has a fair amount of exposure to some of the special event-driven demand that we think will be tailwinds to our performance as we look into '26. Operator: Our next question comes from Chris Woronka with Deutsche Bank. Chris Woronka: I guess my first question was kind of related to government and I guess you say government adjacent or government contract. Can you give us a sense, how does that -- what are the booking windows on that? What does the pricing look like versus kind of your, I guess, you want to call it blended portfolio or corporate, whatever you use the best comp for? Just trying to square up what -- how that's going to -- when things open up again is how immediate and how significantly you might feel the impact on the upside? Jonathan Stanner: Yes. Look, government -- the answer on rate is really a market-specific question. And so, there are certain markets where per diem rates are really attractive and we take as much business -- as much of that business as we can take. There are other markets where it ends up getting yielded out when you've got stronger demand. I'd say, overall, our government rates are attractive. And I don't think that the booking window from a transient perspective is any different than the other transient -- the rest of our portfolio's transient window. And I would say the same thing on the group side. I think what's important to point out is it's really the pullback in demand more than it is the pricing dynamics that are forcing this remix. And so, when you look at channel mix or you look at segmentation mix, what you're seeing in the second and third quarter is a heavier emphasis and more business being driven through discounted channels. And some of that is being driven by, again, the lack of demand we've seen from government and international inbound demand. Those 2 -- we said this in the prepared remarks, but those 2 segments have accounted for about half of our RevPAR reduction year-over-year. And so, not only did we lose the demand, but again, it's forcing this remixing of business towards more discounted channels. And again, that's putting some pressure on rates year-over-year. Chris Woronka: And then as you think about World Cup next year, I mean, we understand that a lot of the negotiations are already done, hotels are booked or soft booked in these markets pretty full. You guys have 6 markets, I think 20-some hotels. Is there any way -- how are you guys thinking internally about the, I guess, RevPAR uplift from that. But also, I think on the other side, we've also heard that FIFA requires pretty loose cancellation policies and then there's kind of the debate about what happens in the market before and after the matches come through. So just how are you kind of constructing that internally in terms of potential upside and how much you might underwrite when you give us your initial guidance in, I guess, February or March? Jonathan Stanner: Yes. Look, I think the first thing I would say is we do expect a really nice lift in many of these markets from the demand that's created. Obviously, there's uncertainty on who's going to be playing in which markets. And so that will feed into some of our revenue management strategies around the event. And similar to how we've handled Super Bowls in the past, what we often will do is we'll create a base layer of group demand. I'll give you an example in Dallas, it's going to be the media headquarters for the event, and we've got 4 hotels really proximate to the convention center in downtown Dallas. We'll be able to layer in a base layer of group demand around that event that will insulate us a little bit around who's playing and what games there are. I think without question, you're going to see pretty significant lift in all of these markets in and around the games and in and around kind of all of the pre-game festivities. There certainly could be some demand patterns that change depending on who's playing. And so, we're going to want to revenue manage around those dynamics. And part of that strategy is going to be based on creating a base layer of demand that's in-house prior to getting closer to the actual matches. I want to be careful around trying to quantify what we think that lift is. We're obviously going through our budget process now other than to say, again, we think the setup in those 6 markets where we do have meaningful exposure is going to be meaningful for us next year. Operator: [Operator Instructions] Our next question comes from Michael Bellisario with Baird. Michael Bellisario: Jon, do you want to dig into business transient in October, maybe just more specifically, any commentary or color about Tuesday, Wednesday nights, the rate or occupancy pickup? And then any -- excuse me, also commentary on November and November base, what you're seeing so far looking out 30 days, that would be helpful. Jonathan Stanner: Yes, sure. Look, as we said before, despite the fact that there's been some incremental demand challenges on the government side related to the shutdown, our October results are going to finish between 2% and 2.5% down year-over-year, which is a sequential improvement from what we saw really all through the third quarter. A lot of that, as you alluded to, Mike, is driven by the strength of midweek demand. And if I look -- if I isolate Tuesdays and Wednesday nights and just look at occupancies and RevPARs year-over-year, we've actually inflected positively in October, and we were running down 200 or 300 basis points in both the second and third quarter. So, there are some really positive demand trends. A lot of that is really driven by our urban markets. And again, I think speaks to at least the relative strength of business transient travel. As it relates to November, and I'll talk about fourth quarter pace more generally, our pace for the quarter is tracking about 2.5% behind last year. It's fairly evenly balanced between November and December. I'd highlight a couple of things, some of which we highlighted in our prepared remarks, October represents about half of our EBITDA for the quarter. So, a lot of our quarter has been baked with what has been, again, a relatively more positive October. But we are seeing kind of stability of demand patterns and better pacing trends than we have seen over the last several quarters. When I think about what 2.5% means with 60 days left in the quarter, if I go back and look at where we sat 90 days ago for the third quarter, we were down about 10% in pace and actualized, obviously, plus or minus 4% for the quarter. So, we are much less reliant on in the quarter for the quarter pickup and in the month for the month pickup in the fourth quarter than we were, again, 90 days ago. Michael Bellisario: That's helpful. And then just switching gears in terms of transactions and the balance sheet. Just remind us of your near-term capital allocation priorities, maybe how many assets are left to be sold? What are the parameters for buybacks? And then maybe when you think about being even more aggressive on the asset sale front? And that's all for me. Jonathan Stanner: Sure. Yes. Well, look, we're pleased with how we've been able to recycle capital. And I think the 2 assets that we sold in October further demonstrate our ability to be really strategic, but also tactical in how we've gone about asset dispositions. Over the last couple of years, we've sold 12 assets. We're doing it mostly onesie-twosies where we're finding the right often local owner operator that has been a little bit less yield sensitive. And so, we've been able to transact at yields that are sub-5% yields. We've obviously eliminated a lot of capital that was going to need to go into those assets. That has been kind of a common thread that's been consistent across all of those dispositions. There will always be more. There will always be assets in our portfolio that we believe it will be time to recycle that capital into something that's a higher and better use. We've done that really historically through -- since the company has gone public as we've been a very active recycler of assets. And I think you should expect that to continue as we get into 2026. As you alluded to from a share repurchase perspective, obviously, we're very pleased with the execution of where we bought the shares back in the second quarter. The stock is up 20-plus percent since we bought those shares back. We were clearly very focused on getting the asset sales closed in October, but it is nice to have that tool available to us for periods where there's more meaningful dislocations in the equity. Operator: Our next question comes from RJ Milligan with Raymond James. R.J. Milligan: Jon, I wanted to follow up on your comments just now about continued portfolio recycling. Just curious, how much is left to sell or to recycle through? And can you maybe provide a little bit more color on the asset sales in the quarter and what the buyer pool looks like and the buyer pool expectations for 2026? Jonathan Stanner: Sure. Look, I think, RJ, we always have viewed that there's kind of a bottom 10% of the portfolio. And I think when we think philosophically about capital allocation, what we want to make sure we do is we always have a portfolio, a real estate portfolio that is -- that's consistent with where guest expectations and what guests -- where they want to stay. And so, we feel like we constantly have to evolve the portfolio. That's what we've done historically. That's what you can expect from us going forward. And again, I think without quantifying it or identifying specific assets, you should always expect us to be an active recycler of capital. One of the things that we have prioritized is identifying slower growth assets that have significant capital needs. And again, if you look at the dozen assets we've sold over the last couple of years, you'll see lower cap rate deals and assets that needed pretty significant capital expenditures over the next several years. And so again, we've been very pleased with that execution. It is still a very soft transaction market generally. As everyone is well aware, there have not been a lot of deals that have gotten done. A lot of that, I think, has been driven by some of the uncertainty on the fundamental side of the business and the lack of RevPAR growth that we've seen over the course of the second and third quarters. We do expect that to improve as we get into the later parts of this year and into next year. But again, our efforts have really been very focused on finding the right buyer in the right market, and I think we've been successful doing that. R.J. Milligan: And then a follow-up on -- I may have missed this, but clearly, government and government-related demand was low post Liberation Day. But I'm curious if you could quantify what the impact was in October with the incremental government shutdown and how much that contributed? Jonathan Stanner: Yes. Government has been running down about 20% year-over-year really since Liberation Day. Our October numbers are down more than that. They're probably down 30% year-over-year, plus or minus in October. It's off of a smaller base, obviously. And so, we haven't felt -- what we haven't seen is a lot of significant cancellations or lack of check-ins on the government side. We are pacing down. But as we've alluded to a couple of times, thankfully, a lot of that softness has been offset by better midweek trends, particularly related to business transient demand. Operator: I'm showing no further questions at this time. I would now like to turn it back to Jon Stanner for closing remarks. Jonathan Stanner: Well, thank you all for joining us this morning. We look forward to seeing many of you at the various industry conferences we have scheduled for later this year. I hope you have a nice day. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, and welcome to the Q3 2025 Teva Pharmaceutical Industries Limited Earnings Conference Call. My name is Alex, and I'll be coordinating today's call. [Operator Instructions] I'll now hand over to Chris Stevo, SVP, Investor Relations. Please go ahead. Christopher Stevo: Thank you, Alex. Good morning and good afternoon, everyone. In a moment, I'll hand the call over to my CEO, Richard Francis. But before I do that, it is my duty and my honor to remind you of our forward-looking statements. Today on this call, we'll be making forward-looking statements, and we undertake no obligation to update those statements after today's call. If you have any questions regarding forward-looking statements, please feel free to see our SEC filings under Forms 10-Q and 10-K in the relevant sections. And with that, Richard Francis. Richard Francis: Thanks, Chris, and good morning, good afternoon, everybody. Thank you for joining the call today. On the call today, I will be joined by Dr. Eric Hughes, Head of R&D and Chief Medical Officer; and Eli Kalif, the CFO of Teva Pharmaceuticals. So starting with, as I always do, the pivot to growth strategy. This is a strategy that have guided Teva for the last 3 years, a strategy based on the 4 pillars: deliver on our growth engines, which is all about driving AUSTEDO, UZEDY and AJOVY, our innovative portfolio, stepping up innovation, which Eric will talk to you about, with the great progress we're making across our innovative pipeline, sustained generics powerhouse and the work we've done to stabilize our generics business and then focus the business, and I'll give you an update on where we are with our transformation of Teva, our $700 million cost savings programs as well as an update on TAPI. Now moving on to the actual results. Pleased to say this is our 11th quarter of consecutive growth, up 3% in revenue to $.5 billion, and adjusted EBITDA up 6% and our non-GAAP EPS up 14%. These all compared to Q3 2024. And our free cash flow is just above $0.5 billion. I'm really pleased to say that our net debt to EBITDA is now below 3x for the first time since 2016. Now moving on to the next slide, one of my favorite slides, I have to admit. This is our 11th quarter of consecutive growth after many years of sales decline. And it's worth noting that Q3 '24 was a particularly difficult comparison year where we had growth of 15%. And so to grow 3% over that comp, I think, is a testament to the work we've done on our portfolio and a testament to the teams. Now this puts us on track for our growth targets we set for 2027 to have mid-single-digit growth. So congratulations to the whole team that have made this happen over the last 11 quarters. Now going down a bit more detail, what's behind this $4.5 billion revenue and 3% growth. This growth was spearheaded by our innovative products, and I'm really pleased to say that they are now worth over $800 million for the quarter, and the growth is 33% year-on-year. AUSTEDO grew an impressive 38%, reaching $618 million. UZEDY performed strongly, up 24%, reaching $43 million and AJOVY performed well, up 19% to $168 million. Global generics revenues was up 2% and TAPI was down 4%, reflecting some seasonal volatility. So now I'm going to double-click and go into a bit more detail on all of these areas, starting with AUSTEDO. Now as you know, AUSTEDO was selected earlier this year for CMS for the 2027 price negotiation. And I'm pleased to say that agreement that we've concluded is consistent with our midterm expectations for AUSTEDO that we first laid out back in May 2023. And this means that we can confirm with confidence our 2027 revenue target of $2.5 billion and our peak sales target of over $3 billion. Now let's talk a bit more about AUSTEDO in Q3. It was another strong quarter for AUSTEDO, where the team continues to perform incredibly well. The U.S. reached $601 million in Q3 '25, growing at 38% year-over-year. And this is the first time we have passed $600 million. So congratulations to the team for all their hard work in making this happen, and it really reflects the understanding this team has of the market. We grew TRx 11%, and we continue to see the increasing penetration of AUSTEDO XR. And it's worth reminding everybody again that AUSTEDO XR requires fewer scripts compared to the original AUSTEDO, and that's why it's equally important to look at the milligrams dispensed. And as you can see, these were up 25%. Now as you see on this slide, we've highlighted that with 2026 approaching, we have a good sense of AUSTEDO's 2026 formulary position, and we continue to reflect the balance between preserving value and maintaining access. So based on these strong results in Q3, we can increase our revenue outlook for AUSTEDO to $2.05 billion to $2.15 billion for the year. Now moving on to UZEDY, another exciting member of our innovative family. UZEDY continues to perform well. Momentum remains strong as we continue to address the needs of the mild-to-moderate patients and those beyond who take risperidone. Revenues were up 24% year-over-year, and TRx was up a strong 119%. It is worth noting that revenue growth was partially impacted by a onetime Medicaid gross to net adjustment. Now this does not impact our long-term LAI franchise expectations, and we reiterate our peak sales target of $1.5 billion to $2 billion for the franchise. Now this confidence is rooted in the data. UZEDY's NBRx is significantly above the TRx. As you know, in Q3, we also had an expanded indication for bipolar I disorder. Now to give you more guidance on how to forecast UZEDY going forward, the Q4 implied guidance of $55 million to $65 million provides a cleaner run rate for forecasting going forward due to that gross to net adjustment in Q3. But I want to take a couple of slides just to talk about the excitement we have around our LAI, our long-acting franchise in schizophrenia. And why do we think this $1.5 billion and $2 billion is achievable? Well, it really comes down to the great work that's been done with UZEDY already. The team here has created great traction, as you can see, with 119% TRx growth. We have a great product profile with UZEDY, and we anticipate having a similar strong product profile with olanzapine. But more importantly, the capabilities and the knowledge that has been built here, we have the same people in front of key payers, the same people in front of these key physicians, these key nurse practitioners, health care providers, patient associations, the people who look after the formulary committees. That puts us in a very strong position. And we know and believe there's a significant unmet need in the olanzapine for long-acting treatment. And if you put those 2 together on this slide, we have the ability with UZEDY and our long-acting olanzapine to treat up to 80% of patients who suffer from schizophrenia, whether that's mild to moderate with UZEDY or moderate to severe with long-acting olanzapine. And just to highlight, unfortunately, 4.7 million people suffer from schizophrenia in the U.S. and Europe. So the opportunity for both brands is significant. That's hence the reason why our confidence in the $1.52 billion remains strong. Now moving on to AJOVY. I do love AJOVY. It continues to grow strongly across all regions in what is still a very competitive market. And there's some nice data points here. We are the #1 preventative CGRP injectable in new prescriptions among the top U.S. headache centers, and we are the #1 preventative CGRP injectable in 30 countries across Europe and international. And so we confirm our guidance of $630 million to $640 million. Now staying on innovation. I'm going to touch briefly upon the innovative pipeline, as I know Eric will talk to you about this later, but I'm super excited about this. Why? Because it's near term. These are late-stage assets. Olanzapine, I'll talk to you about the filing of that this year. DARI, the good recruitment that we're seeing to bring that to the market in '27. Duvakitug, starting our Phase III study. Emrusolmin, great recruitment there. But then I look across the right-hand side of the slide, and I see the potential of peak sales, and it's over $11 billion. And I'll remind you, that's just for the indications on this slide. We know that duvakitug and anti-IL-15 will be pursued in multiple indications. So we really have strong growth drivers for the future for Teva. Now moving on to our generics business. Our generics business grew 2% over 2024, and this is fueled by launches as well as the growth of our biosimilar and our OTC business. Now as I reminded you before, we tend to look at this business over a 2-year CAGR just because of the inherent timing of new launches that we have in this business. Now looking at the regions, we had a very strong quarter for the U.S. It grew 7% in Q3, and that was driven by several launches and particularly strong performance of biosimilars as well as some phasing patterns for our generic Revlimid, which I would like to point out, these will not be repeated to the same magnitude in Q4. Europe declined 5%, mainly due to some tough comparisons to the prior year where we had a number of launches and a number of tender wins, which are for 2-year periods. So it's a 1% CAGR for the 2 years. International markets grew at 3% or 12% on a 2-year CAGR. But now I'd like to talk to you a bit about our biosimilars because we're entering an exciting period for our biosimilars portfolio. We have -- now have 10 in-line assets globally and the potential to launch 6 more through 2027. So we're well on track to add another $400 million by 2027 as we forecasted back at the start of the year. And I want to remind you that today, we're growing strongly in biosimilars without substantial launches or revenues in Europe, which is the largest region in the biosimilar market. And our European pipeline will start to convert into launches and revenues and biosimilars will be a more significant driver for Teva overall after 2027. Now moving on to the fourth pillar, focus our business. We made significant progress with the Teva transformation program, and this is something we started at the start of this year. And we made a commitment to realize 2/3 of the $700 million by the end of 2026. And I can tell you we're on track to do that. The reason why I can tell you that is because we're on schedule to hit our 2025 goals, and that sets us up well for the start of next year. But I'll leave Eli to go into a bit more detail later on in this presentation. Now before I hand it over to Eric, I wanted to give you an update on how we're tracking for the 2027 targets, which we are reiterating today. So from a revenue point of view, with the IRA negotiations now finalized, our upcoming launches and the stabilization of our generic business, we estimate that 2025 will end the year with a 3% to 4% growth range, consistent with our '23 to '27 mid-single-digit average growth. On OP, because of the work we've done of driving our innovative portfolio, I remind you, up 33% as well as the progress we made on organizational effectiveness, we are on track to our 30% margin. And this year, we will end around the 27% margin overall. And the net debt-to-EBITDA dropped below 3x, as I mentioned earlier. By the end of this year, we should be around 2.8x, well on track to hit the 2x by 2027. And with that, I will hand over to my colleague, Eric Hughes. Eric Hughes: Thank you, Richard. Now as Richard said, we have a healthy late-stage development programs in our innovative medicines. And we're doubling down on our efforts to execute these studies on time and efficiently. Now beginning with olanzapine LAI, we're on track for our FDA submission later in this quarter. Our DARI program for both adults and pediatric patients is on target for enrollment by the end of this year. Our duvakitug program in partnership with Sanofi has now initiated both our ulcerative colitis and Crohn's disease Phase III studies. Our emrusolmin program has now enrolled the 100 patients that we'll need for our futility analysis by the end of next year, and then enrollment continues to do very well. And finally, our anti-IL-15 program, very exciting program with multiple potential indications in the future, where be reading out our celiac and our vitiligo studies, proof of concepts in the first half of next year. So exciting late-stage programs. But before I go on to those in more specific detail, I do want to have a celebration for the UZEDY team for bipolar I disorder. We had an approval and an expansion of our label, which we're very proud of. This is an innovative approach by the team using the known and well-characterized pharmacology of UZEDY plus the safety database that we have in conjunction with efficacy using a modeling and simulation approach to expand that label for patients suffering from bipolar I disorder. So a great innovative approach, very efficient execution and a great opportunity for patients to get treatment for their bipolar disease. Now on to olanzapine LAI. As we've mentioned, we've actually presented the data, both the safety and efficacy of the full program in Phase III at the 2025 Psych Congress Annual Meeting. It was very well received. Both the safety and efficacy was right where we expected it. And most importantly, we had no cases of PDSS. And that submission is planned for the late half of this quarter. So on track and exciting opportunity for patients in the future. Moving on to our dual action rescue inhaler program for asthma, our ICS/SABA Phase III program. This is the largest study we've run at Teva to date. Right now, we're on track for full enrollment of our adults and our pediatric patients at the end of this year. And remember, the real value here is the fact that in our label, we anticipate to get the pediatrics included, which is 25% of the market. And also, we'll have a dry powder inhaler, which is a simple device to use, simply open, inhale and close. This makes it much more convenient for both adults and particularly the pediatric patients. So a great program right on track. And as I mentioned before, we're very excited to announce that we have now initiated both the ulcerative colitis and Crohn's disease Phase III programs with our partner, Sanofi, for our duvakitug program. This is a very exciting program, very large effort by many people. The ulcerative colitis study is called SUNSCAPE and the Crohn's disease program is called STARSCAPE. And what we're really excited about with this program is the way we've designed Phase III. It includes an open label feeder arm that will enroll patients very rapidly since it's open label and they know they get treatment, but that gets to our safety numbers very rapidly in the maintenance. We have a favorable randomization ratio for the patients to active. We have a rerandomization design, which is really a more feasible or favorable design for multiple doses and is more reflective of clinical practice. And finally, but possibly most important of all, the entire program is based on subcutaneous injections. That's loading dose, induction rate and then maintenance throughout the entire program. So it's a really patient-friendly program, and it's designed to execute quickly. I would add, we were the fastest to transition this MOA from Phase II to Phase III. So it's all about execution now with a great program. So kudos to the team. And on to emrusolmin. I always like to start by saying emrusolmin is enrolling a patient population that is a real unmet medical need. This is multiple system atrophy. And our differentiated molecule is targeting the very beginning of the alpha-synuclein aggregates. We have a very efficient design. Here, you can see it's a 48-week design against placebo. And I mentioned enrollment is going very well, and we've already got the first 100 that will be involved in the futility analysis at the end of next year. So we're right on track, and it's going quickly. We're proud that this has received fast track designation, and we've already got the orphan designation. So more to come. And finally, I just want to touch base on the anti-IL-15 program. This is another great homegrown antibody and program from the Teva laboratories. Right now, we've got it in proof-of-concept studies in celiac disease and importantly, also in vitiligo, which will read out in the first half of next year. But the upside possibility here is multiple different indications. Remember, IL-15 is a key cytokine in the activation and proliferation of NK cells and T cells that's believed to be involved in many different indications that you can see here. So a lot to go with IL-15, but very exciting program, and that also received fast track designation. And with that, I'm going to pass it off to my colleague, Eli Kalif. Eliyahu Kalif: Thank you, Eric, and good morning and good afternoon to everyone. I would like to start today with the following key messages that demonstrate our consistent execution over the last few quarters, including in Q3. First, Q3 results were above solid, driven once again by our fast-growing innovative portfolio. As Richard said earlier, this was our 11th consecutive quarter of revenue growth. Second, we continue to strengthen our balance sheet and specifically reduced our net debt to below $15 billion and expanded our EBITDA, leading to the net debt-to-EBITDA of below 3x for the first time since Q3 2016. Third, we have made significant progress in our transformation programs with approximately half of our planned savings of $70 million for 2025 already achieved by Q3. We are on track to deliver approximately $700 million of net savings by 2027 and achieve our 30% operating margin targets. And lastly, the outcome of the IRA negotiation for AUSTEDO is largely in line with our model expectation and further emphasize our conviction in achieving our revenue target of $2.5 billion in 2027 and more than $3 billion at peak for AUSTEDO. Now moving to Slide 30 to review our Q3 2025 financial results, starting with our GAAP performance. Please note that throughout my remarks, I will refer to revenue growth in local currency terms unless otherwise specified. Similar to the last quarter, I will also refer to certain results from Q3 2024 that exclude any contribution from the Japan business venture, which we divested on March 31, 2025, to help you with the like-to-like comparison of our financial results. Our Q3 revenue were approximately $4.5 billion, growing 5% in U.S. dollars or 3% in local currency. Revenue growth was mainly driven by continued strong momentum in our key innovative products, AUSTEDO, AJOVY, and UZEDY as well as our generics products in the U.S., including biosimilars. This was partially offset by some softness in European generics as well as lower proceeds from the sale of certain product rights compared to Q3 2024. GAAP net income and EPS were $433 million and $0.37, respectively. FX movement during the quarter, including hedging effects positively impacted revenue by $106 million and operating income by $21 million compared to the third quarter of 2024. Now looking at our non-GAAP performance. Our non-GAAP gross margin increased by 120 basis points year-over-year to 55.3%. This increase was slightly higher than our expectation, driven mainly by strong growth in AUSTEDO leading to an ongoing positive shift in our portfolio mix. Gross margin also benefited, although to a lesser extent from a shift in ordering patterns for generics Revlimid in our U.S. generics business, leading to some volume shift from the second quarter to the third quarter as well favorable FX. This strong performance in non-GAAP gross margin largely carried through the non-GAAP operating margin, which increased by approximately 70 basis points year-over-year to 28.9%. This was partially offset by higher planned investment in OpEx and impact from foreign exchange movements. Overall, we ended the quarter with a non-GAAP earnings per share of $0.78, an increase of $0.10 or 14% year-over-year. Total non-GAAP adjustment in the third quarter of 2025 were $478 million. Our free cash flow in Q3 was $515 million compared to $922 million in Q3 2024. This decrease was mainly due to timing of sales and collection as well as higher legal settlement payments, which we have planned for this year and is reflected in our full year free cash flow guidance. Moving to Slide 31. We are making significant progress in our Teva transformation programs through a well-defined and targeted efforts to deliver sustainable margin improvements without compromising our ability to innovate and invest in our long-term growth. These programs are expected to deliver approximately $700 million of net savings between 2025 and 2027, with roughly 2/3 of these savings to be realized between 2025 and 2026. We are well on track to achieve approximately $70 million of initial savings in 2025 with half of it already achieved by end of Q3, demonstrating solid momentum and execution. It's important to remember that the transformation we are driving is not just about reducing the spend. It's part of the journey to transform and modernize Teva into an innovative biopharma company and prioritizing resources towards areas that drive growth and innovation. These transformation efforts, along with the ongoing portfolio shift towards high-growth and high-margin innovative products provide a clear and credible path to achieving our 30% operating margin target by 2027, even as we continue to invest in the business. In relation to these programs, we have recorded approximately $190 million year-to-date in restructuring costs and expected an overall cash outflow of $70 million to $100 million in 2025. Our guidance for 2025 already incorporated the impact of both expected savings and this cash outflow. Now moving to the next slide for an update regarding our strategic intent and the progress and the process to divest TAPI. As we have consistently and transparently shared with you all, we have been in exclusive discussions with a selected buyer for the sale of TAPI. At this time, we have decided not to move forward with those discussions as we were unable to reach an agreement aligned with Teva long-term priorities and interest of our shareholders. While this process did not result in a sale with this initial buyer, recent shift in the geopolitical environment and market conditions reinforce TAPI attractiveness for potential buyers. We continue to view TAPI as a valuable asset, but it's nonstrategic to our pivot to growth priorities. We are now initiating a renewed sale process to explore alternative options and maximize potential value creation. We will provide further updates pending a transaction or other determination. Moving on to our 2025 non-GAAP outlook in Slide 33. Our performance year-to-date reflects consistent execution across our pivot to growth priorities with a solid revenue growth, margin expansion and cash flow generation despite the tough prior year comparables in our generics business. Based on our year-to-date results and with the 2 months left in the year, we are tightening our 2025 outlook range for revenue, operating profit, adjusted EBITDA and EPS. Starting with revenue. Consistent with the direction we shared last quarter, we are tightening the full year guidance range to be between $16.8 billion and $17 billion. Our innovative portfolio continues to perform very well, specifically AUSTEDO, driven by strong demand and our commercial execution. With the strong year-to-date performance, we are increasing our full year outlook for AUSTEDO by $50 million to $100 million to a new range of $2.05 billion to $2.15 billion, reflecting a full year growth of 21% to 27% year-over-year. However, as we discussed last quarter, we expect our global generics revenue for the full year to be flat in local currency compared to 2024. This is mainly due to the tough year comparison deals in the timing of certain launches as well softness in certain markets. Moving to the other elements of our financial outlook. With a strong year-to-date performance, we now expect our non-GAAP gross margin to be at the higher end of our guidance range of 53% to 54%. This implies a slightly lower margin in Q4 compared to Q3, mainly due to generic Revlimid seasonality as the majority of our volume allocation was sold by the end of Q3. We're also increasing the lower end of our non-GAAP outlook range for adjusted EBITDA, operating income and EPS, consistent with our year-to-date results and expected ongoing strength in our innovation portfolio, along with the savings from our transformation programs. While we continue to wait for clarity around potential U.S. tariffs on pharmaceuticals, including the outcome of the ongoing 232 investigation, we are encouraged by the statement so far from the administration regarding possible generics exemptions. Our 2025 guidance continue to already reflect confirmed tariffs that are in place. We continue to expect our operating expenses to be between 27% and 28% of revenue. Our free cash flow guidance range remains the same between $1.6 billion to $1.9 billion. I would like to reiterate that our full year guidance does not include the development milestone related to the Phase III initiation of duvakitug UC and Crohn's indications. That said, to assist you with your modeling, we want to highlight that the expected contribution from this development milestone is dependent on the timing of each of these 2 studies. Based on the current time lines, we expect to earn one development milestone in Q4 2025, with the remainder expected in Q1 2026. For Q4 2025, we expect the first development milestone to contribute $250 million to revenue and approximately $200 million to EBITDA and free cash flow, net of certain transaction-related costs. This first development milestone is expected to contribute approximately $0.14 to the EPS. Now turning to the next slide on capital allocation. Our capital allocation approach remains disciplined and focused on supporting our pivot to growth strategy and strengthening our balance sheet. As I mentioned in the beginning, we are consistently reducing our debt while investing in our go-to-market capabilities and innovation. With the ongoing improvement in our free cash flow, we are on track to reach our net debt-to-EBITDA target of 2x by 2027 and then to sustain around that level thereafter. In addition to our ongoing deleveraging and progress towards an investment-grade ratings, our disciplined execution also position us well thoughtfully evaluate additional ways of returning capital to our shareholders. Finally, before I conclude my review of our third quarter performance, I would like to reaffirm our 2027 financial targets. The outcome of the IRA negotiation for AUSTEDO further emphasize our conviction and provides additional clarity to deliver on these midterm goals. With that, I will now hand it back to Richard for his closing remarks. Richard Francis: Thank you, Eli. Before I conclude, let me remind you of some of the growth drivers that we have here at Teva. As you -- as we expect our innovative portfolio to continue to drive growth beyond 2027, you can see that we have a significant amount of opportunity to do this. Currently anchored on AUSTEDO, which we reiterated our target of reaching more than $2.5 billion in '27 and greater than $3 billion in peak sales based on the conclusion of our IRA negotiations with CMS. Along with the innovative products UZEDY, AJOVY, we will continue to drive our product mix and profitability. But also to build on Eric's remarks, we are preparing for exciting innovative product launches in the next few years, which should set a foundation for growth in years to come. If you move on to my final slide, just some final thoughts. In Q3, in '25, we continue to deliver on our pivot to growth strategy with the 11th consecutive quarter of growth, growing our innovative franchise at 33%. We have a clear path towards our 30% operating margin and our other 2027 targets. We're advancing our innovative pipeline with near-term and long-term catalysts and Teva transformation is well on track to deliver the $700 million in savings we committed to. And with that, I would like to open the floor for the Q&A. Thank you. Christopher Stevo: Thank you, Richard. Alex, if you could -- sorry, Alex, if you could please go ahead with question queue and we ask if you could limit yourself to one question and one brief follow-up, and of course if there's additional time, we're happy to let you back in the queue for more questions. Go ahead, Alex. Thanks. Operator: [Operator Instructions] Our first question for today comes from Dennis Ding of Jefferies. Yuchen Ding: Maybe one on AUSTEDO and IRA. Thanks for the comment and glad to see that you're reiterating the long-term AUSTEDO guidance. I'm curious what additional color you can give in terms of your own internal expectations going into the negotiations and how the negotiated price relates to the current Medicare net price. Richard Francis: Dennis, thanks for the question. Well, as I mentioned on the call, how it met with our expectations, it was in line with what we had forecast when we set the forecast back in May 2023. So we had anticipated that we would be in the list, and we would be negotiating with CMS. And so because of that, that's why we remain very confident about hitting our $2.5 billion revenue. With regard to the latter part of your question about, I think it was net price, we're not going to comment on that, obviously, for competitive reasons. But I'll just reiterate the fact that we believe that we have the ability to hit our $2.5 billion in revenue, one because it's in line with what we forecasted, but I would also like to remind everybody that tardive dyskinesia remains a highly underdiagnosed and undertreated condition. 85% of patients who suffer from this condition are not on therapy. And so we see a great opportunity to help those patients and continue to keep growing AUSTEDO in '26 and beyond, hence, reiterating the $3 billion -- greater than $3 billion peak sales for AUSTEDO. And so I think those are the things I keep in mind as you think about the future for AUSTEDO. Thank you. Operator: Our next question comes from David Amsellem of Piper Sandler. David Amsellem: I had a question on AUSTEDO as well. So your competitor talked on its call about this dosing creep, if you will. In other words, the per milligram pricing structure and higher doses mean more revenue per patient. And what they've said is that health plans are essentially catching on to that and that there is a potential migration over to the competitor product. So I was just wondering if you can give us some color on the pricing structure of AUSTEDO XR and if that's having ramifications in terms of access to AUSTEDO XR. That's number one. And then secondly, how is that going to inform how you're thinking about commercial contracting for '26 and the extent to which you might make more concessions on price just to get into a better access position vis-a-vis your competitor? Richard Francis: Thanks, David. Thanks for the question. I'm not going to talk about what the competitors are saying. I'll focus on what we do here at Teva. And just to highlight, AUSTEDO's growth is much more about treating this underserved market, as I've said in the past, and our ability as a team to constantly execute. And I'll remind everybody, when we started this journey back in 2023, peak sales of AUSTEDO were forecast to be $1.4 billion. And as you see, we're going to exceed $2 billion this year. And that is down to what we've done as a company and the capability we have built. But when it goes to talking about the milligrams per dose, we've been very clear about the benefits of patients taking AUSTEDO XR and how that helps them with compliance and adherence. And this is very much in line with also what was put in our Phase III trial to allow physicians to have the flexibility to get to the patients on the optimal dose. So what we're seeing is just a natural progression from moving from BID to AUSTEDO XR and the physicians having that flexibility to get patients on the right dose. The final part of your question, I think, was about access. And I think I highlighted in my presentation the fact that we're always very thoughtful about how we manage access with value. We've continued to do that with AUSTEDO. We've done that very successfully, by the way, with our other brands in UZEDY and AJOVY. And I think we have a really strong capability for doing that. But I'll go back to what is driving our confidence in AUSTEDO is 2 things. The capability that we have within this team within Teva and the underserved market, 85% of patients who could be on therapy are not on therapy. And those are the 2 things that we focus on. But thank you for the question, David. Operator: Our next question comes from Jason Gerberry of Bank of America. Jason Gerberry: So my question is just on OpEx in 2026. And it looks like the consensus has combined R&D and SG&A kind of at around $4.8 billion, so pretty much flat on a year-on-year basis. Is that consistent with how you see the cost optimizations flowing through the P&L to navigate the Revlimid roll-off? And then my brief follow-up is just, can you comment at all if AUSTEDO XR was included or excluded in IRA? I know that there was a litigation tied to that. And so I'm just wondering if you can offer any clarity there. Richard Francis: So I'll hand the OpEx question -- so thank you, Jason, for the question. I'll hand that to Eli to answer. Eliyahu Kalif: Thanks, Jason, for the question. So the way to think about the development of the OpEx for '26, we always mentioned that from now onwards, as part of the $700 million savings, part of them will go into COGS and -- but the majority will go into the OpEx. And as much as we actually keep growing and able to fuel our profit, you will see us in the range between 27% to 28%. That will not change. But we will actually be able to expand our OP as well our EBITDA. So the way to think about it is that around 2/3 of the $700 million on savings we'll be able to accomplish by end of '26 already, but we will start to see also part of it impacting our COGS. But the main element that will move with the COGS will be actually in '27. But I can tell you that most of the savings we'll be able to accomplish by end of '26 and most of them related with OpEx. And therefore, you should think about the 27% to 28% as a run rate. Richard Francis: Thanks, Eli. And to answer your second question with regard to AUSTEDO XR being included in the IRA negotiations, the answer is yes. Operator: Our next question comes from Chris Schott of JPMorgan. Christopher Schott: Just to shift gears a little bit. Can you talk a little bit about your EU generic dynamics? I know you're facing some tougher comps there this year. But I was wondering if anything has changed in those underlying markets we should be thinking about as we think about kind of the growth going forward? And just a quick follow-up. I know the TAPI process. Just a little bit more color in terms of why restart the process here versus just deciding to keep the asset. Just maybe talk a little bit about just kind of the broader appetite for these API assets in the market right now. Richard Francis: Thanks, Chris. Thanks for the questions. So going to the EU Generics business. If I can take you back to when we started talking about Teva and our generics business back in '23, I can remember explain to everybody, this is a market leader of scale in Europe. And so the ability to grow this business, we should think of it growing around a 2% CAGR rate just because of its scale and size. Now obviously, I was proved wrong in the last 2 years as the business grew higher than that. But that was down to a couple of factors. One is we had more launches over those years as well as we had competitors struggling to supply and because of our manufacturing capability, we could step in. And so those 2 things happen. And I think what you're seeing versus this quarter versus the last year is sort of a similar theme. What we have is more launches that we had in 2023 -- sorry, in Q3 2024. We also had some tender wins, which are 2-year tender periods. And we also had supply issues from competitors. Those were no longer the case. So that's how I think about it. And that's why I go back to think about our generics business over a CAGR -- 2-year CAGR because if you think about a 2-year CAGR, these things smooth out, and that's how we think about it. And as we've had conversations, I always remind people that we think about our generics business going forward in that 2% CAGR period, one, because just of the scale we have. Now that said, one thing I do want to reiterate is our biosimilar business, while getting traction in the U.S., we will start now to launch and we have launched some products and biosimilars in the EU, and that will start to build momentum, more so post 2027, but we have a good pipeline coming through in Europe. And we know that's a mature biosimilar market. And so those are things that are going to start to maybe add to that growth in Europe going forward. But I hope that answers your question. With regard to TAPI, I'll give that question to Eli to talk about why restart it and not keep it. So over to you, Eli. Eliyahu Kalif: Yes. Chris, thanks for the question. So look, we were -- during all the process, we were very transparent, and as we mentioned, we actually decided not to progress with exclusive discussion that we had with a certain buyer. And the reason for that is that we see TAPI as a strategic going forward for Teva in terms of our ability to keep sourcing API when it's actually moving as a stand-alone. You need to remember, it's not just kind of a business that we have on the shelf and you divest it and you move forward, this is strategic for us going forward and our ability to make sure that we are providing additional value on short term and long term to our future progress and growth. It's super important. Turn out that certain elements in terms of the discussion didn't went according to the terms that we view how the deal should move on. And therefore, we made that decision. And also, we need to remember that the market condition now changed. Since we launched this sales process. Recent geopolitical development, as I mentioned, and some trade policies highlight some continued attractiveness for TAPI in terms of the landscape. So therefore, we decided to initiate revised strategic review and review the sales process. And as I mentioned, we'll keep all updated and provide further updates pending the transaction or any other determination around this process. Christopher Stevo: Maybe if I can add, just so Eli is not misunderstood there. When he says it's strategic, what he means is they're one of our largest API suppliers, and we need to ensure that any contract we have has the right terms, not just for the purchaser, but also for Teva going forward, both for our in-line products and our pipeline. Operator: Our next question comes from Ashwani of UBS. Ashwani Verma: Congratulations for the strong update. Maybe just like quickly on the 2026 revenue EBITDA, I wanted to understand like if you can continue to deliver growth on both these metrics just as a part of your long-term goals. We have Revlimid phasing out, but you have pretty meaningful cost savings outlined and also talked favorably about AUSTEDO formulary. And then just as a quick follow-up. So the 3Q AUSTEDO looks pretty strong. Is this primarily like regular way underlying demand? Or is there any type of a onetime benefit in this? Normally, you have like a pretty strong 4Q, but with this reiterated guide, it seems like it's indicating a down quarter in 4Q. Richard Francis: Ash, thanks for your question. So starting on the EBITDA, just to sort of remind you, and I think Eli touched upon this in his remarks, the EBITDA is driven by a couple of things next year. And I think it's important to understand this. One is our innovative portfolio has real momentum. As I said, it was up 33% in Q3. And these are products were all growing. So we continue to see great growth rates in those. And by the way, we've spoken about this in the past. These are very high gross margin products. So that really does help impact the EBITDA. So that's one. And then on the -- one of the slides that Eli and I both showed is on the transformation of Teva and the organizational effectiveness. We are on track to do exactly what we set out to do in '25, and that means that our guide to 2/3 of the $700 million net savings for 2026, we feel highly confident about. So if you just put those 2 things together, that really gives us confidence about our EBITDA. But I would probably take this opportunity to then talk about, well, we have some other things around our generics business where now we've lost generic Revlimid. There are 3 components which help us drive our generics business going forward, and that is our generics, our complex and our OTC. And as we've mentioned in the past, we have the ability to compensate for that generic Revlimid by the end of 2027 because we have those 3 different growth drivers and the scale we have in those 3 different businesses. So I think that answers that part of the question. With regard to the one on AUSTEDO, and I think you talked about the strong Q3 and how does that impact Q4? And was there anything behind that? I think there's just a couple of dynamics in that. Firstly, the fundamentals of AUSTEDO are really strong. It's really important to understand. So as you see with regard to our TRx, our milligrams, our growth rates, I think the team has continued to execute at a high level consistently. And I think we've seen that for quarter on quarter on quarter. Now one of the things I just would mention, and I think I mentioned on the last call, in Q3 2024 and Q2 2024, there was some channel stocking with regard to AUSTEDO XR. So that created a slightly different comparison as well as we had some slight gross to net adjustments in AUSTEDO, which are favorable in Q3 of this year. But if you take those out, it doesn't really change the directory much of AUSTEDO. And so I always think about looking at AUSTEDO over a yearly period, a multi-quarter period because I think we've been consistent in hitting our numbers and hitting our targets, and we're very accurate about that. So that's the way I think about it. So I don't anticipate anything very significant in quarter 4. The one thing that we always manage as well as we can, but it's not completely down to us is the channel. And we've been very disciplined in making sure the channel has the right stock, but obviously, that's something which we don't have complete control over, but we've shown good discipline there. So I hope that answers your questions, Ash, and thanks for the questions. Operator: Our next question comes from Les Sulewski of Truist Securities. Leszek Sulewski: So we saw the FDA propose new guidance around biosimilars to reduce comparative efficacy study and potentially speed up the approval process. So 3 questions on this for you. One, how will this updated guidance impact your long-term biosimilar strategy? And then two, on the opposing side, do you see a scenario of additional competition where we'll ultimately see biosimilar price erosion curves resemble traditional generics? And then third, what further investments do you think are needed to give you a more competitive edge? And I guess, ultimately, do you see a scenario where the U.S. reaches a point where the BLA process and the patient access becomes just as favorable versus the EU? Richard Francis: Okay. Yes, that was a multidimensional question. So thank you for that, Les. I think I'll start it off, but I'll also lead into my colleague, Eric here, who obviously is close to that because of the pipeline we have. So firstly, we're pleased with the FDA and that initiation of removing Phase III studies. I think that's the right thing to do. I think that helps. And that's based on data. We have a substantial amount of data now in the development of these biosimilars across many, many products as an industry, and I think this is the right thing to do. Does it change our strategy? Absolutely not. I think it reinforces the quality of the strategy we set out for biosimilars in 2023. And to remind you what that strategy was, our strategy was to have the largest -- one of the largest portfolios of biosimilars going forward, and we're going to do that through partnerships. We do that through partnerships because it allowed us to have the largest portfolio because it allowed an efficient allocation of capital. We also believe at the time that there was going to be uncertainty around what the future regulation was going to be. And so we didn't want to be initiating and allocating capital to things that may no longer be needed. An example is starting Phase IIIs, which are -- they're no longer needed going forward. So I think we sort of thought about where the puck was going. We made a strategy to where the puck was going, and I'm pleased to say I think we've been proven right on that. But ultimately, our strategy is about having a large portfolio. As I've just highlighted, we have 10 in the market. We have 6 we're going to launch by '27, and then we're going to have more going forward. With regard to price erosion, I think a good analog is to look at Europe. And Europe is a very mature biosimilar market and, one, I know particularly well. And what you see there is good penetration. You see that there is some price erosion, but it hits a steady state at a certain time, which allows a high level of profitability still within this category. What I'd also highlight in that market because you did talk a bit about whether the U.S. will replicate it, is you also see an expansion of these molecules and these biologics used in patient population because they are less expensive, they're used earlier in the treatment of these diseases. So you get an increase in volume and obviously offset some of the decrease in price. So those are just some of the dynamics. And I do believe the U.S. will catch up to that. But when you have a broad portfolio and we're launching more in Europe, we're not necessarily beholden to exactly when that happens because of the scale and the size. But maybe, Eric, you could give a bit more detail on your views on this. Eric Hughes: Yes, I can just give a few points to support what you just said. We work closely with the FDA and have frequent communications with regards to a pretty large biosimilars portfolio. We really anticipated the fact that they were going to be removing Phase III from the requirement for most programs and agree with this decision. The technical assessment really has been proven to be the most important thing when it comes to biosimilars, something we do very well. And this is going to decrease the cost of production and approval of biosimilars. It fits perfectly and facilitates the pivot to growth strategy that we put together in the past and really, it supports a lot of the good decisions we've made over the years about how we will do biosimilars at Teva. So it was a welcome decision. It was something we were looking forward to and really fits perfectly into the plan. Richard Francis: Thanks, Eric. And maybe one thing I'd just like to add on, and I forgot it obviously, removing the Phase III need reduces cost significantly. But I would also like to highlight the cost for developing a biosimilar are still high, a lot higher than any other generic, any other complex generic. So I just think that the capital allocation doesn't disappear and the cost of it doesn't disappear. So hence, the number of people coming into the market will I still think be restricted based on that. And the ultimate is not just can you develop it and manufacture it, do you have an efficient go-to-market capability. And I think what we're starting to show in the U.S. and we'll show in Europe is we do have that. And that front end is very important when maintaining a growth and profitability in your biosimilar portfolio. So thanks for the question, Les. Operator: Our next question comes from Umer Raffat of Evercore ISI. Umer Raffat: You said CMS agreement is in line with your modeling expectations. Is it reasonable to assume that's about 50% or so in the ballpark? And then secondly, to get to your 2027 $2.5 billion in sales, are you assuming volume gains because of this IRA cut versus Ingrezza to get to that number or not? And then finally, obviously, olanzapine, I feel like it's taking a bit longer than we all anticipated. But at this point, is there any possibility that you could get a commissioner voucher to accelerate that? Or should we not be thinking about that? Richard Francis: Umer, thanks for your questions. So with regard to CMS, it was in line with our expectations that we set out in 2023. You threw out a number there, which I'm not going to comment on because I think that was maybe trying to tease me out to give you a number, and I'm not going to do that. I'll just say it's in line, and that's why we remain very confident about our $2.5 billion in '27. And I remind people, greater than $3 billion peak sales. You did touch a bit about do we see volume gains within this. And this is not something we've -- without going into the detail of our forecasting model, we go back to capturing more patients, making patients more adherent and compliant and all of those fundamentals. I think what though you have touched upon is something that we're going to understand a bit more in January as the first wave of drugs that were negotiated and CMS start to come through and play out. And we'll see what are the dynamics that happen there, and we'll use that to adjust our modeling as we go forward. And I hope, you, as others will agree, we're very thoughtful about how we model and how we forecast. And at least over the last few years, I think we've been pretty accurate in what has been quite a dynamic environment. Now with regard to olanzapine, I'll hand that one to Eric to comment on whether we could get a Commissioner's voucher. Eric Hughes: Yes. Thank you for the question, Umer. And to start off with, we're right on track with what we plan for the submission of the olanzapine LAI in this quarter. With regard to your question on the Commissioner voucher, that's one of the things we've been reviewing within Teva. One of the great things about Teva is we have biosimilars, a whole portfolio of generics and innovative medicines. So the potential for where we could see a Commissioner voucher is broad. So we're reviewing that now and looking to see what the most optimal -- optimally timed and valuable program is that we seek one of those out for, but more to come on that in the future. Richard Francis: Thanks, Eric. Operator: Our next question comes from Matt Dellatorre of Goldman Sachs. Matthew Dellatorre: Congrats on the quarter and the AUSTEDO agreement. Maybe first on duvakitug, now that the Phase III IBD studies are up and running, how are you thinking about enrollment time lines and potential data readouts there? And then could you comment on any progress on the indication expansion strategy beyond IBD? For instance, could we see proof-of-concept studies announced over the near term? And then maybe just as my follow-up on capital allocation, could you talk about the key priorities in 2026? And as we think about the free cash flow inflection, what are the key points of focus to achieve that full year '27 guide? Richard Francis: Matt, thanks for the questions. I'll hand the first one straight over to Eric on the Phase III and the potential Phase IIs. Eric Hughes: Yes. So thank you for the question. This is one of the things I'm most excited about the design that we've put together with Sanofi. It's all about execution now. As I said it earlier in my comments, this has been the fastest transition from Phase II to Phase III with regards to this MOA of all the programs out there, which we're very proud of. So it speaks to our executional abilities in this partnership. The design itself is really designed to make sure that we maximize the enrollment with the feeder arm that it will get to our maintenance and increase our safety numbers in the program. It's a very convenient and patient-centric design with regards to subcutaneous treatment and the rerandomization. These are all things that will make it ideally suited for patients. And we're also putting a lot of effort in on how we execute the program with regards to the logistics and our vendors that we use. So it's been a really great collaboration with Sanofi. I think we're building upon a lot of momentum and success that we have going into a Phase III program with a Phase II program that was probably had the highest numbers with regards to its efficacy and it's the data set that we produce, these are all good signals of starting a Phase III program. So when it comes to execution, that's what we're going to focus on right now. And I think that we're set up very well to be in the horse race, if not in the middle of it, but hopefully coming up very close to the beginning of it. So that's very well suited. Now with regards to your question about other indications, it's great to see the excitement around this MOA. I mean one of the things about it is the fact that it could touch so many different pathway cytokine signaling pathways in multiple indications. You can see many different Phase II programs initiating now. We have a plan with Sanofi, and we'll let you know when those studies start. For now, we're going to keep it close to the chest. But that, in addition to the excitement around different combinations in the future is also something we've been thinking about heavily. But right now, to begin this discussion is all about the execution of the study, enrolling the study and making sure that we show the value in ulcerative colitis and Crohn's disease now. Richard Francis: Thank you, Eric. And now on the next 2 questions on capital allocation and free cash flow inflection. I'm going to hand those to Eli. Before I do, I do like the fact that you've highlighted our free cash flow inflection because that is something which we are starting to communicate and people are starting to see with the growth of the company, the growth of the innovative, the decrease of the debt, the growth of the EBITDA that this ultimately changes our free cash flow position. So thanks for highlighting the Matt and seeing that. But I'll hand on to -- hand over to Eli to talk about our capital allocation going forward. Eliyahu Kalif: Yes. Matt, thank you for the question. So first of all, I'll start with the free cash flow. You mentioned about how we should think about that trend that we mentioned beyond '27. There are 3 main dynamics there. First of all, it's the mix, right? If you look on the top line and how we're progressing with the top line and how it's going to flow through and convert both profit into free cash flow with the innovative, I would say, portfolio that we have, and we are keeping on investing in our growth driver. The fact that the $700 million of savings is going to actually enable us to drive more efficient COGS with high gross margin as well, I would say, to optimize our OpEx. Those 2 elements are already in progress. There are another 2 that we need to remember. One, we paid for our debt this quarter. From now until October 26, like 13 months, we don't have any maturities, there's $1.8 billion in October, and there is a $2.8 billion in March, May in '27, early '27. If you think about $4.5 billion, $4.6 billion with our current weighted cost of capital of our outstanding debt of 4.8% you get $200 million to $250 million that we're going to take out from a run rate, both from financial expenses going forward and pure free cash flow impact. And then on top of it, our progress on our working capital, you can actually see ourselves running below 4% going from '27 onwards on our revenue. All these actually enable us to convert high free cash flow. As far as related to next year capital allocation, we're actually looking on more, I would say, ability to be able to compete on certain opportunities related to business development that align strategically to our portfolio and to make sure that we are able to provide value to our shareholders. And as we move forward to make synergetic activities around that piece, we'll keep looking on, of course, reducing our debt. And as we move forward, we might also look on some -- certain other elements related to capital and shareholder returns. And we will, for sure, during '26, and we hope also in our next earnings calls, provide some more colors around that kind of capital returns to shareholders. Richard Francis: Thanks, Eli. Thanks, Matt, thanks for your question. Operator: At this time, we currently have no further questions. So I'll hand it back to Richard Francis for any further remarks. Richard Francis: So thank you, everybody, for participating in the call. We do appreciate your interest in Teva, and we look forward to giving you update on our full year results early next year. Thank you. Operator: Thank you all for joining today's call. You may now disconnect your lines.
Operator: Greetings. Welcome to the Atlanta Braves Holdings Third Quarter Earnings Call. [Operator Instructions]. As a reminder, this call is being recorded. At this time, I would like to turn the call over to Cameron Rudd, Vice President of Investor Relations. Cameron Rudd: Before we begin, we'd like to remind everyone that on today's call, management's prepared remarks may contain forward-looking statements. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. A number of factors could cause actual results to differ materially from those anticipated, including those set forth in the Risk Factors section of our annual and quarterly reports filed with the SEC. Forward-looking statements are based on current expectations, assumptions and beliefs as well as information available to us at this time and speak only as of the date they are made, and management undertakes no obligation to update publicly any of them in light of new information or future results. During this call, we will discuss certain non-GAAP financial measures, including adjusted OIBDA. The full definition of non-GAAP financial measures and reconciliations to the comparable GAAP financial measures are contained in the Form 10-Q and earnings press release available on the company's website. Now I'd like to turn the call over to Terry McGuirk, Chairman, President and CEO of Atlanta Braves Holdings. Terence McGuirk: Thanks for joining the call today, and we appreciate your continued interest and support. In a rare year where we did not make the playoffs, the strength of our brand and the passion of our fans remain strong. That gives us great confidence as we enter the offseason and look ahead to 2026. We did have some notable highlights that will help build momentum going into next season. Rookie Drake Baldwin had a breakout season hitting 274 with 19 home runs and 80 RBIs. He became the first Braves' Catcher ever to debut as an opening day starter and then go on to win nationally Rookie of the month in May. Drake is now a top contender for Rookie of the Year, which is an exciting milestone for our organization. Chris Sale, despite dealing with a nonthrowing injury while covering first base remained one of the top performers in the league and achieved a major career milestone by becoming the fastest pitcher in MLB history to reach 2,500 strikeouts. He finished strong and is ready for 2026. Matt Olson showcased remarkable consistency and durability and became 1 of only 5 MLB players to appear in all 162 games. He led the team with a 6.1 WAR and ranked among MLB's top defensive first basement. And earlier this week, he was awarded a Gold Glove Award, his first as a Brave and third in his 10 season MLB career. He also represented the Braves in the Home Run Derby during the All-Star week here in his hometown. While our pitchers lost a lot of time due to injuries, it did give us an opportunity to see some of our young talent and how they perform and we were greatly encouraged by that. Newcomer, Hurston Waldrep, a 2023 first round pick out of Florida, seized the opportunity and ended up with a 6 and 1 record with a 2.8 ERA intense game started. You will likely see him again in 2026. Now that we're in the offseason and our focus is shifting towards our strategic priorities which include adding a couple of key players to a veteran win-now squad that has so many years of success ahead. Turning to our field manager position after 10 seasons, Brian Snitker transitioned from our manager to a senior adviser role. Brian led our team to a World Series championship in 2021 and has spent his entire career with our organization, 49 years and all. We are grateful for his dedication to our franchise, and we look forward to having him around to advise us on baseball matters into the future. This past Monday, Walt Weiss was named the 49th Manager in franchise history, after spending the previous 8 seasons as the club's Major League bench coach. Walt who previously served as a manager for the Colorado Rockies has twice been a World Series champion first as a player with the Oakland Athletics in '89 and then as a Braves' bench coach in 2021. He has been a part of the Braves organization for 11 seasons as both a player and coach. Since joining the staff, the Braves have made 7 postseason appearances, earned 6 National Leagues East Division titles and won the 2021 World Series. On the MLB front, there remains a lot of positivity on the broader state of baseball as we look to the 2026 season. Across Major League Baseball national viewership continues to grow, ESPN's MLB coverage is up roughly 21% year-over-year. TNT Sports is up 29% and MLB.TV consumption has grown by 24%. These trends further reinforce the growing engagement across the sport and underscore the strength of baseball's fan connection. We continue to see positive momentum following the regular season, including the highest postseason viewership since 2017 and an increase of 13% year-over-year. This all culminated in one of the most exciting World Series finishes in recent memory only a few days ago, which saw an extra innings come back in Game 7. Early indications have this as one of the highest-rated World Series games since 2017 with over 25 million fans tuning in to watch the finale. The global audience was on full display as well, welcoming millions of viewers from Japan and across Asia that coupled with our domestic audience, highlight the state of baseball, which is an exciting upwards trajectory. Total MLB attendance for 2025 exceeded 71 million fans, making the third consecutive year of growth for the first time in 18 years and reaffirming MLB's position as the most attended sports league in the world. This is a testament to America's favorite pastime, and the Braves Country continues to play a major role in that success. So what we're doing within this organization is truly unique, not only in baseball, but in all of professional sports. The continued momentum and strategic interplay between our baseball and real estate segments remains remarkable and really reflects the long-term vision that has set the Atlanta Braves organization apart. Most every sports organization is trying to emulate our success in combining a stadium environment with a large bustling mixed-use development. And with that, I'll turn the call over to Derek, who will discuss in more detail how our season has shaped up and share more on our outlook heading into next year. Derek Schiller: Thanks, Terry. Although this season has brought its challenges, our team played their hearts out until the very end, and we're extremely proud of their achievements. The Atlanta Braves have a history of success on the field, and we remain focused and optimistic on returning to our winning ways and getting back to the postseason again next season. Despite the challenges on the field, we continue to provide great times for our fans and their families, and we accomplished a great deal as an organization. First, despite the inconsistent season on the field, we've navigated adverse feat to deliver record-breaking ticket sales and sponsorship revenue, underscoring the enduring strength of the Braves brand and the unwavering passion of our fans and partners. The Braves sold the fourth highest number of tickets in the past 25 years, highlighting both the depth of our fan base and the effectiveness of our sales and marketing strategies. Similarly, secondary market activity and ancillary revenues in retail and concessions remain strong, and our team remains disciplined and adaptive in driving demand and maintaining engagement. We also added and renovated several areas of the ballpark as part of a continuing innovation of the Gameday experience, which resulted in new and enhanced revenue streams. Lastly, we extended our partnership with FanDuel Sports Networks to include our first-ever direct-to-consumer streaming opportunity for fans. In addition, our new arrangement with Gray Media provided enhanced broadcast opportunities and more fans able to watch games in our territory. The result of the revised media approach resulted in strong ratings and allowed our entire Braves country television territory among the largest in sports to follow their favorite team. Ticketing remains a top priority for us as a meaningful driver of revenue, and we are proud to have our premium and full season ticket inventory sold out through the end of the season, our third straight year of doing so. While attendance moderated slightly in late August and September, primarily from lower single-game tickets, demand for season, group and hospitality package offerings remains robust. We sold out 24 games this year and had high record revenue from a number of those games. We sold over 2.9 million tickets in 2025, a level that puts the Braves inside the top 10 highest in MLB for the fifth consecutive year. As we transition into the offseason and begin the planning for next year, our team is still actively evaluating pricing and inventory strategies to further optimize our ticket mix. These changes will better optimize how we manage our ticketing process from start to finish, and we are hopeful that this will make a meaningful change in our operations. We remain committed to our growing and loyal fan base and are focused on enhancing the fan experience, including more innovative changes to the ballpark while driving continued growth around Truist Park and the Battery Atlanta. Elsewhere around Truist Park, we recently announced an extension with our incumbent food and beverage partner, industry-leading Delaware North for an additional 10 years beyond our current term. Over the last 10 years, we've worked with Delaware North to elevate the fan experience through high-quality, locally inspired food options. They share our vision of perfecting the ballpark classics, while also offering innovative food, beverage and premium hospitality and putting a creative Braves Country spin on fan favorites. I'm excited about this extension and expansion of our partnership which will enable us to further leverage Delaware North. As part of this renewal, we will also lean into Delaware North's restaurant and premium experience division, Patina, to provide best-in-class food options for every guest in the Battery Atlanta and Truist Park. In addition, our recent master planning projects completed throughout the end of the 24 season and into the start of the 25 season are performing particularly well, both in terms of generating significant additional revenue but importantly, further enhancing our fan experience here at the ballpark. This multiyear capital improvement process uses a proprietary ROI evaluation process to ensure successful implementation which drives both a better fan experience and, in most cases, more revenue to our top line. We have a truly unique fan experience on and off the field, and we continue to be grateful for the support we received from our fan base as well as our many corporate partners. Our park operates as much more than just the baseball field and including events already booked in the fourth quarter, we expect to host over 150 separate events this year within Truist Park. These events include conferences, corporate seminars, client entertainment and company celebrations, among others. Some use the field and some use our variety of premium and expanded facilities to create memorable events. In addition to the park itself, we held over 195 events in the Battery through the end of September, including movies on the lawn, concerts at the Roxy, Yoga mornings, 5Ks, farmer markets and more. We believe that our unique business model remains the gold standard across professional franchises, and we have seen countless organizations attempt to replicate what we have built here. This was on full display in this year's successful Major League Baseball All-Star week, where thousands of fans and industry executives from across the globe were able to see our entire project in action, many for the first time. This campus is not only home to thousands of employees, that work in the approximately 1.7 million square feet of office space we operate but a destination for millions of visitors who grace the Battery each year, which continues to grow. And with that, I will now turn the call over to Mike, who will provide an update on this growth and the developments within our extending and strong real estate portfolio. Mike Plant: Thank you, Derek. As you all know, the Battery Atlanta were conceived to not just be a destination for Braves games, but a year-round lifestyle, entertainment and commercial campus built to complement and derisk the dependence on Gameday revenue. And now that we are outside of the baseball season, it's becoming more evident just how important this is to our organization. As Derek mentioned, we have hosted and activated 195 events at the Battery Atlanta, in addition to 81 baseball games through the end of September, including a variety of concerts and common airing events. Of this number, Roxy has held 72 concerts this year including 28 concerts in the third quarter alone. The total events hosted at the Roxy are expected to exceed 150 by year-end. As we head into the fourth quarter, we are looking forward to the Battery's presence in the community highlighted by our various holiday events. These events include our tree lighting ceremony as well as our New Year's Eve celebrations, which saw over 33,000 attendees across both events last year. I'm pleased to report that our mixed-use development revenue continues to perform well and represents approximately 11% of the company's total revenue year-to-date. Notably, in the third quarter of 2025, we saw an impressive 56% increase in mixed-use development revenue compared to the prior year period reaching $27 million driven by the performance of our recent acquisition, Pennant Park, strong leasing activity and enhanced tenant engagement. On a go-forward basis, we are now generating more than $100 million annually in revenue from our real estate holdings, an incredible achievement as we grew this from 0, less than only 8 years ago. One of the most significant moves this year was our strategic acquisition of Pennant Park. This acquisition greatly expanded our office footprint and brought significant leasable square footage to our existing 100% lease battery office space. We continue to receive incredible positive responses from the Pennant Park tenants since taking over the complex earlier this year. With relative minimum capital improvements, we anticipate Pennant Park being 90% leased by year-end, a substantial improvement from the sub-85% occupancy the building was at when we acquired it back in April. This is a testament to our team and brand as we attract top tenant profiles and companies who wish to partner with us and know the operational expertise we bring to our campus. Our purchase has reinvigorated the market in this area, we have seen the results of this catalyst and our existing tenants who continue to expand and extend as well as new tenants who are looking to work with us for the first time. Looking ahead, we will continue to focus on improving tenant experience and operational efficiency with amenities such as fitness centers, conference facilities enhanced security and recreational options that make our properties highly attractive. Our ability for tenant improvements allows us to further optimize our footprint. And as an example of this, we are excited to welcome J. Alexander's, a high-end American cuisine restaurant to the Battery next year, replacing the space of a tenant who was underperforming in their location. Additionally, our ongoing partnership with local and regional stakeholders ensures we maintain strong community ties and continue to position the Battery Atlanta as a premier destination. Elsewhere around our extended campus, The Henry development across from Truist Park is well underway as construction ramps up for the 2 tower complex, which will bring additional apartments, hotel rooms and condos adjacent to the Battery to be connected with a newly constructed pedestrian bridge. In closing, I want to thank our leasing, property management and development teams for their execution this quarter as well as the broader Braves organization for their support. The success of the Battery Atlanta is a testament to the vision of embedding a mixed-use destination adjacent to the stadium, and our Q3 results reflect that strategy bearing fruit. Our portfolio of high occupancy assets also brings a level of stability and certainty to the far more seasonal nature of baseball and our financials. We remain a beacon in the market and region for continued expansion opportunities, which allows us to be thoughtful about the best future for our campus. I'm proud of what we have done, and I'm excited for all that is to come. With that, I'll turn the call over to Jill to discuss our financial results in more detail. Jill Robinson: Thanks, Mike. Before I begin, I want to remind everyone that a majority of our revenue is seasonal and is aligned to the baseball season. During the third quarter of 2025, we placed 41 home games. Despite on-field performance, we continue to be encouraged with our revenue growth. In the third quarter, total revenue was $312 million, up over 7% from $291 million in the third quarter of 2024. As a reminder, the company manages its business based on the following reportable segments, baseball and mixed-use development. Total baseball revenue was $284 million in the third quarter of 2025, up from $273 million in the third quarter of 2024. Baseball net revenue increased to $176 million during the third quarter of 2025 compared to $173 million during the corresponding period in the prior year primarily due to contractual rate increases on seasoned tickets and existing sponsorship contracts as well as new premium seating and sponsorship agreements, offset by attendance-related reductions in concessions revenue. Broadcasting revenue increased to $79 million in the third quarter of 2025 compared to $71 million during the corresponding period in the prior year due primarily to the impact of our renegotiated local rights agreement signed at the end of 2024. Next, our mixed-use development revenue was $27 million in the third quarter of 2025 up over 56% from $17 million in the third quarter of 2024. This was primarily driven by a $9 million increase in rental income, which includes revenue from our Pennant Park acquisition, and new lease commencements, including the Truist Securities building and to a lesser extent, sponsorship and parking revenue. Adjusted OIBDA was $67 million in the third quarter of 2025, an increase of over 113% from $31 million in the same period last year. This improvement was due to an increase in both baseball and mixed-use development revenue and a reduction in baseball operating costs partially offset by increases in mixed-use development operating costs and SG&A expenses. Baseball operating costs decreased primarily due to lower-than-expected Major League player salaries and variable concession and retail expenses. This decrease was partially offset by increases in MLB's revenue sharing plan, expenses for events held at Truist Park and Minor League-related expenses. Our operating income was $39 million in the third quarter of 2025, up from $6 million in the third quarter of 2024, primarily due to increased revenue. As of September 30, 2025, the company had $115 million of cash and cash equivalents. Nearly all of our cash and cash equivalents are invested in U.S. treasury securities other government securities or government guaranteed funds, AAA-rated money market funds and other highly rated financial and corporate debt instruments. As of September 30, 2025, we have $215 million of untapped liquidity in the form of 2 baseball revolvers, which we believe provides us flexibility for the future. And with that, operator, let's open the line for questions. Operator: [Operator Instructions]. Our first question today comes from the line of Barton Crockett from Rosenblatt. Barton Crockett: Okay. Great. And I guess 1 of the things I was just wanting to drill into a little bit is you mentioned you're doing some work on tickets and ticket pricing. And really, I think there's a little bit of interest from this from a number of quarters. And I was wondering if you could address a couple of things. One is, there's been some reports about some people having to pay much higher season pass prices. I just wonder if you could address just what's going on there? And just more generally, how should we think about kind of average kind of revenue per ticket trajectory for you guys in the upcoming season in 2026? And how do you guys think about kind of pricing in terms of your leverage and how you think about delivering incremental value relative to incremental pricing and whether kind of on-field performance has any kind of role in that or whether it's more kind of amenities driven? Derek Schiller: Hi, Barton. It's Derek. Thanks for the question. Yes. So first off, that last part, yes, there is a relationship between team performance and ticketing and attendance. And we saw that a little bit. But I would remind you and everybody that our revenue is relatively stable and predictable. A substantial amount of our revenue is in -- whether it be a full season package or a premium seat, which, in many cases, most cases, is multiyear. So the commitment is longer term. So that's why we can predict what that revenue is going to be over a period of time. As it relates to the seasoned pricing, we, like all teams are studying what our pricing is each and every year and trying to understand what's the best pricing options than products that we can go into the marketplace with. Many years, we make changes to that. In some cases, we go up a little bit. In some cases, we go down a little bit. One of the important parts for us is that we have packages and offerings that are available at every price point. We're continuing to be proud of that. And so you might see certain packages that are well below $20 and on par would say, going out to a movie or something like that. And if you're interested in a premium offering, you can certainly pay more than that, but the amenities and the location and other things are going to be different. We are continuing to watch about how the average ticket price looks and how we compare, contrast with other teams across Major League Baseball or even in our marketplace. And I would still say there's room for growth in that while still protecting some of those lower price points as we talked about. Barton Crockett: Okay. But is it reasonable to presume that there's going to be some inflation plus kind of growth in average revenue per ticket in the upcoming season as part of a base plan? Matthew Harrigan: I think if you obviously, you, like others, have watched us and seen what's happened with the event revenues over the course of the past few years, number of years, our goal is going to be to continue to grow that because the cost of running a baseball team. In most cases, it doesn't go down every year. So we're trying to keep up with that and trying to make sure that we again have prices available for everybody. But I think it's fair to say we're continuing to monitor that. And also looking at how secondary ticketing continues to influence that. I think that's really important when you -- when we get the data from a secondary ticket, we understand not just what we sell the ticket at, but what the ticket ultimately gets sold at in the marketplace. That informs of what the supply and demand is, if you will, of that. And so what we've continued to see is that the secondary ticketing marketplace is very strong for our tickets has been for the past several years. And that does a really good job of helping us understand what we're capable of ultimately pricing our product at. Barton Crockett: Okay. And then just 1 other kind of topic I wanted to ask about, and that is how to think about player salaries. Now that you've completed this season, and we've seen the Dodgers "run baseball" by winning 4 more games with a high kind of player salary. You guys are in a place of kind of maybe able to rethink how you approach the upcoming year. How would you think about kind of positioning player salary spending? I mean, is there any argument for a substantial change in your approach to what it's been historically? Or any thoughts about that as we look at the upcoming year? Terence McGuirk: Barton, this is Terry McGuirk. Well, I won't comment on the expenses that the Los Angeles Dodgers had. But back to the Braves, we've always professed to try and be a leader in player compensation from a team standpoint. I think I've stated in the past that our goals are to be a top 5 salary team. We're currently a top 10 and haven't been out of that in quite some time out of that range. I think aiming back to the top 5 is a place that I want to get to. I think we're capable of doing that. This is a very fluid decision-making concept last year, as you've seen from our financials, we were below where we were the previous year -- previous year, but I think it's a good aspiration to get back to those goals in the coming year and years. And I think you'll see us quite active in the free agent market and the trade market. As I stated in my remarks, we're a win-now team we want to fill in the places where we might have players that need replacing. But the majority of the reason for last year was injuries, as we know and even back into the previous year. So everybody is back at full speed, except Smith-Shawver, who's coming back probably about midyear from Tommy John. So we're very, very optimistic about what the team looks like for next year. Operator: Your next question comes from the line of Steven Sheeckutz from Citi. Steven Sheeckutz: I just wanted to get your general thoughts on ESPN's appetite to take on some of the local media rights deals, both media rights and just the potential implications this might have for your next renewal cycle? Terence McGuirk: So the next major national media deal for MLB is in -- is 1/1/29. And I do think that's going to be a major inflection point for the industry and the values created. Between now and then, I think MLB will be in lots of discussions with their teams with the 30 teams about how the best way to structure our offerings into the future. And we certainly know that local games rate, incredibly high compared to national games and that a component of that offering in '29 will include local games. And I think that will be very attractive to many like ESPN and to the entire digital streaming universe. And be assured that we're going to spend a lot of time in this rapidly evolving media environment, trying to tailor how we structure our offering to meet that contract term. And who knows what the media business will look like in 2035. And so it's very hard to say exactly how we'll structure today, but we'll be a lot closer to understanding that in as we lead into 1/1/29 when we have to make that deal. So we're -- it's a fluid set of decisions, and we will be ready to make those good decisions at that time. Operator: And that concludes our question-and-answer session. I will now turn the call back over to management for closing remarks. Derek Schiller: Well, on behalf of everybody here at the Atlanta Braves, we appreciate you listening in. Thank you and look forward to seeing you and talking to you next time around. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the GoodRx Third Quarter 2025 Earnings Call. As a reminder, today's conference call is being recorded. I would now like to introduce your host for today's call, Aubrey Reynolds, Director of Investor Relations. Ms. Reynolds, you may begin. Aubrey Reynolds: Thank you, operator. Good morning, everyone, and welcome to GoodRx's earnings conference call for the third quarter 2025. Joining me today are Wendy Barnes, our Chief Executive Officer; and Chris McGinnis, our Chief Financial Officer. Before we begin, I'd like to remind everyone that this call will contain forward-looking statements. All statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements, including, without limitation, statements regarding management's plans, strategies, goals and objectives, our market opportunity, our anticipated financial performance, underlying trends in our business and industry, including ongoing changes in the pharmacy ecosystem, our value proposition, our long-term growth prospects, our direct and hybrid contracting approach, collaborations and partnerships with third parties, including our point-of-sale cash programs and our integrated savings program, our e-commerce strategy and our capital allocation priorities. These statements are neither promises nor guarantees but involve known and unknown risks, uncertainties and other important factors. These factors, including the factors discussed in the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2024, and other filings with the Securities and Exchange Commission could cause actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements made on this call. Any such forward-looking statements represent management's estimates as of the date of this call, and we disclaim any obligation to update these statements even if subsequent events cause our views to change. In addition, we will be referencing certain non-GAAP metrics in today's remarks. We have reconciled each non-GAAP metric to the nearest GAAP metric in the company's earnings press release, which can be found on the Overview page of our Investor Relations website at investors.goodrx.com. I would also like to remind everyone that a replay of this call will become available there shortly as well. With that, I'll turn it over to Wendy. Wendy Barnes: Thank you, Aubrey, and thank you to everyone for joining us today. Q3 was a strong quarter of focused execution and measurable progress across each of our key strategic priorities. Since our last earnings call, we expanded our access and affordability programs with leading pharmaceutical manufacturers, including with Novo Nordisk to deliver direct-to-consumer cash prices for Ozempic and Wegovy and with Amgen for Repatha, among others. We strengthened our partnership with one of the nation's largest grocery retailers launching our RxSmartSaver counter solution at Kroger pharmacies nationwide, and we continue to invest in the strength of the GoodRx brand, launching our new Savings Wrangler campaign to reinforce that GoodRx is the most trusted and recognizable name in prescription access and affordability. These initiatives demonstrate the strength of our platform and show how we're executing our strategy with speed, scale and purpose, delivering tangible value to consumers, pharmacies and manufacturers while positioning GoodRx for sustainable long-term growth. I'm incredibly proud of the progress our teams delivered this quarter and of the strong foundation we're building for continued momentum ahead. Before diving into business updates, I want to acknowledge the broader U.S. healthcare environment and how prescription drug pricing is undergoing a profound transformation. With the pending introduction of TrumpRx and the renewed focus on most favored nation or MFN pricing, the market is shifting decisively toward greater transparency and direct-to-consumer access. We view this evolution as both an opportunity and a clear validation of our mission. We are actively engaged with the administration and HHS helping to inform policy efforts that expand access and affordability for all Americans. The GoodRx platform is designed to deliver on many of the same goals driving these initiatives, providing transparent consumer-direct pricing for medications at scale. We enable consumers to fill their prescriptions at nearly all pharmacies nationwide, so they can continue to work with their trusted pharmacists to manage all of their prescribed medications or get their prescriptions shipped via home delivery partners. This is a significant differentiator. Many other affordability programs or new pricing initiatives are limited to select home delivery pharmacies, which can restrict access and slow adoption. With more than a decade of experience, deep relationships across the pharmacy ecosystem and proven operational capabilities, I believe GoodRx is uniquely positioned to lead the evolution of direct-to-consumer healthcare while also supporting the ambition of this administration. And while it's still early in the landscape continues to evolve, we believe these policy developments will ultimately be a long-term tailwind for GoodRx. As the market shifts towards greater price transparency and consumer direct models, we'll be positioned to bring even more D2C cash pricing to our platform, expanding choice, access and savings for millions of Americans. I also want to recognize the growing uncertainty around the future of health insurance coverage in the U.S. Changes to the Affordable Care Act marketplace subsidies and Medicaid support could lead to more Americans finding themselves uninsured or facing higher out-of-pocket costs. What is clear is that affordability will remain a pressing issue for millions of people. In this moment, GoodRx becomes even more essential and relevant to consumers and to the healthcare providers who are tasked with supporting their patients. Whether a patient is insured, underinsured or uninsured, we are here to help them access and afford the full range of prescriptions they need to stay healthy. Turning to our third quarter performance. We delivered solid financial results driven by disciplined execution. While we're pleased with our overall momentum, we have continued to navigate industry headwinds that have modestly impacted our results. The ongoing and now complete Rite Aid store closures reduced prescription volume across certain geographies. We are actively working to recapture displaced users, both through direct communications where available and in partnership with acquiring pharmacy retailers. But as we noted on the last call, this takes some time. As always, we remain focused on the long-term health and growth of the business and creating lasting value for our consumers, partners and shareholders alike. Now let's dive into key business updates. Starting with Pharma Manufacturer Solutions, which we'll refer to as Manufacturer Solutions, we delivered strong results during the third quarter with 54% year-over-year revenue growth. We continue to sell new brands and expand relationships with existing partners, reinforcing our position as the go-to partner for manufacturers seeking to improve access and affordability for patients. Our value proposition is clear. We deliver measurable results, proving strong ROI by helping manufacturers reach the right patients, drive adherence and remove barriers to treatment. This is why more brands are choosing to work with GoodRx and why our existing partners continue to deepen their investment with us. As I mentioned earlier on the call, we see potentially strong tailwinds from the policy environment for Manufacturer Solutions. 3Initiatives like TrumpRx and potential most favored nation mandates are causing the pharmaceutical landscape to shift in meaningful ways as manufacturers face growing momentum and pressure to bring direct-to-consumer or D2C affordability programs to market. Price transparency, brand access and patient affordability have become front and center priorities across the industry, and GoodRx continues to be uniquely positioned to be the solution that operationalizes these D2C strategies. We've already built the infrastructure, the partnerships and the trust to help manufacturers turn affordability commitments into reality. A clear example of this is the collaboration with Novo Nordisk we announced in Q3 to offer both Ozempic and Wegovy at $499 per month. GLP-1s are a drug class that we see continuing to grow and be divisive with insurers in terms of coverage. With most Americans still not having these drugs covered by insurance for weight loss, GoodRx has a tremendous opportunity to help. By leveraging the unmatched reach and scale of the trusted GoodRx platform, we can more effectively meet the growing demand for GLP-1s and deliver savings directly to patients who need them. We're incredibly excited about this partnership and look forward to expanding access to these savings through our subscription offering later this month. In October, we also announced a new partnership with Amgen to offer Repatha for nearly 60% off the retail pharmacy list price. Savings like this help patients overcome traditional insurance hurdles such as restrictive formularies and high deductibles that often delay or prevent treatment. This further demonstrates how GoodRx is pioneering direct-to-consumer solutions that give brands a trusted, scalable channel to deliver real savings directly to patients. To date, we have over 200 brand affordability programs on our platform, nearly 80 of which are cash prices. Looking ahead, we're investing further in our manufacturer solutions capabilities, expanding how we deliver a true end-to-end e-commerce model to the pharmaceutical industry. Today, we deliver affordability and access across channels, and we will continue to strengthen our ability to connect manufacturers not only with patients, but also with health care professionals who play an increasingly important role in driving awareness and adoption of these programs. We expect these investments to continue fueling growth into 2026 and beyond. Now turning to prescription marketplace. We continue to serve as a trusted ally to retail pharmacies, helping them improve profitability, reduce prescription abandonment and drive innovation in the prescription experience. As I've shared on past calls, we are focused on delivering this through pharmacy counter integrations, e-commerce experiences and direct contracting capabilities. I'm proud of the progress we have made against this strategic priority in 2025, having launched multiple initiatives that are helping pharmacies streamline workflows, improve consumer engagement, lower cost to fill and expand their digital presence. For example, our e-commerce experience for retail pharmacies allows consumers to check inventory, validate prescriptions and pay online before picking up in store, giving them greater convenience while helping pharmacies reduce the cost to fill and eliminate administrative hurdles, so there's more time to engage with patients. And we also launched CommunityLink, our new offering designed specifically for independent pharmacies, which offers a cost-plus pricing model that provides the retailer with predictable pricing and better economics. Since going live on July 1, we've been seeing positive momentum and are encouraged by the number of independent pharmacies that have directly contracted with us thus far. In addition to these retail initiatives, we announced a new counter solution, Rx Smart Saver powered by GoodRx. Rx Smart Saver is a turnkey ready-to-deploy solution that brings medication affordability directly to the pharmacy counter, improving the patient experience while delivering stronger economics for the retail partner. This solution is already being used by multiple retailers, including Kroger, who launched Rx Smart Saver at all of their pharmacies nationwide. This program gives their customers instant access to GoodRx savings when they are picking up their prescriptions, including co-pay cards and nearly 80 unique cash prices for brand medications that often aren't covered by insurance or have poor coverage. Patients simply use their smartphone to scan the code at the pharmacy counter, enter the Rx Smart Saver portal and then show the savings to the pharmacists during checkout to save on essential treatments. Each prescription filled strengthens the savings flywheel. Pharma manufacturers gain greater visibility for their affordability programs and are able to extend their direct-to-consumer channel efforts. Pharmacies improve profitability and deepen patient relationships by lowering out-of-pocket costs and consumers gain more affordable access to the medications they need. We look forward to rolling out counter savings programs with additional retailers in the fourth quarter. We also made progress expanding our subscription offering, launching GoodRx for hair loss. We're leveraging our e-commerce capabilities to create an integrated end-to-end digital experience that prioritizes affordability, convenience and trusted care. This offering provides men with clinically proven treatments that help slow hair loss and promote regrowth, all through a single seamless platform they can trust. We expect to launch our third subscription offering for weight loss in the coming weeks, combining our GLP-1 savings programs with our trusted GoodRx brand to deliver a convenient, low-cost solution. As we continue to expand the reach and impact of our brand across the industry, we also know how important it is to stay top of mind for consumers. Our new brand campaign, the Savings Wrangler, marks a pivotal moment in GoodRx's brand evolution, translating our mission into a bold, culturally resonant campaign. Building on our strong foundation of trust and credibility, the savings Wrangler taps into a familiar truth that navigating prescription prices can feel like the Wild West. This campaign is a scalable creative platform and long-term brand asset that we believe will help drive further growth, deepen consumer connection and reinforce GoodRx is the most trusted name in prescription savings. Since launch, we've seen that key marketing metrics such as unaided awareness and GoodRx search volume are up across the board. We've made meaningful progress this quarter, strengthening our partnerships with manufacturers and pharmacies, expanding access and affordability for consumers and continuing to build on our trusted brand. We're executing with discipline and intent, and we're well positioned to meet the growing demand for transparency, affordability and access across the health care landscape. We're also making good on our commitment to engage meaningfully in policy discussions that shape the future of drug pricing and patient access, ensuring GoodRx continues to be a trusted voice and strategic partner in advancing affordability solutions nationwide. I'm incredibly proud of what our teams have achieved and I am confident in the momentum we're carrying into the remainder of the year. I will now turn the call over to Chris to discuss third quarter results. Christopher McGinnis: Thank you, Wendy, and good morning, everyone. For the third quarter, total revenue was $196 million, up approximately $1 million versus the prior year. Consistent with our expectations, prescription transaction revenue was down 9% versus the prior year. primarily driven by the impact of Rite Aid store closures, which are now complete and lower transaction volume in our integrated savings program with one of our PBM partners. These factors also drove the decline in monthly active consumers, an outcome we anticipated and discussed on our last earnings call. As our business continues to evolve, we are reassessing this metric as a primary indicator of performance to ensure it aligns with how we measure growth and profitability. Turning to Manufacturer Solutions. Revenue for the quarter was $43.4 million, representing growth of 54% compared to the prior year, reflecting strong execution and expansion across both new and existing brand partnerships. As we have previously discussed, Manufacturer Solutions has quarterly variability due to the nature of expected deal timing. And during the third quarter, we closed several deals that were initially projected for the fourth quarter. Therefore, we believe the trend across the first 9 months of the year, which is up approximately 35% year-over-year, is a more accurate indication of underlying momentum and our expectations for the full year. For the third quarter, adjusted EBITDA was $66.3 million, an increase of 2% versus the prior year, which constitutes an adjusted EBITDA margin of 33.8%. This marks an improvement of 50 basis points compared to the prior year and reflects our commitment to expanding margins through strong cost discipline and operational efficiency. Our balance sheet remains strong, ending the third quarter with $273.5 million of cash on hand with about $80 million of unused capacity available under our revolving credit facility. During the quarter, we repurchased approximately 13.4 million shares of our stock at an average price of $4.61 per share, totaling $61.6 million. At the end of the third quarter, approximately $81.4 million of capacity remained under our $450 million share repurchase program. Turning now to our outlook for the remainder of the year. We are leaving our revenue guidance unchanged as we continue to expect full year revenue above prior year or at least $792 million. Fourth quarter revenue is now expected to decline sequentially from the third quarter, reflecting the acceleration of manufacturer solutions deals that closed earlier than originally anticipated. Our full year adjusted EBITDA projections are also unchanged, which represent approximately 2% to 6% growth compared to 2024 with an adjusted EBITDA margin roughly in line with our year-to-date trend. Overall, we delivered a solid financial performance this quarter, underscored by our strength of our manufacturing solutions offering, which, as I stated previously, we now project approximately 35% revenue growth in 2025. Our leadership team remains committed to executing on strategic priorities and enhancing operational efficiency as demonstrated by the expected year-over-year increase in adjusted EBITDA. We believe our continued investment in these initiatives will drive sustainable, profitable growth while creating lasting value for consumers in the pharmacy ecosystem. With that, I will turn the call back over to Wendy. Wendy Barnes: Thanks, Chris. As I approach my 1-year anniversary at GoodRx, I'm incredibly proud of how far we've come, and I'm even more excited about where we're headed. Q3 was a solid quarter that showcased the power of our strategy in action, deepening partnerships with pharmacies, expanding affordability solutions with manufacturers and strengthening the GoodRx brand with consumers nationwide. It also opened new opportunities for us to engage with the federal government as a key partner in the development of GoodRx, further reinforcing our role in advancing national affordability initiatives. Together, these efforts are building a more connected and sustainable health care ecosystem, one where consumers can access affordable medications, pharmacies can thrive and manufacturers can deliver real savings directly to patients. We're executing from a position of strength with a trusted brand, a differentiated platform and a business model built for this moment in health care. The national focus on affordability and direct-to-consumer access plays directly to our capabilities, and we're well positioned to lead as the market continues to evolve. As we look to the remainder of the year and into 2026, our priorities are clear: continue to expand partnerships across retail and pharma, accelerate digital and e-commerce innovation to simplify the consumer experience and invest in our brand and technology to deliver even greater value at scale. With consumers facing higher out-of-pocket costs and shrinking insurance benefits, we anticipate a renewed shift toward cash pay prescriptions. We view these dynamics, combined with growing pharma investment and direct-to-consumer engagement as supportive of our long-term growth opportunity. We have built a powerful trusted platform that we're continuing to leverage in new and meaningful ways, which should ultimately drive sustainable growth and long-term stakeholder value. Our mission has never been more relevant, and I'm deeply proud of our teams for the focus and innovation they bring to helping millions of Americans save time and money on their prescriptions. I will now turn the call over to the operator for questions. Operator: [Operator Instructions] Our first question comes from Lisa Gill from JPMorgan Chase. Christopher McGinnis: Operator, this is a company. We can't hear if Lisa is talking, we can't hear on our side. Shall we move on to the next? Wendy Barnes: Sure. We'll come back to Lisa next if we can, if we can't get our audio to work. Operator: Our next question comes from Michael Cherny from Leerink Partners. Michael Cherny: Can you hear me? Christopher McGinnis: We can. Mike. Michael Cherny: Okay. Perfect. Congratulations, especially on the nice manufacturer solutions performance. Maybe if we can just start with PTR. I appreciate all the commentary that you had, Wendy, about the market and how the market is coming to the GoodRx model. Whether you've changed the metrics or not, how do you think about what a stabilizing PTR environment should look like? I'm not asking for '26 guidance, but more some of the dynamics about the continued shift towards more pricing transparency. How does that translate functionally into GoodRx's ability to win? Christopher McGinnis: Yes. Michael, maybe I'll start and then let Wendy sort of come in on the back end. I mean, look, this '25 in some respects, has been a bit of a perfect storm against the cash market. I mean, specifically with respect to us, I mean, you got Rite Aid and ISP, which we talked about. But then the macro conditions really are around a couple of things. One, the change in the reimbursement models at retail. I mean, it had the unfortunate impact of just raising prices on the consumer. And when you couple that with what we're seeing out of the payers, which is high utilization, a good benefit profile this year. I mean, look, we've been clear that we believe we're a supplement to insurance and people -- everybody in America that's insured or not should come to us and check the cash price against other payer options. And we think people are going back on benefit in '25. So -- when we think about the trends going forward, the '26 trends, it's -- from a macro perspective, it looks like there will be a potential for a lot more people that are uninsured due to a variety of factors. Although the data suggests that the benefit profile won't be as good going into '26. I mean we look at the CMS premiums on the Part D side, up 33%, depending on what you believe around the subsidies and how this gets negotiated on the government shutdown. Out-of-pocket costs are estimated to be somewhere between 25% and 100% increases for those that are covered. So there are a lot of factors as we go into '26 that we think really sort of reversed course from '25 to '26 and put a tailwind at our back, around the number of scripts in the cash market itself. So -- and I think we're well positioned to win more than our fair share of the market as it returns to an expanding market. Wendy Barnes: Michael, it's Wendy. I would just add, in addition to the trends that Chris called out that to reaffirm, we do believe should be tailwinds. We're then also focused on a strategic priority that you've heard us talk about a couple of times in truly owning that pharmacy counter and that consumer journey. And the more retailers that we partner with in that capacity then also allow us to capture more when the consumer is actually standing at that counter. So you combine both what we believe should be an expansion of Cash RXs in 2026 with a greater presence at that counter, and we do believe that helps us reverse this trend, if you will, that we're seeing in '25. But I would also be remiss without pointing out we do believe that overall, for us as a company, we are going to see a greater proportion of our revenue be attributed to manufacturer solutions. I think that is a fair observation and one actually that we are focused on. We think that is the right direction for us as a company. But I wouldn't say that it's going to come at the expense of our core growth. It's just simply going to become a larger component of our overall revenue mix. Michael Cherny: That's helpful. And maybe just sticking on manufacturer solutions. You have a number of companies that you compete against. Obviously, different companies have different definitions of what they do for manufacturer solutions. As you think about your strategic positioning, where do you feel like you have the best opportunity to win against various different peers from here? Wendy Barnes: That's a good question. I mean I will say, to your point, there are a lot of different ways in which competitors play with manufacturers. I think I would start with the just broad affordability program definition, which is when manufacturers are thinking about conveying a cash price at point of sale, we have the #1 digital prescription marketplace for pricing. Therefore, they know that in partnering with us through us on our site, embedded in whatever fashion they determine to do so, they're automatically getting connected to the largest set of eyeballs where Americans are coming to check their pricing. So that for me is kind of thing one from a competitive advantage. I think part 2 is we've now demonstrated over multiple years in our manufacturer solutions business that we are delivering an outsized ROI to these manufacturers. And so as a result, they're seeing the new Rx, the refills, they're seeing the connectivity to the HCPs that are prescribing their medications. Again, we also know we are the #1 utilized drug marketplace by prescribers as well. You combine those 2 things, and I believe that is where we candidly have a distinct advantage against competitors. Operator: Our next question comes from Daniel Grosslight from Citi. Daniel Grosslight: There's been a lot of chatter about PBMs moving from the traditional rebate model to offering lower prices at the point of sale, which actually seems to have some legs now given Cigna's recent announcement. So Wendy, Chris, you both have deep experience at PBMs. I'd love just to get your thoughts on the evolution of the PBM model, potential employer receptivity to that shift in rebates to point-of-sale discounts and how this impacts your strategy going forward? Wendy Barnes: Yes, I appreciate the question. Look, I think it's a combination of meeting the moment, if you will. Clearly, there's a lot of regulatory pressure on payers to contemplate a clear model at point of sale. But candidly, they've had the opportunity to convey this type of pricing for some time. And we, of course, have been integrated with the top PBMs through our integrated savings program for some time as well, giving them the ability to compare cash to funded price. Be that as it may, the notion of pushing rebate to the point-of-sale discount, if you will, candidly, it's nothing new. We actually applaud it. I mean if it's going to underscore more affordability for Americans at the counter, we are all in. And given how we already partner with the top payers, particularly the one that you mentioned in your question, we largely are that cash engine behind how they're providing that comparative pricing. So we feel like we're well positioned to take advantage as more payers embrace what I would call a more open aperture of what already exists. And whether or not they're doing that based upon regulatory pressure or pressure from their clients, we're somewhat indifferent because we think it's the right answer to be able to have cash always present at the point of sale. I think Chris mentioned it in his opening question, we view ourselves as a complement to insurance. It should really always be an and, not an or, and this just puts more in the wind column for that and in my view. Chris, is there anything you'd add? Christopher McGinnis: Yes. I would start by just echoing that I applaud them for doing it. This is a challenging thing for them to do, a bold move, but I think it ultimately at the end of the day, the right move. It shows that they're listening to not only the administration, but others in the ecosystem. And so when I saw the press release, I think about ISP and the original sort of strategic intent behind that program was to sit inside a PBM who had access to benefit profile and could automate what I think consumers should be doing anyway, which is look at the on-benefit price versus off benefit. Now I don't think that program has worked the way we intended. But when I read the press release from a company like Cigna, they -- it was a press release we could have written, right? And the fact that they wanted -- they're talking about bringing down consumer pricing and price transparency. That's been our mission for 1.5 decades at GoodRx. And so that's not an immediate benefit to us, but I think because their program doesn't start until 2027 and they'll phase it in. But I think over the longer term, that aligns with our core mission. I couldn't be happier that they're doing it. And I think it invigorates some of the products that we've already put out in the marketplace. Daniel Grosslight: Yes. Yes, makes sense. And then I would love to just get a little bit more detail on how you intend to work with TrumpRx. Would it be something like a link to the GoodRx website? Would you be directly integrated with a potential TrumpRx website? There's been a lot of chatter about others like Markin's cost plus doing a similar kind of integration with TrumpRx. So I'd love to just get your thoughts on how this will actually be operationalized and how GoodRx and other lower cash pay companies could also work with TrumpRx and you guys? Wendy Barnes: Look, first of all, I appreciate the question. You're not wrong in that I think there are a lot of stories floating around on what it is or what it isn't. I would start by saying we are in active engagement with HHS and the team that is actually building out this website, as in architects to architects, engineers to engineers, on how we integrate from an API perspective, and we intend to do so. So we will be a partner and participating in TrumpRx. But for clarity, and then backing up where I think some of the misinformation continues to circulate, is that TrumpRx is really functioning as just a repository of pricing. So think about it as reflecting the partnerships that are integrated into it and displaying said pricing. So think about it as like a Panfinder tool, but for effectively pharmacy pricing. And we believe, just given the expansive nature of the pricing that already exists through GoodRx and the 60-plus thousand pharmacies that we work with, when you think about how GoodRx will show up in that environment compared to perhaps one of the much smaller competitors that you just mentioned in your question and/or others, we feel like we're really well positioned to take advantage of whatever opportunity that presents for us. They have an ambition to launch in early January. I don't know whether they will or not. But if they do, we'll be well-positioned to take advantage whenever that goes live. I would also say that given our deep pharma relationships, they, too, even in the deals that they're striking with the administration, are then engaged with us, for the most part, suggesting that same pricing will be deep-linked to us. And in many instances, we are the conduit for that pricing for that manufacturer. That's not how all of those relationships will work. But generally speaking, if you think about TumpRx displaying a pricing, they're not a fulfillment opportunity. They're not going to function as a pharmacy. They're not going to contract directly with pharmacies. It will need to go through a third party, such as ourselves, to facilitate that cash transaction, and we believe we are really in an excellent position to take advantage of whatever this turns out to be in 2026. Operator: Our next question comes from Lisa Gill from JPMorgan. Lisa Gill: Wendy and Chris, sorry for that technical difficulty on my side. Wendy, I just really want to go back to the comment that you and Chris made around ISP and the evolving market around ISP, what the original intent was, your comments around how you see the PBM market evolving and changing. Do you see a new product coming to market? Do you see that you change what ISP looks like in some way? How do I think about that market and that market opportunity going forward? Wendy Barnes: Yes. I would say the original thesis, Lisa, and the way ISP was designed to begin with, that still holds. I think the difference is PBMs are rethinking perhaps the ubiquitousness of the product itself, and how supportive they are of opening it up to their client book. I mean, as originally designed, it's precisely what PBMs are talking about today. I think there's an added difference now, of course, with more brands in the mix compared to perhaps when that product originally launched, and it was largely focused on generics only. So now you've got an even broader opportunity for brands that aren't covered, 80 of which we already have point-of-sale discounts on. And so that allows a PBM with their litany of clients to say, "Hey, even if you can't afford to cover this on benefit, you can have this wrapped in program whereby at a minimum, you're getting access to deeply discounted cash pricing and it's largely seamless at point of sale. Now, having said all of that, I still think in parallel, there is an opportunity largely because these employers, coalitions, and broader groups are coming to us saying, hey, we may have interest too, and contemplating just our own carve-out cash list, and could we perhaps do that directly with you, GoodRx. That is of interest to us. And you've heard us mention that we have been thinking through what that strategy should be. And you'll hear us outline that in more detail, Lisa, in our 2026 plan. But the short answer is, yes, that will be an and on top of ISP. Christopher McGinnis: Lisa, I might just add, like it's an interesting question, one we could probably go on for a while about, because when you think about the nature of the PBMs, the sort of the way you framed the question, PBMs are selling this to businesses, right? They're selling it to payers who have to make a decision, the way I understood their announcement around ultimately in the out years, whether they want to opt in or out of the program, meaning whether they want to keep the rebate as a part of their broader pool of money to keep premiums down or whether they want to pass that through to their ultimate patients. For us, so that's a business decision for a payer to make. We want to participate more upstream in the Rx journey. We want to get into the physician's office. We're thinking through strategic initiatives to make this a consumer choice ultimately, right, where it's not necessarily light on. So PBMs will always be a critical partner, but we are always focused on consumer choice as opposed to payer choice. Lisa Gill: I know you're not prepared to talk about 2026 at this point. But Chris, as we think about modeling, is there anything that we need to keep in mind from either a headwind or tailwind? If I think about Rite Aid, I would expect that you'll anniversary that as we go into 2026. Wendy has talked about the opportunity, whether it's ACA, Medicaid, less insured people. Like, just anything that we should be thinking about as we start modeling for '26? Christopher McGinnis: Yes, you've highlighted--- We obviously have some headwinds and some revenue that occurred in 2025 that will not repeat in 2026. So we have to lap some comps, there will be a clear headwind. That's not an immaterial number when you think about ISP, when you think about more than half the year of Rite Aid being in, but look, we've got a lot of things that we're thinking through and assessing that I kind of highlighted earlier around 2026 and some of the opportunity we think it presents. Our intention is to overcome those headwinds. So I don't want to get into '26 guidance. But in terms of color, we intend to overcome the headwinds that we're faced with. Wendy Barnes: Lisa, if I may just coming in, Chris, quickly on that. I would say the opportunity set that are the strategic initiatives that we're shaping up for '26, they're meaningful. We're purposely not outlining those here. Candidly, we're still kind of -- we're modeling what we think they're actually worth, and we want to get it right when we share that with you and others. And so for that reason, you'll hear us do that on our next call. But I'm pleased with the way the strategic list of opportunities are framing up for '26 thus far. Operator: Our next question comes from Jailendra Singh from Truist Securities. Jailendra Singh: So my first question is around -- you guys have talked about building capabilities to better serve HCP within your PMS business, including rolling out products similar to those already in the market. Can you update us on the progress there? Any early learnings you can share as you continue to evaluate ways to further deepen your relationship with HCP? Wendy Barnes: Thank you for the question. You're right. Yes, we have talked a little bit about the technological capabilities that we invested in this year meaningfully to be able to set ourselves up for a strong 2026 selling season, specifically aimed at how pharma partners with and focuses on specific HCP and of course, those affiliated NTIs. I will say in the early innings, it's looking promising. You'll hear us talk about that as well when we provide '26 guidance. I would say we're well positioned to take advantage of that. And I'm thankful that the investment that we made to prepare for this '26 selling season remained on track. In fact, it was ahead of schedule such that it largely set up our manufacturer solutions team where that HCP sales arm resides to hit the ground running because obviously, this is a big setup to what the '26 selling season looks like. We're deep in RFP season as we speak. So too early for me to outline specific results. I would just tell you that we're well positioned, and I think it sits where we would have presumed we would have been per plan. Jailendra Singh: Okay. And then my follow-up, I actually want to follow up on the timing of certain manufacturer deals you talked about, which kind of impact Q3 versus Q4. Can you elaborate on that? Is it possible to quantify the impact of this shift? Are these deals like onetime in nature? And isn't Q4 generally a seasonally stronger quarter for PMS? Just trying to better understand the messaging on Q3 versus Q4 for the PMS business. Christopher McGinnis: Yes. I mean, look, this time of year, pharma spends up at times. And so we had some of these deals baked in and it just -- it was accelerated some of those deals. I don't want to get into the sizing it at all. I just think it's -- they're not onetime sort of revenue. I mean, typically speaking, deals come in and they're 12 months in nature. This time of year, they can be shorter duration like intra-quarter, they could cross over the quarters, that kind of stuff. So we just -- we pulled some revenue in based on the timing of the closing of the deals we just originally anticipated in Q4. It will drive manufacturing solutions up for the year. I think we said 35%. I think it will probably sneak above that level actually for the year. But other than that, Jailendra, it's just -- I think it's normal course of this kind of time of year to see some deals come in, and we don't know the exact timing when we're forecasting. Operator: Our next question comes from John Ransom from Raymond James. John Ransom: Just a couple for me. Your ISP partner where you've had an interruption in the relationship, should we assume that that's a permanent state of affairs? Or is there some hope that, that might be reconciled? Wendy Barnes: Yes. I mean, I would say less of an interruption and more of them taking a multi-network approach. We still have a fine relationship and continue to see volume flow through it. I think it's a matter of them having added additional partners to that relationship. As to whether or not that narrows again, it's an interesting question. There's always a possibility for something like that to happen, but nothing that I would call out today, John. Christopher McGinnis: I would say we're assuming for our purpose, just -- I mean, we kind of have it as status quo, and it now probably represents a little more upside than downside for us, but I don't think we'll return to it like baking in upside. John Ransom: And just a second question. I mean, this is a very crude metric. But just looking at your marketing spend; it's still running about 40% of sales and you're spending about the same money to get a 9% decline in PTR. So how do we think about long-term customer acquisition cost, marketing spend? And how do you calibrate that relative to your revenue? Christopher McGinnis: Yes. We -- look, from our perspective, it's very important to invest in our brand. And so, we do -- we think about the metrics that you're talking about, but they don't drive necessarily the decisions. We want to think about where it's appropriate, the effectiveness of dollars, where we spend it, the timing of it. As we launch subscription offerings, for example, we're sort of relitigating how we think about putting dollars behind that from a marketing perspective. We've got a new brand campaign out there. Unaided awareness is up across the board as we measure it. So, it's working. But when we think about the macro trends that I outlined earlier, and we -- for the most part this year, as cash has contracted as a market, we've increased market share. That's important because that's the way you take advantage of getting more than your fair share in an expanding market for 2026. So look, we believe we'll return to growth in our platform. And I think those marketing dollars as measured in any one year in a year like this, where I think we faced multiple headwinds, I'm less concerned about it. So, we just make that decision in the totality as we sort of do a multiyear planning. Operator: [Operator Instructions] And our next question comes from Steven Valiquette from Mizuho Securities. Steven Valiquette: I also just wanted to come back to the Manufacturer Solutions segment for a moment on the pull forward that you talked about. So, I guess as we think about 2026, the quarterly cadence for that segment and the normal seasonality, should we assume for now then that the revenues would just increase sequentially every quarter throughout the calendar year? And then if there's a pull forward next year, we just focus on that if that happens. But -- so what's the normal pattern when thinking about 2026? If you can provide any color on that, that would be helpful. Christopher McGinnis: Yes. Look, I mean, I think generally speaking, the trend is up as those sales close throughout the year. And just to be clear, when I -- when we talk about sequential revenue coming down, it's more total revenue. I'm not talking specifically about manufacturing solutions, just to be clear about that. So -- but look, it can be a little lumpy in terms of when and how those deals close, right? We're looking to go deeper into existing manufacturer relationships. We're looking to add new ones. We track a traditional sales pipeline with a funnel. We estimate probability of close, timing of close, and those don't always happen exactly as we forecast them. But generally speaking, we think it's growth. This is a growth engine for us. I think it will continue to be manufacturer solutions, that is. I think it will continue to be an increasing part of our revenue. So I anticipate it continuing to grow. Operator: Our next question comes from Stan Berenshteyn from Wells Fargo. Stanislav Berenshteyn: On Manufacturing Solutions, you called out the point-of-sale discount programs as being contributors here. I'm just curious, what percent of the growth that we saw in the quarter can be ascribed to the point of sale? And can you maybe give us some examples of what those at-the-counter promotions or customer interactions look like? Christopher McGinnis: We don't, I mean, I appreciate the question, Stan. We don't break out like the percentage of growth between sort of the media side and the point-of-sale side, and some of the other revenue streams within pharma manufacturers. So we have over 80 deals that drive the revenue there. So for us, it's more a reflection of expanding deeper into the portfolio of drugs with our existing partners and then adding more manufacturers to the mix, which we continue to do. And then look, I think as we talked about, while we don't really know how TrumpRx will play out, when I listen to [ Dr. Oz ] was interviewed on TV over the last 72 hours talking about exactly what Wendy said and reaffirming what we're being told in our discussions with the government, which is they intend to link out to the lowest cost available. And we think we're well-positioned to be that provider. And look, consumers have near complete access to their medicine cabinet through us, so I think that positions us well. And I think TrumpRx will continue to be a tailwind for manufacturer solutions as well. Wendy Barnes: And if I may add, I will also say it's providing momentum for manufacturers who may be, while they may have had interest in point-of-sale conversations, it's giving them, I think, a little bit more energy around, oh gosh, well, maybe now is the time for us to do this. And it's providing, I think, some momentum to move some deals and negotiations along a bit faster between us and manufacturer partners as well. And just more on the tactical end of this, as you think about the mix that is all of the pharma affordability programs, of which a component, of course, are the brand point-of-sale deals, some of the ones notably that are contributing to our growth include our partnership with Novo around Ozempic and Wegovy. I mean, that is no small feat, given that it is the most competitive cash price on Ozempic. And we just recently announced a partnership with Amgen around Repatha. And that retail price is considerably less expensive than the historical price point. So again, we are seeing that mix certainly shift and pointing towards point-of-sale deals, but we continue to have interest in all of the affordability programs, provided they improve access and affordability across the board for our shared consumers. Operator: Our next question comes from Kevin Caliendo from UBS. Unknown Analyst: This is [ Jack Sem ] on for Kevin. In your prepared remarks, you mentioned that GoodRx search volumes are up across the board. Is this coming from one particular initiative or advertising campaign? And kind of curious how these search volumes have trended over the past few months since the launch? And then if you can just discuss, like any conversion rates or anything like that, that would be very helpful. Christopher McGinnis: Yes. I mean, Jack, we've seen with our new campaign that unawaited awareness is up, access is up. I'd love to make sure I answer your question. I'm not sure I can get you. Like, I can follow up with you on the data. I don't have a lot more data from a marketing perspective at my fingertips, but I'm happy to sort of give you the right information in terms of what you're asking. And if you want to clarify exactly what you're looking for, Jack, I'm happy to see if I can address it more accurately. Unknown Analyst: Yes, that's okay. I was just more curious about how those search trends have kind of trended just over the past few months. You don't have to go into too much detail on that, so I appreciate it. Christopher McGinnis: Yes. We're really tracking it. And just to be clear, like it's coinciding with the launch of our new overall brand campaign, right? And so some of the metrics that were key to us that we sort of set out upfront, while we're meeting and exceeding the benchmarks that we had planned for in those campaigns. This goes back to the earlier point about our advertising dollar. The one thing we want to ensure ourselves is that we're spending those dollars effectively and we're driving the right eyeballs. These are very important statistics for us as we go back to manufacturers and show them and demonstrate that we are the right platform to get eyeballs on their portfolio of drugs. And so it's why we spend what we spend, and right now, the campaigns seem to be working. Operator: Our next question comes from Craig Hettenbach from Morgan Stanley. Craig Hettenbach: Just staying on Manufacturing Solutions and understanding you already have some nice momentum in that market. When I look more broadly, you have a very high gross margin, and, high EBIT margin business. Are there opportunities to reinvest more of that into driving even further growth in manufacturing? How do you think about just kind of reinvestment in the business here? Christopher McGinnis: Yes. I mean, look, the one thing I would say, obviously, we don't break out margin specific to Manufacturing Solutions versus PTR. But look, the business has been growing and our margins have been expanding, right? So I think you can have an implied there. In terms of investment, as Wendy noted, I mean, we've made specific investments into capabilities like directed media at the NPI level, which is, I think, the important thing to do. We are actually investing in capabilities to own more of the Rx journey, which is ACP-type initiatives and accessing HCPs, and kind of engaging them and influencing decisions at the point of the clinical encounter. And then obviously, from there, obviously, engaging with the consumer on pricing, transparency, affordability programs, pharmacy choice, and all of the above. So the answer across the board is yes. We continue to pursue initiatives and reinvest in the right initiatives that we think will drive Mantol's growth. Wendy Barnes: I would say, though, in balancing that as an executive leadership team, we do spend considerable time on how we balance reinvestment with also being good stewards of overall dollars. And you will continue to see us try and keep a healthy balance there, such that we're balancing SG&A with the appropriate bottom line outcome. It's an incredibly important component to both Chris and I that the cost where it's added needs to drive favorable returns. So it's a balance we're striking, but I very much appreciate the question. Operator: Our next question comes from Brian Tanquilut from Jefferies. Brian Tanquilut: Maybe just to take the other side of the ISP question. As we think about the Rite Aid headwinds, I mean, a matter of anniversarying it? Or are there initiatives that you're rolling out to try to drive that recovery quicker? Christopher McGinnis: Yes. I mean, we obviously target recapture. It's not an exact science at times, right? Where we've got data on the actual consumer and there's contactability, we obviously are doing outreach. It is one of the reasons you've seen us increase our overall brand awareness because, one of the things we believe is the good thing about our business, unlike many other aspects of the sort of, I guess, all of the medical or health ecosystem, is our consumers actually choose to do business with us, right? And so they've come to our platform looking for access and affordability to their medication. And when they choose a pharmacy, that stays on file. If they get ported over to somebody, it's not clear that they are even aware that they may have come off the GoodRx platform. And so the idea of making sure that they come back and recheck for affordability, I think, is important. And look, we will continue to invest in initiatives, as I just talked about in terms of owning the Rx journey and e-commerce solutions, and other ways to get people fully committed and have sort of a durable relationship with those patients. But the sort of long and short answer to your question is, yes, we will always seek to recapture that volume as soon as possible. Wendy Barnes: Yes. And if I may add, I mean, the counter initiatives that we've continued to talk about, that is largely your answer, right? When we contract directly with the retailer to own that counter, and particularly when e-commerce is a component of it, that's largely where we invest. And in many instances, we are actually spending marketing dollars through those same retailers to ensure that we are not only capturing the attention, but then we're retaining that same consumer at that counter. And that's how you offset instances of a Rite Aid closure and the manner in which you just outlined that question. That's how you go about doing that strategically, in my view. Operator: That concludes the question-and-answer session, and this concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Good morning, and welcome to the Turning Point Brands Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Graham Purdy. Please go ahead. Graham Purdy: Thank you, operator. Good morning, everybody, and I really appreciate you all joining the call. A little bit of a somber morning here for us in town here. Before we walk you through our Q3 results, I'd like to say a few words about the tragedy that hit our community yesterday with the UPS flight crash. As I'm sure you're aware, we're a Louisville-based company. Aside from being a business partner of ours, UPS is really woven into the fabric of the Louisville community. In many ways, Louisville is a -- it's a very small town and the community is very tight-knit. And while we're fortunate that none of our employees were directly impacted or affected by the tragedy yesterday, it's likely that we have friends and loved ones that know somebody that was. Our heart goes out to the families of those that were directly impacted by the tragedy and then to the UPS family as they deal with this heartbreaking situation. And so with that, I'd like to turn the call back to the operator to get started. Operator: Thanks, Graham. Now I would now like to turn the conference over to Andrew Flynn, Chief Financial Officer. Please go ahead. Andrew Flynn: Good morning, everyone. A short while ago, we issued a press release covering our Q3 results. This release is located in the IR section of our website at www.turningpointbrands.com. During this call, we will discuss our consolidated and segment operating results and provide some perspective on the operating environment and progress against our strategic plan. As is customary, I direct your attention to the discussion of forward-looking and cautionary statements in today's press release and the risk factors in our filings with the Securities and Exchange Commission. On the call today, we will reference certain non-GAAP financial measures. These measures and reconciliations to GAAP are in today's earnings release, along with reasons why management believes they provide useful information. I will now turn the call over to our CEO, Graham Purdy. Graham Purdy: Thanks, Andrew. Good morning, everyone, and thank you for joining our call. Our consolidated third quarter results were better than expected and demonstrated continued progress against our plan. Revenue increased 31% to $119 million for the quarter, including $36.7 million net Modern Oral revenue, which includes $1.5 million of slotting fees that are accounted for as contra revenue. Adjusted EBITDA increased 17% to $31.3 million for the quarter. We are increasing adjusted EBITDA guidance to a range of $115 million to $120 million, up from $110 million to $114 million. We are increasing full year consolidated nicotine pouch sales guidance to a range of $125 million to $130 million, up from $100 million to $110 million. This includes both FRE and ALP. We are particularly pleased with the growth of our white nicotine pouch brands. Their long-lasting vibrant flavor options, comfortable mouth feel and flexible nicotine levels have resonated with consumers. During the quarter, white pouch sales increased 628% year-over-year and 22% sequentially. Some of you may have noticed that ALP, already one of the top D2C pouch brands in America, has started to appear on bricks-and-mortar shelves in select retailer tests. Recall that we initially expected ALP to be exclusive D2C for all of 2025. Suffice it to say, we are pleased that ALP is running ahead of schedule. We believe the nicotine pouch space, like most other nicotine businesses, will ultimately feature five to six widely distributed brands that command most of the market. Analyst expectations for the size of the category differ, but most believe it will approach, if not exceed $10 billion in manufacturers revenue by the end of the decade. Our Q3 performance supports our long-term target of double-digit market share in the category. In order to best position the company to capitalize on this multibillion-dollar opportunity, we have made and will continue to make significant investments in the business and refine our route-to-market strategy to prioritize FRE and ALP, while continuing to generate strong cash flow from our heritage brands. During the quarter, we raised $100 million of gross proceeds under our previously announced at-the-market offering program at an average share price of $98.59. We expect to opportunistically deploy this capital across a variety of high-return opportunities to accelerate the growth of our Modern Oral business. Consistent with our policy of maintaining active buyback and sales authorizations to maximize capital markets flexibility, we plan to update our ATM prospectus supplement and buyback authorization to provide for $200 million of capacity under each program. We have no current plans to transact under the updated authorizations. Key investment initiatives include reallocating sales and marketing resources, increasing the headcount of our sales force, improving our online presence, ramping up investment in chain accounts, expanding to international markets and building out U.S. manufacturing to improve white pouch profitability and mitigate supply chain and tariff risk. We are pleased with our progress on the manufacturing front and expect to qualify the first production lines in the first half of 2026. We have been particularly encouraged by our ability to identify and onboard new sales talent. We are ahead of schedule in our goal of doubling the size of our sales force by the end of 2026. The rest of the Stoker's segment portfolio also performed better than expected in the quarter. Overall, Stoker's revenue increased 81% to about $74.8 million, reflecting a 4% increase in looseleaf, a 6% increase in MST and the aforementioned 628% increase in Modern Oral revenue. During the third quarter, Zig-Zag revenue was down 11% to $44.2 million and down 6% sequentially. While this decline was anticipated and performance was ahead of our expectations, we continue to think it reflects some opportunity costs related to our focus on Modern Oral. With that, I'll hand the call over to Summer to walk through the progress of our key go-to-market initiatives. Summer Frein: Thank you, Graham. As he noted, we continue to make significant investments to support our go-to-market strategies to prioritize FRE, while also continuing to generate strong cash flow from our legacy brands. Throughout the quarter, we continued to expand our efforts and our initiatives to support the growth of FRE focused on sales and marketing. Our key initiatives to support FRE include: first, optimizing our approach to expand distribution, improve brand merchandising and minimize out of stocks. To support our growing sales organization and increase store footprint, we have developed new sales and merchandising tools to secure the ideal assortment, establish shelf space and execute a premium look and feel at retail. Throughout the quarter, we also continued our expansion efforts not only into new stores within large-scale chains, but also expanded our SKU offerings. Toward the end of the quarter, we launched FRE Watermelon. Fruit flavors represent about 1/4 of all OSB sales when excluding mint and wintergreen flavors. Watermelon is not merely a flavor extension, it is the fastest-growing fruit flavor in the nicotine pouch category, and FRE is uniquely positioned as a first mover with a complete strength offering. Second, continuing to invest in and expand strategic marketing campaigns to accelerate brand awareness and consumer loyalty. We have been encouraged by engagement and early returns from our partnership with Professional Bull Riders and are exploring other brand partnerships and collaborations that align with FRE's Own Your Edge tagline and brand ethos. With regards to Zig-Zag, we continue to execute marketing and sales initiatives that build upon our 145-year legacy and solidify our premium position across the segment. To build upon this legacy and reward our most loyal consumers while creating an opportunity for viral buzz, we launched a promotion called Zig-Zag for Life. This campaign offers an opportunity to win a lifetime supply of Zig-Zag cones to anyone who has or gets a Zig-Zag tattoo. We also relaunched Zig-Zag Studio, a collaboration with creators and musicians to build upon the brand's strong association with pop culture. These campaigns magnify Zig-Zag's identity as an iconic brand and consumer interest has been encouraging. Of note, in the quarter, we also laid the groundwork for the launch of a new Zig-Zag product, Natural Leaf Flat Wraps to better compete in the ever-growing Natural Leaf segment of the wraps category. Lastly, turning briefly to Stoker's. We continue to see strong performance despite category pressure. In the quarter, we launched both a new product offering, Stoker's Fine Cut Wintergreen cans and Stoker's first-ever D2C site. Stoker's continues to be a steady heritage business with a very active and engaged consumer base. In closing, we continue to build our brands for the long term, execute against our omnichannel plan and win new consumers. Our focus is to prioritize strategic investments to maximize the value of our world-class brands and further strengthen our distribution capabilities. Let me now turn the call back over to Andrew to go through our financial results. Andrew Flynn: Thank you, Summer. Sales were up 31% year-over-year to $119 million for the quarter. For the quarter, gross margin was 59.2%, which was up 360 basis points year-over-year and 210 basis points sequentially. The change in margin is mix driven, primarily related to our outsized growth in Modern Oral. Reported SG&A was $44.5 million for the quarter, which was up $4.2 million sequentially. This increase was primarily driven by Modern Oral related sales and marketing investments as well as increased outbound freight charges to support our growing business. Adjusted EBITDA was up 17% year-over-year to $31.3 million for the quarter at a 26.3% margin. Going into segment performance. Zig-Zag sales decreased 11% year-over-year to $44.2 million for the quarter, but was ahead of our expectations. Gross margins increased 210 basis points to 57.5%, driven by mix shift and improved COGS pricing in certain Zig-Zag product categories. Stoker's net sales increased 81% year-over-year to almost $75 million for the quarter. MST sales increased 6% year-over-year to $27 million for the quarter. Share in-store selling was up 130 basis points year-over-year to 12.1%. Loose leaf sales increased 4% year-over-year to $11 million. Our Modern Oral nicotine pouch sales, FRE and ALP, were up 628% year-over-year, achieving total revenue of $36.7 million. White pouch now accounts for 31% of our business, up from 26% in the second quarter and 6% a year ago. Moving to the balance sheet. We ended the quarter with just over $201 million of cash. Free cash flow for the third quarter was negative $1 million, including the first coupon payment on our 7.625% high-yield bond issued in February of 2025. As Graham mentioned, during the quarter, we raised $100 million of gross proceeds and $97.5 million of net proceeds at an average price of $98.59 per share under our previously announced ATM program to support our white pouch growth initiatives. CapEx for the quarter was $3.8 million. On to guidance and other items. As previously noted, we are increasing our full year 2025 adjusted EBITDA guidance to $115 million to $120 million from $110 million to $114 million and also increasing our anticipated total Modern Oral sales range to $125 million to $130 million from the previous range of $100 million to $110 million. This guidance reflects increased investment in our go-to-market plan as well as tariff and currency-related impacts. For modeling purposes, the effective income tax range is 23% to 26% on a go-forward basis. Budgeted CapEx for 2025 is $4 million to $5 million, exclusive of projects related to our Modern Oral business. We expect to spend between $3 million to $5 million for the full year to supplement our Modern Oral PMTAs. Now let me turn it back over to Graham. Graham Purdy: To conclude, we are pleased with our third quarter results, and I'll now turn it over to questions. Operator: [Operator Instructions] The first question comes from Eric Des Lauriers from Craig-Hallum. Eric Des Lauriers: Congrats on yet another fantastic quarter here. First question for me, just on the onshoring, nice to see. How should we think about this from a capacity standpoint? And how are you thinking about sort of COGS per unit for nicotine pouches produced onshore versus via your co-manufacturing partner right now? Andrew Flynn: Eric, thanks for the question. So the way we're thinking about the unit economics for our white pouch is with onshoring, we'll have sort of immediate savings in terms of inbound freight as well as avoidance around tariff. So we should have favorability on those two items out of the gates once we actually qualify the lines, which we're expecting in the first half of 2026. And then on an ongoing basis, as we get volume on those lines, we expect the unit economics to improve from there. Eric Des Lauriers: Okay. Great. That's very encouraging. And then just any commentary on that capacity standpoint, how we should think about this? Andrew Flynn: Yes. Look, I think that as we've disclosed in the past, we feel good about the capacity that we've got with our third-party manufacturer. And the capacity that we get in the U.S. will be additive to that. So we believe that we're in a very good position, both from an inventory perspective that we have on hand today as well as capacity on a go-forward basis. Eric Des Lauriers: All right. That's encouraging. And then just as a kind of follow-up here, could you comment on what you're seeing from an in-store market share perspective for your Modern Oral category here? Just any -- I know it's still very early and you're still rolling out, but any comments on early kind of in-store market share would be helpful. Graham Purdy: Yes. Look, it's -- we certainly haven't disclosed that publicly, but it's really sort of bifurcated at this point. Obviously, you have sort of a national perspective on where our market share sits from a national standpoint. As we grow our distribution base, we're really focused on share in-store selling. And I'll tell you, we're highly encouraged by those results. Operator: The next question comes from Ian Zaffino from Oppenheimer. Ian Zaffino: Really good quarter. Question would be, can you maybe talk about the MST and looseleaf growth there? What was driving that as far as price, volume and kind of market share, if you could talk about that? Graham Purdy: Yes. I would say that it's a combination of a couple of those things. We grew share sequentially in the quarter as well as there was some favorability around pricing. I would note that we anticipate that there's going to be north of 900 million cans sold in that category. We still have less than 10% share, although it's high single-digit share. We think there's tremendous opportunity for further gains within MST. So we remain excited about the opportunity. Ian Zaffino: Okay. And then on Modern Oral, can you just maybe help us understand the drivers there, FRE versus ALP? Maybe you could talk about each one and what you're seeing there. And then as you kind of continue to push into larger chains, what kind of cadence should we expect as those start to hit and as your discussions have been ongoing? Graham Purdy: Sure. I'll take the first part of that question. To this point, we haven't disclosed the differentiation between FRE and ALP given the sensitivity around the partnership. What I can say is we saw healthy growth from both properties during the quarter. So we were excited about that. Our ALP business continues to dominate from a B2C standpoint, but they are also making some inroads into some bricks-and-mortar accounts. We're highly encouraged by the results of some of those early tests in there. FRE had a very nice quarter, both online as well as in bricks and mortar. I'll pass it over to Summer to answer the second part of the question there for you, Ian. Summer Frein: We continue to make progress in both new chains and expanding our SKU assortment in existing chains. So we remain really excited and encouraged about our progress there. And in particular, with some of the partners we've had for a while, both sides continue to be happy with the partnership, and we're excited to see how it evolves in coming quarters. And as we look toward progressing in upcoming quarters, major chains are in the process of evaluating their planograms for next year, and we're in those conversations, same as our competitors. So we look forward to how the next few quarters roll out. Ian Zaffino: Okay. And then if I could just ask one more here. As far as in Modern Oral, the promotions, how did you handle the promotions that we saw a couple of months ago? And how do you kind of navigate the landscape given that? Or what's kind of, I guess, your overall view of how the category is going to kind of play out over -- the competitive landscape is going to play out over the next, call it, quarter or 2 quarters or so? Graham Purdy: Sure. Look, I remain bullish on the category. And one of those sort of foundational components about that bullishness is around the balance sheets that the large manufacturers have to deploy against converting consumers into the category. We believe we have a winning format as well as two winning brands that give us an opportunity to really chase after consumers. Obviously, Q3 was a brutal promotional quarter, but not for us. We sort of maintained the integrity of our pricing at retail. We continue to focus on the things that we know win for our brands, which is getting more shelf space, getting broader presence in the store. So we really did participate within the quarter as we saw the major competitors sort of deploy their promotional resources in the market. And look, we think long term, there's going to be strategic opportunities for us to invest in opening up the funnel for the consumer, but we're taking a really measured approach and really reading our data and listening to what consumers are telling us within our online platforms, which gives us somewhat of a distinct advantage when we have that really direct touch point with our consumer. So we'll be opportunistic in terms of the way we think about deploying our promotional dollars from a retail standpoint. But more importantly, we're really focused on getting our platform right in the store because we see when we do that, that we have a really great opportunity to win consumers. Operator: The next question comes from Aaron Grey from Alliance Global Partners. John Chapman: This is John on for Aaron Grey. Congrats on the strong quarter. So I know in the prepared remarks, you touched on the go-to-market strategy progress. But in terms of distribution, do you still see meaningful white space opportunities for FRE more so near term? And for ALP, when should we expect to see meaningful brick-and-mortar distribution? Were some of the initial brick-and-mortar channel pilots to see how ALP and FRE performed? Just any more color on what you think may be the right approach to promote the brands alongside each other would be helpful. Graham Purdy: Yes. Look, we're excited about the continued gains that we make. We've mentioned in past quarters and as well as on this call that we continue to invest in our sales infrastructure to further our distribution gains in the market. Some are just noted a second ago, we're pleased with our progress against the chain accounts, both large and small chains. We do have an account that shares both platforms, both FRE and ALP. We've been excited about the results of sort of that shared platform inside the store. There's a tremendous amount of white space for both brands, albeit a little bit more for ALP at this point in time, given the fact that we've been focused on bricks-and-mortar distribution out of the gate, and ALP has been focused on direct-to-consumer. So I think there's a really great marriage there as we move forward with tremendous opportunities for both brands to effectuate a broad-based distribution and really screen to multiple consumer audiences to give us the greatest upside to capture consumers into either one of the franchises. John Chapman: Great. And second, how would it be best to think about the approach to balancing profitability and growth? 4Q embeds a little bit of EBITDA margin pressure and the company has been able to achieve sizable growth while maintaining a healthy EBITDA margin of 26% year-to-date in 2025. Do you expect you'll be able to maintain that? Or could there be some EBITDA margin pressure even beyond 4Q as you invest in the promotional pouch environment? Graham Purdy: Yes. Look, we're not certainly going to comment on our investment strategy specifically for competitive reasons. I would say that at this point in time, we've struck a sort of a healthy balance between growth and profitability. And so I think that we'll be measured in the future in terms of how we deploy our resources around high-return projects. Operator: The next question comes from Nick Anderson from ROTH Capital Partners. Nicholas Anderson: Congrats on the quarter. First one for me, just on Modern Oral. Given the growth in the category, have you seen any noticeable changes in shelf space allocation by retailers? I know someone mentioned the planogram phase going on now, but how do you expect that allocation of space to trend kind of going forward? And if Modern Oral products are gaining allocation, which products are losing allocation? Summer Frein: Yes. I'll take that question, and Graham can chime in as well. What we're hearing from retailers that they're really taking a methodical approach to how they do allocate space across their shelf and their back bar area, because they see the category dynamics shifting more to OST. And so they're being really diligent and deliberate about how they're allocating that space across the segments in the nicotine space and then being really thoughtful about which brands they're putting on shelf as well based on performance. And so we're happy to be part of those conversations. Graham Purdy: Yes. Look, I think we anticipate that the allocation of space for Modern Oral will grow given the underlying growth of the category. And I think it's really -- it's too difficult a question to answer specifically on which products will be displaced on the shelf because there's a lot of regional preferences around different types of products that sell nationally. So I think it's a little hard to say what could be displaced in that process. But from our standpoint, we think opening up more shelf space is just -- is a big tailwind for our business. Nicholas Anderson: Great. I appreciate that color. Second for me, just on the loyalty initiatives. You have ALP and FRE rewards programs online. Just wanted to get some color on how those are trending in terms of program growth and engagement, and if there's any noticeable difference in spend from these consumers in those loyalty ecosystems. Summer Frein: Yes. Look, I think having rewards programs on any D2C site is a smart strategy for a D2C brand because you're able to engage with those consumers that are loyal and coming back to purchase and engage with your brands. And those are really the customers that we highly value. And so as we continue to grow that program, we'll continue to evolve and engage with those consumers, and they're certainly the most valuable to us. And that first-party data and being able to understand their preferences is something that we're really focused on. Graham Purdy: Yes. And look, I'd like to add to that as well, both FRE and ALP, I think where we're particularly excited is the engagement with our subscription sign-ups on both platforms. While we haven't specifically pointed out what that growth is, we're very encouraged with the consumer adoption around our subscription service. Operator: The last question comes from Gerald Pascarelli from Needham. Gerald Pascarelli: Just on Modern Oral. Obviously, it's another very strong quarter, another very strong guidance raise here. But the guidance does imply that the trends that the revenue will slow, I think, to like mid-single-digit growth sequentially if you use the midpoint of the updated guidance here. So if you could maybe just talk about some of the dynamics. Was there a potential pull forward in revenue in 3Q? Or is it fair to assume that there may be a certain degree of conservatism embedded in the new outlook just given some of the category dynamics? So any color there would be helpful. Graham Purdy: Yes. Gerald, great question. Thank you for asking. Look, I think the -- while we're excited about sort of the guidance increase, I think the area that we would point out is as we go out and we get on shelf and we negotiate those deals to get on shelf, that comes at the expense of contra revenue. And so I think in the out quarters, what you could expect from us is really to talk a little bit of the differential between our gross sales and net sales because of that dynamic of contra revenue. But that's really the area that speaks to your question. Gerald Pascarelli: Got it. My next one is on gross margin for Stoker's specifically. Historically, a segment with gross margin that ranged in the high 50s or in the mid-50s to the high 50s. And over the past 2 quarters, now you're above 60%, which comes seemingly with negative mix shift from higher revenue growth in your Modern Oral portfolio. So if you could just help us bridge what's driving this really strong margin? Have the margin profiles on both FRE and ALP come up maybe relative to where they were a few months ago as you continue to scale the brand? And I guess just like a long-winded way of asking like what's driving the 60% plus margin in Stoker's? Andrew Flynn: Yes. Thanks for the question. So what's driving the higher margins in the segment is really mix. And what we're seeing is that we have a higher D2C in the Modern Oral part of that business. I think the thing that's important to keep in mind is that our freight expense is actually in SG&A and not in cost of goods. And so when you look at it, when you include the SG&A portion of that freight that's attributable, you will see some compression on the margins at the EBITDA line. But that's part of the driver. The other part of the driver is tariffs on a go-forward basis, we would expect to have more of an impact on tariffs. So as I think about the short term over the next couple of quarters, I would expect to see those margins come down just a bit due to margins, but also we'll still have a higher mix of D2C, which should elevate. But I'd expect net-net for those margins to come down just a bit. Gerald Pascarelli: Perfect. And then if I could just squeeze one more in. Just going back to some of the promo commentary. Graham, if you could just maybe provide I don't know, your near-term outlook on the category, what you expect from the promotional environment and whether or not you expect it to maybe become a little more rational in 2026 than it is currently? I would just love your thoughts there. Graham Purdy: Yes. I appreciate the question. Look, you've got three well-run, well-financed companies with incredibly strong balance sheets. And they really -- this category sort of is an area that they have to win in, right? And so I think that with that as the backdrop, as they all fight for the consumer, I would anticipate that the promotional environment would be -- would remain healthy, driven by the large competitors in the category. And from our standpoint, we're really focused in on building brand, building the connection with the consumer, both with our FRE and ALP properties and being really mindful of how we spend against the funnel and opening up for consumers. We certainly don't have the same types of resources that the large companies do, but we believe that we're -- our balance sheet for our size is it puts us in a really good position to sort of strike in the areas that make sense for our brands. And so we're excited about the promotional activity from the standpoint of the growth of the category. This is the way the category gets to $10 billion or north by the end of the decade is by the conversion of cigarette consumers into Modern Oral, and there's no better companies to do that than the folks that own those cigarette brands. So I remain bullish on the category. I'm particularly bullish on the large manufacturers converting consumers into Modern Oral. And I'm particularly excited about our brands and the properties of our brands relative to the variety of nicotine strengths, the flavors as well as the mouth feel. I think that when we have a consumer that tries our product, we have a really good shot at converting that consumer. And so I don't anticipate that the landscape will lighten up anytime soon from a promotional standpoint. It's been going on for over a year now. There has been some large company in the space that has been on promotion at some point in time for well over a year now. And so I don't think it's going to change anytime soon from that standpoint. But we're just bullish and excited about our opportunity to win consumers because of our brand as well as the features and benefits of the product. Operator: That concludes our Q&A session. I will now turn the call over to Graham Purdy for closing remarks. Graham Purdy: Thank you so much, everybody, for joining the call this quarter. Certainly really excited about our Q3 results and really excited to talk to you as we bend around to 2026. So thank you so much for taking the time, and we'll talk to you all in a few months. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Hello, and welcome to the Twin Disc, Inc. Fiscal First Quarter 2026 Conference Call. We will begin with introductory remarks from Jeff Knutson, Twin Disc's CFO. Jeffrey Knutson: Good morning, and thank you for joining us today to discuss our fiscal 2026 first quarter results. On the call with me today is John Batten, Twin Disc's CEO. I would like to remind everyone that certain statements made during this conference call, especially statements expressing hopes, beliefs, expectations or predictions for the future are forward-looking statements. It is important to remember that the company's actual results could differ materially from those projected in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are contained in the company's annual report on Form 10-K, copies of which may be obtained by contacting either the company or the SEC. Any forward-looking statements that are made during this call are based on assumptions as of today, and the company undertakes no obligation to publicly update or revise these statements to reflect subsequent events or new information. During today's call, management will also discuss certain non-GAAP financial measures. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. Now I'll turn the call over to John. John Batten: Good morning, everyone, and welcome to our fiscal 2026 first quarter conference call. We begin the year with strong momentum, delivering another quarter of profitable growth and meaningful progress on our strategic priorities. Sales and margins improved year-over-year, supported by steady execution across our global operations with healthy demand across all 3 core product groups, contributing to our robust backlog. Our performance this quarter underscores the strength of our diversified portfolio and the operational discipline that continues to define our success. As we move through fiscal 2026, we are encouraged by the resilience of our end markets and by the growing contribution from areas such as defense and hybrid propulsion. These growth vectors position us well to sustain outperformance and deliver strong profitability amid an evolving macroeconomic environment. That said, we remain mindful of potential tariff developments and expect a 1% to 3% tariff impact on second quarter cost of sales versus roughly 1% previously. This increase is temporary and will not affect the remainder of the year. And as such, we expect tariff impact to return to roughly 1% of cost of sales in the second half of the fiscal year. Now let me take you through the quarter's highlights. Sales grew 9.7% year-over-year to $80 million, marking another quarter of steady top line growth led by our marine and propulsion business, along with the integration of Katsa and Kobelt, which continues to advance ahead of plan and together are broadening our capabilities and expanding global reach while driving meaningful synergies. On an organic basis, net sales increased 1.1%, which excludes the impacts of acquisitions and foreign currency exchange. We continued to streamline operations in the quarter, efforts that effectively help us deliver 220 basis points of gross margin expansion year-over-year as gross margins increased to 28.7% for the quarter. EBITDA margins remained strong despite the impacts of nonoperating and noncash items such as defined benefit pension amortization, stock-based compensation and currency translation loss in addition to costs from recent acquisitions. We also delivered a robust 6-month backlog of $163.3 million, driven by sustained demand across our end markets, illustrating a strong start to fiscal 2026. Defense momentum remains exceptionally strong. Orders continued to accelerate during the quarter, and defense-related projects continue to represent a growing share of total backlog, increasing by $4 million sequentially and up 45% year-over-year, comprising 15% of total backlog. In the U.S. and Europe, we are actively supporting multiyear government initiatives to modernize both marine and land-based platforms, while our recent acquisition of Katsa continues to generate strong demand in Europe. Our work includes contracts tied to NATO vehicle programs and U.S. Navy patrol vessels, where we're serving as a trusted propulsion and systems partner. With a defense-related pipeline that continues to expand, we see significant runway ahead, supported by elevated government budgets and increased focus on marine and hybrid applications. Now let me walk you through product group performance. Our marine and propulsion business continues to perform exceptionally well, and sales increased 14.6% year-over-year to $48.2 million, driven by work boat activity, government programs and demand for Veth Elite thrusters. Record new unit bookings, combined with the growing demand for hybrid and autonomous vessel solutions continue to underscore the strength of our products and market position. In September alone, we booked $20 million in new unit orders, surpassing previous records. Orders supporting the unmanned U.S. Navy platforms class continue to build, and we are excited about our entry into the new class of autonomous patrol vessels, extending our presence on higher-value platforms. In addition, we are seeing traction with the U.S. vector thruster market with backlogs increasing across workboat and cruise applications. Lastly, aftermarket remains resilient with steady utilization of military and commercial fleets were flat when compared to a year ago. Within land-based transmission, sales were stable, up 1.6% year-over-year to $17.6 million. Oil and gas shipments were nearly flat as China continued to decline. North American customers also remain cautious with a focus on rebuilds and refurbishments. However, we are seeing an emerging tailwind as the rebuild cycle matures and replacement demand begins to materialize. ARFF demand remains strong, and we continue to advance next-generation e-frac solutions, securing an initial order during the quarter, representing 14 units totaling $2.3 million. Overall, we continue to remain well-positioned to capture emerging opportunities as activity improves. Our industrial business grew 13.2% year-over-year with growth supported by acquisitions and broad-based customer activity. Steady demand for higher content solutions is reinforcing our mix and helping sustain momentum as we extend Katsa's engineering and parts capability across the portfolio. Our backlog of $163.3 million, up 13% year-over-year and 9% sequentially, provides solid visibility for the balance of fiscal 2026. Inventory is up slightly because of our strong demand and pre-buys. As we look at the remainder of the year, we remain focused on further optimizing inventory levels with delivery schedules as we convert our backlog and maintain flexibility across our manufacturing footprint to support demand while protecting margins. As we look to the balance of the year and beyond, I want to reaffirm our strategy centered on global footprint optimization, operational excellence and disciplined capital allocation. Our near-term priority remains reducing debt and strengthening our balance sheet while continuing to invest in targeted organic initiatives that enhance productivity and margin expansion. We have made great progress streamlining our business into more agile and globally integrated operating model, one that breaks down silos, drives collaboration across our end business units and going to market as one consolidated company, which leverages our scale and shows the power of our consolidated platform. This starts with the business units and their leadership, which is now reporting through Tim Batten, our Executive Vice President. These efforts are improving execution speed, driving margin improvement and laying the foundation for sustainable growth. With these ongoing efficiency and integration initiatives, Twin Disc is well-positioned to deliver strong results through the remainder of the year and to achieve our long-term targets, driving sustained profitability and lasting value for our shareholders. With that, I'll now turn the call over to Jeff to discuss our financial results in greater detail. Jeffrey Knutson: Thanks, John. Good morning, everyone. During the quarter, we delivered $80 million in sales, up 9.7% from $73 million in the prior year period. which was primarily driven by strength in the marine and industrial product groups and supported by the addition of Kobelt. On an organic basis, adjusted for M&A and FX, revenue increased approximately 1.1% in the first quarter. First quarter gross profit rose 18.7% to $22.9 million and gross margin increased 220 basis points to 28.7%, reflecting the benefit of incremental volume and successful margin improvement initiatives in addition to improved mix in the marine propulsion product groups, specifically within Vet products. ME&A expenses were $20.7 million in the first quarter compared to $19.5 million last year. The increase reflects the addition of Kobelt as well as ongoing wage and professional services inflation. We continue to focus on cost discipline and operational efficiencies to support long-term margin expansion. Net loss attributable to Twin Disc for the quarter was $518,000 or $0.04 per diluted share compared to a loss of $2.8 million or $0.20 last year. The year-over-year improvement reflects higher operating income and lower expenses, driven by reduced currency losses, partially offset by higher pension-related amortization. EBITDA was $4.7 million for the first quarter, representing a 172% increase versus the prior year as expanded sales and profitability together drove strong results. From a geographic standpoint, sales growth was driven primarily by North America, where continued demand for Veth products and contributions from our recent acquisitions supported a higher share of quarterly revenue. The overall mix shifted toward North America, while Asia-Pacific and the Middle East accounted for a smaller portion of total sales, reflecting the impact of order and shipment timing of our customers. Net debt increased slightly in the first quarter, primarily reflecting seasonal usage of our revolver. We ended the quarter with a cash balance of $14.2 million, down 14.8% from the prior year. As expected, cash flows during Q1 are seasonally lower due to net working capital dynamics and slightly elevated inventory levels, as John described, heading into the year to satisfy robust demand. We continue to maintain a conservative net leverage ratio of 1.3x. Our strong financial position provides flexibility to navigate the current macroeconomic environment with discipline while continuing to evaluate targeted bolt-on acquisitions that align with our innovation strategy and broaden our product portfolio. As noted earlier, gross margin expanded by roughly 220 basis points year-over-year to 28.7% in the first quarter, reflecting the ongoing benefits of our cost reduction initiatives, improved operational execution and higher sales volumes. We continue to build on this momentum by sharpening our cost discipline and pursuing margin-accretive growth opportunities across our portfolio. Enhancing profitability remains central to our strategic priorities. Our capital allocation strategy remains focused on balancing growth investments with disciplined financial management. We maintain a focus on prudent capital deployment, pursuing targeted M&A that strengthens our marine and industrial technology platforms alongside organic investments in R&D, geographic expansion and hybrid and electrification innovation. Supported by a healthy balance sheet and clear strategic priorities, we're positioned to deliver sustainable growth and long-term value creation. I'll now turn the call back to John for his closing remarks. John Batten: Thanks, Jeff. In closing, I'm encouraged by the strong start to fiscal 2026 and the consistent execution across our global organization. Our teams continue to demonstrate focus, adaptability and discipline in navigating complex market conditions while delivering measurable progress on our strategic priorities. With a robust backlog, a solid balance sheet and a clear road map toward our long-term objectives, Twin Disc is well-positioned to drive profitable growth and strengthen its leadership across core and emerging markets. I remain confident in our ability to sustain this momentum and deliver lasting value for our customers, employees and shareholders. These conclude our prepared remarks, and we're now prepared to take questions. Operator: [Operator Instructions] We will take our first question from David MacGregor from Longbow Research. David S. MacGregor: Congratulations on the results, strong quarter. Let's start off with military just because you really called that out, and I appreciate the detail behind the strength and kind of how that is evolving. Can you just help us with the timing of shipment acceleration here as well as the expected margin impact? John Batten: Yes. It's John, David. I'll start with just the expected shipment. I would say in Finland for the NATO vehicles; it's really very much early in the beginning. I would expect that business for us, let's just say that we're in the 150-unit range right now that in a year from now, that will be double and then it will continue to grow from there. And then in the U.S., primarily the one that's driving it are the autonomous vessels. And I think whatever volume we have this year, again, will be double in '27. So, it's -- and continuing from there. So, I don't want to say it's the 2 main programs are going to be doubling every year, but that's kind of the pace that we're on is that we can expect high, I would say, on average, at least for the next couple of years, 50% growth in each program. David S. MacGregor: And do you have sort of the capacity to support that kind of a ramp right now? Or would that require a pickup in incremental CapEx spending? John Batten: It would -- let's just say it reevaluate our CapEx spend -- excuse me, CapEx spending. We certainly have the capability here in the U.S. to meet the demand for the U.S. Navy, shuffling some stuff around. And we're working on the plans. We certainly -- I would say we have -- and in Europe, we're probably good with everything the way it is for the next 18 to 24 months. But yes, we're looking at what we do in the facilities in Europe so that we can capture that demand and maybe do some of that volume in one of our other facilities in Europe and not just all in Finland. But the answer is yes. And the CapEx, it's more focusing on test stands and assembly fixtures. So thankfully, it's not necessarily machining capabilities, longer lead time pieces of equipment. It's more on assembly and test fixtures. David S. MacGregor: Well, that's all very encouraging. Let me turn to the oil and gas business. I know you're less dependent on oil and gas now than you've been in the past. But can you just talk about what you may be seeing in the way of changes in business conditions and order activity? And given what you've been working on in the way of costs and productivity and pricing, do you need a volume recovery in '26 in order to see year-over-year upside and profitability? John Batten: So, the answer is no, but it would make it a lot nicer. It's a very good part of the business. But thankfully, David, it goes back to the last, I would say, major downturn for us in oil and gas kind of coming off the 2018, 2019 high going into COVID that it was a conscious decision to accelerate our move away -- not to diversify away from oil and gas. It's still a very good business. I think China -- the tariffs just happened, I think, to coincide with, again, China tends to, at times, overbuild and they have to absorb the volume that they have. And I think there was a slowdown. They didn't need as much equipment and most of the equipment comes from the U.S. So, it was also a double reason for them to slow down on purchases. We see that demand, I can see the ray of right there where that demand is going to start to come back. And then the rebuild activity in the U.S. has been still pretty good. It was down in '25. So, I don't think it's going to be hard to surpass that in '26. And as we mentioned, we've got the e-frac orders coming online. I don't think those are the first couple of spreads. I think that will take us through this year. But I imagine sometime during this fiscal year, we'll get follow-on orders for '27. And I'm cautiously optimistic on some natural gas opportunity. But the macro, David, the macro levels -- and again, I would say most of our units that go out in the U.S. and North America are heavily weighted towards gas, whether it's wet gas or dry gas. And the demand for gas, I mean, everything you read about data centers and what's going to power them, natural gas plants are one of the most likely options. I still think we're years away from nuclear being deployed. And I just don't think renewables can keep up with the concentrated demand of what you need near the AI data centers, so AI data centers. So, I'm pretty optimistic on the macro level, and I think we're well-positioned to capture growing demand. David S. MacGregor: Interesting. I wanted to ask you about land-based transmissions because the double-digit growth in marine and propulsion and industrial, but relatively flat in the land-based transmissions. Can you just talk about the puts and takes within that business that led to the relatively flat top line? John Batten: Yes. I would say it's -- again, it's steady. I would say it's fairly steady. In ARFF, the demand, we're full. Our customers are kind of at their capacity. That's been full year-over-year. And really, the puts and takes have been small projects with different outside of ARFF, some are falling in like railway maintenance things. We're folding in some of the products at Katsa, fall into the transmission business. And oil and gas has been -- I would say some of the -- like we've traded some unit volume in China for unit volume in North America. So, Jeff, I don't know if you have any more. Jeffrey Knutson: Yes. No, I think that's right, David. Oil and gas in general was down a couple of percent from last year's Q1. And then there's just timing of our shipments. It's a steady demand that we have for several months and even years in front of us, but there's some shift between quarters depending on the customer schedule, et cetera. So yes, pretty steady demand, I would say. David S. MacGregor: I want to ask about gross margins. We normally see kind of seasonal pressures with European shutdowns. And can you bridge the first quarter gross margins of 28.7%, you were up 220 basis points, I think. Maybe separate seasonal versus kind of the incremental volume versus the margin improvement initiatives that you referenced, Jeff? And also, I guess the investments were a factor and maybe the mix of businesses as well, I guess, because you talked about the strength in call. So just help me kind of proportion-wise, how I should think about those various factors. Jeffrey Knutson: Yes. So, I think the good news for us, and we've talked about this on previous calls that the Veth business wasn't delivering the kind of margin that we were expecting. And there were some definite drags on the margin coming out of that. The thruster business, right? So, coming out of COVID, they were carrying a backlog that had pretty low margins in it, very competitive project bidding during COVID, where there wasn't a lot of activity. And we worked through that over the course of the few years coming out of COVID and really focused them on driving profitability, operational discipline, et cetera, pricing. And so, they delivered their best margin quarter since we've acquired them. So, it was really 2 things. It was the incremental volume at kind of our normal incremental drop-through. So, we look at around 40% drop-through on incremental volume on a global basis. And then incremental to that, driving the -- probably about another $1.2 million of favorable margin was Veth delivering better margin results than they had in prior years. John Batten: Yes, David, I'll just add a little bit of color on Veth too, is one of the things coming out of COVID and the Russia-Ukraine war was our supplier of permanent magnet motors for L drives. Our supplier had almost all of their supply base for raw material in Ukraine or Russia. And what they couldn't get from Russia was destroyed in Ukraine. So, we had some pretty heavy surcharges and cost increases as they were just scrambling to get us motors that unfortunately, we had contract pricing and couldn't pass that on. The Veth team has worked tirelessly for almost 2 years to develop different suppliers. And so, we're starting to see those suppliers come online and go back to the pricing when we were quoting these projects. So, they've done a great job on lean principles and finding new suppliers. So yes, if there's one entity that drove the improvement, it's really going to be Veth then everybody else is just working on their constant continuous improvement projects. And it all came together. It was a very nice bump in the first quarter, which is typically a very hard one for us just on shutdowns and available days of shipping. David S. MacGregor: And so how much of that 220 basis points do you think is sustainable going forward, John? John Batten: Yes. I mean if we can -- it's same mix, I think we can do that on a trend line. And as I mentioned in the call, one of the tough things that we're dealing with in this quarter, and thankfully, we've gotten some relief is our first shipments in the Trump 232 tariffs of 50%. We got in containers of marine transmissions from Europe and from Japan, and those were tariffed at 50% after feverish activity and explaining to Department of Commerce and anybody else and our codes, thankfully, those have come down to 15%. So, we're going to have to deal with that like in the second -- that happened in the first month of the second quarter. But I think once we can get through the initial negotiation of tariffs with customers, I think the trend line, I think we can sustain that. I think the second quarter right now, given the massive jump in tariffs that were impacted, passing it on. I'd be happy to maintain that in the second quarter for sure. But the trend line going forward, the team and the mix and what they've done, it's all very positive. And our flexibility of being able to move product and assemble and test in different regions is definitely a competitive advantage for us. David S. MacGregor: Very encouraging. Last question for me is really on free cash flow for this year. And you talked about your plans for inventory, and you made a couple of comments around CapEx. But how are you thinking about kind of conversion, either EBITDA conversion or net income conversion, however you want to look at it? Jeffrey Knutson: Sorry, I'll answer the question I think you're asking, David, and maybe you can clarify. So, I think the way we look at profitability as we drive growth is delivering our sort of benchmark is 40%, like I said. We expect as volume grows; we're delivering 40%. Right now, we're tracking -- our target is to get double-digit EBITDA. So, say, 11% EBITDA would be, I think, a target for us this year, some improvement from where we've been. But as we grow, I think what we have in our minds is to get to that 15% EBITDA margin level. And that's going to take additional volume and additional margin improvements as we delivered this quarter. So, I think we're on a good trend to get to some of those targets. David S. MacGregor: Right. And so, can you help us at all in terms of the free cash flow model for this year in terms of what that might ultimately look like? Jeffrey Knutson: Yes. So free cash flow is -- yes, certainly, it was a difficult Q1 for a variety of reasons. We have a typical step back in Q1 with some payouts that naturally follow our Q4. We had some inventory growth with the demand, the increase in backlog, maybe some prebuys with the anticipation of tariffs. So difficult Q1, but we still -- we're targeting 60% free cash flow as a percent of EBITDA. That's our target. That's our goal. I think that's still deliverable. We would hope to get close to breakeven and recover that Q1 in Q2. So, we're focused on managing that incoming inventory in light of the growing demand. I think what we don't want to do is in any way, hamper our ability to grow and disappoint customers, let's say, as we're delivering this volume growth we have in front of us. So yes, that was sort of the drag on Q1. Operator: [Operator Instructions] We have not received any questions from the audience. I'll be turning the call back over to our CEO, John Batten, for closing remarks. John Batten: Thanks, Justin. And thank you for your continued interest in Twin Disc. If you have any follow-on questions, please contact either Jeff or myself, and we look forward to speaking with you in February after our second quarter call. Justin, I'll turn it back to you. Operator: Thank you.
Operator: Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lineage Third Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Ki Bin Kim, Head of Investor Relations. You may begin. Ki Bin Kim: Thank you, operator. Welcome to the Lineage discussion of its third quarter 2021 financial results. Joining me today are Greg Lehmkuhl, Lineage's President and Chief Executive Officer; and Rob Crisci, Lineage's Chief Financial Officer. Our earnings presentation, which includes supplemental financial information, can be found on our Investor Relations website at ir.onelineage.com. Following management's prepared remarks, we'll be happy to take your questions. Turning to Slide 2, before we begin, I would like to remind everybody that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties, as described in our filings with the SEC. These risks could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. In addition, reference will be made to certain non-GAAP financial measures. Information regarding our use of these measures and a reconciliation of non-GAAP to GAAP measures can be found in the press release that was issued this morning. Unless otherwise noted, reported figures are rounded, and comparisons of the third quarter 2025 are to those of third quarter 2024. Now I'd like to turn the call over to Greg. W. Lehmkuhl: Good morning, everyone. Thank you, Ki Bin, and welcome to the Lineage family. We're thrilled to have you. As many of you know, Ki Bin joined us from a distinctive career at Truist, bringing 20 years of experience in the real estate industry, most recently as a leading sell-side analyst. He's now 2 weeks into his new role, and we are already feeling his positive impact. Let me start by walking you through our agenda for this morning. First, I'll recap our third quarter performance, which came in slightly ahead of our expectations. Then we will review occupancy and price, followed by our latest view of supply and demand for our industry. We know this is an important topic that many of you are interested in. Following my remarks, I will turn it over to Rob Crisci, who will walk through the details of segment performance capital structure and our updated guidance. I'll then return to share closing comments before we open up the line for your questions. Turning to our quarterly performance on Slide 4. Total revenue increased by 3% and adjusted EBITDA increased 2% to $341 million, which is a quarterly record for the company. Total AFFO grew 6% year-over-year, and we delivered AFFO per share of $0.85, which declined 6% year-over-year. As a reminder, our IPO occurred in the third quarter of last year, which impacts the comparability of these periods. Looking at our business segments, global warehousing performed in line with expectations, consistent with the outlook we shared on last quarter's call. Same-store physical occupancy improved sequentially by 50 basis points to 75%, and we anticipate further occupancy gains in the fourth quarter, consistent with the muted seasonal pattern we discussed last quarter. Same-store NOI increased sequentially to $351 million from $340 million, although it declined 3.6% year-over-year. Same warehouse storage revenue per physical occupied pallet remained stable as expected, growing at 1%. Our Global integrated solutions business saw a year-over-year NOI growth of 16%, led by our U.S. transportation and direct-to-consumer businesses. In the quarter, we invested $127 million of growth capital, primarily in our development projects. We're pleased with the continued progress on these projects. As a reminder, we have 25 facilities that are in process or ramping. We expect these assets to deliver $167 million of incremental EBITDA, once stabilized. In Q3, we delivered in-line same-store NOI and exceeded our adjusted EBITDA and AFFO per share guidance. However, we expect a lower fourth quarter than previously anticipated and are, therefore, moving to the lower end of our full-year guidance range for both EBITDA and AFFO per share. This is largely driven by a $20 million decline in our outlook for same warehouse NOI due to two primary factors. First, tariff uncertainties impacting import, export container volumes, leading to softer year-end services revenue. Second, while our total occupancy outlook for the fourth quarter is unchanged versus our previous guidance, U.S. occupancy is slightly lower due to import, export volumes and less-than-expected U.S. new business hitting in the quarter. This is being offset by higher occupancy outside the United States, where we are in lower margins. Despite these near-term headwinds, we remain focused on providing world-class service to our valued customers by leveraging our industry-leading network and cutting-edge technologies. I'm confident that we are well positioned to grow as the food industry normalizes, new capacity is absorbed and our LinOS labor management and energy efficiency initiatives accelerate. Moving to Slide 5, as I mentioned, Q3 and Q4 total occupancy are in line with our prior forecast and pricing remains stable as expected. Note that we typically see a sequential decline in storage revenue per pallet in the fourth quarter due to normal seasonal mix changes. Additionally, we saw a sequential 180 bps increase in our minimum storage guarantees to 46.7 as our customers continue to want to secure space across our network. Turning to Slide 6, we understand that our industry is a specialized part of the real estate landscape with limited publicly available data. Accordingly, we continue to collaborate with CBRE to provide insights into new supply growth for the cold storage industry. At this point, our analysis is focused on the U.S. where we have the most successful data and in certain markets, are seeing the most acute supply, demand imbalance. Let me quickly walk through this slide. The upper left-hand chart, labeled A, shows from 2021 through 2025, public refrigerated warehouse supply grew at approximately 14.5% on a square foot basis, which is weighing on occupancy and pricing in certain markets. Importantly, CBRE's outlook for new capacity in 2026 is down substantially from recent levels to 1.5%. The upper right-hand chart, labeled B, is based on Nielsen and Circana data for fresh and frozen food volumes in both the retail and foodservice channels. The data shows demand for the food category stored in our network grew cumulatively by 5% during the 2021 through [ 2025 ] time period. To be clear, in spite of continued pressure from tariffs, consumer price inflation and other headwinds, end-consumer demand for the products that flow through our network has been and continues to grow. On the bottom left-hand of the slide, we bring these two concepts together to calculate estimated excess capacity of approximately 9.5% for the U.S. market over the last 4 years. Despite this nearly 10% imbalance, our 2025 total estimated average physical occupancy is 75%, down only 3 points from 78% in 2021. We are using our network size and the strength of our operations to perform relatively well in a very challenging environment. Looking forward, CBRE is expecting less new supply, which we believe is logical, as further speculative development is not supported by current industry dynamics. Before handing it over to our CFO, Rob Crisci, most of you are aware that he announced his retirement in June and we'll be handing over the rents to our new CFO on Monday. I just want to take this opportunity to sincerely thank Rob for his numerous contributions to Lineage over the last few years, helping to lead us through the IPO process with a lot of passion in building an excellent finance team here at Lineage. It's been a pleasure getting to know you, both personally and professionally. Also cannot thank you enough for all your help in making this a smooth transition. I look forward to getting together in Sarasota and wish you the very best in retirement. Robb LeMasters, our incoming CFO, what we call BB because he spells his first staying with two Bs, has been with us in an unofficial capacity over the last few weeks shadowing our earnings process. He has an exceptional background with 2 decades of finance and buy-side investing experience, including a very successful run as a public company CFO at BWX Technologies. He has a lot of great experience managing complex financial operations at asset-intensive businesses. Robb has already been out to visit a bunch of our sites, and I know he is very excited to officially get started next week. Welcome, Robb. We're excited to work with you and expect great things. With that, I'll turn it over to Rob Crisci. Robert Crisci: Thanks, Greg, and good morning, everyone. I greatly appreciate the kind words. My colleagues at Lineage have also become great friends, which is a testament to the culture you, Kevin, Adam and the team have built here. Robb LeMasters is a great fit for Lineage, and I've really enjoyed getting to know him. The finance organization is an excellent hands. I'm here to help as needed my advisory role, but I doubt Robb will need much. I'd also like to add, we are incredibly excited to add Ki Bin into the team. It's been great having you as part of our process the last couple of weeks. Turning to our global warehousing segment, total revenue grew 4% and total NOI grew slightly to $384 million, in line with our expectations. Same warehouse NOI declined 3.6%. We continue to focus on operating efficiency. And to that end, we saw our same warehouse cost of operations decline 1%. We will dive deeper into this on the next slide. Looking to the fourth quarter, we now expect the same warehouse NOI decline of the 3% to 6%, a reduction of approximately $20 million at the midpoint versus our prior implied Q4 outlook. Greg already outlined the main drivers behind this reduction, including the impact of tariffs on the import and export activity. We've been monitoring the tariff situation closely and are cautiously optimistic about some of the recently announced trade agreements, which should benefit both our customers and Lineage. We continue to fight through the competitive environment, as Greg discussed earlier. We feel good about the positive trend in occupancy and the return to more normal seasonality this year, albeit somewhat muted loss. Turning to Slide 8, diving deeper into warehouse efficiency. As we all know, the current inflationary environment has driven labor cost increase. As a reminder, labor is, by far, our largest controllable cost of $1.5 billion per year. On a same warehouse basis, we've been able to hold labor costs flat over the last couple of years. This year, throughput has declined low single digits, making the progress our operations team has made on labor per throughput pallet even more impressive. You can see this on the right-hand chart. We remain hyper focused on lowering costs and increasing warehouse efficiency. This benefits us both in the short term and will drive strong operating leverage by the incremental growth. Next slide. Shifting to Slide 9 and covering our global integrated solutions segment, revenue was flat and NOI grew 16% to $65 million. Our NOI margin was up 250 basis points to 17.9%. We're continuing to see strong momentum in our U.S. transportation and direct-to-consumer businesses due to the value these integrated solutions provide to our customers. For the fourth quarter, we expect the strong momentum to continue with 10% to 15% growth. Notably, we benefited in the third quarter for approximately $4 million of NOI that was previously expected for the fourth quarter. We now see full-year NOI growth of 8% to 10% versus prior range of 8% to 12%. The slight reduction at the midpoint is due to less trade services also associated with lower import export activity. Really great year overall and solid execution by Greg, Brian and the global GIS team. Turning to Slide 10, we ended the quarter with total net debt of $7.55 billion. Total liquidity at the end of the quarter stood at $1.3 billion, including cash and revolving credit facility capacity. Our leverage ratio defined as net debt to adjusted EBITDA, was 5.8x at the end of the quarter. We remain highly disciplined on future capital deployment. We continue to actively manage our interest rate exposure in light of our existing SOFR hedges that expire at year-end. We have been opportunistically executing new hedges and working to further optimize our investment-grade balance sheet. Given these year-end expirations, we are providing a very early look for 2026 forecasted interest expense to help with your modeling. At this time, we see approximately $340 million to $360 million of total interest expense in 2026, which is approximately $80 million higher than this year. A little more than half of the increase is due to the expiring hedges, and the remainder is due to our recent capital deployment, which we anticipate will drive attractive risk-adjusted returns and further support for customer-driven growth. Turning to the guidance slide. We are initiating Q4 with EBITDA of $319 million to $334 million, an AFFO per share of $0.68 to $0.78. For the full year, EBITDA is $1,290 million to $1,305 million and AFFO per share at $3.20 to $3.30. In short, we are going to the lower end of our of previous ranges on adjusted EBITDA and AFFO per share. We see total and same warehouse NOI about $20 million lower than previous guidance for the reasons mentioned earlier. With that, I'll turn it back over to Greg to wrap up before opening up to your questions. W. Lehmkuhl: Rob has walked you through our updated guidance, and I want to reaffirm that while we are operating in a challenging environment, we believe Lineage remains positioned to win. As outlined in detail on our prior earnings call, we're focused on driving competitive differentiation across three key areas: delivering customer success, leveraging our network effects and enhancing warehouse productivity. Before summarizing and turning it over for your questions, I'd like to provide a quick update on LinOS, our proprietary warehouse execution system. As of today, we've deployed the platform in 7 conventional sites. And the results have exceeded our expectations. We're seeing double-digit productivity improvements in key metrics like units per hour, translating to higher output and lower unit costs. We expect to complete 10 deployments by year-end, setting the stage for an accelerated rollout in 2026. We look forward to sharing more details at NAREIT, where we'll be hosting an in-person and webcast-ed investor forum on Monday afternoon to separate. The presentation will focus on operational excellence and our LinOS technology. Turning to Slide 13 and in summary, it's obviously been a very bumpy road since our IPO last July for our external investors and for our Lineage team, who are also owners of our company. But when I take a step back and look at the company, I see the largest, best positioned player in a mission-critical business where underlying consumer demand has been growing, even in the face of some of the worst food inflation in decades. This is a great company in a resilient long-term industry that is clearly facing short-term challenges due to excess supply and macro headwinds like tariffs. The cash flow generation of our company remains strong, our trading valuation is currently about half of the replacement cost of our assets, and we believe we have an unmatched portfolio of buildings in critical markets for our customers. While Q4 will be challenged due to near-term headwinds, there are green shoots of optimism, including less new supply coming online, growing demand and potential global trade policy resolution. We grew this business successfully for 15 years leading up to the IPO. And while we can't predict the moment of inflection, we believe in this industry's fundamentals and that stability is on the horizon. In the meantime, we will continue to focus on the areas of our business that are under our control, becoming a leaner, smarter company, investing in our people, processes and technology. And when the industry does inflect, we will come out stronger than ever. Finally, I want to thank our global team members for their dedication and commitment to our customers. Operator, I'd like to open it up for questions now. Operator: [Operator Instructions] And our first question comes from the line of Caitlin Burrows with Goldman Sachs. Caitlin Burrows: I was wondering if you could talk a little bit more about that expected lower U.S. new business in 4Q. I guess, how important is new business versus existing business throughout the year and in 4Q specifically? And how has new business fared to date? And are you suggesting some change for 4Q? Or is it more of the same? W. Lehmkuhl: Thanks for your question. So let me just provide a little more color on the lower -- on both the tariff and the new business front. So I think we're all sick of hearing about tariffs at this point, but we're definitely seeing the tariff uncertainty impact import export, volumes more than we did earlier this year and certainly more than when we were guiding last quarter. So this has been specifically impactful in our West U.S. business unit, where the ocean import, export container volumes are down about 20% from where they were trending most of the year through July and back when we gave guidance. And this is lucrative business with substantial accessorial revenue like services for customs documentation, bonded fees, [ glass freezing ]. For example, in our seafood category, many customers ordered back in the summer and are bleeding down their inventory right now awaiting tariff resolution. And they're telling us that there's -- while there's a possibility they'll reorder by year-end, it's more likely going to be after the first of the year, and that's what our guidance is based on. We're also forecasting that this impact of container volume, not only it's warehousing same-store NOI, but also it's GIS in the fourth quarter as we provide a lot of drayage around the ports for our customers in our GIS segment. To your question more specifically on the new business side, competition in certain U.S. markets is impacting new business. And while we continue to expect to have a record new business year overall and we continue to have a very strong pipeline, we're just forecasting a little bit less than we were previously guiding to hit in the fourth quarter. And obviously, the contribution margin on new business is very high, given the fixed cost nature of our business. And therefore, a relatively small change in new business revenue has an outsized impact on NOI. And that happens the other way when we land a lot of new business,as we get the operating -- the positive operating leverage. Operator: Our next question comes from the line of Michael Goldsmith with UBS. Michael Goldsmith: Greg, can you provide an update on the pricing strategy during the quarter, just given some of the demand headwinds that you talked about and then also the supplies? So I'm just trying to get an update on how you've approached pricing as a lever to maintain occupancy. W. Lehmkuhl: Yes. We've been -- so first of all, I want to start by saying, in Q2 we provided, for the first time, a multiyear revenue per pallet chart, both on services and rent storage and blast. And I think it's really important that I reinforce this every quarter that the metric that we all look at externally is going to be volatile quarter-to-quarter, driven by a number of factors. Rate is certainly a piece of it, but volume guarantees, inventory turns, [ blast ] freezing rising volumes, commodity mix, exchange rate seasonality, all play into that metric, and it caused a little volatility in the short term. That's why we provide that multiyear view to show that our pricing is making progress over time. And so in the quarter, there was no change to our pricing strategy. We will achieve -- in some challenged markets, we did have to talk about volume versus price as the year progressed. But overall, we'll see a net price increase between 1% and 2% this year. And so we -- nothing changed in the quarter. We're not -- one of our core strategies is not to trade volume for price. We're talking to each customer uniquely. And again, in aggregate, we saw net price increases this year. Operator: Next question comes from the line of Steve Sakwa with Evercore ISI. Steve Sakwa: Greg, I appreciate the added color you provided on the excess capacity. And it's nice to see that you guys didn't take as big of a hit on occupancy. But given that there's still a lot of excess capacity, I guess, in the market overall and there's still some new supply to come on in '26, I guess just sort of what are your expectations looking forward kind of on that physical occupancy? And how is that excess capacity kind of being absorbed and priced in the marketplace against the existing stock? W. Lehmkuhl: Yes. Great question. So at this point, the new supply is really just trickling in. You saw the CBRE forecast for next year is 1.5% new capacity. We think that will stay the same or go down over time as it just doesn't make sense to add more capacity speculatively in this market. And so when we look at our -- this is really a U.S. phenomenon, it's not really the same situation outside of the U.S. And some markets remain challenged, like I've talked about Jacksonville and Miami in prior calls. Chicago has had a lot of new capacity, and we're having to work through that new supply getting onboarded. But we are actually more optimistic about some key markets that have had new capacity delivered in the last couple of years, like New Jersey, Dallas and Houston, we basically absorbed that new capacity. We worked through our book of business. We've kind of fought the fight, and now we're building back inventories in those markets. And so I think it's market-by-market. And once the supply gets delivered and we kind of have those discussions with our book of business in that market, we think it's kind of a reset and we can build up from there, and that's what we're seeing in the markets that I just discussed. Operator: Next question comes from the line of Craig Mailman with Citi. Craig Mailman: Just as we think about the third consecutive guidance cut we've had, I'm just kind of curious, if you guys are having this much trouble underwriting your own portfolio, like how do we get comfortable with yields on the capital you're deploying into development and potential acquisitions that we're not going to be a couple of hundred basis points kind of below pro forma here because looking at your schedule, you still have a lot to stabilize in terms of the portfolio? I think only about 15% kind of stabilized here. And just a second one to sneak it in here. Just have you guys thought about -- is a REIT maybe the right structure for this company, given the fact that you guys are more of a 3PL than you are a real estate company and it might be beneficial for you to be able to retain capital and redeploy that? Just some thoughts there. W. Lehmkuhl: Yes. So certainly, the last thing we want to be doing is sitting here lowering the fourth quarter. And the fact is our industry has been challenged and -- with the new supply and very, very hard to predict, given we talk to our 15,000 customers every month about them forecasting their volumes and what they're going to do. And it's very difficult for them to predict and you heard that from the producers in their quarterly releases. So it's -- we're the recipient of that short-term volatility. Again, the underlying demand for our products is growing, not shrinking. And we think that's good for the long term as we absorb this new supply and get back to kind of equilibrium in the market. And as I mentioned in the prepared remarks, we're not sure exactly when that is, but we feel very good about our positioning, about our technology, about all the things that we can control are going well. On the new developments, I mean, we track this every quarter. It's one of my KPIs for by bonus every single year, and we performed well versus our underwrites for many years and continue to do so. Those developments are very -- are generally customer-led developments. Many of them have strict volume guarantees and revenue guarantees, and we're not out there building spec buildings where we don't have certainty that we're going to get the returns that our expecters expect. And so is there pressure around are things uncertain? Absolutely. That's why we -- things performed pretty much exactly how we thought they would in the third quarter. And here, we are looking at the fourth quarter, and our customers are telling us their container volumes are going to be down 20% in our largest business unit. And that's the -- those are the type of things that we -- that are very, very difficult or impossible to predict. And all we can do is execute our plan, control our controllables, treat our customers great, treat our team members great and work through this challenging time. Robert Crisci: Yes. And I would say we do believe REIT is the right structure for us. We have an incredibly valuable real estate portfolio. We think the benefits outweigh the -- there really aren't very many negatives to being a REIT. So we're very, very happy to REIT. W. Lehmkuhl: Yes. I mean we -- if you can choose to pay taxes or not, we're going to choose not. Operator: Next question comes from the line of Ronald Kamdem with Morgan Stanley. Ronald Kamdem: just a lot of really helpful breadcrumbs on 2026 with the interest guidance and so forth. I just -- going back to the question of excess capacity. I was just wondering if you could sort of think about the next 12 to 18, and in this sort of environment, what can you control? And what do you think sort of the pricing versus occupancy impact can be and so forth? So what have you sort of seen in this sort of environment? W. Lehmkuhl: Sure. So on the pricing side, looking forward, we are -- a lot of our volume guarantees, for example, got reset in '25 earlier this year in the first and second quarter after the big destocking from COVID that I talked about in the last several quarters. And now we're kind of in a new -- we're kind of in a more stable point. We are having conversations with customers already about '26 pricing. Those conversations obviously haven't been wrapped yet. But despite the new supply we discussed, we were targeting inflationary-level increases, and we believe that we're going to be able to achieve net increases in the low single digits for '26. And we don't think we'll have to give up occupancy to achieve those low single-digit price increases. Our customers do understand that we have to pay our people more and there is inflation out there. And I don't -- we're not going to get 10%. But low single digit, we think is very achievable. Even now the supply. Operator: Next question comes from the line of Michael Carroll with RBC. Michael Carroll: Greg, can you give us some color on how Lineage was able to push their guarantee contracts up a little bit this quarter? I mean, is it abnormal to do this in the third quarter? And is that the reason why economic occupancy was up bigger sequentially in 3Q versus fiscal occupancy? W. Lehmkuhl: It was the reason. And the reason for the volume guarantee progress is some new customer-led developments include long-term contracts with higher volume guarantees than our average. Also, our sales team, I said that -- I mentioned on the last question that our volume guarantees got reset at a lower level in the first and second quarter this year. We've kind of been through that pain, if you will. And now on new business, our sales team is doing a phenomenal job broadening the customer base that are utilizing volume guarantees. So our new business, despite the challenges in certain parts of the U.S., we're seeing new business come in with higher volume guarantees than our average. And so those are the two impacts. Operator: Next question comes from the line of Alexander Goldfarb with Piper Sandler. Alexander Goldfarb: And first, Robb with the BB, welcome aboard. Rob with the single B. Congrats on retirement. And Ki Bin, welcome to the inside. Greg, you mentioned that international is performing much better versus the U.S. Is it simply a matter of the excess supply, and that's really the difference? Or are there other things at work? I mean, there are always trade disputes from country-to-country. There are always geopolitical things, inflation tension, whatever happening overseas. So I'm just trying to isolate what the key difference is for why global is performing well versus the U.S., and I wonder if it's simply the supply or if there's other factors at work? W. Lehmkuhl: Alex, good question. So I don't want to overemphasize this. I mean the occupancy in the U.S. is a little bit lower than we were forecasting back in -- after Q2, and Europe is a little bit higher. That's the difference. And the impacts are -- really are exactly what I laid out, Alex. And that's container volume, which is mostly seafood, which I think everyone knows we love that business. It's 13% of our book, we were trending at literally like our customers are telling us that we're seeing right now as the quarter progresses, a 20% reduction in import, export volume, and that's impactful. And just more broadly, certainly in the U.S., in certain markets, like the one I mentioned -- the ones I mentioned earlier, there is competitive pressure. And those are the two big impacts versus what we thought before. But again, I mean, it's isolated markets that we are absorbing this capacity. We are keeping our occupancy up despite the new supply. And we're getting that price increases despite the new supply. So we think, in a very unpredictable and very challenged environment, the company is executing as well as possible. Robert Crisci: And it's another benefit of having a very diversified global footprint, right? So we can benefit from growth in other markets to help balance out our performance. So I think it's a positive for Lineage overall. Operator: Next question comes from the line of Tayo Okusanya with Deutsche Bank. Omotayo Okusanya: Yes. Ki Bin, welcome aboard. Rob with the BB, also welcome aboard. First quarter in a while you guys really haven't done much on the acquisition side. Just curious what you're seeing from that perspective. I know I kind of curious, again, is it just really more tied to your overall cost of equity right now that you slowed down or kind of how you're kind of looking at acquisitions going forward? W. Lehmkuhl: Yes. So we're highly disciplined as always on capital deployment. We're cognizant of developments that we're working on. We see our leverage ratios, they're in a really good spot. We don't obviously view our equity as a place anywhere but very, very undervalued. So we're not interested in issuing equity, and so we're managing the portfolio, and we'll be really smart on capital deployment. There's obviously a ton of opportunity out there, and there's more things becoming available in the market. So we'll be opportunistic, but we're going to be very disciplined. Operator: Next question comes from the line of McGinniss with Scotiabank. Greg McGinniss: Greg, I was hoping to get some more insight into the earnings commentary regarding improvement in fresh and frozen demand that Lineage is seeing. Is that in reference to the Q2 seasonality trend? Or is there something more broadly that you're seeing in the market? W. Lehmkuhl: So it's third-party data that -- yes, that's going. It's not our view, it's third party. Robert Crisci: Yes, this is third-party data from Nielsen, which is the retail data, and then Circana is the rolled-up food service data. So it's the full picture of food consumed in the United States from the two best sources that we purchased this last quarter because we had -- our data showed that underlying demand was growing, but we didn't have third-party data. So we want to provide that every quarter. And what that shows is continued growth in the categories that we supply in fresh and frozen. It's -- we very much believe it's accurate, and that's what we thought. Despite the -- again, despite the elevated food inflation, the underlying categories continue to grow. Operator: Next question comes from the line of Dan Guglielmo with Capital One. Daniel Guglielmo: You all mentioned the stronger international trends versus the U.S., which does align some with what we've seen for other global brands this earnings season. Can you just remind us what the rough revenue breakdown is between the U.S. and international? And then are there certain international markets where you see opportunities to lean in? Unknown Executive: Yes. So overall, we're 70-30 sort of U.S. versus Rest of the World. W. Lehmkuhl: Yes. I think Europe overall, our European team is crushing it and winning it in a lot of different markets in Europe, and we're excited about continued growth there, both in same-store and non same-store. Operator: Next question comes from the line of Vikram Malhotra with Mizuho. Vikram Malhotra: Congrats to everyone on their new roles. I guess just two clarifications. One, on just the numbers, maybe you can share some color on what you've seen in October, specifically to keep sort of the occupancy seasonal uptick. Your peers sort of assume the occupancy does an uptick. So why are you still assuming occupancy upticks? And just on the comment on you can get pricing next year, I mean if there's still supply volumes are muted, like what gives you confidence on pricing? So that's just the first. And then second, do you mind sharing some specific examples -- like all the acquisitions you've done in the past 5 years, maybe just give us some overall sense of how underwriting -- how actual performance has trended versus underwriting in terms of whether it's NOI growth or yields or anything else, just to give the sense of what those properties recently acquired are doing? W. Lehmkuhl: Sure. So on the occupancy front inter quarter, it's pretty much spot on what we thought it would be after last quarter. So our total occupancy guide and the seasonality that we predicted is happening in our network. In fact, on Monday, I get the occupancy report every week. And for the first time in, I don't know, 8 quarters maybe, the occupancy was higher than prior year, total, in the same store. So that was great to see. And so we're seeing that trend. It's a combination of the new supply kind of settling and us performing well in the marketplace. And again, on the pricing front, what gives us confidence that we can get price next year is we got it this year. And there was probably no harder year in our industry's history than this year, given the new supply that's been delivered over the last couple, and we were able to get net increases in price, and the initial conversations with customers are for next year that they're open to very modest price increases, and we think we'll get that price. On the M&A front, we bought 70 companies in the last 5 years. It's varied by region and facility. Overall, we're certainly happy with the acquisitions of the network we built as we think it's irreplaceable and industry-leading. We don't break down each individual past acquisitions, we roll that in up into global [ Avnet ]. And a lot of things change when we buy. But we certainly made progress on cost productivity, occupancy as we roll companies into Lineage family. Operator: Next question comes from the line of Blaine Heck with Wells Fargo. Blaine Heck: Just following up on guidance. With respect to the fourth quarter, it's a relatively wide range between $0.68 and $0.78. So can you just share your thoughts on what key drivers or line items are kind of the biggest variables that could result in AFFO coming in towards the upper or lower end of the range? Robert Crisci: Yes. So the bigger thing, obviously we can manage is the recurring maintenance CapEx. And and for the fourth quarter, it's always typically our seasonally highest quarter. We expect that again that certainly can move $5 million or $10 million based on spending. Obviously, same-store NOI is the thing we care about the most. And we're working hard to, as Greg mentioned, we -- so far, October is looking okay, but that's embedded in our guidance. But certainly, if we have more year-end activity, that will help because really services revenue and a lot of that is related to these tariffs and containers; and so as Greg mentioned, that could certainly get a lot better at the end of the year. But we're just being very, very cautious based on what we see right now. And it's hard to predict November, December end-of-year activity. And so that was our thought process on the guidance. Operator: Next question comes from the line of Michael Lewis with Truist Securities. Michael Lewis: Great. Thank you. Well, we're welcoming people. I'll welcome Robb. I'll, of course, welcome my good buddy and pal, Kevin and maybe welcome myself to covering this name as well. My question, I wanted to ask, I don't think anybody asked about this lapsing SNAP benefits, right? So it will be a temporary thing. I just wonder if there could be any impact on 4Q from that. Surprisingly to me, I guess, 1 out of every 8 Americans is on food stamps. Is there any potential for that to cause anything in the numbers in 4Q if this drags on? Or is that not really a concern? W. Lehmkuhl: Yes. And Ki Bin's concerned because part of this comp package is food stamps. So let me start with the SNAP, but I'll talk more broadly about the government shutdown. So just a little context on SNAP in overall food consumption, so in '24, U.S. consumers spent roughly $2.7 trillion on food and the SNAP benefits from the federal government were about $100 billion or about 4% of total food expenditures. But the data shows that for every dollar in change in SNAP benefits, the total food spending only changes about $0.30 because consumers just change their budgets and they're going to continue to eat. And so who knows what's going to happen here if the courts are going to step in or the states are going to pick up the tab or it just goes back to normal. But even in the most dire case, where SNAP benefits are completely eliminated, the impact on total food consumption would only be about 1%. And so we do not see this being a meaningful impact in the short, medium or long-term, as we don't think it will totally go away. And even if it did, it's 1% of total consumption. More broadly, on the government shutdown, we are seeing other impacts -- for example, the USDA cold storage survey that the holdings report that you all report on every month or most of you do isn't being issued during the shutdown. We are seeing import, export order delays. So while customs is operational, the FDA, the EPA, the USDA all have reduced staffing, leading to delays in inspections and certifications and documentation. So we are seeing, as a result of that, some increased dwell times in the ports and terminals. We're also seeing delays in export license approvals. But I think most importantly, though, the USDA and the FDA actual food inspections have been unaffected. Operator: Next question comes from the line of Samir Khanal with Bank of America. Samir Khanal: I guess, Greg, I was looking at this chart on Page 30, which is the presentation you have up there, where you show economic and physical, an 80% economic today; I mean do you have data going back prior to, let's say, '21 and even 2020? Just trying to see if there was any other time before 2020 or '21, where occupancy was below 80%. It's clearly been a problem forecasting occupancy in this business. So I was trying to figure out how today's levels compare to historically before 2020. W. Lehmkuhl: Yes, good question. And the second half, we are -- we did forecast occupancy accurately, to be clear. But you're right, it is very, very challenging to forecast it in this environment. And the answer is it's very challenging to go back prior to 2020 because we bought so many new companies in that time frame and the same-store pool is so different. And so I do think just from my memory, not supported by like-for-like data. There were certainly times prior to 2021 where our occupancy was lower than it is today. I'm thinking about 2016, '17, '18, back when we were just kind of still a young company and much smaller. Obviously, different footprint, we weren't in Europe yet. But yes, there were times in our core business where economic occupancy was lower. Operator: Next question comes from the line of Michael Mueller with JPMorgan. Michael Mueller: Curious, what are your larger customers telling you at this time about volume expectations for 2026? And have you seen any customers wanting to shrink their fixed commitment agreement yet? W. Lehmkuhl: So 2026 is very difficult to predict. And I think that's what our customers are telling us. We're just in the midst of our -- we don't even have October numbers finally yet. We're just in the midst of -- our business unit presidents are working on their '26 budgets right now and -- with the finance team next week, and I'll see a roll up in a couple of weeks. And certainly, puts and calls as I sit here today, but hard to predict. And that hard to predict is driven by all the conversations we're having with our customers worldwide, who see their business as hard to predict. And so it's -- we'll see, we'll be continuing to have those conversations through the budget cycle. And -- but as far as the volume guarantees, as I mentioned, Michael, a lot of them got reset in the first half of this year, and we think that we're at a very healthy level of volume guarantees now. We're actually kind of -- we kind of reset the bar, and now we're making a little bit of progress. I wouldn't see those dropping a bunch more. I don't think we have kind of an overhang of incremental resets. And new business that we're earning, as I mentioned, is coming in with slightly higher volume guarantees than our average. Operator: Next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Todd Thomas: Just in terms of the tariff uncertainty that you cited and the decrease in container traffic, it seems like some of this is just lost business, but is there an impact on inventory levels as a result of this decrease in container traffic that you mentioned that might create some pent-up demand to the extent that there's improved visibility or if there's some change around tariffs here? How could this sort of play out in the quarters ahead? W. Lehmkuhl: Yes. The answer is yes. I mean we were seeing consistent container volumes through July bounce around month-to-month, but it was pretty consistent. And then we saw a drop through September and that lower level is being [ steep ], as of this point. And again, 20% in our Western business unit is not small, and it is not driven by new business. It is driven by predominantly our seafood customers that are holding off to reorder. And that's the impact. So yes, are they going to reorder some point for [indiscernible] Easter? Absolutely. We're just not predicting that's going to be in the fourth quarter at this point. Operator: Next question comes from the line of Nick Thillman with Baird. Nicholas Thillman: Good morning, everyone. Just as we think about the excess capacity you all highlighted within the presentation, we're hearing a lot from the food manufacturers on restructuring, rationalizing supply chains. I was wondering if there's anything Lineage just been doing on their own network, whether it be closing underutilized facilities or just rationalizing their footprint within the U.S. being a large player that could maybe close that gap with excess capacity we're just seeing from a national picture. W. Lehmkuhl: Yes. Great question. So there's kind of two things going on with customers. The first big one, the huge impact over the last couple of years was the destocking from COVID. We think that's behind us, that's really good, kind of back to normal inventory levels or bouncing across the bottom, but certainly, there's not more excess inventory that's being depleted at this point broadly. There's customers who have been optimizing their supply chains across my 30-year career, and we are their partners in helping them position inventory properly to satisfy their customers' requirements, and help them determine how much to store where and how to transport those products into our facilities and out to their customers. And so Tyson is a great example of that. We were right in the middle of their optimization. And we're the recipient of core business, given that optimization. We're having those conversations with customers all the time. On the new supply as far as kind of how it could come out, it's an excellent question. We've idled 8 buildings so far this year. We know some of our competition has as well. And we do that for obvious reasons. We take out the labor, we lower or eliminate the energy costs, and we're able to move that business into the adjacent facilities, and that's part of what's so great about having such a large debt network is that we have the opportunity to do this where much of our competition doesn't. And so if you look at other ways that capacity is going to come out, we're idling -- others are idling old buildings that have higher maintenance CapEx where that are not needed, where we can move that product elsewhere. We also feel that some of the new operators are really struggling as they have a high basis in their properties if they own the assets, and they're paying very high leases if they lease them. And because they built it peak construction cost timing. And so we believe that some of these companies are going to not succeed and we plan to assess these opportunities for consolidation and bring those facilities into our network as they present themselves. I think an important caveat to that is that not all warehouses are created equal, and we're pretty good at making strategic acquisitions for the capacity only when it makes sense for our network. We also believe that some of the inventory that's been added was just added in the wrong locations or it was built in a way the actual development itself and the configuration of the building makes it fundamentally disadvantaged and we think it will just fail in the medium term. And so we think capacity will come out that way as well. And we did see we are hearing directly from some competitors that they're struggling in a big way and there is instances where companies and close our doors as well. Operator: Next question comes from the line of Tayo Okusanya with Deutsche Bank. Omotayo Okusanya: Yes. Could you talk a little bit about sort of labor on your same-store pool, kind of pretty well managed; but on the non-same-store pool, some kind of large year-over-year increases kind of understanding, you've added kind of new assets over time? But just kind of curious, are these new rule assets have, again, lower occupancy assets but already fully staffed or kind of what's kind of happening on the nonsame-store side to kind of have these really large jobs with the increased number of facilities? W. Lehmkuhl: Yes. Good question. Obviously, on the non-same-store pool, frankly, I wouldn't focus on it because there's so much going on there. We have 25 buildings either ramping or in development. And we have to -- for example, in that labor line is our General Manager and our Assistant Manager and our supervisors, and we hire them before a pallet even hits the building. And so all these are in different phases of the J-curve. And so you'll see kind of abnormalities in that labor line until they move into the same-store pool. Operator: And our last question comes from the line of Caitlin Burrows with Goldman Sachs. Caitlin Burrows: I had a question on the pricing side. So one of the concerns I've heard from investors is that I think it's like half of your portfolio 1-year agreements. So those were recently reset in '25. But the other half, that means, they're on leases from a few years ago. Maybe you could tell us how far back they go. But what's the risk of rent roll outs from those older contracts that were established a few years ago in '26? And is that incorporated into your view of low single-digit rate increase in '26? Or is that '26 low single-digit price increase only related to those 1-year agreements and the rest could be an incremental headwind? W. Lehmkuhl: Great question. We don't see an overhang from long-term agreements that are going to get reset at lower levels. And definitely, all those are included in our projections of low single-digit net price increase. Operator: That concludes the question-and-answer session. I would like to turn the call back over to Mr. Ki Bin Kim for closing remarks. Ki Bin Kim: Thank you. On behalf of the entire Lineage team, thank you for joining us today. We hope you will be able to attend our [ NAREIT ] Investor Forum on Monday, December 8. where we will highlight our operational and excellence and unique LinOS list platform. We look forward to speaking with you again. Thank you, everyone. W. Lehmkuhl: Thanks, everybody. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.
Operator: Greetings, and welcome to the XPEL, Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. John Nesbett of IMS Investor Relations. Sir, you may begin. John Nesbett: Good morning, and welcome to our conference call to discuss XPEL's third quarter 2025 financial results. On the call today, Ryan Pape, XPEL's President and Chief Executive Officer; and Barry Wood, XPEL's Senior Vice President and Chief Financial Officer, will provide an overview of the business operations and review the company's financial results. Immediately after the prepared comments, we'll take questions from our call participants. A transcript of this call will be available on the company's website after the call. I'll take a moment to read the safe harbor statement. During the course of this call, we'll make certain forward-looking statements regarding XPEL, Inc. and its business, which may include, but not be limited to, anticipated use of proceeds from capital transactions, expansion into new markets and execution of the company's growth strategy. Such statements are based on our current expectations and assumptions, which are subject to known and unknown risk factors and uncertainties that could cause actual results to be materially different from those expressed in these statements. Some of these factors are discussed in detail in our most recent Form 10-K, including under Item 1A Risk Factors filed with the SEC. XPEL undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Okay. With that, I'll now turn the call over to Ryan. Go ahead, Ryan. Ryan Pape: Thank you, John, and good morning also. Welcome to our third quarter call. Q3 was a record quarter for us for revenue, which grew 11.1% to $125.4 million. Performance was led by the U.S. region, which grew also 11.1% to a record $71.7 million. We saw double-digit revenue growth in both our independent and dealership channels in the quarter. So that's encouraging. That's good momentum. Our EU region had a good quarter, revenue growing 28.8% to $16.5 million, which was a record there as well. As you recall, we saw headwinds in Q3 last year, so it was also an easier comp, but good performance. And as you likely know, we completed our long contemplated acquisition of our Chinese distributor in early September. Given the acquisition closed late in the quarter, we didn't see much material financial impact, but you will see elevated SG&A from acquisition-related professional fees in the quarter. And then, of course, added SG&A expense for the month of September under our ownership. We've hit the ground running and the integration is underway. I was with our team 2 weeks ago. I can tell you that we've added amazing people to the team. Both our team and our customers are very excited about this and what it means for our business in the country. The customers were very receptive, and so it was -- is incredibly encouraging. We have a lot of work to do from the integration perspective, but obviously see a huge opportunity and really we'll continue our focus to pursue the OEM and 4S business in China. With this acquisition, along with our acquisitions of Japan, Thailand and then India prior to that, we really rounded out our footprint that we see in APAC, but then beyond. We continue to see similar trends affect all the regions at different times similar to the slowness we saw in the U.S. to start 2024. Canada revenue declined from the prior year, continuing a trend of a slow market in Canada for this year. We saw really slow Q1. Q2 was better. Q3 was not as good as Q2. I wouldn't call out anything in particular, except just a broad-based slowness across the whole portfolio of customers. And then as I mentioned, Europe was up meaningfully. India and Middle East grew modestly, but this market is more tied to distributor sales. So there's a little bit of sell-in, sell-out noise there. But we're really bullish on what's happening there. It's a priority market for us, and there's a lot more to come. Latin America was flat due to weakness in Mexico, but really from a switch to a direct model in Brazil from a distribution model. Our expectation for Q4 revenue to be in the $123 million to $125 million range with sort of the normal cyclicality we see in U.S. and North America. Assuming we hit those numbers, that would take us to year-over-year annual growth for '25 in the 13% to 14% range. On the gross margin front, we did see a little pressure to gross margin in the quarter relative to our overall trend. We had unfavorable price increases that were out of line with the market, which cost us about 170 basis points of gross margin in Q3. Absent this specific impact, you've actually seen gross margin grow from the prior year. These aren't tariff related, and we've mitigated that going forward and we expect to see that reverse starting in Q4 and into Q1. The other item that has an impact on gross margin in the near term is the nature of our China distributor transaction. We're selling through inventory acquired in the acquisition. And as we do that, we're only recognizing roughly the former distributors portion of the margin as the inventory is now on our books at an amount that approximates the distributor's former cost. So obviously, a key rationale to buy your distribution is to increase gross margins, which it will do for us in a meaningful way, but only as we sell through existing inventory. Barry will discuss a little bit more the unique structure of the transaction relative to inventory. But we did add on the order of $22 million plus or minus in inventory as part of the purchase. So you'll see inventory increase on our balance sheet, but really, that's a function of this transaction and it's structured in a way that's very favorable for us. So our underlying inventory trend and our improving inventory turns remain solid and would not interpret the balance sheet on face value to say anything else relative to inventory. With that said, we'll have great cash flow as we sell through that inventory, because the turn times to replace it and the total inventory needed to supply the customers both on our side and the former distributor side will reduce. So we'll see -- start to see relief from that in Q1 when we have both halves of the margin as both the supplier and distributor for the first time. So as we get into Q1 and Q2 of next year, we'll see record gross margins for the business at the consolidated level based on these investments and changes. The SG&A continues to run hot as we invest in the channel to support these new countries. We've got some optimization to do in our corporate cost structure, but most of the costs added in the past 18 months is in the channel and in the distribution business. And now that we've really completed the build-out of those, save a little bit more investment in Brazil, we'll start to see leverage on that. China, as an example, with this acquisition will add $5 million plus or minus in annual SG&A, including intangible amortization. But once we see the full gross margin, we'll pick up approximately $10 million in operating income from China on an annual run rate basis. So I just remind everyone that you have to consider the SG&A and the gross margin interface together when looking at the trajectory of the business, especially as we start to realize that gross margin into next year. And I think from our perspective, there's no better time in history to make these really final investments in these countries where we want to operate the most. This is a very tough environment for many people, for many of our competitors. You see a lot of folks pulling back where we're investing. And I think that's what you want for the long term. The investments in SG&A in these countries is very much front-end loaded. But these are the best markets in the world, and they're ones that are impossible to develop in any meaningful way without our direct participation. So investing now sets up perfectly for going forward. And certainly, as you see demand in the environment recover and we see different performance in different places, obviously. We spent the better part of 18 months on our capital allocation strategy, which we've discussed pretty freely on these calls. And this has included evaluation of a number of approaches, including expansion via M&A into adjacent products and services, really in the broader industry in which we participate. And this is looking at things that aren't directly related to what we do, but could ultimately bring more demand by bringing other customers into the fold. After a thorough review, our Board decided that continuing to invest in the core of the business is really the best strategy. There may be other adjacencies in the future. There are plenty of opportunities in our core today, and we've yet to hit the full operating potential of the existing business. So once we hit that full potential, we can reevaluate those concentric rings that surround our business, but to do so today is premature. And at the end of the day, much as we like those other opportunities for growth and our desire to build a bigger business, we don't like them better than our core business. And that will guide our near-term decisions. So to that end, we will be investing more in our manufacturing and supply chain via varying approaches, direct CapEx, M&A or JV relationships. We have a goal of increasing gross margin by approximately 10 percentage points to around 52% to 54% by the end of 2028 through those activities. We -- with that extra gross margin running through our various businesses, particularly where we control our own distribution and get full margin, we have a goal of realizing operating margins in the mid- to high 20s. Commensurate with that, even with the cost of any of those things we'll do. We would consider investment in the range of $75 million to $150 million over this period, pretty wide range, but we've got a number of options about how we do this. And it's -- either way, it's a very favorable return without the risk or complexity of adding additional lines of business relative to our overall strategy decision. Secondly, we will continue to pursue service business acquisitions within our core with a focus on dealership services with our current product set. Those opportunities are comparatively few in number and relatively small in scale for the most part. But as we can identify and acquire them, this will remain a core part of the strategy. Finally, even with the aforementioned investments, we do expect to have excess cash considering healthy balance sheet, strong cash flow and appetite for modest leverage. Assuming all that remains true, there'll likely be an opportunity to return cash to shareholders. Share repurchases look particularly attractive at the moment, given our view of the valuation of the business. Turning to business. We have a number of exciting things going on. We've talked in the past year about our product line additions, color films, windshield films. And we'll spend the next year getting these to their full potential. We have a very robust product line now, and our focus will be less on adding additional products and more on selling more of what we already have and iterating to the next generation of the products that we already have, like entering new channels, new products and the launch of new products and the development of new products are expensive, and our focus will be getting a return on the investments that we've made. Our OEM business interest is strong with the global car manufacturers. Although our bottom line performance from our existing programs has missed our expectations and it's certainly a drag on results due to disruptions that plague the manufacturers or creating consistent spikes in demand, which challenge us on the cost side. We get better at how we manage this environment with each passing month and a subsequent project, and it remains an important focus for us and an important growth driver of the business going forward. Part of that is our referral personalization platform where we're selling installations online to consumers on behalf of our partners, namely some of the OEMs. We've been driving increased volumes to our aftermarket network for installations in a model that no one's ever done before. We continue to have more interest from others in expanding this program, and it's become quite valuable to many of our installer partners as a source of volume, while the retail aftermarket remains very sluggish. We expect to continue to expand this going into next year and beyond. And finally, a discussion of our investments in DAP. Our SaaS platform has taken a back seat to other initiatives. The work on this continues unabated. We received -- we redirected some of our team to our personalization platform as we've launched that in earnest, but we continue to advance on DAP in a way that we know will make our customers more efficient and ultimately sell more products benefiting them and us. Our view is even in the aftermarket channel, due to the friction and inefficiency of how the channel operates, there is substantial consumer demand that just slips through the fingers of the collective industry. And our goal with this project is to solve for that. So I think a really important time for us. A lot of moving pieces and different things going on, but we feel very good about the decisions we've made and about our strategy going forward. We're really pleased to have this acquisition in China complete. It was a tremendous amount of work. Obviously, more work to come, but it really helps cement our direct distribution model in the most important global car markets of the world. And so it's quite an accomplishment, and it will pay tremendous dividends for us. And I thank everybody on our team and everybody else who's been involved in getting that done. So very pleased with that. So with that, I'll turn it over to Barry. Barry Wood: Thanks, Ryan, and good morning, everyone. Just a couple more bullet points on our top line performance. our total window film product line grew 22.2% in the quarter, and this continues really to be a nice growth driver for us. Our total installation revenue increased a little over 21% in the quarter. And this includes product and service for our dealership services business, our corporate-owned stores and our OEM business, all had solid performance in the quarter, notwithstanding the OEM choppiness Ryan mentioned. And our corporate store performance, as we've said in the past, is a decent indicator of how the aftermarket is doing. On a year-to-date basis, our total revenue grew 13.1%. Our total SG&A expenses grew 20.8% in the quarter to $35.7 million, and this was 28.4% of total revenue. We did have approximately $1.3 million in added acquisition related to SG&A and approximately $0.8 million in bad debt and some other costs that are not expected to reoccur. On a year-to-date basis, SG&A grew 18.2% to $102.7 million. Our EBITDA did decline in the quarter at 8.1% to $19.9 million, and our EBITDA margin finished at 15.9%. On a year-to-date basis, our EBITDA grew 4.6% to $57.8 million, and our year-to-date EBITDA margin was 16.3%. Net income for the quarter decreased 11.8% to $13.1 million, reflecting a 10.5% net income margin and EPS for the quarter was $0.47 per share. On a year-to-date basis, net income grew 3.7%, reflecting a 10.7% net income margin and our year-to-date EPS was $1.37 per share. I thought it'd be useful to give a brief overview of the structure of the China transaction given its complexity. We -- first, we formed a new entity in which we have a 76% interest. This new entity then acquired the assets of our Chinese distributor. The purchase consideration for this totaled just under $53 million before discounting for time value of money. And there are essentially 3 components to the consideration. First, obviously, there was a cash upfront. Second, there was deferred consideration or really cash payable over a 4-year period. And thirdly, there was consideration contingent on future sales of what we considered as excess inventory as of the close date. This excess inventory was part of the inventory acquired and the contingency is structured such that we pay some consideration if the excess inventory is sold at a profit, but we effectively are not penalized if any of the excess inventory is sold at a loss or has never sold and needs to be written off. As Ryan mentioned, in the overall transaction, we effectively added approximately $22 million in inventory if you consider inventory acquired and inventory contributed by minority holders. The first 2 items, the cash upfront and the deferred consideration are about 75% of the total consideration. And for various customary legal reasons unique to the transaction, only a portion of the cash paid upfront was actually remitted and the rest of the upfront payment will be paid very soon. And this is important to understand when you look at our balance sheet as we've broken these components out there. The remaining upfront payment still payable and the contingent consideration is reflected in the short term. And other short-term liabilities on the balance sheet. The deferred consideration, the cash payable over a 4-year period is reflected in other long-term liabilities. So as Ryan mentioned, we're certainly happy to get this deal behind us. It was somewhat a complicated deal, and there was a lot of hard work done by several people to make this happen. We have a great team in the region, and we are really looking forward to watching them grow that market. Our cash flow provided by ops was $33.2 million for the quarter compared to $19.6 million in Q3 last year, which was a record for us. And you may notice, if you're looking at our balance sheet, a decent size increase in our AP and accrued liabilities line, there's nothing unusual there as this is related primarily to timing. We've got extended terms with most of our raw material suppliers. So timing of payments can create some fluctuation, but it's all in the normal course of business. I'll also add that we did see a slight improvement in our cash conversion cycle in the quarter. So all in all, a solid quarter for us, and we look forward to closing out the year strong. And with that, operator, we'll now open the call up for questions. Operator: [Operator Instructions] And your first question is coming from Jeff Van Sinderen from B. Riley. Jeff Van Sinderen: Just curious if we could circle back to one of the things you touched on in the prepared comments. I think you pointed out that there were some out-of-line price increases you experienced. Maybe you could touch on how those manifest, how you mitigated and -- also then, if you could kind of dovetail that into leaning into taking more of the manufacturing in-house. Ryan Pape: Yes, Jeff, sure. So we did experience some price increases that really manifest in the quarter. I think in our remarks, we called out that was about 170 basis point impact to gross margin. I think that -- I guess the best way to characterize that is, I think if you look at the industry overall, it's been a challenging time for people and a lot of decisions made on how best to run your own business and where you may want to make up margin for lack of demand. Obviously, not impacting this and not impacting us is the overall tariff environment. So that's been a challenge for some suppliers. and looking for extra margin in other places. So I really can't characterize it more than that, except that we've got a very robust set of suppliers. And so where there's outsized price increases, that don't make sense for the market. We have plenty of options on how we mitigate that. And so that was -- that happened, but it's been mitigated. We'll start to see that reverse in Q4. And I think broadly speaking to the second point, we have a desire and see incredible opportunity to invest further to be a highest quality and lowest cost provider of the products. And if you have the best supply chain and the best distribution and the best brand, I think you're in pretty good shape for the long term. And so I wouldn't characterize what we're doing there in a very discrete way. Certainly, there's elements of the supply chain we could take in-house and do that in a number of ways. But we also have a number of really good partners that we could form deeper partnerships with. And so we have a very broad mandate to do that, and we have a lot of ways to win by doing that. And this is not an overnight thought either. This is something that's been in the works for some time in terms of our analysis. And so I wouldn't characterize just one way to do that. But what we know is that we can drive substantial gross margin improvement in this business over time by investing in it. And I think the big picture is that until we've done that and we've maximized the business that we have, we need to prioritize those investments versus pursuing other lines of business in which we have a less competitive advantage and less experience. And so that's the direction and the decision that we and the Board have made, and we have a great team who will now execute on that. Jeff Van Sinderen: Okay. And then curious on the rollout of your colored films. I noticed some marketing around that. It seems pretty exciting. Any color you can give us, I guess, on early dealer embracement of that? And how impactful do you expect the colored films to be to your business over the next year or 2? Ryan Pape: Yes, it's a great question. So the rollout has been great. It's been well received. Our team has done an amazing job, probably the best product rollout that we've ever done in our history when you -- and I say that from external-facing standpoint, but also an internal standpoint, which the rest of the world would appreciate, but I certainly do. I think it's -- our view on it has been relatively conservative. I think the question is what is the growth opportunity within that space given the sort of aftermarket color change business has been around for a long time. So do we see this as something that we can just take share in? Or do we see this as something where the underlying demand is going to grow? Our initial view was there was certainly a market in which we could take share. I think what we're seeing a little bit of is that I think the market is going to grow. I think as the products now are better and they can be delivered in an even better way and marketed better, there's probably more new interest in that than I would have thought. And you see -- I think you'll see more engagement too from whether it's the dealership channel and the OEM channel wanting to offer more options to consumers that maybe you can't do with a limited color palette in a traditional automotive setup. And so I think though if those get traction, you have the opportunity for a substantial expansion of that. So early days for us, but I think I'm quite pleased and we expect to see more from that going forward. Operator: [Operator Instructions] And your next question is coming from Steve Dyer from Craig Hallum. Matthew Raab: This is Matthew Raab on for Steve. In the PR, you called out the mid- to high 20% operating margin by 2028. Given the investment in manufacturing, that implies 10 points of expansion over the next few years. I guess whether it'd be organic or inorganic growth, what are the revenue assumptions underpinning that margin expansion? Ryan Pape: Well, I think we've been pretty consistent that we think that a low double-digit sort of organic revenue growth even with all the noise and the weakness that we see that continuing out for us certainly through the midterm. So it doesn't -- we're not sort of making any change to our kind of midterm view that, that's the sort of revenue growth we think we should be able to generate. Matthew Raab: Okay. That's helpful. And then maybe just a couple of housekeeping items. Maybe, Ryan, if you could just give an update on the sentiment across the aftermarket in dealer channel. Q4 guiding to 15% growth in the quarter, obviously, good. But any other further detail you have there would be great. Ryan Pape: Yes. I mean, I think it's a real challenge. I mean if you look at sort of our peers in the aftermarket and other places, there's a real mix sentiment. What we found interestingly is that the weakness in the sort of trough in sentiment has sort of bounced around globally. Obviously, you had the U.S., you've got sort of Canada now. You had Europe maybe at some point last year. And we've kind of seen it more negative and then recover some. I think if you look at the retail automotive business in the U.S., they're certainly back in the mode of looking for extra gross profit as things are tougher there and just compression in margins and challenges with affordability and tariff impacts into new car pricing and all that. And so that's negative in the sense that, that's still a headwind for the consumer where you have upward pressure on pricing and affordability. Maybe we get some relief from sort of the interest rate situation in terms of the affordability overall. But it's positive for us in the sense that when it's tougher for dealers, there's more push to find other ways to make money in the things that we do provide more value on a percentage basis when it's harder overall. So I think from that standpoint, that's actually quite positive. I just think it's -- we've never been in an environment where you get more differing views on what's happening. I don't think there's this universal consensus that things have substantially improved or that the consumer sentiment is way better. But at the same time, there hasn't been any skies-falling moment. So our approach has been that we have to power through. We've got to be mindful of those dynamics, but we've got to set the company up for the long-term success and make investments where we need to make it. And we know that the consumer and the demand picture, it will all settle out. And I think you've seen some stress. Barry mentioned in his remarks, bad debt, there was an aftermarket chain of some sort that filed for bankruptcy that we had some exposure to. So you see a little bit of signs of stress like that, nothing meaningful or material to the business overall. But I think that's kind of emblematic of what's going on. And then you've also seen an influx of competitors into this space. And this current environment makes it more challenging for them, especially those trying to get rooted and footed, and that's all the more reason why we need to keep the pedal to the metal and maintain and grow our positioning. So long answer to your question, but I think it's a mixed bag overall. Matthew Raab: Understood. And then on gross margin, it sounds like there's a little bit of a drag expected in Q4, just given some of that China inventory and then expect a record in Q1 and Q2 '26, level of the impact there across those 3 quarters would be helpful. Ryan Pape: Well, we -- yes, the sort of drag from China with that higher-priced inventory and then sort of the tail off of some of that price increase, that will remain in Q4. However, on a comparative basis, Q4 of '24 was quite low in gross margin. So the expectation is that we should see some gross margin improvement from the prior year in Q4 on a percentage basis, even though we -- to your point, we'll be off of that sort of full potential until we get into the end of Q1 where we're recognizing all of the margin in China and we fully remediated the cost increases that we've seen. Matthew Raab: And then any commentary on Q1 and Q2 '26, just the level of improvement expected there? Ryan Pape: I think I'm hesitant to quantify it any more than we have, only because we've got to turn the inventory and sell what we've got. But our position is that we will be seeing highest gross margins we've seen as we get into that time frame. Operator: And this does conclude today's question-and-answer session. I would now like to turn the floor back to management for closing remarks. Ryan Pape: I want to thank everybody for joining us today and thank our team for doing an amazing job, and we've got a big contingent at the SEMA Show in Las Vegas, a big annual event and we're on a great display. So thanks, everyone. Operator: Thank you. This does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day. Thank you once again for your participation.
Operator: Good day, everyone. My name is Laila and I will be your conference operator today. At this time, I would like to welcome you to MISTRAS Group Q3 2025 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Thomas Tobolski, Senior Vice President of Finance and Treasurer. Thomas Tobolski: Good morning, everyone, and welcome to MISTRAS Group's Third Quarter 2025 Earnings Conference Call. I'm joined today by Natalia Shuman, President and Chief Executive Officer; and Ed Prajzner, Senior Executive Vice President and Chief Financial Officer. Before we start, I want to remind everyone that remarks made during this conference call as well as supplemental information provided on our website contain certain forward-looking statements and involve risks and uncertainties as described in MISTRAS' SEC filings. The major factors that can cause MISTRAS' actual results to differ are discussed in the company's most recent annual report on Form 10-K and other reports filed with the SEC. The discussion in this conference call will also include certain non-GAAP financial measures that we believe are useful to investors evaluating the company's performance, but that were not prepared in accordance with U.S. GAAP. Reconciliation of these non-U.S. GAAP financial measures to the most directly comparable U.S. GAAP financial measures can be found in the tables contained in yesterday's press release and in the company's related current report on Form 8-K. These reports are available at the company's website in the Investors section and on the SEC's website. I will now turn the conference over to Natalia Shuman. Natalia Shuman: Thank you, Tommy. Good morning, everyone. Thank you for joining us today. It is my pleasure to report on our Q3 results and update you on the progress made to date on our strategic initiatives. Let's start with our third quarter results. I'm pleased to report that third quarter was highlighted by consolidated revenue growth of 7% versus the prior year. As we planned and communicated early in the year, our goal was to grow revenue in the second half of 2025 year-over-year and we achieved this in the third quarter. With the improved revenue, we generated an expanded bottom line result in the third quarter with net income of $13.1 million or earnings per diluted share of $0.41 and our record quarterly adjusted EBITDA of $30.2 million. With regards to the performance within our end market, we have delivered year-over-year revenue growth for Q3 in each of our 5 largest industry verticals. Energy market consisting of our oil & gas and power generation industries led the way growing 8.1%. Oil & gas was up $6.2 million or 6.2% and power generation was up $2.8 million representing 24.3% growth year-over-year. These results are attributable to strong turnaround activity, PCMS projects and market conditions in power generation driven by increased demand for rope access services within our renewable business. Aerospace & defense, our second largest market, was up 10.6% or $2.3 million due to a solid volume gain across the private space and defense industries and in addition to the successful price increase strategies. Our largest customers in this market continue to forecast future growth in their businesses over both the short and long term as evidenced by their robust backlogs. With its higher than company average margin profile, aerospace & defense is one of our top strategic priorities for both top line revenue generation and margin improvements. Industrial and infrastructure markets were both up in the third quarter over prior year. We achieved 15.8% growth or an increase of $3.1 million in industrials driven by the increased demand of manufacturing. And we achieved 21.1% growth or a $1.8 million increase in infrastructure driven by the increased activity in construction and capital projects. Overall, this diversified revenue growth across our 5 largest end markets and across geographies, including growth of 5.5% within our International segment was driven by the broad market demand for our services and demonstrates the success of our differentiated solution and our ability to deliver on customer expectations. Turning to profitability. Gross profit increased by $9.3 million or 19% with gross margin expanded by 300 basis points to 29.8% over the prior year quarter. The increase in gross margin was due to favorable business mix, closure of unprofitable labs early in the year and operational efficiencies as a result of a streamlined operational structure and better focus and accountability. Consolidated adjusted EBITDA generated in the third quarter was $30.2 million resulting in a 15.4% EBITDA margin. This represented an increase of $6.9 million or 29.6% versus the prior year period, underscoring the improved operating leverage in our business model. Let's now shift to a brief overview of our progress against our 3 key priorities in our strategic plan, Vision 2030, the first of which is expanding and transforming our current services to a more comprehensive and integrated solutions for our existing and new customers. Our entire leadership team has continued to be keenly focused on meeting with as many customers as possible to hear their voice directly and better understand their perception of MISTRAS. Our integrated offerings and solutions are finding broader adoption and use cases as indicated by the strength of our recent results and there is more to come as we continue to unlock MISTRAS' value. For example, there is an opportunity for many of our field services customers to utilize our proven PCMS solution which, as we demonstrated, would drive efficiency and improve their operational execution. This offering illustrates the value of bringing our whole integrated solution to our customers. Since only a very small percentage of our field services customers currently use our data analytics and software solutions, this is an exciting opportunity for us. And in addition to doing more of existing and new customers in our core markets, we are also winning projects with brand new customers in new and adjacent markets. These efforts form the basis for the second key priority of our strategic plan, diversification, expanding our client base into new industries while protecting our core business. Our recent announcement of wins with Batchelor & Kimball related to data center projects and Bechtel on the Hanford P Project for the United States Department of Energy are examples of recently awarded long-term construction projects outside of our core energy markets. The third strategic priority of Vision 2030 is focused on building operational leverage by doing what we do today, but better through efficiency and productivity gains. Beyond these positive sales efforts and an inflection in our growth, I have continued to strengthen MISTRAS' capabilities and build a scalable leading asset integrity and testing platform as Manny Stamatakis, our Executive Chairman, started last year to ensure long-term sustainability of our results. During the third quarter, I added a new Chief Human Resources Officer and a new Chief Legal Officer. In addition, we have strengthened our sales and marketing team, continued with commercial discipline and have further integrated our sales force. We have also reinforced our operational management team throughout 2025 with several new hires who all bring industry expertise and experience and a fresh perspective to our lab operations. These new managers are already demonstrating early wins and contributing to our operating results. Their early success highlights the intensity, urgency and accountability at each of our locations across all our divisions. MISTRAS has the foundation, technical know-how, proven expertise and people to win. We are advancing our organizational systems, empowering our technicians with digital tools and investing in relationships with our customers to drive ROI and shareholders' value. I'm confident that we will execute with continuous improvement and I plan to be very transparent in assessing and communicating our progress and reporting to you. I will share additional highlights of our Vision 2030 strategy later. But let me now turn the call over to Ed for more details on the financial results. Edward Prajzner: Thank you, Natalia. As shown on Slide 6, revenue for the third quarter was $195.5 million, a 7% increase which exceeded expectations. This growth in the quarter reflects increases across several key areas of our business, including our PCMS offering and the aerospace & defense, industrials and power generation end markets. In particular, our PCMS offering within our data solutions business grew by nearly 25% in the quarter representing the second consecutive quarter of achieving significant growth. This growth was attributed to several implementation projects of PCMS programs. As Natalia mentioned earlier, gross profit increased by $9.3 million in the third quarter with gross profit margin expanding by 300 basis points. This improvement was attributable to favorable business mix and operating efficiencies. On a 9-month basis, our gross profit margin has expanded 180 basis points year-over-year from 26.3% to 28.2%. As a result of our gross profit expansion and SG&A cost control, we generated $20.4 million of income from operations, which is an increase of $8.5 million or nearly 72% growth versus the prior year comparable period. We improved adjusted EBITDA to $30.2 million resulting in a 29.6% increase over the prior year quarter. This significant improvement reflects our proactive cost management, operational efficiency leverage and a shift towards higher margin business. Our adjusted EBITDA margin increased to 15.4% from 12.7% for the third quarter, an expansion of 270 basis points. As noted in our press release yesterday, our results reflect certain overhead and personnel expenses, which have been reclassified from SG&A to cost of revenue. This reclassification recorded within our financials was $5.7 million for the 3 months ended September 30, 2024. The impact of this reclassification for full year 2024 was approximately $20.9 million from SG&A to cost of revenue. This redistribution of overhead and personnel expenses has no impact on operating income, net income or adjusted EBITDA comparability. Selling, general and administrative expenses were essentially flat in the third quarter as compared to the prior year comparable period despite the higher revenue level achieved due to our ongoing cost control management while also making strategic investments in our business. For the third quarter of 2025, the company recorded $1.8 million of reorganization and other cost related to our continuing initiatives to reduce and recalibrate overhead cost in addition to incremental costs of other related actions. Our effective income tax rate for the third quarter was approximately 22% benefiting from discrete items in the quarter whereas we expect the full year 2025 effective rate to be approximately 25%. Interest expense was $3.4 million for the third quarter, down by just under $1 million or 21.4% from the prior year period due to a lower cost of borrowing. For the third quarter, we reported GAAP net income of $13.1 million or $0.41 per diluted share compared to $6.4 million or $0.20 per diluted share in the prior year period. This improved result of doubling year-over-year for the quarter significantly exceeded expectations. Note that the buildup of accounts receivable, both billed and unbilled, on our balance sheet as we discussed in the second quarter has continued to cause a drag on our cash flow generation in the third quarter. As we have shared earlier, this is a working capital timing item due to implementation and adoption of an upgraded ERP system in April, which is taking us longer than anticipated to come up the learning curve. Note that unbilled accounts receivable did decrease as of September 30 compared to June 30, 2025 whereas billed accounts receivable increased over the same time frame. Hence, we anticipate positive free cash flow generation in the fourth quarter of 2025. We will focus on improving our cash flow performance in the quarters to come. Specifically, improvements to our back-office structure, focused tools and accountability will contribute to reduced accounts receivable, both billed and unbilled. Although some improvement is projected in the fourth quarter, we anticipate to normalize our free cash flow generation in the first half of 2026 to more historical levels. In addition to the higher days sales outstanding experienced in 2025, the increased restructuring charges and incremental CapEx investments year-over-year have also adversely impacted our free cash flow. Due to this buildup of net working capital as of September 30, 2025, bank borrowings increased year-over-year with net debt of $174.5 million as of September 30, 2025. On the positive side, we are continuing our investment in our business for the longer term while lowering and maintaining a trailing 12-month leverage level of just below 2.7x. We expect positive free cash flow and debt paydowns in the fourth quarter and we continue to emphasize debt reduction as a priority use of our residual free cash flow. Although strong revenue growth was achieved in the third quarter, we expect full year 2025 revenue to be between $716 million to $720 million. This would represent essentially flat performance compared to the prior year after adjusting an approximate 1% reduction in revenue resulting from our ongoing efforts to voluntarily exit unprofitable business during 2025. Whereas adjusted EBITDA has continued to improve and is expected to increase for full year 2025. Accordingly, we are raising our prior qualitative adjusted EBITDA guidance range of exceeding the 2024 adjusted EBITDA level of $82.5 million. Based on our strong third quarter 2025 adjusted EBITDA performance results and the current fourth quarter forecast, we expect our full year adjusted EBITDA to be between $86 million to $88 million. Our focus for 2025 has been and remains margin improvement and adjusted EBITDA expansion such that we can generate profitable growth and invest further in our growth momentum heading into 2026. We appreciate your continued support. And at this time, I would like to turn the call back over to Natalia for her closing remarks before we move on to take your questions. Natalia Shuman: Thank you, Ed. I'll conclude by summarizing the market opportunity we see and preview why we believe MISTRAS is well positioned to create and capture more value. Demand for our services is continuously driven by mission-critical projects, aging assets and aging infrastructure across a diverse set of demanding and dynamic industries. That said, the MISTRAS of today is not operating at the full potential of our capabilities. We have historically operated as a company in silos and on a project-by-project basis. Historically, it was more common to be commissioned by a customer to provide a single nondestructive testing at a specific plant versus an entire program on a more strategic enterprise-wide basis. In fact it is the exception and not the rule that the customers of MISTRAS utilized our services in a holistic way. This represents significant opportunities for future growth. Our overall strategic priority in the near term is to change this paradigm and drive more strategic value to our customers through the synergy and scale of our capabilities. The time is right because the challenges that our customers face today require an enterprise level approach to risk mitigation and optimal return on their CapEx investment. We believe MISTRAS has the technical know-how, proven expertise, data analytics and advanced solutions portfolio to best serve as the new standard for 21st century testing and inspection industry. Our Vision 2030 strategic plan is built on the foundation that MISTRAS is significantly more valuable to our customers when we deliver the complete suite of services of our platform as an integrated solution. In the months and quarters ahead, we will be sharing more detail on the execution of our plan and how we are connecting with our customers. In the meanwhile, let me close with recapping the 3 priorities of our strategic plan. First, to continue to develop and deliver comprehensive and integrated solutions to our existing customers in our core markets. Our goal is to be more integrated with each client by providing holistic solutions instead of singular fixes. At an enterprise level, we drive value for customers and in doing so, we expect to broaden the addressable revenue and profit opportunity. Secondly, diversify into new industries while protecting our core business. We expect our revenue mix and end markets to become increasingly diverse as we do more for new customers. Historically, our company has been subject to oil & gas secular cycles and our objective is to diversify in order to mitigate the impact of cycles tied to commodity prices. Thirdly, to build upon operational efficiencies, do what we do today, but better to improve our margins primarily in the field services business. We have an opportunity to drive increased profitability as we deliver solutions for clients on a holistic enterprise basis. We have had recent success in margin progression through operational efficiency and we believe it will be a catalyst of our Vision 2030 strategy that will drive sustainable operating leverage, industry leading performance and scale. I'll close by thanking all of our customers and partners who have contributed to our superior results this quarter. In particular I would like to sincerely thank all of our MISTRAS employees from the front lines to back office for their tireless efforts in executing on their day-to-day tasks while embracing transformative change and evolving strategy of our company. These efforts are creating value for our customers and in turn, our shareholders. We look forward to updating you on our performance as we progress further. With that, let me turn the call back to the operator for questions. Operator: [Operator Instructions] Your first question will come from Mitch Pinheiro with Sturdivant. Mitchell Pinheiro: So a couple of things. First, I didn't see a breakdown of the oil & gas revenue by subcategory and I didn't know if that was an omission or if you planned not to have that in your releases going forward. Natalia Shuman: Yes, Mitch. I will explain. We did in fact remove that subcategory reporting. As I reported before, I have done a lot of analysis of how our customers buy and how we operate and basically what we've learned that many clients of ours straddle between those 2 or 3 subcategories. So reporting on those subcategories is not very accurate. But I can tell you right now because of the strong quarter especially attributed to the turnarounds, downstream was up about 14% where we also saw the LNG sector is very strong and midstream and upstream was low single-digit growth. So that kind of gives you an idea of where we are. But again, several of our customers are in between those subcategories so reporting doesn't make sense. Mitchell Pinheiro: Okay. Maybe you should figure out a way to recategorize it because it's obviously the lion's share 2/3 of your business and it does have a fairly large impact when you have strong upstream, downstream to at least have some visibility there and so enough of that. Then the other question I have, and this is sort of less to do with the quarter and more to do with reporting, is as I look at your business it's hard to understand what field services, shop lab, I understand data analytics. It's hard to really understand and how to model that. So to look at your -- and then on top of that with all your subsegments; oil & gas, aerospace, industrials, power gen; it's a confusing way to present your story financially. And I was wondering if you're going to look at changing the way you present your financials to better reflect how you're looking at the business. Natalia Shuman: Yes. Good comments, Mitch. We can certainly follow up with you on that and see what would make sense, how you would like us to give a view better picture. So Ed, do you have any comments? Edward Prajzner: Yes. I mean, Mitch, it's a good question. We struggle with this as well the best ways to look at the business, but we try to give you as transparent a view as we can. We give you, meaning all investors, geography; we give the end markets being served. We're talking about our service types now between the field, the in-lab and the data. So we are trying to pull it apart so you can better understand it and we're trying to give you multiple views of it. But we will continue to call out the high, the low and give you a feel for what's growth rates, relative mix. It is all very important. Run and maintain versus called out is something we also talk about. That's another important way of looking at the business to get to the run rates. But all of that's important and we'd like to give you different ways to view the business to understand the drivers of the activity. Natalia Shuman: We report separately the in-lab services as well as the field services. Some of our labs still are doing both. So we are certainly now separating that so to give more transparency into the operations and the performance so that you will see some improvements there for sure as we're going forward in '26. And again our strategic plan is built around the specific industries and market verticals that we serve. So you will see more there for sure as we're progressing with our strat plan. Mitchell Pinheiro: Okay. I mean like for instance so just taking a look at -- so you had oil & gas good performance there and I would have thought field services would have been up then. I see field services down 1%. So why would field services be down 1% when you had such a nice quarter in the oil & gas segment? Natalia Shuman: But if you see the other category in the same table, that's the labs that do both. Those offices that do the field inspection and the in-lab testing and that's where you see the increase, right? So substantial increase. And again to that point, as we go forward in '26, we will separate those and you will not see others any longer. So that will give you a much better idea of field services and in-lab and then data analytics as well. Edward Prajzner: And PCMS, Mitch, is another piece of that answer. PCMS is oil & gas focused. They're in half the refineries in North America, but they're not field services. They're clearly data. So that's another example there where that industry is up because of PCMS, but they're not field services. They're in a different category, i.e., the data solutions category. Mitchell Pinheiro: Okay. And then staying on this, your aerospace & defense, very nice growth sort of accelerating out of like a slower first half and I see that shop laboratories was up 12%. I'm assuming the shop laboratories is mostly your aerospace & defense business. Natalia Shuman: That is correct. Yes, aerospace, defense and industrials. As you know, third largest end market is industrial. So most of our in-lab is testing for the industrials and aerospace & defense. Mitchell Pinheiro: So what kind of capacity do you have? I mean so you've consolidated some of that, but do you have the capacity to grow at this type of rate for a couple of years or is there a bottleneck there that you have to solve or can you talk a little bit about how you can grow the aerospace & defense business within the labs? Natalia Shuman: Absolutely. Couple of things there. Yes, very proud of the team in lab. They've done a very good job. There was a volume increase as well as the price calibration. So we can see that certainly that customers are now much more willing to pay for the services and the value we provide to them. But to answer to your specific question on capacity, that is our strategic plan, right? So to expand further on the capacity, we are continuing to build out hub-and-spoke model where we have several large hubs in different parts of the country as well as Canada where we have the most capabilities and then we have smaller labs where we can take the orders and be closer to the customers. So we're expanding 2 things. We expanding capacity by building out those hubs as well as we are expanding capabilities where we're adding new services. We reported earlier in Q2 that we added welding accreditation. So we continue to add machining, repairs, rework, cleaning. So basically optimizing the supply chain for our customers. So you've seen our CapEx is a little bit up, that all goes into growth investments. So that's CapEx and we're advancing our UT capabilities, ultrasonic capabilities, in our labs. So that again will give us much better and bigger capacity to serve our clients because market is growing, right? Market is -- our customers are disclosing publicly they have backlog. We're continuously talking to our customers and they are expecting growth. They are cautiously optimistic especially in the commercial aerospace sector, subsector. They're cautiously optimistic because there is some tightness in their own supply chain. Nevertheless, it's a growing business for us and it's growing not only in the U.S., but also in Europe. And another thing, don't forget is defense. Defense growth is obviously expected whether it's in Europe or military spend or U.S. So it goes also well for us. Edward Prajzner: Some of these same projects, Mitch, are being funded jointly with the customer. They need us to grow. They need this capacity. They want us to expand. So they're actually jointly funding some of this CapEx to help expand the footprint to service them going forward to help them catch up on their backlogs that they have and we're very happy to support them and we will expand capacity to do that. Mitchell Pinheiro: Okay. Just 1 more question and I'll get back in the queue. On the last call, you were talking about new construction projects related to data centers, AI, electrical infrastructure. Can you talk a little bit more about anything that's developed over the last 3 months? Natalia Shuman: Yes. So we announced that new project with Batchelor & Kimball. So that's a good win for us. Again, as I mentioned last time, it's right now in an intersection where technology can no longer advance without the energy and we've been very prominent in the energy sector. So we're basically taking the same our testing methods and inspection methods and apply it to new use cases. So in data centers, it's the same. We're doing exactly the same what we've been doing all these years. It's ultrasonic testing, it's thermal infrared imaging to detect the heat issues. So there's radiography, there's visual inspection and testing. So all of those services we provide for the data center. So it's more to come on that. It's a big sector for us. We're certainly already creating capabilities or having the separate teams that are working on data centers. I reported earlier that we have hired some sales executives that are continuously looking into this sector and developing the relationship with prospective customers, with new customers. So more to come on that. It's a good opportunity for us. We feel confident that it's a good market for us. Again, it's a part of our diversification strategy in our Vision 2030. It's part of our strategic plan. Operator: Your next question will come from John Franzreb with Sidoti & Company. We'll move on to Joichi Sakai with Singular Company. Joichi Sakai: On the margin side, can you help me quantify how much of that margin improvement is coming from deliberate lab or business exit versus pure operational execution? And how much of that runway remains for further portfolio pruning? Natalia Shuman: Certainly, absolutely. Certainly, the larger part of the margin improvement is attributed to the favorable business mix so that led to the improved gross profit. And then obviously operational efficiencies and the closure of unprofitable labs contributed to the improved EBITDA margin overall. But majority of the improvement comes from that the revenue improvement, gross profit improvement mostly in oil & gas attributed to our turnaround, very good traditional seasonality impact there and then growth in all the other sectors or industries. But in terms of operational efficiencies, obviously, it played a role there and closing of unprofitable labs as well. Joichi Sakai: Okay. And I know you commented a little bit about the aerospace industry and the data analytics industry. Which end markets are you really showing the most forward visibility into 2026 and then the kind of acceleration in spend from your key customers? Natalia Shuman: So what we are really seeing where we see -- first of all, kind of all markets right now and that's contributed to our Q3 results as well are quite stable. And we see growth is in aerospace & defense, in particular defense where we see the increased opportunities there as well as in infrastructure. Data centers are in our infrastructure segment. So that's where we see that there will be potential opportunities and growth as well as in power generation as well because again it's now infrastructure and energy and energy demand is coming from again technology expansion and advancement and so on. So I would say those 3 sectors; aerospace & defense, infrastructure and power generation; we believe that we will see growth in 2026. Having said that, obviously a large percentage of our business mix is in oil & gas and so we're continuously working with our clients in that sector, in that market vertical to offer integrated solutions. So that first pillar or first priority of our strategic plan is to increase the wallet share with existing customers. And we believe with integrated solutions, we certainly can achieve that where we envision growth coming from our oil & gas customers using more than just field services inspections. But we're adding additional services such as PCMS, such as other robotics, rope access and so on. So we're quite confident about the about the market as we're looking for next year. But of course what I can tell you right now, we will start making growth investments in those sectors to get this ability to grow and capitalize on opportunities. Joichi Sakai: Got you. And that CapEx that you were mentioning that you'll have to make, that's dependent on the cash conversion that you will be able to accomplish by the end of this year. Is that correct or would that -- are we trying to model increase in debt levels? Natalia Shuman: That's right. So obviously cash generation is one of our priorities internally. This is something that we can control and that is something that absolutely will take priority as we're stepping in into the new year. Joichi Sakai: Okay. And just 1 more question. You mentioned that the pricing environment is quite stable. As you transform into a more integrated solutions provider, what's the competitive environment like and what is kind of your early win rates as you maybe -- I don't know how early that is as you present yourself as a more integrated solution? What's the competitive environment like and how are you gaining traction? Natalia Shuman: Thanks for this question. Yes, we're tracking obviously the competitors. It's a slightly different set of competitors as we're reaching out to the other markets or they're looking at the other services and adding services, right? But this is not new to MISTRAS. This is not new to the company. So although we had the bulk of the services, so to speak, in our portfolio as our foundation so we know that environment. We're just integrating the solutions and we believe that we will produce more value with integrated solutions. In terms of the early wins, yes, I can tell you it's one of our KPIs for our strategic plan is to measure the cross-selling and how we're tracking on cross-selling. About $3 million to $3.5 million this quarter already attributed to the cross-selling results or cross-selling efforts. So that, I can tell you, we will report as we're going forward. So how we're doing specifically on integrated solutions and what progress we're making in that regard. Operator: For our next question, we'll return to John Franzreb with Sidoti & Company. John Franzreb: Congratulations on a good quarter. I'm actually curious about the quarter itself. Was there any revenue that was pulled forward from the fourth quarter into the third quarter? Natalia Shuman: No. That was all third quarter generated revenue. John Franzreb: Okay. And I'm also curious about the guide. It kind of suggests at least at the midpoint that there's more gross margin sensitivity than I was cognizant of or potentially SG&A goes up sequentially. Am I thinking about that properly or am I missing one of the puts and takes here? Natalia Shuman: You're talking about Q4. Is it correct, John? John Franzreb: Correct. Yes. Natalia Shuman: Yes. So the way we're modeling Q4 is that we certainly -- so we believe that we will be in line with our own expectations. We've already seen again good traditional seasonality for October. So our turnaround season was quite strong in October. We also know that again traditionally, Q4 is not as strong as Q3. So we're implying in our guidance some revenue growth versus prior year. We believe there will be a moderate growth in EBITDA. But we believe there's no surprises at this time that we can tell you about for Q4. John Franzreb: I'm sorry, do you want to say something? Edward Prajzner: No, nothing else to add there, John. John Franzreb: Okay. And I'm curious if you're starting to get orders for the upcoming spring season yet and if that's the case, can you give us some kind of qualitative thoughts on it? Natalia Shuman: Yes. So as we plan for '26 and now we're in the middle of the budgeting season as you can imagine. So we believe it will be a strong spring turnaround season. You might recall last year was quite different or this year rather was quite different. So spring was not as strong as the fall. So right now we see that we have won some of the turnaround awards and bids. So we anticipate a stronger turnaround season that was in 2025. John Franzreb: That's good to hear. Just an odd question I think. Do you have any impact in any of your business from the government shutdowns or is that a nonissue for you? Natalia Shuman: No, there is not an issue for us. Operator: At this time, I see no callers in the queue. So I will hand back to Ms. Shuman for her closing remarks. Natalia Shuman: All right. Thank you, Laila, and thank you, everyone, for joining this call today and for your continued interest in MISTRAS. I look forward to providing you with an update on our business, Vision 2030 strategic plan and progress achieved towards our ongoing initiatives on our next call. Thank you. Operator: This ends today's conference call. You may disconnect at this time.
Operator: Good day, and thank you for standing by. Welcome to the Vishay Intertechnology Quarter 3 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like to now hand the conference over to our first speaker, Mr. Peter. Please go ahead. Peter Henrici: Thank you, [ Raven ]. Good morning, and welcome to Vishay Intertechnology's Third Quarter 2025 Earnings Conference Call. I am joined today by Joel Smejkal, our President and Chief Executive Officer; and by David McConnell, our Chief Financial Officer. This morning, we reported results for our third quarter. A copy of our earnings release is available in the Investor Relations section of our website at ir.vishay.com. This call is being broadcast live over the web and can be accessed through our website. In addition, today's call is being recorded and will be available via replay on our website. During the call, we will be referring to a slide presentation, which we also posted at ir.vishay.com. You should be aware that in today's conference call, we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of factors that could cause results to differ, please see today's press release and Vishay's Form 10-K and Form 10-Q filings with the Securities and Exchange Commission. We are including information in our press release and on this conference call on various GAAP and non-GAAP measures. We have included a full GAAP to non-GAAP reconciliation in our press release as well as in the presentation posted on ir.vishay.com, which we believe you will find useful when comparing our GAAP and non-GAAP results. We use non-GAAP measures because we believe they provide useful information about the operating performance of our businesses and should be considered by investors in conjunction with GAAP measures. Now I turn the call over to President and Chief Executive Officer, Joel Smejkal. Joel Smejkal: Thank you, Peter. Good morning, everyone. Thank you for joining our third quarter 2025 conference call. I'll start my remarks with a review of the third quarter performance and business conditions and then turn the call over to Dave, who will take you through a review of the third quarter financial results and our guidance for the fourth quarter of 2025. After that, I'll update you on the strategic levers we are pulling under Vishay 3.0 as we continue to execute on our 5-year strategic plan, and then we'll be happy to answer any of your questions. For the third quarter, revenue grew sequentially 4% to $791 million, 2% above the midpoint of our guidance. Many market segments were up over Q2. Automotive, industrial, computer and medical were positive. Asia achieved the greatest growth, notably from automotive customers and sales to distributors supporting computing and industrial. Our sales to Asia distribution was positive in Q3 because of a large number of orders placed in Q2 to get ahead of the tariffs. Vishay book-to-bill in the quarter was slightly below parity. Orders from OEMs were up in all regions. Orders from EMS were positive over Q2. Distribution orders in the Americas and Europe were positive above Q2, while Asia distribution orders were lower following the higher order amount in Q2, which was mentioned previously. Both semi and passive book-to-bill was slightly below 1. Book-to-bill for October is at a run rate of 1.15. Our backlog continues to build at a gradual pace as it has since the beginning of the year. Orders were up 19% year-over-year, indicating that conditions are improving in automotive, smart grid infrastructure, aerospace defense and AI-related power requirements. However, a very large portion of these orders are still placed with short-term delivery requests. Turns business, expedites, pull-ins, they all continue in nearly all markets as customers for the most part, are still not planning ahead. In Asia, the percentage of short-term delivery orders continues over 50%. This seems to be the new normal for our business at the moment. Our decision 3 years ago to invest heavily in incremental capacity has positioned Vishay to satisfy nearly all of these quick turn delivery requests without having to choose one customer over another. Today, Vishay is demonstrating to customers that we can reliably satisfy quick turn demand while still maintaining competitive lead times. At the same time, we remain well positioned to capture the early stages of upturns in market demand and supplying customers as they scale. We are now serving the channels of distribution, OEM and EMS more reliably. Let's turn to a review of the revenue, which is by end market on Slide 3. Automotive revenue increased 7% versus the second quarter on higher volume in the Americas and Europe. We mentioned in the Q2 call that we saw automotive positive in the second half of 2025. Tier 1 customers increased their pull rates, and we've increased our engagements with more automotive OEMs and Tier 1s now that we have capacity. Automotive customers have audited our U.K. and Mexico sites, where we have now gained more site approvals. We work closely now with the OEMs and Tier 1s to further approve our product PCM. Our design activities continue in all automotive powertrains, ICE, hybrid and battery electric vehicles. Increasing our revenue in all automotive applications is our focus as electronic content increases, particularly in traction inverters, ADAS features, safety and smart cockpit applications and electronic braking and power steering. Revenue from the Industrial segment increased 2% for the second quarter, driven heavily by our shipment of capacitors to smart grid infrastructure projects for programs led by Europe and China OEMs. Q3 seasonality slowed bookings a bit in the Americas and Europe. The industrial market is showing some improvement. There continues to be a pickup in replenishment orders in the channel now that inventories are mostly consumed. As reported each quarter, we see the orders for our high-voltage DC power capacitor as an early indicator of the improving industrial business. We continue to win large orders for customers in Europe, Asia and India for high-voltage DC power transmission to be delivered in 2025. Demand for industrial power management customers will be next to increase as the smart grid transmission lines are put in place. Growing opportunities for Vishay are industrial power for electricity to AI data centers, automotive hybrid EV for power management requirements as well for the AI chip production sites. Our design activity is focused largely on AI power structures and grid improvements as the build of data centers is driving demand for control systems, which monitor backup power and cooling. Along with power supplies and power distribution management, we also work on designs for industrial automation, robotic platforms, energy storage and smart meters. In aerospace defense, Revenue decreased 2% quarter-over-quarter as the U.S. Department of Defense was slow to release funding for major programs. Now in this quarter, orders are beginning to pick up with the release of funding to large military contractors and the replenishment of the distribution channel inventory to support defense business. The majority of designs in the U.S. and Europe remain focused on new and legacy weapon systems, communication systems, drones, commercial aerospace and satellite programs. In the medical market segment, revenue grew 2% on increased activity by some of our larger long-standing customers and in support of new programs and increased activity for existing programs in cardiovascular, pacemakers and defibrillators, medical surgical, surgical tools, patient monitoring and respiratory care, neuroscience for chronic pain and movement disorders and cochlear hearing applications. Ongoing demand for these applications also drove order growth. Our design activities remain focused on all medical products and applications. Our strategy to cross-sell all Vishay technologies to existing medical customers continues to progress positively. As an example, we have designed in and qualified to supply additional passives for a new project at a long-standing medical customer. This will start in 2026. We're continuing to develop opportunities to sell across our portfolio with this customer and others. Revenue from the other market segment, including computing, consumer and telecom end markets was up 4% quarter-over-quarter, reflecting ongoing demand for AI servers and server power. Asia is where these transactions take place. We see increased order flow as new AI server power projects move into production. We continued in the third quarter to increase our customer count and are now supplying more AI customers. At the same time, in addition to MOSFETs and ICs, we design in and supply customers with diodes, capacitors, inductors, resistors to expand our overall part counts. We continue to win qualifications with polymer tantalum, also for magnetics and current sense resistors. Design activity remains focused on power conversion and power management, including multiphase DC to DC converters, ultra-low DC resistant inductors, polymer tantalum capacitors for the GPU chipset power and also AI optical modules. Next-generation data centers are requiring higher input voltages in order to deliver more power to each rack with less power loss. These are further opportunities for Vishay's products. Let's move to Slide 4 for revenue by channel. OEM revenue grew 6% quarter-over-quarter, driven primarily by increased volume with automotive and industrial accounts, plus shipments for smart grid infrastructure projects in Europe and Asia. Order intake increased in all regions during the quarter and is back to levels last seen in 2022. Sales to the EMS channel fell 7% with reductions in all regions reflecting mix. Order intake for EMS increased from the second quarter, also reaching the level -- the highest level we've seen in 3 years. As a result, our new investment in incremental capacity, we are in a much improved position to participate in the EMS channel business. We can reliably satisfy increasing demand from EMS customers that are operating in a short-term visibility. We are supplying aerospace, defense projects, automotive, industrial and AI-related programs. Distribution revenue increased 4% with nearly all of the Q3 growth coming from Asia, while Europe and the Americas were more seasonal. AI servers, industrial and smart grid infrastructure projects supported the Asia increase. Our intake grew in all regions to prepare backlogs as end customers' inventory further normalized. In the Americas, order intake increased significantly, driven primarily by demand from aerospace defense customers. Distribution inventory was flat compared to Q2, while inventory overall is holding steady at 23 weeks. Both POS and POA remained stable in each region. Based on data from our customers, we can see that our initiative to gain share with distributors is working. We continue to add part number SKUs throughout the channels, recently including many new released inductor products, placing more part numbers on the distributor shelves as we deepen engagement with them and position Vishay for further share gains. Turning to Slide 5 in terms of geographical mix. Revenue growth for this quarter came predominantly from Asia with a 7% increase in sales. Americas revenue was up slightly and Europe was essentially flat due to the seasonal impacts mostly in August. Before turning the call over to Dave, I'd like to thank the Vishay employees for their hard work and for their continued commitment to Vishay's strategic and financial goals. They put the customer first every day. They embrace a business-minded approach to help the customers when looking for support. In the current climate, they may be asked by a customer to expedite a Vishay delivery or to help prevent a line down due to shortages from another supplier. We work hard to step in and help the customer. Our sales, business development, marketing, operations and corporate colleagues do everything they can to show Vishay customers that Vishay 3.0 is a transforming company, creating opportunities to satisfy new customers while reengaging previously underserved customers. Thank you to all the Vishay employees and our reps to show Vishay is a reliable supplier. I'll now turn the call over to Dave for a review of the third quarter financial results. David McConnell: Thank you, Joel. Good morning, everyone. Let's start our review of the third quarter results with the highlights on Slide 6. Third quarter revenues were $791 million, up 4% compared to the second quarter, reflecting a 3% increase in volume and a 1% positive foreign currency impact related mostly to the Euro. Average selling prices, including tariff adders were flat versus the second quarter. Nearly all reportable business segments had higher revenues than the second quarter, driven mostly by volume. Compared to the third quarter of 2024, revenues increased 8%, reflecting an 8% increase in volume and a 2% positive foreign currency impact related mostly to the Euro. This was partially offset by a 2% reduction in ASPs, including tariff adders. Book-to-bill for the quarter was 0.97, broken down into 0.96 for semis and 0.98 for passives. Backlog in dollars was flat at $1.2 billion and is now at 4.4 months. Moving on to the next slide, presenting the income statement highlights. Gross profit was $154 million, resulting in a gross margin of 19.5%, slightly below the midpoint of our guidance and flat versus quarter 2. The margin performance was driven mostly by elevated metals prices as well as modest currency headwinds. The negative impact from our Newport fab was approximately 150 basis points, slightly better than our guidance. Depreciation expense was $54 million, in line with our guidance and up $1 million over quarter 2. SG&A expenses were $135 million, slightly below our guidance and down $2 million from quarter 2 on an adjusted basis. GAAP operating margin was 2.4% compared to 2.9% in the second quarter and a minus 2.5% in the third quarter of 2024. Adjusted operating margin was 1.4% in the second quarter and 3.0% in the third quarter of '24, excluding -- non-GAAP adjustments. There were no pretax non-GAAP adjustments in quarter 3. EBITDA for the quarter was $76 million for an EBITDA margin of 9.6%. Adjusted EBITDA margin was also 9.6%, up from 8.3% in the second quarter. Our GAAP effective tax rate remains meaningful at these low levels of pretax income or loss as relatively small items such as foreign currency and repatriation taxes have a disproportionate impact on our effective tax rate. As profitability returns, we would expect a more normalized effective tax rate closer to our historical guidance. In the quarter, we recognized $13.7 million of tax expense due to changes in tax laws and regulations in the U.S. and Germany, which is excluded from our adjusted net earnings. GAAP loss per share was minus $0.06 compared to earnings of $0.01 per share in the second quarter and a loss per share of $0.14 in the third quarter of '24. Adjusted earnings per share was $0.04 for the third quarter of 2025 compared to a net loss per share of $0.07 for the second quarter of '25 and adjusted net earnings per share of $0.08 for the third quarter of '24. Moving on, Slide 8 provides a summary table detailing revenue, gross margin and book-to-bill ratios across our reportable segments for quick reference. In the third quarter, Newport's results continue to be reported under the MOSFET business segment, reducing that segment's gross margin by approximately 720 basis points, an improvement from the 840 basis points impact seen in Q2. Turning to Slide 9. In the third quarter, our cash conversion cycle remained steady at 130 days, reflecting our disciplined working capital management. Inventory increased to $760 million, primarily driven by production ramp-ups and higher metals prices. However, inventory days outstanding improved to 108. Our DSO was stable at 53 days, while the DPO decreased 1 day from Q2 to 31. Continuing to Slide 10. You can see we generated $28 million in operating cash for the third quarter. Total CapEx for the quarter was $52 million, including $43 million designated for capacity expansion projects. On a trailing 12-month basis, capital intensity was 10.8%, relatively flat versus the same period last year. We continue to deploy cash for capacity expansion projects. Due to these investments, free cash flow for the quarter was a negative $24 million compared to a negative $73 million in the second quarter, which included significant transition and repatriation taxes. Stockholder returns for the third quarter consisted of our $13.6 million quarterly dividend. We did not repurchase any shares in the quarter. At the end of the quarter, our global cash and short-term investment balance stands at $444 million, and we remain in a net borrowing position in the U.S. with $189 million outstanding on our revolver. As we've noted in the past, we're required to fund cash dividends, any share repurchases as well as principal and interest payments using our U.S. cash on hand and we are using U.S.-based liquidity to fund our Newport expansion and other strategic investments. We have $280 million accessible on our revolving credit facilities at the current EBITDA level. We expect to continue to draw on our revolver to fund our U.S. cash needs. Moving on to our guidance on Slide 11. For the fourth quarter of 2025, revenues are expected to be $790 million, plus or minus $20 million. Gross margin is expected to be in the range of 19.5%, plus or minus 50 basis points, inclusive of tariff impacts and expected continuing higher input costs. Newport is planned to have an approximate 150 to 175 basis point drag on gross margin in the fourth quarter. As we discussed last quarter, we're passing through additional tariff costs to customers, those tariff adders increase our revenues without impacting our gross profit. The impacts of tariffs are generally limited and incorporated into our guidance for the fourth quarter. Depreciation expense is expected to be approximately $55 million for the fourth quarter and $212 million for the full year '25. SG&A expenses are expected to be $138 million, plus or minus $2 million for the quarter. Our GAAP effective tax rate remains not meaningful at low levels of pretax income and loss. As our profitability returns, we expect a normalized tax -- effective tax rate closer to our historical guidance of 30% to 32%. In quarter 4, we expect tax expense to be between $4 million and $8 million, assuming a similar profit mix amongst our tax jurisdictions. Finally, our stockholder return policy calls for us to return 70% of our free cash flow to stockholders in the form of dividends and stock repurchases. For 2025, we once again expect negative free cash flow due to our capacity expansion plans. However, we expect to maintain our dividend and opportunistically repurchase shares based on U.S. available liquidity in line with this policy. I'll turn the call back over to Joel. Joel Smejkal: All right. Thank you, Dave. Let's go to Slide 12. Slide 12 will give us an update on the strategic levers we are pulling to drive faster revenue growth, higher margins and enhanced returns on capital as we execute our 5-year plan. Starting with capacity investments. Year-to-date, we have invested $179 million, and we expect to spend between $300 million to $350 million this year. At least 70% of this CapEx is for expansion projects. At our Newport facility, we are on schedule, increasing our wafer starts each month. During the quarter, we completed the installation of all tools for silicon and silicon carbide wafers, and we released and started production ramp-up for 2 additional technologies. Automotive customer audits are continuing. In our passive business at La Laguna, Mexico, we released commercial part numbers for production while continuing to qualify additional part numbers. We've scheduled site audits with many automotive customers. We've completed the IATF certification of our automotive-grade inductors, which opens the door to move for more site audits and supplying more automotive OEMs from this facility. We've had more than 20 audits completed at La Laguna. At our facility in Juarez, Mexico, we've passed the audits conducted by 2 of our automotive customers and continue to increase production of commercial products. Through our subcontractor initiative, we now have qualified more than 9,000 part numbers, further expanding our portfolio of diodes, resistors, capacitors and inductors. As a reminder, this initiative has a couple of objectives. The first one is to create incremental capacity internally for our high-growth products by outsourcing commodity products. The second is to broaden our product portfolio and to increase our share of customers' bill of materials. Turning to innovation in our silicon carbide strategy during the quarter. For MOSFETs, we released 3 additional products, 2 industrial and 1 automotive for the Gen 2 1,200-volt planar. We plan to release 8 devices in Q4 for industrial and 8 devices for automotive in Q1. We remain on track to release the 1,700-volt and the 650-volt industrial platforms in Q1 and the automotive platforms in Q2. Samples for the Gen 3 1,200-volt trench were available in Q3 and on track to release the industrial platform in Q4 and the automotive products in Q1. For silicon carbide diodes, we fully released the industrial and automotive, Gen 4 1,200 volt and the 650 volt. In closing, market signals remain directionally positive with increasing demand from automotive, AI server, and server power, smart grid infrastructure and industrial power, aerospace, defense and medical. Our accelerated investments to expand capacity over the last 3 years positions us to capitalize more on the market up cycles in these high-growth segments, meeting quick turn delivery requirements while maintaining competitive lead time. We like the feedback we get from customers about Vishay 3.0. We keep our feet on the ground because we have a journey to complete in this transformation of Vishay. Every day, we are demonstrating to the customers that we have the capacity to assure them of reliable volume as they scale production and to supply more part numbers to them. Over the past 3 weeks, we contacted many global automotive and some industrial and computer customers to offer our support to address their manufacturing line down concerns. Customers appreciated very much that we call them. We now have daily conversations with automotive OEMs and Tier 1s to cross part numbers and help them manage their risk. Looking ahead, we are intently focused on creating more opportunities to expand our participation in the full market recovery to better leverage our entire portfolio and to deepen our engagement with new and existing customers. We are building on our success to gain share with our channel partners in cross-selling products in our portfolio, designing in and supplying a greater share of the customer's bill of materials. We also focus on creating more value for our customers through innovation with our silicon carbide strategy by expanding our portfolio of technologies to better serve their demand and by supporting their technology road maps. We remain committed to pulling the 8 strategic levers as we execute our strategic plan to accelerate revenue growth, improve margins and enhance returns on capital. Raven, let's open the call to questions. Operator: [Operator Instructions] Our first question comes from Ruplu from Bank of America. Ruplu Bhattacharya: The first one, Joel, in the Automotive segment, did Vishay see any benefit or impact from the export restrictions that were put on Nexperia? Joel Smejkal: Ruplu, nice to hear from you. This is a dynamic conversation. I mentioned in the closing that we are in discussion with many OEMs daily and many Tier 1s. They've asked for support in line down situations, and we have been able to support in some cases, depending on how the part numbers cross. So we -- at the moment, we're seeing a lot of opportunity developing. We didn't guide or didn't place much of that in our Q4 revenue guide because at this moment, it's been shortage quantities just to keep factories moving. So we are in the conversations. Ruplu Bhattacharya: Okay. Okay. Can I switch to margins? I mean, it looks like Newport was not as big a negative impact as you had expected on fiscal 3Q margins. But just looking at the gross margin, it was maybe 20 bps below the midpoint of guidance. I think you mentioned the metal prices as one factor. Were there anything else? How was pricing? And when it comes to the metal pricing or prices and cost, are you using the strength of the balance sheet to prebuy any metals? So just any thoughts on that impact going forward? Joel Smejkal: Okay. I'll take the first part of that, and Dave can comment on the second part. The items that impact gross margin, metals was one, whether it's gold, whether it's palladium, platinum, silver, they're all at a very high rate plus copper tariff. Copper tariff is another one. So we're managing the metals, and we're preparing to pass costs on to customers. That's a negotiation season now. So we're passing metal costs on as much as possible. Exchange rate, Dave can elaborate on a little bit. There's also operational items. It's not a perfect operation. There's always things that we need to improve on with manufacturing efficiencies. So metals, exchange rate plus some operational issues is what had the gross margin flat Q3 versus Q2. Dave, do you want to talk at all about any of those items or the forward buying of metals? David McConnell: Yes. No. So Ruplu, it's a good question. When you -- combining the metals and the FX impact, we're looking probably north of 50 basis points on the total, okay? So it's no small impact. So I mean everybody knows what's going on in the metals markets right now. I mean gold year-to-date, 48% increase; silver, 59%. And in October, we're seeing them go up again, okay? In terms of the FX impact, we're well balanced with the Euro, but we do make -- we do build parts in some countries where we don't have revenue, okay? And 2 countries specifically, currency, the Shekel and the new Taiwan dollar strengthened and hurts our P&L. In terms of the hedging, one thing you have to keep in mind is we don't buy just pure copper and pure gold, right? We buy premanufactured parts a lot of time or semi-finished parts or WIP, whatever you want to call it. So our vendors are incurring extra cost and passing on to us. So [indiscernible] the pricing, but we're going to approach -- we're going to put steps in place to address the metal increases where possible and passing it on to our customers. This is in motion now. Ruplu Bhattacharya: Okay. Got that. But are you doing any prebuys? Like are you seeing the strength of the balance sheet to buy and store any metals? Is that something you would look into? David McConnell: We have -- we do that to some extent. We have a fairly long pipeline on some of our manufacturing times, and we will place purchase orders out into the future. But as a general purpose, we're not stockpiling metals now. It's expensive to do that. Ruplu Bhattacharya: Okay. Let me ask you another question. So it looks like book-to-bill fell about to below 1 this quarter, and this was the first time this year. When we look at the revenue guide for fiscal 4Q, I mean, that would imply total fiscal '25 revenue growth of about 4% year-on-year. Then when I look at consensus for next year, looks like consensus is modeling an acceleration to 7% year-on-year for revenues and gross margins to expand to something like 23.6% from 19.5% that you're running at today. So Joel, just when you look at the environment, when you look at the book-to-bill, and you look at consensus estimates for fiscal '26, do you see these as reasonable growth and margin expectations? And any color you can give on what can drive revenue growth and margin expansion and how you see that trending over the next year? Joel Smejkal: Okay. The October run rated book-to-bill, I mentioned is 1.15. So even though Q3 was slightly below 1, October orders across the products has moved up quickly. When we look at the market drivers, we've got 5 market drivers in what we see as an improving economy. We've got 2 of them which are supported by government spending. One is aerospace defense and the other is smart grid infrastructure. Those are 2 of the 5. We've got AI that we're all watching the AI server build and the power requirements. We've got automotive and industrial overall, auto, industrial, aerospace, defense, AI, medical as well. So we're seeing these market segments lining up. The customer engagements that we have, people are talking about mid-single-digit growth next year across these segments to high single-digit growth. We've done a good job of getting in the customer meetings. I think the October bill is a nice signal for us. We've got some product lines that the customers are placing further out orders like the high-power capacitor that we've got programs that we have to deliver in 2026, and that will continue to develop the industrial business behind that. So I see a growth next year [ receiving ], like you said, consensus of plus 7%. I think that's in line as we do our budgeting right now. We are developing our budget for 2026, and we're expecting to grow because of these 5 end market segments, which are showing positive signs. This is kind of a different year we're moving into. In the past, when you looked at how many market segments we were aligning to drive an economy, we had the telecom boom in the 2000. We had auto booms in the late 2000s and the pre-COVID years. But now we've got 5 market segments that Vishay supports that we see are lining up to be positive in 2026. So I think the revenue growth, what the consensus has put together is in line with what we're hearing from customers. The margin growth you talked about, we've got a plan to get Newport to margin neutral by the end of Q1. So that will raise our gross margin by 1.5%, 150 basis points. So we move to 21% plus the manufacturing efficiency and cost reduction projects we have internally division by division, passing on the metals cost that we talked about, plus then the volume growth, which we expect to see volume efficiencies on. So I think what you listed there is similar to what we're viewing for 2026. Ruplu Bhattacharya: Okay. Okay. That's helpful. And maybe I'll just throw one more in if we have time. Dave, can you elaborate on the capital return strategy? I mean, how would you prioritize any debt reduction versus buybacks versus any acquisitions [ that you pipeline? ] David McConnell: Sure, absolutely. So our cash balance has been decreasing. I think everybody can see that. And in the U.S., we're certainly in a net borrowing position. We're at $189 million, I think, on the revolver. The Newport CapEx is slowing, but Newport is not up and running completely yet. So we still need to fund U.S. money to fund Newport. So we don't see right now, given our current liquidity in the U.S. that we would want to be doing any share buybacks. We are continuing the dividend. Dividend is important to us. But we're not looking right now to purchasing shares. Operator: [Operator Instructions] Our next question comes from Peter Peng with JPMorgan. Peter Peng: You mentioned about some volume growth in the first quarter. Is it right to read into that, that you're expecting more seasonal trends? I think typically, your first quarter is up somewhere in the low single digits. Is that kind of the way you're thinking about seasonal trends into the first quarter? Joel Smejkal: Seasonal is an interesting word now. It's hard to say what's seasonal right now. You're right, in the past, Q1 did see some increase because of the Q4. Q4 is just a comment about Q4, it's not a 13-week quarter. It's a 12-week quarter. Customers tell us that they're going to be closing between Christmas and New Year. So we're really running a shorter quarter to have flat revenue. So we see that we are making a good push. Q1, Chinese New Year is in February. We're watching order activity now based on lead times to see is the customer going to be bringing in product before Chinese New Year or setting the stage for after. So I would say that's the seasonal effect that's there that is common Q1 after Q1 is Chinese New Year. However, industrial programs, aerospace, defense spending, the push to replenish the weaponry I don't think we're in anything that could be considered seasonal. Automotive, with what's happening with shortages and preventing line downs, we're doing our best to support OEMs that are coming to us in Tier 1. So I don't think I could put seasonality on that one. The industrial grid designs and those projects continue to move positively, plus then medical. Medical is always dependent on FDA approval of programs. So if I said seasonal for compute or because of the China New Year holiday, I think that's the only part of seasonal I would consider. We see the better bookings again in October, 1.15 right now, that run rate. If that continues, that sets us up for a better Q1. Peter Peng: Perfect. And then just going back to the gross margin dynamics, you mentioned that the Newport headwind is going to roll off in the first quarter and then you're going to be potentially passing some of the middle cost. And so what's the kind of the right base level to think about the margins as we kind of look into Q1? Joel Smejkal: We don't normally guide that far ahead, right? We're guiding for Q4. We are diligent in our cost improvement projects internally. The negotiation season is now with the large customers that have annual contracts. So too early to say we have a result of what the ASP change might be. I think we need a little more time yet to really dial in what the impact of, in particular, those negotiations -- the results of those negotiations is going to be. Peter Peng: Got it. Okay. And then last quarter, I think you mentioned about a change in [ work ] configuration at that large compute customer and that you guys are working to qualify. Maybe you can provide some update on that progress. Joel Smejkal: Okay. We are always connected to the AI design centers. We -- I mentioned we have branched out to a number of AI companies and building the hardware. Continuing to talk with the main players, continuing to offer more Vishay products, whether it's MOSFETs and ICs, that's what gets all the attention in the conversation. So we're in design activity there, plus the passive components. The capacitors, the resistors, the inductors. So we take a large -- a wide umbrella, a big toolbox and we go into the AI leaders, and we promote the broad portfolio. So we're gaining good traction. We're getting good design and print position. Peter Peng: Okay. One more, if I may. Just a follow-up on the Nexperia situation. I know you guys are not baking any revenue, but what's the potential -- how material of an impact could this be to your business as you kind of talk to your customers? Maybe a sense of what the magnitude is? Joel Smejkal: We're crossing part numbers. We're helping automotives with avoiding line downs. And it's not just Vishay. There's other suppliers, our competitors who are also helping this because we need to make sure the automotives are running and they don't have to do production stops because that impacts more than just Nexperia's volume, it impacts everybody. So I think what I'm hearing on the street is everybody is taking the opportunity to help. Vishay with the lineup of products, we crossed the best of our ability, but the automotives have to make a decision on how does the program perform with a Vishay product in it or another competitor's product in it. So it takes some time. We like the conversations we're in. We're being given a great opportunity to tell the automotive OEM and Tier 1 more about Vishay. They like what they hear. They like to hear about our footprint. They may not have known much about us in the past, the OEM -- so it's hard to put a number on it at this point. It's so dynamic. Because it's geopolitical, things could change in a moment. We saw what happened with April 2 and the announcement of tariffs and how that changed the business in a moment. We saw what happened here now with the geopolitical announcements of China and the Dutch about Nexperia. So I think it's too early for us to really put any type of number on it. There's too many moving parts. Operator: This -- I'm showing no further questions at this time. I would like to turn it back over to management for closing remarks. Joel Smejkal: All right. Thank you, Raven. Thank you, everyone. Thank you for joining us on our third quarter earnings call. The combination of directionally positive signals and Vishay's capacity readiness is encouraging. We look forward to reporting our fourth quarter results to you in February. Thank you very much. Have a good day. Operator: Thank you.
Operator: Good morning, and welcome to the Horace Mann Educators Third Quarter 2025 Investor Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Rachael Luber, Vice President of Investor Relations. Please go ahead. Rachael Luber: Thank you. Welcome to Horace Mann's discussion of our third quarter 2025 results. Yesterday, we issued our earnings release, investor supplement and investor presentation. Copies are available on the Investors page of our website. Our speakers today are Marita Zuraitis, President and Chief Executive Officer; and Ryan Greenier, Executive Vice President and Chief Financial Officer. Before turning it over to Marita, I want to note that our presentation today includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The company cautions investors that any forward-looking statements include risks and uncertainties and are not guarantees of future performance. These forward-looking statements are based on management's current expectations, and we assume no obligation to update them. Actual results may differ materially due to a variety of factors, which are described in our news release and SEC filings. In our prepared remarks, we use some non-GAAP measures. Reconciliations of these measures to the most comparable GAAP measures are available in our investor supplement. I'll now turn the call over to Marita. Marita Zuraitis: Thanks, Rachael, and good morning, everyone. Yesterday, Horace Mann reported record third quarter core EPS of $1.36, a 64% increase over the prior year. Trailing 12-month core return on equity has increased to 13.8%. These results clearly demonstrate the earnings power of our diversified business. On a year-to-date basis, we are now well ahead of our 2025 financial goals and on track for record core earnings, which generates strong shareholder return. Both top and bottom line results were strong. Total revenues for the quarter were up 6% over prior year with net premiums and contract charges earned up over 7%. We delivered oversized growth in the Supplemental and Group Benefits segment with individual supplemental sales up 40% and record sales in Group Benefits. In fact, sales are outpacing the prior year across all business lines. Given strong year-to-date outperformance, reflecting both underlying business performance, as well as continued lower catastrophe losses, we are raising our full year core EPS guidance to a range of $4.50 to $4.70. Ryan will provide more details on the full assumptions later in the call. Today, I want to focus on the significant progress we are making towards our enterprise strategic priorities that position Horace Mann for sustained profitable growth over the long term. Most importantly, business profitability across all segments is in line with or above target levels, giving us the opportunity to accelerate investments in future growth. In Property and Casualty, the total combined ratio year-to-date is 91.4%, with an auto combined ratio of 96.4%, in line with our mid-90s target. And in Property, we continue to deliver exceptional results with a combined ratio of 83.1%, well below our target of 90% or below. Property profitability is strong, reflecting both rate and non-rate actions we've taken to reduce earnings volatility, and to a larger degree, much lighter severe weather activity this year. For comparison, pretax catastrophe losses year-to-date are $56 million. Last year at this point, pretax catastrophe losses were $91 million. In the Life and Retirement segment, we continue to see steady earnings growth, driven by strong net investment income and effective spread management. Our core fixed income portfolio continues to benefit from strong new money yields. Year-to-date, the core new money yield is exceeding book yield by more than 100 basis points. In Supplemental and Group Benefits, policyholder utilization continues to trend below historic levels. Our long-term target for this business is a 39% blended benefits ratio. Year-to-date, we are running around 37%, a strong position that enables us to invest confidently for growth. With each business segment performing in line with or above target, we're investing strategically to increase our share of the education market and drive future growth. Lead generation continues to scale rapidly with website visits up 120% year-over-year and online originated quotes nearly doubling. Our back-to-school celebration engaged tens of thousands of educators with more than half of those participants new to Horace Mann, an encouraging demonstration of increasing brand awareness. We're seeing record recruiting success as we continue to grow points of distribution, adding exclusive agents, licensed producers and benefit specialists as we expand local coverage and educator engagement. Through strategic partnerships, we are furthering our ability to reach more educators. A couple of examples. New partnerships with Teach for America and Grand Canyon University will provide us access to hundreds of thousands of educators to provide tailored solutions, including financial education resources and personalized support, teaching scholarships, student loan awareness programs and community outreach. For example, with Teach for America, we recently launched educator financial wellness sessions as part of their Career Acceleration Series. We're excited to see the impact of these partnerships, along with our upcoming sponsorship of Crayola Creativity Week in January as we continue expanding our engagement with educators nationwide. We continue to build on our integrated omnichannel approach to customer acquisition and service, allowing educators to engage with us when, where and how they choose. These efforts are driving tangible results. Life and Retirement sales were exceptionally strong in the third quarter, fueled by the success of our back-to-school campaign. Life sales increased 16% and Retirement deposits grew 9%, both impressive results in what is already a seasonally high quarter, highlighting the impact of our growth investments and brand momentum. In addition, we are accelerating growth in our Supplemental and Group Benefits segment, a high-margin, capital-efficient business that diversifies our earnings and reduces volatility. Individual supplemental sales rose 40% for the quarter and 47% year-to-date, reflecting expanded distribution and deeper customer engagement, driven by product enhancements that resonate with our core educator market. Over the past year, we have grown our network of benefit specialists, who help educators understand and optimize their workplace benefits by nearly 30%. And we introduced our newest generation of cancer coverage, including new and enhanced benefits that best protect customers from the unexpected costs of cancer treatment. Group Benefits sales nearly doubled in the quarter and are up close to 20% year-to-date, reflecting encouraging growth in our network of like-minded broker partners. As we invest in growth, we remain disciplined in optimizing enterprise spend. Our approach emphasizes efficiency, innovation, modernization and continuous improvement across the organization. As part of these efforts, we're leveraging GenAI to identify and test multiple use cases that enhance productivity and effectiveness. For example, in partnership with our customer care team, we identified call summary notes as a low value-add task where GenAI could enhance efficiency without sacrificing quality. By automating the process, which consumes 20% to 30% of a representative's day, we will be able to significantly reduce administrative burden. In our test, AI-generated call notes matched the accuracy and quality of human authored notes, quantifying clear time savings and productivity gains. As customer care historically has higher turnover than other departments, we expect to be able to realize expense savings organically through employee attrition. We continue to expand our framework for identifying, piloting and deploying GenAI projects across the company to create further expense synergies and savings. We're striking a balance between investing for future growth and maintaining expense discipline. We expect expense levels to be elevated in the near term as we build scale and execute on key initiatives that position us for long-term efficiency and sustained profitable growth. Before I turn the call over to Ryan, I want to highlight how our strong results are driving shareholder value creation. Over the past 15 years, our Board of Directors has authorized $200 million in share repurchases, including a $50 million share repurchase authorization in May. Through October, we have returned $20 million of capital to shareholders through share repurchases and $43 million through dividends. These actions reflect our disciplined capital management approach that balances profitable reinvestment in our business with consistent shareholder returns. This framework positions us to continue to maximize total shareholder return, while maintaining flexibility to fund strategic growth, the most accretive use of capital over the long term. To close, third quarter results were incredibly strong. All segments are operating in line with or above target profitability, and our multiline business model continues to deliver consistent high-quality earnings. On a year-to-date basis, we are clearly exceeding our 2025 objectives, and we are confident in our ability to achieve our long-term financial targets, a 10% average compound annual growth rate in core EPS, and a sustained 12% to 13% core return on equity by 2028. Horace Mann is operating from a position of strength, and our competitive advantages position us exceptionally well for sustained success. We are confident that we will continue to meet and exceed our strategic objectives, deliver sustained market-leading growth and accelerate shareholder value creation. Thank you. And now, I'll turn the call over to Ryan. Ryan Greenier: Thanks, Marita. Our record third quarter results reflect continued lower catastrophe costs, strong underlying performance and encouraging growth momentum across the business. Given our strong year-to-date performance, we are accelerating strategic investments to build on this momentum and position Horace Mann for sustained profitable growth. We are increasing our full year 2025 core earnings per share guidance to a range of $4.50 to $4.70, which includes the following assumptions: roughly $65 million catastrophe losses assumed for the full year and total net investment income in the range of $473 million to $477 million, with managed portfolio income of $373 million to $377 million. Reflecting our ongoing commitment to educators, we expect to make a significant donation in the range of $3 million to $7 million to the Horace Mann Educators Foundation in the fourth quarter. Thanks to our strong year-to-date business outperformance and by thoughtfully leveraging tax provisions under the Big Bill legislation, we're able to amplify our impact, aligning our financial strength with our mission to support educators and their students. Turning to the results. Core earnings of $57 million or $1.36 per share increased 64% over the prior year. Trailing 12-month core return on equity was 13.8% and tangible book value per share increased more than 9%, reflecting continued strong underlying profitability across the business. Total net premiums and contract charges earned were up 7% with total revenues up 6%. In the Property Casualty segment, core earnings were $32 million, tripling year-over-year. Net written premiums of $232 million increased 9% over the prior year, primarily reflecting higher average earned premium. The P&C reported combined ratio of 87.8% improved 10.1 points over prior year, reflecting much lower catastrophe costs, continued strong underlying results and favorable prior year development. The $3 million in prior year development was primarily driven by favorable property severity. Pretax catastrophe losses of $10 million were 71% below the prior year due to lower claim frequency and severity, as well as lack of hurricane activity. In auto, net written premiums of $132 million increased slightly over the prior year. The underlying combined ratio of 94.9% improved 3 points, primarily due to higher average premiums. Household retention decreased from the prior period to 84%, but remained largely stable quarter-over-quarter. Retention remains in line with expectations, given the current rate environment, and continues to be in the top quartile relative to industry benchmarks. Before I turn to Property, I want to remind you that fourth quarter auto results historically have had higher frequency due to weather. In Property, net written premiums of $99 million increased 20% over the prior year, reflecting the continued benefit of rate actions on average written premium and solid growth momentum with sales up more than 8%. The combined ratio of 75.3% significantly improved over the prior year, primarily reflecting much lower catastrophe costs. Policyholder retention remained strong at nearly 89%. In Life and Retirement, core earnings were $15 million, in line with the prior year, and net written premiums and contract deposits rose to $170 million. As a reminder, our non-P&C annual actuarial assumption reviews were moved to the third quarter this year, in line with industry practice. Annual reviews reflected favorable mortality, which resulted in a $3.5 million decrease in reserves for Life and a $5.4 million increase for Retirement pretax. These actuarial assumption review impacts are GAAP only and noncash, and as a result, have no impact on free cash flow. In the Life business, mortality was favorable for the quarter. And on a year-to-date basis, mortality costs continue to remain within our expected actuarial range. Life persistency remained strong, near 96%. In the Retirement business, net annuity contract deposits increased by 9% and persistency rose to 92%. Moving to Supplemental and Group Benefits. The segment contributed $18 million to core earnings, in line with the prior year, and net written premiums rose to $66 million. Annual actuarial assumption reviews resulted in a $2.4 million decrease in reserves for individual supplemental pretax, reflecting favorable morbidity. In individual supplemental, net written premiums of $31 million increased 3% over the prior year. The benefits ratio of 25.4% decreased 2.4 points over the prior year, reflecting the impact of the actuarial assumption review, in addition to favorable policyholder utilization trends. Policyholder persistency remained steady near 90%. In Group Benefits, net written premiums of $35 million increased 8% over the prior year. The benefits ratio of 35.7% was below prior year, primarily due to favorable policyholder utilization and disability products. Turning to investments. Total net investment income on the managed portfolio increased nearly 11% over the prior year. We continue to see very strong results from our core fixed income portfolio, reflecting the benefit of higher average yields. This is the 15th consecutive quarter that new money yields in the core portfolio have exceeded book yield. Limited partnership returns outpaced the prior year, driven primarily by equity-related funds. And we continue to see stable returns from commercial mortgage loan funds. As I mentioned earlier, with each business segment performing in line with or above profitability targets, we are investing strategically to position Horace Mann for sustained profitable growth. Sales are outpacing the prior year across all business lines, and we delivered outsized growth in the Supplemental and Group Benefits segment. Third quarter individual supplemental sales were $6 million, a 40% increase over prior year. And Group Benefits delivered record sales of $6 million, nearly double the prior year result. As we've mentioned before, the Group business is still relatively small, so results will fluctuate from quarter-to-quarter. We're encouraged by the growth momentum as we continue to scale this segment. As Marita mentioned, as we invest in growth, we remain diligent about optimizing enterprise spend. In addition to our ongoing enterprise focus on leveraging GenAI, we've made the business decision to terminate our legacy dormant pension plan. We expect to finalize the transaction in the fourth quarter. This will be a noncore charge and will result in ongoing run rate savings of over $1 million annually pretax. While our expense ratio remains competitive with peers, we do expect expense levels to be elevated in the near term as we build scale and execute on our longer-term financial goals. We will use periods of business outperformance to reinvest some of that success into initiatives that will drive future growth. Building scale is a key component of our plan to reduce the expense ratio by about 1.5 points over the next 3 years, and these investments are essential to achieving that goal. Before I close, I'd also like to touch on the prudent capital management actions we took this quarter. In September, we issued $300 million of senior notes due in 2030 at a 4.7% coupon. Proceeds were used to refinance near-term maturities with the balance allocated for general corporate purposes. The transaction had very strong investor demand and was more than 5x oversubscribed. As a result, we achieved a record tight spread for Horace Mann. We remain focused on driving shareholder value creation. Our dividend yield is strong. And we continue to opportunistically execute on our share buyback program. October year-to-date, we've repurchased 470,000 shares at a total cost of about $20 million at an average price of $41.70. We have around $57 million remaining on our current share repurchase authorization. In conclusion, third quarter results reflect the strength and stability of our diversified business. On a year-to-date basis, we are clearly exceeding our 2025 objectives. And we are confident in our ability to achieve our long-term financial targets: a 10% average compound annual growth rate in core earnings per share and a sustainable 12% to 13% core return on equity by 2028. We are confident that we will continue to meet and exceed our strategic objectives, deliver sustained market-leading growth and accelerate shareholder value creation. Thank you. Operator, we're ready for questions. Operator: [Operator Instructions] The first question comes from Michael Zaremski with BMO Capital Markets. Unknown Analyst: It's Jack on for Mike. The first question just on your organic policy count growth trajectory, especially in the P&C operations. It's good to see retention stabilizing in auto and margins are at healthy levels, which I imagine implies less of a need to increase rates. So just, I guess, in light of that, wondering how you view the growth outlook on a policy count basis over the coming quarters in both auto and home. Marita Zuraitis: Yes, it's a great question, but I think I might expand it a little bit. And when we think about growth, we don't really think about it as an on and off switch. We are always focused on educator household increase and that goal of sustained profitable growth. When we look at this quarter, I mean, I think it's a clear reflection that we have sales momentum across every business. I mean, new business for us is up across all our business and retention has been steady. If you look at individual supplemental up 41%; Group up 91%; Life is up 16%; Retirement is up 9%; Property is up 8%; auto is hanging in there, up 4%. And then, you look at the retention side of the equation, where Property is nearly 90% Life, Retirement, Supplemental in the mid-to-high 90s persistency. Auto is strong at 84%. Obviously, you see the effects of the increased competition across the industry there. But we are very well positioned for that sustained household growth that we're focused on and feel good that we're clearly going in the right direction when you see these kind of results across all the businesses. Unknown Analyst: Great. And then, just a follow-up on -- maybe a 2-parter, but just a follow-up on the EPS guidance. It implies, I think, sort of in the low-$1 range in the fourth quarter, a little bit of $1.36 this quarter. I guess just maybe if you could help us walk through the moving pieces. I guess, there's the kind of net assumption review this quarter. I think you called out auto margin seasonality being less favorable in the fourth quarter and then also accelerating some strategic investments. And on that last front, can you -- are you able to quantify or elaborate more on some of those investments that you're planning to accelerate over the coming quarters? Ryan Greenier: Sure. This is Ryan. I appreciate the question this morning. When I think about the updated guidance range that we gave you, the $4.50 to $4.70 on a full year basis, it implies $1 to $1.20 for the fourth quarter. We updated our cat assumption to reflect year-to-date outperformance. We narrowed the net investment income to the midpoint of the original range. And we did increase the corporate and other expenses by $5 million. That reflects known spend. We talked about the Foundation donation that we're excited to fund in the fourth quarter. In addition to that, when we think about guidance, we are reflecting our intent to continue to invest in growing our business. I'll flag for you that fourth quarter last year was an unusually strong quarter. It was $1.68, and it had a number of onetime items that we don't expect to repeat. So last year, fourth quarter, we had favorable Property prior year development, which was worth about a quarter. In our non-P&C operations, we did our annual reserve assumption review, and we had some prior year favorable development in Group, and that was worth over $0.30. And we had very favorable weather. Both cat and non-cat was quite favorable. So, on a normalized basis, I think about fourth quarter last year as being about $1. And if you think about the midpoint of our guide, that's a 10% earnings growth rate, which is what we talked about achieving at Investor Day. Marita Zuraitis: Yes. And Ryan touched on expenses a little bit, but if I could expand on that. I mean, we're clearly striking a balance here between investing for the future, while also maintaining expense discipline. And we think about it as both sides of the equation, both the numerator as well as the denominator; the numerator, obviously, through efficiency and the denominator by investing in growth to build scale because both are clearly important. I don't think any company can shrink their way to greatness, right? So both of those sides of that equation matter. On the expense discipline side, our leadership realignment, efficiency in high turnover areas that result in headcount reductions over time. Ryan mentioned in the script, the legacy pension termination, our review of vendor spend, process improvements like straight-through processing. We're really focused on driving that efficiency. But at the same time, I think it's also important for us to invest in growth to drive scale, especially in times of outperformance like this. And at Investor Day, we talked about our goal to reduce the expense ratio by 1.5 points. But again, that's over the next 3 years, and we're confident that we can do that. And I think if you look at our track record over the last several years, as we've invested in the PDI, the products that are relevant in our educator space, expanding our distribution, which we're obviously doing, and modernizing our infrastructure, we have done that and continue to do that, while we maintain expense discipline. So I think it positions us very well for sustained profitable growth. And I think our track record speaks for itself. Operator: The next question comes from John Barnidge with Piper Sandler. John Barnidge: My question is on Supplemental and Group Benefits. Lead management systems are increasingly required to get on the platform, and we're seeing a lot of investment over group benefit providers in the market. Can you talk about your capabilities, whether you're building your own lead management system or getting something out of the box? And really how important that is to winning business in Supplemental and Group Benefits for a core educator marketplace? Marita Zuraitis: John, great question, and it's a little bit of both. I want you to think about our individual supplemental and Group Benefits -- Supplemental and Group Benefits business a little bit differently. Obviously, we have a head start in individual supplemental, and you're seeing those very strong sustained numbers come through on the individual supplemental side. In the group supplemental side, it's new for us. It's relatively small for us. We feel really good about the progress we're making, and you saw that in this quarter as well. That can be a little more lumpy for us because it is small, but we look at that year-to-date number and that track record of that sustained growth in that area. And we are making investments not only in lead generation, but in expanding our distribution and building the product necessary for that space, as well as modernizing the infrastructure to do that and do it well. And I feel really good about our progress there. But we're in this for the long haul, and that will take us longer to build all those pieces. But we're really happy with our start here. We're focusing on where we're good in our educator segment, and I think we're doing it really well with some really strong partners. Ryan Greenier: The thing I will add, John, we do have a lead management partner in place. So to answer your question directly, we do have the capabilities with an experienced partner. John Barnidge: And then, my other question, more and more insurers have launched partnerships with alternative asset managers, not just to monetize their distribution, but to better position spread-related products and enhance net investment income. I know you do externalize some asset management functions. But is there an opportunity for a larger partnership here with a dedicated alternative asset manager? Ryan Greenier: John, I appreciate your question. When I think about what we've built from an investment management capability over the past 5 years, we talked about over that period, improving net investment income by over 30%. We mentioned that at Investor Day. And yes, rates were -- created an opportunity over that time period, but we were very thoughtful about the third-party partners that we work with on an ongoing basis. We've made some changes to those partners recently. And we believe in that sort of best-of-breed model and finding core portfolio managers that do the bulk, if you will, of our liability-driven investment strategy, but at the same time, supplementing them with specialized managers in certain verticals. So while I understand the nature of your question, I like our approach of going out and getting best-in-breed and allowing us to really diversify our asset management partnership. So hopefully, that answers your question. John Barnidge: Yes. I was also talking about maybe product creation. There's some regulatory reform in retirement accounts. Interval funds or evergreen funds have increasingly become more in demand and valued by distribution. So do you have those capabilities? Are you looking to build those capabilities? Ryan Greenier: So when I think about tailoring product, John, to our customer set, the educator marketplace is a relatively conservative investor. They prefer fixed and fixed index products. Even within our variable annuity sleeve, there's a fair amount of fixed account selection. We also distribute through captive distribution. And so, when I think about marrying the product design to the distribution to the end customer, a lot of those more exotic, if you will, or newer product entrants aren't really what our customer base is asking for at this point in time. And you can see, our Retirement sales were up 9% in the third quarter. So we're seeing strong customer reception to the product set that we have. Marita Zuraitis: Yes, Ryan is right. We're really not hearing from our registered reps out there working with our customers or even from the educators themselves that our affinity niche is looking for that, but yet we see what's going on with RILA products and other things in the industry. And if we felt there was a need, we could leverage a really good third party to offer that or we could build it ourselves, but there's no demand for that in our market segment right now. Operator: The next question comes from Wilma Burdis with Raymond James. Wilma Jackson Burdis: Cat losses this year were $65 million versus, I think, you guys expected $90 million kind of coming into the year. And we also realize that 2 things have happened. It's been a low activity year, but also you have a lot of catastrophe mitigation efforts that you've been rolling out. So could you just help us think through that? How effective has the program been? And what are you just thinking into '26? I know you may not be able to give an exact answer. Ryan Greenier: Wilma, this is Ryan. Thank you for the question. As a reminder, our original guide in 2025 was about $90 million of catastrophe losses. And you're right, we and the industry have experienced a good catastrophe weather year. From a cat perspective, this year was more than one standard deviation below our historic averages. But when I think about cat losses and I think about the book, every year, you grow your total insured value. So, as we continue to grow the property book, the value that is exposed and that we get premium off of continues to grow. So you'd expect an increase in average modeled losses as a result of that. Candidly, offsetting this, though, is the non-rate actions that we took like the deductibles and roof schedule changes. We believe they are working as designed, and we're seeing the benefits. But in a light cat year, it's kind of hard to prove out the full magnitude of what you would expect. But we're seeing encouraging signs. When I look ahead to 2026, while we don't have official guidance out, I would not expect a significant decline in actual total cat dollar losses in 2026. Wilma Jackson Burdis: Understood. And I guess, this kind of ties into my first question, but could you talk a little bit more about normalized P&C earnings into '26 between that and -- between the cat loss mitigation efforts and the effects of rate increases that you're taking and seeing right now? Ryan Greenier: Sure, Wilma. We talk about our long-term targets and what we're striving to maintain in our P&C business, and we give you 2 targets. We talk about a mid-90s combined for auto, and we talk about wanting to run Property at or below 90% to account for the increased volatility just inherent in the Property business. We are at target profitability and better than that in Property. And when I think about the loss trends going forward in the rate plan, we are targeting a mid-single-digit rate plan in auto for next year. That's in line with loss trend expectations and a high-single-digit rate increases. So think about that as rate and inflation guard, so the increase in insured value, and that's for Property. And that's a little bit ahead of our loss trends. But that should keep us on track to maintain those profitability targets within P&C. Marita Zuraitis: Yes. But I also think it's important, and I want to magnify what Ryan said about cats, it wouldn't be prudent for any of us to assume that this year will repeat. The only way you can do this right is to rely on the math, looking at 5 and 10-year averages, looking at probabilistic and deterministic models, all blended to give you a cat estimate in any given time frame and year. Obviously, the recency of this year is great for the industry and good for us, but it wouldn't make sense for us to assume that a year like this is going to repeat. It will obviously be factored into all the numbers. But I think the only thing anybody knows about cats is you're going to be wrong with your estimates. So you really have to rely on your math to determine that number. And obviously, building values are up. Insured values are up. We're larger as an organization. So I wouldn't expect that our forecasted cats would be going down next year, as Ryan clearly said. And obviously, we'll discuss this with our guidance as we normally would in our normal course when we have our next call. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Rachael Luber for any closing remarks. Rachael Luber: Thank you for joining us today. If you have any additional questions or would like to schedule a meeting, please reach out to the Investor Relations team. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Braemar Hotels & Resorts, Inc. Third Quarter 2025 Results Conference Call. [Operator Instructions]. I'd now like to turn the conference over to Allison Beach, Director of Public Relations. Please go ahead. Allison Beach: Good morning, and welcome to today's call to review results for Braemar Hotels & Resorts for the third quarter of 2025 and to update you on recent developments. On the call today will be Richard Stockton, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer; and Chris Nixon, Executive Vice President and Head of Asset Management. The results as well as notice of accessibility of this conference call on a listen-only basis over the Internet were distributed yesterday in a press release. At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the safe harbor provisions of the federal securities regulations. Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These factors are more fully discussed in the company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of this call, and the company is not obligated to publicly update or revise them. Statements made during this call do not constitute an offer to sell or a solicitation of an offer to buy any securities. Securities will be offered only by means of a registration statement and prospectus, which can be found at www.sec.gov. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed on the Form 8-K with the SEC on November 4, 2025, and may also be accessed through the company's website at www.bhrreit.com. Each listener is encouraged to review these reconciliations provided in the earnings release, together with all the other information provided in the release. Also, unless otherwise stated, all reported results discussed in this call compare the third quarter ended September 30, 2025 and with the third quarter ended September 30, 2024. I will now turn the call over to Richard Stockton. Please go ahead, Richard. Richard Stockton: Good morning. Welcome to our third quarter earnings conference call. Before I begin, I'd like to remind you that back in August, we announced the initiation of a sale process for Braemar. The company has engaged Robert W. Baird & Co as its financial adviser and the sale process has been initiated. On today's call, we will not be providing any update on that process or be able to address any questions about that process. As we highlighted in the press release, there's no deadline or definitive timetable set for completion of the sale process and there can be no assurance that this process will result in the sale of the company. Additionally, we do not expect to disclose or provide any update concerning developments related to this process unless until the Board of Directors has approved a specific transaction or other course of action requiring disclosure. With that said, let me begin today's call by providing an overview of our recent results and our strategic priorities for the remainder of 2025, then Deric will provide a review of our financial results and Chris will provide an update on our asset management activity. Afterwards, we will open the call for Q&A. We have a few key themes for today's call. First, I'm excited to report that our portfolio achieved 1.4% growth in comparable RevPAR in the third quarter and total comparable hotel EBITDA growth of 15.1%. Importantly, our resorts continue to show strong growth with comparable RevPAR growth of 5.5% for the quarter. Second, we have significant renovations in process at 3 hotels, which significantly impacted our portfolio results. If you exclude hotels under renovation during the quarter, our RevPAR growth was 3.4%. Third, from a liquidity perspective, we remain very well positioned having addressed our final 2025 debt maturity earlier this year, completing the sale of the Mariott Seattle Waterfront in August and announcing the planned sale of the Clancy, which we expect to close shortly. Turning to our third quarter results. Our portfolio delivered solid results with comparable RevPAR of $257, reflecting an increase of 1.4% over the prior year quarter. This marks our fourth consecutive quarter of RevPAR growth, which I believe reflects an important inflection point in our performance. Additionally, comparable total hotel revenue increased by 3.9% over the prior year period, and comparable hotel EBITDA was $21.4 million, which reflected a 15.1% increase over the prior year quarter. 9 of our 14 hotels are considered resort destinations. And our luxury resort portfolio continues to return to a more normalized growth trajectory, delivering a strong third quarter performance. Our resort portfolio reported comparable RevPAR of $361 a 5.5% increase over the prior year period and combined comparable hotel EBITDA of $13.1 million, a 58% increase over the prior year period. The brightest spots within our resort portfolio this quarter included the Four Seasons Resort Scottsdale at True North, which delivered an impressive comparable RevPAR growth of approximately 25%. The Ritz-Carlton Lake Tahoe also performed exceptionally well with total revenue up roughly 32% year-over-year, reflecting strong group demand and the benefits from the recently completed renovation. And our Ritz-Carlton reserves Toronto Beach continue to be a standout, achieving approximately 20% growth in comparable RevPAR. This impressive performance was slightly offset by some near-term softness in our urban hotels we saw comparable RevPAR decreased 3.9% during the quarter. This reflects the extensive renovation of the Cameo Beverly Hills as well as citywide occupancy declines in Philadelphia, which created headwinds this quarter for the Notary Hotel. Looking ahead, our booking base continues to be strong, and we believe our portfolio is well positioned outperforming. As a reminder, on the capital markets front, in March of this year, we closed on a refinancing across 5 hotels at a very competitive spread. Importantly, this financing addressed our only remaining final debt maturity for 2025. In August, we capitalized on the strong credit market for lodging assets by refinancing the mortgage loan secured by the Four Seasons Resort Scottsdale True North. During the quarter, we sold the 369-room Marriott Seattle Waterfront for $145 million or $393,000 per key. The transaction aligns nicely with our strategic objectives to deleverage the portfolio while sharpening our focus on the luxury hotel sector. Additionally, subsequent to quarter end, we entered into a definitive agreement to sell the 410-room Clancy in San Francisco for $115 million or approximately $280,000 per key. The transaction is expected to close this month. Of note, we received a $3.5 million nonrefundable earnest money deposit, and the buyer has the right to extend the closing for 30 days with an incremental $1 million nonrefundable deposit. The sale price represents a 5.2% capitalization rate on net operating income for the trailing 12 months ended September 2025. We are strategically refining our portfolio is one clear objective to maximize its value for our shareholders, and this divestiture will help us to ensure that a future sale of the company results in the best possible outcome for our investors. Next, I'm pleased to report that to date, we have redeemed approximately $125 million of our nontraded preferred stock, which represents approximately 27% of the original capital raise. We expect to continue to redeem these shares as we seek to deleverage our platform and improve our cash flow per share. We are pleased with the performance of our portfolio and believe the renovations we are completing will drive strong performance going forward. I will now turn the call over to Deric to take you through our financials in more detail. Deric Eubanks: Thanks, Richard. It's important to remember that the third quarter is the weakest quarter for our portfolio from a seasonality perspective. For the quarter, we reported a net loss attributable to common stockholders of $8.2 million or $0.12 per diluted share and AFFO per diluted share of negative $0.19. Adjusted EBITDA for the quarter was $16.4 million. At quarter end, we had total assets of $2 billion. We had $1.2 billion of loans, of which $27.7 million related to our joint venture partner's share of the loan on the Capital Hilton. Our total combined loans at a blended average interest rate of 6.9%, taking into account in the money interest rate caps. Based on the current level of SOFR and our corresponding interest rate caps, approximately 13% of our debt is effectively fixed and approximately 87% is effectively floating. As of the end of the third quarter, we had approximately 43.2% net debt to gross assets. We ended the quarter with cash and cash equivalents of $116.3 million plus restricted cash of $47.7 million. The vast majority of that restricted cash is comprised of lender and manager held reserve accounts. At the end of the quarter, we also had $23.1 million in due from third-party hotel managers. This primarily represents cash held by one of our brand managers, which is also available to fund hotel operating costs. With regard to dividends, we again announced a quarterly common stock dividend of $0.05 per share or $0.20 per diluted share on an annualized basis. This equates to an annual yield of approximately 8% based on yesterday's stock price. As of September 30, 2025, our portfolio consisted of 14 hotels with 3,298 net rooms. Our share count currently stands at 73.6 million fully diluted shares outstanding, which is comprised of 68.2 million shares of common stock and 5.4 million OP units. This concludes our financial review. I'd now like to turn it over to Chris to discuss our asset management activities for the quarter. Christopher Nixon: Thank you, Deric. Despite temporary headwinds from ongoing renovations at several properties, our portfolio continued to demonstrate resilience during the third quarter. Comparable hotel RevPAR increased 1.4% and driven by a 4.7% improvement in ADR compared to the same period last year. During the third quarter, our portfolio GOP margin expanded by 160 basis points compared to the prior year period. During the third quarter, our resort properties were a key driver of performance, delivering a 5.5% increase in comparable RevPAR and a 57.7% increase in comparable hotel EBITDA. The Four Seasons Resort in Scottsdale was a standout with third quarter RevPAR up 24.9% and GOP growing 231.6% compared to the prior year period. The portfolio delivered strong third quarter results despite temporary disruption from ongoing renovations at Cameo Beverly Hills, Park Hyatt Beaver Creek and Hotel Yountville. Excluding these properties, RevPAR increased 3.4% for the third quarter compared to the prior year period. We remain confident in our ability to sustain operating momentum and deliver strong results in the periods ahead. I would now like to highlight a few of the key accomplishments achieved during the quarter. Group room revenue remained strong across the portfolio despite softening trends industry-wide. Group room revenue pace for the full year 2025 is up 9.1% compared to the prior year. For the third quarter, group room revenue finished 1.3% above the prior year period. The Ritz-Carlton Lake Tahoe was a standout during the third quarter, delivering exceptional group room revenue growth of 80.2% compared to the prior year period, driven by a sharp increase in group demand following its extensive 2024 renovation. The property realized more than 2,400 additional room nights during the period and achieved a $30 improvement in ADR compared to the prior year period. This momentum supported not only growth in rooms revenue, but also strong food and beverage performance as catering revenue increased 80.7% during the third quarter compared to the prior year period, further enhancing overall profitability. Recent property enhancements such as cabanas, fire pits, swing suites and new food and beverage outlets have further contributed to food and beverage revenue growth during the third quarter, which increased 43.3% compared to the prior year period. Portfolio-wide, catering revenue finished ahead by 31% in the third quarter compared to the prior year period, and we are becoming increasingly selective with group business to further capitalize on food and beverage opportunities associated with higher spend events. The remainder of the year reflects continued strength in the group segment with fourth quarter group room revenue currently pacing ahead 1.7% compared to the prior year period. Our ability to sustain momentum in capturing group demand within a competitive environment underscores the effectiveness of our targeted sales strategies and the advantages of our geographically diverse portfolio. As I mentioned earlier, our resort properties continue to be significant contributors to portfolio performance. A highlight this quarter was the Ritz-Carlton Dorado Beach, which continues to deliver impressive results with a 20.4% increase in RevPAR during the third quarter compared to the prior year period. reflecting strong demand and sustained rate growth at this premier Caribbean destination. During the third quarter, the property capitalized on 2 back-to-back buyouts, which helped drive group room revenue growth of 353% compared to the prior year period. In an effort to expand revenue streams for the property, our team continues to focus on optimizing and expanding the residential rental program, which currently includes 16 residences. During the third quarter, residents revenue increased 11.8% compared to the prior year period. The average daily rate for residences within the rental program exceeded $7,900 during the quarter. Recent operational enhancements including streamlined onboarding for owners and integration with the Marriott Homes and villa platform have contributed to steady growth and improved rental performance. Additionally, the Ritz-Carlton Sarasota delivered strong performance with total revenue increasing 5.2% compared to the prior year period, driven by a 15.5% increase in other revenue. The property has expanded access to its amenities for local and outside gas, resulting in a 38% year-to-date increase in related revenue compared to the prior year period. The previously underutilized kid space was converted into a commission-based arcade, which is outperforming expectations and plans are underway to further expand this offering to capture additional demand and enhance ancillary revenue. Moving on to capital expenditures. In the third quarter of 2025, we completed the conversion of underutilized space at Four Seasons Scottsdale into a new Gelato shop in Cafe and an epicurean market, enhancing the guest experience and creating new revenue streams. We also added 5 new luxury beach a cabana, the Ritz-Carlton St. Thomas, further elevating the resorts feedfront offering and driving incremental revenue. We made substantial progress with guestroom renovations at both Hotel Yountville and the Park Hyatt Beaver Creek. These projects are designed to capitalize on the luxury positioning within their respective markets with completion of both expected later this year. Additionally, we began the renovation at Cameo Beverly Hills to support its strategic conversion to Hilton's LXR luxury portfolio with completion planned for later this year. We also initiated multiple enhancements at the Ritz-Carlton Reserve Toronto Beach including beach-side cabanas and creation of a new event line to attract incremental group business. Later this year, we plan to commence the renovation of the pool deck and fitness center at Bardessono Hotel & Spa a project designed to further elevate the resorts wellness and leisure offerings and reinforce its positioning as one of Napa Valley's premier luxury destinations. These initiatives reflect our disciplined capital deployment strategy and continued focus on long-term value creation through portfolio quality and brand alignment. For 2025, we continue to anticipate spending between $75 million and $85 million on capital expenditures. In summary, we are pleased with our solid year-to-date performance and continue to see the benefits of operating initiatives focused on productivity and cost efficiencies. We are particularly encouraged by the return of normalized growth within our resort segment. Our momentum reflects the strength and resilience of our diversified portfolio and the strategic positioning we've built over time. In addition, we are actively advancing several initiatives aimed at further enhancing our well-diversified platform. We remain optimistic about the opportunities ahead and look forward to sharing continued progress in the quarters to come. I will now turn the call back over to Richard for final remarks. Richard Stockton: Thank you, Chris. In summary, I'd like to reiterate that we continue to be pleased with the performance of our hotels, in particular, the return to normalized growth for our resort assets. We also remain well positioned with a solid balance sheet and promising outlook. We look forward to updating you on our progress in the quarters ahead. This concludes our prepared remarks, and we will now open the call for Q&A. Thank you. Operator: [Operator Instructions]. Our first question will come from the line of Tyler Batory with Oppenheimer. Tyler Batory: A portfolio question for you first in terms of CapEx. Just a multipart question. What do you think is a good maintenance run rate CapEx number to think about for your portfolio, whether that's a dollar number or a percentage of revenue? And given some of the CapEx projects you completed over the past few years. Just talk about the overall quality of the portfolio as it stands today, if there's anything deferred or any sort of catch-up CapEx that might potentially be contemplated in the next couple of years? Christopher Nixon: Yes, Tyler. I'll take that. So in terms of maintenance CapEx, we typically target a percentage of revenue, I would say it's low single digits, in terms of maintenance and mechanical. In addition to that, we've got ROI CapEx and some of these larger renovations and repositionings. From a deferred standpoint, we've got a process by which the properties put in capital requests, and we've got an engineering team within our Ashford CapEx team that works with our property engineers to make sure that any mechanical or maintenance projects are being addressed appropriately. So we review those. We prioritize them. We'll will then deploy capital against the ones that we think are high priority. But there's nothing, I would say, significant or out of the ordinary that's been deferred. Tyler Batory: Okay. Great. And then my other question on RevPAR and portfolio performance. Obviously, you initiated the sales process at the end of the summer, and that was made public. Is that something that you think is weighed on results at all? Or maybe it's not that much of a distraction in the hotel level employees perhaps aren't really thinking about that? Christopher Nixon: Yes. I don't think it's affected anything at the property level or in terms of how our asset management team is working with the hotels. We were actually quite pleased with the results given some of the headwinds that we mentioned in our prepared remarks. We've got 3 significant hotels that are under major renovations. We've got a major repositioning. We've got some impact from government and some other segments. And with all -- despite all that, the portfolio grew RevPAR, we grew EBITDA. We grew EBITDA margin. We're still finding efficiencies. We're still finding controlling labor, controlling expenses, how is profit margin expanded within the quarter to last year. And so I think from a property level, as it rolls up to the portfolio, I think performance was quite strong in the quarter, and I don't think the sales process has impacted our approach at all. Tyler Batory: Okay. Then moving on, just a couple of strategic questions quickly here. Obviously, the company is externally advised was there plans or have ever been planned, discussions in terms of an internalization process? And just kind of wondering if you could unpack behind the scenes, if you did look at that and just kind of what you thought about it? Richard Stockton: Yes. Tyler, it's Richard Stockton. So yes, no, this is something that the Board has considered. When we announced that we're looking at various strategic alternatives. That was one of them. And so that was something that was thoroughly vetted by the Board. Ultimately, the conclusion was to opt for a company sale instead. And so that's the route that was chosen for various reasons. Tyler Batory: Okay. And then more broadly, Richard, I'll try to keep this question general here, but just any commentary or perspective you could provide on the acquisition backdrop for hotels, the appetite out there, availability of capital, things like that. Just interested to some of the larger entities, perhaps what they're view is on your portfolio of transactions and just kind of the overall environment out there and the desire to own hotels. Richard Stockton: Yes. That's a good question. I'd say it continues to improve. We saw the debt capital markets become much more favorable earlier this year. There is a widespread debt availability A lot of that is being provided through either the CMBS market or through private credit markets. That's a good thing. But also the big private equity funds and a lot of the private players are getting more interested in deploying equity capital into the sector. And that's something that we're seeing with some of our discussions and we're seeing that interest in size. So it does feel that whereas a lot of buyers have been on the sidelines, they're coming off the sidelines. Now I also think that our portfolio is pretty unique. Dare I say, it's the most attractive hotel portfolio on the market, for sure. And it's just the opportunity to acquire and own this kind of portfolio doesn't come around that long. So I think for that reason, I think people are certainly more interested than otherwise. But the general trend is very positive in terms of private capital looking at hotel assets. And so more to come on that. Operator: Our next question will come from the line of Michael Bellisario with Baird. Michael Bellisario: Thanks. Good morning, everyone. Two questions probably both for Chris here. But just first on D.C., can you just give us an overview of what you're seeing on the ground, how the government pullback affected the third quarter results? And then what the shutdown might do to near-term performance at the property? Christopher Nixon: Yes. I'd be happy to speak to that. So the government will primarily impact our asset in BC, which is Cap Hilton. Luckily for that asset, because of its location and the ADRs and demand, we're able to command, it doesn't have a lot of exposure to the government segment, government transient. It does single digits as a percentage of its mix in government transient business. And so we haven't seen a significant impact there. We are seeing some group cancellations, some negative rebounds where group sizes are shrinking and some catering impact from some programs in D.C. Besides that hotel, the impact of -- that we've kind of seen the government is fairly muted. We're seeing a little bit in Philly and some other markets. But in those other markets outside of D.C., the corporate business has been strong and it's been able to offset that. So again, in D.C., at capelin, has been primarily in the group segment. I cited for the portfolio group pace is up significantly for 2025. And Q3 and Q4 are up. And so on the whole, we've been able to mitigate that impact in government that's primarily come through group at cap. Michael Bellisario: Got it. That's helpful. And then just on leisure trends more broadly, what did you see in the third quarter relative to your expectations? Any change in consumer spending, out of room spend, booking channels? Are you having to discount more or less offer more promotions? Any commentary there would be helpful. Deric Eubanks: Yes, Michael. Leisure overall, revenue was up in the third quarter. So we're seeing leisure strength Occupancy was down slightly and ADR was very strong. And so what we're seeing from that luxury consumer is less price sensitivity. So they still want to travel. They're willing to pay a premium for the experience when they travel. We saw increased ancillary spend when they're on property, both in F&B and other departments. And so when they're there, they're willing to spend more. So overall, it was kind of -- it was what we expected. I think we've been pleasantly surprised with just the lack of price sensitivity to that customer and how resilient they are and wanting to travel and wanting to pay for experiences. So on the whole, the leisure segment has been a standout for us. Operator: And that will conclude our question-and-answer session. I'll turn the call back to management for any closing comments. Richard Stockton: Thank you for joining us on our third quarter earnings call, and we look forward to speaking with you again next quarter. Operator: This concludes our call today. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 Steve Madden Ltd. Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Danielle McCoy, VP of Corporate Development and Investor Relations. Please go ahead. Danielle McCoy: Thanks, Brittany, and good morning, everyone. Thank you for joining our third quarter 2025 earnings call and webcast. Before we begin, I'd like to remind you that our remarks that follow, including answers to your questions, contain statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to materially differ from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have described in our press release issued earlier today and filings we make with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. The financial results discussed on today's call are on an adjusted basis, unless otherwise noted. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release. Joining me on the call today are Ed Rosenfeld, Chairman and Chief Executive Officer; and Zine Mazouzi, Chief Financial Officer and Executive Vice President of Operations. With that, I'll turn the call over to Ed. Ed? Edward Rosenfeld: All right. Thanks, Danielle, and good morning, everyone, and thank you for joining us to review Steve Madden's third quarter 2025 results. As anticipated, the third quarter was challenging, driven largely by the impact of new tariffs on goods imported into the United States. During the period in April and May when new tariffs on Chinese imports reached 145%, wholesale customers cut back meaningfully on orders for the third quarter, and we shifted large amounts of production out of China midstream, which led to shipment delays. These factors, together with the negative impact to gross margin from the significant increase in our landed costs, resulted in substantial pressure on both revenue and earnings in Q3. Fortunately, while we will continue to see negative impacts from tariffs, we believe the worst is behind us. Order patterns from our wholesale customers are normalizing, and we are mitigating a larger percentage of the gross margin pressure through strategic pricing actions and sourcing initiatives. Most importantly, underlying consumer demand for our brands and products is strong. Despite the noise from tariffs, our team has stayed laser-focused on executing our strategy to deepen consumer connections through the combination of compelling products and effective marketing, and we are seeing those efforts pay off, particularly in our flagship Steve Madden brand. Steve and his design team have created an outstanding fall product assortment that is resonating with consumers and enabling us to outperform the competition. Boots have been the standout, led by our casual tall shaft styles, but we're also seeing strong performance in dress shoes across various heel heights as well as casuals like loafers, Mary Janes and Mules. Our marketing team is amplifying this great assortment with richer brand and product storytelling and increased investment across YouTube, TikTok, Snapchat and Pinterest, which is driving measurable increases in awareness and conversion with our key Gen Z and Millennial consumers. As a result, both wholesale sell-through and DTC sales trends for Steve Madden have accelerated meaningfully in recent months. Our new brand, Kurt Geiger London, also had strong momentum as consumers continue to respond to its bold statement-making designs and eye-catching marketing, including the current campaign featuring Emily Ratajkowski. Comp sales for the brand were up mid-teens in the third quarter. Overall, the acquisition integration remains on track, and our teams continue to make progress on revenue synergies, including expanding Kurt Geiger in international markets through the Steve Madden network and growing Steve Madden in the U.K. through the Kurt Geiger platform as well as cost savings opportunities in areas like freight and logistics. We are also making meaningful progress in advancing our other owned brands. In Dolce Vita, we're building on the outstanding success we've had over the last several years in our U.S. footwear business by expanding international markets and extending the brand into other categories like handbags. In Betsey Johnson, we are driving renewed cultural relevance for the brand with elevated talent partnerships, authentic community engagement, high-impact activations and differentiated merchandise assortments. Both Dolce Vita and Betsey Johnson are on track to deliver revenue gains for the full-year 2025 despite the headwinds from tariffs. In sum, while the third quarter was undeniably challenging and our financial results were not up to our usual standards, our team's disciplined execution of our strategy is strengthening our brands and building relevance and demand with consumers. We are confident that we will begin to see improved financial performance in the fourth quarter and looking out further that we have the brands, business model and strategy to drive sustainable revenue and earnings growth over the long term. Now I'll turn it over to Zine to review our third quarter 2025 financial results in more detail. Zine Mazouzi: Thanks, Ed, and good morning, everyone. In the third quarter, our consolidated revenue was $667.9 million, a 6.9% increase compared to the third quarter of 2024. Excluding the newly acquired Kurt Geiger, consolidated revenue decreased 14.8%. Our wholesale revenue was $442.7 million, down 10.7% compared to Q3 2024. Excluding Kurt Geiger, our wholesale revenue decreased 19%. Wholesale footwear revenue was $266.5 million, a 10.9% decrease from the comparable period in 2024 or down 16.7%, excluding Kurt Geiger. Wholesale accessories and apparel revenue was $176.2 million, down 10.3% compared to the third quarter in the prior year or down 22.5%, excluding Kurt Geiger. The majority of the organic decline in wholesale revenue can be attributed to tariff-related order reductions, shipment delays and other impacts related to the production disruption. In our direct-to-consumer segment, revenue increased 76.6% to $221.5 million. Excluding Kurt Geiger, our direct-to-consumer revenue increased 1.5%. We ended the quarter with 397 company-operated brick-and-mortar retail stores, including 99 outlets as well as 7 e-commerce websites and 133 company-operated concessions in international markets. Our license and royalty income was $3.7 million in the quarter compared to $3.5 million in the third quarter of 2024. Consolidated gross margin was 43.4% in the quarter, up from 41.6% in the comparable period of 2024 due to the impact of Kurt Geiger, which has a much higher mix of DTC than the legacy business and therefore, has higher overall gross margin. Wholesale gross margin was 33.6% compared to 35.5% in the third quarter of 2024 due to pressure from tariffs, partially offset by our mitigation efforts. Direct-to-consumer gross margin was 61.9% compared to 64% in the comparable period in 2024 due to pressure from tariffs as well as the addition of Kurt Geiger, which had lower DTC margin in the quarter than the existing business, driven by the concessions business. Operating expenses were $243.4 million or 36.4% of revenue in the quarter compared to $174.2 million or 27.9% of revenue in the third quarter of 2024. Operating income for the quarter was $46.3 million or 6.9% of revenue compared to $85.4 million or 13.7% of revenue in the comparable period in the prior year. The effective tax rate for the quarter was 23.4% compared to 23.8% in the third quarter of 2024. Finally, net income attributable to Steve Madden Limited for the quarter was $30.4 million or $0.43 per diluted share compared to $64.8 million or $0.91 per diluted share in the third quarter of 2024. Moving to the balance sheet. Our financial foundation remains strong. As of September 30, 2025, we had $293.8 million of outstanding debt and $108.9 million of cash, cash equivalents and short-term investments for a net debt of $185 million. Inventory at the end of the quarter was $476 million compared to $268.7 million in the third quarter of 2024. Excluding Kurt Geiger, inventory was $275.6 million, a 2.6% increase compared to the same period last year. Our CapEx in the third quarter was $11.6 million. During the third quarter, the company did not repurchase any shares of its common stock in the open market. The company's Board of Directors approved a quarterly cash dividend of $0.21 per share. The dividend will be payable on December 26, 2025, to stockholders of record as of the close of business on December 15, 2025. Turning to our fourth quarter '25 guidance. We expect revenue to increase 27% to 30% compared to the fourth quarter of 2024, and we expect earnings per share to be in the range of $0.41 to $0.46. Now I would like to turn the call over to the operator for questions. Brittany? Operator: [Operator Instructions] Our first question comes from the line of Paul Lejuez with Citi. Kelly Crago: This is Kelly on for Paul. Ed, you sounded pretty positive on what you're seeing on the fashion front. I'm just curious if you could talk more about how you're seeing the fashion develop this fall, how inventory levels in the wholesale channel are looking? If that makes you think differently about sort of the prospects for spring, particularly in the wholesale channel. Edward Rosenfeld: Yes. Kelly, yes, we feel really good about what we've seen in fall. As we mentioned, we've seen a pretty meaningful acceleration in the trends, particularly in that core Steve Madden women's shoe business. As I called out, I think the biggest driver has been boots. Our boot assortment has just seen really strong performance. We called out that it's been led by the casual tall shaft styles. Those have been most important, but we've got a number of other things working in the boot and booty category as well. Then as I said earlier, it's not just about boots because we've really seen a nice improvement in the dress shoe category. That's obviously a category where we think we have a really strong competitive positioning and our team has executed there. We're seeing strength in a number of different sort of looks within the dress category, and as I mentioned, really at various heel heights. Then casuals have been important, too. The fashion sneaker business has downshifted a bit, and we're picking that business up and then some in loafers and Mules and Mary Janes. Really feeling better than we have in some time about our fashion in Steve Madden and how it's performing. Yes, it does give us confidence going into spring that -- and I think we feel better than we did a few months ago about how spring is shaping up. Kelly Crago: Good to hear there. Then on the 4Q guide, well above sort of where consensus is looking. I was just -- could you just break that down a bit for us in terms of what you're expecting from the core relative to the kind of down 15% you saw in the third quarter, whether there's any shifts there or what's kind of driving any acceleration there? Just what you would expect from KG in the fourth quarter? Edward Rosenfeld: Sure. Yes. The core business, if you exclude KG, the revenue guide is essentially down 2% to down 4%. That includes increases in both wholesale footwear and DTC, but still a decline, offset by a decline in wholesale accessories and apparel. Then the KG contribution to revenue, I think at the low end, we're at $182 million and the high end $187 million. Kelly Crago: Any sense of the breakdown when we think about our models and how much of that KG revenue is coming from the DTC channel in the fourth quarter? What kind of impact that'll have on the grosses? Edward Rosenfeld: Yes. I mean, as you know, overall, KG is over 70% DTC. In the -- I think I have to -- I mean, I want to say it's probably about $135 million, something like that in the fourth quarter coming from DTC. Obviously, that does have a meaningful mix impact to gross margin. Operator: Our next question comes from the line of Anna Andreeva with Piper Sandler. Anna Andreeva: Congrats. Nice results. A couple of questions. Are you seeing stockouts in the core Madden business, just given everything that's going on with the supply chain? How quickly can you chase? Great to hear about DTC ex-KG bouncing back to positive. Ed, you mentioned a strong consumer response to a number of categories. Can you parse out how own e-com did versus brick-and-mortar? How does the 10% reduction in China affect your thinking about sourcing? Edward Rosenfeld: Sure. Yes. Look, are there certain styles where we've had stock outs? Yes. Generally speaking, we've been able to chase some of the additional demand in the core Steve Madden business. As you point out, because of the supply chain disruption, we don't have the ability to chase that we normally do and the speed that we normally do. We did front-load some merchandise here because we had good reads on these products, and so we were in a position to fill some reorders, for instance, in Steve Madden. Then also some of this product is coming -- or a good portion of it is coming from Mexico. Obviously, we -- that's where we have a lot of speed, and we can get back into reorders in 30 days. That, I think it has been an okay story. I think the second quarter was about e-commerce versus bricks and mortar. In both Steve Madden and Kurt Geiger, e-commerce is outpacing bricks-and-mortar, but we've seen -- we talked about the acceleration in Steve Madden. We've seen that in both e-com and stores in recent months. Then in terms of the final question, I think it was how does the China reduction impact our sourcing. Look, it's obviously -- it's a welcome development to see the reduction in the tariff on China. The way that the tariff regime looks right now, the math would tell us we would move quite a bit back to China. I think that we're going to be careful about that. We want to remain diversified. We don't want to get back into a position where we have 70-plus percent of our sourcing coming from one country, so we're going to continue to try to be diversified, but it obviously does give us a greater flexibility to go back to China where we need to, to get the right deliveries and quality, pricing, speed, etc. Anna Andreeva: Just as a follow-up, as we think about the KG rollout plans as we look into next year, just any color you could provide how we should think about the store growth versus wholesale? Edward Rosenfeld: Yes. Well, we will be -- we're going to, I think, not get into a lot of detail about '26 overall because we'll obviously be talking about that on the next call. I can tell you that we do plan to open a handful of stores in the United States next year for Kurt Geiger, and we're working on those plans now. As we've talked about the initial 6 stores in the United States are performing very well. We're getting pretty close on a handful of leases for next year to continue that rollout. There'll be some wholesale growth as well because I think that we have opportunity in both channels. Operator: Our next question comes from the line of Jay Sole with UBS. Jay Sole: Ed, I think I heard you say that legacy Steve Madden should be down by 2% to 4% with wholesale footwear and DTC positive. Can you just talk about how you're thinking about 4Q for the entire wholesale footwear segment and then wholesale accessories, that would be helpful. Edward Rosenfeld: Yes. Wholesale, including Kurt Geiger or excluding Kurt Geiger? Jay Sole: I guess, excluding Kurt Geiger. Edward Rosenfeld: Excluding Kurt Geiger, wholesale footwear, we're looking at up 2% to up 4.5%. Wholesale accessories and apparel, excluding Kurt Geiger, still down mid- to high teens. Jay Sole: Then I guess if you think about Kurt Geiger retail versus wholesale, I mean, how are you thinking about that? Edward Rosenfeld: Well, we've provided the DTC revenue for Kurt Geiger, which I said I think is going to be around $135 million. Then the overall number for Kurt Geiger, $182 million to $187 million is the range. Jay Sole: Then I guess just -- you asked this a couple of times, but just on your visibility, I mean, have you taken orders -- do you take orders earlier for Kurt Geiger relative to the Steve Madden business? I mean do you have visibility out into Q1 and Q2 yet for Kurt Geiger? Or is it going to be on the same sort of quick turning supply chain that Steve Madden is on? Edward Rosenfeld: No, we do take orders earlier there, so we'll have more visibility over time there. Jay Sole: I guess any comment on the order book and how that's shaping up right now? Edward Rosenfeld: I think we're going to postpone all discussion of '26 until the next call. Look, the Kurt Geiger brand continues to perform very well, and we're going to see growth next year. Operator: Our next question comes from the line of Abigail Zvejnieks with BNP Paribas. Abigail Zvejnieks: I wanted to ask on Kurt Geiger as well. I appreciate the comment on comp sales up mid-teens. Any color you can share on how Kurt Geiger performed by region in the quarter? Edward Rosenfeld: Yes. It's growing in all the core regions. They performed well in their home market of the U.K. continues to grow in the U.S., and we're also growing in Europe. Abigail Zvejnieks: Then you've talked about the revenue synergy potential there and one of the first pieces of that being plugging -- sort of plugging KG into your existing international markets. I know it's still early, but any updates on that in terms of how that's progressing or when you could start seeing some of those benefits? Edward Rosenfeld: Yes. We've been hard at work on that. Kurt Geiger, our CEO, just went on a world tour. I think he was -- he hit, I want to say, 4 continents over a 3-week period, meeting with all of our international teams and international partners. That work is underway, and I think we'll start to see some benefits in '26, probably more -- I think anything that will be meaningful to the numbers would be towards the back end of '26. Operator: Our next question comes from the line of Marni Shapiro with The Retail Tracker. Marni Shapiro: Your stores have really looked beautiful. Could we just focus a little bit on some of your smaller but growing areas? It sounds like the handbag business was a little bit disrupted. I'm guessing some late deliveries. I'm curious if you could just talk a little bit about what's going on there. Then can we get an update on the apparel business, both at stores like Macy's, Bloomingdale's and REVOLVE as well as Madden NYC at Walmart? Edward Rosenfeld: Yes, sure. In terms of handbags, look, that's obviously been a category -- talking about Steve Madden handbags that we have talked about all the year was going to be down based on the excess inventory in the channel and some of the market pressures that we've experienced there, that was -- so we came into the year expecting that business to be down double digits. That's been exacerbated by all the tariff disruption and everything that's happened with the supply chain and deliveries and everything else. We certainly felt a lot of pressure there, and we're going to continue to feel that in Q4. The good news is that the underlying demand, I think, is improving, and we've seen good sell-throughs in fall so far, improved over spring. We've got a number of things working there. I think that our online Hobos, shoulder bags, East West bags, anything in Brownsway. We've got the trends, and they're performing. I do expect that business to stabilize as we come into spring '26. Then apparel, as you know, has been a nice growth story for us. The focus, of course, is Steve Madden apparel, and that's a business that we've been -- the sell-throughs have been good, and we've been steadily growing it in those key accounts that you mentioned, Nordstrom, Dillard's, Bloomingdale's, [Topdoors] and Macy's, REVOLVE, etc., and then to your point, we also have the mass business that we do with Walmart under Madden NYC. That's an important business for us as well, although our overall business in the mass channel has definitely felt some pressure from tariffs. We expect that to get better as we go into '26. Marni Shapiro: Then can I just follow up on what's going on, on the bag side and the department stores -- I'm sorry, in the shoe side and the department stores. Are you seeing a big difference between the higher-end stores that you sell, some of the better stores or, I guess, even more fashion stores, REVOLVE is a much more fashion store than some of the others versus stores that are a little bit less fashion? Or it's across the board, your sell-through has been good and there's not a lot of price resistance to the Madden brand when the product is right? Edward Rosenfeld: Yes. We've been really pleased so far with the lack of price resistance that we've seen, particularly in the Madden brand. I think as we've said, we have a lot of very strong fashion right now. I think overall, if you look at the overall company, the real takeaway on the price increases is that when you have real fashion forward products or new fashion, the consumer is willing to pay, where you have to be much more careful with price increases is on the core and more basic product. The good news is that's how we did it, and that's how we planned it. As you know, we were very surgical about it. We didn't take a peanut butter approach where we spread the price increases evenly everywhere. We went style by style. I think that so far, we've been pleased with how the price increases have been received by the consumer. Marni Shapiro: The product really looks outstanding, some of the best product out there in the market. Operator: Our next question comes from the line of Corey Tarlowe with Jefferies. Corey Tarlowe: Ed, I was just wondering if you could talk to the AUR lift in the business. You're selling $200 boots today versus sneakers that were more like $70 previously. How is that affecting the business? What's the impact on sales and comp? How do you measure that? How do these fashion trends speak to what AUR could be next year? Edward Rosenfeld: Yes, we are seeing a pretty significant increase in AUR, and it's really twofold. It's one, it's based on the price increases that we've put through in response to tariffs. Number two, it's -- as you point out, there's a mix benefit due to selling more boots and higher-priced categories. In Q3, in our DTC, we were up about high singles in AUR. In Q4, we're running more like mid-teens increases in AUR. Corey Tarlowe: Then it does feel as if there's a bit of a tone shift in your commentary around wholesale, where kind of the first half of the year, I talked about order cancellations and now you're talking about orders ramping back up. I'm curious if is this the fact that the channels are doing better? Or is it that you see Steve Madden gaining more market share in these channels? How do you think about that? Edward Rosenfeld: I think it's both. Look, if my tone didn't get better from how I was talking when we had 145% tariffs and everybody canceled every order, then it would be pretty depressing. Look, some of that -- the external noise has abated a bit. I think things are normalizing in the wake of all the tariff disruption. In addition to that, we are also seeing improved underlying demand, improved sell-through, and that's causing the wholesale customers to come back to us with more aggressive plans. Corey Tarlowe: Then if I could just squeeze one more in. it seems like the product is resonating really nicely. Intuitively, what do you think that means for promotions? What's embedded in your outlook for that? Edward Rosenfeld: Yes. I mean the good news is we have been able -- for instance, in our DTC channels, we have so far in Q4, reduced promotional days by a pretty meaningful amount compared to what we were doing last year. We've been able to be less promotional because of the strength of the product and the trend. We'll do -- obviously, we need to remain competitive when we get into the fall -- the part of the holiday season here when everybody is promotional, but we're going to attempt to continue to be less promotional where we can. Operator: Our next question comes from the line of Tom Nikic with Needham. Tom Nikic: I wanted to ask about the margin structure of the business. Obviously, 2025 between tariffs and the acquisition and maybe some tough first half of the year at the core brand or a tough first 9 months. There was quite a bit of margin erosion this year. How do we think about how much of that is recoverable and how much may be structural? Edward Rosenfeld: I'd like to think all of it is recoverable over time. I think it's going to take a little bit of time. I don't expect us to get it all back in 2026. Certainly, the over time, I do believe that the tariffs are going to find their way into the retail prices, and we'll be able to get back to our pre-tariff margins in the core business. Then the Kurt Geiger business is obviously lower margin than the legacy business. We think that business has a path to getting to where the Steve Madden levels or potentially even higher over time, so that's the goal. Operator: Our next question comes from the line of [James Ross] with Williams Trading. Unknown Analyst: 2 questions actually. The first being, how will the mix of business with the addition of Kurt Geiger impact gross margins in Q4? I know we kind of touched on it in the first question, but I was hoping you could sort of dig into that a little deeper maybe. The second being, can you provide some color on brand growth and opportunities internationally and what that looks like going into next year? Edward Rosenfeld: Yes, go ahead. Zine Mazouzi: As far as your first question related to Kurt Geiger impacting gross margin in Q4, I think it would be similar to what we've seen in Q3, somewhere around 300 basis points. Edward Rosenfeld: I'm sorry, what was the second part of the question? Unknown Analyst: Yes. The second part was, could you provide some color on brand growth and just generally the opportunities internationally and what that looks like going into next year? Edward Rosenfeld: Okay. Is this about the legacy business or Kurt Geiger? You asking about Kurt Geiger or the legacy Steve Madden? Unknown Analyst: Steve Madden and then also Kurt Geiger as well. Edward Rosenfeld: Sure. Yes. Steve Madden, we continue to have nice momentum in international markets. For 2025, we're looking at high singles revenue growth, and that's very similar across the 3 regions. Very similar growth in the -- our 3 key regions being EMEA, APAC and the Americas, ex-U.S. So nice momentum really across the board, and we'll look for continued growth into 2026. Then Kurt Geiger, as we've said, they're in the really -- the early stages of their growth outside the U.K. and the U.S., so we'll be looking for very strong double-digit growth internationally out of them for a handful of years here. Operator: Our next question comes from the line of Janine Stichter with BTIG. Janine Hoffman Stichter: I just want to follow up on the margin recapture. If you could help us out. I think the tariffs you had that hit gross margin a little over 200 basis points in Q2. How much was it in Q3? Then how to think about Q4? Maybe help us unpack that Kurt Geiger between that and the core business. I think Kurt Geiger had been hit a bit more in the front of the year just because you hadn't been able to move as quickly there. Zine Mazouzi: Yes. As far as the tariff impact in Q3, given all the moving parts with the price increases, factory discounts, our renegotiated cost in as well as FOB differential between all the countries, I think it's best to look at it from a growth and mitigated perspective, and Q3 was about 100 basis points more than what Q2 was. I think you're asking about Q4 as well. I think it would be a little bit worse than that in Q4. Janine Hoffman Stichter: The Q4 is -- the 100 is mitigated and it will be worse in Q4 versus Q3? Edward Rosenfeld: Q3 was about 100 basis points worse than Q2, and we expect Q4 to be a little bit worse than Q3, but those are unmitigated, so the mitigation gets bigger over time. The net impact to gross margin will be considerably less in Q4 than it's been. Janine Hoffman Stichter: Then just maybe on the mitigation. I just want to clarify on pricing. I think you took 10% increases earlier this year. Have you taken more? Or do you plan to take more? Edward Rosenfeld: That's where we are right now. We'll have to look at it as we go forward. That obviously is still not enough to offset the full amount of the tariffs. Over time, we'd like to see if we can take more, but we want to be prudent about it. Operator: Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Dana Telsey: As we think about the wholesale business, what differed by type? Were there off-price department stores mass? What did you see? What do you think of the outlook going forward? Then on the DTC side, was there a difference between full price and outlet performance? Edward Rosenfeld: Yes. In wholesale, I would say we're seeing the strongest performance in the regular price channels, where we have had more pressure is in the value price channels like the off-price and the mass. In terms of DTC, we're seeing much better performance in full-price channels. Outlet remains a drag. I think we're being hurt by a couple of things there. One is, 5 of our biggest 8 outlet stores are on the border with Mexico. Those stores are running down about 40% and so that's been a big headwind there. Then the other thing is that I think we were impacted more acutely there by some of the disruption from the supply chain in the wake of tariffs. Outlet has still been trending negative and full price stores have been much better. Dana Telsey: Then just on the value side of the wholesale channel, are they just not taking orders? Are they waiting for newness? Are they waiting for more goods, not accepting the price increase? Any way to articulate it? Edward Rosenfeld: Well, they were the ones that pulled back most significantly. Again, it was during the period in April and May when China tariffs were 145%. They are coming back now, and we're seeing those businesses normalize, but that was where we felt a big part of the pullback in the last couple of quarters. Dana Telsey: Just lastly, on marketing, as you think about Q4, anything we should be watching on the marketing side given your improved social that you've had in terms of marketing as we head into the holiday season? Edward Rosenfeld: No, we're just going to continue to keep doing the storytelling. I think that we see it's working. I think our marketing teams are hitting the bull's eye, and we got -- we're just going to keep investing and keep telling our and keep engaging with consumers. Operator: Our next question comes from the line of Paul Lejuez with Citi. Kelly Crago: Kelly again. I just wanted to follow up on an earlier question around the KG margin structure. In your disclosure, you said, KG was about 9% EBIT margin business in F '24. Curious where that's going to shake out this year with the tariffs. Then as we look to '26, how much can you recover? Can you get back to the 9% next year? Just longer term, I mean, you spoke pretty positively about KG margins. Where ultimately do you think this business can land? How do you get there? Is it through SG&A synergies, anything in the gross margin to speak about? Just any color on sort of how we should think about the KG margins as we look forward? Edward Rosenfeld: Yes. In terms of this year, for the partial period that we're going to -- that we own them from May on, I think that they're going to come in around 6%. In terms of next year, we'll talk in more detail about that on the next call. Certainly, we should see improvement from where we were today from where we were this year, but I think we'll postpone any further discussion of that until that call. Then in terms of the -- the last -- the drivers to get longer term. Yes. I think there's opportunity in both gross margin and SG&A, but I think the bigger opportunity is in SG&A. There's some cost savings opportunities that they're going to get from the combination with us, which we're already -- all that work is already underway. We also think there's a significant opportunity to just leverage operating expenses over time as we grow that business. Kelly Crago: Just curious where you maybe think that those margins could go longer term? Edward Rosenfeld: Yes. I think what we said earlier was that certainly the intermediate target would be to get to where Steve Madden, the legacy business was historically, but we think there's opportunity beyond that. Operator: I'm showing no further questions at this time. I would now like to turn it back to Ed Rosenfeld for closing remarks. Edward Rosenfeld: Great. Well, thanks so much for joining us today. We hope you have a wonderful day, and we look forward to speaking with you on the next call. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Welcome to this Ørsted's Q3 2025 Earnings Call. [Operator Instructions] Today's speakers are Group President and CEO, Rasmus Errboe, and CFO, Trond Westlie. Speakers, please begin. Rasmus Errboe: Hello, everyone. During the third quarter of the year, we have continued our focus on the execution of the 4 strategic priorities that we presented in February. These will continue to be the core focus as we execute on our strategy. Let me start by going through our progress across the 4 priorities. Our first priority is to strengthen our capital structure. And with the completion of the rights issue in early October, we have taken a significant step on this priority. The rights issue strengthens our financial foundation, allows us to focus on delivering our 6 offshore wind farms under construction, provides the financial robustness to manage the ongoing challenges and uncertainty as well as the financial strength to pursue upcoming attractive opportunities within offshore wind. I am very pleased and grateful for the strong support that we received from our shareholders in the rights issue, including from our majority shareholder, the Danish state. Also, we announced on November 3 that we have entered into an agreement with Apollo to divest a 50% ownership share in both the project and associated transmission asset for our 2.9 gigawatt Hornsea 3 project in the U.K. The total value of the transaction is approximately DKK 39 billion, and the transaction supports a further strengthening of our capital structure and marks a significant milestone in our partnership and divestment program. Another important element in supporting our capital structure is the continued performance of our operational portfolio. Even though wind speeds have been below the norm thus far in the year, we have delivered DKK 17 billion of EBITDA for the first 9 months of the year, which is mainly driven by the increase in the availability across our offshore portfolio due to strong performance every single day by our generation team. We remain on track to deliver earnings in the range of DKK 24 billion to DKK 27 billion for the full year. Our second priority is to deliver on our 8.1 gigawatt offshore wind construction portfolio. And we continue to make good progress across the projects, which upon completion will contribute with an annual EBITDA run rate of DKK 11 billion to DKK 12 billion. I will shortly go through the construction progress details. But first, I want to mention the stop-work order, which Revolution Wind received in the U.S. during the third quarter, instructing the project to hold offshore activities, pending completion of the Interior Department's review required by the executive order issued on January 20. Revolution Wind continues to seek a complete resolution, both by engaging with the U.S. administration and other stakeholders as well as through legal proceedings. As part of the legal part, the project filed a lawsuit and sought a preliminary injunction, which was granted on February 22 by the court while the lawsuit is ongoing. The offshore activities have resumed and since then progressed well. Our third priority is to ensure a focused and disciplined capital allocation, always prioritizing value over volume, where our focus going forward primarily will be on offshore wind in Europe and select markets in APAC. As part of these efforts, we will move towards a more flexible partnership and financing model in order to improve value creation and ensure risk diversification. On this basis, we recently entered into a memorandum of understanding with KOEN and POSCO for our 1.4 gigawatt Incheon offshore wind project in Korea. The aim is to explore cooperation on joint development, construction and operations, including potential equity participation. Finally, on our fourth priority, we have also taken steps in improving our competitiveness with the announcements of adjustments to our organization. Due to the sharpened strategic focus of our business going forward and the fact that we will be finalizing our large construction portfolio in the coming years, we will adjust our organization accordingly to become more efficient and flexible. Once all efficiency measures have been implemented, the annual cost savings are expected to amount to approximately DKK 2 billion from 2028. The cost savings related to these efficiency measures have been incorporated into our business plan. Let's turn to Slide 5, where I will talk through some of the operational highlights for the first 9 months. First, I am pleased with the operational performance with our EBITDA, excluding new partnerships and cancellation fees amounting to DKK 17 billion for the first 9 months. Despite the fact that wind speeds have been below the norm so far this year, our strong generation performance ensures we remain on track towards delivering our full year guidance of DKK 24 billion to DKK 27 billion of EBITDA. This is mainly driven by high availability within our offshore business, which stood at 93% for the first 9 months. Compared to same period last year, this is an increase of 7 percentage points and thus ensured a material earnings contribution. Market-leading performance of our 10 gigawatt offshore wind fleet is a key priority for us, and we are progressing several measures within our generation organization to improve our output and lower cost base through portfolio and operational efficiencies, technological innovation, standardization and generation excellence. During the quarter, we also made progress on the renewable share of our generation. For several years, we have had a target that renewables should consist of 99% of our generation by 2025. And this has been the case during the first 9 months of the year. The increased share of renewables was driven by the closing of our last coal-fueled CHP plant in the second half of 2024, which marked another important milestone on our decarbonization journey. Lastly, our continued and relentless focus on safety have continued, and the total recordable injury rate for the first 9 months of 2025 is at 2.5, which is in line with our target. This remains highest priority for us, and we are continuing an internal program across the full organization, which is intended to further increase training, safety awareness and management focus, all aimed at lowering the incident rate and bringing our people home safe every day. Let's turn to Slide 6 and an overview of our construction projects. I will cover the more advanced projects individually and, in more details, as usual on the next slides, while putting a few remarks on the remainder of the construction portfolio here. For Borkum Riffgrund 3 in Germany, we have installed all foundations and turbines. Commissioning of the grid connection for Borkum 3 has started according to plan. We expect first power before the end of the year, and the project is expected to be commissioned towards the end of Q1 2026. For Hornsea 3 in the U.K., construction is progressing well. The onshore works at the landfall cable route and converter stations have progressed in line with the schedule since last quarter. For the offshore scope, the project will be using 2 HVDC offshore converter stations. The first platform is undergoing final equipment installation in Norway, which is progressing well. And the second platform completed its scope in Thailand and is currently in transit to Norway to complete the same final works. We have continued with the offshore activities where we completed the removal of unexploded ordinances across the whole site during the third quarter. We continue to closely monitor a number of items related to the delivery of the project. This includes the installation schedule of the project's grid connection where we are working closely with National Grid on our onshore grid connection works to support planning of our commissioning next year. Further, we continue to focus on manufacturing of turbine monopile foundations to ensure it is delivered according to plan, enabling us to commence installation in 2026. The manufacturing has started as planned, and there are multiple suppliers contracted for the scope. And if relevant, we can utilize the flexibility gained from this to mitigate risks if they occur. Next steps in the project will be commencement of the main offshore installation activities in early 2026, which start with the installation of the offshore export cable as well as monopile foundation installation. In Poland, our Baltica 2 project is moving ahead according to schedule, and we are progressing the first phases of the construction work. In the third quarter, we have continued construction work at the onshore substation site, which includes the installation of the first part of the export cable. The manufacturing of turbine foundations is progressing well with 22 completed so far. The manufacturing of the 4 offshore substations is progressing and manufacturing of the offshore export cable started mid-October. With this progress, the degree of completion for the project has increased to approximately 15%, up from 10% in Q2. There are a number of items for the installation schedule that we are closely monitoring. This includes progress on the manufacturing of the 4 offshore substations and fabrication progress of the key components for onshore and offshore substations. We remain on track for earliest possible sail away mid-2026 from Vietnam for the 4 offshore substations. Progress on the turbine installation harbor in Poland is still on track. We are closely engaged with contractors and regulators to ensure that we progress according to the current schedule. Next steps are preparing of -- preparation of the seabed, sorry, ahead of turbine foundation installation, which is planned to commence during mid-2026. Now turning to Slide 7 and a more detailed update on our Greater Changhua 2b and 4 project in Taiwan. Overall, the installation of the remaining scopes of the project has made good progress during the quarter. Greater Changhua 4 has commenced generation, and this will continue to ramp up as more turbines get energized during Q4 of this year. For Greater Changhua 2b, the damage to the export cable means that we will only be producing power again from mid-2026, once the damaged export cable has been replaced. Looking at installation during the quarter, we have made progress across several scopes. This includes the installation of turbines where 58 turbines of the total 66 positions are now installed, and the rest are expected to be completed by end of 2025. We have installed array cables for 50 of the 66 positions, and we have mobilized additional vessels during the quarter to strengthen the installation progress or process of the remaining cables as weather conditions are expected to be more challenging during the winter season. With the progress achieved during the quarter, the project has now reached a degree of completion of approximately 65%, up from 55% in Q2. The focus of the project remains on installation of remaining turbines and array cables as well as replacing the export cable for the Greater Changhua 2b section. Turning to Slide 8 and an update on our Northeast program, starting with Revolution Wind. During the quarter, the project has made good progress as we have completed both the installation of the replacement monopile for the second offshore substation as well as the installation of the offshore substation itself such that both of the projects, 2 offshore substations are now installed. On turbine installation, we continue to make progress as we have now installed 52 of the 65 turbines for the project, and array cable installation has commenced and is progressing well. With progress achieved during the quarter, the project has now reached a degree of completion of approximately 85%, up from 80% in Q2. The project continues to progress on a number of scopes that are critical to the delivery of the current schedule. For the onshore substation, we are continuing to progress construction activity according to the current schedule. We remain on site to manage the continued installation of the project and expect energization of the onshore substation early next year. For turbine installation, we will continue to monitor the installation rate closely as we enter into the winter season where weather conditions impact speed of the installation rate. First power is expected during first half of 2026, and the project remains on track for commissioning in the second half of 2026. Now turning to Slide 9 and our Sunrise Wind project, where we have also continued to see good progress across the different scopes. We have completed the installation of the project's single offshore converter station in September and continued the installation of turbine foundations with 50 -- sorry, 44 of the 84 positions installed now. This work will soon be paused as planned due to time of year restrictions of when turbine foundations can be installed and will be resumed when next installation season starts in the spring. The turbine installation will commence following completion of turbine installation Revolution Wind. For the onshore substation, the commissioning works are progressing according to plan with installation of nearshore section of the export cable expected in the coming months. With progress achieved during the quarter, the project has now reached a degree of completion of approximately 40%, up from 35% in Q2. The focus remains on the items that are critical to delivery on the current schedule. The fabrication of remaining turbine foundations is progressing according to plan, and we expect to have all remaining turbine foundations completed by the end of the year. On the export cable, we have completed the final factory acceptance tests for majority of the sections, with the final ones expected to be completed by end of the year. And we will start the installation of the nearshore section at the end of this year as well. We continue to manage the risks related to the installation of the project, and we remain on track for commissioning in the second half of 2027. With this, let me hand over the word to you, Trond. Trond Westlie: Thank you, Rasmus. And good afternoon, everyone. As always, unless I state otherwise, the numbers I refer to will be in Danish kroner. So before covering the third quarter development, let's go to Slide 11. And I want to start with our announcement from Monday. As we have entered into an agreement with Apollo to divest 50% stake in our 2.9 gigawatt Hornsea 3 offshore wind farm in the U.K. The transaction balances the key objectives for partnerships and divestments with an emphasis on capital management and represents a major milestone in our funding plan. The transaction supports further strengthening of our capital structure and ensures significant progress on our partnership and divestment program. The total value of the transaction is approximately DKK 39 billion and around DKK 20 billion of the total transaction value will be paid upon closing of the transaction. The remaining amount is expected to be paid under the construction agreement upon achievement of certain construction milestones. In terms of our targeted proceeds of more than DKK 35 billion across '25 and '26, it is the DKK 10 billion received under the SPA agreement, which counts towards this target. The total transaction value covers the acquisition of 50% equity stake -- equity share -- ownership share, sorry. And the commitment from the partner to fund 50% of the payment under the EPC contract for the wind farm and the offshore transmission costs, assets. The upfront noncash EBITDA effect of the transaction is in line with the expectation outlined in the prospectus of the recently completed rights issue and including the other aspects of the transaction such as the expected earnings under the construction agreement and service contract between Ørsted and the project. The expected EBITDA impact of the transaction is broadly neutral over the lifetime of the project. With that, let's turn to Slide 12 and the EBITDA for the quarter. In third quarter, we realized an EBITDA of DKK 3.1 billion. Let me walk you through the main developments for the quarter. For our offshore business, the overall earning came in at DKK 2.2 billion. The earnings from sites decreased, driven by lower wind speeds and step-down in subsidy levels from all the wind farms as well as lower power trading earnings. This was partly offset by full contribution at Gode Wind 3 compensation for Borkum Riffgrund 3 and higher availability rates across the portfolio. Earnings on existing partnership decreased as a result of updated costs for array cable installation for Greater Changhua 4. Over the summer, there were challenges -- challenging weather conditions, including a typhoon, which slowed down our planned installation speed. As a result, we have, during third quarter, strengthened our setup for the installation of the remaining array cables by mobilizing additional vessels. This has led us to revise the earnings that we expect under the construction agreement. As communicated earlier, we did not anticipate any material earnings under the construction agreement. So taking into account the strengthening of the installation setup and costs relating to extending the installation period leads to an impact in our accounts. Following this revision, the business case continued to have a comfortable headroom. Other costs, which includes unallocated overhead and fixed costs as well as expensed project development cost increased compared to last year, in line with our expectation. Part of the increase is driven by a change in our cost allocation methodology and does not impact the total EBITDA. This cost reallocation is reflected in our full year guidance for '25. For onshore, the EBITDA decreased by approximately DKK 200 million, primarily driven by lower wind speeds, which were partly offset by ramp-up generation from new assets. Within bioenergy and other, earnings from our combined heat and power plants were higher than last year, driven by higher power prices. Earnings in our gas business increased slightly driven from -- driven by higher offtake volumes. We did not enter into any new partnerships in the third quarter of '25. Let's turn to Slide 13. In the third quarter, total impairments amounted to DKK 1.8 billion. The impairments primarily relate to our U.S. offshore projects and are driven by higher tariffs and increased cost as a result of the stop-work order for Revolution Wind, partly offset by decrease in long-dated U.S. interest rates. The impairment related to higher tariffs amounted to DKK 2.5 billion, in line with the range that was included in the prospectus released in connection with the rights issue. This amount reflects recent changes to the U.S. trade policies, including the increased tariffs on steel and aluminum. The impairment related to the stop-work order amount to DKK 500 million and is also in line with estimates that was included in the prospectus in connection with the rights issue. This reflects the higher cost for both Revolution Wind and Sunrise Wind due to extension contracts needed to complete the installation of the projects. These effects are partly offset by a reversal of DKK 1.3 billion due to the decrease in long-dated U.S. interest rates, leading to lower WACC level across our U.S. offshore and onshore projects. Our net profit for the quarter totaled a negative DKK 1.7 billion and was impacted by both the decreased earnings as well as the impairments. In Q3 '24, net profit amounted to DKK 5.2 billion, of which DKK 5.1 billion were related to a reversal of a provision related to Ocean Wind. Adjusted for impairments and cancellation fees, our return on capital employed came in at 10.2%, which was a decrease compared to last year, driven by the higher capital employed. The reported ROCE came in at 2% and was impacted by the impairment recognized over the last 12 months. Let's turn to Slide 14 and our net interest-bearing debt and credit metrics. At the end of Q3 '25, our net debt amounted to DKK 83 billion, an increase of approximately DKK 16 billion during the quarter. The increase was predominantly driven by gross investments of DKK 15 billion into the construction of our renewable project portfolio. The contribution from -- of our operating earnings in our cash flow from operating activities was more than offset by costs relating to the construction of transmission assets in the U.K. as well as seasonally in other working capital items. This was also the case for the same quarter last year. As the rights issue was completed on 9th of October '25, the proceeds of approximately DKK 60 billion will accordingly be reflected in our accounts by full year. Also, subject to the closing of the transaction before the end of the year, the proceeds from the Hornsea 3 transaction will likewise be included in the net debt numbers. Finally, the project financing package for Greater Changhua 2 were closed in July, yet had no impact on net debt as the proceeds received were matched by a corresponding increased debt. Upon closing of the planned equity divestment of the project, the asset and associated project financing package is planned to be deconsolidated, which will then have an impact on the net debt position. Our credit metric, FFO to adjusted net debt stood approximately at 14% at the end of the third quarter, which is a slight decrease compared to the previous quarter. The higher funds from operation in the 12-month rolling period was offset by the increase in adjusted net debt. The metric will expectedly increase to well above target of 30% in the next quarter as the incoming proceeds from the rights issue and closing on the Hornsea 3 transaction will be reflected in our accounts. And finally, let's turn to Slide 15 and look at our outlook for '25. With our solid operational performance for the first 9 months and heading into a quarter with seasonal higher wind speeds, we reiterate our full year EBITDA guidance, excluding new partnership and cancellation fees of DKK 24 billion to DKK 27 billion. We also maintain our gross investment guidance for '25 of DKK 50 million to DKK 54 billion. The gross investment guidance is sensitive to milestone payments being moved between years and the level of tariffs. We continue to follow the development regarding potential tariffs and other regulatory changes, particularly affecting the U.S. and are continually assessing any possible financial and wider impacts. So with that, we will now open for questions. Operator, please? Operator: This concludes the presentation, and we will now open for questions. This call will have to end no later than 15:30. [Operator Instructions] The first question comes from the line of Kristian Tornøe from SEB. Kristian Tornøe Johansen: Yes. So my question is about the expected lifetime of your offshore wind assets. So with the Hornsea 3 transaction, the other day, I understand you are looking at up to 35-year lifetime of this asset. So previously, you've been talking more to a 25-year lifetime of your offshore wind assets, which at least what I've been using in my model. So my question is essentially what would be the appropriate lifetime we should apply to our valuation of your offshore assets? Trond Westlie: Well, on the lifetime of the capitalized investments that we have from the starting point, we do use just short of a 25% year depreciation. So the economic value of that is, of course, we use the short of 25-yard -- years depreciation. When it comes to the business case as such and the lease period, that is sort of a different aspect. And that's what is included in the agreement that we have been clear, very transparent about with Apollo. And that, of course, the lease is a long period. And as a result of that, the business case is, of course, longer than the economic value that we capitalize as a start, basically, due to maintenance programs, repowering possibilities and so forth relative to the long lease of the area. So that you have to probably distinguish between how we capitalize, how we depreciate and also how we actually see the business case. Operator: The next question comes from the line of Harry Wyburd from BNP Paribas. Harry Wyburd: Can I focus on the Hornsea 3 sell-down? So thank you for the call yesterday where you educated us a bit about the cash flow profiling. My question is, given that Apollo have the rights to the majority of the cash flow in the CfD period and given that you have the majority -- there was the rights to the cash flow after that, have we opened up a new thread of book value risk or volatility here? Because presumably, you might review the NPV of those cash flows in terms of time depending on discount rates. And also your future reversion power price assumptions for the project. So is this something where we should expect some book value updates on a quarterly basis going forward? And if so, can you give us any kind of sense as to how material those changes might be relative to the other sort of impairment pluses and minuses that you typically put through over the quarter? And then an allied question, when we're modeling cash flow, we're all looking to 2028 when you got all these projects up and running. And perhaps now that the rights issue process is over, maybe you could throw in a bit of a guide for 2028 EBITDA guidance might be, given that's really the key year when everything is up and running. But should we apply a haircut to that for cash flow given that, as I understand it, the majority of the cash flows in that year would be going to Apollo? Trond Westlie: Then -- well, let's take the first one first. When it comes to the sort of the uncertainty of the fluctuations on the starting point of the provision that we actually do going forward on the sort of asymmetry, yes, it is correct that we have to evaluate that every quarter. Those evaluation will come as today's rules in IFRS. Those adjustments will come under the financial income line. Second part of this is, of course, that since we have both payable and receivable in this, there is an incorporated hedge as a result of that in addition. So I would not -- so in essence, yes, there will be elements to this being sort of adjusted every quarter. We do not expect that to be significant. And we are presenting that under IFRS rules today. It will come under the financial line. On the outlook of '28, we will not do an update on the '28 expectations so soon after the rights issue and the prospectus that we issued. We will, of course, comment more back to that and be more granular when we come to the yearly update in February. Harry Wyburd: Okay. And the comment on the cash flow haircut. I think actually in the first years of the projects, I think it was -- for 3 years, it was 50-50, and then thereafter, it reverts to 70-30 in Apollo's favor. But should we be making a cash flow adjustment? Is that how we should be thinking about it? We need to reduce a little the EBITDA you report on a proportional basis to reflect the fact that you're getting less of the cash flows in the short term. Is that the right way to think about it? Trond Westlie: Well, that's going to be the difference between the P&L -- the EBITDA P&L and the cash flow statement. So of course, in the P&L statement, that will, of course, and the adjustment that we're making right -- the loss adjustment we're making right now, will, of course, be reversed under the EBITDA. But of course, in our operational cash flow statement, we'll, of course, address that and be very specific of the noncash elements within it. Operator: We now have a question from the line of Dominic Nash from Barclays. Dominic Nash: A couple of questions, please. Second one should be quite quick. The first one is on utilization levels of your offshore wind. You always quote output, but I believe you don't give us an update on the actual potential output pre-curtailment. And I was wondering what sort of level of curtailment are you sort of seeing in your offshore fleet? And what would that do if we were to adjust for sort of likely proper underlying output capability? And the second question is a simple one here, dividend policy. You've got -- you're not giving any sort of firm numbers yet. I think in 2026, you're going to start paying a dividend. Consensus, I think, in Bloomberg is DKK 4 per share. Are you happy with that consensus number? Rasmus Errboe: Thank you, Dominic. On the sort of the utilization levels that you talk about, we don't guide on specific curtailment of our offshore wind farms -- of onshore/offshore containment of any nature. We -- what you can see is that we have delivered a very solid availability performance during the year. 93% park -- or sorry, production-based availability for the first 9 months and 94% for Q3. So therefore, I'm very, very pleased with the underlying performance, but we don't guide on the curtailment levels. And also just reminding you that there are different frameworks in different countries for curtailment. And as an example, in Germany, we are compensated for the vast majority of curtailments from the onshore grid. As for the dividend policy, we have confirmed for a while now that we expect to pay out dividend again by 2027 for accounting year '26. We will stick to that. But we will not comment on the level of the dividend. Operator: The next question comes from the line of Mark Freshney from UBS. Mark Freshney: Rasmus, if I could pick you up on some comments you made about a month ago at a conference. You mentioned that there were 2 tracks to managing the stop order on Revolution. There was the legal track and there was the negotiated settlement, the dialogue track. Clearly, there was -- your big shareholder announced some deals with the U.S. Department of Defense. Clearly, a negotiated settlement that would protect Sunrise and Revolution would always be preferable to winning in court. So can you make any comments on how that -- those negotiations may be proceeding? Rasmus Errboe: Mark, thank you very much. You are right. We are pursuing 2 tracks. One is the legal track where we received the injunction on the 22nd of September that allowed us to go back to work. And then the other track is a dialogue track with the relevant people in the administration. I -- it is not sort of my approach, Mark. So this is the same as it has been all along and that is that I don't go into details about the conversations that we may or may not have in terms of making a deal. Our focus is to get to a, you can say, complete solution for Revolution Wind, where we still have the stop-work order claim outstanding. Our focus is on the projects, and I am pleased with the progress that we have seen in terms of construction on -- across both Revolution Wind and Sunrise where we have seen that we have completion increasing from 80% to 85% on Revolution Wind and from 35% to 40% on Sunrise Wind, including the installation of all the substations. So that is really where we have our focus. Mark Freshney: I respect that. And if I may have a follow-up just on the credit rating. I mean, I think S&P were waiting for the transaction that we saw yesterday. Can we expect some news on the rating? And does your modeling suggest that the Hornsea 3 farm down gets you where you need to be on that S&P tripwire, so to speak? Trond Westlie: Well, Mark, we are aware of the comments or the statements that S&P made in their update on their rating in August. And of course, we expect them to be more comfortable as a result of having managed to actually sign this agreement and basically following our time line as both signing and closing before year-end. So hopefully, it will have some effects. We are a bit uncertain about the interpretation evaluations of S&P because they are sort of the odd man out in the 3 ratings that we do have. So we just have to refer that sort of evaluation to them, Mark. I'm sorry. Operator: We now have a question from the line of Alberto Gandolfi from Goldman Sachs. Alberto Gandolfi: I guess the first part is perhaps more for Trond and perhaps the second for Rasmus, it's on capital structure and capital allocation. So the first part of the question is following the DKK 20 billion you're going to receive from the transaction and you announced this week and the rights issue technically in the 9 months, you're basically debt free. And of course, the company remains cash flow negative. But I guess my question -- the first part of the question is, is your balance sheet now fully derisked? And is there any scenario where you see the risk of having to implement incremental measures to avoid the downgrade to junk? I'm just thinking, for instance, if the U.S. project never start, can we say that even in that scenario, your balance sheet is now okay? And the second part of the question is that if you can elaborate on the first, I guess, then the question would be if the U.S. projects start to contribute, then you could say that in '28, your FFO to net debt is incredibly strong. So can you tell us how you are beginning to work for the repositioning of Ørsted at that point in time? What's your priority? Is organic growth at that point because you need to start winning awards in the next 12, 18, 24 months, I guess? Or is it more wait and see to see what happens in the United States? Trond Westlie: Well, I'll take the first one on the capital structure. I think your numbers is fairly correct relative to where we are and where we're going to be at year-end. So in starting to say that, of course, a lot of the discussion during the rights issue has been, of course, the downside risk relative to what's going to happen in the U.S. And we have been sort of elaborating a lot about that because of the stop-work order and the sort of the risk of getting more stop-work orders. I do think that along with the rights issue, we have explained the reason why we thought the DKK 60 billion was the right number. We have communicated that we expect this Hornsea 3 transaction to be signed and closed during the year. So that has been a part of our base case all the time. The downside risk is, of course, that things may happen of uncertainties in the U.S. that we cannot sort of put a probability or an estimate on. But as we have said all along, we have committed so much money into the projects of Sunrise and Revolution that closing it down is not really a good case for us because our commitment cost is almost as high as the total cost of the project. That is why we have looked at these structures and also the capital raise in this context. It is hard now to see situation that we will come into a -- that we will be downgraded into a noninvestment grade. So the scenarios you need to develop to actually get us there is now, of course, much more difficult when we have the Hornsea 3 in place. So over to you, Rasmus. Rasmus Errboe: Thank you very much. Thank you, Alberto. Yes. So I think probably 2 parts to the answer on repositioning of Ørsted on the other side of '28. First part is, Alberto, that it is for us to deliver on our plan. That is really our main focus. We have a plan with -- centered around 4 priorities to have a robust capital structure, to construct our 8.1 gigawatt of offshore wind projects in the best possible way, to stay focused and disciplined on capital allocation, always prioritizing value over volume and then also improve our competitiveness. And if you sort of look at our progress across the board on -- across these 4 priorities in Q3, you can see that, that is really where we focus. So the best way, in my view, to position us for '28 and onwards is by delivering on our plan. We will be in a very, very different position, and we will be able to meet the market from a position of strength at that point in time when we deliver on our plan. Second part is sort of how do we then think about 2028 and onwards. You talked about different kinds of sort of growth measures and what is out there. We are -- remain very bullish about the prospects for offshore wind in Europe in particular. We see the rebasing happening in the market. And the growth pockets for offshore wind in Europe, in my view, span across 3, if you will. One is, of course, the centralized tenders. There are -- '26 is probably going to be a little bit on the low side in terms of numbers of tenders that are being put out there, but then from '27 and onwards, it would take a bit of a step change. So that is one pocket that we could pursue. The other one is, of course, to mature our proprietary pipeline. And then the third pocket is more -- I would not call it inorganic, but a more, you can say, project-by-project collaborationships or M&A. Those are and basically have always been the pockets that we are looking for when we think about offshore wind growth, but we will be patient, and we would prioritize value over volume. Alberto Gandolfi: Rasmus, you've been so interesting that can I ask a follow-up? I appreciate if you say no. Rasmus Errboe: Go ahead. Alberto Gandolfi: I'm very -- this is all very clear. I'm just very intrigued by the comments you made about refocusing on Europe and potentially openness, project-by-project M&A. Would this also include potentially bigger platforms? I think it's no secret that probably lots of people on this call are thinking about the offshore portfolio of Equinor that would take out a competitor. And at that point, your balance sheet is very strong. Would this be an option worth pursuing, you think? Rasmus Errboe: That is not in our plans. Operator: The next question comes from the line of Lars Heindorff from Nordea. Lars Heindorff: The first one is regarding the correlation between EBITDA and operating cash flow. You had a few questions about this already, so maybe it's sort of a follow-up. But you've been guiding for '25 to '27 operating cash flow of DKK 50 billion. If we take the midpoint of the EBITDA guidance this year and then the minimum guidance that you've been providing for '26 and '27 that will add up to DKK 86 billion of EBITDA in the same period and a conversion ratio, which is less than 60%. So how should we think about the correlation of -- between EBITDA and operating cash flow going forward? First and foremost, in -- up and until '27, and I think given the development in Hornsea 3 and the first 3 years with a 50-50 split, that should be fine. But beyond that, that's maybe too far out. But just to get a sort of sense for what you expect in terms of operating cash flow for the coming years? That's the first part. And then the second part, just a housekeeping, which is, Trond, you mentioned the Changhua transaction. How much exactly would that impact the net interest-bearing debt for this year? Trond Westlie: Very well, on the operational cash flow relative to the EBITDA, there are 3 sort of buckets of elements that comes into the difference. It's the taxes paid. It's the reversal of noncash tax equity in EBITDA, and it's basically a working capital after changes. That is the major bucket. That's the 3 buckets. And then there is, of course, ups and downs relative to working capital changes that goes in there. But those 3 elements, taxes paid, reversal of noncash tax equity in EBITDA and working capital after changes is the 3 elements that really drives the bridge between the DKK 50 million and the EBITDA element. So that's those elements. When it comes to the Changhua 2b and 4 and the transaction, we still have the ambition to sign the transaction during the year. But since we're not able to close the transaction during the year, that there will be no transaction as such. So there will be not debt reduction as a result of that. So the statements that we have made earlier when it comes to the DKK 35 billion of the proceeds guideline that we have for '25 and '26, we have the DKK 7 billion that we did before half year. We now have the DKK 10 billion from Hornsea 3. And then the 2 outstanding elements is the around the -- short of DKK 20 billion left. And that's basically evenly divided between the Changhua and the EU onshore transaction. So -- and as I said, Changhua will not be closed during the year, so no effect. Lars Heindorff: Okay. And just a follow-up on the first part, which is the conversion between EBITDA to operating cash flow. Is that fair to assume that when you get to '28, which will be the first year, at least as we look right now without any offshore CapEx, that you will have still the same relationship, which is around slightly below 60% cash conversion from EBITDA to operating capital flow? Trond Westlie: I need to get back to that -- on that because the DKK 11 billion to DKK 12 billion coming out of the 6 projects is not going to be evenly divided as a result of how much of tax equity that comes into that gross up. So not quite sure I can guide you on that right now. Operator: We now have a question from the line of Deepa Venkateswaran from Bernstein. Deepa Venkateswaran: I wanted to quiz you a bit on what the Equinor CEO has been saying about offshore wind and Ørsted, where he's been talking about new business models, the need for consolidation and industrial cooperation with Ørsted. What are your thoughts on any cooperation with Equinor and what form and over what time line? So that's the question. If you can't answer that, then I have another question, which I'd like to ask. Rasmus Errboe: I will give it a go, Deepa. Thank you very much. So I think first of all, we are, of course, very pleased with the support that we continue to receive from Equinor as the second largest shareholder. We have no doubt about it. And of course, I have also noted the comments that you are alluding to. Our focus right now -- my focus right now is to deliver on our plan, is to deliver on our strategy quarter-by-quarter centered around the 4 priorities that I mentioned before. I -- of course, as any responsible management team, if you look further out in time, of course, you will look at all options that would improve value for your shareholders, no doubt about it. I am confident that we still have a very well-suited business model for offshore wind. Operator: The next question comes from the line of Jenny Ping from Citi. Jenny Ping: So 2 questions I have are somewhat linked. Firstly, just on the negative construction EBITDA that you printed in 3Q that you say is linked with the Greater Changhua 4 project. And given some of the cost overruns that you highlighted, are we expecting this to be this magnitude effectively until the close of the project at COD in 2026, so DKK 300 million, DKK 400 million negative each quarter? And then just linked to that, I guess, going back to the Apollo deal, Rasmus. Clearly, this is a fully EPC wrapped project, which you will take on any overspend and any delays risk. So what sort of comfort can you give to the investors that this project has been operationally derisked as we go into the full construction phase to minimize any of the delays and overruns, which ultimately will be borne by Ørsted? Trond Westlie: Just taking the negative of the construction agreement provision that we made in the third quarter. That is, of course, the full amount of loss that we expect to have on the construction agreement on Changhua 4. So it's not a repetitive element. It's an estimate of the full loss on the construction agreement. Rasmus Errboe: Jenny, and as for Hornsea 3, you are right that the way we have done the CA is, you can say, our normal model where we wrap sort of parts of the construction risk the same way as it is also our normal model on the OMA part where we do O&M for our partner. We are progressing very much according to plan on Hornsea 3. It's, of course, a very big project, 197 positions. But it is in our core market, and it is in a zone that we are comfortable working with. Some of the things we have been focused on in the beginning from a construction risk perspective, if you will, are going quite well. The onshore converter stations and the cable landfall is progressing. That is a key focus point for us, also making sure that we get -- that we can deliver and also National Grid can deliver on time. We have no reason to believe not to. When we get to that point in '27, monopiles has been a key focus for us. We have now sufficient robustness on the supply chain for that project on the monopile side. We have sort of roughly a handful of monopile suppliers on the project, SeAH, EEW, Haizea, Steelwind to name a few. And we have a great deal of flexibility in terms of making sure that if one is not exactly on time, then someone else can deliver. And we are starting to see monopiles being produced with a couple of them. So that is very much on track. Half of the export cables have been produced, the offshore monopile installation will start in Q2. And also, as I said before, the 2 offshore converter stations are progressing according to plan, 1 already in Norway from Thailand, the other 1 on its way. One thing that we and I have been focusing on, and that's my last point, Jenny, from the very beginning has also very much been on installation vessels. We have 3 installation vessels that will do the work on Hornsea 3. And 1 of them is now done here in September. So during Q3, that is very good. The other 1 is working on other projects. So 1 of the 2 turbine installation vessels, the Wind Peak is now working for Sofia and on the East Anglia THREE. So that is all fine. And then the last 1 is being produced, and we expect for it to be done by the end of the year. So I would say across the board, construction and thereby construction risk is progressing according to plan. Operator: We now have a question from the line of Jacob Pedersen from Sydbank. Jacob Pedersen: Just a question for me regarding Baltica 3. You still have it as a part of your pipeline in offshore in your presentation. What is the status on this project? And will it play any role in bridging the standstill in new installations after 2027? Or will it be more attractive for you to go into other [ auctions? ] Rasmus Errboe: Thank you, Jacob. Baltica 3 is a project that we jointly own. As you know, together with our partner, PGE. We continue to be very, very pleased with that partnership, and we are also moving forward with PGE on Baltica 2. As you know, we put Baltica 3 under reconfiguration a few years ago now. And the reason being that we didn't see sufficient value as the project stands in our portfolio to move it forward. That is still the case. The project is under reconfiguration. And we will only move it forward if we see a significant improvement in the value. So it is one of the options that we have in our portfolio. But as I said before, it would also have to stack up against the other opportunities. We are very strict on value over volume and also on capital discipline and allocation. So that is what I can say about Baltica 3 right now. Jacob Pedersen: Okay. If I may, a second one, just housekeeping. The rights issue cost, will we see that in financing costs during Q4? Or is it already in the Q3 numbers? Trond Westlie: It will come in the Q4 numbers. But having said that, there was a good estimate in the prospectus. So I think you can -- if you want to have an estimate, you can use that. Operator: The next question comes from the line of Olly Jeffery from Deutsche Bank. Olly Jeffery: My first question is that my understanding is that Judge Lamberth [ and Revolution Wind -- so ] Judge Lamberth, who put in place the preliminary injunction is likely to be writing a detailed opinion, which we haven't received yet. I mean if the Trump administration were to appeal the injunction that will most likely happen after that detailed opinion is being written. Would you agree with that broad assessment? And then the second question is just on the Section 232 investigation into wind components. Has there been any development on that? And are you able at all to say if were to lead to further tariffs, would that be of any material consequence in terms of impairments? Or is that not such a risk key? Rasmus Errboe: Thank you, Olly. I can take the appeal, and then I will leave the tariff question to Trond. And I will be quite brief, Olly. I don't want to speculate in potential legal outcomes and whether or not something will be appealed. And if so, when. We rely on the injunction that we received on the 22nd of September by Judge Lamberth. And we were immediately back to work, and that is very much our focus. But as I said before, we are pursuing 2 avenues still, the legal track and also the conversation track. And our aim is to get a complete solution for Revolution Wind. Trond Westlie: Just to be clear, firm -- or have a clear view of where the tariff goes in the U.S., it's quite difficult. So -- but what we have taken into consideration is, of course, the June 4 announcement, the 19th announcement and the 21st announcement. That means that we have looked at the inquiry of the specific imports for wind turbines and associated parts. We have included more than 400 items that they have included on the list. As such, we have also considered the 50% level. And that is really the elements that we can do as best estimate as of now. And that is what we have included in our best estimate that gets us to the DKK 2.5 billion of impairment effect in the third quarter. Operator: We now have a question from the line of Roald Hartvigsen from Clarksons Securities. Roald Hartvigsen: On gross investments, you keep your DKK 50 billion to DKK 54 billion guidance unchanged, and given that you've already spent about DKK 40 billion so far this year, the low end of your guidance would suggest only an additional DKK 10 billion for the last quarter, which is like quite a material step down compared to the DKK 15 billion this quarter, especially given the fact that reported CapEx figures historically have been quite high in the end of the year quarter and that the full Hornsea 3 project will still be on your books, I guess, at least part of the quarter or so. So can you help us reconcile the expected drop in the investment level from the third quarter and give some color on what assumptions are embedded in especially the lower end of the gross investment guidance range here? Trond Westlie: I do think that you had to take the full guidance into perspective, basically DKK 50 billion to DKK 54 billion. And that if you take the upper number, it's actually going to be around the same number in gross investments in fourth quarter as in third quarter, if you take that as a sort of a possibility. Having said that, I think the important element to this is not necessarily the timing whether the payment is done the 20th of December or the 10th of January. The important thing is that our investment level for all the 3 years is around DKK 145 billion, as we have said earlier. We expect that to be DKK 50 billion to DKK 54 billion this year. And that means that it's going to be sort of in the DKK 50 billion range for the 2 consecutive years of '26 and '27. So I think it's important not to sort of be razor sharp on 31st of December. But our best guess as of now and the sensitivity we have relative to timing of payments at the year-end is between DKK 50 billion and DKK 54 billion. Operator: The next question comes from the line of Rob Pulleyn from Morgan Stanley. Robert Pulleyn: Lots of questions already answered. So if I may just ask something a bit nitty-gritty. On Slide 23, I noticed some of these numbers have changed since 2Q. So when we look at the 10% ITC bonus, sensitivity impact, Sunrise and Revolution now add up to DKK 6 billion. And previously, I think that was DKK 4.6 billion. And the sensitivity to a 50 basis point move in WACC is now DKK 2.1 billion and previously, it was less. I'm just wondering what was going on there? And if I can just ask a clarification from earlier because the audio was a bit crackly. Did you confirm you hope to announce the deal on Changhua 2 in 2025? I know you answered that you expect to close it in 2026. But is the disposal still going to happen this year? Trond Westlie: When it comes to the Slide 23, the reason for changes is, of course, changes in some of the CapEx levels. So the elements, I don't have the sort of the gross numbers in the top of my head. So you have to contact IR to actually get the more detailed level in that. When it comes to the Changhua transaction, yes, we still have the ambition to sign the deal during this year and then close it when we have COD in the third quarter next year. Operator: We now have a question from the line of David Paz from Wolfe. David Paz: Just wanted to follow up on Revolution Wind. Just 2 quick questions; a, is the DKK 5 billion, has that been updated since August in terms of the remaining investment? I think that was your share. And then b, what of those 3 items you've listed, onshore substation, the remaining turbines and the array cables, which are the -- would you say they're like first and last? In other words, like what is the critical path, I guess, if you can just give us some color, particularly given the comments on the onshore substation being substantially complete, just what gets you to second half 2026 COD? Trond Westlie: When it comes to the CapEx on Revolution, yes, our total CapEx -- our 50% share of the CapEx is DKK 20 billion. And as last quarter, we had spent about DKK 15 billion of that. So the remaining DKK 5 billion for us, DKK 10 billion in total for Revolution has sort of been paid during the time. And basically -- but I think it's more important that we have come so far on the Revolution that the commitment we have on the whole value is there. So whether we have paid it or not, doesn't really matter relative to the timing of the -- it's more the timing of things. Rasmus Errboe: And with respect to the critical path for Revolution Wind, it is still the onshore substation that is on the critical path. It is moving forward well, as I said, on both the turbine installations with 52 and on array cables with 41 out of the 65. So -- and we -- as I said, we expect energization of the onshore substation early next year. But the reason that is still on the critical path is that following the energization of the onshore substation, you then basically go area by area in the wind park, starting with the export cables, then on to the offshore substations and then the turbines in terms of the electrification and the hot commissioning of the turbines. And that takes -- that brings us into our expectations for COD. so still on the critical path, the onshore substation. Operator: We have a follow-up question from the line of Mark Freshney from UBS. Mark Freshney: Just regarding security of some of the subsea cables, we know that there's a lot of work being done at the industry and government and NATO level on protection of those cables. But from your perspective, have any of your subsea cables being knowingly sabotaged? And when you think about that at board level as a risk to the business, how are you tackling that from your own internal perspective? Rasmus Errboe: Thank you, Mark. Mark, as I'm sure you can appreciate, I will not be super granular on this question. So I'm not going to comment on sort of impacts on individual cables and what have you. What I can say is that you can say, security and working with the governments and also you mentioned NATO before, is something that has been part of the way we do development in Europe for a very long time. Governments are asking for conversations and solutions for defense coexistence, and we see very good cooperation between the relevant authorities in the markets that we are in and also the sector, including us to develop successful mitigations from a coexistence perspective. That is as far as I can take it in terms of defense. Operator: We have a follow-up question from the line of Dominic Nash from Barclays. Dominic Nash: It's actually on Hornsea 3 and the numbers announced sort of yesterday, I just need some clarification on them, if you can help me out, please. So could you work out whether my math is right, you basically said that you've spent DKK 20 billion to date. Apollo are paying you DKK 10 billion for what you spent today, so fine. You also say you're doing DKK 70 billion to DKK 75 billion of CapEx still to go for the project, so DKK 90 billion to DKK 95 billion in total. And you say about 1/3 of that is transmission, I think. But you then -- if you then take Apollo's DKK 39 billion contribution and DKK 10 billion has been used for buying into the project for historics, at least DKK 29 billion remaining, how does that DKK 29 billion fit into the DKK 70 billion to DKK 75 billion still to go at 50% ownership? And on that, I think the transmission might be the one that's a bit odd, is that in or out of the amount of cash that they're paying into? And is that the sort of debt associated with it? Or have you got some other way of getting that one financed? Trond Westlie: Dominic, just a starting point for -- it's a bit difficult to follow sort of your math over the phone. But I think one material element in your math is that DKK 70 billion to DKK 75 billion is the total project and not what is remaining. But I do think that if you take the rest of your math together with the IR, I think they will be better of guiding you through it. Operator: We have a follow-up question from the line of Deepa Venkateswaran from Bernstein. Deepa Venkateswaran: So the question I have is on the legal process in the U.S. for Revolution Wind. So the stop-work orders allowed you to start construction, seems to be going well. What happens if you finish constructing the project, but you've not resolved the underlying challenge of the stop-work order? Can you start already selling the power and so on and energize? Or will it kind of come to a standstill? And in some scenario, I don't know if you lose the appeal at a later stage after 1 or 2 years, will you then be forced to decommission? I'm just thinking about what happens given that now you are constructing and so far, the legal process might take much longer to settle -- might take longer than your construction time line. So if you could just elaborate on those scenarios. Rasmus Errboe: Thank you, Deepa. I would be brief. The impact of the injunction relief allows us to continue the project, to continue constructing and also to produce power. Operator: We have a follow-up question from the line of Lars Heindorff from Nordea. Lars Heindorff: Very fortunate to be after Deepa's question because it's also regarding Revolution Wind. Now you got the stop-work order on the 22nd of August. You got the injunction filing on the 17th of September. That is now 47 -- sorry, 49 days ago. And if I'm correct, you have installed roughly 7 turbines in that period. You have 13 turbines left to install for Revolution Wind. How long do you expect that will take? Rasmus Errboe: Thank you, Lars. So the guidance we gave on progress is that we basically guide on COD. But of course, it is also -- as it always is, it is also relevant when you install all the turbines and also when you can have first power and that we expect during H1. Lars Heindorff: But is it fair to assume normally, I think installation of vessels taken 2 -- 1.5, 2 days and then maybe winter period, it will be longer, 4 days, something like that. Is that a fair assumption? Rasmus Errboe: Lars, I look forward to telling you about the construction progress on -- when we are done with the year. And there I will be very specific about how far we have come on the turbine installation as well. It is moving forward quite well right now. But of course, we are also entering a period with more uncertainty on the weather. But right now, turbine installation on Revolution Wind is going really, really well. Operator: We have a follow-up question from the line of Rob Pulleyn from Morgan Stanley. Robert Pulleyn: Yes, sure. May I ask on the onshore U.S. business. I know this is a bit different to the vein we've had so far. During the rights issue process, you talked about effectively separating this out legally and financially into its own stand-alone entity. Is that still the case? And any further strategic plans for this given, of course, there is a somewhat shortage of power in the U.S. and quite a lot of optimism around that market? Rasmus Errboe: Thank you, Rob. You are right that we have progressed our separation of our U.S. onshore business. And as of 1st of October, our onshore business has become a separate business unit reporting into our global development chief. And the Americas onshore business will then continue to focus on development and operations of the projects within the U.S. We have a pipeline of 6, 7 gigawatts of projects with capacity that meets the definition of sort of IRA qualification through 2029. And there are envelope opportunities in the market. And also the 2 projects that we have under construction. So Old 300 BESS in Texas and also Badger Wind in North Dakota are moving forward really well. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to CEO, Rasmus Errboe, for any closing remarks. Rasmus Errboe: Thank you all very much for joining. We appreciate the interaction and the interest as always. And if you have any further questions, please do not hesitate to reach out to our IR team, who will be here to answer all of them. Thank you very much. Stay safe, and have a great day.
Operator: Thank you for your patience. Mr. Sullivan, you may now begin. Devin Sullivan: Thank you, Michelle. Apologies for those technical difficulties. Good morning, everyone, and thank you for joining us today for Fuel Tech's 2025 Third Quarter Financial Results Conference Call. Yesterday, after the close, we issued a press release, a copy of which is available on the company's website, www.ftek.com. Our speakers for today will be Vince Arnone, Chairman, President and Chief Executive Officer; and Ellen Albrecht, the company's Chief Financial Officer. After prepared remarks, we will open the call to questions from our analysts and investors. Before turning things over to Vince, I'd like to remind everyone that matters discussed on this call, except for historical information, are forward-looking statements as defined in Section 21E of the Securities Act of 1934 as amended, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and reflect Fuel Tech's current expectations regarding future growth, results of operations, cash flows, performance and business prospects and opportunities, as well as assumptions made by and information currently available to our company's management. Fuel Tech has tried to identify forward-looking statements by using words such as anticipate, believe, plan, expect, estimate, intend, will and similar expressions, but these words are not the exclusive means of identifying forward-looking statements. These statements are based on information currently available to Fuel Tech and are subject to various risks, uncertainties and other factors, including, but not limited to, those discussed in Fuel Tech's annual report on Form 10-K in section -- in Item 1A under the caption of Risk Factors and subsequent filings under the Securities Act of 1934 as amended, which could cause Fuel Tech's actual growth, results of operations, financial conditions, cash flows, performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements. Fuel Tech undertakes no obligation to update such factors or to publicly announce the results of any forward-looking statements contained herein to reflect future events, developments or changed circumstances or for any other reason. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in the company's filings with the SEC. With that said, I'd now like to turn the call over to Vince Arnone. Vince, please go ahead. Vincent Arnone: Thank you, Devin. Good morning, and I'd like to thank everyone for joining us on the call today. For the third quarter of 2025, we operated profitably, enhanced our gross margins, broadened the client base for our APC and FUEL CHEM business segments and maintained a strong financial position with cash, cash equivalents and investments of nearly $34 million at quarter end and no long-term debt. We are continuing to advance our Dissolved Gas Infusion technology through industry outreach and are well underway with an extended demonstration of this offering at a fish hatchery in the Midwest U.S. We also closed a modest acquisition of complementary APC intellectual property that we believe will help us address customer APC needs on a global basis. Our FUEL CHEM segment produced a solid quarter of growth, driven by increased dispatch at legacy clients and contributions from a new account added in mid-2024. Just a few days ago, we commenced a 6-month commercially priced demonstration program for a new FUEL CHEM customer in the U.S. As discussed on our second quarter call, the purpose of the demonstration is to improve boiler availability and reliability and reduce maintenance downtime for off-line boiler cleaning in order to maximize the power generation profile of this unit. This new engagement will have a positive initial effect on our FUEL CHEM results in the current fourth quarter with sustained segment contributions in 2026. We estimate the annual revenue potential from this commercial contract to be approximately $2.5 million to $3 million based on the customer running the program full time with the revenue expected to generate historic FUEL CHEM gross margins. Based on FUEL CHEM segment performance year-to-date and the impact of this new demonstration program, we now believe FUEL CHEM's full year 2025 segment revenue will approximate $16.5 million to $17 million, up from our prior guidance of $15 million to $16 million, which would be the highest level since 2022. Revenues for our APC business in the third quarter declined compared to the prior period due primarily to the timing of project execution on existing contracts. During the third quarter, however, we announced $3.2 million of new APC awards from new and existing clients in the U.S., Europe and Southeast Asia. These contracts helped to increase our consolidated APC segment backlog to $9.5 million at the end of the third quarter. We are currently pursuing $3 million to $5 million of potential additional APC contracts that we would expect to close before the end of the year or in the early part of Q1 2026. This is exclusive of data center opportunities, which I will discuss shortly. Next, I'd like to note that subsequent to quarter end, we expanded our APC portfolio through a small strategic acquisition of complementary intellectual property and customer-related assets from Wahlco, Inc., a well-established environmental equipment and services company with several hundred project installations worldwide. The total cash consideration for the transaction was $350,000, representing a strategic and cost-effective expansion of our IP portfolio and demonstrating our disciplined approach to capital allocation. We were able to secure high-value assets at a modest price, strengthening our technology base and aligning with our long-term strategy to address customer air pollution control needs globally. The acquired suite of assets includes technology applicable to flue gas conditioning systems, ammonia handling equipment for a wide range of industrial applications, and urea to ammonia conversion technologies for NOx reduction using complementary technologies to our existing portfolio in these areas. Also included as part of the portfolio, our customer installation and aftermarket data, which we believe will drive accretive aftermarket revenues. We view this acquisition as both strategically and operationally attractive, enhancing our competitive position and expanding the solutions we can offer to our APC customers worldwide. We continue to pursue additional new awards driven by an industrial expansion globally and by state-specific regulatory requirements in the U.S., and we are continuing to monitor the progress of EPA's rule for large municipal waste combustor units. This rule reduces the nitrogen oxide emissions requirements for large MWC units. Fuel Tech has had a long history of assisting this industry and meeting its compliance requirements, and we have had discussions with customers in this segment to support the compliance planning. The final rule has been delayed by EPA until December of this year, with compliance deadlines expected 3 years from the date of issue. The public comment period closed at the end of May of this year, so the final rule remains on track. That being said, there are some specific states that are currently requiring lower NOx emissions that are consistent with the proposed MWC rule, and we are actively pursuing those opportunities today. Additionally, EPA, under the current administration, is currently pursuing the rollback of rules related to the reduction of greenhouse gases. It is important to note that the proposed rollback of the 2009 EPA Endangerment Finding does not loosen the nitrogen oxide emission requirements for any sources and could potentially extend the life of some coal and natural gas-fired units that may not have to reduce their carbon dioxide emission profile. Lastly, as discussed on our previous conference calls, we are not expecting any specific tailwinds that would come from the implementation of new regulation and the opportunities that we are pursuing today are not contingent on the implementation of any specific new regulations. As we have discussed on our few prior conference calls, we are experiencing an unprecedented increase in demand for power generation in this country and globally that is being driven by the digital economy, including AI and data centers, the electrification of everything and a massive industrial and energy transition, all happening simultaneously. This represents one of the most exciting opportunities that we have seen in quite some time for our company as it relates to the application of our APC emissions control solutions as part of the proliferation and investment in data center infrastructure being built in support of the general trend for digital expansion. Data centers are expected to become the backbone of the digital age and their development is driving new power generation demand. This demand in power, in some instances, will require emissions control solutions for many of the energy sources that necessitate a low carbon footprint. In fact, the primary factors that determine whether a data center will require NOx control using SCR technology are the following: First, site location. Is the site in an attainment or a nonattainment area for ozone ambient air quality standards as NOx is a contributor to ozone. There will be more stringent NOx reduction requirements in nonattainment areas. Second, what is the planned utilization of the power generation application? Is the power generation source for primary or backup power and what are the expected number of operating hours per year of the generating source? Primary power sources and backup power that is expected to run extensively will be more likely to require SCR for NOx reduction. And third, what is the baseline NOx emission of the power generation source? Some rotating internal combustion engines or combustion turbines can be equipped with combustion controls to enable a lower NOx baseline level and possibly eliminate the need for SCR. However, ultimately, the site permit will define the required level of emissions control. Interest in our technology solutions for these applications has continued throughout the recent quarter. And as of today, we are continuing to engage with multiple potential customers, representing a sales pipeline of current outstanding project bids of approximately $80 million to $100 million for projects integrating our SCR technology with power generation sources to meet emissions control requirements for data centers planned across the U.S. over the next several years. We are continuing to work with our supply chain partners and engineering colleagues to prepare for these opportunities. While the majority of our inquiries over these past few months have been from turbine OEMs, in recent weeks, we have had discussions with a variety of different companies that are looking to address the market need for the expedient deployments of reliable power generation as either a permanent solution or as a temporary bridge solution for a gap period, such as waiting for a permanent grid connection. Such companies include those that have access to aircraft engines and are looking to bring these assets into the power generation market and also system integrators. Additionally, we are finding that the use of smaller engines and turbines is coming into favor, which is generally preferential for Fuel Tech as near-term developments require power generation in support of bringing data centers online sooner rather than later and lead times for large gas turbines are expanding to periods of 5 to 7 years or more. We see this expansion of interest from these parties as an exciting opportunity, and we will continue to investigate and pursue both conventional and nontraditional sources to ensure that our technology offerings enhance the benefits of temporary and long-term power generation solutions. For our Dissolved Gas Infusion business, we had a very successful exhibition of DGI at the Water Environment Federation Technical Exhibition and Conference, or WEFTEC, in Chicago last month and generated significant interest in the technology. We are continuing an extended demonstration of DGI at a fish hatchery on the Western U.S., which we expect will last until the end of Q1 of 2026. We are continuing discussions with multiple other end markets of interest for DGI, including pulp and paper, food and beverage, chemical, petrochemical and horticulture. As discussed last quarter, we have been looking to expand our network of sales representatives in support of DGI, and we did add one additional representative during the quarter to augment the work being done by 2 existing firms. We expect to continue to build this network as we experience further interest in DGI. As we look ahead to the balance of 2025, based on our effective backlog and pending contract awards, the APC business development activities that we are pursuing and our previously noted expectations for FUEL CHEM, we are expecting revenues for 2025 to be approximately $27 million, which represents an 8% increase over 2024. This is a base case outlook and excludes any material contributions from APC from data center contract awards and any material impact from the new business development activities for FUEL CHEM. In closing, I'd like to thank the entire Fuel Tech team for their continued dedication to advancing our strategic objectives and our shareholders for their ongoing confidence and support. We look forward to keeping you apprised of our progress as we move forward towards the end of 2025 and into 2026. Now I'd like to turn the call over to Ellen for her comments on our financial results. Ellen, please go ahead. Ellen Albrecht: Thank you, Vince, and good morning, everyone. For the quarter, consolidated revenues declined slightly to $7.5 million from $7.9 million in the prior year period due to lower APC segment revenues, partially offset by higher FUEL CHEM segment revenue. APC segment revenue declined to $2.7 million from $3.2 million, primarily related to the timing of project execution on existing contracts. As expected, FUEL CHEM had a solid quarter with revenue improving to $4.8 million from $4.6 million. Consolidated gross margin for the third quarter rose to 49% of revenues from 43% in last year's third quarter due to increases in both FUEL CHEM and APC segment gross margins. FUEL CHEM gross margin increased to 50% compared to 49% in the third quarter of 2024 due to an increased volume of sales activity, combined with relatively flat segment administrative expenses. APC segment gross margins expanded significantly to 47% in the third quarter compared to 35% in the prior year period as a result of product and project mix that included a higher proportion of ancillary revenue consisting of spare parts and service revenue, which represents a higher margin contribution to traditional capital project margins. Consolidated APC segment backlog as of September 30, 2025, was $9.5 million, up from backlog of $6.2 million at the end of 2024. Backlog at September 30 included $4 million of domestically delivered projects and $5.5 million of foreign delivered project backlog. We expect that approximately $7.1 million of current consolidated backlog will be recognized in the next 12 months. SG&A expenses were flat at $3.2 million in the third quarter. As a percentage of revenue, SG&A expenses rose to 43% from 41% in the prior year period, reflecting lower consolidated revenue in the current period. For 2025, we continue to expect SG&A expenses to increase modestly from prior year as we focus on the development of our infrastructure in support of our business segments. Research and development expenses for the third quarter of 2025 rose to $450,000 from $361,000 in the prior year period, reflecting our ongoing investment in water and wastewater treatment technologies, notably our DGI systems and the site demonstration previously referenced by Vince. Our investment in DGI will continue throughout 2025 to support ongoing site demonstrations and other growth initiatives as we ramp up towards commercialization. During the third quarter, we delivered profitable results with positive operating income, net income of $303,000 or $0.01 per share compared to a net income of $80,000 or $0.00 per share in the prior year period. And adjusted EBITDA was $228,000 compared to an adjusted EBITDA loss of $35,000 in the prior year period. Lastly, moving to the balance sheet. Our financial condition remains very strong. As of September 30, 2025, total cash and investments was $33.8 million, comprised of cash and cash equivalents of $13.7 million and short- and long-term investments of $20.2 million. Net cash provided by operating activities was $4.6 million for the 9 months ended September 30 as compared to a use of cash totaling $1.8 million for the same period in the prior year. Shares outstanding at quarter end were approximately $31.2 million, equating to cash per share of $1.08. Working capital was $26 million or $0.83 per share. Stockholders' equity was $41 million or $1.31 per share, and the company continues to have no outstanding debt. We remain greatly confident in our ability to maintain a strong financial position to fund and to fund our short- and long-term growth initiatives for our FUEL CHEM, APC and DGI business segments. I'll now turn the call back over to Vince. Vincent Arnone: Thanks very much, Ellen. Operator, let's please go ahead and open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Amit Dayal with H.C. Wainwright. Amit Dayal: This acquisition, do you need to make any additional investments to meaningfully monetize this acquisition? And just in terms of the time line for you to see any sort of contribution from this IP, should we expect anything coming in this year itself? Or is this more of a 2026, 2027 type situation? Vincent Arnone: Okay. Two questions there. I'll answer your first question at this point in time. I don't expect that we may need to make a significant amount of incremental investment here internally to capitalize on the IP that we've acquired. We are familiar with the technologies that we have brought in-house. And so, at this point in time, no, I'm not anticipating any sort of significant investment required to monetize. Your second question is, we are going to get at least some small contributions relatively quickly from some of the aftermarket opportunities that will come our way from the very large installation base that Wahlco, Inc., does have in place and that they've built historically over the past 3 decades. So we will see some near-term benefits as an incremental to our aftermarket business. But obviously, we would like to see some larger scale benefits in terms of capital project awards as we move into 2026 and beyond. So specifically, we will see some near-term favorable impacts from an aftermarket business, but those won't be what I would call extraordinarily material. As we move into '26, we'll look to capitalize on utilizing that IP to pursue some capital project awards. But from our perspective, this was an easy decision and a very solid strategic investment for us to make as we look to continue to build out our APC portfolio of solutions for our end markets here in this country and the remainder of the world. Amit Dayal: Understood. And then for the data center type opportunities, are you working with any folks in the value chain from a distribution perspective? Or are you directly approaching some of these entities with their solutions? Vincent Arnone: So as we've discussed a little bit previously, we are the back end of the solution to your power generating source. So we are typically brought into the equation for the data center build-out from one of the engine or turbine OEMs, okay? That's generally how we're brought in. And so, we're looking to work with those parties to try to bring ourselves into the opportunity that's there. As I noted in my script, so recently, we have been contacted by some other parties that are looking to enter this space that are what I would call nontraditional players. I mentioned a company that manages aircraft engines. They maintain, they lease and so on and so forth, very large organization, but they're looking to repurpose some of their aircraft engines to be applicable to generating power for data centers. So that's a new entrant that we're trying to work with to bring our solution to the opportunity. And we have been contacted recently by some of the integrators as well that are looking to package a solution and bring that solution to the end customer. So now it's the OEMs, it's some new market entrants and some integrators as well. And so, we're expanding our, call it, our method of opportunity, our method of supply chain to get into this data center marketplace. Amit Dayal: Understood. And then from a pipeline perspective, how big is the pipeline already? I don't know if you can share color on that. But I'm just trying to see if you have already started to include some of this data center opportunity from a pipeline perspective. Vincent Arnone: So from a pipeline perspective, we have 8 to 10 opportunities that we are pursuing today, and those opportunities are worth $80 million to $100 million in total. That's what we're sitting on today. Those opportunities are broken down into different categories. A couple of them are commercial, and we would expect to have finalization on those opportunities either before the end of the year or early in 2026. The majority of the remainder are what I would call more initial inquiry, budgetary inquiry in nature, whereby a customer comes to us and they are looking to evaluate how they're going to make a proposal to their end customer, and we give them a budgetary quote. So in total, as I said, 8 to 10 opportunities valued at $80 million to $100 million in total. Operator: Our next question comes from the line of [ Ankur Sagar ], who's a private investor. Unknown Attendee: Vince, as you -- thank you for elaborating on the factors for the data center opportunity. As you listed, I mean, there is an immense shortage of these gas turbines and some of the entities have even just started using like aircraft engines, which require emission control. And it's been on the news, for example, like xAI, which is a large hyperscaler, which really put this whole setup with gas turbines quickly, but then had to go back and get a permit for refitting these turbines with SCR. So there is a lot happening, and you're involved in this. But anything you can share from a time line perspective on when do you expect sort of like in any of these pipeline opportunities to come to fruition? Vincent Arnone: Yes. So as I just mentioned in my comment to Amit, 2 or 3 of these contract opportunities we consider to be commercial opportunities, and we would expect to have a response on them, again, late this year or sometime in Q1 at the latest on those 2 to 3. The remainder need to progress a little further relative to the project development phase. And so, I can't offer time lines on that as we sit here today. But with the 2 or 3 that are indeed commercial, I would expect some sort of conclusion on them here within this next few months' time frame at the most. Unknown Attendee: Okay. And then these couple -- 2 or 3 that you expect some response before that -- are these like more like where they will convert from pipeline into orders? Or these are also like platform opportunities where you are retrofitting your solution with some other vendor, whether it be a gas turbine or OEM or an integrator where you can probably have more than just the 2 orders or anything? Vincent Arnone: Can you clarify your question one more time between the -- before I give you an answer, if you don't mind, please. Unknown Attendee: The couple of opportunities that you would see some news or results on before the end of this year, are these also like platform opportunities where your solution will get retrofitted in another company's solution, whether it be an OEM turbine maker or an integrator where it will not just be just the 2 orders, let's say, you get, but there is a potential to get more than just the 2 in '26. Vincent Arnone: Ankur, thanks for the clarification. To answer specifically, these initial orders that if we're able to bring them to fruition, would be giving us the ability to expand and participate on additional opportunities that these customers would have prospectively. So yes, if these orders come in-house, I would expect that -- it's not going to be an automatic that we're fixed to all of those customers' opportunities prospectively, but it is going to give us a very nice opportunity to expand business with these entities prospectively, and we would expect then incremental orders prospectively. Unknown Attendee: Got it. Okay. One last one. In this, I think, fiscal year in the last 3 quarters, I mean, from a cash flow perspective, I think your team has done really well. Your cash on the balance sheet has increased from working capital done really good. How do you expect Q4 to be from a cash flow perspective? Vincent Arnone: Yes. I would think as we look to our cash balance towards the end of 2025, I would say flat to slightly down as we look at the end of the year. Q3 is typically our best performing quarter, generally speaking. So we have the opportunity for increased cash flow. And we did have some excellent cash collections in Q3 as well to build the amount. But as we look towards -- moving in towards the end of 2025, I'd say flat to slightly lower for the end of the year. But still, we're very pleased with our cash balance in terms of where it is today at around $34 million and no debt. It gives us a great platform to be able to evaluate and assist our potential customer base as we're looking at the landscape of opportunities that we do have. It gives us a lot of flexibility. Operator: Our next question comes from the line of Richard Greulich with REG Capital Advisors. Richard Greulich: Vince, last quarter conference call, you mentioned a global sales pipeline of, I don't know, $75 million to $100 million. Was that including the data center opportunities that you've been talking about today? Vincent Arnone: No. Actually, that number would not have included the data center. Actually, that number was the data center opportunity more specifically. And we would have had, call it, more regular ordinary recurring APC business that would have been another $10 million to $20 million in pipeline on top of that number. So today, as I'm talking about 8 to 10 opportunities for $80 million to $100 million, that's data center opportunities only. We have an additional pipeline of what I would call more standard APC business that is another $10 million to $20 million on top of that amount. Operator: Thank you. There are no further questions at this time. I'd like to turn the call back over to Mr. Arnone for any closing remarks. Vincent Arnone: Thank you, operator. I'd like to thank everyone who joined the call today. We were indeed pleased with our results for Q3. We are very excited about our outlook as we look to end 2025 and move into 2026. The APC landscape of opportunities is indeed the best landscape that we have seen in several years as a company. Our goal as a team is to capitalize on that opportunity. For our Chemical Technologies business, we -- this year, we're looking at our best performance with that business segment since 2022. And with the very solid opportunity of bringing on another coal-fired unit as we look to end this quarter and move into 2026, we have a wonderful outlook for 2026 for our Chemical Technologies segment as well. So very pleased with where we are sitting today as a company. Again, thank the Fuel Tech employee team, thank our shareholder base. Everyone, have a wonderful day. Thank you. Operator: Thank you. This concludes today's call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.