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Operator: Good morning, ladies and gentlemen, and welcome to Anika's third quarter earnings conference call. [Operator Instructions] I will now turn the call over to Matt Hall, Director, Corporate Development and Investor Relations. Please proceed. Matt Hall: Good morning, and thank you for joining us for Anika's Third Quarter 2025 Conference Call and Webcast. I'm Matt Hall, Anika's Director of Corporate Development and Investor Relations. Our earnings press release was issued earlier this morning and is available on our Investor Relations website at www.anika.com, as are the supplementary Powerpoint slides that will be used for the discussion today. With me on the call today are Dr. Cheryl Blanchard, President and Chief Executive Officer; and Steve Griffin, Executive Vice President, Chief Financial Officer and Chief Operating Officer, who will present our third quarter 2025 financial results and business highlights. Please take a moment and open the slide presentation and refer to Slide #2. Before we begin, please understand that certain statements made during the call today constitute forward-looking statements as defined in the Securities Exchange Act of 1934. These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties. The company's actual results could differ materially from any anticipated future results, performance or achievements. We make no obligation to update these statements should future financial data or events occur, that differ from the forward-looking statements presented today. Please also see our most recent SEC filings for more information about risk factors that could affect our performance. In addition, during the call, we may refer to several adjusted or non-GAAP financial measures, which may include adjusted EBITDA, adjusted net income from continuing operations and adjusted earnings per share from continuing operations, which are used in addition to results presented in accordance with GAAP financial measures. We believe that non-GAAP measures provide an additional way of viewing aspects of our operations and performance. But when considered with GAAP financial measures and the reconciliation of GAAP measures, they provide an even more complete understanding of our business. A reconciliation of these adjusted non-GAAP financial results to the most comparable GAAP measurements are available at the end of the presentation slide deck and our third quarter 2025 press release. And now, I'd like to turn the call over to our President and CEO, Dr. Cheryl Blanchard. Cheryl? Cheryl Blanchard: Thanks, Matt. Good morning, everyone, and thanks for joining us today to discuss Anika's third quarter 2025 results. Please turn to Slide 3. This quarter reflects strong execution across our strategic priorities, including robust Commercial Channel revenue growth, completing the filing of the third and final PMA module for Hyalofast and continued progress toward completing the final requirements needed to file the Cingal NDA. I'll start out by walking you through the financial results for the quarter, which are in line with expectations, while also generating strong operating cash flow and positive adjusted EBITDA. Revenue for the quarter was down 6% compared to the same period last year, as expected, as Johnson & Johnson continues efforts to stabilize pricing in our important and profitable U.S. OA Pain Management business, which accounts for the majority of our OEM channel revenue. As a note, J&J announced their intent to separate their orthopedic business to enhance strategic and operational focus. We do not anticipate any negative impact to our OA Pain Management business related to that separation. And in fact, after the quarter, J&J MedTech exercised its option to extend the current license and supply agreement for Monovisc for another 5-year term through December 2031. The expected results from our OEM channel were offset by strong continued momentum in our Commercial Channel, where we delivered double-digit growth in the quarter, advancing our strategic priorities, while moving Hyalofast and Cingal closer to FDA approval and launch. Commercial Channel revenue grew 22%, fueled by strong Integrity growth, continued growth of Hyalofast outside the U.S. and international growth in OA Pain Management. Additionally, the steps we've taken to improve our cost structure is flowing through, with SG&A expenses down 12% year-over-year and overall operating expenses down 3%, driving improved profitability and free cash flow. Turning to our Commercial Channel portfolio. Integrity procedures in the U.S. grew for the sixth consecutive quarter, driving Regenerative Solutions growth of 25% year-over-year. Integrity growth is outpacing the overall U.S. soft tissue augmentation market, keeping us on track to more than double Integrity procedures and revenue in 2025 compared to last year. As shown on Slide 4, about 500 Integrity procedures were performed during the quarter, bringing our number of surgeon users to nearly 300. Our U.S. commercial team remains focused on expanding adoption and repeat use, supporting existing users as they integrate Integrity more fully into their practice, while also training new surgeons on its safe and effective use. Notably, over 60% of users have completed multiple cases, a strong indicator of growing and sustained clinical confidence. We are also excited that we started limited launches of Integrity outside the U.S. and cases have been performed in 10 countries. This growing base of experienced users demonstrates sustained clinical confidence and adoption of this game-changing technology that offers both enhanced regenerative capacity and greater strength when compared to competitive products. During the quarter, we also initiated the limited release of the first SKU of the larger shapes and sizes of Integrity, designed for a variety of tendon applications, including in the hip, knee and foot and ankle. A number of surgeries have been performed and the initial feedback from surgeons has been positive. Additional SKUs of shapes and sizes that are designed for more specific tendon augmentation applications, will be released in the coming quarters. We expect these additions to further accelerate adoption and support continued commercial momentum into 2026. Also contributing to our commercial channel growth was the continued success of our international team, driving Hyalofast expansion and delivering double-digit gains in international OA Pain Management revenue. The team partnered closely with distributors to strengthen business in existing markets and expand into new geographies. International OA Pain Management revenue grew 21% year-over-year, primarily driven by the timing of distributor orders. Year-to-date, that business is up 6% compared to 2024. This successful quarter for our international business was underscored by a major milestone. We have now surpassed sales of 1 million Cingal injections since the 2016 launch. The strong uptake of Cingal outside the U.S. is a testament to its effectiveness to relieve both short and long-term pain and get patients back to active living. Turning to Hyalofast. On October 31st, we submitted the third and final module of our PMA to the FDA, marking a major milestone in our U.S. regulatory pathway for our breakthrough cartilage repair device. We look forward to engaging with the agency to progress toward U.S. approval and commercialization. Concurrent with earnings, we have also released the data from our U.S. Phase III FastTRACK study. As previously reported, while Hyalofast consistently demonstrated improvements in pain and function, the study did not meet its 2 co-primary endpoints under the original statistical framework. This was in part due to a disproportionate amount of missing data in the microfracture active control arm. While Hyalofast showed clinically meaningful improvements in both KOOS pain and IKDC function from baseline at 24 months, it was not statistically significant when compared to the active microfracture control arm. Statistically significant improvements were achieved in relevant key secondary endpoints, including KOOS sports and recreation function, quality of life and total KOOS, all of which have been used as the basis for FDA approvals of other cartilage repair products. In addition, because the data was not normal and not missing at random, as assumed in the predefined statistical analysis plan, supplemental statistical analyses were prepared for FDA consideration. These analyses include a review of observed data, which is the data without statistical imputations. In the observed data analysis, we achieved significance for KOOS pain. The post-hoc analysis also included responder analyses for several outcome measures. Our responder analysis provides the number of patients in the study who achieved a clinically meaningful level of improvement. In the FastTRACK study, more Hyalofast patients achieved higher levels of improvement in pain at 24 months than microfracture patients did, and with statistical significance. We believe these additional analyses confirm the consistent and meaningful clinical benefit that Hyalofast with BMAC brings to patients with cartilage defects. We're encouraged by the strength and consistency of the data we have submitted to the FDA, both from the FastTRACK study and the over 15 years of independent clinical experience outside the U.S. The international experience continues to demonstrate Hyalofast's safety and efficacy across a broad range of patients with over 35,000 treated to date as we continue to see strong penetration of Hyalofast in the over 35 markets where it is sold today. Now turning to Cingal, our next-generation OA pain management product. During the quarter, we made meaningful progress toward our U.S. NDA submission. We successfully completed the first of 2 toxicity studies and initiated patient screening for the bioequivalent study, which remains on track to begin before the end of the year. As a reminder, these studies represent the final steps required for our NDA filing. We're encouraged by our continued progress with this important program and remain focused on advancing Cingal towards regulatory submission and ultimately, commercial availability in the U.S. market. Lastly, beginning in 2023, the company undertook a comprehensive strategic review, evaluating a broad range of alternatives. We have formally concluded that process and remain focused on executing our product growth strategy and enhancing operational performance to create shareholder value and return capital. As part of that commitment, we are commencing a second $15 million share repurchase under our previously announced program. We continue to prioritize key growth and regulatory milestones, including growing integrity, engaging with the FDA on the Hyalofast PMA submission, completing the Cingal bioequivalent study and subsequent NDA submission and delivering ongoing operational improvements aimed at strengthening profitability and cash flow. And with that, I'll now turn the call over to Steve for a detailed review of our financial results. Stephen Griffin: Thank you, Cheryl, and thank you, all, for joining us. Our third quarter results reflect steady progress across key areas in both profit and cash flow, with performance in line with expectations and signs of continued momentum. We're executing on our key objectives and the resulting improved financial performance is showing. Please refer to Slide 5 of the presentation as I provide financial updates on the quarter. In the third quarter, Anika generated $27.8 million in total revenue, a 6% decline compared to the same period in 2024. Our commercial channel, which includes globally distributed, highly differentiated products, delivered $12 million, up 22% year-over-year. This growth was driven by continued momentum in our regenerative solutions portfolio, which was up 25% in the quarter as the Integrity Implant system continues to gain market share. Integrity has now delivered sequential growth for 6 consecutive quarters in the United States and remains on track to more than double in 2025. With the launch of larger shapes and sizes in the third quarter, we're encouraged by the continued expansion and trajectory of the platform. Also, within our commercial channel, international OA pain sales grew 21% in the quarter as our international sales team continues to gain share with our existing product portfolio. Year-to-date growth stands at 6%, slightly below expectations, due to shipment timing impacted by the second quarter production-related disruptions. We expect any remaining impact to be resolved before year-end. While this channel can be somewhat variable quarter-to-quarter, it continues to show strong underlying momentum, building on several years of consistent double-digit growth. Revenue in the OEM channel, which includes our domestic OA pain and non-orthopedic products sold by third parties under long-term agreements, declined 20% in the third quarter to $15.8 million, in line with our full year guidance, primarily due to pricing pressure on end-user sales. Orthovisc sales were lower, reflecting both reduced pricing and a continued shift towards single-injection treatments. Monovisc saw strong unit growth, up low double-digits in the quarter, though this was offset by a double-digit decline in pricing. Year-to-date, Monovisc unit volume is up 11%, while average price is down 17%. Despite ongoing pricing pressure, we continue to expect more stable revenue trends as we head into 2026, supported by anticipated unit volume growth that we believe will mostly offset price dynamics, resulting in flat to modestly lower revenue, in line with our previously provided financial framework. Recall, J&J is responsible for marketing and selling OA pain products in the U.S. We continue to work with them in an effort to drive for greater price stability and market expansion. On a combined basis, Monovisc and Orthovisc continue to lead the U.S. market and remain profitable contributors to our business. The remainder of our OEM business, our non-orthopedic sales, declined in the quarter due to the timing of customer orders. Third quarter gross margin was 56%, a decrease of 10 percentage points year-over-year, but an improvement of 5 percentage points sequentially from the second quarter. The year-over-year decline was primarily driven by a $3.2 million reduction in Monovisc and Orthovisc sales to J&J, largely due to lower pricing. This impacted both transfer units and royalty revenues and directly reduces gross profit. Sequential margin improvement reflects our recovery from early summer production disruptions, which had previously led to elevated inventory reserves and negatively impacted gross profit. Turning to operating expenses. Total third quarter OpEx was $18.8 million, a decrease of $700,000 or 3% compared to the same period last year. Selling, general and administrative expenses declined $1.7 million or 12%, primarily driven by headcount-related cost savings and lower stock-based compensation. Following the 2 divestitures completed earlier in 2025, we streamlined and optimized our organizational structure to better align with our strategic priorities and reduce operating costs. Notably, general and administrative expenses were down 17% year-over-year. We remain focused on identifying cost savings initiatives, while continuing to invest in areas that support sustainable long-term growth, partially offsetting the G&A savings. Research and development expenses increased $1 million or 17%, driven by the costs associated with the Cingal toxicity study. Year-to-date, R&D expenses are up 1%, driven by a $1.8 million increase in external expenses, largely due to a $2 million increase in Cingal pre-filing requirements. In contrast, total internal R&D expenses are down 12% year-to-date versus 2024, underscoring our commitment to operational efficiency, while maintaining momentum in key development areas. Adjusted EBITDA from continuing operations was positive in the quarter, totaling $900,000, a decline of $3.7 million compared to the same period in 2024. This result exceeded the anticipated breakeven level and represented a $1 million improvement over the second quarter. The year-over-year decline was primarily driven by reduced high-margin revenue from J&J, partially offset by meaningful reductions in operating expenses. The improved expense profile contributed to profitability that was better than previously guided. Now turning to cash and liquidity. Anika delivered strong operating cash flow of $6.9 million in the third quarter, up from $5 million in the same period last year. This improvement was driven by favorable timing, stronger working capital management and disciplined cost controls. Year-to-date operating cash flow totaled $6.6 million, a $2.8 million increase over 2024. This performance reflects the company's disciplined approach to working capital and expense management. We invested $1.9 million in capital expenditures during the quarter, an increase of $700,000 year-over-year, primarily due to timing. These investments are focused on expanding capacity at our Massachusetts manufacturing facility to support anticipated volume growth across Monovisc, Cingal, Integrity and Hyalofast. This positions us to efficiently scale operations and meet future demand. We ended the third quarter with $58 million in cash and no debt. As Cheryl mentioned, we are commencing a second $15 million share repurchase, consistent with the plan announced in May 2024. This repurchase will be executed under a 10b5-1 program, which we expect to complete by June of 2026. It reflects our ongoing commitment to returning capital to shareholders while preserving the flexibility to pursue strategic growth initiatives. Now on Slide 6, I'll review our full year financial outlook for 2025. We are maintaining our full year 2025 guidance. We continue to expect our commercial channel to generate between $47 million and $49.5 million in revenue, representing a year-over-year growth of 12% to 18%. Our OEM channel remains on track to deliver between $62 million and $65 million in revenue for 2025, representing a year-over-year decline of 16% to 20%. At the midpoint of an 18% decline, this range reflects higher volumes offset by lower pricing from J&J. Now turning to profitability. We are maintaining our 2025 adjusted EBITDA guidance range of positive 3% to negative 3%. Our liquidity remains strong with no need to raise capital, and we remain confident in our ability to execute on our strategy. We continue to be focused on improving our expense profile to deliver positive operating cash flow. This financial discipline enables us to reinvest in the business, capitalize on the value propositions of our product pipeline, and ultimately deliver sustainable returns for our shareholders. With that, I will now turn the call back over to Cheryl. Cheryl Blanchard: Thanks, Steve. In closing, we're pleased with Anika's solid third quarter performance, which reflects continued momentum in our commercial channel, disciplined expense management and meaningful progress across our pipeline. Additionally, with strong operating cash flow, a healthy balance sheet and a clear path toward key regulatory milestones, in total, we believe this will deliver long-term value for shareholders. We want to thank our shareholders for their continued support, and we'd also like to extend our deepest gratitude to the entire Anika team whose dedication to developing, manufacturing and delivering world-class HA-based products enables us to restore active living for patients around the world. And with that, we'll open up the line for questions. Operator, please proceed. Operator: [Operator Instructions] Your first question is from Michael Petusky from Barrington Research. Michael Petusky: Thanks for some of the additional detail in the presentation today. That's great. So I guess I want to ask a question around Integrity, Cheryl. In terms of what you would view as the bigger priority or maybe the lower-hanging fruit, I mean, is it driving increased utilization with your existing surgeon base? Is it doing more trainings and expanding the footprint? I mean, can you just sort of talk about how you guys are approaching maybe turning 300 surgeons into 600 and 500 cases a quarter into 1,000 cases? Like how do you get there? Cheryl Blanchard: Great question. Thanks for that, Mike. So I'd say, first of all, that we're feeling very bullish in the U.S. market with our team coming from a position of strength because what we're seeing from the surgeon reaction and adoption, new surgeon use and further penetration with existing surgeons is that this product really does provide significant clinical advantages. It's stronger, has higher suture retention even when wet and it has additional regenerative capacity. It just -- it does things that the existing products out there don't do. So, I would tell you, though, that we are probably equal parts focused on going out and getting new surgeons, getting new surgeons excited about the technology and also continuing to do training and education on the safe and effective use of the product for new and existing surgeons, especially as we continue to launch these additional SKUs that are really designed for use in the other tendon applications in the hip, in the knee, and the foot and ankle. So, I would say it's really across the board, and our team is very busy doing both. Obviously, we've talked about this year that we are on track to double this year. And so, we continue to invest in this product. We think it's a great product. We believe in what it's doing, and we're excited for that team to continue to drive both penetration and acquiring new customers. Michael Petusky: Okay. All right. Great. And I guess, if you could just remind me and maybe others, the timing for sort of wrapping up everything related to Cingal bioequivalence and the second toxicity, is that sort of mid-'26? Is that when you hope to sort of wrap all of that up? Or am I [ misremembering ]? Cheryl Blanchard: No, I don't think you're -- we have not given a specific updated timeline, which we will be in a position to do at the next earnings call because we need to get the bioequivalence study started. We've talked about -- we are on track to start that by the end of the year. We started screening patients for that study. And as soon as that study gets started, we'll be able to provide a more fulsome update on the timeline. We have one last toxicity study that will be done in the first quarter. And then the timing of the bioequivalent study is really what's going to dictate our fulsome timeline to get to an NDA filing. But everything is on track as we sit here today. Michael Petusky: Okay. And then just one more. This is probably for Steve. Steve, in terms of capital deployment priorities, obviously, you guys called out the share repurchase. Can you just talk about either ranking or how you guys think about sort of share repurchase relative to internal investment relative to M&A? Obviously, you have a balance sheet that could support some -- multiple things. Can you just talk about how you think about capital deployment? Stephen Griffin: Absolutely. I appreciate the question, Mike. When we look at the hierarchy of our capital needs, I'd say, first and foremost, we have internal investment that we're making into our business today. We've shared that we're investing approximately $14 million of profit into our regenerative solutions portfolio, which is the launch of Integrity and then the preparations associated with Hyalofast. We look at that as a strategic investment that we're making as part of the growth of our product pipeline. That's first and foremost that we talk about. Second is the need for CapEx in the business to support those product launches. Most of all of our CapEx is associated with our Bedford-based manufacturing facility to support the growth of our cross products in Cingal and Monovisc as well as all of our [ high-end ] products, Integrity and Hyalofast. And then third on that list would be the share repurchase that we've communicated today. Are there other actions that we could do and things we could look at? Certainly, we have a long list of things that we consider outside of the ones that I just referenced, M&A being one of them. But at this point, that's not something that the company is ready to undertake. And I'd say those -- first 3 of those areas that we pay the most attention to in terms of ranking our priorities. Michael Petusky: Okay. And then actually, let me sneak one more in, and then I promise I'll get off and let other people ask questions. Steve, in terms of the production issues, I was under the impression that, that had largely been resolved earlier. In Q3 it seems like some of that persisted. Is that a different issue? Or is that essentially hangover from the same issue? Stephen Griffin: It's the latter. It's the hangover from the same issue. So from a resolution, we're back to where we are from a yield perspective where we historically were. It's just about getting back on all of our POs for customers that we were not on track to. So this is just a matter of available capacity and running our teams over weekend shifts and the like to get back to PO, which is why I'm focused around getting it back to healthy by year-end. It is obvious we take every customer PO very seriously, but it has a small impact on some of our [ OUS ] customers and a very minimal impact on our U.S.-based customers. Michael Petusky: Okay. I think you had said that you had expected a overall gross margin to sort of return to like the high 50s, like 58%, 59% in the second half. Is that maybe tracking a quarter behind? Like essentially, should we expect gross margin in Q4 to look more like Q3 or more like high 50s? Stephen Griffin: It's probably between where we are today and a little bit higher towards the fourth quarter. A lot of it comes down to the recovery from a product shipping perspective. So I would say that's probably more associated with some of the current gross margin dynamics. Michael Petusky: Okay. But 58%, 59% longer term is doable, I assume. Stephen Griffin: Yes. A lot of that comes down to pricing with J&J, right? So as you know, that's a very profitable piece of our business. So I don't really give long-term gross margin projections just because that pricing has been so volatile. What you're seeing us return to is north of 55%, between 55% and 60%. That's kind of a more normalized level for the business today, barring changes that could occur from a pricing perspective. Operator: There are no further questions at this time. And that concludes our question-and-answer session for today. Ladies and gentlemen, the conference call has now ended. Thank you all for joining. You may now disconnect your lines.
Randall Giveans: Thank you for standing by ladies and gentlemen, and welcome to the Navigator Holdings conference call for the third quarter 2025 financial results. On today's call, we have Mads Peter Zacho, Chief Executive Officer; Gary Chapman, Chief Financial Officer; Oyevind Lindeman, Chief Commercial Officer; and myself, Randy Giveans, Executive Vice President of Investor Relations and Business Development in North America. Now I must advise you that this conference call is being recorded today. As we conduct today's presentation, we'll be making various forward-looking statements. These statements include, but are not limited to, the future expectations, plans and prospects from both a financial and operational perspective and are based on management assumptions, forecasts and expectations as of today's date, November 5, 2025, and are as such, subject to material risks and uncertainties. Actual results may differ significantly from our forward-looking information and financial forecast. Additional information about these factors and assumptions are included in our annual and quarterly reports filed with the Securities and Exchange Commission. With that, I now pass the floor to our CEO, Mads Peter Zacho. Please go ahead, Mads. Mads Zacho: Thank you. Good morning and good afternoon, and thank you all for joining this Navigator Gas earnings call for Q3 2025. As a start, I'll just review the key data from our Q3 '25 performance, and then I'll go over the outlook for the coming quarter. After that, as usual, Gary and Oeyvind and Randy will discuss the results in more detail. The quarter was, in many ways, a return to more calm waters after the unusual and difficult Q2. In Q3, we saw geopolitical tensions recede somewhat. Port fees from the U.S. and later China now seem to be gone and tariffs appear to have found their level. However, for Navigator, we still saw an impact from the trade turmoil in our Q3 trading, particularly from the significantly lower ethylene exports from U.S. to China. Oyevind is going to bring a little bit more color to this topic shortly. Please turn to Slide #4. With that background and moving to our results. In Q3, we generated revenues of $153 million, up 18% compared to the previous quarter and 8% compared to same period last year. The main driver of revenue was both higher time charter equivalent rates, but also robust utilization. We're pleased to disclose that we achieved the highest EBITDA on record at $86 million and an adjusted EBITDA of $77 million, the latter number, which excludes the $13 million of book gain from selling Navigator Gemini. You may recall that we sold Navigator Venus last quarter at a book gain of $12 million. And I think if we combine the 2, I believe it gives pretty strong credence to our estimated net asset value. The balance sheet is very strong with a cash position of $216 million at quarter end plus drawing rights, which leaves us with $308 million of liquidity. You will note on 4th November, we increased our capital return to 30% of net income from previously 25%. Similarly, we have increased the fixed dividend from $0.05 per share to $0.07 per share. This reflects our strong balance sheet and equally important, our commitment to increasing the return of capital to shareholders. Commercially, we achieved average TCE rates of $30,966 per day during Q3, which is a 10-year high and well above the just over $28,000 that we achieved in Q2. We reached a utilization of 89.3%, well above the 84.2% we saw in Q2. Average utilization was supported by a steep recovery for our ethylene spot fleet, while our semi-ref fleet stayed robust. Throughout the throughput at our joint venture ethylene export terminal increased to 271,000 tons for the quarter, roughly similar to Q2, but still below full capacity. We paid further installments on our [ Panda ] newbuilds, and we paid the first installments of the new 2 ammonia-fueled vessels that we have chartered out to Yara. Due to our balance sheet strength, the contract cover and robust financing markets, we expect to finance all of our newbuilds at attractive margins and loan to value. So they'll tie up limited equity capital and be earnings accretive from delivery in 2027 and 2028. While I already covered the sale of Navigator Gemini, I should mention that you should expect to see more sale of older vessels that will enhance earnings over the coming months. Headwinds experienced in the first half of '25 have eased but not disappeared. We hope to see more stable market conditions going forward when geopolitical uncertainties ease. As a result, we expect both utilization and average TCE rates to remain near Q3 '25 levels. And we're noting both September '25 and October '25 utilization were above 90%. Now we can't really predict the outcome of trade discussions between the U.S. and trading partners such as China and much can still change. But with the diversified customer base we have, the trading capability and the strong balance sheet we have, we remain resilient even if the geopolitical situation takes an unexpected turn. And with that, I'll just hand it over to Gary, who will talk a little bit more about our financial results. Go ahead, please, Gary. Gary Chapman: Thank you very much, Mads, and hello, everybody. During this quarter, as Mads mentioned, we've continued to experience headwinds from geopolitics that have affected our markets. So it's very pleasing to us to be able to report strong results despite this backdrop and compared to the results we delivered in the previous second quarter of this year. These results are a function of many things, including our cargo diversification, our geographical flexibility, our market position, our strong financial foundations and very importantly, as a result of the people side of our business being our colleagues here internally and also the strength and depth of our customer relationships and market knowledge. And arising from this, our third quarter 2025 results are the best so far this year, and some data points are even record-breaking for Navigator, where we've been able to push charter rates and maintain utilization, supported by our operational flexibility and efficiency and our cost controls. On Slide 6, we report the highest quarterly TCE in the last 10 years of $30,966 per day, leading to quarterly net operating revenue of $133 million and our highest quarterly EBITDA on record of $85.7 million. The high TCE this quarter was primarily due to the performance of our ethylene vessels and our semi-refrigerated handysize fleet, supported by a solid performance from our fully refrigerated and midsized vessels. Utilization was 89.3% in the third quarter, practically at our preferred benchmark of 90%, which is down 2% compared to the second quarter of 2024, but up 5% compared to the second quarter of 2025. In this third quarter, we sold another of our vessels, the Navigator Gemini, as Mads has mentioned, for net proceeds of $30.4 million, resulting in a book gain of $12.6 million, which demonstrates our ability to refresh our fleet on both buy and sell sides as opportunities arise. Excluding this gain from EBITDA as the main difference, we get to an adjusted EBITDA result of $76.5 million, considerably above the still respectable $60 million we posted in the second quarter of this year. Vessel operating expenses were up compared to the third quarter of 2024 at $49.3 million, with the increase primarily driven by the net increase in our fleet size following the purchase of 3 secondhand vessels in the first quarter of this year, which you can see is reflected in the table shown bottom right, as well as simply the timing of maintenance costs incurred. We expect to close the year on or close to budget for our OpEx costs, adjusting for the extra vessels, and we'll see our guidance on Slide 9 shortly. Depreciation is slightly down compared to previous quarters despite our now increased fleet, mainly due to 2 older vessels that have reached the end of their accounting life during the quarter, and hence, no longer will be depreciated. Unrealized movements on non-designated derivative instruments resulted in a loss in the third quarter of $2.6 million. This being related to movements in the fair value of our long-term interest rate swaps, which affects net income, but which has no impact on our cash or liquidity. Our income tax line reflects movements in current tax and mainly deferred tax in relation to our equity investment in the ethylene export terminal and in relation to the Navigator Aries, which was sold on October 1, 2025, to another group company. And under U.S. GAAP accounting rules state that intra-group sale required us to recognize an associated deferred tax liability at September 30, 2025. The ethylene terminal throughput volumes in the third quarter of 2025 were solid at 270,594 tons, up from 268,000 tons in the previous quarter, resulting in us recording a profit this quarter of $3.3 million. But overall for the third quarter of 2025, net income attributable to stockholders was $33.2 million, which is our highest quarterly net income on record, with basic earnings per share of $0.50, which is our highest quarterly EPS in the last 10 years. Our balance sheet, shown on Slide 7, continues to build and be strong with a cash, cash equivalents and restricted cash balance of $216.6 million at September 30, 2025, which if you include our available but undrawn revolving credit facilities, gives us total available liquidity of $308 million at the same date. This is despite paying out $31 million for scheduled loan repayments, $5.4 million under our return of capital policy in respect to the second quarter of 2025, $37 million as payments for our vessels under construction and a further $20.4 million of share buybacks as part of the $50 million share repurchase plan that we've just executed. Our liquidity in the quarter was also boosted by the $30 million net proceeds from the sale of the Navigator Gemini, which completed in September. It's worth noting that our investment in the Morgan's Point terminal on our balance sheet sits at an equity value of $252 million. It is almost fully unencumbered now with only $4 million of debt remaining, which will be repaid in December this year. Alongside this, we paid from our own cash a total of $99 million at September 30, 2025, towards the vessels we have under construction. The small difference to the balance sheet figure represents capitalized interest under U.S. GAAP. I think the unencumbered terminal and the construction payments made from our cash on hand, together with still a growing liquidity profile are further reflections of the financial stability and strength that Navigator is able to demonstrate. And to bring you up to date, including our available but undrawn revolving facilities, we continue to have over $300 million of liquidity at the close on November 3, 2025. On Slide 8, we show a summary of the main capital events across the quarter where with a very supportive banking group and a strong underlying business, we were able to return capital to shareholders, boost our liquidity and continue to work towards managing our debt financing needs and interest rate risk. Following 2 particularly active quarters this year, during which the company successfully entered into new secured term loan, refinanced 2 existing loan facilities and issued a $40 million tap of our existing senior unsecured bonds. This quarter, we completed a full $50 million share repurchase plan that commenced in the second quarter of 2025 with a total of 3.4 million shares repurchased at an average price of $14.68 against the company's estimated net asset value of around $28 per share. We also returned 25% of net income to shareholders in respect to the second quarter of 2025, $2.1 million of share buybacks and $3.3 million as a cash dividend of $0.05 per share. And as announced, we will now return 30% of net income in respect of this third quarter of 2025, which Randy will cover in more detail shortly. But we think the uplift in the return of capital policy strikes the right balance at this point, rewarding our shareholders with higher returns while ensuring that our steps here are considered and sustainable. In addition to our scheduled repayments, we now only have 2 small debt balloons due in the next 24 months with payments due in 2026 of $54 million in total. And on the right side of this slide is a summary of our main debt movements across the last quarter. Our next priority is to close financing in relation to our now 6 newbuild vessels, and this work has already started with the transactions being pursued. We're currently targeting to complete the finance for all 6 vessels in the early part of 2026. And I'd like to thank all of the finance partners who have worked with us so far on this, and we look forward to being able to report on a successful outcome when this work is all done. In this third quarter, we further strengthened the company's interest rate hedging position, whereby we entered into 2 interest rate swap agreements to boost our fixed rate position and reduce our exposure to variability in interest rates and interest expenses associated with our variable rate borrowings. And as of September 30, 2025, 59% of the company's debt was either hedged or on a fixed interest rate basis with 41% open to interest rate variability. And whilst we keep the subject under close review, we believe this split of fixed to floating is about the right balance for the company at this time, such that if U.S. dollar rates fall, we can to a degree, benefit, but we are majority protected, should rates rise. We continue to make substantial loan repayments with $31.3 million in this third quarter, and we have an average of $122 million of annual scheduled pro forma debt amortization per year across 2025 through 2027, with our net debt adjusted EBITDA last 12 months sitting at a comfortable 2.6x as of September 30, 2025. In addition, our net debt to our on-water fleet value resulted in a loan-to-value LTV of 33%, which falls below 30% if you include a reasonable value against our Morgan's Point terminal. On Slide 9, showing again our estimated all-in cash breakeven for 2025, which at $20,510 per day per vessel is significantly below our average TCE revenue for this third quarter of 2025 of $30,966 per day. The difference or headroom this quarter being over $10,000. The graph bottom left shows how this headroom has developed over the last few years, and you'll see in there the consistency of our business, particularly over the last 4 years, but even going further back. The all-in breakeven rate includes forecast scheduled debt repayments and our scheduled dry dock commitments. And the latest figure here is materially unchanged from the estimate we provided in our last earnings call back in August 2025. On the right is our updated OpEx guidance for 2025 across our different vessel size segments, ranging from $8,050 per day for our smaller vessels to $11,100 per day for our larger, more complex ethylene vessels. This guidance also remains materially unchanged from our last quarterly call in August 2025. And following below that is further next quarter and full year guidance across vessel OpEx, general and admin costs, depreciation and net interest expense in dollar terms. The full year guidance for vessel OpEx towards the bottom is now slightly lower than in total than previous guidance given in August as we have 1 less vessel across the remainder of 2025. And net interest expense is also a little lower than previous guidance given at that same time. However, both are materially unchanged. Slide 10 outlines our historic quarterly adjusted EBITDA, adding this third quarter's strong results. On the right side, as we have done before, we show our historic adjusted EBITDA for 2024 and our last 12 months adjusted EBITDA. In addition, the EBITDA bars then to the right provide some sensitivity and continue to illustrate as we have done in the past, but an increase in adjusted EBITDA of approximately $19 million, all other things being equal for each $1,000 incremental increase in average time charter equivalent rates per day. And then finally, an update on our vessels dry dock schedule, projected costs and time taken can be found in the appendix, Slide 30. And I'll leave you to look at that if you would like. But for now, I'm going to hand you over to Oyevind to provide an update on the commercial picture. Thank you very much, Oyevind? Oeyvind Lindeman: Thank you, Gary, and good morning, everyone. Let's turn to Page 12 for the rate environment. I'd like to start off with echoing Mads and Gary, who mentioned earlier that the 10-year record average TCE and utilization is climbing back above 90% tells me one thing; the second quarter was a one-off, and we're back more or less on track. Now while uncertainties around U.S. and China trade and tariffs are still hanging over us, trade has picked up elsewhere to compensate. We've seen tremendous growth in demand for semi-refrigerated LPG vessels out of the Middle East in recent months. Iraq has ramped up both production and export capacity and is now taking in additional handysize vessels to cover the demand. At the same time, a steady stream of handysize ships has been moving butadiene from the U.S. from Brazil and from Europe to Asia, either via Cape of Good Hope or the Panama Canal. Together, these flows have tightened the supply-demand balance in the segment, pushing rates and utilization higher. That trend is shown in the dark and light blue lines in the graph. Of course, we have more vessels in the semi and fully refrigerated segments totaling 29 compared to 15 in ethylene, the positive momentum that I just mentioned carries more weight on our overall TCE and utilization numbers. On the ethylene side, lingering trade and tariff uncertainty has softened rates by about $2,500 per day. Traders remain cautious, hesitant to commit to long-haul ethylene cargoes. Remember that it can take more than 2 months from contracting a ship until it discharges in Asia, which is a long time if one is worried about potential tariffs coming. Instead, we're seeing a more active shorter-haul voyages to Europe, which carry less tariff risk and are perceived as safer from a trade perspective. I'll touch a bit more on these nuances in the next few slides. If we look at Page 13, you can see the recent increase in our LPG earnings days. LPG accounted for 42% of our demand during the quarter, the highest share since first quarter of 2023, while petrochemicals remained the largest segment at 44%. The benefits of our flexibility to switch between cargoes and trades are further highlighted on Page 14. In the bottom left graph, utilization for our semi-refrigerated vessels climbed to 98%, meaning that effectively all our semi-refrigerated vessels were employed during the quarter with almost 0 idle time. This is driven mainly by the stronger LPG demand and also the fully refrigerated fleet shown on the bottom right, saw incremental demand both from LPG and importantly, also long-haul butadiene cargoes. It's been 5 years since our fully refrigerated vessels were employed in what we call easy petrochemical trades. As mentioned, the segment still feeling the effects of trade and tariff uncertainty is our ethylene-capable vessels. You can see in the top right graph that utilization for these vessels are averaging around the 85% level. Overall, though, for the fleet, utilization for third quarter was about 5 percentage points higher compared to the second quarter. On Page 15, we take a closer look at quarter-on-quarter U.S. exports and ethylene to Europe and Asia on handysize vessels. Since April, U.S. exports of ethane and ethylene have been impacted by trade uncertainties. It is interesting to note that shipments to Asia Pacific have halved from averaging 195,000 tons per quarter to averaging 97,000 tons per quarter. Conversely, European imports are up 30% when doing the same comparison. This suggests Europe has structural short and is plugging it with U.S. volumes, whereas Asia remains more opportunistic and is more sensitive to external factors. Turning to Page 16. Here, we track the U.S. ethylene arbitrage. Right now, it is open to Europe at around $200 per ton, which works. So exports continue to flow across the Atlantic, but the Asia arbitrage at roughly $250 per ton is harder to make work. As a result, and for the time being, most of Morgan's Point ethylene exports are heading to Europe. On the supply side on the next page, there are only minor changes since our last presentation and none that materially affects the handysize segment. The order book remains low. So to summarize, trade and tariff uncertainties between U.S. and China are still influencing parts of our trades. But despite that, we delivered a very solid quarter. The flexibility of our fleet allows us to capture opportunities across multiple trades. The fourth quarter has started in line with how September ended, which suggests a degree of normalization, especially when it compared to the second quarter. Happy to take more questions on this after, but first, the one and only Randy Giveans, the floor is yours. Randall Giveans: Thank you, Mr. Oyevind. Following up on several announcements we made in recent months, we want to provide some additional details here and updates on our recent developments. So starting on Slide 19, we're pleased to announce our new and improved return of capital policy that is effective immediately, which includes a fixed quarterly cash dividend of $0.07, up 40% from $0.05 per share, but that's not all. We want you to have your cake and eat it too. So we're also increasing the payout percentage to 30%, up from 25% of net income. Now before we go further into that, I want to highlight that during the third quarter and specifically as part of our return of capital policy, we repurchased almost 130,000 common shares of NVGS in the open market, totaling $2.1 million for an average price of around $16 per share. Now looking ahead, in line with our new return of capital policy and the illustrative table below, we are returning 30% of net income or a total of almost $10 million to shareholders during this fourth quarter. The Board has declared a cash dividend of $0.07 per share payable on December 16 to all shareholders of record as of November 25, equating to a quarterly cash dividend payment of $4.6 million. So in order to get your $0.07 dividend, do not wait until Black Friday or Cyber Monday to buy some NVGS shares as the record date is prior to Thanksgiving. Additionally, with NVGS shares trading well below our estimated NAV of $28 a share, we will use the variable portion of this return of capital policy for share buybacks. As such, we expect to repurchase $5.4 million of our shares between now and quarter end, such that the dividend and share repurchases again equal $10 million this quarter. Now continuing on the topic of share buyback, let's turn to Slide 20. During the first quarter, as you all know, we announced a new $50 million share buyback program back in May. As you can see, the announcement was not just a positive headline. We immediately put it to good use and completed the program in July after repurchasing 3.4 million shares at an average price of $14.68 per share. Now as you can see in the bottom left chart, we've historically had around 56 million shares outstanding for many years, and that was up until the merger with Ultragas back in 2021, in which we issued 21 million shares in exchange for the 18 vessels. Now since peaking around 77 million shares 3 years ago in December of 2022 and including those aforementioned share buybacks coming in the next few weeks, we'll have repurchased more than 12 million shares totaling $174 million for an average price of around $14.20 per share. Now additionally, by year-end, we'll have paid out $36 million of cash dividends for a total of $210 million of capital returned to shareholders over the past 3 years. So this equates to $3 a share, which is greater than a 20% return during that time. So as seen over the last few years and demonstrated again today with our increased return on capital policy, I want to look you squarely in the eyes and reiterate that returning capital to shareholders will remain a priority for us going forward. Now turning to our ethylene export terminal on Slide 21. Ethylene throughput volumes have remained strong, reaching 270,000 tons during the third quarter. To note, following first quarter very low throughput, volumes increased substantially and the Flex Train was utilized in both the second and third quarters. Now looking at the bottom right chart, U.S. ethylene prices fell during the third quarter, resulting in multiple ethylene spot cargoes being completed to both Europe and Asia. And although the internal spreads have tightened temporarily entering the fourth quarter here, the longer term outlook is for U.S. ethylene prices to stay at an attractive level around $440 per ton in the coming quarters and years. As for the contracting of the expansion values, we're still in active dialogue with multiple new customers for potential offtake contracts. As such, we continue to expect that additional offtake capacity will be contracted in the coming months, but the global uncertainty we've seen, and as Oyevind mentioned earlier, has slightly delayed some of our customers from making those longer-term commitments right now, but stay tuned. Now turning to our fleet on Slide 22. Our fleet renewal program continues to be implemented as we sell our older vessels and replace them with more modern tonnage. Now starting with the divestiture. As you've heard in September, we completed the sale of the Navigator Gemini, a 2009-built 20,750 cubic meter gas carrier to a third party for over $30 million, resulting in a $12.6 million profit. That was our sixth vessel sale since January '22, and we continue to engage buyers who are showing interest in acquiring other older assets, as Mads mentioned earlier. Now on the purchase side of the equation, in October, a few weeks ago, we acquired an additional 15.1% ownership in each of the 5 vessels owned via the Navigator Greater Bay joint venture for a total of $16.8 million, and that was paid from cash on hand. Based on an average of the last few years, this additional ownership should increase our net income by around $3 million per year. So a very attractive return on investment. Now as a result of our recent sale and purchase activity, our current fleet is now 12.4 years of age with an average size of 20,818 cubic meters. To note, we continue to upgrade our vessels with various energy savings technologies. And starting in 2026, we'll be rolling out new artificial intelligence, or AI, programs to make our fleet even more efficient. Now looking at Slide 23. Our average fleet is set to decrease further while our average vessel size is also set to increase. In July, we announced a new joint venture in which we'll own 80% and Amon, our partner in Azane Fuel Solutions will own 20% of 2 new 51,000 cubic meter ammonia-fueled liquefied ammonia carriers. The newbuildings are scheduled to be delivered in June and October of 2028 at a price of $87 million each. Now importantly, each vessel will receive a NOK 90 million or USD 9 million grant from the Norwegian government agency, Enova, resulting in a net price of $78 million. And assuming 70% LTV debt financing, we expect the total equity needed to be only $17 million per vessel, and that will be split between us and Oman. To note, these ice-class newbuilding vessels will be the largest in our fleet. They'll have dual fuel engines for clean ammonia and be able to transit through both the old and new Panama Canal locks. Additionally, each of the vessels will be employed on a 5-year time charter upon delivery to Yara Clean Ammonia. Lastly, in terms of vessel financing and future capital requirements, we've included an illustrative CapEx table on this slide. We paid the first 10% shipyard deposits in August, and we're currently targeting to complete financing arrangements in the early part of 2026. Now finishing on Slide 24. I want to personally invite you to our 2025 Analyst Investor Day happening next week here in Houston, Texas. On Tuesday afternoon, we'll be hosting our Morgan's Point tours at the ethylene export terminal in one of our vessels. Tuesday evening, the management team and Board of Directors will host a dinner for our analysts and investors. The following day, on Wednesday, we'll host company and industry presentations covering current market trends, a financial update as well as our medium-term strategy. We'll then have lunch followed by an appreciation event for our analysts, shareholders, customers and partners. So let me pull up the weather here. And yes, the forecast seems to match our outlook, warm and sunny. So we hope you can join us next week. With that, I'll turn it back over to Mads. Mads Zacho: Thanks a lot, Randy. Q4, as you can see or that we've indicated with our utilization numbers has come off to a robust start, and we are currently seeing a gradual normalization of our operating environment. If we don't see any further geopolitical surprises, we think we are back on our previous trajectory. This will be driven by the continued growth in U.S. natural gas liquids production and the significant build-out in U.S. export infrastructure over the next 4 years. We expect that this will support exports of natural gas liquids and thereby also transport demand for the products that we carry. The vessel supply picture remains attractive with small handysize order book, which is low and also an aging global fleet. We'd like to leave you with the impression that return of capital is very high on our list of priorities, and this is why we've decided to increase our earnings payout and our fixed dividend. We have a little bit of work ahead of us in terms of financing our 6 newbuildings. Financing markets are competitive and Navigator is a good credit. So we expect competitive terms. We'll continue to renew our older vessels so that you should expect to see more earnings-enhancing vessel sales, but potentially also further consolidation initiatives whenever accretive vessel acquisition opportunities are rising. So thanks a lot for listening. Back to you, Randy, and for some Q&A. Randall Giveans: Thank you, Mads. [Operator Instructions] Christopher Robertson: This is Chris Robertson at Deutsche Bank. Happy to be on my first inaugural call here since launch. I had a couple of questions for you guys here. So one, in the dry bulk space and in the tanker space, we've seen a few companies target either net debt 0 or net debt below kind of the scrap value of the fleet. I was wondering, just in general, how you guys think about the net debt position over time as it relates to lowering breakevens and kind of what the general strategy would be over the long run? Mads Zacho: Yes. Maybe I can kick us off and then Gary, you can take over. But in general, I think we have a comfortable balance sheet right now. I don't think there's any reason for us to go to a net debt zero position. We are in a capital-intensive business. We do see financing markets, which are very competitive, and we can source debt at attractive cost. I think it is to the benefit of our shareholders, the equity holders to have some debt on the balance sheet in order to enhance returns. We have 2.6x net debt to EBITDA right now. I think we could even carry a little bit more, but overall, I think we're in a good position. Christopher Robertson: My next question is more just general market related. I think there's some prevailing fear in the market with low oil prices that will impact U.S. oil and gas production, and therefore, translate into lower NGL and LPG exports. So if you could comment on what you're seeing on the upstream side, just in terms of the dynamics domestically to continue to support NGL production, which specific kind of gas fields people are looking at? I think Enterprise has been out there with some commentary as well around their positive outlook here. So just some commentary to maybe assuage some fears in the market that around low oil gas prices. Oeyvind Lindeman: Yes. We'll give more details on that in the Investor Day next week, but in short, generally, in our conversations with Enterprise and other midstream companies here in the U.S., then they are all very confident for NGL production, the midstream part specifically, which is also export terminals and hence, for us, export volumes. So over the next 5 years up to 2030, the graphs that we have seen are pointing upwards in terms of NGL production, which is then ethane and propane and butane, which is important to us. And we believe that most of those infrastructure projects to support that growth are already been FID-ed. They're under construction. Most of them are under take-or-pay. So that brings some comfort to us in talking about the next few years in terms of volume growth from the U.S. Omar Nokta: This is Omar Nokta from Jefferies. Thanks for the update. Always a lot of good detail and information. Just had a couple of questions. Maybe just perhaps on the capital allocation. You've been very clear, especially with this call that that's a key part of the dividends and buybacks are a focal point of the strategy going forward. But just wanted to get a sense from you in terms of what drove you to do this bump here from, say, a 25% to 30% payout and the $0.05 going to $0.07. I know it's not perhaps maybe a big change in the grand scheme but just what drove that? And can we expect perhaps that this base payout will grow over time? Mads Zacho: Yes. Maybe I can kick us off and then I'll ask my colleagues to chime in. It is -- we think over time, we should be growing our payout. What we paid out so far, it's a good decent dividend, but it's not a high dividend. We have the financial strength, and we have the operating cash flow that can support the payout that we are increasing it to now. And I think also bar, difficult market situation, geopolitical tension and trade wars, et cetera, we should be in a position where we could support higher payouts in the future also. Now that said, this is, of course, always a Board decision, but you can see the trend in the cash flows that we have delivered, and you've seen the trend in our debt that we paid down over time. So we will -- if we do nothing see and markets stay as benign as they are right now, you'll see a gradual buildup in our capacity to pay out dividends. So I think any good company should strive towards having a stable but growing payout over time. Gary Chapman: Yes. I think in addition, Omar, I mean, from my perspective, I mentioned in my commentary there that what we want to do is be sustainable and be fairly predictable as a business. And we do want to do all of those things that Mads has just said around growing our distribution. I think also getting the balance. We've done a lot of buybacks. Our share price has been where it is, and we believe that's very cheap. So we've been doing a lot of buybacks in the background. And I think Randy illustrated really well the strength of returns to shareholders that we've actually done over the last 3 years, albeit not all of it in cash direct back to shareholders. So I think we're trying to strike the right balance in that as well. But certainly, as Mads said, we'd certainly be looking to do more in the future, all things being equal and if the business keeps going in the way that we think it's going to. Randall Giveans: Yes. And quickly on the scale, we went back and forth between 6%, 7% in terms of the dividend, but went up to 7%. Obviously, we're going for more there. But we also don't want to cannibalize the buybacks on a quarterly basis. So obviously increasing that payout percentage to 30% as well. Omar Nokta: Got it. And then maybe just one follow-up I had is, Randy, you mentioned in the Greater Bay $16.8 million in the fourth quarter to pay for that step-up in ownership, which will maybe yield, say, $3 million in net income annually. Not a bad return, fairly, I would say, decent. Just I guess, in terms of going forward with that joint venture, is there a mechanism to get that to the full 100% ownership for Navigator? Is that something that you aim to do, if possible? Mads Zacho: The ownership, we don't have a mechanism you could say that mechanically will increase it. We would probably be looking to continue that discussion with our partner. We are very happy with our partner, Greater Bay. We think they give us a good inroad into the Chinese market and to opportunities that arise both with Chinese shipyards, but also business in the region. So I think we have a great interest in sustaining the partnership that we have with them. But of course, we control the vessels, we operate them. So we do consider them, you could say, an integrated part of our fleet. Omar Nokta: Okay. All right. Great. And then final one, and Gary, I think I may have asked you this perhaps last quarter, the one before, but just on the terminal, as you were highlighting in your opening remarks, it's held, I think, you said $252 million. You've got a final $4 million debt to pay off here in the fourth quarter, and then it's owned debt free. Just as you mentioned, looking to lock up financing for the new buildings, but what do you think about this -- about the terminal itself, given the long-term sort of contract nature of that business, it sort of lends itself perhaps to a nice financing package. What are you thinking? Is this something that you expect to finance in '26 or do you still want to own it fairly debt-free? Gary Chapman: Yes. I think what we've said before probably still stands and to a degree, goes back to a little bit maybe what Chris was talking about with our net debt being 0. I think the terminal itself, if we do put finance on it, it's not, at this stage, going to be cheaper financed than our vessels, and we've got vessels that we can use as collateral and raise money on those. So I think at the minute, we're not in a rush to do that. I think part of me raising it in this call as well is just to remind folks that it is there. It's substantial. And we don't, at the moment, leverage that asset on a financial basis, but it is a substantial asset for us as a business, and it's returning pretty good money over the long term. To answer your question, we probably will put finance on it at some point. I mean one of our strategic aims is to expand our port-to-port, if you like, business in terms of it supporting our shipping. So if another Morgan's Point opportunity came along somewhere else, then we may look at that, and that may be a really good opportunity to take the money out of that project and maybe put it into a new project. But at this moment, it's not top of our priority list, but it's certainly available to us, and we've had no shortage of people wanting to come and talk to us about it, put it that way. Unknown Analyst: Most has already been covered, but I want to ask you a modeling question. In the press release, total outstanding CapEx for newbuild additions is quoted at $480 million. And I was wondering, does it include 80% or 100% of the total CapEx associated to the ammonia and newbuild carriers? And secondly, is the $480 million figure net of the Enova grant? Gary Chapman: If you're referring to CapEx, then that will be the gross cost of the vessel, we would show financing separately to that. I'd have to go back and just check that number and make sure what's in and what's out. But essentially, we have put in the CapEx payable to the yard, not the sources of funds. So I can come back to you after this call and clarify with you, but I would expect that, that number is the gross cost of the vessels. Unknown Analyst: Yes. But I mean, is that only your proportionate amount that you need to put in or does that include also your partners? Gary Chapman: That would be our commitment. Unknown Analyst: And final question from me. Could you remind us what's your proportionate depreciation run rate on the ethylene export terminal? Randall Giveans: Yes. On an annual basis, the initial terminal is coming down by about for us, a little over $3 million per year. And then on the expansion, it's another $2 million or so. So we use about $5 million a year. Gary, target for financing the newbuildings in terms of size. Is there a goal to finance all remaining newbuilding costs or payments due on delivery? Gary Chapman: Yes. We're looking to answer that question right now. We've got some proposals out with various potential lenders. We're looking at a range of things to try and look to have an average LTV across all of the 6 vessels. We're not in a position where we need to over leverage those vessels but obviously, in the competitive banking market that we're at, at the moment and with Navigator's credit, we can push that a little bit higher than perhaps normal. So I think we're not going to be in very high leverage territory on average across all the 6 vessels, but maybe we'll have a difference between some of the vessels under different deals and transactions. Sorry, Randy, I don't have the question in front of me, so I'm not sure if I answered that. Randall Giveans: No, I think that covered it. And Paul, feel free to reach out to me, and we'll chat after this call but thanks again. Mads, last words? Mads Zacho: No. Thank you so much for listening in. I hope you got the impression that our laser focus is on ensuring that capital is returned to our shareholders. And with the Q3, the strength of the results here and the robust outlook for the next quarter or so that, that capacity should be sustained. So look forward to seeing you all in Houston. And I guess, Randy, you have another comment here. Randall Giveans: One more question. Charles, I think your line should be open now -- Chad, sorry. Unknown Analyst: Can you hear me now? Randall Giveans: Got you, Chad. Unknown Analyst: Great. So just on charter rates, moved to record levels in your business. I know it's early, but any insights on how 2026 is shaping up from a charter rate perspective? And any reason why this momentum that you've seen can't continue into next year? Oeyvind Lindeman: I think I'm going to lean on Mads comments. Barring external changes in tariffs or geopolitics, et cetera, et cetera, then the supply-demand balance looks positive, meaning that there are not that many ships coming, there's more growth in demand. So we remain optimistic on that. But the caveat is like we've seen this year, many things can happen that influences the business. But all things being equal, I think we're ending the year on a good note, as we mentioned, and then preparing for next year. Unknown Analyst: Okay. Got it. And then just on Morgan's Point contracting, what are the remaining items that potential customers kind of need to clear to start signing contracts? And is this a situation where we could see several come in quick order once kind of the first one gets signed? Randall Giveans: Yes. Thanks for the question. The first is securing supply domestically. I don't think that's a huge issue, right? We are oversupplied in ethylene here in the U.S. So on the other side, it's securing buyers. Now we're hearing about and seeing firsthand that European rationalization taking place where older, less efficient ethylene crackers are being shut in. So that has to be replaced. And a lot of that will be replaced by direct imports of U.S. ethylene. So that won't happen tomorrow, right, but it certainly has been happening in recent months and will continue in the coming quarters. To answer your second question, we believe so, right? We have term sheets out to several, I won't give you the exact number, but several potential offtakers. And I think once 1 or 2 sign, the others will quickly come as well because there is some scarcity here, right? There's a limited amount of offtake that is available. Sorry I cut you off there, Mads. Now we're done. Mads Zacho: No, no. Yes. Good. Thanks a lot, and I look forward to updating you all on our next quarterly call. And in the meantime, I hope many of you will join us in Houston in next week too, so we can show our terminal, our vessels and our plans for the year to come.
Operator: Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the DigitalOcean Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would like to turn the call over to Melanie Strate, Head of Investor Relations. Please go ahead. Melanie Strate: Thank you, Rebecca, and good morning. Thank you all for joining us today to review DigitalOcean's Third Quarter 2025 Financial Results. Joining me on the call today are Paddy Srinivasan, our Chief Executive Officer; and Matt Steinfort, our Chief Financial Officer. Before we begin, let me remind you that certain statements made on the call today may be considered forward-looking statements, which reflect management's best judgment based on currently available information. Our actual results may differ materially from those projected in these forward-looking statements, including our financial outlook. I direct your attention to the risk factors contained in our filings with the SEC as well as those referenced in today's press release, that is posted on our website. DigitalOcean expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements made today. Additionally, non-GAAP financial measures will be discussed on this conference call and reconciliations to the most directly comparable GAAP financial measures can be found in today's earnings press release as well as in our investor presentation that outlines the financial discussion on today's call. A webcast of today's call is also available in the IR section of our website. And with that, I will turn the call over to Paddy. Padmanabhan Srinivasan: Thank you, Melanie. Good morning, everyone, and thank you for joining us today as we review our third quarter results. I'm very excited to share our results for the quarter and to give you an update on the progress that we are making against the goals that we articulated earlier this year during our April Investor Day. Our performance this quarter was very strong. We exceeded our Q3 guidance on both revenue and profitability metrics, delivering 16% revenue growth and the highest incremental organic ARR in the company's history, while generating 21% trailing 12-month adjusted free cash flow margins. We continued innovation in our comprehensive agentic cloud to support the needs of scaling AI and digital native enterprise customers, making sure there is no reason our highest spending customers ever need to leave our platform. We augmented our industry-leading product-led growth engine with a focused direct sales motion, driving customers to migrate workloads from the hyperscalers to our platform and building traction with direct AI native customers. This progress is evident in the rapid growth of our largest customers and their increasing willingness to sign committed contracts with us, with customers having more than $1 million in annualized run rate reaching $110 million in ARR, growing 72% year-over-year and with multiple customers signing 8-figure committed contracts after the quarter closed. The demand for our agentic cloud has exceeded our supply. Our performance and the visibility we have into demand gives us the confidence both to increase our 2025 and 2026 revenue and adjusted free cash flow outlook and to also increase our investments in data centers and GPU capacity to further accelerate growth while maintaining attractive margins. I will now dive deeper into all of this, starting with our third-quarter financial results as highlighted on Slide 10 of our earnings deck. Q3 revenue hit $230 million, up 16% year-over-year, marking the highest growth since Q3 2023. We delivered our highest organic incremental ARR in company's history at $44 million. This growth was driven by a balanced performance across our comprehensive agentic cloud platform as Direct AI revenue more than doubled year-over-year for the fifth consecutive quarter, and our general-purpose cloud products saw the highest incremental organic ARR since Q2 of 2022. We delivered this accelerating revenue growth in Q3 while exceeding our profitability guidance and materially strengthening our balance sheet. Adjusted EBITDA and non-GAAP earnings per share were both well above guidance on the back of strong execution, and we delivered a strong 21% trailing 12-month adjusted free cash flow margin as we introduced equipment leasing into our financial toolkit in Q3 to better align the timing of our investments with our revenue. To give us further flexibility to invest in growth, we also repurchased the majority of our 2026 convert in the quarter, strengthening our balance sheet. The primary drivers behind our accelerating top-line growth are threefold: number one, the increasing momentum we are seeing with AI-native customers; next, the material traction we continue to generate with our highest spend digital native enterprise customers; and finally, the continued strength we are seeing in revenue from new customers. Our unified Gradient AI agentic cloud, which is outlined on Slide 7 of our investor presentation, is getting increasing traction with larger, well-funded AI native companies that are in inference mode. These scaling companies increasingly leverage our unified agentic cloud with many of our top customers already leveraging both AI and general-purpose cloud capabilities and with many more having at least starting to test and experiment with AI on our platform. Evidence of this traction is in the growth rates of our highest spending customers. Revenue from these customers who are at $100,000-plus annual run rate grew 41% year-over-year, increasing to 26% of total revenue. Growth is even higher for our largest digital native enterprise customers as the more -- our customers are spending the faster they're growing on DO. The charts on Slide 11 show that our customers with greater than $500,000 and greater than $1 million in annualized run rate grew revenue 55% and 72%, respectively, providing clear evidence that our increasing ability to not just attract but also retain and grow our largest customers, demonstrating that customers can keep scaling on our platform and never have a reason to leave. Let me now dive deeper into this traction using Slide 12 as the backdrop to illustrate just how much progress we have made since the last earnings call. I will start with our AI infrastructure on the bottom right, which is a full-stack inference platform targeting AI native customers that have their own models that they want to tune, optimize and run in inference mode. These customers select our platform for our full set of capabilities, where we combine a powerful lineup of GPUs that are available in both bare metal and droplet configurations, including inference optimized droplets with advanced inference performance optimization like page retention, flash attention, FP8 quantization, speculative decoding, model operations management, reduced time for first token and compelling TCO economics. Our AI infrastructure provides comprehensive hardware plus software infrastructure for AI-native companies that are scaling up real-world inference workloads globally on DO. FAL.ai or Fal, a generative media model platform that provides text-to-image and text-to-video models for major customers such as Canva, Shopify, Perplexity and more is a great example of a customer that is taking advantage of our unified agentic cloud. They leverage a range of our AI infrastructure solutions, including GPU droplets, both to host their media models in production, serving their end customers and to do research and fine-tuning. Fal is more than just an important customer as we have come together in a strategic partnership to accelerate generative AI content creation by making image and audio generation more accessible to start-ups and enterprises. Through this partnership, Fal will host and run hundreds of its models on DigitalOcean's infrastructure, powering applications across creative and enterprise use cases. This means customers can create agents that understand and generate not only text but also images, data and other forms of input, significantly expanding the range of real-world problems our customers can solve. NewsBreak is another example of an AI native customer leveraging our unified agentic cloud. Driving the next generation of digital media, NewsBreak delivers timely and relevant local news and information to 40 million monthly active users. Newsbreak's AI-powered infrastructure makes sophisticated personalization accessible to mainstream users nationwide. They utilize our AI infrastructure to train and deploy complex recommender systems and natural language processing models that are foundational to their products. Our AI infrastructure, high throughput and memory capacity are critical for running inference at scale, which allows them to perform real-time content ranking and ad placement for millions of concurrent users. Gradient AI agentic cloud unifies our integrated AI capabilities with our full-stack general-purpose cloud, which we've been optimizing for over a decade, enabling NewsBreak to preprocess their work on our CPU droplets and run their vector search service in advance of running their AI workloads, optimizing both cost and performance. Network file storage, or NFS, which delivers high throughput performance for both GPU and non-GPU droplets, is an example of a unified agentic cloud capability. Customers can now attach and provision storage in just minutes, accelerating time to value by eliminating idle time. With seamless integration into our Kubernetes engine, NFS makes it easier than ever to scale applications and workloads while maintaining speed, reliability and efficiency across environments. Moving up the stack outlined in Slide 7. The AI platform layer on the middle right is typically leveraged by companies that are users or consumers of AI that are looking to build agentic applications without having to directly manage the infrastructure. As we know, the future of AI is an agent and agentic workflows, which is a natural evolutionary step for all SaaS and other applications. We continue to evolve our AI platform as the foundation for building and deploying these intelligent agents and powering complex enterprise agentic workflows. It now supports serverless inferencing across the most popular models, including OpenAI, Anthropic, Mistral, Llama, DeepSeek and others, including new generative media models from Fal. We have added a powerful knowledge-based service that lets customers bring their own data and improve accuracy, along with built-in Guardrails for safety, visual agent orchestration and enterprise-grade features like observability, git integration and auto-scaling. Together, these capabilities make our Gradient AI agentic cloud platform one of the most intuitive and complete platforms for taking AI agents from prototype to production. These key capabilities help companies develop and operate AI agent fleets and manage their full life cycle of these agents seamlessly from a single platform while leveraging the best-of-breed AI models from various providers. We are particularly excited about a major customer we signed for our AI platform after the Q3 quarter closed. This customer is a global digital systems integrator who signed an 8-figure per year multiyear contract to leverage our agentic cloud to drive AI transformation for its digital native enterprise customer base with a specific focus on identifying the full software engineering life cycle, including planning, backlog and road map management, release planning, release execution and customer support. We'll provide more information on this exciting customer after we formally announce the partnership in the upcoming days. The AI platform layer continues to also gain broader momentum with over 19,000 agents created so far of which more than 7,000 are already in production. One specific customer, Shakazamba, an Italian leader in GDPR compliant, ethical and secure AI solutions across Europe, chose to leverage the Gradient AI agentic cloud over the hyperscalers. By using our platform, they're now able to create and roll out agents to automate customer support, knowledge management and content creation while reducing development time and costs associated with the agent life cycle. This quarter, we also expanded our AI ecosystem with the launch of the DigitalOcean AI Partner program with several of our partners outlined on Slide 13. This is a major step in empowering AI and digital native enterprises that are building and scaling their businesses leveraging AI. These companies don't have time for a fragmented infrastructure. They instead want a unified cloud and an AI platform that lets them seamlessly build and scale intelligent applications using agents. This new partner program brings together AI-native companies, integrators and the venture ecosystem to help these builders reach more customers, accelerate innovation and amplify their global reach. Combined with our AI platform and infrastructure, this ecosystem makes DigitalOcean the go-to destination for these AI-native businesses who want simplicity, scalability and reach without the hyperscale complexity. In Q3, we continued to deliver product innovation in our core cloud stack to support our highest spending customers by meeting their needs as they scale their business on DO. One such example of a digital native enterprise customer scaling rapidly on DO is Bright Data a leading provider of web data sets to global frontier LLM labs for training AI models. Bright Data leverages various components of our agentic cloud to scale high-volume global workloads on our platform. VPN Super, who develops trusted VPN and security solutions is the most downloaded VPN app in the world is another digital native enterprise growing on our platform. VPN Super empowers millions of users across the globe to browse securely and privately regardless of their location. They signed a 7-figure deal to migrate multiple workloads to DigitalOcean, and they selected DO for our ability to handle large traffic spikes, platform reliability and our global scale. These growing customers require general-purpose cloud capabilities that grow with their business, and we delivered a number of these new features during the quarter, as you can see highlighted on Slide 12 of our earnings presentation. For example, we recently introduced Spaces Cold Storage, an enterprise-grade object storage solution designed for customers managing data at massive scale. With support for hundreds of petabytes and billions of objects per bucket, it offers free retrieval, predictable low cost and immediate access to data, eliminating the trade-off between affordability and performance. This cold storage is secure, reliable and resilient, providing our customers with the confidence to store and access mission-critical data sets seamlessly as their needs grow. During the quarter, we also enhanced our managed databases offering with automated storage auto scaling, enabling customers to scale seamlessly as their data needs grow. When capacity thresholds are reached, storage automatically scales in 10-gigabyte increments or higher with 0 downtime and no disruption to workloads. This feature is available across all major database engines, including MongoDB, PostgreSQL, MySQL and is fully customizable, allowing customers to set thresholds starting at 20% utilization. With a simple pay-as-you-go model, auto scaling eliminates the burden of manual intervention, ensuring that applications scale reliably and cost-effectively. The steady stream of new features is resonating with our AI and digital native enterprise customers. Over 35% of our customers with more than $100,000 in ARR have adopted at least one of our new features released over the past year, and those customers having adopted at least one of these new products have seen a several hundred basis points increase in their growth rate after adopting the new product. Our strong performance, our growing momentum through the first 3 quarters and the visibility that we now have into demand gives us the confidence to raise our near-and medium-term growth outlook. We are raising our full-year 2025 guidance on both revenue and margin and we now expect to achieve our 18% to 20% 2027 revenue growth target in 2026, a full year earlier than we had projected. It has also given us the confidence to accelerate our investments to drive growth in 2026 and beyond. When we outlined our 2027 growth objectives this past April, we indicated that we would increase our investment as we saw opportunities to accelerate our growth. We are now seeing more demand than we can support with our existing capacity, which is evident by us having signed multiple 8-figure committed contracts after the quarter ended that will materially increase our RPO in Q4. With this increased conviction, we began to put the foundational elements in place in Q3 to even further accelerate our growth. We started ordering more GPU capacity to meet the growing inference demands we are seeing from our AI native customers. We also secured around 30 megawatts of incremental data center capacity to support growth in 2026 and beyond. We added equipment financing to better align our investments with revenue. We ramped engineering resources to accelerate our unified agentic cloud road map and continued our targeted investment in new sales and marketing initiatives to complement our industry-leading product-led growth engine. These investments will build on the success we have seen to date and will set us up for a strong 2026 and 2027. Our Q4 and 2025 full-year guidance implies a 16% exit 2025 growth rate. And while we won't provide 2026 guidance until our February earnings call, we expect to comfortably deliver 18% to 20% growth in 2026, achieving our 2027 growth target a full year earlier than previously projected. We will deliver this growth while maintaining strong adjusted free cash flow margins in the mid- to high teens. Matt will provide further color on these investments and the projected impact on our growth and profitability in his remarks. As I said in my opening, we delivered a strong performance in Q3, beating our guidance on both revenue and profitability. We are seeing momentum with our unified agentic cloud. And this momentum is evident in the rapid growth of our highest spending customers and demand is exceeding our current capacity. All of this gives us the conviction both to raise our 2025 and 2026 revenue and adjusted free cash flow outlook and to increase our investments to take advantage of the opportunity in front of us. We look forward to sharing more on our progress and our outlook for 2026 over the upcoming months. Thank you, and I'll now turn it over to Matt. Matt Steinfort: Thanks, Paddy. Good morning, everyone, and thanks for joining us today. As Paddy discussed, we are excited about our strong Q3 2025 performance. We are gaining traction with our unified agentic cloud, which is resulting in strong revenue growth from our highest spending customers, and we are seeing more demand and satisfied with our current capacity. This momentum and visibility give us conviction both to increase our 2025 and 2026 revenue and adjusted free cash flow outlook and to put in place the foundations to further accelerate growth in 2026 and beyond. In my comments, I'll walk through our Q3 results in detail, share our fourth quarter and updated full year financial outlook and also provide an update on our 2026 expectations. Starting with the top line. Revenue in the third quarter was $230 million, up 16% year-over-year, the highest revenue growth since Q3 of 2023. This growth was balanced across our unified agentic cloud and was primarily driven by increasing traction with our higher spending AI and digital native enterprise customers with steady contributions from our product-led growth engine. We continue to see strong AI/ML revenue growth in Q3 with AI revenue more than doubling year-over-year, which it has done every quarter since we launched our AI platform. We also delivered the highest incremental organic ARR in company history at $44 million, bringing ARR to $919 million. With rapid product innovation across our unified agentic cloud platform and with the strategic go-to-market investments we made earlier this year proving to be effective, we are having increasing success attracting and growing larger, well-funded AI and digital native enterprise customers. This is evident in the revenue from our customers whose annualized run rate revenue in the quarter was greater than $100,000, which now represents 26% of overall revenue, growing 41% year-over-year, 200 basis points higher than the growth we saw from that cohort in the prior year. Adding to this growth, revenue from general-purpose cloud customers in their first 12 months on our platform continues to be strong, and we have stabilized NDR as net dollar retention remained at 99% in the quarter, up 200 basis points from 97% in the third quarter of 2024. Turning to the P&L. While we accelerated revenue, we also delivered strong performance on all of our key profitability metrics. Gross profit was $137 million, up 17% year-over-year, with a 60% gross margin for the third quarter, 100 basis points higher than the prior year. Adjusted EBITDA was $100 million, a 15% increase year-over-year and an adjusted EBITDA margin of 43%. Non-GAAP diluted net income per share was $0.54, a 4% increase year-over-year. This result was impacted by the $625 million convertible note we issued in August, the repurchase of $1.19 billion of our 2026 notes and the interest expense from the $380 million drawn on the Term Loan A component of our existing credit facility. The net impact on non-GAAP net income per share of these balance sheet activities was a reduction of $0.05 in Q3. And excluding these charges, non-GAAP diluted net income per share would have been $0.59. GAAP diluted net income per share was $1.51, a 358% increase year-over-year. This increase is primarily driven by the onetime reversal of our tax valuation allowance and gain on debt extinguishment, which is slightly offset by the impact of our new debt structure. Q3 adjusted free cash flow was $85 million or 37% of revenue, which is up significantly from the prior year's $19 million or 10% of revenue and on a trailing 12-month basis was 21% of revenue. This increase was driven in part by the equipment financing in Q3. During the quarter, we entered into an equipment financing arrangement with a third-party financial institution for $28 million to better align our investments with the future revenue that they will generate. Absent the leasing of this equipment, our adjusted free cash flow would have been 25% of revenue in Q3. Turning to the balance sheet. We strengthened our balance sheet by repurchasing approximately 80% of our 2026 convertible notes through a combination of the issuance of a new $625 million 2030 convertible note offering, a $380 million drawdown on the Term Loan A component of our existing credit facility and approximately $230 million of cash. Following these actions, our cash and cash equivalents balance remained healthy at $237 million and the combination of cash on hand, remaining Term Loan A capacity and projected cash flow generation is collectively more than the remaining balance of our outstanding 2026 convertible notes. We repurchased $2.9 million of shares in Q3, buying back approximately 101,000 shares, bringing our cumulative share repurchase since IPO to $1.6 billion and 34.9 million shares through September 30, 2025. These Q3 repurchases completed our 2024 buyback program, and we will operate our repurchase program through July 31, 2027, under the new $100 million authorization we announced during the quarter. During the quarter, we repurchased a portion of our 0% coupon 2026 convertible notes in part with an interest-bearing Term Loan A that is initially at SOFR plus 175 basis points or roughly 6.1%. As a result, we now project to have moderate interest expense in the near to medium term, where interest expense was previously immaterial. Given this, we have added a new disclosure metric for unlevered adjusted free cash flow, which we will provide in addition to the current adjusted free cash flow metric, which is a levered adjusted free cash flow. We believe that unlevered adjusted free cash flow is an important metric as it provides a clear view of our cash generation before the impact of financing decisions, and many investors and analysts use this unlevered adjusted free cash flow as the basis for their enterprise value calculation. Our Q3 unlevered adjusted free cash flow was $85 million or 37% of revenue. The strong demand we've seen across our unified agentic cloud and the traction we are seeing with our higher spending AI and digital native enterprises, coupled with the increased visibility we have from having signed multiple 8-figure committed contracts after Q3 close, gives us the confidence to raise our outlook on both revenue and adjusted free cash flow margin for both 2025 and 2026. For the fourth quarter of 2025, we expect revenue to be in the range of $237 million to $238 million, which is approximately 16% year-over-year growth. For the full year 2025, we project revenue of $896 million to $897 million, representing approximately 15% year-over-year growth, an incremental 100 basis points higher than our prior guidance. For the fourth quarter of 2025, we expect our adjusted EBITDA margins to be in the range of 38.5% to 39.5% with an adjusted EBITDA margin of approximately 41% for the full year. For the fourth quarter of 2025, we expect non-GAAP diluted earnings per share to be $0.35 to $0.40 based on approximately 111 million to 112 million in weighted average fully diluted shares outstanding. For the full year 2025, we expect non-GAAP diluted earnings per share to be $2 to $2.05 based on approximately 106 million to 107 million in weighted average fully diluted shares outstanding. The Q4 and full year non-GAAP diluted earnings per share guidance includes the projected impact of a range of about $0.05 to $0.10 reduction in Q4 and about $0.15 to $0.20 reduction for the full year from the net impact of our Q3 refinancing actions. We project a full-year adjusted free cash flow margin of 18% to 19%. Looking further ahead, I would also like to provide a brief update on our 2026 outlook. While we will provide more fulsome details on 2026 expectations during our earnings call in February, we have already begun to put the foundations in place to further accelerate growth. Given our momentum and the increased visibility into demand on the back of several recent customer wins, we have committed investment in additional data centers and GPU capacity that will come online over the course of 2026 that will accelerate growth ahead of our previously communicated timeline. We have signed leases for approximately 30 megawatts of incremental data center capacity across several new data centers that will commence over the course of 2026. These new data centers and our corresponding investments in incremental GPU capacity will enable us to comfortably deliver 18% to 20% growth in 2026, achieving our 2027 revenue growth targets a full year earlier than we had projected. And while our COGS and operating expenses will increase in early 2026 as we ramp into our new data center capacity, we anticipate delivering high 30s to 40% adjusted EBITDA margins while maintaining mid- to high-teens adjusted free cash flow margin. We also remain committed to maintaining a healthy balance sheet, and we anticipate that our net leverage will end 2026 in the mid-3s range, including the impact on net debt from any incremental lease-up. We look forward to sharing more on the traction we are getting with our unified agentic cloud, the growth we are seeing from our highest spending customers, the investments we are making to further accelerate growth and our outlook for 2026 and beyond when we get together again in February. That concludes our prepared remarks, and we will now open the call to Q&A. Operator: [Operator Instructions] Your first question comes from the line of Gabriela Borges with Goldman Sachs. Gabriela Borges: Congratulations on a -- really exciting 2026 preliminary forecast. Paddy and Matt, I want to ask you about the multiple 8-figure committed contracts that you're talking about. Tell us a little bit about this cohort of customers. To what extent does it overlap with some of the AI revenue that you're talking about? I know you've been working with the private equity community as well. You've talked about migration. So maybe just a little bit about the type of customer that's signing the 8-figure contract and the extent to which I know in the past, the AI cohort has been much more flaky in its ability to ramp up and down. And so I'm trying to understand the intersection between those 2 cohorts. Padmanabhan Srinivasan: Yes. Thank you, Gabriela. Great questions. So the 8-figure commitment contracts that we just talked about come in different forms. Primarily, these are AI native companies that are looking to take advantage of our infrastructure as well as the other customer that I was just talking about for our AI platform, looking to build a series of agentic experiences for software engineering, taking advantage of our Gradient AI platform layer. So it's a combination of all of these. And as I was explaining in my prepared remarks, it is increasingly getting difficult to just separate out where AI starts and stops and where core cloud begins because most of the customers that are starting their experience with DigitalOcean from the AI side are increasingly using our various storage artifacts like network file system or the VPC capabilities or a number of the networking capabilities and things like that. So the crossover is becoming more and more between the AI side of our platform and cloud. So that's why we are now starting to see a more unified cloud platform from us, which we are calling as the agentic cloud. So a lot of these commitments and contracts that we are starting to take on now typically start with AI, but also spill over to our AI cloud side as well. So what is exciting for us is that some of these customers start their journey with DO using a fairly small proof-of-concept type of footprint, and now they're starting to scale. And this is also one of the many reasons why we are expanding our data center footprint so that we can keep scaling with these customers. And the other attribute I want to call out here is that these AI workloads are predominantly inferencing, if not all, on the inferencing side. So it is durable, it is predictable. And we also have a great opportunity to keep scaling with these customers as they find real-world traction and scale globally. So that's why it is really important for us to start looking at our capacity as we place bets on some of these real marquee AI native companies that are finding traction with real end customers, both on the consumer side as well as on the enterprise side. Operator: Your next question comes from the line of Radi Sultan with UBS. Radi Sultan: Good to see the platform traction coming in ahead of schedule. I guess for me, just AWS and Azure both had some pretty high-profile outages recently. I'm just curious, like is that having any near-term impact or catalyzing more migrations from the hyperscalers that driving more traction for Partner Network Connect or some of your other multi-cloud offerings? And then just curious how many of those 8-figure deals are migrations from the hyperscalers? Padmanabhan Srinivasan: Yes. Thank you, Radi, for the question. So we've been seeing a steady increase in migration workloads since we made it into an explicit go-to-market motion. And as you know, migrations of sophisticated workloads is always a combination of factors, right? It tell them, oh, we see a disruption from a cloud provider, and they're just going to move a fairly sophisticated global workload -- but it is a combination of factors. Some are driven by dissatisfaction with an incumbent. But mostly, it is driven by something they find attractive in a new cloud provider like DigitalOcean. So as we have started building out our cloud capabilities, especially the ones that I described in Slide 12 of our deck, like more advanced networking, various flavors of our droplet configurations, our storage, like cold storage is a really, really important capability that many of our large customers with sophisticated workloads have been asking us for. The auto-scaling of our DBaaS. I mean these are all very fundamentally building block type of capabilities for attracting more migration workloads, not to mention some of the stuff we did in the last couple of quarters like virtual private cloud and Direct Connect and things like that. So even though a single incident doesn't necessarily precipitate major shifts in workloads, these are all paper cuts and us having these other digital native enterprise-ready capabilities just makes us all the more attractive to incoming migration. And the AI native workloads typically are new workloads that are starting on our platform, but many of the workloads that we are seeing that I talked about during my prepared remarks on the cloud are migrations coming from various other hyperscaler clouds. Operator: Your next question comes from the line of Josh Breyer with Morgan Stanley. Josh Baer: Congrats on the acceleration. I wanted to follow up on the 8-figure contracts signed after quarter close. I guess I'm wondering, do you have capacity to serve some of those in the coming weeks? Or is that all really what the 30 megawatts of new data center capacity is geared toward? And then hoping to get a little sense of like the ramp in that capacity. Basically, any context for the go-live times for these big contracts and like how to think about the shape of 2026? Padmanabhan Srinivasan: Yes. So I'll get started, Matt, and then you can chime in. So from the ramp-up perspective, some of these customers are already doing business with us. And as we think about the capacity, there's some capacity we are bringing online in our existing data centers. And then, of course, a lot of the visibility that we now have with these customers and their inference scale-up is the reason why we have taken up expanded data center capacity. And these data centers will come online progressively through 2026, right? So we do have a build schedule from these providers, and we work very, very closely with them to make sure that we get the warm shell and then we move in and we start racking our servers, and there's a lot of moving parts in terms of bringing this capacity online, but we don't have to wait for this new capacity to start lighting up these workloads. As I said, we do have some capacity in our existing data centers. So it is a combination of these things. And you're absolutely right that this visibility into the inference adoption of our AI native customers is the reason why we are expanding our data center footprint. Matt Steinfort: Yes. And I'll just add that most of the capacity is going to come online in, call it, the first half of next year. In fact, you'll see in our fourth quarter financials, and this is included in the guidance for the adjusted free cash flow we have for 2025 that we're going to be paying some of the NRCs for some of these build-outs in the fourth quarter. And so we expect that the capacity will become online in the months and quarters following that. So it will be an early ramp of the data center capacity, but then clearly, you have incremental time to deploy the GPUs and for the customers to ramp. So we expect the revenue ramp to be relatively smooth over the course of the year, but we'll be bringing on a fair bit of capacity in the first half. Operator: Your next question comes from the line of Kingsley Crane with Canaccord Genuity. William Kingsley Crane: I want to echo my congrats. I'm sure it's gratifying for the team. Look, a larger peer, Neocloud peer has acquired a handful of PaaS capabilities over the past 6 months, including more recently a Python notebook, I think reinforcement learning for agents. What's your take on that? Does it just give credence to your strategy? And how do you see competition evolving as you continue to cater towards customers upmarket? Padmanabhan Srinivasan: Yes, Kingsley, thank you for the question. So we -- our approach when we laid out our strategy in April, we start our strategy with a deep understanding of who our customers are and what it would take for us to serve them well. And of course, that understanding has deepened over the last 6 months as we have started working very, very closely with these customers. In terms of the Python notebook, this has been a capability that we have had for a couple of years now. And some of the storage enhancements that we are seeing in the market is also something that has been long as part of our very rich and deep software stack. So if you take a step back and think about our strategy, our strategy is now from an AI perspective, targeting AI-native companies that are building real businesses and running models in an inferencing mode. And these are real-world applications that require not just GPU and inferencing capabilities, but they need agentic workflow capabilities. They need storage, databases, authentication, authorization. They need orchestration from a Kubernetes perspective. So essentially, they need a unified agentic cloud stack, which is what we provide. So we have been executing on our strategy. And if you look at Slide 7, you'll see the richness of the stack that we have built all the way from infrastructure on both cloud and AI to middleware with Platform as a Service or the agentic development life cycle. And Slide 12 shows how much we have enhanced that since just the last earnings call. So we have been super busy and every orange box you see on Slide 12 has been a result of feedback that we are getting from customers real time. Some of these features have been lit up in just a matter of days. And that is the power of really co-inventing some of these pieces working hand-in-hand with our customers. And I feel building on our strength, which is software differentiation and leveraging the strength of our 12-year-old full-stack general-purpose cloud really puts us in a very favorable position when it comes to being attractive to these scaling AI native companies. Is hardware a part of it? Absolutely. But we think as companies become more and more sophisticated and they start serving real-world enterprise needs, the center of gravity is going to shift from hardware and networking and move more and more towards the software stack as we have seen in every wave that we have encountered over the last 2 or 3 decades. So we feel really good about where we are, and we'll be aggressive in adding new functionality into our platform as we start seeing opportunities for those from our customers and in the market. Operator: Your next question comes from the line of Patrick Walravens with Citizens. Unknown Analyst: Congrats on the quarter. This is Nick on for Pat. Paddy, one for you. You kind of answered this already, but -- are there any other factors that you guys take into account when deciding what to build next? Like you mentioned that it's primarily customer-driven, but are there like competitive positioning? Or how do you balance the idea of what a customer wants with competitive positioning and long-term revenue opportunity, especially in something that could be seen as more experimental? Padmanabhan Srinivasan: Yes. Nick, thank you for the question. So just for the avoidance of doubt, we are competitor aware but customer obsessed. So we -- and that strategy has really worked for us, especially in the fast-evolving AI landscape, where we have been very, very disciplined in not chasing the bright shiny training workloads and trying to be somebody that we are not. But we've been patient, and now we see an opportunity to decisively move to take a full position in the world of inferencing and offer a software platform that combines the raw power of having the best-of-breed flexible AI infrastructure and combine it with where the puck is going, which is there's a whole generation like 20 years of app developed applications that have been developed over the last 20 years will need to be replaced and modernized with agents and agentic workflows. So managing that whole life cycle is starting to already create a tremendous amount of problems for companies to build, operate and manage. So we think there's a phenomenal opportunity for us to be one of the first movers into the world of agent development life cycle, and that is exactly what we are focused on. So while it is important to be aware of what our competition is doing, especially the Neoclouds, I feel very confident that we have unmatched software expertise and depth of our platform, as you can see from Slide 7 and 12. So if we keep doing what we are doing, our strategy is resonating with the AI natives, and these are customers that are doubling and tripling their footprint on a month-by-month basis. So if we can keep pace with them and keep shipping at their speed, I think everything else is going to take care of itself. Operator: Your next question comes from the line of James Fish with Piper Sandler. James Fish: Nice quarter. Just on the 2026 starting point, kudos on bringing that forward, understanding what's driving the confidence and visibility at this point. But how should we think about the parts underneath between core managed service and AI? And do we still expect that AI business to continue to double given you've done it for 5 straight quarters now? Matt Steinfort: Thanks, Fish. We think that if you look at the success that we're having, it's coming from a combination of things. It's coming from our success with our largest customers, regardless of whether they're AI or core cloud, growing very, very rapidly with the $1 million-plus customers growing 72%. We think that continues. And a lot of the migration workloads that we've been working on and some of these longer-term committed contracts are also on the core cloud side. So growth of our biggest customers is kind of the lever #1. Lever number two, as you said, is AI growth. It has been doubling every quarter since we launched it, and we're expecting that to continue. So we're going to get a big chunk of growth from AI. That will become a more material part of our business. It will get into the mid-teens, maybe even high teens as a percent of revenue. And then we're still generating very good incremental revenue from our product-led growth engine. our customers in M1 to M12 are still at very high levels relative to historical. And it's really those 3 levers that give us confidence. And as you said, we have better visibility now than we've ever had. If you said how many 8-figure committed contracts have we ever had in the company, it's -- I don't know how many, it's not that many. It's maybe 1 or 2. And now we've got multiple that we've signed just in the last month or so. So we're very confident in the 18% to 20% revenue for 2026 and are excited to be able to pull that in a whole year. Operator: Your next question comes from the line of Mike Cikos with Needham & Company. Matthew Calitri: This is Matt Calitri on for Mike Cikos over at Needham. Great to see the strength of large deals. I know AI is not included in net dollar retention. But are you thinking about starting to include it as it becomes a larger part of the business and more predictable? And what other puts and takes are you considering as you look to drive NDR back over 100%? Matt Steinfort: Yes, it's a great question. We are looking very hard at how to incorporate the resilient growth of inferencing into our metrics. NDR is one metric, and it captures -- it's used a lot in a SaaS environment. It captures the ongoing growth of a customer. To date, we haven't included it in NDR because a lot of the early traction that we were getting and I think a lot of folks were getting in the industry was more project-based and more experimental. As we're seeing customers like some of the ones that Paddy mentioned like Fal and others, they're bringing scaled workloads to us where they have more predictability in their demand and growth. We believe it's appropriate to start to figure out how to include that. We'll likely revisit this once we get into the beginning of next year, and we have a better sense for the '26 outlook. I mean we're providing more specific guidance. But what I'd say the key takeaway is the AI revenue that we're seeing now, that we're getting committed contracts for is behaving more like the traditional cloud where customers come in with scaled production workloads and then they have more visibility into the growth of that workload over time, hence, a metric like NDR becomes more relevant. And we're confident that in doing that, that would be additive to our communications of the resilience of the growth that we're seeing. Operator: Your next question comes from the line of Mark Zhang with Citigroup. Mark Zhang: Maybe just on NDRs, obviously still at the 99%, but we're seeing good expansion momentum and portfolio momentum. So can you maybe just walk through some of the key puts and takes there? And traditionally, I think expansion activity has been in that metric. So can you maybe speak to some of the behaviors there? And any discernible changes in customer behavior versus last quarter or 12 months ago, whether it's on pace of expansion or how they're expanding? Matt Steinfort: Thanks, Mark. It's a great question. The expansion is definitely the driver of the growth. If you look at the big customers, the customers that spend $100,000 or more in ARR and as we showed, it gets better even as you get bigger spenders. They're driving a lot of our growth. And as you would expect, the NDR is better. The thing that people lose sight of, I think, when they think about the DigitalOcean business is they forget that we have 640,000 plus customers and 450 or so or more 1,000 of those are effectively a paid premium. They're small customers, they spend $10, $15 a month, and many of them stay on for long periods of time. The average age of that cohort is something like 4.5 years. But you also have a lot of customers come and go. They experiment. I mean so the NDR of that paid premium segment of our customers is below 100. And so that weighs down the overall NDR of the company and it masks the fact that with our largest customers, we're actually seeing very, very strong growth driven by increased expansion. And that's another follow-up to the question prior to this, that's another metric that we're thinking about is because we're blending this -- where the real growth engine is for the company, we're blending that NDR with the NDR of a giant cohort, which is fantastic for us because it gives us access to a lot of developers. But it's just by its nature, it's going to have like slightly below 100 NDR. We think that's masking a lot of the underlying performance that we're seeing. Operator: Your next question comes from the line of Wamsi Mohan with Bank of America. Wamsi Mohan: Nice results here. Just given the strong growth trajectory and the confidence, can you just talk about where you think the net of both sort of explicit CapEx plus your equipment leasing, what the sum total of that could be as you look over the next couple of years in dollar terms? And how large could you see that delta growing between adjusted free cash flow and your adjusted unlevered free cash flow margins over the next few years? Matt Steinfort: Wamsi, it's a great question. I think, as we said, we're trying to give preliminary guidance for '26 to give the directional kind of growth rates. And we feel very confident that we can deliver that 18% to 20% revenue growth while still delivering the kind of the mid-to-high teens in adjusted free cash flow. And when I say that number, that's the levered number that I'm referring to. And I think at this point, the market is evolving so fast that it's hard to say what the CapEx would be or what the impact on adjusted free cash flow margin would be even in the second half of next year, much less '27 or beyond. What I can tell you is we -- and you've seen us in terms of our behavior, we didn't chase the training opportunity. We didn't pursue what we viewed as revenue that we weren't sure how durable that was going to be for us, and we didn't know if we had a competitive differentiation there. But what we said is where we see opportunities to deliver durable revenue growth with a differentiated product that has good returns, that we'll make investments to pursue that. And you've seen that with our willingness to take down additional data center capacity and secure new GPUs. So I'd say what you can expect is continued disciplined behavior where we're trying to drive durable revenue growth while maintaining an attractive free cash flow margin. Operator: Your final question comes from the line of Robert Galvin with Stifel. Robert Galvin: I wanted to ask about the transition to leveraging leasing and how the gross margins of data centers and equipment you own and operate compare to gross margins from leased capacity. Matt Steinfort: Great. So just to clarify there, we don't -- we lease all of our data centers. We're a colocation tenant in each of our data centers. We don't own any. So the taking down of additional data center capacity that we've just referred to will behave the same way that it did when we took down the Atlanta data center earlier this year and when we took down the Sydney data center several years ago. And what that does is our costs, if you think about our cost of goods, are variable with revenue over the long term. But in the very short term, they're somewhat lumpy. You take down an incremental data center, you have -- not only do you have incremental upfront costs and NRC that happens before you're generating revenue. But the day you turn on the data center, you start paying for the space and some of the power, then you build it out and kit it out with gear and you fill it up, and it takes some period of time to generate the fully utilized revenue in that facility. So there's always a lump of higher expenses in the beginning when you turn on data center capacity and you grow into it. And you grow into it over a series of even just a couple of quarters and your gross margin gets back to what's more of a steady-state gross margin. So we expect that to happen in the beginning of next year of 2026. But we've factored that in and incorporated that into our guidance for the year in terms of the free cash flow margins that we expect to generate. So it's just normal course for us. It's nothing different than what we had done previously with respect to the data. 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 Inspired Entertainment Third Quarter 2025 Conference Call. [Operator Instructions] Please note that today's event is being recorded. Before we begin, please refer to the company's forward-looking statements that appear in the third quarter 2025 earnings press release and in accompanying slide presentation, both of which are available in the Investors section of the company's website at www.inseinc.com. These also apply to today's conference call. Management will be making forward-looking statements within the meaning of United States securities laws. These statements are based on management's current expectations and beliefs and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from those exposed or implied in such statements. For a discussion of these risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission. The company assumes no obligation to update or review any forward-looking statements, except as required by law. During today's call, the company will discuss both GAAP and non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in today's earnings release and slide presentation, which are both available on the website. As a reminder, the slide presentation will be advanced by the operator to accompany management's remarks. A PDF version of the slides will be available following the call in the Investors section of the company's website. With that, I would now like to turn the call over to Lorne Weil, the company's Executive Chairman. Mr. Weil, please go ahead. A. Weil: Thank you, operator. Good morning, everyone, and thank you for joining our third quarter conference call. As we reported earlier this morning, third quarter and trailing 12-month adjusted EBITDA were $32.3 million and $110 million, respectively, both well ahead of consensus and last year, and a result that we're pleased with. In a departure from [ press ] protocols, we have prepared a brief slide deck today summarized here on Slide 4, which will be presented by President and CEO, Brooks Pierce, and myself. There are a lot of moving parts right now, the sale of holiday parks, the restructuring of pubs, the continued phenomenal growth of interactive as examples that paint a very exciting picture, and we feel that this kind of comprehensive discussion will help us put everything in proper perspective. Then at the conclusion, we will discuss earnings, balance sheet and cash flow projections for '26 and '27. To begin, I'll hand it over to Brooks, who will discuss in some detail, current results and operations. Brooks Pierce: Okay. Thanks, Lorne. Before I dive into the business update, I want to briefly address the upcoming U.K. budget announcement on November 26 and the discussion around potential tax changes in the gaming industry. There's been a lot of coverage and discussion on all sides of the issue and its impact on the industry, but frankly, this isn't new. We've managed through -- we managed through the 2019 triennial, which cut maximum stakes in betting shops from effectively GBP 50 to GBP 2, a major change that we successfully navigated through product innovation and operational discipline. Today, performance in that business is well above pre-triennial levels. Potential shop closures have been in the headlines as well, and our experience tells us that this is also manageable. Typically, lower-performing shops are most at risk, and much of that play finds its way to nearby shops, effectively lowering our servicing costs. The potential increase in remote gaming duty would be another facet we have experienced dealing with. We've managed similar changes in other markets, and our performance in the Interactive segment speaks to our ability to adapt effectively. Once the U.K. budget is announced, we'll share more specifics. But in the meantime, we're planning proactively and are confident in our ability to manage changes effectively, just as we have in the past. And we have a number of levers and opportunities at our disposal to navigate our way through this. Okay. Moving to the next slide. We're pleased with the performance of the business in the third quarter, and are carrying that momentum into the fourth quarter. We're confident we'll exceed Q4 2024 performance and current guidance, assuming current FX rates don't change materially. The Interactive and Gaming segments were particularly strong, with Interactive achieving more than 40% year-over-year adjusted EBITDA growth for the ninth consecutive quarter. October is now complete, and is the single largest revenue month for this segment in our history, and last week was the biggest week we've ever had. This was all highlighted by the success of some of our seasonal games, but frankly, we're seeing strong performance throughout the portfolio and market share gains across our key geographies in both the U.K. and North America. We're also pleased to see a second consecutive quarter of stabilization in the Virtual Sports segment, and are confident that it will grow year-over-year in the fourth quarter. The close of the sale of the holiday parks business on November 7 is a milestone in our shift to higher adjusted EBITDA margins, lower CapEx and close to 40% lower head count going forward. Taking the proceeds from the holiday park sale to improve our net leverage puts us in a stronger financial position as we move through the fourth quarter and into 2026. In addition, we announced today that our Board has reauthorized a $25 million share buyback plan as part of our plans going forward. The next slide demonstrates the success of our strategy in making North America a bigger part of our business, in large part due to the growth we're seeing in this market from our Interactive business, but we're also gaining momentum in our North American VLT business that I'll cover in more detail later in the presentation. The success of the Vantage cabinet in the William Hill estate is coming through in our results and was highlighted recently by evoke in their trading update. We're also starting to see the impact on performance of the refreshed terminals in the Greek estate. Although the year-over-year performance in the Virtual segment continues to be impacted by the taxation that started in January in Brazil, our comps in the fourth quarter and 2026 will be easier, and we've also introduced a number of initiatives and increased our customer counts in Brazil and Turkey, and we're starting to see some of that improvement come through the numbers. As you can see on Slide 8, we've been generating solid year-over-year adjusted EBITDA growth every quarter, and the trailing 12 months adjusted EBITDA is now at $110 million. It is certainly a positive, but the most important aspect of this slide is the impact we expect to see going forward with the sale of the holiday parks business and the move in our pubs business to a machine and content-led strategy. Both the Interactive and Virtual segments are operating at higher than 60% EBITDA margins after corporate allocations, and we expect the operating leverage of both of these segments to strengthen further as revenue increases. Combination of margin expansion, the sale of the holiday parks business and the change in the pubs business model will significantly reduce our capital intensity and have a very positive impact on cash flow. The next couple of slides highlight not only the strong performance of the Interactive segment, but frankly, the significant opportunity we see ahead as additional iGaming states potentially come online, the potential we believe could be transformational for our business. Our content is resonating broadly across all the key geographies, and we're positioning the business to scale across even more. Looking ahead to next year, we plan to increase game deliveries through added capacity and a new interactive studio. The most common feedback we get from customers is they want more of our great content, and we're excited to deliver on that challenge. As we've talked about in the past, we're very bullish on the opportunity for an increase in the number of iGaming states. It's clear that iGaming is a much larger opportunity than online sports betting, as you can see in the GGR from just 3 of the existing iGaming states. The delivery of additional states is very seamless, and frankly, should produce significant operating leverage as the only real cost to add states is in bandwidth. We don't have a crystal ball, of course, but we're confident that states will see the opportunity and feel it's a matter of when not if. Now moving over to Hybrid Dealer. We've been talking about Hybrid Dealer for some time, and we felt validated to have won the award at G2E for innovative product of the year. More importantly, we're starting to see the network effect of rolling this product out across our customer base. We have a very good mix of both Tier 1 and Tier 2 customers and have seen success with both. Our William Hill-branded roulette game in the U.K. is producing amazing results, which we view as a proof point for other operators. The next phase of development will emphasize and highlight our proprietary player-favorite content, such as our Wolf It Up! and Piggy Bank family of games. We see this as the natural evolution of our product strategy, supported by an increasing pace of game delivery to meet the strong market demand. While Hybrid Dealer is not expected to be as large as the broader interactive market, we believe it will be a valuable complement to our portfolio, enhance our offering, add diversity to our content and contribute meaningfully in 2026 and beyond. Moving over to Gaming. Our Gaming business continues to perform well across our 3 key markets of the U.K., Greece and North America. In the U.K., we're gaining share in the betting shop business with the addition of 2 key customers. In Greece, our new cabinets are strengthening our leading position. And with nearly half of our machines still to be upgraded, we see continued opportunity for growth. In North America, performance in Illinois and key Canadian provinces is at its highest level since we introduced these products into mature markets, which frankly, is never easy. Notably, 98% of our Illinois customers ordered our game pack subscriptions this year, validating our philosophy that server-based gaming is a powerful tool for operators to keep their players engaged, and we see applicability for that in many more markets around the world. And now I'll pass it over to Lorne. A. Weil: Thanks, Brooks. A lot of interesting concepts and data to digest. I'll begin with Slide 14, giving a snapshot of where we are at the end of the third quarter. I apologize if some of this material was repetitious for those who have been following us for a while, but will help level set for anyone new to the story. So we're starting with trailing 12-month revenue, adjusted EBITDA and EBITDA margin of $310 million, $110 million and 35%, respectively. The digital retail mix is just under 50-50 and net leverage ratio of 3.2x. As we move through the rest of the material, I'll try to explain why we're confident in projecting significant expansion in margins, reductions in leverage and strong free cash flow. Slide 15 summarizes the underlying dynamics that have been underway for some time. Earlier, Brooks talked about the high margin relatively low CapEx and scalability of our digital business. It's the swing of the mix of our business in that direction that's a primary driver of financial performance. In parallel, the divestiture of the holiday park business provides an immediate boost to margins. And the operational reengineering going on throughout the company allows us to make up for the divested holiday parks EBITDA. In a moment, I'll quantify with some specificity on the exact impact of each of these 3 elements. Slide 16 summarizes the 3 things that, of course, everybody wants: revenue growth, expanding margins and growing free cash flow. Although generally, in my experience, you only get to pick 2. And as the slide implies, in our case, the 3 are highly interdependent. Our revenue growth is driven by the compounding of market share gains within growing markets, with content development and greater allocation of resources to marketing, having recently been the principal underlying drivers. Revenue growth, revenue mix and scalability together drive expanding margins, and the latter combined with declining CapEx drives free cash flow, if only it were that easy in execution. Slide 17 decomposes our projection of a 1,000 basis point increase in adjusted EBITDA margin between now and 2027, with the increase being almost equally split between the increased digital mix, the sale of holiday parks and the operational reengineering that we have undergoing. Regarding the latter, we expect most of the benefits to begin to take effect in the first quarter of 2026. Which finally brings us to Slide 18, where we bring this all together. To summarize, we're projecting the digital mix after corporate allocation to reach 60% by 2027; headcount to decline by nearly 40%; adjusted EBITDA margin to grow by 10 percentage points, from 35% to 45%; free cash flow conversion to reach 30% of EBITDA; and net leverage to decline to 2. A few minutes ago, Brooks discussed the expectation of increased U.K. gaming taxes in the November U.K. budget. It's for this reason that for now, we've expressed absolute adjusted EBITDA guidance in terms of high single-digit growth, which will then translate to more specific guidance once the tax proposal is known. As Brooks mentioned earlier, we've been through this drill before, and we're confident we can do much to mitigate any impact. And I should mention that certain important upsides, new iGaming states, for example, would be significant additional mitigating factors as they [ do not ] factor at all into our analysis. Finally, this entire discussion is focused on organic growth and does not reflect any expectation of M&A impact, which we continue to look at very carefully. And with that, we can open to Q&A. Operator, we can have Q&A now, please. Operator: [Operator Instructions] And your first question comes from the line of Ryan Sigdahl of Craig-Hallum. Ryan Sigdahl: Appreciate kind of the targets and laying out the path over the next several years what this company looks like. Still kind of digesting that in real time, but very back of the envelope math, maybe staring at Slide 18 here. If we assume EBITDA grows at a high single-digit CAGR, EBITDA margin expands by 10 points over the next 2 to 3 years. I guess that implies revenue is kind of flattish, maybe even down? I guess, walk through what's going on there, and maybe part of that is the starting point of holiday parks included or not? Brooks Pierce: Yes. I think the -- well, the principal reason for that is obviously the holiday parks business going away. So that's the single biggest driver of the revenue that you kind of modeled out. But I wouldn't say we obviously are confident that the rest of the business segments are going to continue to grow at varying degrees. Obviously, the Interactive business continues to race ahead, but the Gaming business and the Virtuals business, both we expect to grow. Ryan Sigdahl: Helpful. Yes, I think it's just a comparison of kind of the starting baseline there. Virtual Sports, I think I heard expect year-over-year growth in Q4. I guess, what gives you that confidence in the acceleration because it was up [ 1 ] decimal point sequentially, and so it appears like it's stabilizing. But what gives you the confidence to see a reaccelerating growth, at least sequentially, which will get you back to year-over-year growth by Q4? Brooks Pierce: Yes. A couple of different things. We've made some adjustments with our biggest customer that we're starting to see the benefits coming through already. We've added additional customers in Brazil. I think we added 6 in the quarter, which you wouldn't have seen full impact up, and we'll get that in the fourth quarter. And we've also seen some nice growth out of some of the business that we're doing in Turkey, and we're adding another stream of content in the Turkish market. So a combination of kind of all of those things gives us confidence that we're going to grow. I think the fourth quarter number EBITDA is [ 7.2 ] from last year. So it's not an insignificant amount we need to grow, but that's what our target is. Ryan Sigdahl: If I may, a quick follow-up just on that, any commentary or added detail on what those adjustments with your largest customer were? And then I'll hop back in the queue. Brooks Pierce: Thanks. No, I think we'll probably keep that to our -- between us and our customer, if you don't mind. Operator: Your next question comes from the line of Barry Jonas of Truist Securities. Barry Jonas: Lorne, can you expand a little on your M&A commentary in the prepared remarks? Just curious what the pipeline looks like and the types of companies deals you'd be most interested in? A. Weil: Sure. Well, I think to begin -- from a financial point of view, we're only interested in deals where they're going to -- there are significant touch points with the company and our operations now so that we can anticipate meaningful immediate synergies and a deal that makes significant financial sense. We're not going to do anything that's highly in a diversification mode or pay crazy prices that we can't mitigate by having a lot of operational synergies. So that's sort of -- that's the overarching concern. In terms of kinds of companies, we're interested -- we would be interested either in what people nowadays call tuck-in acquisitions that strengthens one of our existing businesses. The most likely would be an interactive studio or an interactive business that had products that we don't have or was addressing markets that we don't address that we could easily fold in. Same thing would be possible in our equipment business. I think it's unlikely that we would do something very big in an M&A sense right now because the business is running beautifully. There's plenty of opportunity to, as I said, to do tuck-in acquisitions, and that's kind of what we're doing, Barry. Barry Jonas: Got it. And then I noticed there was a release about your premium iGaming entrance into West Virginia recently. Just curious if you could talk more about that? And then any other notable jurisdictions you'll be soon to enter, hopefully? Brooks Pierce: Yes. So we've started with DraftKings and Rush Street, I think, are the 2 first customers in West Virginia. For a while, we're kind of waiting to see how some of these markets develop. Delaware as well, which was originally pretty small, but Rush Street's made that into a pretty amazing market. And same thing in West Virginia. So a number of our operator customers were pressing us to get the content in all their markets. So clearly, so West Virginia is rolling out, we'll start seeing the impact of that here in the fourth quarter. I think the rest is what we talked a little bit about is new states. I think the only state we're not in now is Rhode Island, which is kind of a unique environment. So certainly, if any states were to be added, that's a huge bonus for us. In terms of the international markets, I think we have almost 500 customers now. And we're pretty much in every market you can think about. I would say that probably the biggest market that we're not participating in a meaningful way that we hope to is probably South Africa. But Brazil is growing and some of the other Latin American markets are growing. So we kind of have no lack of geographical opportunities for us. Chad Beynon: Great. Congrats on the quarter and appreciate the new targets. Operator: Your next question comes from the line of Jordan Bender, Citizens. Jordan Bender: Maybe just follow up on the M&A comments. First, you mentioned you're going to open a new interactive studio. Are you buying this or is this an organic initiative? And then maybe more broadly, kind of related to the M&A part of this, have you seen multiples for studios come down at all? I know those have been quite elevated in years past. It seems like that's kind of a natural fit for the trajectory of your business at this point? Brooks Pierce: Sure. Maybe I'll answer the first part and a little bit of the second part, and then Lorne can expand. So the studio is going to be -- we're building it ourselves. We've hired the guy who run the studio. He's got a noncompete. So he'll get started after the first of the year, and we'll build it out. And it will be a lot of the content that we are kind of known for, but we also will give him some runway to try some newer types of content that maybe will help broaden our portfolio. In terms of M&A, we've looked at lots and lots and lots of studios. And probably the single biggest issue for us is there's lots of markets where some of these studios get revenue that we won't go into, and that's probably the single biggest gating factor as to why we haven't done an acquisition in that space before, but we continue to look at it. And as the content pipeline gets bigger and bigger, there's more and more of these companies that are popping up. So we're constantly looking at that. And maybe, Lorne? A. Weil: Yes. No, I don't have anything to add to that. I think that's right. Jordan Bender: Perfect. And just following up, on the share buyback, it's been a couple of years since you've bought back stock. Can you just maybe remind us of your philosophy, is this going to be kind of a programmatic buyback opportunistic? Just anything to help us there. A. Weil: Yes. I mean I think -- well, just to address the point about not having done a buyback for the last couple of years, that largely was occasioned by the accounting issue that we, fortunately now has completely behind us. But while it was going on, we weren't able to buy back stock. So now we're in a situation where that's all behind us. We're generating plenty of cash. We -- our cash position itself is strong. And so we're obviously in a position to do it. And we think right now, our stock is at a level where, regardless of what anybody's philosophy is about the subject of share buybacks in the context of capital allocation, it's -- our view is it's obviously very attractive. I don't think it's going to be programmatic, though. I think it's still going to be opportunistic because we're constantly balancing the goal to bring our leverage ratio down to the level that we talked about in these projections, and I think that's a priority. And we don't know whether and when a meaningful M&A opportunity will come across or will come along and then we need to act on that. So I don't think we want to be programmatic about share buybacks because again, we're balancing all of these factors. But we're certainly going to be more aggressive than we've been in the last couple of years. That's for sure. Operator: And your next question comes from the line of Chad Beynon of Macquarie. Chad Beynon: I wanted to revisit, Brooks, your comment about interactive October being the largest in history and obviously looking at the financials for Q3, the $11 million of EBITDA. So maybe first question, are you adding new partners in your biggest market like the United Kingdom? Are you just gaining market share? And then the second part of that, do you think that certain partners are better cushioned against some regulatory changes? I know we'll hear more about that. But yes, I guess, just wanted to ask about Tier 1, 2, 3 partners versus just overall share in that market. Brooks Pierce: Yes. Thanks, Chad. Yes, I mean it's kind of exactly what you would want. It's pretty broad-based. It's across our 3 biggest markets, North America, U.K. and Greece, but some of the other smaller markets are growing as well. And principally, it's us gaining share. I think we are ranked #4, #5 in the most recent Eilers report in North America. I think we've made a pretty focused shift to having build games that resonate with the North American players, and that's turning out. And so all the big guys, whether it's DraftKings, FanDuel, BetMGM, Rush Street are all doing better and better. But it really goes all the way through Tier 2, Tier 3, lower markets. So it's pretty broad-based across the business. And like I said, the October numbers were great. You get the advantage of having Halloween. I mentioned that last week was the single biggest week we've ever had. We had the confluence of payday in the U.K., Halloween and the resetting of limits all happen in one week. So that kind of led to pretty phenomenal results. But we obviously, as we go into the fourth quarter, December is historically one of the biggest, if not the biggest months with all the Christmas games. And November is also a very good month. So the fourth quarter is shaping up nicely. Chad Beynon: And then on the prediction markets. Obviously, you guys have extremely minimal exposure to, I guess, North American sports betting. We have seen a lot of the publicly traded equities trade off as a result of some competition there. Can you just talk about prediction markets, if that -- if you believe that affects any of your business segments here? Brooks Pierce: No. We don't -- we certainly aren't seeing anything. Unfortunately, it's because we don't have -- the one that it might potentially impact would be Virtuals in North America. And as I've said on a number of the calls, we're frustrated by the pace at which we're getting Virtual Sports in North America. The content, the NBA content, the NFL content is resonating with markets outside of North America, but we're still struggling to get more and more operators in North America launch. So that's really the only part of the business that I would see impacted. We certainly aren't seeing any impact in the interactive space from prediction markets, taking players away. I think they're fairly -- even though the operators obviously try and cross-sell, I think they're fairly separate and distinct players. Operator: Your next question comes from the line of Josh Nichols of B. Riley Securities. Josh Nichols: Great to see the parks business approaching a sale here and the stock buyback. Sorry if it was already addressed, I joined the call a few minutes late. But I wanted to just talk about the Interactive business, phenomenal growth that you've been seeing there overall. I think it's on pace for something like close to like 50% growth this year. Do you expect that, that pace is likely to continue next year? And what are the key kind of drivers that you see that's going to be driving Interactive, whether that's like Brazil or [ expanding ] your partnerships with some players in the U.S. and things that are in the pipeline for that business? Brooks Pierce: Yes. We sort of addressed it a little bit earlier, but I'm happy to go back through it. Yes, I mean, look, 9 quarters in a row of more than 40% EBITDA growth is -- eventually the math gets a little bit more challenging, but as I mentioned, the October numbers were great. We expect the fourth quarter to continue to build on that momentum. The biggest issue for us, which, again, I talked about a little bit, is what our customers are saying is, "Your games are great, your game mechanics are great. We just want more of them." And hence, that's why we're investing in the studio to increase the capacity so that we can get more games out to the market, which I think will hopefully help us sustain the growth levels. There's so much content out there now that you really do have to have the combination of the quality and the quantity, but our game design teams have come up with some really interesting mechanics. We mentioned in the presentation about this persistence game that we're doing called Player Link that's driving increased play. So we've got lots of levers that we're pulling, and we hope this streak continues. Josh Nichols: And then last question for me, Virtual Sports, obviously, a smaller piece of the business today, but good to see how that business has stabilized over the last couple of quarters. You talked about trying to get up and running with some more operators in the U.S. What needs to be done to really get that business back into growth for 2026? And are there a couple of larger opportunities that you're kind of optimistic about when we look beyond just the fourth quarter but for next year really? Brooks Pierce: Yes. I mean, so not to put any undue pressure on BetMGM, but they're likely to be the first big operator in North America. So they've gone live with us in Ontario and they're seeing phenomenal results over the last few months. And it's got some regulatory and resource challenges that we're working through with them, but we expect, hopefully, to go live with them yet this quarter. And I'm hoping that, that will be a catalyst for a number of other operators to see that virtual sports resonates and works in every other market around the world we've been in, and we think it will in North America. So unfortunately for us, we haven't been able to, frankly, because the operators have lots of priorities that they're working on for their iGaming, and their sports business and virtuals just kind of has slid down their priority list a little bit. But I still believe that it will resonate. I still believe we have licensed content with the NFL, NBA, and NHL that will resonate with the North American player base. And once -- like I said, it's doing phenomenally well in Ontario. I think once we get one of the big guys, hopefully BetMGM first, live in North America and they do well, I think that will hopefully be a catalyst for the other big operators to put some resources to this. Because it's not a challenge for us, it's really just a resource issue for the other guys. Operator: And there are no questions. I will now turn the conference back over to Mr. Weil for the closing remarks. A. Weil: Thank you, operator, and thanks, everyone, for joining the call today. I know -- is it Sportradar, just started 5 minutes ago. So we probably lost a few of our listeners, but just to reiterate where we are, we're feeling very ebullient about the business right now. The rest of this year looks solid, and we're pretty confident that as we move through '26 and '27, we can achieve the kind of performance parameters we talked about in the presentation. So thanks again for your support, and we look forward to talking to you in a few months. Thanks. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is [ Krista ], and I will be your conference operator today. At this time, I would like to welcome you to the Air Canada's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] l would now like to turn the conference over to Valerie Durand, Investor Relations. Valerie, please go ahead. Valerie Durand: Thank you, Krista. Hello, [Foreign Language]. Welcome, and thank you for attending our third quarter 2025 earnings call. Joining us this morning are Michael Rousseau, our President and CEO; Mark Galardo, our Executive Vice President and Chief Commercial Officer and President of Cargo; and John Di Bert, our Executive Vice President and CFO. Other Executive Vice Presidents are with us as well, Arielle Meloul-Wechsler, our Chief Human Resources Officer and Public Affairs; Craig Landry, our Chief Innovation Officer and President of Aeroplan; Marc Barbeau, our Chief Legal Officer and Corporate Secretary; as well as Mark Nasr, our Chief Operations Officer. After our prepared remarks, we will take questions from equity analysts. I remind you that today's comments and discussion may contain forward-looking information about Air Canada's outlook, objectives and strategies that are based on assumptions and subject to risks and uncertainties. Our actual results could differ materially from any stated expectations. Please refer to our forward-looking caution in Air Canada's third quarter 2025 news release available on aircanada.com and on SEDAR+. And now I'd like to turn the call over to Mike. Michael Rousseau: Well, thank you, Valerie. Hello, [Foreign Language]. Thank you for joining us today for our third quarter results call. We delivered a solid third quarter financial and operating performance after adjusting for the impact of the labor disruption, which, of course, occurred at the peak of the summer season. During the bargaining period with CUPE, we developed comprehensive plans to ensure the safe, orderly wind down and restart of the operations in the event of a labor disruption. These are acted on, and the entire company worked extremely hard to assist those whose travel was disruptive and to quickly return our operations to normal. I thank all our employees for their tireless efforts and unwavering commitment to supporting our customers during this challenging time. We also voluntarily introduced our special goodwill policies. We have received more than 150,000 claims to date, which we have been addressing diligently. Processing these claims is complex and requires a coordinated effort. We do expect to finish in the coming weeks. We reported third quarter operating revenues of $5.8 billion, down 5% from a year ago on a 2% capacity decline. Both declines were the result of the strike-related flight cancellations. Adjusted EBITDA of $961 million declined $562 million from the same quarter in 2024. Excluding the labor disruption, third quarter adjusted EBITDA would have aligned with our full year guidance shared last July and come close to pre-strike market expectations. Operational metrics such as our on-time performance and Net Promoter Score exceeded both internal targets and last year's levels for the quarter and year-to-date. I am very pleased with the progress we're making. Booking trends for Q4 are very strong. We expect year-over-year growth in adjusted EBITDA in the last quarter of the year. This morning, we updated our full year guide, which John will further detail for you. But first, let me turn it over to Mark. Mark Galardo: Thanks, Mike, and good morning, everyone. [Foreign Language] I thank our employees for their unwavering commitment to our customers and to operational excellence. I also extend my gratitude to our customers, the travel trade and our airline partners for their patience and support. Third quarter passenger revenues of $5.2 billion declined 6% from the same period last year on 2% less capacity. Starting August, our year-over-year third quarter unit revenues were trending in the right direction but were impacted by the labor disruption. We estimate it was a drag of about 3 points to Q3 unit revenues. Absent this, Q3 would have amounted to one of the best relative PRASM performances amongst major North American carriers. This is driven by our revenue diversity, hub geography and customer loyalty. Our global network gives us flexibility to quickly pivot to areas of strength. This quarter and throughout the year, we mitigated the exposure to reduce demand between Canada and the U.S. In Q3, we quickly responded to Canadian's growing interest to travel domestically. The transborder sector remains stable, albeit at lower levels once adjusting for the strike. International markets continue to drive significant value. In the spring, we added capacity across the European continent, seeing a stronger Atlantic environment. Moving to cargo. Despite a revenue decline of 6%, mostly from reduced belly capacity in August, Air Canada Cargo was adaptable, and the freighter operation continued to demonstrate its value, playing a key role in capturing the opportunity from evolving global trade flows. This was evident this quarter as our flexibility in capacity from freighters allowed us to carry more of the growing and lucrative cargo demand from Asia to Latin America, fully offsetting other declining flows. Additionally, other revenues rose 15% from the third quarter of 2024 with higher Aeroplan non-air revenues, prices for ground packages at Air Canada Vacations and onboard sales. Next, our well-positioned hubs provided strong local demand from Canada's largest cities and facilitate sixth freedom connections. This year, we've doubled down on connectivity, which has been beneficial for our sixth freedom strategy. Demand has been strong despite the disruptions' impact. Year-to-date, at the end of Q3 2025, sixth freedom revenues grew a solid 9%. Our strong brand ecosystem builds customer loyalty and is a unique and strategic attribute for Air Canada. Booking patterns rebounded soon after the disruption ended, underscoring brand strength and consistency in customer behavior. Let's focus on premium. Front cabin revenues outperformed the economy cabin by 6 percentage points. Corporate improved further with roughly 11% year-over-year revenue growth from our corporate customers in September. What our Q3 results demonstrate is that looking beyond August events, Air Canada's commercial foundations are solid, adaptable and core enablers of strong results. Now let's focus on what's ahead. With our proven commercial playbook, we're uniquely positioned to see favorable industry trends and are highly encouraged by what we're seeing this fall. Fundamentally, our solid booking outlook reflects step change progress against the theme we've long discussed, addressing Air Canada's traditional seasonality and improving revenue diversification. This enables more balanced capacity deployment, revenue generation and profitability throughout the year, and the results are tangible. Currently, our relative capacity in the fourth quarter exceeds pre-pandemic levels. And as of today, we are on track for a record fourth quarter load factor and total revenue performance. We are leveraging the strength of our global network and scale of our hubs to increase our reach and access to new traffic flows. We refined our schedule, improving the connecting ways at our hubs to increase our competitiveness for connecting flows. And finally, we've deliberately built a stronger base of bookings going into the winter, filling seats that historically would have been empty. We expect our significant progress on seasonality to drive revenues and support diversification while improving our ability to take advantage of promising industry trends. Now let's dive into network and within that, international. With one of North America's leading global networks at hand, we see promising signs across the next 6 months. We see demand strength carrying all the way through U.S. Thanksgiving, particularly across the Atlantic. Beyond that, sun and Latin American markets remain solidly ahead of last year for winter with a robust advanced booking position from Air Canada Vacations and uplift from our expansion into Latin America, which also taps into rising Canadian travel demand and boost sixth freedom revenues on our transatlantic flights. Our presence in international markets remains a clear advantage. Next, we see a continued shift in consumer preference towards premium products. Once thought of as mainly a corporate segment, we see an opportunity for leisure travelers seeking our signature front cabin experience. Our booking posture in premium cabins is strong going to Q4 and Q1. As Canada's premium airline, we are uniquely positioned to attract, capture and retain this growing segment of high-value customers. Lastly, we continue to see strong corporate momentum. This is a segment that looks closer in, and then the latest data confirms the strength of September carries into October and is progressing throughout Q4. While North America remains the bulk of our corporate revenue, we are noticing signs of increased international corporate strength. Our comprehensive schedules, well-established and long-standing partnerships, premier loyalty program and superior experience reinforce our position as the airline of choice for corporate travelers. In all, we are encouraged by the trends in the fourth quarter and what we're seeing for early 2026. Although we anticipate a slight decline in unit revenue in the fourth quarter, adjusting for the disruption in Q3, this is a sequential improvement throughout the year -- through the year. Looking further into 2026, there's also a lot to be excited as we implement numerous strategic initiatives. Firstly, fleet additions. Recall, we retired over 75 aircraft during the pandemic and have been anxiously awaiting for incoming aircraft to support planned growth. We will take the long-awaited delivery of 2 new aircraft types, the A321XLR and the 787-10. Our XLRs will initially be based in Montreal and fly to exciting destinations like Palma de Mallorca, Edinburgh and Toulouse. Meanwhile, our first premium focused 787-10 will be based in Toronto, reinforcing our leadership position in Canada's largest market. And speaking of possibilities, our international network will continue to expand next summer as Catania and Budapest are added to our network, and we restore nonstop capacity to China from Toronto. We're also thrilled to be making Bangkok year-round from Vancouver, the only nonstop service to the Thai capital from North America. Second, our transition of the 737 MAX aircraft to Rouge will get into full swing. Longer term, this will enable a more cost-competitive platform, harmonized experience in a new Rouge base in Vancouver to expand our offering from Canada's West Coast. And third, we're looking forward to our recently announced expansion out of Billy Bishop Airport, adding transborder flights to New York LaGuardia, Boston, Chicago and Washington Dulles and more frequencies to Montreal and Ottawa. These routes long requested by our customers, strengthen our position in the Toronto market. In closing, we're making and executing the right commercial moves. We are leveraging our revenue diversity, our well-positioned hubs and customer loyalty to cement Air Canada as one of North America's leading carriers and deliver solid results. Thank you. [Foreign Language] John, and over to you. John Di Bert: Thanks, Mark. Good morning, everyone. [Foreign Language]. First, allow me to take a moment to recognize the resilience of our incredible employees. We know that managing the airlines through the shutdown and restart was very challenging. Yet our colleagues rose to the occasion and maintained their commitment of care and class to our customers. [Foreign Language] In the third quarter, we reported operating income of $284 million and adjusted EBITDA of $961 million, with an adjusted EBITDA margin of 16.6%, including the $375 million impact from the labor disruption. The impact consists of the following: a $430 million impact to revenues, including [ some book away ] for travel in August and early September, $145 million in avoided costs due to reduced flying, partially offset by $90 million of cost reimbursements to customers for out-of-pocket expenses and labor-related operating costs driven by the shutdown and restart activities. This is consistent with the estimates we announced in late September. Operating expenses increased 8% year-over-year, mostly due to a $173 million onetime charge. Of this, $149 million was a noncash onetime pension past service costs from plan amendments that are related to the agreements reached with CUPE. The remaining is due to costs associated with streamlining our management structure. Fuel expense was 12% lower year-over-year for Q3. Jet fuel prices fell by 10% compared to last year, which included a $29 million hedging gain for the quarter, totaling $48 million in the first 9 months of the year. Additionally, fuel consumption was 3% lower than in Q3 2024 due to the flight cancellations. Third quarter adjusted CASM was $0.1399, up 15% from last year. About 1/3 of the increase was due to cost escalation mainly in labor, maintenance and depreciation. Roughly another 1/3 was the effect of certain favorable contract-related adjustments we recorded in the third quarter of 2024, which made for a less meaningful year-over-year comparable in Q3 '25. Excluding the impact from the disruption, nonfuel unit costs were aligned with our full year CASM expectation at our Q2 call. In all, we estimated the disruption had a drag on adjusted CASM of about 6 percentage points, reflecting incremental costs and lower capacity. Turning to cash flow. In the quarter, we generated $813 million in cash from operations and free cash flow of $211 million. We have accrued for strike-related customer compensation to be processed and paid in Q4. Additionally, in the third quarter of 2025, we implemented a new enterprise resource planning system and experienced a delay in timing of payables processing in September, equivalent to 15 days of payables. The cumulative free cash flow of $1.2 billion year-to-date reflects approximately $600 million of favorability due to the timing of certain payments in Q3. On to our balance sheet. In July, we fully repaid our convertible bonds for a total amount of $382 million, reducing the number of potentially issuable shares by $18 million. In September, we drew $231 million from our EDC loan commitment for 5 A220s that had been previously delivered. We ended the quarter at $8.3 billion in total liquidity, including $1.4 billion in an undrawn revolver. Leverage ratio ended the quarter at 1.6 turns, reflecting lower EBITDA due to the impact of the disruption. We expect this ratio to increase slightly in Q4 as we process the outstanding payables from Q3. When thinking about leverage and long-term decision-making, we will look through the onetime impact on EBITDA when assessing our leverage objective of 2x or less. Moving along, we updated our full year guide this morning. We now expect capacity to increase around 0.75% versus 2024. We project 2025 adjusted CASM in the $0.146 to $0.147 range. We reached an agreement with CUPE, except for wage terms that will be finalized through binding arbitration. Our guidance reflects the agreement and our best assumptions on the outcome of arbitration. In 2026, we will see the full effects of the new agreement flow through our labor costs, including the enhancements to ground pay and benefits. For adjusted EBITDA, we now expect $2.95 billion to $3.05 billion in 2025 and a strong fourth quarter, which should outperform Q4 2024. To close on guidance, we anticipate free cash flow between breakeven and $200 million for the full year. We expect the free cash flow use in the fourth quarter as delayed payments are brought current, including customer reimbursement amounts accrued for but not yet paid. Q4 CapEx is anticipated to be approximately $900 million, just under $3 billion for full year 2025. With the recent volatility in jet fuel prices, we continue to monitor global trends. Relying on visibility we have into Q4, we have hedged 34% of the expected fuel purchases for November and December at an average price of USD 0.52 per liter, approximately CAD 0.73 per liter before taxes, fees and shipping costs. Finally, we continue to progress on our $150 million cost reduction program announced earlier this year, which includes the preplanned management headcount reductions. We are on target for year-to-date savings and expect to deliver the full $150 million in 2025. Key components include operational efficiencies and -- operational efficiency initiatives, streamlining our management structure, process improvements and third-party spend management. We expect the cost reductions to be reoccurring in 2026. In 2026, we anticipate a step change in unionized labor costs due to recent labor agreements and as we continue to work through our 10-year agreements to shorter-term collective agreements. We also see some cost pressures from airport infrastructure and user fees as airports undergo capital investments to better serve airlines and passengers. Over time, we will aim to partially offset these headwinds with ongoing productivity gains, constant cost discipline and driving cost reduction initiatives across our business. Now let's turn to the fleet. We expect to add 3 additional A220s and 1 737 MAX by the end of 2025. Further, we expect to begin retiring old Airbus A320 family aircraft, including [ 8 319s ] and 2 320s. In 2026, we expect to receive 18 A220s, 11 A321XLRs, 4 737 MAX aircraft and 2 787-10s. While we are particularly excited about receiving our first A321XLRs and 787-10s, the delivery schedule for 2026 is considerably delayed compared to our original expectations as outlined at our last Investor Day. On average, we'll have approximately 6 fewer A220, 737s and 6 fewer A321XLR or 787-10s on any given month of 2026, which will impact our ASM production for next year. In addition to welcoming the new aircraft to our fleet, as Mark noted, we are moving ahead with plans to transfer all 737 MAX aircraft to Rouge next year. We're working toward an all-737 MAX Rouge fleet by the end of 2026. Some A320 family aircraft are expected to move to mainline, and the rest will be retired. More details will be provided when we give 2026 guidance. Looking beyond 2026, our 787-10 order for 18 firm aircraft has been modified to 14 firm aircraft with the first 10 scheduled for delivery by 2028 and the remaining 4 by 2030. While this moderates the growth pace in the near term, we remain firmly confident in the mid- and long-term opportunities ahead. In addition, the changes smooth out CapEx profile, support disciplined financial planning and preserve flexibility to scale capacity in line with demand. These modifications are reflected in our capital commitments table included in our Q3 MD&A. Our fleet strategy remains focused on profitable growth in our right to win end markets. We will continue evolving the fleet for greater efficiency and flexibility to meet customer demand. Our fleet investments support long-term sustainable value to shareholders and customers alike. Reflecting our commitment to returning value to shareholders, today, we announced our renewed NCIB. Since the inception of our November 2024 NCIB, we repurchased about 62 million shares for cancellation. Further, we retired 18 million potentially issuable shares. In aggregate, we have deployed close to $1.7 billion to anti-dilutive actions. In summary, we remain confident in our trajectory toward 2028 and our ability to manage through growth and margin expansion cycle. The strategic network expansion, premium product investment and disciplined cost management are core priorities, and our executive-led road maps drive execution across our portfolio. Despite a challenging Q3 environment, we delivered solid financial results, demonstrated the underlying strength of our franchise and continue to hit important milestones for our new frontiers plan. We'll provide a fulsome update on progress towards our long-term goals at our next Investor Day, which will be planned for some time in 2026. Thank you, and I look forward to your questions. Mike, back to you. Michael Rousseau: Great. Thank you, John. We have a very strong business model that can recover quickly from unexpected setbacks and certainly take advantage of opportunities and execute extremely well. Operationally, we shut down and restart the airline in record time. We are encouraged by the speed at which booking patterns recovered and the strength that has followed. Negotiations supporting our staff at the airports, contact centers and maintenance facilities will begin soon. Over decades, we have consistently reached agreements that value our employees and support the airline's future. And we look forward to productive discussions with our unions. Our commitment to our plan includes making very tough decisions. In July, we announced to our management colleagues that we would be streamlining our organization. After a comprehensive evaluation, we made a difficult decision to reduce certain management positions, representing approximately 1% of our total headcount. Next year, we expect to take delivery of 35 new aircraft, the most we have ever received in a single year, supporting our global growth initiatives. We will receive the first game-changing Airbus 321XLR, which will not only enable us to launch new routes, but it will help us offer some services year-round and even out our network seasonality. As Mark noted, the travel market remains robust, and demand is strong. In particular, business travel continues to recover. Our recent announcement to add routes from Toronto Island next spring underscores our commitment to offer more options to our loyal travelers, including our Aeroplan members. We are pleased that we have more than doubled our Aeroplan membership since the program is relaunched, now proudly counting more than 10 million members. Our focus on customer service resonates throughout the network. I was pleased that our Net Promoter Score rose by 10 points in the quarter and that Air Canada once again won a 5-Star rating from APEX is excellence in customer experience recognized. And finally, today, we announced the renewal of our normal course issuer bid. Our capital allocation priorities remain unchanged: invest in growth, protect our strong balance sheet and deploy excess liquidity strategically. As our track record shows, including in this quarter, we are executing on our plan, seizing the right opportunities. Strong operational growth and disciplined execution are driving effective cost management and reinforcing our diversified commercial foundation, which are the key components of our right to win. With prudent steps to smooth out capital expenditure profile and a renewed NCIB in place, we've established a clear framework to return value to shareholders. And we have exciting times ahead of us with growth plans fueled by our key strategic initiatives like our revitalized Rouge offering and new state-of-the-art efficient aircraft. As you heard today, we will also continue to improve our cost structure through productivity gains, operational efficiencies and constant cost discipline to mitigate near-term pressures. We continue to focus on free cash flow generation in order to return value to shareholders. The hard work ahead in 2026 will position us very well for the second half of our strategic plan. With a solid foundation, an excellent balance sheet and a very talented and dedicated team focused on execution in our customers, we are confident in our ability to deliver significant long-term value to all of our stakeholders. Thank you. [Foreign Language] Valerie? Valerie Durand: Thank you, Mike, and thank you all for joining us this morning. We are now ready for your questions and ask that you limit yourself to one question and one follow-up, please. Over to you, Krista. Operator: [Operator Instructions] Your first question comes from the line of Konark Gupta with Scotiabank. Konark Gupta: Maybe this is for Mark. I think you mentioned that RASM trends are expected to be slightly down in Q4. I'm just kind of wondering what are you seeing in different markets here. I think in corporate, obviously, you're saying it's growing nicely, and I think Atlantic demand continues into -- well into October and some parts of November. Is much of this RASM weakness coming still from the Pacific normalization and maybe transborder? Mark Galardo: Konark, so on this particular item, when we look at Q4, we are expecting somewhere between flat RASM to maybe slightly down RASM. But overall, the way you should look at this is the transatlantic is looking at overperformance. We're looking at a very strong transatlantic network all the way through Q4. We see a lot of resilience in the sun market as well as we've seen a little bit of shift away from transborder into the sun. We're having a very strong November, December into the sun. And then you've got those other supporting pillars like premium demand strength and corporate demand strength that are kind of sustaining some fairly decent yields that we're going to have on the transborder despite the demand drop. So that's kind of the color in terms of what you can expect for Q4. Konark Gupta: And then on the CASM side, John, I think the implied guidance for Q4 suggests a flattish CASM from last year. I mean given the inflationary environment you guys are in and obviously, the labor contracts and all that, what is contributing to the flattish CASM here? I mean what are the offsets? I mean some of the cost savings, I'm sure like are coming through, but is there anything else like in sort of one-timing -- one-timer in nature in Q4? John Di Bert: No, I would say it's largely -- and you've seen we've been active, including keeping headcount in check. And so I would say, generally speaking, it's cost focus. We get some ASM growth, so that helps as well. Fourth quarter actually carries the entire ASM growth for the full year. And -- so that's obviously helpful. Nothing really to highlight in terms of kind of big positives in the fourth quarter. Konark Gupta: Right. And I think the maintenance contract adjustments, you already lapped those in Q3, right? I mean there's nothing in terms of noise from last year and Q4. Okay. Perfect. John Di Bert: Right. Q3 was [ noise and ] I covered that in the commentary, but I think Q4 should be a bit more of a reasonable compare. Operator: Your next question comes from the line of Savi Syth with Raymond James. Savanthi Syth: I was just wondering on the commentary about the fleet kind of delays in 2026 versus kind of expectations last year. I think the visibility here. So I was kind of curious how you're thinking about 2026 capacity? And if you're kind of hiring correctly to that versus kind of in the past where maybe some of the fleet delays were somewhat surprising and therefore, kind of hard to manage on the cost side. John Di Bert: Yes. I'd say, first, I'd separate that into 2 answers. One, I think we've been disciplined with hiring after we kind of stabilized the operations through '24. And I think this year has been a fairly disciplined approach. And we've always said we're going to be driving productivity as the airline continues to grow. So I think in and of itself, we're going to continue to work that way. With respect to the capacity growth, for sure, I mean, we try to be as proactive as we can with respect to balancing everything we need to bring on those aircraft properly. And I think we have a pretty good read of what 2026 looks like. And we're going to obviously operate in accordance. But yes, for us, we're well into the planning cycle and have a pretty good read on what we expect for capacity growth next year. Savanthi Syth: That's too early to share? John Di Bert: Yes, in precision, yes. But I think we're adding 35 aircraft in total. We're going to be retiring a significant amount of aircraft as well. So we'll have a net balance of somewhere in the mid-teens, I think, or maybe just less than that, probably in the low double digits. We'll hold that for the guide in February. Savanthi Syth: Got it. I appreciate it. And then just a follow-up on that. Just CapEx came down. I'm wondering what the drivers were. Was it just that related to the fleet order changes or anything different going on with the CapEx for you? John Di Bert: No, it's totally correlated to the adjustment in the -10 order. Operator: Your next question comes from the line of Daryl Young with Stifel. Daryl Young: Just wanted to get a sense of how you're thinking about the peak Q3 in 2026? And any thoughts on just smoothing of seasonality and I guess, some of the strength you're seeing to start this year. Is that sort of a pull forward of Q3? Or how should we think about that? Mark Galardo: Thanks. It's an excellent question. It's something that we're actually debating here internally. Obviously, what you can see in 2025 is that there is more relative strength in spring and fall than there actually is in the summer peak. I think that's a trend that we see consistently across the North American landscape. So we're working with our operations colleagues to see how we can better allocate aircraft and maintenance activities to maybe take a little bit of the pressure off Q3 and load up a little bit more in Q2, Q4. But with -- as it relates to 2026 specifically, just the timing of aircraft deliveries is such that there's going to be some decent ASM growth in Q3 relative to Q2 in 2026. Daryl Young: Got it. And then a follow-up just around the NCIB and your free cash flow now that the CapEx has been deferred. Is that something that we should think you're going to be active on starting in November here? John Di Bert: I won't give any position to timing, but we've put it in place and we intend to use it. And I'll just give some color around our buyback program. We did announce in aggregate about $2 billion over the next couple of years as we set that out in December of '24, and we said that was going to be part of the midterm plan, 3 to 5 years. So right now, we stand at about $1.3 billion of shares bought back. We also did the convertible debt extinguishment, which is anti-dilutive. So there's still room for us to continue to go. Our plan is continuing to execute as we expected. I think the 2025 positive cash is a good checkpoint here. And obviously, a little bit of an improved profile in CapEx helps as well. We'll pick the right spots, but we do intend to be active on this NCIB, and we'll do that as appropriate. Operator: Your next question comes from the line of Tom Fitzgerald with TD Cowen. Thomas Fitzgerald: I'm just curious like how you're thinking about kind of managing the transition of Canada point of sale and transborder in the March quarter and whether you think just -- how Latin markets are shaping up so far and just how you're thinking of managing that risk? Mark Galardo: Tom, just to be precise on your question, you're speaking about the upcoming spring break in March? Thomas Fitzgerald: Yes, yes. Just the broader -- I know the sun markets are a big demand driver in the March just in the transborder, that's a heavier portion of it. I'm just kind of curious how that's -- I know you kind of have -- you got a lot of growth in the Latin markets coming up. Kind of curious how that's shaping up and what we should be watching for? Mark Galardo: Yes. Okay. Good question. So for Q1, the sun market is developing quite nicely with positive load factor and flat yields all the way through. So as we think about March, one of the items that we're looking at very closely is obviously our transborder spring break capacity. And because we're noticing a better kind of equilibrium between supply and demand, I mean, obviously, you've seen a lot of competitors withdraw capacity into U.S. leader markets, it's actually a much more favorable revenue environment going into Q1 and into March break. And if there are further opportunities for us to move capacity around, we'll make those calls later on. But we are seeing -- we're definitely -- I'd say we called the bottom a little bit on the transborder leisure kind of demand erosion. Thomas Fitzgerald: Okay. That's really helpful. And then just as a follow-up, I was wondering if you have any more color on sixth freedom between Pacific and Atlantic and just some of the deceleration in that growth. I don't know if it's just noise from the industrial action or anything of note that we should be thinking about? Mark Galardo: Yes. Thanks. So the demand growth so far for sixth freedom revenue growth has mostly been on the transatlantic. There's been a little bit of Pacific growth, but it's been relatively muted this year. And as we think about Q4, it's mostly the transatlantic that's driving it. A portion of it being U.S. to obviously the transatlantic, but a big growth on Latin America to Europe via Canada, which is going to sustain our sixth freedom performance throughout the year. Operator: Your next question comes from the line of Chris Murray with ATB Capital. Chris Murray: Just very quickly, thinking about the fleet changes next year. As you said, there's a lot going on. But I guess I want to focus a little bit on Rouge. So can we just think -- maybe go through what the process is going to look like moving all of the 737s into Rouge. And I'm assuming you'll end up rebranding those aircraft, but if you can give us some more color on that, that would be great. And how we should think about the transition over the year would be helpful. Mark Nasr: For sure. It's Mark Nasr. So we're going to begin with our first 737 MAX that's currently operating at mainline. It's going to go in for reconfiguration in about 6 weeks here. The reconfiguration of those aircraft is a very efficient program. It will take about a week to do each one, and we'll move through the entire fleet of the 40 aircraft that we currently have in the standard mainline configuration over the course of the year as well as the 5 additional new deliveries that we're going to take. And so we expect, as we get towards the end of next year, the very beginning of the first quarter, that transition to be complete. Of course, we're going to be bringing over several of the Rouge aircraft into mainline. That's a little bit more of an involved process with regards to reconfiguring those aircraft to match our mainline standard, and that should be completed in the early part of next year. And the 2 activities are going to happen to be able to balance capacity between the 2 operating certificates. Of course, we'll also be bringing Rouge to the West Coast by basing several aircraft out in Vancouver. With regards to the configuration, we haven't announced the details yet. We'll do so in the coming weeks. But we will be densifying from the current LOPAs that we have at mainline for the 737 MAX, and we'll be removing some of the J cabin and adding more into the economy cabin. Those details will be announced shortly, but it will be -- it will ensure that we have the cost -- the unit cost performance at Rouge that we need to be successful in the leisure market. Chris Murray: Okay. That's helpful. My last question, maybe for John on the NCIB. One of the questions I've been getting from a lot of folks is just when you did the last NCIB, I guess it went out pretty fast and burned through the allocation, which left you kind of without the tool to use as the stock came off. Is there a bit more thought to being maybe more formulaic or balanced across the whole time period? Or is it still going to be kind of an opportunistic thing? I know you put in a purchase plan for it. But just thoughts on kind of the bigger picture strategy around how to use it would be helpful. John Di Bert: Sure. Well, I think there's different circumstances. And don't forget, we put out an SIB in the middle of the year last year, right? So we were not without tools, and we did take advantage of that. So I would argue that, that wasn't actually what happened. So the first [ 800 ] did go out more quickly, and we had telegraphed that. We said we were going to be fairly rapid on once we had come out of 2024 with respect to restabilizing the airline and frankly, working down the debt, we would be anti-dilutively focused, and that's what we did. I think we'll -- I won't telegraph exactly here when and how. I think we'll use it appropriately. We have plenty of capacity at 10% of the total float. So we're running the business, and it's not just one dimensionally. We're bringing up the fleet. We're obviously focused on cost containment and cost management. We're geared towards free cash flow generation as we kind of build out the airline on a structural basis. And so we're going to keep a strong balance sheet, at the same time, complete the program that we had started when we announced the $2 billion over the next couple of years. So no precision on the exact use, but we'll do it right through the time of the NCIB. Operator: Your next question comes from the line of James McGarragle with RBC Capital Markets. James McGarragle: So I had a question on the capacity in the Canadian market. You've kind of flagged, obviously, your lower CapEx. So can you just kind of talk about the capacity trends through the remainder of 2025 and into '26? And any notable yield trends that are kind of emerging as a result of some of these capacity shifts? Mark Galardo: James, so on the capacity side, we continue to see that the domestic market is obviously very competitive. Generally speaking, I think demand -- sorry, supply is up about 4%, 5% going into Q4 just on the domestic alone. There's a better balance of supply and demand on the transborder, which we think will help sustain yield and revenue recovery on the transborder sector. The transatlantic is fairly stable with low single-digit capacity growth, which is going to obviously provide some stability on the yield and load factor side on the Atlantic. Of course, as you know, and we discussed on the Pacific, there's been a sizable growth in demand from China -- sorry, in supply from China, Hong Kong, Korea. There is yield pressure on Asia and especially as we've added more capacity to China and we absorbed that capacity, we should anticipate that the yield and RASM will continue to be negative all the way until probably Q1 or Q2 next year. And then the sun market, the capacity growth is up double digits, but our revenue load factor and yield performance are all in the green. So overall, a pretty balanced market, and we've got, of course, the ability to move capacity around as market conditions evolve. James McGarragle: And just for my follow-up on the lower CapEx. So how should we be thinking about the trade-off here longer term? Obviously, positive for free cash flow, but does this kind of pose any risk to your longer-term plans that you highlighted at the Investor Day? And kind of how should we be thinking this in the context of cost and margins as the newer fleet was expected to be a driver of increased efficiency? And I'll turn the line over after that. John Di Bert: Thank you. Thanks for the question. I think all those things stay intact. I mean the -- when you look at the overall addition of aircraft, you're talking about 90 aircraft or so over the period of whatever it is, 3, 4 years. We -- this adjustment affects -- for sure, I mean, if you look at 2025 in terms of ASM growth, it was a bit of a stall. So I think just we pace accordingly here. The 787s did have quite a bit of delays from the original purchase date versus coming in 2026. I think this is just managing that delay scenario. So yes, 2028, you'll have 4 less aircraft in there. We'll work through that, see what it means. But ultimately, we're bringing in 14 787s and 30 321s, and there'll be plenty of good aircraft and plenty of good capacity. And we think that we're in good shape to deliver on our longer-term objectives. Operator: Your next question comes from the line of Alexander Augimeri with CIBC. Alexander Augimeri: So, yes, just looking at your strong results within premium and in corporate, I was just wondering if you can provide any additional color on this as we look forward into the end of the year in 2026. Mark Galardo: A little bit early to talk about 2026 because it's such a low base of bookings. But as we kind of dive into Q4, I think what you should anticipate is continued double-digit increase in overall corporate revenue and basically across all geographies, in particular, a nice growth on the transatlantic. And on the premium side, we continue to see a lot of strength in the business and premium economy cabins with both positive load factor and yields. As we all know, there's a little bit of pressure in the economy cabin in terms of yields. Operator: Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Kyle Wenclawiak: This is Kyle Wenclawiak on for Sheila. I was hoping, I know it's early, but if we could talk a little bit about the puts and takes in terms of the profitability walk for 2026. You have the 17-plus percent margins out in 2028, but it sounds like a lot of the fleet benefit is now kind of moving right again. And you mentioned a bit about the labor contracts and the work rules kind of run rating next year. So can you kind of help us frame what 2026 profitability is? And what are sort of the moving pieces to keep in mind? John Di Bert: I think you covered some of it, right? So in terms of absolute ASM production, I think we'll still have solid year-over-year growth from '25 to '26, but '25 isn't where '25 was originally intended to be. So in absolute, you'll get a little bit of pressure there. Again, we also had -- I mentioned in my comments, what amounts to, call it, 6 long-range aircraft and 6 kind of continental range or shorter-range aircraft less than we anticipated when we had the original long-term plan at Investor Day in '24. So that's a pressure point. I think when it's all said and done, we'll still see very nice growth, but we will not see all of the benefits of the modern aircraft and some of that long-range flying that we would have liked to see in '26. That doesn't go away. It just gets pushed out a little bit. So I think '27 and certainly in '28, we'll have a lot of that fleet in place and a lot of the margin benefits that we're expecting. With respect to puts and takes, I think we've been very focused on cost reduction and driving productivity. And I think those will continue to deliver value. We do have a step change in labor. We've started that cycle in '24 with the pilot agreement, '25 with flight attendants. And we do expect a couple of other labor agreements in 2026 to be completed. I mentioned in the comments as well, we have some pressure from those step changes. We're planned for them, but they will come through and kind of be most acute as we go through 2026. So I think for all intents and purposes, looking out probably past '26, '27, '28, we talked about a 17% plus margin. I think that's still well in play. We'll continue to work through and see where we end up as we complete our planning cycle, both the '26 and the longer term. But we're still very focused on those high-teen margins and just navigating through some movements overall from an airline and business model point of view, still feel very good about generating positive cash structurally and finding accretive growth. Kyle Wenclawiak: If I could just follow up quickly on the 787-10s. I know you mentioned it's just related to delays and maybe it's just kind of normal case negotiations. But is that a signal of what you think the network is going to shape up to be in a few years' time because those are your long-haul, most premium type aircraft. And I assume there's a bit more underpinning why you guys made that decision. John Di Bert: Yes. I mean, it's not. So frankly, those were 18 aircraft to come in, in 2026 and a couple in '27. So that order would have been filled fairly rapidly. There's been delays. We've just managed with Boeing to adjust because of the impact of those delays in how we take those aircraft. Longer term, no changes in our expectations. And when you look at it, right, I mean, all in, you can do the math on an envelope, but you're talking about maybe 2% of total capacity by the time we get to 2028. Michael Rousseau: And just -- it's Mike Rousseau, just to follow on that. We think our timing is very, very positive. As you know, Canada is diversifying trade around the world, and we think we play a big part in that diversification. So strategically, bringing in widebodies will allow us to work with Canada on diversifying trade. Operator: Your next question comes from the line of Andrew Didora with Bank of America. Andrew Didora: A question for John. I guess with the strike and the way it kind of has influenced near-term EBITDA and cash flow, net leverage is probably a little bit different than you were initially planning for 2025. But I guess when you think about executing on the NCIB, I guess, how do you think about executing on the NCIB in the construct of kind of where your leverage has gone? And how do you think about that keeping that leverage in your range going forward with this plan in place? John Di Bert: Yes. I mentioned it in the commentary, right, that we would look through that onetime hit in Q3 when we thought about long-term decision-making and capital deployment. So we -- I mean, that's a nonrecurring onetime. It won't affect how we view the strength of our balance sheet or the capital deployment decisions and strategy we have to make. I think it will fall off the calculation in 3 quarters and 4 quarters. So -- and still feel very good about our balance sheet. We feel good about how we're allocating capital. No changes. Andrew Didora: Okay. Fair enough. And kind of more of a kind of focused question here. Just in terms of free cash flow, right, I think year-to-date, a little bit over $1 billion. You're guiding to flat to up a little bit for the year. I know 4Q is typically seasonally weaker. Just curious what brings that -- it seems like 4Q will be much worse than normal seasonally from a free cash flow perspective. Is that because of the strike -- the cash payouts from the strike? Anything unique there? John Di Bert: Yes. Thanks for asking the question. So we highlighted in the commentary that we have about $600 million, including some of the comp that is accrued and will be paid, but mostly from a delay in vendor payments in the third quarter. We went to an SAP implementation. We had planning for transition. In there, you have about 15 days' worth of payables that would have otherwise been paid in Q3 that will be paid in Q4. So when you take that $600 million out and you adjust for what I mentioned was roughly $900 million of CapEx, you get a pretty normal free cash flow when you consolidate Q3 and Q4 together. So really, at the end of the day, it's working capital restoration of the payables that were not out the door in Q3 that will catch up in Q4 in that $600 million. Operator: Your next question comes from the line of Fadi Chamoun with BMO Capital Markets. Fadi Chamoun: A question maybe for John. I want to dig into the CASM picture a little bit. So you've kind of averaged about 4% adjusted CASM inflation in the last 3 years, including '25. Going into '26, you've got a bunch of narrow-body, which is potentially pressure on CASM, and you've got some inflationary pressure in labor, but you also have growth and productivity. I'm just trying to think, do we start to go kind of sub-4% as we go to '26? Any kind of framework how to think about the adjusted CASM as we go into next year? John Di Bert: Fadi, fairly, I think we'll address that a little bit more when we get to our guide in February. We're working through that now. I think that '26 will have a bit of pressure, right? I mentioned it before. You're not -- you're getting the ASMs, you're not getting the ASMs that come from a longer-range flying in quite the mix that we would have liked. So that typically is a little bit helpful. The impact of modern fleet as well that we had kind of originally anticipated for '26 is going to be a little bit stalled. So I'm not concerned about our ability to generate those cost savings and cost reductions. They will just come a little bit later than we had planned for. So I think in 2026, probably not the year where you have the kind of flattening out of cost on a unit basis, but still very confident that will come probably near the end of the year and into '27, '28. Fadi Chamoun: Okay. And just a follow-up on the CapEx and the plan for 2026. Any idea of what kind of the split is for sale leaseback maybe versus straightforward financing? John Di Bert: Yes. So we mentioned, right, in our long-term planning in our Investor Day kind of 3- and 5-year look that we would be active with sale leasebacks. We had earmarked roughly $3 billion on, call it, I don't know, maybe whatever it is, $8 billion of aircraft acquisitions over the same period. And we talked about bringing our owned-to-leased ratio down from 80% owned, 20% leased to something like 60%, 65% owned and, call it, 35% leased. We will continue to do that. We want to do that in the years where we're peaking in terms of CapEx because kind of this logjam of delays and we haven't had a lot in the last couple of years and now finally coming into the peak of our growth cycle. So we will be deploying sale leasebacks in '26, '27, and we'll work through all of that and probably give you a little bit more color as we set those things up for 2026 when we guide. But yes, there will be components of sale leasebacks there for sure. Fadi Chamoun: Okay. Any fuel hedges actually for '26 or it's just Q4 that you're hedged for? John Di Bert: Yes. No, none for '26. That's something to consider. We typically look at the booking curve and what fares we've already sold. And then I mean it's been -- notwithstanding, there has been some volatility. It's been a relatively range-bound fuel price, specifically, I would say, after the spring of '25 through the rest of the year. And we've participated through the year on a couple of occasions, probably around 20% total year fuel hedged when you aggregate all of it. And we did so mostly within the 90-day booking curve once we had fares sold and we saw some breakdown in pricing. Operator: And that concludes our question-and-answer session. I will now turn the call back over to Valerie Durand for closing comments. Valerie Durand: Once again, thank you very much for joining us on our call this morning. Should you have any additional questions, don't hesitate to contact us at Investor Relations. [Foreign Language] Have a good day. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning, and welcome to The Brink's Third Quarter 2025 Earnings Presentation. [Operator Instructions] Please note, this event is being recorded. This call and the Q&A session will contain forward-looking statements. Actual results could differ materially from projected or estimated results. Information regarding factors that could cause such differences are available in today's press release and presentation and in the company's SEC filings. The information presented and discussed on this call is representative of today only. Brink's assumes no obligation to update any forward-looking statements. The call is copyrighted and may not be used without written permission from Brink's. I will now turn it over to your host, Jesse Jenkins, Vice President of Investor Relations. Mr. Jenkins, you may begin. Jesse Jenkins: Thanks, and good morning. Here with me today are CEO, Mark Eubanks; and CFO, Kurt McMaken. This morning, Brink's reported third quarter 2025 results on a GAAP, non-GAAP, and constant currency basis. Most of our comments today will be focused on our non-GAAP results. These non-GAAP financial measures are intended to provide investors with a supplemental comparison of our operating results and trends for the periods presented. We believe these measures allow investors to better compare performance over time and to evaluate our performance using the same metrics as management. Reconciliations of non-GAAP results to their most comparable GAAP results are provided in the press release, the appendix of the presentation, and our 8-K filings, all of which can be found on our website. I will now turn the call over to Brink's CEO, Mark Eubanks. Richard Eubanks: Thanks, Jesse, and good morning, everyone. Starting on Slide 3. Brink delivered another solid quarter of mid-single-digit organic revenue growth. The 5% total company organic growth included an acceleration from Q2 to 19% for ATM Managed Services and Digital Retail Solutions or AMS/DRS as we continue to make progress expanding into large and growing markets. For the second consecutive quarter, we delivered record Q3 EBITDA and operating profit margins, driven by strong productivity, the benefits of AMS/DRS revenue mix, and continued pricing discipline. Third quarter EBITDA margins were 19%, up 180 basis points from the prior year. The improvement was highlighted by 320 basis points of expansion in North America as we make progress driving a balanced agenda around growth in AMS/DRS and cost productivity with the Brink's Business System. With AMS/DRS now accounting for 28% of total revenue in the quarter and more productivity initiatives underway, we are expecting continued margin progress going forward. Cash generation also continues to improve. In Q3, we delivered $175 million of free cash flow, a year-over-year increase of 30%. We continue to shorten our cash cycle and deliver capital efficiency across our asset base with vehicle counts down again this quarter and DSOs improved by 5 days. Looking at the quarter in total, we delivered on our guidance commitments with performance exceeding the midpoint of our communicated ranges for the quarter. Organic growth remains healthy in the mid-single digits with AMS/DRS accelerating quarter-over-quarter. We continue to make steady progress improving profitability as we drive lasting structural changes to the way we operate on both the front lines and in the back office. Supported by this strong momentum, we are passing through our Q3 midpoint outperformance to the full year and affirming our previously increased full year framework. Kurt will have more details on the guidance at the end of the presentation. Turning to Slide 4. You can see how our year-to-date performance supports our value creation strategy. First, we're focused on delivering organic growth primarily from our higher-margin subscription-based services of AMS and DRS. We are tracking in line with our full year framework with organic growth of 5% for the total company and 18% AMS/DRS year-to-date. The revenue growth and the execution of productivity enhancements have driven EBITDA margin expansion of 40 basis points year-to-date with acceleration in the second half. For the second consecutive quarter, we've achieved record EBITDA margins in both North America and Europe. Free cash flow conversion is also improving. Year-to-date free cash flow has increased to 78% and trailing 12-month conversion has improved to 50% of adjusted EBITDA. Supported by growth in AMS/DRS acceptance in the marketplace, we are making structural changes in the business that we believe will continue to pay dividends for years to come. Our cash cycle continues to shorten with year-to-date DSO improvement of 5 days. We are also improving capital efficiency as we reduce our CapEx needs and leverage our network more efficiently. And finally, we are focused on maximizing value for our shareholders through disciplined capital allocation. This year, capital has primarily been allocated to our share repurchase program, where we've utilized $154 million year-to-date to repurchase approximately 1.7 million shares at roughly $89 per share. Even with the share repurchases, we have moved our net debt-to-EBITDA leverage ratio to 2.9x in the third quarter, within our targeted range of 2x to 3x. We expect to stay within the range through year-end and remain on track to allocate at least 50% of our total free cash flow towards shareholder returns in the full year. So far, we have made meaningful progress against these value creation drivers this year. Turning to Slide 5. You can see the progression of our revenue mix towards AMS and DRS over the last several years. As a reminder, we split our business into 2 main customer offerings, cash and valuables management or CVM and AMS/DRS. Our CVM business includes the traditional parts of the business like point-to-point cash logistics, money processing, and our international shipping business, we call Global Services, while AMS includes revenue from our ATM managed services business as well as digital retail solutions. With full year organic growth in AMS and DRS trending towards the high end of our mid to high teens growth framework, we are increasing our mix expectations to between 27% and 28% of total revenue by year-end. While AMS/DRS is now 27% of our total revenue on a trailing 12-month basis, we are still in the early stages of penetrating this large and growing total addressable market. As we've previously discussed, unvended retail locations and ATM outsourcing opportunities represent a 2x to 3x market expansion opportunity. Looking closer at each of the customer offerings, organic growth in CVM remain consistent with our expectations. Growth was driven by good pricing discipline and Global Services performing similarly to the second quarter. As a reminder, CVM organic growth includes the conversion of existing customers over to AMS/DRS. AMS/DRS accelerated from 16% organic growth in Q2 to 19% this quarter. Acceleration occurred in both AMS and DRS individually and was balanced across geographic segments. In DRS, our pipelines remain robust, and we see consistent strength in verticals like pharmacies, gas stations, C-stores, quick-serve restaurants as well as fashion and jewelry verticals. In AMS, we have completed the onboarding of several key accounts and are at full revenue run rates with QT and RaceTrac here in North America and Sainsbury's in Europe with several additional customers set to be onboarded in the fourth quarter in LATAM and the Middle East. Turning to Slide 6. I thought it would be helpful to show a map of our current AMS footprint. The highlighted 51 countries represent Brink's presence across the globe with those in light blue representing countries with existing AMS agreements. We've also added a select few customer logos to illustrate our presence in these markets. This map had almost no AMS presence less than 4 years ago. Leveraging our existing customer relationships with banks and retailers as well as our acquired and organically built capabilities in AMS, we've been able to expand this market to what it is today. As we've previously said, this is just the beginning. While there are some impressive customers already in our portfolio, we are still in the early stages of this opportunity. As we consistently deliver reliable service with a total lower cost of ownership for customers, we see penetration opportunities both in the countries we already serve as well as the other geographies where we still have a presence. The current penetration rate for ATM outsourcing is still low. As we've previously discussed, there is an opportunity for the current addressable market to expand by 2x to 3x as more financial institutions make the shift to this win-win value proposition. This growing opportunity, coupled with an equally compelling retail backdrop in DRS provides confidence in our strategy for years to come. On Slide 7, I'll provide a quick update on our margin improvement journey in the key North America segment. The margin progression begins on the top line, where we've improved the revenue quality by shifting to higher-margin AMS/DRS. On a trailing 12-month basis, AMS/DRS now represents 31% of revenue in this segment. Since 2022, this business line has grown by 33% with strong conversion rates and steady new customer growth driving continued market penetration. Other areas of margin enhancement include our pricing discipline and the deployment of waste elimination initiatives through the Brink's Business System. These improvements are coming through the P&L with less direct labor expenses and lower fuel consumption. Even with the healthy top line growth, we are seeing consistent vehicle and employee count reductions and our safety performance continues to improve to record levels. In fact, since 2023, our total recordable incident rate or TRIR is down 33%. There are many studies that indicate positive correlation between higher safety records and improved shareholder returns. These returns happen because a safer work environment enables higher employee engagement, resulting in higher labor productivity, better service quality, resulting in higher customer satisfaction, which all ultimately leads to higher growth and profits. As we continue to shift to AMS/DRS and increase productivity, we are targeting to be at least 20% EBITDA margin in this segment over the midterm. Before I hand it over to Kurt to go through the details of the quarter, I want to thank our team for executing against our strategy. We delivered another solid quarter while meeting our commitments and advancing our strategy. Growth in the AMS/DRS business lines accelerated. Our profit margins expanded to record highs and our cash generation continues to improve. Supported by large and growing markets, ample productivity opportunities and consistent execution, I remain confident we have the right team and strategy in place. I'm excited for the future and encouraged about how far we've come. And with that, I'll hand it to Kurt to discuss the financials, and I'll come back for Q&A. Kurt? Kurt McMaken: Thanks, Mark. I'll begin on Slide 9 with a look at the quarter. Revenue of over $1.3 billion, increased 6% with 5% organic growth and a 1% tailwind from foreign currency. Adjusted EBITDA was up 17% to $253 million, and operating profit was up 24%. Record profit margins slightly ahead of our expectations were driven by productivity, AMS/DRS mix benefits, and pricing discipline. Earnings per share of $2.08 was up 28%, driven by strong profit growth and the benefits of our share repurchase program. As Mark mentioned earlier, free cash flow was strong this quarter with improvement in the cash cycle on accounts receivable, accounts payable, and improved capital efficiency as we continue to shift our business to less capital-intensive AMS/DRS offerings. Trailing 12 months free cash flow is up over $200 million with conversion of 50%. We've been more balanced in our pacing of cash generation compared to the prior year and are still expecting to deliver our full year framework target of between 40% and 45% conversion. On Slide 10, organic revenue growth was $59 million, with most of the growth coming from higher-margin subscription-based AMS and DRS. It's important to note that CVM growth was and will continue to reflect AMS and DRS customer conversions. In Q3, we estimate this to be roughly 2 to 3 points of growth in CVM. Moving to the right side of the page, organic revenue growth of $59 million became EBITDA growth of $34 million for an incremental margin of 58%. Currency changes increased revenue by 1% or $13 million, with favorability in the lower-margin euro and British pound, partially offset by currency devaluation from the Argentine peso. The FX flow-through to EBITDA was approximately 7.5% due to the geographic mix of currency. Despite this, we are pleased with our performance in the quarter with our total incremental profit conversion of 47%. Moving to Slide 11, starting on the left. Operating profit was up $37 million to $188 million with a record margin of 14.1% on strong productivity in line of business revenue mix. Interest expense was flat year-over-year at $63 million, which is also roughly in line with our expectation for Q4. Tax expense was $35 million in the quarter, representing an effective tax rate of just under 28%, slightly lower than the Q2 rate. Income from continuing operations was $88 million. Walking back up to adjusted EBITDA, depreciation and amortization was $62 million, primarily reflecting increased depreciation from growth in AMS and DRS equipment. Stock comp and other was $6 million in the quarter, and we still expect a slight decrease to stock-based compensation over the full year to below $30 million. In total, third quarter adjusted EBITDA of $253 million and margin of 19% was above the midpoint of our guidance for the quarter with strong execution on AMS/DRS growth and productivity. Let's move to Slide 12 to discuss our capital allocation framework. We have a healthy menu of organic OpEx investments that we are making to drive AMS and DRS growth. These high-return investments remain our first call for capital. Next, we reduced leverage at quarter end to 2.9x net debt-to-EBITDA within our targeted range of 2x to 3x and slightly ahead of our expectations for the quarter. Our main use of capital this year continues to be shareholder returns, primarily through our share repurchase program. We have repurchased approximately 1.7 million shares year-to-date at an average price of just over $89 per share. We plan to remain active through the end of the year, and we remain on track to return at least 50% of our full year free cash flow to shareholders. We have been pleased with the results of our share repurchase program, which delivered EPS accretion of $0.08 in the quarter and $0.33 year-to-date. And finally, on M&A, our posture on deals is consistent. We have a full pipeline and continue to explore accretive opportunities that have a strong strategic fit, attractive returns, and align with our broader capital allocation framework. Potential deals would most likely help us further penetrate the large and growing addressable AMS and DRS markets. An example of this was the KAL deal we discussed last quarter. By following this framework, we are committed to allocating capital in ways that will compound cash flow in the future and ultimately enhance long-term shareholder value. Moving to the guidance on Slide 13. In the fourth quarter, we expect revenue of $1.355 billion at the midpoint of our range, reflecting organic growth in the mid-single digits. Using current spot rates, FX is expected to be a year-on-year tailwind of 1 to 2 points. The organic revenue guidance assumes AMS/DRS growth at the high end of our framework. Adjusted EBITDA is expected to be between $267 million and $287 million, and EPS is expected to be between $2.28 and $2.68. Next to this Q4 guidance, you can see what this implies for the full year relative to our full year framework. On the right side of the slide, our organic growth framework remains consistent from the beginning of the year. We are still expecting to deliver mid-single-digit total organic growth, supported by mid to high teens organic growth for AMS/DRS. EBITDA margins are expected to expand between 30 and 50 basis points with conversion of EBITDA to free cash flow of between 40% and 45%. We remain on track to return more than half of that free cash flow to our shareholders through our share repurchase plan and dividend. Supported by the growth and margin expansion we have already seen year-to-date, we are confident in our outlook for the balance of the year. And with that, we're happy to now take your questions. Operator, please open the line. Operator: [Operator Instructions] Our first question today comes from George Tong of Goldman Sachs. Keen Fai Tong: You increased your full year growth outlook for AMS/DRS to be in the high teens. Can you elaborate on the client traction you're seeing in both AMS and DRS that drove you to increase your outlook? Richard Eubanks: Sure. George, this is Mark. Yes, we had a good quarter this year -- this quarter, not just on sales, as you can see, the progression continue, but also in the pipeline. And that gives us good visibility into Q4 and really into first half of next year. We're seeing it both in AMS and DRS. Both are growing equally on their own right, and we'll continue to penetrate across all regions. I think you can see in the deck this quarter, we showed just sort of a brief overview of our AMS footprint. And we're certainly not fully penetrated in those markets. But as you can see, we've got green shoots all over the globe across almost all of our footprint today with more opportunities to go. On the DRS side, that pipeline continues to be very healthy. And one of the things that we talked about last quarter was the amount of conversions from CIT and retail to DRS. Last quarter, we were about 1/4 of our signings were and growth were coming from conversions of our CIT customers. That has actually accelerated into Q3. About 1/3 of our global DRS signings are coming from traditional customers. So we like the progress that not only we're seeing with our existing customer base, but also we continue to tap the unvended markets. As we think about sort of going around the globe though, this -- I'd say this growth is becoming more even as we're seeing good progress both in North America as well as the other three regions. And you can see our -- even though our penetration in Europe is relatively high compared to the other regions, we continue to see good growth there. We'll see Latin America and rest of world continue to pick up pace as well, particularly when you look in Latin America, both Brazil and Mexico continue to really perform for us. That's something that, as you can see, it's one of our least penetrated regions, but has some of the biggest opportunities, very cash-intensive economies, large ATM networks, large bank footprints, but also a very, very large small retail distribution as well for the unvended market. This is where we see this 2x to 3x TAM continuing to be an opportunity into the future. Keen Fai Tong: And then turning to your CVM business. The revenue performance relatively flat organically in the quarter, and it slowed a bit from about 1% growth in the prior quarter. Can you talk more about trends you're seeing here and factors that can either drive a reacceleration in CVM growth or perhaps further moderation in organic performance? Richard Eubanks: Certainly, the big thing there as we continue to convert, as I mentioned, to AMS/DRS, accelerating from 25% to basically 33%. That probably accounted for 2 to 3 points of organic headwind on the CVM business. And the only other piece of the CVM business really is our Global Services business, which really continued to perform in line with Q2 globally, which is sort of mid-single digits. Operator: Our next question comes from Tim Mulrooney of William Blair. Timothy Mulrooney: Just first of all, on AMS/DRS, I'm wondering if you could talk about some of the things that you're doing internally to drive continued growth in that business, which is growing faster than what we were expecting this year. And I know you're winning new programs, but any details you could provide, I guess, without getting into competitive issues around maybe like… Richard Eubanks: Sure. Timothy Mulrooney: Are you adding additional channels, Mark? Any like adjustments to incentives, either in the field or the corporate side? Like what's really helping drive this next leg of growth, I guess, is what I'm asking? Richard Eubanks: Yes. That's a good question, Tim. We've talked briefly around this historically about how we changed our incentive comp plan. And we did that really 2 years ago, we changed our incentive comp plan for our maybe top, let's say, 100 people in the company that had a big part of their annual incentive plan were tied to DRS/AMS revenue growth. We've actually expanded that now to more than 1,000 people in the company. Basically, anyone who's got a management incentive bonus is tied to AMS/DRS growth rates. Actually, we have it weighted higher than total revenue growth to make sure that everyone understands the focus. I think that's sort of at the top level. And I think that's what's helping us and our leadership team across the globe really execute the strategy that we want, which is, again, more AMS/DRS, more flexible network, leveraging kind of the full capacity using technology to be able to do that. On the ground, though, it's also important that our sales teams have similar incentives. And so if you think about an incentive comp plan for local salespeople, that has been, let's say, traditionally, for Brink's, a very local decision and something that local management was sort of left to do. We've started to globally align those sales incentive plans across the globe to focus predominantly on AMS/DRS and helping our customers through this journey from traditional CIT, whether it's the banking or retail segments to move to this more managed services environment. So that's been helping us make progress. This year, we're going to take another step there and further align more specificity across all of our incentive comp plans for our sales teams globally to focus on those two things. In fact, we have some leadership -- local leadership that has taken this even to a higher level. We have some regions where our leadership team has made the decision to either discount commission plans or not even provide commission plans for salespeople that aren't selling DRS/AMS that might be selling traditional services. And again, not being punitive, but more leading our teams to help lead our customers to this value-accretive value proposition for both customers and for Brink's. I think the last thing you asked about was channels. This is an area that is a big change for Brink's. Historically, we've sold direct with all of our salespeople by being direct Brink's employees selling directly to financial institutions and retailers and so forth. We've actually begun to evolve that to work with channel partners. And this is evolving in all regions. And whether this is a commission sales force or it's a value-added reseller or another channel partner, we have white label agreements with some banks to sell DRS to their retail customers. So we really are trying to evolve this process to, again, help everyone in the channel make the cash ecosystem more efficient and feel a lot more inclusive in the rest of the payments ecosystem, whether that's at DRS or in the cash distribution and deposit networks. Timothy Mulrooney: That's good detail. Thanks for outlining the incentives and the channels helping drive that good growth. The other thing I wanted to ask you about was the North America margins. I mean, just incredible this quarter. You're up 300-plus bps. I wonder how to think about that, I guess, from a longer-term perspective, like what the margin potential is in that business? Because I see some of your other segments and where they are, but I don't actually know if that's comparable because Latin America has some pretty different dynamics and so does the rest of the world with the BGS business. So how would you have investors -- how would you frame for investors the margin potential of that business in North America? I would ask incremental margins because that's always an easy way for analysts to kind of level set, but you're decapitalizing the business. So I don't even know if that's like the right way to think about it incremental. So I'll just -- I'll leave it there, but curious how to frame the margin either from a medium-term or longer-term perspective in North America, given the momentum that you're seeing right now? Richard Eubanks: Sure. That's a good question, Tim. I would say, if you look at the margin progression, let's just say Q3, first of all, yes, it prints 370 bps. If you remember, we had 330 bps. If you remember, we had a loss last year during this time frame that makes it a little bit of an easier comp, but still great performance from a margin expansion perspective, particularly when you look across the years. So if you look at this chart, you can see sort of steady upward progression in the business. And this is driven by really 3 big things. The first and foremost has been our AMS/DRS mix improvement across the business. That's certainly been helpful. Those are accretive margins and certainly allow us, as you mentioned, to decapitalize the business and make the business more dynamic. The second has been a more disciplined pricing posture that we've taken that maybe historically we had not. And we've been very disciplined since coming out of the pandemic, frankly to, just to make sure that we're not only covering our costs, but also improving our margins and getting the right value with customers on both sides. And then lastly, really has been our operational execution. And I have to applaud our North America team that really has been working hard and showing real improvements operationally, both in service quality, service timeliness and then, of course, I mentioned safety. And any time you see safety improvements, that's an indicative measure of how well we're running the business or how well the business is being run, let's say. And we think that that's a good one for investors to understand that we've got a good foundation to continue to go forward. Our incremental margins are going to be anywhere from 20% to 30%, Tim. That's kind of how we think about it going forward. But there's not really a -- we don't think it's really an artificial ceiling here in front of us. And we think there's still more room to go. I mentioned the 20% EBITDA margins in the midterm. To me, that's just an interim checkpoint of where we want to take the business because if you know this, and it's not without -- it's in the public domain, we actually have a gap in North America with one of our other traditional competitors, which gives me lots of confidence that we still got room to go and still run the business better, much less with this new business model on top that is decapitalized, that's more flexible, more dynamic and more value accretive for customers. Operator: Our next question comes from Tobey Sommer of Truist. Tobey Sommer: I wanted to ask about the cash conversion. What are your current thoughts on midterm goals for free cash conversion from EBITDA? And as part of your answer, could you describe the DSO improvement drivers, maybe mix shift versus other more discrete actions that you've undertaken? Kurt McMaken: Yes. Tobey, it's Kurt. Why don't I take this one, just kind of walk through it a little bit. First of all, we feel good about our framework in terms of conversion, 40% to 45%, not only in the near-term, but going forward, we think that's a good thing to look towards. The reality is we've been working hard on making sure that we're creating cash throughout the year and focusing on all aspects of that generation throughout the year. And so specifically to your DSO question, there's a couple of things to really I think focus in on. One is the mix of the business, where if you look at AMS/DRS, those are both subscription-based business models, and they absolutely have a very favorable DSO profile for us. So as we continue to grow that, that is a real positive for our DSO improvement. We were better by 5 days, as we mentioned. I mean the other is, again, we -- this gets back to a comment Mark made on incentives. We really have a broad-based incentive now across our leadership base focusing on free cash flow delivery. And so therefore, that delivery really, really is spread out around the world and people focused on it. So that's number 2. The third I'd say is just maybe really working collections harder than traditionally has been done, just getting in and grinding through it, I think is also a factor. The other thing I'd mention too you didn't mention on accounts payable DPOs, but that has also been a real focus for us. We were better, improved by 4 days at the end of the third quarter as well. So that's the second piece. And then finally, I'd say on the CapEx and the capital intensity side of things, the AMS and DRS is a less capital-intensive business. We've been decapitalizing, taking trucks out, for example, Mark has mentioned that in the past. So all of these levers are really working towards the free cash flow generation conversion factor supporting it. Tobey Sommer: Geographic growth was pretty well balanced organically in the quarter on a year-over-year basis. What geos may have higher or lower trajectories going forward? And maybe if you could provide a driver for why there could be a more wider dispersion going forward, if you think that's the case? Richard Eubanks: Yes, sure. In fact, I don't think that's the case, Tobey. I think we've got opportunities to continue at this pace in all regions. Of course, there's going to be opportunities up and down. You think about the Rest of the World segment, particularly given the fact that half of it is BGS. Volatility, obviously, in that part of the world makes a big difference. And so that's why you saw 9% in Q1 and sort of mid-single digits moderating here in 2 and 3. So maybe that's one area. But to be honest, we still feel like we've got good runway with all of the regions, particularly when you consider the unvended retail markets in one vein. And the second is the installed base of the banks. And so as our outlook -- as we think about outlook for AMS and we think about bank outsourcing, there's no region that is over penetrated or has already matured in that way. And we think our ability to capture that when those markets are turned over the next few years, we think there's good opportunity, again, in a big TAM over the next -- well, for good organic growth across all 4 regions. I think we think about sort of looking forward in the next year, maybe in the shorter term, there's nothing we've seen from a customer and market perspective that would change our mind on the organic outlook. We think this framework, obviously, we'll put our guidance out in -- after Q4. But there's nothing that says we wouldn't be able to continue this same framework of mid-single-digit organic growth is mid to high teens AMS/DRS, 30 to 50 bps of EBITDA margin. And just thinking about what's happened this year and relative to the FX in H1, we had a big headwind and slight tailwind in H2, probably going to see something similar if you look forward into '21, a little more of a benefit early in the year in H1 and then, obviously, not much benefit if you snap today's -- snap the line on today's FX rates in H2. So we feel like we've got a pretty good setup for next year. And again, healthy pipelines, as I mentioned, both in AMS/DRS that continue to accelerate as we shift our incentives, as we improve our execution, as we build out more product offerings for our customers and then ultimately, how we execute in the field that continues to improve and get better and just expanding with more channel partners and more at bats with more customers is just going to fuel this opportunity. So nothing that I would say would slow down the organic opportunity. Kurt, anything maybe about '26 or anything else you? Kurt McMaken: Yes. Just to be clear on the FX, Tobey, I think Mark's comment there, I mean if you snap the line today using rates today, you would expect to see a slight tailwind in '26 and for the year and then more weighted towards the first half is what Mark was -- just to be clear on that. But the other thing I'd say is that as we look at -- and Mark was talking about opportunities, if we think about how we're really trying to run the business, we definitely continue to see -- we see opportunities in the area of getting a lot more efficient in our SG&A area. So we're continuing to work at this, and we'll continue to make progress. But as Mark has described, how we're running the business differently than how we have in the past, we expect that we're going to continue to really find efficiencies to support our margin expansion. Richard Eubanks: Yes. I think this is part of just globalizing the business, Tobey. And as you think about our strategy, it's multipronged. And certainly, it's around growth and customer loyalty. It's around innovation around technology and customer offerings, operational excellence and people. But part and parcel to all of that is sort of how we run the business day-to-day in the back-office as well, whether that's across the big functions in finance, IT, HR, sourcing, procurement, real estate, those are all things that historically for 165 years, the company has run sort of independently and disparate around the world. We've been evolving that. We certainly have a strategy around doing more things similar. And we think there's still more back-office sort of fixed cost productivity left in the business that we plan to start getting after and more so in '26 and beyond. So there's -- yes, there's good organic growth. Yes, there's good product mix, but we think we've still got some good productivity left in sort of the fixed base of the business that we can wring out. Tobey Sommer: I'd like to sneak one more in and just because I'm not asking about AMS deals, doesn't mean I don't like the growth. The bank consolidation, what's your view on it here on a net basis? I'm sure there are puts and takes on either side and -- but approvals from regulators are the fastest they've been since 1990 at 4 months and some deals have started to be announced. So if this ends up being something that lasts for a few years, how should investors think about that and its implications for your business? Richard Eubanks: Yes. Good question, Tobey. It's something we obviously are watching very closely. And these most recent announcements have certainly been in our customer base. And so trying to see where those things land. We think with our AMS solutions, this likely becomes an opportunity just given the fact that we have the ability to, first and foremost, provide an offering that is unique, we think in the marketplace. It's not commoditized, and we have a unique offering and a unique value proposition to do that. The second is for those consolidators, we provide them an opportunity to create real cost synergy as well as they think about streamlining their network, their branch footprint, their infrastructure to, again, help through that synergy to sort of wring out the cost and productivity that exists. And we talked about this previously about AMS in general, we've seen earlier in early years, the last few years, we've seen more opportunities outside of North America around AMS, just given the fact that the banking footprints were already consolidated and that this an ATM network productivity opportunity really was pretty high on the list of improving profit margins, whereas in the U.S., more bank consolidation and sort of redundant public company costs were -- or infrastructure and compliance costs were more of the productivity lever. We actually are starting to see the AMS discussions more frequently in North America. I don't know if the 2 things are tied to this consolidation or not, but we certainly think there's going to be opportunities for us there. I think in the short-term, there is certainly footprint consolidations that would happen to our traditional business potentially, where if a bank buys another bank, they've got 2 branches on the same corner, maybe we lose a location there. That certainly could happen. But as we think of -- we -- well, back up, we are thinking about this strategically and making sure that we're also partnered with the right consolidators and making sure that we're serving those being consolidated also in a healthy way that allows us to maintain those customer relationships in the event there is a merger. So I'd say net-net, Tobey, we think this probably is good just based on the AMS opportunity for long-term. Sure. Great. Well, listen, thanks for joining us, everyone. We appreciate your continued interest in Brink's, and we look forward to speaking with you all soon, whether on the phone or on the road. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to Inspirato's Third Quarter 2025 Conference Call. [Operator Instructions] I would now like to turn the call over to your host, Inspirato's Chief Marketing Officer, Bita Milanian. Please go ahead. Bita Milanian: Thank you, operator, and good morning. Joining us for today's presentation are Inspirato's Chairman and CEO, Payam Zamani; and CFO, Michael Arthur. Before we begin, please note that today's call is being webcast live and will also be archived on the Investor Relations section of our website at inspirato.com. You can also find our press release and the supplemental materials currently available there for your reference. As a reminder, some of today's comments are forward-looking statements. These statements are based on assumptions, and actual results could differ materially. For a discussion of these risks and uncertainties, please refer to our filings with the SEC, including our most recent annual report on Form 10-K and our subsequent third quarter report on Form 10-Q. In addition, during the call, management will discuss non-GAAP measures which are useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Reconciliations of these measures to the most directly comparable GAAP measures are included in our press release. With that, I'd like to turn the call over to Inspirato's Chairman and CEO, Payam Zamani. Payam? Payam Zamani: Thank you, and good morning, everyone. Yesterday afternoon, we issued a press release announcing our financial and operational results for the third quarter. I encourage all listeners to review the press release, which has been posted to our Investor Relations website as it contains information relevant to today's call. I'm proud of the accomplishments we've made this quarter and a testament that we're heading in the right direction. This quarter, we delivered a 97% year-over-year improvement in adjusted EBITDA, reflecting meaningful progress in reducing fixed commitments while maintaining the exceptional experience our members expect. Year-to-date, adjusted EBITDA is up $13.2 million, and operating cash flow has improved by $15 million, showing the lasting impact of our disciplined approach. We've reviewed and renegotiated hundreds of vendor contracts, driving $4 million in additional annual savings, another important step in strengthening our foundation. During the quarter, we also began presale of our new Pass membership launching in January. It's redesigned to create a more flexible, innovative way to travel while delivering greater value for our members and advancing our mission to reinvent luxury travel. Since preselling began, we have added more new Pass members in less than 3 months than in the prior 12 months combined. The progress we've made over the past year has positioned Inspirato for efficient growth in 2026 and beyond. Although we are not yet providing formal guidance for 2026, we fully expect continued improvement in our EBITDA margin as our transformation efforts take hold. At the same time, we are transforming the business and investing in a more robust digital marketing and technology platform, one that's designed to build a scalable, durable and efficient growth model for the future. As part of this broader transformation, we announced the proposed business combination with Buyerlink in June 2025. The goal of that transaction was to accelerate our digital strategy and platform evolution, helping us unlock this growth faster. However, we mutually agreed with Buyerlink to terminate the agreement in September. While the Buyerlink transaction is no longer moving forward, our strategy and business transformation initiatives have not changed. The rationale behind the proposed combination was not to alter our direction, but to speed up our progress towards becoming a leading platform for luxury travel. We remain deeply committed to this vision, continuing to modernize and strengthen our technology and digital foundation to elevate the member experience, enabled by the talent and dedication of our existing team. I remain incredibly confident in the path ahead and believe Inspirato's best days are yet to come. We expect to share additional updates on this strategic initiative beginning next year. Now on to updates for the quarter. As you know by now, our strategy has been focused on 4 pillars that are the foundation for our business. As a reminder, these pillars are: one, operational efficiency; two, brand elevation; three, member experience; four, digital platform. First, we are focused on driving operational efficiency. Since I joined the business, we have been making changes to position the business for profitable growth. Through discipline, cost management and organizational rightsizing, we've achieved adjusted EBITDA profitability on a trailing 12-month basis in Q2 and again in Q3. This quarter, we completed a comprehensive review of our vendor agreements, evaluating hundreds of partnerships to ensure alignment with our current strategy and future objectives. As a result, we were able to identify $4 million in annualized savings. To be clear, these changes were made without any impact to quality of service that our members expect. These are the types of improvements we have made over the last year that led to our 97% year-over-year adjusted EBITDA improvement in the quarter. We expect that the changes we made this quarter, along with a combined focus on operational efficiency, will help us manage cost effectively in the quarters ahead. We also know that the changes position us to scale efficiently and to build out our luxury travel technology platform. Turning to brand elevation. We're continuing to push Inspirato forward and elevate our brand status. This quarter, we relaunched Inspirato Magazine, featuring our best properties and content tailored to our key customer demographics. The magazine captured strong media attention, amplifying brand recognition and reinforcing our image as the premier travel brand. We also expanded our social media presence to ensure we are both present and consistent across all platforms. This cohesive storytelling builds our audience and elevates our brand. Our goal is to create a clear, unified experience the first time people encounter our brand across any channel. Inspirato is synonymous with quality, luxury and service. Third, we're continuing to build on and enhance the member experience. This quarter, we launched our redesigned Pass program. While the program was historically a successful draw for new members, as previously constructed, it had several limiting restrictions for our guests and ultimately wasn't a long-term profitable program for us. We've now redesigned the product to deliver exceptional value. Members can maintain 2 active reservations at any time, each up to 7 nights, from our exclusive curated portfolio of properties. Every estate features consistent quality of white glove service, no matter the destination. For a single fee of $40,000, members can enjoy travel with no monthly taxes, rates or additional fees throughout the year. The program is ideal for discerning travelers who value flexibility and want to maximize both luxury and value from their vacation experiences. We're excited to see members take full advantage of the opportunities our Pass program offers. Presales began in August. And since, we've sold more memberships in that time than we did in the prior 12 months combined. The newly revamped program has been extremely well received. We see this as another way to build a best-in-class member experience. Additionally, we continue to develop experiences and partnerships that retain existing members and attract new audiences. For example, we recently expanded our Inspirato Sports Collection to include a Centre Court experience at the 2026 Wimbledon finals, dubbed as 4 of the best courses around Spain, and a family adventure exploring 3 of Utah's iconic national parks. These curated experiences has continue to resonate strongly with members who value shared moments of celebration and discovery. As we've scaled our business, we now offer more than 25 member-only journeys annually. We also recently added a partnership with Aero to provide our guests with additional flying options to our marquee destinations. These semiprivate flight options will help us provide a more cohesive travel experience for our guests. I've always believed that the vacation begins the moment you leave home, and this partnership helps bring that idea to life. Finally, we also made several strategic property enhancements to strengthen member satisfaction, drive higher occupancy and reinforce our brand as the leader in curated luxury travel. We have additional improvements to more of our locations planned in the year ahead, which we will share as we go along. Lastly, we're building a robust technology and digital marketing platform that will unlock massive potential for Inspirato. With the cost improvements and other enhancements we've made, we now have the right business operations in place to invest in growth. We believe that foundational technology investments we are making will help transform Inspirato into the leader in luxury travel. We will create a world-class platform that allows us to reach, target and convert high-value travelers at a scale previously impossible for us. This will expand our total addressable market and fuel our growth for years to come. In closing, we continue to successfully execute our long-term business strategy in the third quarter, which has us well positioned to meet our financial and operational targets for the year. Over the past 15 months, we've made tremendous strides to elevate the business while laying the operational groundwork to scale efficiently as we lean into our technology platform strategy. I want to thank our team for their relentless focus and our members for their trust and loyalty. I believe we are at the start of something extraordinary, and our results prove it. And I can't wait to share more progress with you in the quarters ahead. I'd like to also share that yesterday, we announced the upcoming departure of our CFO, Michael Arthur, who had decided to pursue another opportunity. Michael will remain with Inspirato through the end of 2025 to ensure a smooth transition while we conduct a search for his successor. Michael has been an exceptional partner and leader, helping to strengthen our financial foundation and advance our long-term strategic goals. On behalf of the entire company and our Board of Directors, I want to thank him for his many contributions and wish him continued success in his next chapter. With that, I'll turn it over to Michael to discuss our financial performance and outlook for the remainder of the year. Michael? Michael Arthur: Thank you, Payam, and good morning, everyone. I'd first like to begin by expressing my gratitude to the team at Inspirato for the opportunity to lead this organization as CFO. Together, we've strengthened the company's financial foundation and advanced key strategic priorities that position Inspirato for long-term growth and profitability. I'm confident in the company's future and committed to ensuring a smooth transition. Now turning to our financial performance. As Payam outlined, we continue to make operational improvements to create a more efficient business, and we're excited about the progress we're making. In the third quarter, total revenue was approximately $56 million, down 20% year-over-year. Despite the decline, we delivered a 97% improvement in adjusted EBITDA to negative $0.1 million, a clear reflection of the operational progress we made across the business to become more efficient and drive sustained profitability. Cost of revenue decreased 23% or roughly $11.5 million, driven by our ongoing portfolio optimization efforts and continued focus on operating efficiencies. Cash operating expenses were also down approximately $7 million year-over-year, benefiting from reduced overhead and disciplined cost management as we streamline operations throughout the organization. Breaking down revenue a little further. Subscription revenue was $19.4 million, down 16% year-over-year, primarily due to the expected and planned decline in Pass subscription. At the end of the third quarter, we had nearly 11,000 members, which were comprised of approximately 9,500 active Club members and 1,100 active Pass members. Importantly, on a sequential basis, subscription revenue was flat quarter-over-quarter, a significant improvement versus an average quarter-over-quarter decline of 7% over the prior 10 quarters, the peak of our subscription revenue. This marks an encouraging stabilization in our subscription revenue base. Furthermore, year-to-date, Club and Invited subscription combined is up compared to the prior year. These results demonstrate that our strategy is working. Our focus on high-value, long-term Club is driving healthier and more sustainable subscription base, setting the company up for growth in the future. And looking ahead, we're excited about the relaunch of our Pass program on January 1. The renewed product has been redesigned to complement our Club offering and strengthen the balance of our overall subscription mix. As Payam mentioned, early interest and engagement with the enhanced Pass product have been strong. Combined with Club's subscription revenue stabilizing, we believe we are entering an inflection point in our subscription revenue trajectory, something we noted earlier this year. In the second half of the year, we're starting to see the positive impacts of these strategic shifts, setting the stage for further stabilization of subscription revenue and improved profitability in 2026 and beyond. Next to travel revenue. We delivered $33.9 million in the quarter, down 20% year-over-year. This was driven primarily by fewer members and lower occupancy of 56%, mitigated by higher ADR of 25%. The higher ADR supports the gross margin and profitability goals we set for the year. This reflects our strategy to optimize the portfolio mix, improve revenue quality and drive strong overall profitability within our lease controlled accommodations, evidenced by the year-to-date increase in revenue per available night, or RevPAR. Turning to free cash flow. In Q3, free cash flow was negative $3 million, mainly due to net cash used in operating activities in the quarter, inclusive of transaction-related costs paid during the quarter. Looking at year-to-date performance. EBITDA for the first 9 months of 2025 was $4.8 million, a $13.2 million improvement versus the same period in 2024. This includes approximately $2 million of foreign exchange translation losses in 2025 related to euro-denominated leases. And free cash flow year-to-date is negative $10 million. And as a reminder, year-to-date includes almost $4 million of nonrecurring payments related to the lease termination payments and transaction-related costs in the year. On an adjusted basis for those onetime items, year-to-date free cash flow is roughly negative $6 million. And on a reported and an adjusted basis, free cash flow has improved $17 million compared to the same time last year. I'd also note that the fourth quarter is historically a strong cash flow period for our business, and year-end cash is typically a high point of the year given the timing of member bookings and receipts in December. While we continue to take steps to improve our operating free cash flow, we believe that the actions we have taken over the last 12 months will result in sustained free cash flow for the business. Additionally, after quarter end, we did unlock approximately $1.3 million of restricted cash, improving the company's overall cash and liquidity position. Now moving to our outlook. Given the termination of the proposed merger with Buyerlink, we are reinstating our annual financial guidance for 2025 and tightening the previous ranges. We now expect EBITDA of between $2 million and $4 million, marking a significant improvement from 2024, along with full year revenue of between $235 million and $240 million. We also expect operating expenses of between $80 million and $85 million, reflecting a 15% year-over-year reduction as we continue to streamline the business and focus on efficiencies. Over the past year, the choices we made are beginning to show up in our financial performance. By sharpening our focus and instilling strong discipline throughout the company and constantly refining how we deliver value to our members, we've become more agile and effective. We are now focused on strengthening Inspirato to provide our customers with even more exceptional experience and driving sustained profitable growth for our shareholders. And with that, I will turn it back to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Mike Grondahl with Northland. Mike Grondahl: The new pass, could you maybe talk about, I don't know, two of the features that are improved or different? And maybe what kind of goals do you have for Pass in 2026? How should we think about this? Payam Zamani: So Michael, this is Payam, I'll take this. As we went into redesigning Pass, we were highly cognizant of the fact that while the old version of it was popular, it was not profitable. So we wanted to create a product that the more we sold, the more members who bought it took advantage of it, the happier we would become. So it will be a mutually joyous occasion, in a sense. And one of the big aspects of the new Pass is that while it provides significantly more travel opportunities, it does not provide access to hotels. So it provides access to properties that we control. As a result, it really plays a role in better monetizing available nights rather than providing access to opportunities that we will have an out-of-pocket expense associated with it. So that definitely benefits the company in a way that the more we sell, the more profitable we become. And our members will also get to travel more readily, more easily within our portfolio as defined. And they're able to have 2 tracks of reservations in place at any given time. So imagine that you may want to book a trip for the holidays on 1 track, so a hard to get reservation for the mountains and so on. And the other track, you can use on an ongoing basis for last-minute travel opportunities. So it really gives a lot of flexibility to a member who joins. We have limited the number of members that we're willing to sign up for this product at 2,500. And that number is basically based on the math that we've done, that what percentage of our total membership, given the current size of the portfolio, can be Pass members. And we have decided that 2,500 is the number. And as Michael mentioned, we have about 1,100 Pass members going into this. So we have about 1,400 opportunities available, maybe a little bit fewer now as we go into 2026. And once we get to 2,500, we'll stop selling it. People can join our waitlist, but we'll stop selling it until and unless our portfolio grows, then we'll continue to basically release so many more membership opportunities. I hope that answers your question. Mike Grondahl: Yes. No, that's helpful. And then maybe on the marketing engine. Any initial plans you can share there? Anything you're doing today to kind of jump-start that? Payam Zamani: Yes. We've been testing that. We have had -- we've had basically test landing pages that we've been working with. And if you go back to the beginning of Q2, we are basically spending no money on search engine marketing. That has grown to probably, a couple of hundred thousand dollars per quarter now. So still very small numbers. But we've been testing, and the early results are very promising. Mike Grondahl: Got it. And then lastly, Michael, sorry to see you moving on. You were a lot of help. Have you guys begun a search for a new CFO? Is that just starting now? Or has it been in the works a little bit? Michael Arthur: Yes. Thanks for the kind words, Mike. And obviously, here through the end of the year, so let's stay connected. The company has just kind of started -- initiated the search. So we're early in the process. Operator: [Operator Instructions] And I'm not showing any further questions at this time. I'd like to turn the call back over to Mr. Zamani. Payam Zamani: Thank you. And thank you, everyone, for joining us today. I'd also like to thank our employees, members, partners and shareholders for their continued support. Looking forward to speaking to you in Q1. Operator: Thank you for joining us today for Inspirato's Third Quarter 2025 Earnings Conference Call. You may now disconnect, and have a wonderful day.
Adrianne Griffin: Thank you, operator. Welcome to our third quarter 2025 earnings call. Joining me today are Vijay Manthripragada, our President and Chief Executive Officer; and Allan Dicks, our Chief Financial Officer. During our prepared remarks today, we will refer to our earnings presentation, which is available on the Investors section of our website. Our earnings release is also available on the website. Moving to Slide 2. I would like to remind everyone that today's call includes forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to known and unknown risks and uncertainties that should be considered when evaluating our operating performance and financial outlook. We refer you to our recent SEC filings included in our annual report on Form 10-K for the fiscal year ended December 31, 2024, as supplemented by our quarterly reports on Form 10-Q, which identify the principal risks and uncertainties that could affect any forward-looking statements and our future performance. We assume no obligation to update any forward-looking statements. On today's call, we will discuss or provide certain non-GAAP financial measures such as consolidated adjusted EBITDA, adjusted net income, adjusted net income per share and free cash flow. We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. Please see the appendix to the earnings presentation or our earnings release for a discussion of why we believe these non-GAAP measures are useful to investors, certain limitations of using these measures and a reconciliation to their most directly comparable GAAP measure. With that, I would now like to turn the call over to Vijay, beginning on Slide 4. Vijay Manthripragada: Thank you, Adrianne, and welcome to everyone joining us today. I will provide an update on the strength of our third quarter and year-to-date results, discuss our increased 2025 guidance and the reasons for our more optimistic 2026 outlook and speak generally about the third quarter presentation shared on our website. Allan will provide the financial highlights and following our prepared remarks, we will host a question-and-answer session. As we have noted each quarter, our business is best assessed on an annual basis given the demand for environmental science-based solutions doesn't follow consistent quarterly patterns. This is how we manage our business and how we recommend viewing our performance. I want to take a moment to express my sincere appreciation for our approximately 3,500 colleagues around the world. Their exceptional contributions, commitment to exemplary client service and passion for environmental stewardship and innovation are the cornerstones of Montrose's success. Together, we pursue our mission of for planet and for progress. For planet and for progress. This means Montrose aims to simultaneously address our universally shared desire for clean water, clean air and clean soil while creating jobs and increasing shareholder value. We are partnering primarily with our industrial clients across end markets to help them operate more efficiently and reduce their impact on their environment. This is why our revenue and earnings are hitting record levels despite all the political rhetoric. Whether it is working with our energy-producing clients to reduce air emissions and costs, whether it is working with our waste industry clients to address water contamination concerns and risks or whether it is working with technology and semiconductor companies on permitting or water access concerns. Our financial results speak to how environmental stewardship can work in concert with development and value creation. This is why our record 2025 continues. From a financial perspective, we achieved our third consecutive quarter of record performance, including free cash flow generation that exceeded expectations. Broad-based client demand for our services is reflected in the 26% revenue growth and 19% consolidated adjusted EBITDA growth in Q3 year-over-year. As we look at the more meaningful and longer-term financial result trends of year-to-date 2025 results, revenue has increased 26% with very strong double-digit organic revenue growth and adjusted EBITDA has increased even faster than revenue at 30%, reflecting continued margin accretion of an additional 1% of revenue year-over-year. This margin accretion is due to both strong organic growth and operating leverage in our consulting, testing and water treatment businesses in particular. Operating and free cash flow have increased meaningfully by $65 million and $77 million year-over-year, which has allowed us to delever the balance sheet faster than expected and has increased our flexibility to further invest in our people and our business. In addition, given our strategic acquisition pause at the start of 2025, which we initiated to clearly demonstrate the underlying power of our business and business model, and we believe that power and strength is apparent from these results. For the second consecutive quarter and year-to-date periods, we reported positive net income and positive GAAP EPS, which Allan will expand upon in his prepared remarks. I'm very proud of my team for delivering these exceptional results while maintaining their focus on our mission and our clients. As we look forward to the rest of 2025 and to 2026, our optimism remains, and we are thrilled that our financial results continue to clearly show why we are and remain upbeat about our business' prospects. Regarding updates to our guidance, due to our strong year-to-date performance and based on consistent client feedback about the importance of our services to their operations, we are raising 2025 guidance for the third consecutive quarter. We now expect 2025 revenue to be in the range of $810 million to $830 million and 2025 consolidated adjusted EBITDA to be in the range of $112 million to $118 million. which represents an approximately 18% revenue increase and 20% full year adjusted EBITDA increase at the midpoint over 2024. Given recent questions about the topic, we want to remind you that our exposure to the U.S. federal government remains very modest, well less than approximately 5% of revenue and that we have not been significantly impacted by the recent U.S. government shutdown. Notably, we observed that state and local governments have and continue to step in to address gaps and uncertainties left by the U.S. federal government, creating additional opportunities for growth that we did not anticipate at the start of this year. We continuously monitor these developments to strategically position ourselves to capitalize on these new opportunities. We do acknowledge that external factors such as economic volatility, policy fluctuations and evolving regulatory frameworks are influencing our industry. However, Montrose's unique business model and our competitive positioning has allowed us to capture tailwinds from these external factors. And our positioning has also allowed us to stay largely insulated from the broader volatility. I will now highlight a few of the tailwinds benefiting us this year. As a reminder, we have repeatedly heard from our clients that, one, their long-term outlook has not changed; that two, they see increasing domestic industrial activity as a net positive; and that three, they remain committed to complying with state and international regulations that impact their ability to drive their financial results. All acknowledge challenges from the current volatility in U.S. federal regulations, but by and large, we've only seen a few of our approximately 6,000 clients make any changes to their operating policies or decisions. This is why our business remains resilient. For example, and regarding greenhouse gases, which are among the most politicized air contaminants, changes to U.S. federal policy seem to have been more than offset by the impact of state regulations, including states in which we have many employees and clients and which are across the political spectrum, for example, in Texas, in Colorado and in California. In addition, market forces such as the recent EU methane regulations expand the global market for emissions monitoring and compliance as these requirements affect global exporters, including U.S. LNG and oil producers who are among our key clients. Montrose's historical investments in advanced monitoring technologies enable us to work with our energy clients to provide better, faster and more cost-effective results. Coupled with our clients continuing to take practical long-term views, demand for our services continues at pace. And because these regulations are multiyear in scope, with phased deadlines and increasing stringency through 2030, demand is often longer term and more predictable. These state regulations and market forces are a large part of why our Measurement and Analysis segment's organic revenue growth and margins are at record levels in 2025. As another example, the clarification of the U.S. EPA's perspectives on PFAS regulations in Q2 2025 and the agency's continued focus on water quality has resulted in a steady increase in the number of opportunities for our water treatment business. Not only does our pipeline of water treatment opportunities continue to expand meaningfully, but our year-on-year organic growth for this service is expected to remain elevated and accretive to our 2025, 2026 and long-term organic growth outlook. As a third example, increased mining activity in our Canadian and Australian markets has resulted in attractive and new growth opportunities for Montrose in both of those geographies. The recent rare earth partnership across governments adds more momentum to an already attractive industrial end market for Montrose. The environmental consulting, permitting, testing and water treatment needs for our mining sector clients are likely to create nice tailwinds for our business over the foreseeable future. As a fourth example, increased industrial activity, aging infrastructure and more severe weather-related events continue to drive outsized demand for our environmental emergency response business in the United States. What is critical to convey is that though the response-related earnings are meaningful and unpredictable, they are an increasingly smaller part of the whole, and this is critical, they are very additive to our long-term organic growth and cross-selling algorithm. As a simple analogy that hopefully sheds light into the strategic and financial value of having a response business as part of our service portfolio, because of our focus on being an environmental science pure play, our response business is like the emergency room in our environmental hospital, so to speak. Once a patient comes into the ER of a traditional hospital, they are likely to need testing services and inpatient services. This is similar to our dynamic at Montrose, where our environmental testing and our environmental consulting and treatment services often follow our environmental emergency response. What we are increasingly finding as the team works more closely together is that post response, there are substantial downstream and often recurring long-term opportunities for Montrose. Said otherwise, our environmental emergency response is not just episodic, it has also provided structurally recurring opportunities for us and supported long-term organic growth opportunities. As a specific example, earlier this year, we responded to an accidental environmental release for one of our energy clients, and our involvement in this response helped us secure long-term remediation and testing related to the event, which not only benefited third quarter results, but will also likely result in multiyear opportunities for Montrose. We expect our environmental advisory and air monitoring services will continue with this client for many years to come. We hope these examples help provide more context around why the demand for our services continues to increase and remains visible and predictable for our teams. Before I hand the call over to Allan, I want to reaffirm the framework that underpins our ability to create long-term shareholder value. First, we will continue allocating capital to the highest return opportunities, including investing in organic growth, research and development and technology. We regularly review our service lines and operations to ensure achievement of our internal return hurdles and resource optimization. Through this internal evaluation and given changes to U.S. policy and the resultant impact on the U.S. market for renewable energy, we determined that it is prudent to exit our renewable service line within our Remediation and Reuse segment. We expect to have this materially wound down by the end of this year, and the impact of this decision has already been embedded in our results and outlook for 2025. Second, we will emphasize scalable profitability by expanding our market position through continued investments in sales and marketing. These investments are already embedded in our current outlook. Given most of our organic growth has come from increasing our share of wallet with our existing customers, given we remain a small fraction of our clients' overall spend on environmental solutions and given we have very strong customer retention, in 2025, we continued investing in building a best-in-class commercial team. This team is selling technical services to clients, is also enhancing our brand visibility and has started increasing our focus on sectors that enable us to address broader trends faced by our clients and their peers as a group. We have had the fortune of adding some incredible talent to our technical and commercial teams in 2025, which is why we have so much conviction in our ability to continue driving market-leading organic growth and the resultant margin accretion into the foreseeable future. Third, we will continue to evaluate strategic and accretive acquisitions and retain the flexibility to opportunistically repurchase shares to maximize returns. Our acquisition strategy isn't just about scale. It's about capability and geographic reach. We evaluate each opportunity for strategic fit and for the potential to drive outsized financial returns. Optimizing our capital structure and managing leverage, along with our continued focus on increasing operating and free cash flow generation remain core to our acquisition and to our operating decision models. Due to the highly fragmented nature of our industry and client feedback on the value of scale and capability and reach and given our strong performance with cash generation in 2025, we expect to restart acquisitions sometime in 2026. Long term, we will continue delivering compelling organic growth of 7% to 9% annually with EBITDA growth expected to outpace revenue growth. Coupled with acquisitions, which will be additive to these growth rates, we remain confident in our ability to create outsized returns for our shareholders. These frameworks and industry dynamics contributed to our outstanding year-to-date 2025 results, our increased 2025 guidance and the 2026 outlook we are sharing today. In 2026, we expect to achieve at least $125 million in EBITDA. We also anticipate further improvement in EBITDA margin in 2026 compared to 2025. Our resilient business model, execution in 2025 and exceptional team give us the confidence to provide an early outlook for another excellent year in 2026. We will continue to navigate the complexities of this evolving market landscape. But regardless of the complexities, we are committed to surpassing our goals as we have been doing and to generating significant value for all of our shareholders. With that, I will hand it over to Allan. Thank you. Allan Dicks: Thanks, Vijay. In 2025, we have sharpened our focus on driving best practices and on delivering for our clients, shareholders and employees with our record third quarter and year-to-date financial performance, highlighting the results of some of these efforts. Our third quarter revenue grew by 25.9% compared to the same quarter last year, reaching $224.9 million. Year-to-date revenues increased by 25.6% versus the previous year, totaling $637.3 million. The primary drivers of revenue growth in both periods were organic growth across all 3 segments and modest contributions from acquisitions completed in the previous year, with additional environmental emergency response revenues also adding to year-to-date revenue growth. Robust revenue growth and enhanced operating performance fueled the third quarter consolidated adjusted EBITDA increase of nearly 19% to $33.7 million or 15% of revenue. Similarly, year-to-date consolidated adjusted EBITDA increased 35% to $92.3 million or 14.5% of revenue, a 100 basis point improvement over the same period last year. This year, we are investing in marketing to boost our brand equity, rewarding employees for their contributions, refining our go-to-market strategy and assessing future organizational needs. These efforts are shaping our future success, and we look forward to discussing more with you as we progress. In the third quarter of 2025, we reported positive GAAP net income of $8.4 million or $0.21 of GAAP earnings per diluted share attributable to common stockholders compared to a net loss of $10.6 million or a $0.39 net loss per diluted share attributable to common stockholders in the prior year period. This notable $18.9 million increase in net income and $0.60 increase in GAAP earnings per share was attributable to strong revenue growth, margin expansion and a $10.6 million fair value gain related to the Series A redemption, partially offset by higher interest and tax expenses and an increase in weighted average diluted common shares outstanding. This marks our second consecutive quarter and the first year-to-date period of reporting positive GAAP operating income, net income and GAAP EPS. Continued growth and margin expansion driven by brand and go-to-market investments as well as continued cross-selling success will help make these key performance metrics more sustainable. Year-to-date, net income was $7.4 million or $0.08 in GAAP earnings per share compared to a net loss of $34.1 million or $1.30 net loss per diluted share in the same period last year. The year-over-year $1.38 improvement in earnings per share primarily resulted from higher net income and dividend relief following the Series A2 redemption, partially offset by an increase in weighted average diluted common shares outstanding. I'll remind our audience that on July 1, 2025, we redeemed the final $62.6 million of the Series A preferred stock in cash, funded with cash on hand and borrowings under our credit facility, achieving our balance sheet simplification goal 6 months ahead of schedule. Year-to-date, adjusted EPS were $45 million and $1.03, respectively, reflecting an improvement over the prior year period of $38.6 million and $0.80. Please note that our adjusted net income per diluted share attributable to common stockholders is calculated using adjusted net income attributable to stockholders divided by fully diluted shares. We believe this net income methodology is currently the most helpful net income per share metric for Montrose and common equity investors. I will now discuss our performance by segment, focusing my comments on the third quarter. In our Assessment, Permitting and Response segment, third quarter revenue grew 75% to $91.1 million from $52 million in the same period last year, driven by increases in nonresponse consulting and advisory services, which included the benefit of remediation consulting services cross-sold following the large environmental incident response in the second quarter of this year. The Assessment Permitting and Response segment's adjusted EBITDA was $20.4 million or 22.4% of revenue, a 90 basis point improvement over the previous year due to favorable revenue mix. Turning to our Measurement and Analysis segment. Revenue for the quarter increased 7.5% to $63 million, driven by organic growth across lab and field services and modest contributions from an acquisition in 2024. Segment adjusted EBITDA rose to $17.3 million or 27.5% of revenue, representing a 460 basis point margin improvement over the prior year period. In 2025, Measurement and Analysis segment margins have significantly outperformed the prior year as utilization drove efficiency gains and our team's enhanced operating performance. We expect segment margins to remain elevated in the next few years, likely greater than 20%. In our Remediation and Reuse segment, third quarter revenue increased to $70.8 million from $68.1 million in the same quarter last year. This segment's adjusted EBITDA declined to $9.4 million, and adjusted EBITDA margin fell by 380 basis points to 13.3%, primarily driven by losses incurred in the wind down of our renewables business. Our water treatment business continues to gain momentum, and we are pleased with the organic growth and margin progress in that service line. Moving to our cash flow and capital structure. We achieved $55.5 million of operating cash flow in the first 9 months of 2025, a $65.3 million improvement compared to the prior year period. Year-to-date operating cash flow, which was driven by higher cash earnings and improvements in working capital represented a 60.2% conversion of consolidated adjusted EBITDA, significantly exceeding a greater than 50% target. Free cash flow, defined as cash flow from operations less cash paid for purchases of property and equipment and capitalized software development expenditures and excluding the Series A-2 preferred dividends was $38.8 million, an increase of $77.4 million over the prior year. Of note, $38.8 million of free cash flow generation equates to 42% conversion of consolidated adjusted EBITDA. We are also pleased with the strength of our balance sheet at quarter end, reporting a leverage ratio of 2.7x and substantial available liquidity of $198.5 million. At the beginning of this year, we established expectations to simplify our balance sheet, report year-end leverage below 3x, focus on organic growth and increase operating cash flow generation. With 3 quarters behind us and our increased full year 2025 guidance, we are confidently on track to surpass these goals. Thank you all for joining us today and for your continued interest in Montrose. We look forward to the opportunities ahead, and we'll update you on our progress next quarter. Operator, we are ready to open the lines to questions.[ id="-1" name="Operator" /> [Operator Instructions] And your first question comes from the line of Tim Mulrooney from William Blair. Timothy Mulrooney: So I wanted to ask to start off on that AP&R business. It showed really strong growth this quarter, much higher than we were expecting. Allan, you touched on it in the prepared remarks, but can you go into a little more detail about what drove that growth? How much of that is structural versus perhaps some larger onetime sales maybe related to that disaster business? Is there any pull forward from the fourth quarter as well? Because in order to hit the midpoint of your guide for the full year, it looks like we need to assume that maybe that business decelerates on a sequential basis. So I just want to have a broader conversation about AP&R specifically. Vijay Manthripragada: Tim, why don't I start and Allan can certainly jump in. So a lot of the outperformance is tied to the excellent cross-selling following the emergency response that we alluded to earlier this year. So as you think about the strategic thesis around the benefits of having an incredible arguably best-in-class response business, the cross-selling benefits of that are kind of manifesting in our numbers across our segments as we think about our consulting practice, which is what you're asking about, but even testing and remediation, all of them are benefiting from that -- from those efforts. And so to answer your question specifically, it is both structural and some of it is onetime. And we certainly expect that from those cross-selling benefits, as we alluded to in Allan's comments in mine, there will be some really attractive downstream testing and remediation business that will continue for a while. And then as it relates to the second part of your question around the timing, yes, there is a little bit of a pull forward from what we originally anticipated in Q4 into Q3 and Q2. And so that's where some of that shift is coming from, and you're exactly right. Timothy Mulrooney: Okay. That's really helpful. Thanks for connecting the dots there, Vijay, for -- between what's happening and the guidance. That all makes sense to me now. I want to switch gears really quickly and just ask about your comments on your water treatment business. It sounds -- I mean, the tone sounds pretty positive, maybe even a little more positive this quarter than what I've heard in the past. Maybe I'm making that up in my head or maybe that was by design. But it sounds like you're incrementally positive on that business, at least to me. I wonder what's driving that? I recent -- we saw that the EPA reaffirmed the Biden era designation for PFOA and PFAS as hazardous substances under the Circus Super Fund. We weren't really sure which way that was going to go. I have to think that's good for your business long term. So curious how you're thinking about that and if that is related to the positivity that you're seeing in that water treatment business or if it was other factors? Vijay Manthripragada: Thanks, Tim. So the short answer is yes. But let me just step back and talk a little bit about our water treatment business. It is seeing really healthy organic growth and margin accretion this year compared to '24. So it is a good part and a solid part of the outperformance we've had this year. And so some of the optimism we're expressing is because we're really proud of the success that team has had in 2025. And we certainly expect over the next couple of years for that success to continue. The way -- the reason we talk about water treatment now is that this is kind of a team that has intellectual property and technology that is applicable across multiple contaminants, not just PFAS. And so yes, the PFAS -- clarity around the PFAS regulations are contributing to our growing pipeline. They are contributing to year. They're expected to continue contributing over the next couple of years. But because of our advanced water treatment capabilities, we're seeing kind of opportunities more broadly where PFAS is a contaminant of concern, but not the only one. And I think that's an important distinction there, Tim. We're seeing opportunities across new industries, for example, like pharma and semiconductors that are popping up or the landfill leachate in the waste industry, where our technology is applicable across a broader swath of contaminants, including PFAS. And so it's really a water technology business. And as that technology becomes more visible in the marketplace, we're starting to see some really nice momentum pick up. So yes, our optimism is higher. Yes, our optimism related to the future is much stronger, but those are the reasons why this is not just a PFAS play, but that is certainly a driver of the business. [ id="-1" name="Operator" /> Your next question comes from the line of Jim Ricchiuti from Needham & Company. James Ricchiuti: I wanted to touch on the announcement that you talked about on the renewables, renewable service side of the business. Can you give us -- and this may have been in some of the information you provided. I apologize if it was, but the revenues associated with renewable services. And maybe, Allan, if you can, can you help us with the impact on margins from the wind down of this part of the business? Vijay Manthripragada: Maybe Jim, why don't I explain why we're doing it and then Allan can give you kind of color on the financials. As we look at the current administration's policies around biogas in particular, and some of the uncertainties related to it, we've seen a pullback from some of those clients on kind of the demand cycle and the opportunity for us given our specific capabilities to scale that business. So in this current environment, it does not make sense for us to allocate capital at time to that business and generate the type of IRRs that we would want internally, given some of the other opportunities we're seeing that we talked about. So that's the reason for the wind down. If I exclude the wind-down impact, which is in all the numbers, it's included in all of our guidance, the segment margins would be up year-to-date nicely. And so it is -- despite that, right, the business is obviously performing incredibly well, but it makes sense for us to step away from that business now given what the environment looks like from our perspective into the foreseeable future given the current administration's policies. Allan Dicks: Yes. And on the revenue side, Jim, we've got a couple of projects we're winding down, and so we're not generating any new projects. So it's de minimis revenue this year, a very significant percentage decrease year-over-year. And be just right, if you have to exclude that, margins in that segment would be up. We do expect to fully be out of that business by the end of the year. James Ricchiuti: Okay. On the decision to look at restarting M&A at some point in 2026. Vijay, maybe you could touch a little bit on whether your acquisition priorities might be different than what you pursued in the past. And just given the current dynamics of the market, maybe you could give us a little color. I know it's still perhaps a ways out, but just talk to us about how your M&A strategy might be evolving. Vijay Manthripragada: Sure, Jim. Just from a -- in terms of our capacity, right, the strategic thesis around our desire to continue consolidating this market is unchanged. As we think about the incredible success Allan and team have had with cash flow generation, we expect to have an incredible year, both obviously, as you saw in Q3, but also through the rest of this year, which further delevers the balance sheet and the power of that balance sheet gives us a lot more flexibility to continue investing in the business, both organically and inorganically. And so the short answer is I do expect to certainly restart acquisitions very soon, certainly in 2026. And the nature of those transactions, we're kind of evaluating size and our ability to digest larger assets. We've had a lot of success, as you know, with the recent acquisitions of size like CTEH or Matrix. And so those types of assets continue to be very attractive for us. We've seen some really nice opportunities internationally as we continue to scale in geographies like Canada and Australia, again, staying true to our core business and business capabilities, but just expanding kind of our reach at the request of our clients. And we believe that there's going to be continued margin accretion opportunities tied to our ability to extract efficiencies as we've demonstrated with some of the larger transactions. And so our shift there is a little different, Jim. As we think about the large assets trading in the private sector, those assets are trading in the 17 to 20x multiple, EBITDA multiple. And then the smaller assets continue to trade in kind of that mid- to high single digits. And so that balance obviously weighs pretty heavily as we think about future opportunities for us to expand. It is still a massive addressable market. Even with our current trajectory and rapid growth, we're still a small piece of it. And so it is a core part of the thesis, and I certainly am excited to get that going again in the near future. Does that answer your question, Jim? James Ricchiuti: Yes, it does. It's helpful, Vijay. And congrats, by the way, on the quarter. [ id="-1" name="Operator" /> Your next question comes from the line of Tim Moore from Clear Street. Tim Moore: Nice execution on organic sales growth and free cash flow conversion. It's quite the improved company compared to before 2024. So really great operational execution and strategy. But just switching gears to -- I want to start maybe with remediation reuse. How should we think about the potential for margin expansion cadence there on the step-up to maybe a higher teens adjusted EBITDA margin. That business might be a little subscale now. But I was just kind of curious, I mean, is there a trigger point like $80 million revenue quarterly? Or do you think that would be more of a priority to kind of do bolt-on acquisitions to get the utilization and scale up there for more margin expansion? Vijay Manthripragada: Yes. Let me take that. It's less about M&A adding to that segment to get margins up it's fundamentally the water treatment business that is going to drive most of that margin expansion. That treatment technology business, which included the renewables business has run kind of low teens on a combined basis. When you pull the 2 businesses apart, that water treatment business has been running kind of high teens and biogas or renewables in the single digits. So what we're seeing is as we wind down renewables, you're going to get that margin deteriorative business out of the way. And we're seeing nice accretion on the water treatment side that will be in the 20% margin range on its own. And so as that business continues to expand as a percentage of the segment's revenues, you're going to see a natural lift in the overall margins. There is margin accretion in the rest of that segment, but obviously not to the extent of the water treatment plant. Tim Moore: That's great color. No, thanks for breaking that out. I think that really helps investors and explains the catalyst that will just be self-help. So Vijay's prepared remarks mentioned mining in Canada and Australia. We've seen a lot of the rare earths in EU emission rules come out for LNG exports. Are there any other areas you can talk to about besides the non-PFAS water treatment and semiconductors? I mean you had that really good announcement late August for Western Canada for the restoration and -- water restoration and decommissioning facilities. Are you seeing more of that kind of pop up? And anything else you can talk about maybe that you haven't mentioned that's kind of heating up? Vijay Manthripragada: Yes, Tim, I mean, it's -- we're seeing -- as you think about kind of our strategic focus on industrial clients, as we think about the shifts geopolitically with increased domestic production, take the United States for a second, right? And obviously, all of those industries are now tailwinds for us. But even in Canada, with Prime Minister Karney's Canada first approach and the material investments in infrastructure and industrial production, energy production, as you think about Australia and the administration's focus there on mining and energy production. And as we think, obviously, about the United States, all of those are structural tailwinds for our business. And the reason is those are -- that's our client base. that is picking up activity. And so as we think about the pharmaceutical industry, for example, and the GLP-1 business that is obviously booming for all reasons you guys know, the water implications of that are substantive. So we're seeing some real increase in activity there that we did not anticipate. As we think about increased semiconductor production or energy production tied to all of the macro trends we've seen nationally, we're seeing really nice pickups there. As we think about the mining industry, independent of the recent rare earths announcement, we saw some really nice pickup in activity, some of which we announced earlier. Obviously, our leadership there and the needs of that industry as deals between the U.S. and Australia, for example, pick up, creates incremental tailwinds there. And so as I kind of look across the board, we're seeing just a structural pickup due to that increased industrial activity for our business, which we expect will sustain us into the foreseeable future. There is no one specific spot that is disproportionately driving it. We are seeing some elevated activity in the waste industry, both from an air emissions monitoring, from a testing perspective and also from a water treatment perspective that we did not anticipate. And obviously, the energy industry, given the increased production demand across our geographies is a big contributor to us this year, and we expect it will be one of our biggest, if not the biggest client base in 2025. So I'm pretty excited as I kind of look forward and look at where we strategically placed our bets. Some of that is kind of coming our way and it's creating tailwinds, and I expect that to continue. Tim Moore: That's terrific, Vijay. I just want to sneak in one last small question here. On cross-selling for more share of wallet and to create better awareness of you being the rare fully integrated one-stop shop solutions provider. I know there was a survey not long ago, independent survey, just a lot of customers didn't even know that you could handle multiple services. Have you been investing in a dedicated team to kind of get the word out there about your national reach with local expertise to really fulfill all their needs of services for new customers? Vijay Manthripragada: We have, Tim, we have. And let me just make this abundantly clear. Those investments are in all the numbers we're giving you. So there's nothing incremental. It's in the guidance, and it's already embedded. But yes, we have been investing in our marketing, which we think is a powerful way, and we're excited about some of the brand efforts that are underway to get the word out so that our clients continue to understand all the things we can do. And we have also been investing in bringing in some incredible talent on the commercial side to really help us think about sectors and some of our key logos as we think about making sure that they understand that this is -- the portfolio of solutions we provide are meaningful and broad and not specific necessarily to the 1, 2, 3 services they use us for in specific geographies. That's been a major focus in '25. It will continue to be a major focus in '26. That talent is already in-house, which is partially why we have conviction as to what next year is going to look like. [ id="-1" name="Operator" /> [Operator Instructions] And your next question comes from the line of Andrew Obin from Bank of America. Devin Leonard: This is Devin Leonard on for Andrew Obin. So with the great showing in AP&R and the outperformance somewhat tied to the cross-selling from earlier emergency responses, what level of cross-selling or recurring revenue is typically associated with these emergency response projects? Anything you could call out from historic? Vijay Manthripragada: It really varies, Devin. And look, I would just point out that, yes, that segment had exceptional performance. But as we look kind of year-to-date, our testing segment has also had an incredible year. So the momentum of the business is beyond AP&R really is broad-based. And Allan already alluded to the outperformance on the water treatment side as well. But specific to AP&R and specific to the typical cross-selling rhythm, it really depends on the nature of the incident. And so as a simple example, with the train derailment in Ohio and the results and challenges associated with that, a lot of the work that our team did, the future cross-selling was really tied to air monitoring and toxicology services, for example. As we think about the energy-related release in the mountain states this time, a lot of that is tied to remediation and testing, for example. So there is no simple mechanism or algorithm by which we can say this amount of response translates to this amount of cross-selling. What we are incredibly encouraged by is that, that performance that you see is a function of that. But there's certainly some ongoing testing and remediation work that's going to come out of that, but the teams have done an incredible job capturing and that will benefit us for years to come. So it's not a -- there's no mathematical answer I can give you, Devin. It's just our thesis is playing out in the market in real time. Devin Leonard: Absolutely. And then switching gears a little bit. Just could you -- you talked about the EU methane regulations earlier in the prepared remarks. Can you go into some more details about the potential market opportunity related to that? Vijay Manthripragada: Yes. As we think about the large U.S. manufacturers, producers of energy, the European markets are a big part of what they focus on, right? And as a result, they are subject not only to U.S. state regulations, but also to market factors like what their clients, specifically EU governments want them to report on. And so what we are seeing is that for the large players and the large exporters, as activity picks up for them, demand for our services continues to increase. So the reason I brought that up, Devin, was because we received a lot of questions saying, with the current administration's deemphasis and desire to pull back on regulations related to greenhouse gases, are we seeing headwinds and what we're seeing is, in fact, we're not. We're seeing activity continue at pace, and we're seeing new pockets of activity pop up tied to market forces and state regulations instead of the federal regulation. So we're -- as we look forward, right, that's a very accretive business for us, and we have not seen a pullback there as many anticipated at the start of this year. Does that make sense? [ id="-1" name="Operator" /> There are no further questions at this time. So I'd like to hand back to management for closing comments. Vijay Manthripragada: Thank you all, and thank you to the Montrose team. We look forward to catching up with you as the rest of this year wraps up, and we're excited to continue sharing our narrative and our story as we progress through '25 and into early 2026. Thank you very much for your interest, and have a great day. [ id="-1" name="Operator" /> That does conclude our conference for today. Thank you for participating. You may now all disconnect.
Operator: At this time, I would like to welcome everyone to the IFF Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to introduce Michael Bender, Head of Investor Relations. You may begin. Michael Bender: Thank you. Good morning, good afternoon, and good evening, everyone. Welcome to IFF's Third Quarter 2025 Conference Call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay. During the call, we'll be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website. Today's presentation will include non-GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release. Also, please note that all the sales and adjusted operating EBITDA growth numbers that we will be speaking to on the call are all on a comparable currency-neutral basis unless otherwise noted. With me on the call today is our CEO, Erik Fyrwald; and our CFO, Michael DeVeau. We will begin with prepared remarks and then take questions at the end. With that, I would now like to turn the call over to Erik. Jon Erik Fyrwald: Thank you, Mike, and hello, everyone. Thanks for joining us today. IFF's third quarter results demonstrate continued execution. Our performance this quarter shows that we continue to make progress towards our goals, operate with efficiency and discipline and further strengthen our financial position. In a more challenging environment, we are doing what we said we would do as we expect to deliver financial results in line with our full year guidance that we outlined in February. We will do this as we continue reinvesting in our business and advancing our growth strategy while driving productivity. I'll start today's call by briefly summarizing the third quarter, and then I'll talk about some of the key strategic progress we have made so far this year, and then I'll turn it over to Mike DeVeau, who will provide for a detailed look at our results and segment performance in the third quarter in addition to our outlook for the remainder of 2025. We will then open the call to answer your questions. Turning to Slide 6. We are seeing encouraging results as we build a stronger IFF. Through the actions we've taken to strengthen our customer focus and enhance productivity, IFF is improving its position to compete effectively and deliver value for all our stakeholders. We're operating in a dynamic environment with ongoing macro headwinds, geopolitical challenges and market uncertainty influencing our customers and end consumers, plus we had a strong 9% comparable from last year. We anticipated this and have been clear that the second half would likely be more challenging than the first. And even so, sales remained steady, holding flat for the quarter. Our Scent and Taste businesses both continued to deliver solid growth in the third quarter, which helped offset softness in food ingredients and short-term pressures in Health & Biosciences. As I spoke about last quarter, most of the H&B pressure was related to expected slowdowns in the health business isolated to North America. To address this, we are investing to increase innovation and expand our commercial capabilities to ensure IFF is set up to address the needs of customers now and in the future. We continue to remain focused on what we can control in the current environment. IFF delivered strong adjusted operating EBITDA growth of 7% this quarter with a margin that improved by 130 basis points. Our focus on profitability continues to bear fruit as our results demonstrated strong profitability even in this lower growth environment. I am particularly encouraged as we are also doing this while our teams are reinvesting into our core businesses to position the company for long-term success. On Slide 7, I'd like to share some of the exciting strategic progress we've made in the first 9 months of 2025. Earlier this year, we opened a Scent creative center in Dubai, a Citrus Innovation Center in Florida and expanded our LMR Natural site in Grasse, France. All are significant initiatives that will further advance our innovation offerings and strengthen our go-to-market capabilities. Our customers are at the heart of everything we do, and these strategic investments are increasing our commercial pipeline that will start to bear fruit in mid- to late 2026 and into 2027. We also deepened our commitment to innovation through external collaborations. We recently announced an exciting strategic collaboration with BASF to drive next-generation enzyme and polymer innovation, including our Designed Enzymatic Biomaterial or DEB technology. This partnership enables us to develop more market-driven solutions that create sustainable value for both industry and the environment. Also, earlier this year, we announced a joint venture with Kemira to provide high-performance, sustainable alternatives to fossil fuel-based ingredients, also utilizing our DEB technology. Applying this technology not only provides superior purity and consistency compared to traditional biopolymers, but also enhances performance across various applications. We are already seeing commercial applications of this technology as we also announced that a major multinational CPG company has launched a new laundry detergent formulation enhanced by DEB technology, which delivers improved fabric softness and cleaning performance while replacing nonbiodegradable ingredients with a readily biodegradable alternative. In addition, during the year, we reduced our leverage significantly, reaching approximately 2.5x net debt to EBITDA. After strengthening our balance sheet, we announced on our second quarter call a $500 million share repurchase authorization, making an initial move toward a more balanced and disciplined approach to capital allocation. Over the past few years, we have made significant progress streamlining our portfolio, which has allowed us to reinvest in our core business, achieve our deleveraging targets and strengthen our financial flexibility. During 2025, we made significant progress on this as we completed the divestitures of Pharma Solutions and Nitrocellulose and announced the divestiture of our Soy Crush, Concentrates & Lecithin business to Bunge, which is aligned with our margin enhancement strategy. We continue to evaluate potential strategic alternatives for our Food Ingredients business as we look to drive our portfolio optimization strategy. While we do not have any additional information to share today, we are making very good progress, generating significant interest, and we'll keep you updated as we make further progress. On a year-to-date basis, we've delivered sales growth of 2% and achieved adjusted operating EBITDA growth of 7%. This is primarily due to the immense efforts of IFF-er's all around all globe, continuously striving to innovate, deliver results for their customers and communities and elevate everyday products used by millions of consumers worldwide. With that, I'll pass the call over to Mike to offer a closer look at this quarter's consolidated results. Mike? Michael Deveau: Thank you, Erik, and thanks, everyone, for joining us today. In the third quarter, IFF delivered revenue of nearly $2.7 billion, led by mid-single-digit growth in Scent and low single-digit growth in Taste. Our sales were flat against a strong 9% comparable and were up approximately 4.5% on a 2-year average basis. We continue to focus on driving EBITDA growth through disciplined execution and margin improvement initiatives. In the third quarter, we delivered adjusted operating EBITDA of $519 million a strong 7% increase. Our adjusted EBITDA margin also increased 130 basis points to 19.3%. Also worth noting is that our operational improvement plan continues to yield results in our Food Ingredients business. In the third quarter, Food Ingredients delivered a strong adjusted operating EBITDA margin improvement of 230 basis points compared to last year. The team has done an excellent job on improving the margin profile over the past 2 years, where they increased adjusted operating EBITDA margin by over 400 basis points and are on track to achieve their mid-teen EBITDA margin profile. On Slide 9, I will share additional details about this quarter's performance in each of our business segments. In Taste, sales increased 2% to $635 million with strong growth in Latin America and Europe, Africa and the Middle East. On a 2-year average basis, growth remained strong at approximately 8.5%. The segment also delivered profitability gains of roughly 2%, driven by favorable net pricing and cost discipline. Our Food Ingredients segment achieved sales of $830 million, down 3% versus the year ago period, with strong growth in inclusions that were more than offset by softness primarily in Protein Solutions. As I mentioned, Food Ingredients had an excellent quarter in terms of profitability, where the team delivered adjusted operating EBITDA of $106 million, a 24% increase year-over-year. Our Health & Biosciences segment achieved $577 million in sales, which was flat versus the prior year. On a 2-year average basis, growth remained solid at approximately 6%. Growth in Food, Biosciences, Home & Personal Care and Animal Nutrition was offset primarily by expected softness in Health, specifically in North America. In this market, we've improved our leadership team, placing a strong emphasis on commercial and marketing capabilities. Their objective is to leverage our strong R&D pipeline and win with a broader set of customers to capture strong growth potential in that market. And while the fourth quarter will remain a challenge, we expect trends to improve in 2026. In the third quarter, H&B adjusted operating EBITDA grew 3%, driven primarily by productivity. Scent delivered a strong quarter of sales growth with net sales of $652 million, up 5% year-over-year. On a 2-year average basis, growth remained strong at approximately 7%. Third quarter performance was driven by 20% increase in Fine Fragrance and a low single-digit performance in Consumer Fragrance. As expected, Fragrance Ingredients was under pressure and declined low single digits as growth in specialties were more than offset by declines in commodities. As a reminder, we are strategically shifting our Fragrance Ingredients portfolio towards higher growth and higher value-added specialties. We will do this by leveraging R&D and biotech for new molecule development. Our goal is to accelerate the pace of our captive releases to ensure we can differentiate ourselves and grow disproportionately in this margin-accretive business. Within Scent, volume growth drove the segment's $135 million in adjusted operating EBITDA, a 6% increase year-over-year. Turning to Slide 10. Our cash flow from operations totaled $532 million year-to-date, and CapEx was $406 million or roughly 5% of sales. Our free cash flow position in the third quarter totaled $126 million. This year, we have paid $306 million in dividends through the end of the third quarter, and our cash and cash equivalents was $621 million. As of quarter end, our gross debt was approximately $6 billion, a roughly $200 million decrease from last year and more than $3 billion decrease year-over-year. Our trailing 12-month credit adjusted EBITDA totaled roughly $2.15 billion, in line with last quarter, while our net debt to credit adjusted EBITDA remained constant at 2.5x. We will continue to be disciplined in our capital allocation priorities. Reaching our deleveraging goals was a strong achievement, and we are now focused on preserving this foundation through operational performance, specifically driving improvements in profitability and net working capital. Lastly, on Slide 11, I will walk you through our outlook for the balance of the year. We have talked today and in prior quarters about the environment in which we are currently operating. Our touch points across our global business and with our customers have allowed us to forecast this year well as our teams are delivering results in line with the guidance ranges we communicated in February. Based on our year-to-date actuals and expected fourth quarter performance, we are reiterating our full year 2025 guidance. As a reminder, we are expecting sales to be in the range of $10.6 billion to $10.9 billion and adjusted operating EBITDA to be between $2 billion and $2.15 billion. On a comparable currency-neutral basis, we expect to finish the year at the low end of our 1% to 4% sales growth guidance range as shared last quarter and near the midpoint of our 5% to 10% EBITDA growth range. We believe that this is the right call to maintain our full year guidance even with a wider range implied for the fourth quarter. It is consistent with the message we have shared all year, which is staying focused on what we said we would deliver even in a challenging environment. For the fourth quarter, we expect our typical seasonality, resulting in a step down in absolute sales and margin. And as a reminder, we again face another strong comparable versus the prior year with 12% growth in Taste, 7% growth in Scent and 6% growth in H&B. With that, I would now like to turn the call back to Erik for closing remarks. Jon Erik Fyrwald: Thanks, Mike. Taking a look at the year so far, our global team has delivered in a difficult environment with revenue and profitability increasing year-over-year. I'm proud of what our team has accomplished, yet we continue to strive for more. We are continuing to serve our customers with excellence while investing in an exciting innovation pipeline and positioning IFF to deliver stronger profitable growth on a sustained basis. We are focusing on what we can control. Our strategy is clear. Our team is executing, and we have confidence in our ability to deliver increasing value for our shareholders and all stakeholders. I know we are building a stronger IFF that will be well positioned for 2026 and beyond. Thank you, and I'll now open the call for your questions. Operator: [Operator Instructions] The first question is from the line of Fulvio Cazzol with Berenberg. Fulvio Cazzol: It's in relation to the Health & Biosciences business. I was wondering if you can provide a bit more color on what's exactly going on in the North America region for the Health business unit. I know that the decline in Q3 was well anticipated, and you highlighted this at the Q2 results presentation. But I was also wondering if you still expect to see an improvement starting in 2026 or if there is more uncertainty today on the outlook for this business compared to, say, 3 months ago? Jon Erik Fyrwald: Thanks for the question, Fulvio. This is Erik. In Health & Biosciences, the Health business in North America has been slow for us. And what we've been doing to turn that around is we've put in place new leadership with strong commercial and marketing capability. And you'll recall last year, we step changed our investment in innovation pipeline in Health, that's going well. We're connecting with our existing customers to help them grow faster, and we're finding new customers to serve in North America. So bottom line is I absolutely expect to see improvements, particularly in the second half of '26 going into '27 and then a full recovery fully back on track in 2027. Operator: The next question is from the line of Nicola Tang with BNP Paribas. Ming Tang: I wanted to ask about the top line guidance. The bottom end, so the 1% currency-neutral growth implies a negative low single digit for Q4 versus the flat year-on-year that you did in Q3 despite slightly easier comps. What are the main headwinds to top line in Q4? And how much of your cautious outlook relates to the weak end market macro geopolitical trends that you referred to versus IFF-specific exposures? And to what extent do we need to see end market recovery to see a top line acceleration in 2026? Michael Deveau: Great. Nicola, thanks for the question. Yes, you are correct. While comparable is 6% in the fourth quarter, which is down from 9% in the third quarter, we are being a little bit more prudent on our top line projection this quarter. The largest part of this -- the driver of this is really the macro environment. And so when you look at the end market demand, specifically on volumes, you'll see in the Food Ingredients category in HPC, it has been soft. And so what we did is we kind of continue this trend through the balance of the year just to make sure that we're fully forecasting it correctly. In our core portfolio, Erik touched on it, and I think I touched on it in our prepared remarks as well. We continue to work on Fragrance Ingredients and Health, North America. And so the team is making good progress there. We still got a little bit more work that we have to do to really get back to recover, as Erik suggested. I do want to note, though, as a point of reference, in these areas when we put the two businesses together, it's about 5% of our total company sales. So it's small in nature, but a lot of emphasis and attention on that going forward. So as we move into 2026, we are cautiously optimistic that we will get to a point where we'll see growth acceleration as the market does normalize and some of the self-help work that we're doing over the last 18 months start to yield results. Operator: The next question is from the line of David Begleiter with Deutsche Bank. Emily Fusco: This is Emily Fusco on for David Begleiter. On Food Ingredients, are we still on track for an update on this business with the Q4 earnings call in February? And also just a follow-up, have you begun to engage with private equity and strategics on this business? Jon Erik Fyrwald: Thanks, Emily. Absolutely, you'll get an update, and I'll give you a quick update now. We are seeing strong interest by both private equity and strategics. And fortunately, the business transformation that Andy Mueller is leading with his team is on a strong track, which obviously is very helpful to this process. This is a very good business that keeps getting better and has a bright future, and we'll update where we are in February. Operator: The next question is from the line of Lisa De Neve with Morgan Stanley. Lisa Hortense De Neve: I have one question. Can you please reiterate your free cash flow outlook for this year and the components of how we should expect the different free cash flow components to move into the fourth quarter and if you expect to see an improvement? That's my first question. And I have a small follow-up on Fulvio's question. You talked about investments in H&B. Could you please remind us of where specifically you're making the investments, most notably if you're opening any new plants in certain regions? Michael Deveau: Sure. So maybe I'll start on the cash flow question. Thanks, Lisa. In terms of the free cash flow expectation for 2025, we do expect to be modestly below our target that we gave earlier in the year, which is about $500 million. There are some puts and takes in there that are worth noting. On the positive side, we are expecting CapEx to be a bit lower as we've implemented a little bit more stricter policy just given our cash flow generation. So that's a good gut, a positive aspect. There's two offsetting factors to that. One being inventories are higher in some areas of our business. Part of this is around building some strategic stock in some key areas to take advantage of current costs and availability of materials. And the second piece of it is really around some of the Reg G or onetime costs are elevated really because of the portfolio work that we're doing overall. And so when we put those two together, I think it gets you to kind of be a little bit modestly below that $500 million. But I do want to note that in terms of overall net working capital, you will see an improvement in the fourth quarter, and it is a big focus for us as we go into 2026. And so there is an opportunity for us to improve our free cash flow generation, which is in our control, and the team is committed to making strong improvements as we go forward. So maybe I'll -- that's the flow. Erik, I'll pass over for you. Jon Erik Fyrwald: Sure. On Health & Biosciences investment, as we said last year, we've significantly increased our spend in R&D and commercial capabilities, both for our Health business, next-generation probiotics and other products as well as our enzyme business and our DEB technology. We've announced and we're making great progress that we're building a DEB plant together with Kemira with our joint venture and called AlphaBio. And it's on track, and we expect to start that up in 2027 and look forward to that. But significant investment into Health & Biosciences, and we see that starting to pay off, as we said, significantly in the second half of 2026 and very strong into '27. Operator: The next question is from the line of Kristen Owen with Oppenheimer. Kristen Owen: So I wanted to ask about the new wins that you cited in both Taste and Scent. We continue to hear about how challenging the volume backdrop has been. So I'm hoping you can elaborate on maybe what contributed to those wins in this backdrop? Jon Erik Fyrwald: Thanks for the question, Kristen. Obviously, there's economic challenges across the businesses, especially in North America, we see right now. But in all our four BUs, including Taste and Scent, we've got a heavy focus on strengthening our commercial pipeline, really strong focus on customers, and increasing our win rate as well as our innovation pipeline. And we're seeing really good progress across segments, across businesses and across geographies. And just to give you a couple of examples of wins in Scent and Taste. The first one is our new environment -- excuse me, our new ENVIROCAP, Scent encapsulation technology was recently commercialized in laundry with a major CPG company. The performance is great. They're very excited about it and the sustainability benefits are tremendous. So we'll see that technology add to our growth going forward. And then the second example I really, really like is we've been successful winning a Miu Miu by L'Oreal Fine Fragrance with -- from our master perfumer, Dominique Ropion, and that's going to be a nice business for us going forward, a great product, and I think we'll do well in any economic scenario that we see. So good progress on our commercial pipeline, our innovation pipeline and things that we can control by bringing great technology innovation to customers. And that's how we're going to grow these -- continue to grow these businesses. Operator: The next question is from the line of Salvator Tiano with Bank of America. Salvator Tiano: You spoke a little bit about 2026, hopefully, growth accelerating a bit. But can you also mention any other major or discrete items that you see affecting your income statement or your cash flow next year versus 2025? Michael Deveau: Yes. Thanks, Sal. Great question. We are, to be fair, in the middle of the planning process for 2026. So we can't go into much details. We'll provide the full guidance update as part of our year-end or Q4 call in February for 2026. That said, there -- in terms of moving parts, there's probably just one that I just want to remind everybody. I think it's pretty self-explanatory. But if you remember, we closed the Pharma transaction on May 1. And so when you think about 2026, I think through the first 5 months of the year, 4 months of the year, it was about $369 million in sales and $76 million of EBITDA. So that will go away as we cycle that in the first half of the year. So I just -- I flagged that. In terms of the rest of it, it is pretty normal course in terms of operations. So there's not really any big discretionary items that we flag at this point in time. Operator: The next question is from the line of Ghansham Panjabi with Baird. Ghansham Panjabi: Erik, can you just give us an update on the internal initiatives you have going on and as it relates to both cost optimization and growth? You called out capacity being tight in certain areas in the past. And I know you asked the question on Health & Biosciences, but what about across the rest of the portfolio? And just on the cost savings side, as it relates to productivity, et cetera, can you give us a sense as to the savings that is likely to flow into 2026 in context of just the operating environment not being very helpful? Jon Erik Fyrwald: Yes. Thanks for the question. I'll have Mike go through the details here. Michael Deveau: Yes. Appreciate it, Ghansham. Over the last 18 months, we've done a lot of work to improve our competitiveness as an organization. And so specifically, Erik has highlighted specifically around the H&B, Health business that we put a lot of money in terms of R&D and commercial capabilities starting really in the second half of '24 and over the course of 2025. And that's really to build and bolster some of the innovation pipeline and really strengthen again the commercial capabilities. In addition, we've also increased and will continue to increase our CapEx in the areas to improve capacity, specifically in H&B, where we think we have a good growth potential and really good incremental margins associated with that. And so that's something we've done and we'll continue to do as we go forward from here in that business to really generate the value there. As we go into 2026, we believe we're positioned well, and we are cautiously optimistic that we will lead to improved growth trajectories going forward. At the same time, we're also working on just generating better incremental productivity that comes with improving margins going forward as a focus. And so I don't want to go into too much of the details here. Again, we'll come back in February when we give our overall guidance. But I think the team has made a tremendous amount of progress both in reinvesting, really trying to get the growth aspect of it and targeting incremental productivity opportunities to continue to expand margin and reinvest in the business as needed through a self-funding mechanism. So feel good about the progress being made. Operator: The next question is from the line of Patrick Cunningham with Citigroup. Unknown Analyst: This is Alex on for Patrick. I guess we're hearing more about the economy taking a key shape where lower income households are spending less. I guess I'm wondering if you're seeing -- if this is something you're seeing across your business segments and maybe what that implies for volumes in 2026? Jon Erik Fyrwald: Thanks, Patrick. Yes, we are seeing some of this, and we've talked to the weakness overall in volumes in North America. But the good news is we've got a diverse customer base, both in size of customers, geography base and categories. And we're adapting our focus around the world. And just to give you some examples, on the lower end and private label area, we're seeing growth, and we've put more emphasis on that. On the high end, the Fine Fragrance business continues to do well. So we've put a lot of emphasis on making sure that we're a partner of choice in Fine Fragrances, and we talked about the Miu Miu win with L'Oreal, very important for us. We're seeing geographies even in Fine Fragrance, like the Middle East growing very rapidly. We're putting more emphasis there. We opened a creative center there. And we continue to obviously stay focused on ensuring that we do well with global key accounts but also increasing our emphasis on regional and smaller customers in geographies that are fast growing. So yes, there's a K-shaped economy more today than there was before, but we're adapting our model to make sure that we grow at or ahead of the market going forward. Operator: The next question is from the line of Joshua Spector with UBS. Joshua Spector: I wanted to try again a little bit on '26 and just thinking about really the range of scenarios and your ability to respond and specifically that if we stay in this kind of, call it, 1% growth environment, maybe from a consumer perspective, do you have actions and levers that you think would deliver earnings growth higher than that, be it self-help or other things in flight that we should be considering? Michael Deveau: Yes. Great question, Joshua. I'll take this one, if that's okay. Growth is an important part of the algorithm. And so the more growth we get, the incremental margins associated with that growth in terms of fixed cost leverage, it's nice. So the more you can grow, the better you are. So that's ultimately what we're striving to, which is why some of those reinvestments were so important to make sure we accelerate the growth. At the same time, you do need to prepare that if the event that the market is still in that 1% to 2% range, how do you work on your cost structure to ensure you generate profitability improvement. We are fully focused on that. The team has done a very good job over the last couple of years to drive productivity, but it's something that is paramount now as we go forward to continue to do that. And so areas like streamlining corporate functions, leveraging automation, redesigning processes that will allow us to be more effective and more efficient. And so I do believe we still have some opportunities there. There is contingency planning associated with that. So as we think about the context going forward, we will include that as areas to accelerate to make sure we maximize profitability as we go forward even in a lower growth environment. Operator: The next question is from the line of John Roberts with Mizuho. John Ezekiel Roberts: Have we been seeing any acceleration in the reformulation of food products? And is that maybe part of the reason for the continued strength in the Flavors business? Jon Erik Fyrwald: We haven't seen a big shift yet. What I would call it is a continued move towards cleaner labels and reformulation for that, which we like. And if that accelerates, that's good for us. But what we've been doing is following what our customers and consumers want, which are cleaner labels, and we've got a very strong capability, both in Scent and in Taste and Naturals. And that's played well for us, and that's why you're seeing growth because of our focus on the innovation, but also on our commercial capabilities to help customers delight consumers. Michael Deveau: Yes. Maybe just to add on that. When you look at it, John, the pipeline has actually improved and continue to improve. And so what that's a good barometer is that the customers are looking for more innovation, which is very good for our business overall. So I think that's the buoyancy that you've seen over the last couple of quarters within Scent and Taste overall, which has provided a bit of tailwind there. Jon Erik Fyrwald: Yes. As the customers see lower volume growth in the market, they're pushing for more innovation to be able to profitably grow themselves, and we're there to help. Operator: The next question is from the line of Kevin McCarthy with Vertical Research Partners. Matthew Hettwer: This is Matt Hetwer on for Kevin McCarthy. Would you comment on two items: a, the potential pace of execution against the $500 million share repurchase authorization that you announced last quarter; and then b, the expected cash proceeds from the pending divestiture of the deal with Bunge. Michael Deveau: Sure. Thanks, Matt, for the question. In terms of the share buyback program, we actually started or commenced it on October 1. And so that was per our trading plan. And so that's now have been implemented. As a reminder, the program is geared towards dilution plus model, which means at a minimum of -- our plan is to target offsetting dilution, which for us on a yearly basis is about $80 million. Then we have some flexibility based on intrinsic value, free cash flow generation that we can increase or decrease the purchases within the trading grid. So we do have some of that flexibility. But as you think about modeling for the fourth quarter, just given that we started on October 1, I would assume at this point, we're offsetting dilution, which is the $80 million divided by 4 essentially, which is call it about $20 million. We will give more update as we get to the guidance call in February, but that's kind of part number one. I think part number two, of your question was the expected proceeds of the pending deal with Bunge. In terms of gross proceeds, I think it's about $110 million in gross proceeds, and I would estimate around $90 million in terms of net cash proceeds after tax and some of the deal fees associated with it. Operator: The next question is from the line of Lauren Lieberman with Barclays. Lauren Lieberman: I just had two questions actually. First was on Taste. In the slides, you mentioned you had favorable net pricing. I was just curious if that's comparable to what peers are doing. I just -- I was surprised to see that there was positive pricing in this environment. So that was the first question. And the second one is if you could just offer any observations on growth of multinationals versus local and regionals. And also the pipeline -- sorry, and also like just the pipeline activity from those two subsets. Michael Deveau: So maybe, Erik, I'll start on the Taste piece of it. The team has really done a good job. And so when I think about the net pricing comment, Lauren, when there's areas of inflation and one area, there is some tariff inflation that we get, the team has done a really good job of offsetting that as part of their pricing areas. At the same time, it's a net pricing number. So in terms of the inflationary environment that we've seen throughout 2025, which was about low single-digit inflation, the team did a really good job of productivity to drive some of those costs down. And so when you combine productivity with the raw material cost exposure and the pricing strategy, that's how you got to your net pricing benefits there. And so I think I can't speak to the competition, but I can speak that the team has done a very good job at executing on that piece of it. In terms of the global versus local regional, Erik? Jon Erik Fyrwald: Yes, we're seeing the regional and locals growing faster, and we put more emphasis on growing with them and accelerating our pipelines with them. But the global key accounts are still critically important to us, and they're increasing their focus on innovation. So our pipelines with them are very strong and robust. So we're not decreasing our emphasis on global key accounts, but we're increasing our focus on the regional and locals. Operator: The next question is from the line of Laurence Alexander with Jefferies. Laurence Alexander: Can you give us some color on what your customers are telling you about inventory levels and their patience on reformulations? And what I mean is, are they seeing the evidence that reformulations are driving significant organic growth acceleration? And if not, how long will they keep reformulating before they switch to other ways to protect earnings and cash flow in a slow growth environment? Michael Deveau: So maybe I'll start, and feel free to add on. The inventory question is a good question, Laurence. I think when you get into a slower growth environment, specifically with some of the global accounts, you always have to make sure the inventory management aspect doesn't have the impact on the business. I think based on the feedback that we've heard from the team, there are some markets very candidly, like North America is a little bit higher inventory levels. So I think embedded in our forecast is a little bit of a deceleration in that market specifically because of inventory levels. Broadly speaking, if you take a step back, inventories feel like they are in a good spot globally. But like I said, there are some markets like in North America that there could be some inventory management that could potentially happen there. So I think that's part number one. Part number two, in terms of the patients, I think your question around patience of reformulation, it's an opportunity. And so when you look at the customer set, over the last several years, pricing has a big part of their algorithm. And so really -- and I think Erik just alluded to it, to really differentiate yourself in a market where pricing becomes more challenging in the overall market, innovation becomes a key part of the driver going forward. And so I don't think you're going to see them throw up their hands and say innovation is not important. And I think they're going to continue to make sure that is a central part of their algorithm going forward. And for us at IFF, that's a good thing because we like the portfolio, we like the R&D that we have, and we're focused on that. And so I think those are the two -- I would give, Erik, I'll pass to you if there's anything. Jon Erik Fyrwald: And the only thing I would add then is on the inventory side, there's a lot of uncertainty with our customers, and they're trying to operate with lower inventory levels. So we absolutely can and will do a better job of managing our inventory levels, but we're also trying to make sure that we're not missing order opportunities. So we're really trying to stay close to our customers and understand what their needs are so that we're able to operate with lower inventories, but not miss any delivery reliability goals. Operator: The next question is from the line of Silke Kueck, with JPMorgan. Silke Kueck: When you look at 2026, what do you think are the bigger product launches? So the collaboration with BASF sounds that there are like product opportunities on the detergent side. And is that something that will affect consumer fragrances and in Scent? Or is that something that will be -- that we'll see in the enzyme category under H&B? That's my first question. Secondly, the beverage can companies have spoken about growth in like protein-enriched beverages like protein being added to essentially like everything. Is that an opportunity for IFF? And again, is that something when it's beverages, do you see that as like a taste opportunity or because it's protein will then up in H&B. And my third question is you, talked about regionals and locals growing faster than multinationals. Does that mean private label is also growing faster? And how do you approach going after the private label business? Jon Erik Fyrwald: Well, thanks for those questions, Silke. I'll try to take them one at a time, and Mike, please pitch in any time. So let's talk, first of all, about the BASF collaboration. I think it's really important. BASF has a very strong position in chemistry with many home and personal care companies. And we've got a very strong capability in enzymes and have very good positions with a number of customers, but haven't reached the broader market as well as we would like to. And so the combination of us plus BASF's really strong commercial capability, our enzymes and their chemistry is, we believe, a very strong opportunity to serve customers better for both of us. So we'll see that play out, and it should start to see enzyme growth toward the end of '26, but more in '27, I would say. And with that, we'll improve our relationships and connections with customers for Scent. On the protein movement, I would say it's very strong, and it obviously helps our protein business. We're the leaders in plant-based proteins, which are very much in vogue and desired, less so in the alternate meats that is rebased and growing, but off of a smaller base. But certainly in beverages, bars and other areas, we see growth opportunities for our protein business, but also for our broader food ingredients business to make sure that the protein drinks and other products have the great mouth feel, the right taste, don't settle out -- the protein doesn't settle out and very importantly, the taste, the flavors, which gives us an opportunity to go in with our protein and our other Food Ingredients capabilities and bring more total solutions to customers that -- or at least open the door for not only our Food Ingredients people, but for our taste capabilities. So this protein dynamic, I think, is -- was strong and is further accelerating with the GLP-1s, and we see that continuing, and we see us well positioned. And we're already seeing good growth from them. The last one was on the regional and locals. Yes, private label is increasingly important. That's back to the K-economy. And we're putting more emphasis on working with the private label retailers, but also the co-manufacturers who make the products and making sure that our capabilities are helping them achieve what they want to help. Operator: The next question is from the line of [ Apkio Evers ] with Wells Fargo. Unknown Analyst: I know this was touched on already, but I wanted to push a little bit further on Fine Fragrance. You obviously reported 20% growth this year -- this quarter and double-digit growth last quarter. It's been growing very strongly. And I know you mentioned wins, but I'm wondering if there's something else and underlying trends driving this growth? And then looking forward, is this a level of growth that we should expect going forward? I know you mentioned upside from your Scent center in Dubai and Florida bearing fruit in mid- to late 2026. But how should we think about this next quarter or this coming quarter and then the first half of 2026? Jon Erik Fyrwald: The Fine Fragrance business has shown tremendous growth rates. I don't expect to have that strong growth going forward, but I do expect continued solid growth from Fine Fragrances. And I think that's because of our capabilities. We've got great perfumers. We've got great molecules. We've got significantly enhanced investment in innovation that's going to be coming more in 2026 and '27. And we've invested in places like Dubai, the creative center and creative centers in other parts of the world, Shanghai and others. And so we are absolutely committed to this market, and we are absolutely want to serve our customers with -- to help them have great products. But I think another dynamic here is the whole social media dynamic where you're seeing influencers really trying -- starting to -- have been and I think will continue to expand the marketplace, expand to new generations to not only females, but more to males, younger generation and more diverse groups. And I think that's fueling the growth, and we see that continuing. Operator: The last question is from the line of Christopher Parkinson with Wolfe Research. Harris Fein: This is Harris Fein on for Chris. I mean there's been some solid year-on-year margin comps in Food Ingredients. Just wondering if you could maybe talk about the line of sight to bridge that margin to the mid-teens next year. And we're also all looking forward to the strategic update early next year. But in the interim, maybe if you could talk about any opportunities you have to prune maybe more along the lines of what you did with the Soy Crush business in the interim, that would also be helpful. Michael Deveau: Harris, thanks for the question. Look, I think the Food Ingredients team has done a fantastic job really emphasizing margin improvement. And so just kind of bringing it back, if you remember, at the lows, it was about 9% EBITDA -- so the trajectory now, it was 9%, 12%, moving towards 14% if you adjust for portfolio gets towards that 15%. And so the line of sight is actually pretty strong in terms of overall recovery, and the team has done an excellent job. As they go forward, what's really important because not only do we divest business, we were also very strategic in, I'd say, ongoing pruning of our overall portfolio. So we're very selective. So some of the lower-margin businesses, we kind of walked away, which is embedded in some of our top line performance this year in 2025. I think -- so as you go -- but as you go into 2026, the more growth you can get into that business and return to growth, that's where you get nice leverage with the P&L. So that's kind of priority #1 is how to get the business back towards that growth number. So one. Two, we started basically 2 years ago on a big productivity push. And so looking at plant optimization, raw material optimization, the team has done a good job, and that's a big driver of what you're seeing in the performance in 2025, but that will also continue into 2026. And so between those two levers, I think you still have a line of sight to continue to improve that business, both from a top line perspective, but also from a margin perspective. I think then you'll get back to that mid-teen, and the team is focused and fully focused on that as they drive going forward. Jon Erik Fyrwald: And I'd just add one other thing, is we are investing where we see high profit margin growth opportunities. For example, the TAURA fruit inclusions business segment is we're expanding the capacity significantly there. The current capacity is sold out, high margins, high growth. So Andy and his team are really driving also growth in the higher-margin areas. Operator: There are currently no questions registered at this time. So I'd like to pass the call back over to Erik for any further remarks. Jon Erik Fyrwald: Well, thank you all for joining today's call. Let me close by saying that I'm very proud of the progress the IFF team has made over the last 18 months. We are a much stronger company with a bright future. We have a solid balance sheet, a clear strategy, a strong and strengthening innovation pipeline, a strong focus on serving customers and consumers, and we're executing better and better and doing what we say we are going to do. So I look forward to the road ahead, and thank you very much. Operator: Thank you all. At this time, this will now conclude today's conference call. We appreciate your participation. We hope you all have an amazing rest of your day, and you may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to Carlyle Secured Lending, Inc.'s Third Quarter 2025 Earnings 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, Nishil Mehta, Head of Shareholder Relations. Please go ahead. Nishil Mehta: Good morning, and welcome to Carlyle Secured Lending's conference call to discuss the earnings results for the third quarter of 2025. I'm joined by Justin Plouffe, our Chief Executive Officer; and Tom Hennigan, our Chief Financial Officer. Last night, we filed our Form 10-Q and issued a press release with a presentation of our results, which are available on the Investor Relations section of our website. Following our remarks today, we will hold a question-and-answer session for the analysts and institutional investors. This call is being webcast, and a replay will be available on our website. Any forward-looking statements made today do not guarantee future performance, and any undue reliance should not be placed on them. Today's conference call may include forward-looking statements reflecting our views with respect to, among other things, the expected synergies associated with the merger, the ability to realize the anticipated benefits of the merger and our future operating results and financial performance. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our 10-K and 10-Qs. These risks and uncertainties could cause the actual results to differ materially from those indicated. CGBD assumes no obligation to update any forward-looking statements at any time. During this conference call, the company may discuss certain non-GAAP measures as defined by SEC Regulation G, such as adjusted net investment income or adjusted NII. The company's management believes adjusted net investment income, adjusted net investment income per share, adjusted net income and adjusted net income per share are useful to investors as an additional tool to evaluate ongoing results and trends and to review our performance without giving effect to the amortization or accretion resulting from the new cost basis of the investments acquired and accounted for under the acquisition method of accounting in accordance with ASC 805 and the onetime purchase or nonrecurring investment income and expense events, including the effects on incentive fees and are used by management to evaluate the economic earnings of the company. A reconciliation of GAAP net investment income, the most directly comparable GAAP financial measure to adjusted NII per share can be found in the accompanying slide presentation for this call. In addition, a reconciliation of these measures may also be found in our earnings release filed last night with the SEC on Form 8-K. With that, I'll turn the call over to Justin, CGBD's Chief Executive Officer. Justin Plouffe: Thanks, Nishil. Good morning, everyone, and thank you all for joining. I'm Justin Plouffe, the CEO of the Carlyle BDCs and Deputy CIO for Carlyle Global Credit. On today's call, I'll give an overview of our third quarter 2025 results, including the quarter's investment activity and portfolio positioning. I will then hand the call over to our CFO, Tom Hennigan. During the third quarter, CGBD benefited from strong originations across the platform, but was also impacted by historically tight market spreads. We generated $0.37 per share of net investment income for the quarter on a GAAP basis and $0.38 after adjusting for asset acquisition accounting. Our Board of Directors declared a fourth quarter dividend of $0.40 per share. Our net asset value as of September 30 was $16.36 per share compared to $16.43 per share as of June 30. CGBD had another strong quarter of deployment, funding $260 million of investments into new and existing borrowers, resulting in net investment activity of $117 million after accounting for repayments and $48 million of investments sold to our joint venture, MNCF. Total investments at CGBD increased from $2.3 billion to $2.4 billion during the quarter. Looking ahead, net new supply has picked up recently, and the Q4 pipeline continues to build. Year-over-year, deal flow at the top of the funnel increased nearly 30% over the last 2 months. We expect activity will continue to increase, supported by declining base rates driving lower funding costs, normalization of tariff and regulatory policy and resilient expectations for economic growth. Although there have been recent bankruptcies in the news, CGBD has no direct or indirect exposure to First Brands or Tricolor, and we continue to have confidence in the credit quality of our portfolio. As a reminder, CGBD consistently exhibits below average nonaccruals and a strong track record of NAV preservation. Based on June 30 reporting, CGBD's nonaccruals were 120 basis points below the public BDC average at cost, and nonaccruals at CGBD decreased by 140 basis points at cost between June 30 and September 30. Overall, we remain selective in our underwriting approach, seeking to provide first lien loans to quality companies. We remain focused on portfolio diversification while managing target leverage. As of September 30, our portfolio was comprised of 221 investments in 158 companies across more than 25 industries. The average exposure to any single portfolio company was less than 1% of total investments and 95% of our investments were in senior secured loans. Immediate EBITDA across our portfolio was $98 million. As always, discipline and consistency drove performance in the third quarter, and we expect these tenants to drive performance in future quarters. With that, I'll now hand the call over to our CFO, Tom Hennigan. Thomas Hennigan: Thank you, Justin. Today, I'll begin with an overview of our third quarter financial results, then I'll discuss portfolio performance before concluding with detail on our balance sheet positioning. Total investment income for the third quarter was $67 million, in line with prior quarter, driven by a stable average portfolio size, a modest change in total portfolio yields and lower accretion of discounts from repayment activity. Total expenses of $40 million increased slightly versus prior quarter, primarily as a result of higher interest expense due in part to the 2030 senior notes transitioning from fixed to the floating rate swap. The result was net investment income for the third quarter of $27 million or $0.37 per share on a GAAP basis and $0.38 per share after adjusting for asset acquisition accounting, which excludes the amortization of the purchase price premium from the CSL II merger and the purchase price discount associated with the consolidation of Credit Fund II. Our Board of Directors declared the dividend for the fourth quarter of 2025 at a level of $0.40 per share, which is payable to stockholders of record as of the close of business on December 31. This dividend level represents an attractive yield of over 12% based on the recent share price. In addition, we currently estimate we have $0.86 per share of spillover income generated over the last 5 years to support the quarterly dividend, which represents more than 2/4 of the existing $0.40 quarterly dividend. On valuations, our total aggregate realized and unrealized net loss for the quarter was about $3 million or $0.04 per share, partially attributable to unrealized markdowns on select underperforming investments. Turning to credit performance. We continue to see overall stability in credit quality across the portfolio. At the beginning of July, we closed the successful restructuring of Maverick, which was the main contributor to nonaccruals decreasing to 1.6% of total investments at cost and 1% at fair value. And while our nonaccrual rates may fluctuate from period to period, we're confident in our ability to leverage the broader Carlyle network to achieve maximum recoveries for underperforming borrowers. Moving to our JV. We continue to focus on maximizing both asset growth and returns at the MMCF JV. We closed an upsize to the credit facility in October. The upsize enables us to increase our investments in the JV, which is achieving a run rate mid-teens ROA for CGBD. Separately, we continue to work on optimizing our 30% nonqualifying asset capacity and are currently in advanced discussions with a potential institutional partner on a new joint venture. And based on our current outlook for earnings, we're comfortable with the current dividend policy of $0.40 per share. I'll finish by touching on our financing facilities and leverage. In October, we raised a new 5-year $300 million institutional unsecured bond at an attractive swap adjusted rate of SOFR+ 231. We used the proceeds in part to repay in full the higher-priced legacy CSL III credit facility. In addition, we announced that we will redeem the $85 million baby bond effective December 1. In the aggregate, these capital structure optimizations will lower our weighted average cost of borrowing by 10 basis points, extend the maturity profile of our capital structure with limited maturities until 2030 and reduce reliance on mark-to-market leverage. Our debt stack is now 100% floating rate, matching up primarily floating rate assets, meaning CGBD is well positioned in advance of future interest rate cuts. At quarter end, statutory leverage was 1.1x towards the midpoint of our target range. And given our current strong liquidity profile and targeted incremental asset sales to our MMCF JV, we're well positioned to benefit from the expected pickup in deal volume in future quarters. With that, I'll turn the call back over to Justin. Justin Plouffe: Thanks, Tom. As we approach the middle of the fourth quarter, our portfolio remains resilient. We continue to focus on sourcing transactions with significant equity cushions, conservative leverage profiles and attractive spreads relative to market levels. Our pipeline of new originations is active and with a stable high-quality portfolio, CGBD stockholders are benefiting from the continued execution of our strategy. As always, we remain committed to delivering a resilient, stable cash flow stream to our investors through consistent income and solid credit performance. At the platform level, we continue to build out the Carlyle Direct Lending team. As a reminder, Alex Chi will be joining Carlyle as Partner, Deputy Chief Investment Officer for Global Credit and Head of Direct Lending in early 2026. We also hired a new head of origination during the quarter and continue to build out the broader origination function with an additional hire in Q3 and one more slated to join the team in Q4. All 3 will expand our existing capabilities, combined with the expected increase in overall capital markets activity, we are constructive on our expectations for activity and deployment going forward. I'd like to now hand the call over to the operator to take your questions. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Finian O'Shea from Wells Fargo Securities. Finian O'Shea: Tom, can you give us some color, maybe a bridge on the top line this quarter? SOFR was pretty stable, I think. There was -- the nonaccrual was small. Just seeing what the mix was, whether it be like average portfolio or onetime fees or anything else in there that's notable? Thomas Hennigan: Yes. Sure, Fin. Thanks for the question. When you look at the top line, it's $67 million last quarter and this quarter, but last quarter, it rounded down. This quarter, it rounded up. When you look at the delta, that's very modest decline, it's primarily OID accretion on repaid investments. That's really the biggest bridge point in terms of the difference between the 2. When you look at fee income, it was up modestly. And in the aggregate, the average daily principal balance of loans outstanding was pretty flat across the quarter. That's what we will see that we should get a benefit in the coming quarter just based on that average daily outstanding investment balance. So that was neutral from second quarter to third quarter. But it was really the OID accretion was the biggest point on the top line. Finian O'Shea: Okay. And the 10 bps you gave on borrowing spreads, was that just from the baby bond? Or was that also -- there's a couple of post-quarter changes as well. Is that a holistic sort of guidance or just that one bond that -- I'm sorry, I didn't catch that. Thomas Hennigan: No, and it was primarily post quarter end items. It was the -- we repaid our legacy CSL III facility that was priced at SOFR+ 2.5%. The baby bond swap adjusted is SOFR 3.14%. So those -- the CSO facility we repaid at the beginning of October. The baby bond will be repaid effective December 1. And then the biggest replacement is the new institutional deal we did, which is swap adjusted 2.31%, so over SOFR. So net-net, that's about 10 basis points across the capital structure. Finian O'Shea: Okay. And one final one for me. I'll get back in the queue. And I'm sure we bugged you about this last quarter. But the $0.40 declared in the fourth you said something like comfortable for now. Can you expand on for now, does that include like how far out into the SOFR curve does that include? And then sort of what are -- I know you mentioned the 30% bucket, a bit of rotating spreads, like how much of -- how much sort of fundamental or octane sort of drivers offset how much Fed decline in your outlook for coverage? Thomas Hennigan: Sure. And interestingly, our outlook and the support and our comfort with that $0.40 is actually in the near term, the next few quarters is where we see the most pain, and that's just based on really primarily the SOFR curve. So we anticipate earnings will trough in the next couple of quarters. When you look at the longer term with our 2 JVs, I should say -- 1 JV in place and then potential second JV, that's where we see -- that will just take time to ramp those vehicles. So for example, our existing JV, I mentioned we increased the credit facility from $600 million to $800 million to just give us more dry powder to continue to invest. We reached agreement with our partner to increase our equity commitments from $175 million to $250 million each. And we've also been working on some creative low-cost financing solutions to continue to operate at a very low debt cost of capital for that JV. So that gives us the runway, and it's going to take some time to grow that vehicle from $800 million of assets to double the size to $1.6 billion. And right now, if we're at a 15% return on assets for CGBD, we see the ability to increase that by 300 to 500 basis points. So we see a lot of positive drivers with that JV, but it's going to take some time to invest over the course of the next number of quarters. And then the second JV, we're -- we've made some really good progress with a potential partner. It's leveraging Carlyle's global credit expertise in investing loans. It's something we hope to have more color for the market and hopefully target closing that deal sometime this quarter. But yes, that will be longer term to ramp that vehicle. Operator: Our next question comes from the line of Erik Zwick from Lucid Capital Markets. Erik Zwick: Just looking at Slide 5 of your deck this morning, over the past year or so, the concentration of first lien debt has increased to about 86% of the total portfolio now with the second lien investment funds coming down. We've been hearing from others that second lien debt potentially is not as attractive today given tighter spreads. So just curious, are we likely to see this trend continue in your view of first lien debt continuing to become a larger concentration in the portfolio? Justin Plouffe: Yes. It's Justin. Thanks for the question. Look, we are operating in a tight spread environment across credit markets. And at this point in time, we don't see a ton of value in second liens. I think the -- I think across all private credit markets, the amount you're getting paid to take significant risk has really -- has come down in the last 24 months. So our strategy has always been defensive, diversified first lien and then opportunistic on things like second liens. And I would tell you, right now, we don't see the opportunity to be that compelling. So I think you will see our portfolio continue to trend first lien. And I don't see any reason for that to change in the near term. Of course, we could have a credit cycle and then there might be opportunities that come up at that point. But for now, we're very, very focused on a defensive first lien portfolio. Erik Zwick: I appreciate the commentary there. And then just given your comments about the pipeline continuing to grow, I guess I'm curious what the kind of average yield looks like in the pipeline today versus the current weighted average yield in the portfolio. Is there potentially pressure there as the portfolio turns? Or what are your thoughts there? Thomas Hennigan: Erik, it's Tom. There definitely continues to be pressure on spreads relative to where the portfolio is. For the first -- for the third quarter, our weighted average spread was a shade over 500 basis points. Prior quarters, it was a bit higher. And part of that is our mix of non-U.S. transactions. In the second quarter, it was closer to 15%. We typically see anywhere from a 75 to 100 basis point premium for those non-U.S. transactions. So we've got a little extra spread premium in the second quarter. In the third quarter, our originations were strong. It was only about 5%, only one deal from our European originations. So we're right about 500. But I think that there continues to be overall pressure when you look at where the overall portfolio yield is relative to, let's say, those new originations, which are more squarely 500 weighted average. And for a brand-new LBO not in the portfolio, probably a 4 handle is what we're seeing in today's market. But for CGBD, those are transactions, and we'll be investing in that particular transaction across our broader direct lending business for CGBD as those assets drift and spread below 500, that's where they're very good candidates for our JV. Erik Zwick: And last question for me, just looking at the chart on Slide 12, the risk rating distribution, a nice quarter-over-quarter improvement in those 2-rated assets. I'm just curious the drivers there. Was it kind of industry related or more company specific, if you're able to provide any commentary? Thomas Hennigan: Increase in the 2 rated, Erik, from above $100 million. Erik Zwick: Yes. Thomas Hennigan: Yes. Primarily a couple of deals transitions from the 3 category to 2 category. The biggest component is just net originations for the quarter. And those continue to be in our main categories of health care, software, technology and financial services. Those continue to be 2 of our larger categories, and that's where most of our originations in the third quarter. Operator: Our next question comes from the line of Sean-Paul Adams from B. Riley Securities. Sean-Paul Adams: Congrats on the great quarter. But when looking over the nonaccruals, it looked like quarter-over-quarter nonaccruals decreased significantly, but the rating within the portfolio increased from 4 -- investment-grade rating 4 to 5. So is -- are the nonaccruals that are remaining on the books, they just shifted to materially changing the expectations on recoveries? Or is this just more of a covenant change or just lapsing in the amount of time since payment? Thomas Hennigan: It's Tom again. I'll answer that in a slightly different way, I think, just to describe the changes in the categories. The biggest decline in the 4 category was the restructuring of Arch Maverick, now it's called Align Precision. So that was the largest component of that 4 category. And we successfully restructured, wrote off some debt, but now that transaction, the multiple tranches lives in the 2 and 3 categories. The migration from 4 to 5 is primarily one credit that remains on nonaccrual that we are in the midst of restructuring right now. And I think that it's -- the shift from 4 to 5 is acknowledgment on our part that, hey, yes, we're restructuring it. Yes, we're going to be writing off debt. And my credit view, unlike Maverick, we see a path with the lead agent, we see a path to -- it's going to take a few years, but to a very strong recovery, perhaps a full recovery on that investment. The loans -- there were 2 loans, one was the majority piece, but 4 to 5 were investments that were restructuring, they're in payment default and/or on nonaccrual. And we think that even longer term, we're likely not going to have a full return of capital. Operator: Our next question comes from the line of Robert Dodd from Raymond James. Robert Dodd: On the potential -- and I realize nothing has been signed yet, but the potential second JV, do you envision that -- your partner envision that as kind of same kind of style as the existing one? I mean in your prepared remarks, you mentioned obviously leveraging the global platform more maybe. Or -- yes, is the potential second one going to be structurally similar, but target assets different than the first one and i.e., diversify overall exposure or just participate in the same kind of deals and just diversify where it's held? Thomas Hennigan: Right. Rob, this contemplated JV, the structure will be very similar to the existing JV in terms of 50-50 governance, will be 50-50 economic ownership. It is in loans, but it will be a different investment strategy, really 0 overlap to the current JV. Robert Dodd: Got it. And then just you sound obviously more optimistic about the outlook and 30% increase in deal flow for a couple of months is pretty good, how is the quality of those deals and kind of like the terms? I mean, are you seeing the initial look at those, to your point, 4 handles on new LBOs. I mean, is that what we're looking at? Are the terms consistent with that in terms of the pipeline build? And is the quality of the assets you're seeing, it's one thing for 475 if leverage is lower. But if leverage is getting fuller and fuller, and I don't know that to be the case, those terms might not be so attractive. I mean any color you can give on like the constituents of the pipeline in terms of how it looks? Thomas Hennigan: Rob, I think that the pipeline consists, I think, high-quality borrowers very much in the same makeup industry-wise as our current portfolio in terms of focus on whether it be software, technology, health care, business and consumer services, financial services. I would say it's very much industry deal specific in terms of leverage. The one key attribute, though, and it was the case back in '23 when leverage was lower. It's been the case now that there's somewhat of reopening in the markets is the LTV investing in the first lien loans, our LTV consistently is 38% to 42% on average, perhaps even lower for some of the technology deals. If we're looking at industrial deals, it may be a bit higher because of the lower growth and lower enterprise value multiples. But overall, that's really the one common attribute is that loan to value. So we've got significant coverage where loan to value is typically 40%. Operator: Our next question comes from the line of Melissa Wedel from JPMorgan. Melissa Wedel: Just want to make sure I'm understanding your comments on the -- and your views on the JV appropriately. It seems like with the upsize in the existing one and the potential second JV, those will take time to scale up. And so as you look at the earnings power of the portfolio, we shouldn't be thinking of those as having a particularly near-term impact on earnings power. Is that fair to say? Thomas Hennigan: Yes. Melissa, that's a very good synopsis of it. When we look at the current quarter, the next quarter, next 2 quarters, we know the rate cut math is easy for us, every 100 basis points is $0.03 per share per quarter. Those JVs are going to take more time, multiple quarters. So we see an earnings trough in the next couple of quarters and then it starts to build back up second half of '26 into '27. Justin Plouffe: And of course, that will all depend on activity in the market as well. If we see elevated activity, perhaps we can ramp faster. But we're thinking about these JVs as long-term drivers of increased income, not necessarily as a quarter-to-quarter fix. Thomas Hennigan: [indiscernible] got a $0.86 of spillover over 2 quarters that for this interim basis, we feel comfortable if we're necessary paying out the spillover, but really have a long-term goal in mind. Melissa Wedel: Okay. Okay. And then following on one of your comments, I think it was during the prepared remarks. You mentioned at one point the potential for spreads to widen, especially to compensate a little bit for lower base rates. I guess I'm wondering if that's built into your -- is that your base case expectation? And how does that -- how do you reconcile that with just the supply and demand imbalance of capital that we're seeing in the market now even with base rates being lower and spreads still being so tight? Justin Plouffe: Yes. No, it's not our -- necessarily our base case scenario. I think if you look historically, when rates have been going down, spreads have actually more than compensated for the reduction in rates. But we're in an unusual environment now where we do have base rates going down while spreads either tighten or remain tight. So in the current environment, that's not the case. But as we know, credit goes through cycles. And I think eventually, we will have a change in the supply-demand imbalance. I think historically, if you look across private credit, spreads are at the tighter levels that they've been. So I think it's reasonable in the intermediate term to think that there probably will be some movement on spread, and we want to be positioned to take advantage of that, right? So that's really all that we're saying, not some prediction of near-term spread widening because I don't really see the impetus for that in the markets today. Operator: Thank you. At this time, I would now like to turn the conference back over to Justin Plouffe for closing remarks. Justin Plouffe: Thanks, everybody, for joining the call. We really appreciate it, and we will speak with you next quarter. Take care. Operator: This concludes today's conference call. Thank you for participating. 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: Good morning, everyone, and welcome to the Trulieve Cannabis Corporation Third Quarter 2025 Financial Results Conference Call. My name is Danielle, and I will be your conference operator today. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Christine Hersey, Vice President of Investor Relations for Trulieve. You may begin. Christine Hersey: Thank you. Good morning and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer; and Jan Reese, Chief Financial Officer will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. This morning, we reported third quarter 2025 results. A copy of our earnings press release and PowerPoint presentation may be found on the Investor Relations section of our website, www.trulieve.com. An archived version of today's conference call will be available on our website later today. As a reminder, statements made during this call that are not historical facts constitute forward-looking statements, and these statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from our historical results or from our forecast, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors of the company's most recent annual report on Form 10-K as well as our periodic quarterly filings. Although the company may voluntarily do so from time to time, it undertakes no commitment to update or revise these forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. During the call, management will also discuss certain financial measures that are not calculated in accordance with the United States Generally Accepted Accounting Principles or GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for Trulieve's financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings press release that is an exhibit to our current report on Form 8-K that we furnished to the SEC today and can be found in the Investor Relations section of our website. Lastly, at times during our prepared remarks or responses to your questions, we may offer metrics to provide greater insight into the dynamics of our business or our financial results. Please be advised that we may or may not continue to provide these additional details in the future. I'll now turn the call over to our CEO, Kim Rivers. Kimberly Rivers: Thank you, Christine. Good morning, everyone, and thank you for joining us today. First, I'd like to extend a warm welcome to Jan Reese, our new Chief Financial Officer. Jan brings a wealth of leadership experience and has already made impactful contributions since joining the team. We're thrilled to have him on board. Turning to the third quarter, we are pleased to report results that highlight the continued strength of our core business. Despite seasonal pressure in the quarter, the team delivered robust margins and strong cash generation, while also expanding our customer base. As we prepare for the busy holiday season, we remain encouraged by the momentum behind meaningful cannabis reform. Trulieve continues to lead the industry forward, pushing for impactful change, while reducing the stigma surrounding cannabis. Moving to our results. Third quarter revenue of $288 million was in line with guidance and typical seasonal trends. Industry-leading gross margin at 59% reflects pricing compression, partly offset by operational efficiencies. Adjusted SG&A expense declined by $9 million compared to last year, demonstrating the team's commitment to reducing expenses in our core business. Adjusted EBITDA of $103 million improved by 7% versus last year to 36% margin, underscoring tight expense control. Operating cash flow of $77 million contributed to cash of $458 million at quarter end. Yesterday, we announced the planned redemption in December of our notes due in October 2026. Depending on terms, we may issue new notes were up $250 million. During the third quarter, retail traffic and units sold increased by 6% and 7% year-over-year, highlighting strong demand for cannabis. Consumers continue to lean in towards value and mid-tier products, reflective of general economic conditions. Wholesale revenue grew 16% compared to last year, highlighting continued execution. Outperformance in wholesale was driven by strength in Maryland, Ohio and Pennsylvania. We are expanding our wholesale business as conditions permit with careful monitoring of the credit quality of customers and industry development. In our core markets, October traffic has improved compared to September, in line with historical seasonal patterns. We are continuing to monitor consumer behavior closely for any changes in preferences and spending. As we approach year-end, our team remains focused on 4 key areas: reform, customers, distribution and branded products. I'd like to start by discussing federal and state cannabis reform given the importance for our industry. We remain optimistic that the Trump administration will address cannabis reform by rescheduling marijuana to Schedule III. This important milestone would acknowledge the medical value of cannabis and open the door for additional research. Millions of Americans rely on medical cannabis for relief, a fact that contradicts the current Schedule I classification. Rescheduling would not legalize cannabis, but it would remove the punitive tax burden on state legal operators, enabling greater conversion from the illicit market. We believe Rescheduling represents the first major domino in federal reform. Additional steps are needed to address challenges with banking and the growing divide between federal and state laws. SAFER Banking enjoys widespread bipartisan support as elected officials from both parties recognize the need to remove excess cash from dispensaries to ensure safety for workers and discourage criminal activities such as money laundering. In our home state of Florida, Trulieve continues to support the Smart and Safe Florida campaign for adult-use legalization. The 2026 ballot language includes revisions to address concerns raised during the 2024 campaign, which narrowly missed the 60% threshold required for passage. The new ballot language prohibits products and packaging that could be attractive to children, prohibits smoking in public, direct issuance of new nonvertical licenses and expressly clears the way for the state legislative body to allow homegrown marijuana. Signature gathering efforts are ongoing, and the campaign expects to reach the required number of validated signatures prior to the February 1 deadline. As of November 1, more than 1.1 million raw signatures have been submitted with over 675,000 signatures validated. We expect Florida Supreme Court review of the ballot language and summary will be concluded as required by April 1 of next year. To date, Trulieve has been the primary financial contributor to this effort, leading this charge for change in Florida. While we firmly believe in the potential for Florida to serve as a model for successful state cannabis programs, we are preserving optionality in deciding whether to contribute meaningful financing to the 2026 campaign. Trulieve's ongoing support of the campaign will be determined based upon data and the political landscape heading into the 2026 election. In Pennsylvania, we remain optimistic that a compromise can eventually be reached to enact adult-use legalization. We believe state legislators recognize the potential for adult-use to satisfy constituent demand for cannabis, while generating revenue for the state. Several bills have been filed this year, and many constructive sessions and hearings have been conducted. If adult-use is launched in Pennsylvania, Trulieve is well positioned given our established retail footprint, strong brand in retail and wholesale and scale production capabilities. With the adult-use programs already launched in 5 of 6 neighboring states, we expect Pennsylvania will enact adult-use in the near-term. In addition to reform efforts, we are driving operational improvements in 3 key areas: customers, distribution and Branded Products. Since inception, Trulieve has grown with customers at the forefront of everything we do. By providing a normalized retail environment alongside superior service, we strive to deliver exceptional customer experiences throughout the customer journey. Personalized customer messaging and engagement continues to evolve as we add new capability to our customer data platform and analytical tools. During the third quarter, we implemented new product recommendation schemas, including prompt for suggestions and repurchases. Similarly, we added enhanced customer segmentation features to allow predictive modeling for shopping patterns, frequency and anticipated order dates. These tools allow identification of customers and personalized timing of recommendations to drive reengagement. Our generous Rewards program continues to grow, reaching 820,000 members at the end of September. We continue to see greater retention and monthly spend among members, who spend on average 2.5x more than nonmembers. Rewards members completed 77% of third quarter transactions. We recently introduced new monthly rewards statements, that highlight key milestones achieved to enhance program engagement and visibility. Building upon the success of our Rewards program, today, we launched a new mobile app available for download in the Apple App Store. The Trulieve mobile app is uniquely designed to deliver a best-in-class experience that centralizes shopping, deals, gamification and rewards. The app gives customers an effortless and engaging way to browse and reserve products, push notifications to learn about special promotions or when orders are ready for pick up provides a more seamless experience compared to e-mail and text messaging. We are excited to bring these new features to our Apple customers in Florida, and we look forward to launching the app in additional markets and on Android devices in 2026. Personalized messaging, loyalty rewards, and seamless digital experiences all contribute to customer retention. Third quarter retention improved by 1% sequentially to 68% company-wide with 76% retention in medical-only markets. While customer retention metrics are strong, we are amplifying the Trulieve brand through local engagement to attract new customers. Across our markets, we are recalibrating community events to focus on 4 key areas: helping patients, serving veterans, assisting seniors, and promoting restorative justice. Through community activities, partnerships and charitable work, we are directly addressing the needs of these stakeholder groups. In October, we raised awareness and funding to fight breast cancer through register roundups, specialty products and charitable locks. This month, we are supporting veteran organizations to serve those who have sacrificed so much for our country. This weekend, Trulieve is sponsoring a weekend retreat for operation resilience led by the Independence Fund, which is an event designed to help veterans who are at high risk for suicide. We are proud to give back to these worthy causes and partner with groups that support our mission to expand access to cannabis. Alongside engagement efforts, we are investing in retail and wholesale distribution to reach new customers and drive sustainable growth. We met our 2025 retail target by opening 10 new stores in Arizona, Florida and Ohio, expanding our network to 232 stores. In September, we relocated 1 Arizona store from Scottsdale to Bisbee, broadening our reach by entering an underserved area. We are on track to refresh or remodel up to 45 stores this year. In wholesale, Maryland and Pennsylvania continue to outperform. In Ohio, our production partner continues to ramp sales of branded products, including Modern Flower and Roll One. With over 4 million square feet of production capacity, our scaled platform provides a meaningful competitive advantage, including strong gross margins and the flexibility to adapt to evolving market conditions. Our production team continues to identify operational efficiencies, driving costs lower, while delivering great products. Consistent product quality differentiates our brands in an increasingly competitive landscape. During the third quarter, we sold over 12.5 million branded product units. In-house brands, Modern Flower and Roll One continue to resonate with customers, representing almost half of the branded products sold. In Florida, we recently launched a new Roll One Clutch All In One vape. This new compact disposable vape card sold out in less than 2 weeks. We plan to launch additional Modern Flower and Roll One SKUs, including new All In One vapes in several markets. Turning now to the beverage category. Last February, we launched a new line of Farm Bill-complaint THC and CBD cocktail alternative beverages called Onward. Throughout the year, we have added new flavors and expanded distribution. In July, we added a line extension of CBD and THC energy drinks called Upward. In September, we launched new 10-milligram flavors for Onward and Upward. Onward Berry Smash, Cosmopolitan, Lemon Drop Martini and Paloma, and Upward Half & Half iced tea and Lemonade flavors are performing well, enjoying positive customer feedback. These Farm Bill-compliant THC beverages provide an opportunity to reach new customers with approachable products in familiar outlets. Onward and Upward beverages are available online and in more than 440 stores, including ABC Fine Wine & Spirits and Total Wine in Florida and specialty grocers and convenience stores in Florida and Illinois. We recently launched distribution through Anheuser-Busch in Florida and Romano Beverages in Illinois, and we are actively working to expand distribution with new and existing partners. Visit drinkonward.com to find a retail location near you or order online. Overall, we are making real progress across our focus areas, reform, customers, distribution and branded products. With continued momentum and significant flexibility in our core business, we are set to expand our leadership position while pushing for cannabis reform. With that, I'd like to turn the call over to our CFO, Jan Reese. Please go ahead. Jan Reese: Good morning, and thank you, Kim. I'm thrilled to join Trulieve, and I'm focused on driving profitable growth at a leading company and industry pioneer. Third quarter revenue was $288 million, up 1% year-over-year, driven by new store openings, adult-use in Ohio, and wholesale growth, partially offset by pricing compression and wallet pressure. Gross profit was $170 million or 59% margin. Margin performance driven by increased pricing compression, loyalty point redemption and product mix, partially offset by lower production cost. We continue to expect quarterly fluctuation based on product mix, market mix, inventory sell-through, promotional activity and idle capacity costs. SG&A expenses were $99 million or 34% of revenue, a significant improvement driven by reduced operating expenses and lower campaign support. Adjusted SG&A declined to 30% of revenue, 34% last year due to ongoing operational efficiencies. Net loss in Q3 was $27 million or $0.14 per share versus $0.33 last year. Excluding non-recurring items, net loss per share would have been $0.07. Adjusted EBITDA was $103 million, up 7% year-over-year or 36% margin, reflecting expense leverage in our core business. Turning now to our tax strategy. As a reminder, we have filed amended returns starting 2019 and continue through today. Challenging the applicability of 280E to our business. To date, we have received refunds totaling over $114 million, while we are confident in our position and strategy, final resolution may take years. We continue to accrue an uncertain tax position, while realizing lower tax payments. Important to note, rescheduling to Schedule III would have removed 280E burden, the -- and Q3 and year-to-date results would show positive net income under those conditions. Moving now to the balance sheet and cash flow. We ended Q3 with $458 million in cash and $478 million in debt. Cash flow from operations totaled $77 million with capital expenditure of $12 million with -- and free cash flow of $64 million. Turning now to our outlook, we expect low single-digit sequential revenue growth in Q4. We expect full year gross margin will be comparable to 2024. We anticipate at least $250 million in cash from operations for the full year. CapEx of $45 million, up to prior target of $40 million, reflects investments to relocate stores and minor cultivation upgrades in Ohio and Pennsylvania. We remain focused on finishing the year strong, delivering results aligned to our strategic priorities. With that, I will turn the call back over to Kim. Kimberly Rivers: Thanks, Jan. Cannabis has gained widespread support across the U.S. with public opinion shifting significantly over time as more Americans recognize its therapeutic benefits. Today, nearly 90% of Americans favor some form of legalization for medical or recreational cannabis. Currently, 40 states have established programs for medical cannabis, providing millions of patients access to relief from chronic pain, anxiety, sleep disorders, epilepsy and symptoms associated with serious illnesses, including cancer, multiple sclerosis, and PTSD. While federal and in some cases state policy lags public opinion, momentum for reform is gaining traction. The Trump administration can deliver on campaign promises to address cannabis reform by rescheduling cannabis to Schedule III. In Florida, we remain supportive of signature gathering efforts for the Smart and Safe Florida ballot initiative to legalize adult-use. With over 23 million residents and 143 million tourist visits per year, we believe Florida could be the strongest market in the U.S. striking an appropriate balance between individual freedom and responsible consumption. In Pennsylvania, we are hopeful that bipartisan adult-use legislation can pass in the coming years. We believe both Florida and Pennsylvania will eventually enact adult-use programs. As an industry leader, we remain firmly committed to pushing for meaningful reform and expanded access to cannabis. Given the strength of our core business and flexibility across our platform, Trulieve is poised and ready to define the future of cannabis. Thank you for joining us today, and as I always say, Onward. Christine Hersey: At this time, Kim Rivers and Jan Reese will be available to answer any questions. Operator, please open up the call for questions. Operator: [Operator Instructions] The first question comes from Luke Hannan from Canaccord Genuity. Luke Hannan: Kim, you touched on in your prepared remarks there, you continue to generate an industry-leading EBITDA margin. There's a couple of things underscoring that. Obviously, you have a very efficient cultivation footprint. But then also, as you pointed out, you were a little bit more efficient when it came to adjusted SG&A as well. So if we just think about those 2 components, I'm not necessarily asking for guidance here. But when it just comes to opportunities, I suppose to potentially improve on that margin, what do you see as sort of the lower-hanging fruits going forward? Kimberly Rivers: Yes. So I'm very, very proud of the team for continuing to be laser-focused on bringing as much of that top-line down all the way through the P&L. And of course, I think that we stand out among our peer set for our consistency, as it relates to being able to do that efficiently and effectively kind of regardless of what's happening at the macro level. I would tell you that really in terms of what we're seeing coming into Q4, it's going to be somewhat dependent on what happens with the customer, right? And certainly, obviously, the holiday season is something that we've got our eye on, which is typical this time of year. But given, I would say, we have a little bit of opaqueness candidly, as it relates to the consumer, at the end of Q3 coming into Q4, we saw some trading down and some price compression. I want to tell you to answer your question, the fact that we have the ability in our platform to meet the consumer where they're at, and be strategic in how we do so. I am confident in our ability to continue to deliver a strong margin. But that has to be, again, coupled with the reality, again, of the consumer profile, it will be impacted by product mix and promotion. But again, also keeping in mind that we have an amazing and flexible and modular production footprint that we're able to flex again to meet the consumer where they're at. And so I would say that, again, in line with what we've said all year, we expect that full year to be consistent with again last year as it relates to margin. And I think given the sort of differences in this year's consumer profile, I think that's pretty -- I'm very, very happy with that. Luke Hannan: That's great. And then for my follow-up here, you touched on the launch of the mobile app and then also some of the benefits associated with that. It sounds like more customer engagement is chief among them. But you also place Trulieve places emphasis on data and analytics and being able to use that effectively when it comes to the entire sort of go-to-market strategy. So I guess I'm curious, does the app make you any more efficient when it comes to being able to gather insights from that data? Or does it give you a richer set of data points to be able to sift through as well? Kimberly Rivers: Yes. Well -- so certainly, we are excited about the ability to connect in a more personal way to our customers. And I would tell you that the ability to, again, have more of an interactive platform with our customers will be important as we continue to develop our strategies around consumer personalization. So I mentioned that even on our existing web platform, we're now able to more suggestive sell based on someone's past buying patterns, as well as to be more predictive in terms of when he or she may be coming back into the store based again on past behavior. And so, which is very exciting and being able to bring those features into an app landscape, but again is a bit more real time and then to be able to also seamlessly integrate our loyalty platform into an app shopping platform is, I would say, the best of both worlds. And really, we think that it's critical as we think about getting away from the confines, and -- because we are in cannabis, we're restricted in terms of what we can do via text messaging. And given the fact that we're all mobile these days, the ability to have push notifications to remind folks when they have points available, to remind folks when there are certain things happening within our stores that, that particular shopper may be interested in, I just think it's going to be very dynamic as we move forward into this next stage of our connectivity journey here. Operator: The next question comes from Russell Stanley from Beacon Securities. Russell Stanley: First, just around retail. You've refreshed and remodeled a significant number of sites this year. Can you -- I don't know if you have this handy, but can you provide any data points regarding the impact of those efforts on traffic or basket size, what you've seen relative to expectations? And any lessons that you've learned through the process that will inform your Refresh, Remodel plans next year? Kimberly Rivers: Sure. So I, for one thing, it's very important for companies to keep an eye on the aesthetics and -- of their stores. I think there's lots of lessons that we can go over on companies that did not do that, and where they ended up with their customer base. So that's going to be, I would say, something that you should expect from us on a pretty regular basis. We'll be analyzing and it's a constant review of stores across the platform, especially with our business since many stores, as everyone will recall, were initiated in a different regulatory landscape where there were different restrictions. In Florida, for example, at the very beginning, we had to have, there were very strict rules about where we could be located, and the types of lobbies we had to have, the security features between showroom and lobby et cetera. And so opening up those floor plans as those regulations have changed to make a more welcoming environment for customers and improving customer flow, vault size, how product moves from back of house to front of the house, et cetera, is certainly important from an efficiency standpoint, and then, of course, from a customer experience standpoint as well. And so we're going to always be looking for those types of opportunities across the platform. And then again, I think it's just good hygiene to make sure that you've got welcoming fresh, bright environments for our customers that are adapting to what the expectations of a premier retail experience would be. Russell Stanley: And maybe just on the balance sheet, given the redemption -- plan of redemption, and you talked about another debt issue for up to $150 million, I think. I guess, can you talk -- it's a relatively modest amount given what you're redeeming, but can you talk about what you're seeing in terms of appetite out there, especially given the recent seemingly short-lived blip in credit spreads? Just wondering what kind of the environment you're seeing from? Would it be lenders and the appetite that you're seeing relative to 3 months, 6 months ago? Kimberly Rivers: Sure. So we haven't gone to market yet, Russ. So, I think that color on that should be probably reserved for future commentary. And I can tell you that, again, we have flexibility in our ability to whether to complete or not complete depending on terms and depending on appetite. Again, I think that our balance sheet is strong, our cash generation is strong, our core business is very solid. I think our consistency in our core business is very solid in terms of our ability to generate cash and bring that -- again, like we talked about before, bring that revenue down to bottom line profitability. So I would say stay tuned, but I feel pretty confident that we'll have optionality there, and then we'll be in a decision along, of course, with the Board to make a determination as to how much or if we decide to move forward with the race. But again, we're generating cash every quarter and feel good about where we sit. Operator: The next question comes from Bill Kirk from MKM Partners (sic) [ Roth Capital Partners]. William Kirk: In 2024, the Florida initiative didn't seem to get the kind of deserved monetary support from other MSOs. Do you expect those other MSOs to better contribute either monetarily or in other ways this time around? Kimberly Rivers: Yes. So I would say that certainly, I would love for -- you guys to asked that question on the earnings call. I have been in talks with the other CEOs. And I think that we're going to have some pretty robust conversations after Supreme Court review, once we have -- just like we said in our prepared remarks, once we have additional data and visibility into the political landscape, pulling right all the things, I do think that folks are certainly at the table in a different way than they were the last cycle. But I also think, right, that some of it is going to be dependent on where everyone sits as it relates to available cash. And of course, 280E is a big contributor there. So we shall see. But I would say that I think that the MSOs at least are working together as it relates to reform. And I think that that is a positive. And definitely, we could see that also come over to the Board effort. William Kirk: Awesome. And then are you seeing any increased momentum for regulating intoxicating hemp differently or possible closing of any -- what people call the Farm Bill loophole? And I guess if we step back, how would you like to see intoxicating hemp treated by the federal government and states? Kimberly Rivers: Yes. I mean, certainly, it's -- as you know, it's a checkerboard out there, as it relates to the states, and how they're treating intoxicating hemp. We have a little bit of a front race seat to it, not only, of course, from the regulated cannabis side of the business, but also from the beverage side of the business. In Florida, there were new rules that were issued midyear this year, and a big crackdown across the state. Products in Total Wine -- beverage products in Total Wine and ABCs were taken off shelves, because of labeling challenges among some other regulatory concerns, our branded beverage products Onward and Upward were actually able to stay on shelf. We are -- and we're compliant, which I think is actually becoming a little bit of a differentiator for us, because we're very used to, right, having to have all of our testing back up and making sure that consumers can scan back to a finished product test and that the labeling is accurate and all of those things. So certainly, we have seen a step-up in enforcement, I would say, across markets. And I think that's in line with sort of an increase in attention that it's getting, again, at both state and at the federal level. I think I hear what you hear as it relates to the federal differences in terms of potential pathways for regulating intoxicating hemp. And I think we'll see where that lands. But it does seem to me that similar to the states, the intensity of the conversation is increasing both at the state level and at the federal level. Operator: The next question comes from Brenna Cunnington from ATB Capital Markets. Brenna Cunnington: It's Brenna on for Frederico. And congrats on the results this quarter. Just continuing on the theme of the Florida ballot measure. We all know that Florida legalization would be a game changer. But the 60% approval threshold does seem to be a bit of an issue, since we saw that the majority of Floridians do actually want to legalize. So just trying to understand here, theoretically speaking, what about this time could be different? Do you think it's more of a factor of raising more voter awareness? Or was there a specific verbiage that needed to be changed last time to address potential voter issues or perhaps something else? Kimberly Rivers: Sure. So I think there's a couple of main differences. Well maybe actually 3. One, I think that there will be a big component of this that centers around just, again, the political landscape. We're in a gubernatorial race this time as opposed to a presidential race. And so the dynamics in Florida in particular, shift sometimes dramatically in terms of profile of voters that turn out between those 2 different types of races. So I think that's an important thing that we'll certainly be analyzing and watching. Two, the ballot initiative itself had some changes, as mentioned in the prepared remarks that were very -- that were specifically responsive to pulling and feedback from the last campaign, particularly voters indicated that they wanted more certainty around what the legalization program would look like in the state of Florida, specifically around confirmation that these products would not be attractive to children, that there is, of course, age gated for adults over the age of 21, that there would be no smoking allowable in public, and that there would be additional licenses that would be issued for additional competition in the marketplace as well as a pathway for home-grow. And so really by addressing those specific concerns, it does -- and early polling indicates that that does change the chances on a just plain ballot read perspective. And then I would say the third thing is really about the -- just the landscape. There's been obviously quite the news cycle around what happened in the last campaign as it relates to some public dollars being spent and taxpayer money, et cetera. The legislature passed a package of laws last legislative session that clarifies, and candidly locks down that activity, such that we believe that there will not be that same level of opposition at least from those particular paths in this next election, which we think is very important. And at the end of the day, right, I think that just a fair and straightforward election process could definitely be a game changer as well. So I do think that at least early indicators are that it's going to be a more positive backdrop. But again, we want to make sure that, that's confirmed by, again, the data and the political backdrop before we decide to move forward. Brenna Cunnington: Understood. And then our second question is just regarding the hemp and beverages, which we do know is a small category. But we would just love any additional color you could add on how sales are ramping in Florida and Illinois? And also specifically how online sales are doing? Kimberly Rivers: Yes. So it's ramping candidly ahead of what our initial expectations were. We -- I think as we have developed our partnerships with both Total Wine and ABC, they have grown pretty dramatically since inception. In addition, right, our ability to successfully land additional distribution partnerships has also been a positive, and there'll be more announcements from us on that in the near-term. We are being thoughtful in terms of how we ramp, and simply because we want to make sure -- I mean, we believe very strongly at Trulieve, and this goes back, it's in our DNA since inception, that it's important to launch and penetrate. And make sure that you're understanding and getting as much data as possible about the consumer and making pivots early to get it right, so that we're able to, again, really have lasting brand equity with those customers. And so we -- I could tell you that we -- candidly, we could be ramping faster, but we want to make sure, again, that we've got the opportunity to really have a presence in those stores and in those markets by doing things such as tasting events, trainings with the employees in those stores to make sure that they're actually educated on THC and how our beverages are different than all the other brands that may be on shelf, why they should feel comfortable recommending our beverages to consumers, what is [Technical Difficulty] as it relates to our beverages, et cetera. And so we are making sure that we do this the right way, which I think will pay dividends for the long-term. Operator: [Operator Instructions] The next question comes from Aaron Grey from Alliance Global Partners. Aaron Grey: Congrats on the quarter. First question for me, just on some of the consumer engagement initiatives, loyalty program, now mobile app. Obviously, it would seem like you're most able to leverage that in states where you might have more of an existing moat like Florida as well as Arizona. But also curious to know how you might be looking to leverage that? And build a larger presence in markets where smaller today, and maybe you rely more on wholesale. So maybe just some more color in terms of how you're able to leverage some of these products and learnings to build out a market share where you're smaller today? Kimberly Rivers: Sure. So again, our loyalty program has had incredible success across all the markets in which it's launched. And so I wouldn't say, of course, in our bigger markets like Florida, you're going to have more of an adoption rate. But I will also tell you that some of our other markets like Arizona, for example, it's been a huge tool for us, because -- and really the big learning there is, to your point, Aaron, as markets go adult-use, right, we don't necessarily have as much required data on a particular patient. So when you think about it in a market like Florida or Pennsylvania, we have a lot of information, because they have to have a patient identification card, and we have to allocate and make sure that we've got the tracking of the product that's dispensed across their recommendation from their physician. So there's a lot more already known component of those purchases and of those customers. But you contrast that with an adult-use market where someone is just -- we have to age gate, of course, and take their license information, confirm that they are an adult age 21 and up. But aside from that, you can really be more anonymous in those markets. And the loyalty program has been phenomenal in terms of having those customers actually voluntarily, right, engage with us in a more regular way, so that we can again begin to get to know them, and have that truly reciprocal relationship where we're understanding their buying patterns. We're able to offer them additional product suggestions or deals that they may be -- they may have not known about, right, because there's no reason for -- previously, there would have been no necessary reason for them to connect with us in that way. We think the app is going to take that to a completely different level. So right, you'd have the ability to preorder online, track your order, push you a notification just like Starbucks or other places where we all use apps across our normal retail experience to say, hey, your order is ready for pick up. In addition, we can talk about as it relates to our wholesale business, hey, we just launched this new all-in-one, just find it near you, right, we saw that you purchased an All In One vape previously. It's available a mile from your house at this particular location, right. So there's all kinds of capabilities that are going to be available through the app. Initially, we are definitely using it to reinforce our in-store branded products through branded retail being our core, right, our core business driver. But Aaron, to your point, in a state like Maryland, for example, where we only have 3 stores, but we have a bigger wholesale business, being able to leverage things like an app to offer gamification, et cetera, of products that are available -- and our in-house brand products that are available throughout the state and certainly is something that we'll be looking forward to as we further develop that. Aaron Grey: Really helpful color there, Kim. I appreciate that. Second question for me, just on Florida and store saturations and opportunities. Any color you could provide in terms of how you're feeling about the Florida market today additional opportunities for you to open up stores, both for the -- at the level of Trulieve and more broadly where you're seeing that? And then how that might differ for the different store model types that I know Trulieve has? And whether or not that would be dependent on adult-use becoming legalized in the state? Kimberly Rivers: Sure. So I would tell you that in Florida, we certainly -- it's interesting, because it's a little bit of a mixed bag right now. And as I mentioned, we're certainly seeing across the entire system, not just in Florida, but we're certainly seeing some price compression and some wallet pressure, and some trade-down activity. Florida is a big state. And I would tell you that one of the things we've been focused on is really ensuring that we can manage down to that specific store level, and that we understand, because not every store is positioned the same, right? And we have some stores that have very little competition around them. We have other stores that are in highly competitive environments, we have some stores that cater more towards maybe a more higher-end kind of store crowd, other stores that are more value-oriented crowds. So being able to strategically differentiate and ensure that we have the right product mix, we have the right promotional cadence, we have the right messaging techniques on a store-by-store basis is something that we have been -- we're really excited about, and that we have been really focusing on. And thankfully, we have the -- maybe the correct investments through our customer data platform and other tools that we are able to segment more specifically and effectively down to that store level. And so we look at it in Florida as really a store-by-store landscape. And you'll be seeing us launch different strategic initiatives to further lean into that. I would say that as it relates to new stores, I'll answer that as it depends, right. And I think what we are seeing in Florida is we're seeing some of our competitors actually close stores and shutter stores, which we believe is a tremendous opportunity for us to absorb those customers and let them rediscover Trulieve, and hopefully bring them into our fold. But also, right, gives us an opportunity to reevaluate the landscape and see if there are areas where we feel like we need to reposition or even potentially open additional location. So I would just say stay tuned on that, that analysis is ongoing. And absolutely, it will depend on the specifics of the location, to your point, as it relates to whether or not we would consider opening a full service, a flagship or a express type model. And as well as, of course, if adult-use is on the table, and obviously, that does change the narrative a bit as it relates to where store attractiveness -- the attractiveness of certain stores may change depending on that. Operator: The next question comes from Andrew Semple from Echelon Capital Markets (sic) [Ventum Financial Corp]. Andrew Semple: Start off with a pair of questions on capital expenditures. Just want to hone in on the capital budget of $45 million for the year. I believe you're already at $40 million in the first 9 months. So just want to check in on that, anticipate if you're seeing -- expecting to see a slowdown in the fourth quarter here on capital spending? And then just secondly on the -- on capital budgeting, I'm wondering if you have a capital budget for next year, just kind of directionally, how much you would think to spend, maybe whether it's higher or lower or roughly the same as what we're about to see in 2025? Jan Reese: Thank you. Let me take this question, Kim. First off, yes, we do have a very robust capital expenditure process and [ review ] process. We do take opportunities though, when we do have the opportunity to relocate stores to a more customer service, customer-facing program. So if you look at the $45 million that we have currently in the forecast, you can divide this in 2 main buckets. One is relocation store in Arizona, and the other one is the cultivation in Pennsylvania and Ohio, both investments long- and short-term will yield a much better return. So we went forward and make this investment. As we always do with our review process, the good things we will execute and we will do yield higher returns as we promise ourselves. Andrew Semple: Okay. And then maybe just pivoting to inventory balances. The inventory levels continue to inch higher. Do you have any color or thoughts about your inventory balances? Are you happy where that sits today? Just any thoughts around that would be appreciated. Kimberly Rivers: Yes. So as we've said consistently, our inventory is going to fluctuate a little bit from quarter-to-quarter. I think that it was $2 million increased in a -- $1.8 million in Q3. So to us, that wasn't really anything to cause any sort of alarm. And again, we believe that it's going to fluctuate quarter-to-quarter. Yes, we are happy with it now. I mean I think a couple of things just to note that we will, of course, ramp inventory prior to some store openings, which we've had in Ohio. And then additionally, as we mentioned in the prepared remarks, we've got in some markets, some new products launching as well as in Ohio, some of our brand portfolio coming through for the first time. So like we said, there's going to be a slight swings, but I don't think that there's really anything out of the ordinary there for us as it relates to inventory. Operator: This concludes our question-and-answer session. I would like to turn the call back to Christine Hersey for closing remarks. Christine Hersey: Thank you for your time today. We look forward to sharing additional updates during our next earnings call. Thanks, everyone. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to Liberty Media Corporation's 2025 Third Quarter Earnings Call. [Operator Instructions] As a reminder, this conference will be recorded November 5. I would now like to turn the call over to Shane Kleinstein, Senior Vice President, Investor Relations. Please go ahead. Shane Kleinstein: Thank you, and good morning. Before we begin, we'd like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Forms 10-K and 10-Q filed by Liberty Media with the SEC. These forward-looking statements speak only as of the date of this call, and Liberty Media expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty Media's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. On today's call, we will discuss certain non-GAAP financial measures for Liberty Media, including adjusted OIBDA. The required definition and reconciliation for Liberty Media Schedule 1 can be found at the end of the earnings press release issued today, which is available on Liberty Media's website. Speaking on the call today, we have Liberty's President and CEO, Derek Chang; Chief Accounting and Principal Financial Officer, Brian Wendling, Formula One, President and CEO, Stefano Domenicali; MotoGP, CEO of Carmelo Ezpeleta, and other members of management will be available for Q&A. With that, I'll turn the call over to Derek. Derek Chang: Thank you, Shane. Good morning. We are entering the end of the year on a high note. It has been an incredibly productive period for Liberty. And we have executed on the priorities we laid out at the beginning of the year. First, on our planned split-off of Liberty Live, we currently expect to complete the split-off on December 15, and the stock is expected to begin trading as a stand-alone asset-backed equity the following day. Our shareholder vote will be on December 5. The split-off is expected to better highlight the value of our attractive position in Live Nation and an asset-backed equity that we believe will benefit from enhanced trading dynamics. Looking now at our operating businesses, we continue to invest behind their sustained growth. These aren't just sports properties, they're global entertainment brands. With this broader evolution comes expanded commercial opportunities to monetize a growing fan base with creativity and innovative leadership. Looking first at Formula One, we continue to build upon the commercial momentum we've seen all year. Just this morning, F1 renewed with their global partner, Heineken, in another multiyear deal. Underlying fundamentals are robust and support strong financial results this quarter and year-to-date despite having one fewer race. They have successfully accelerated renewal cycles across revenue streams, extending media rights agreements and renewing multiple promoter partners on attractive terms. Across sponsorship and licensing, F1 has partnered with an increasing number of high-quality consumer names, including, Hello Kitty, Pottery Barn and more as they consistently bring the sport closer to today's multidimensional fan. Additionally, F1 signed a landmark distribution partnership with Apple in the U.S. that seeks to highlight the innovation of both global lifestyle brands and position us well for the next leg of growth in the U.S. market. Stefano will provide more detail on this shortly. Next, on MotoGP, we closed the acquisition on July 3 and have been working diligently with their management team and supporting their strategic plan. We're fortunate to have the involvement of Chase Carey, Stefano Domenicali and Sean Bratches. Sean, as many of you know, previously led the commercial operations at F1. The top priorities at MotoGP as laid out last quarter remain enhancing the Grand Prix experience, expanding MotoGP's global footprint through capturing new fans and deepening engagement with existing fans and scaling our sponsorship roster. We are also in the early days in identifying areas of partnership between Formula 1 and MotoGP, some of which are more back-end in nature around sharing best practices and some of which we believe will drive commercial upside in the future. We are developing our long-term plans for MotoGP's broader monetization opportunities, many of which will build upon growth initiatives already underway prior to Liberty's ownership. Their adjusted OIBDA performance year-to-date reflects elevated costs as these investments are already being made with the associated revenue growth to come. We don't expect a material change in the investment cycle ahead, but we do anticipate continued growth in the cost base as they scale efforts to build commercial functions, enhance sponsorship capabilities and more. We look forward to continuing to update you on our progress, and we'll have more to share on behalf of Liberty and our portfolio of companies at our Investor Day on November 20, just before the Las Vegas Grand Prix. Before turning it to Brian, I want to also recognize and thank John Malone. I'm sure you all saw our press release last week, noting that John will be stepping down from the Liberty Media Board and assuming the role of Chairman Emeritus and Dob Bennett, Liberty's long-time Board member and former CEO, will be named Chairman. On behalf of Dob and myself as well as the entire Liberty Board and management team, it has been a privilege working with and learning from John for over 3 decades of partnership. His indelible influence on the industry, our company and us personally goes without saying. And I'm sure I speak on behalf of all of you in saying that we look forward to having John for our annual Q&A at Liberty's Investor Day in a few weeks. Now I'll turn it over to Brian for more on Liberty's financial results. Brian Wendling: Thank you, Derek, and good morning, everyone. At quarter end, Formula One Group had attributed cash and liquid investments of $1.3 billion, which includes $571 million of cash at Formula One, $176 million of cash at MotoGP and $78 million of cash at Quint. Total Formula One Group attributed principal amount of debt was $5.1 billion at quarter end, which includes $3.4 billion of debt at F1, $1.2 billion of debt at MotoGP, which leaves $523 million at the corporate level. F1's $500 million revolver and MotoGP's EUR 100 million revolver both remain undrawn at quarter end. We refinanced MotoGP's debt in August, shortly after closing. We priced approximately $230 million of new Term Loan A denominated in U.S. dollars, a new EUR 800 million Term Loan B and a new $100 million multicurrency revolver, all at reduced rates. with future reductions in margin expected as the business delevers. This new capital structure reduces interest expense, extends our maturities and presents a currency mix that better reflects the euro and U.S. dollar exposure of the business. In F1, we obtained an incremental $850 million Term Loan B and an incremental $150 million Term Loan A in July to fund a portion of the MotoGP acquisition. At quarter end, F1 OpCo net leverage was 3.0x, down from the initial 3.3x we gave as of 6/30 pro forma for the MotoGP acquisition. F1's covenant leverage was below the threshold of 3.75x to trigger a permanent reduction in the Term Loan B margin to SOFR plus 175 basis points. Interest will begin accruing at the lower rate promptly after earnings. MotoGP net leverage was 5.6x. In the near term, we very much expect to delever at both Formula 1 and MotoGP. Turning to the F1 business. I'll make a few brief remarks on the third quarter, but we'll focus on the year-to-date comparisons. A reminder that every quarter in 2025, luckily we will have incomparable race count and mix, which will impact quarterly comparisons. And our year-to-date 9/30 figures also have an inconsistent year-over-year race numbers and mix. The majority of the variability in Q3 year-over-year results is due to fewer race held in the third quarter compared to the prior year period. Q3 '25 held 6 races compared to 7 races in Q3 '24 with Singapore being included in the prior year, but not in the current period. Year-to-date through the third quarter, F1 also had one fewer race with Singapore included in the prior year period, but not in the current period. Despite one less race, the business is performing incredibly well with revenue up 9% and adjusted OIBDA up 15% and growth across all revenue streams. Sponsorship revenue continues to benefit from new partners and underlying growth in renewals in existing contracts. Media rights revenue increased due to underlying growth in contracts, strong revenue growth at F1 TV and the onetime benefit of the F1 movie revenue in the second quarter. Race promotion revenue was down slightly as underlying growth in contracts nearly covered the impact of one fewer race in the period. Other revenue grew driven by higher hospitality revenue, including from Grand Prix Plaza licensing revenue and increased freight. Note that we operated the same number of Paddock Clubs in both current and prior year periods, given that the Singapore Paddock Club is operated by the local promoter. Adjusted OIBDA increased on a year-to-date basis as revenue growth continues to outpace increased expenses. Team payments were flat year-to-date as the impact of 1 fewer race was offset by expected higher team payments for the full year. Team payments as a percentage of pre-team share adjusted OIBDA were 61.5% for the full year 2024 as a reminder, and we continue to expect leverage against that 2024 percentage for the full year of 2025. A reminder that team payments are best analyzed on a full year basis due to quarterly fluctuations in the team payments as a percent of adjusted OIBDA. Turning now quickly to the MotoGP's results. As a reminder, we closed the MotoGP acquisition on July 3 and began consolidating their results effective 7/1/25. Our financial results are presented on a pro forma basis in the release and in MD&A as though the transaction occurred on January 1, 2024, and a trending schedule will be posted to our website after the 10-Q is filed, including the results in U.S. GAAP for the full year 2024 on a pro forma basis. Also note that our U.S. GAAP reported results for Moto GP's revenue streams are more aligned to our current F1 reporting with previously disclosed MotoGP commercial revenue updated to include only sponsorship with hospitality being moved into other revenue. Majority of MotoGP's revenue and costs are euro-denominated and as such, are subject to translational impacts from foreign currency movements. In the following discussion of results, I'm going to focus on constant currency results. Similar to F1, I'll make brief remarks on the third quarter, but focus on year-to-date comparisons as we believe that is the most appropriate way to analyze the business. Year-over-year comparisons are impacted by the mix of races and generally, MotoGP flyaway races carry higher costs, including freight, travel and team fees. MotoGP held 7 races in the third quarter of both this year and the prior year. Revenue declined in the third quarter as increased race promotion fees due to race mix and contractual uplifts was offset primarily by lower proportionate recognition of season-based income with revenue from 7 out of 20 races recognized last year versus 7 out of 22 recognized this year. Year-to-date, MotoGP held 17 races compared to 15 races through the same period last year. Revenue grew across race promotion and media rights, primarily due to the additional events held and contractual fee increases. Sponsorship was relatively flat as contractual uplifts were offset by the impact of race mix on certain sponsorship revenues. Other revenue also increased from growth in World Superbike fees and an increase in hospitality revenue. Adjusted OIBDA declined year-to-date as the revenue increase was more than offset by higher cost of motorsport revenue due to mix of races, which drove increased freight and travel expenses as well as an increased SG&A due to higher personnel costs with strategic headcount increases to grow certain commercial functions, as Derek mentioned. Year-to-date results were also impacted by 2024 benefiting from a bad debt reversal early in the year. Looking briefly at Corporate and Other results year-to-date, revenue was $266 million, which includes Quint results and approximately $19 million of rental income related to the Las Vegas Grand Prix Plaza. Corporate and other adjusted OIBDA loss was $7 million and includes Grand Prix Plaza rental income, Quint results and corporate expenses. As a reminder, Quint's business is seasonal with the largest and most profitable events taking place in Q2 and Q4. And note that Quint's intergroup revenue from MotoGP beginning in July is now eliminated within our consolidated results. Turning to Liberty Live Group. There's attributed cash of $297 million. And on September 12, the Liberty Live Nation or Live Nation margin loan was amended to extend the maturity date from '26 to '28 and reduce the spread from 2% to 1.875%. $400 million of the margin loan capacity is undrawn at quarter end. And as of November 4, the value of the Live Nation stock held at Liberty Live Group was $10.5 billion, and we have $1.15 billion in principal amount of debt against these holdings. Liberty Formula 1 and MotoGP are all in compliance with their debt covenants at quarter end. And with that, I will turn it over to Stefano to discuss Formula One. Stefano Domenicali: Thanks, Brian. What an incredible season we are wrapping up at Formula One with thrilling on track action and all teams scoring points. 9 drivers from 7 different teams have stood on the podium, highlighting our depth of talent in one of the most competitive season of the recent time. McLaren claimed the Constructor championship in Singapore, and we are watching the continuing battle for the driver championship as we head into the final stretch of the season. Our global fan base continued to grow with exceptional engagement across the board. We have seen 5.8 million attendees throughout Mexico, up 4% relative to last year 2024 record at this time. Since summer break, Monza welcomed around 370,000 fans over its race weekend, while Austin and Mexico each welcomed over 400,000 fans. We are also seeing record percentage of female and under 35 attendees, reflecting the growing and broadening appeal of F1 events. The Paddock Club have serviced nearly 36,000 race day guests through the end of the third quarter, up 8% from same point last year. The Paddock Club remains sold out for the remainder of the season and early partners request for 2026 already signaled robust demands ahead. Given the consistent sell-out trends at many races, we are looking to add structure in partnership with promoters to increase capacity in some markets in 2026 to accommodate pent-up demand. Engagement and reach across this platform remain robust. We had a strong first half of the season with cumulative viewership up 10% year-over-year across broadcast and digital platforms and performance remained excellent into the third quarter. Nearly all races recorded year-over-year live viewership growth in F1's top 15 markets. The Sprint race format continues to draw fans with each Sprint season showing year-over-year viewership growth. Viewership for YouTube by Lights increased over 20% as of the third quarter, and the majority of the audience is under 35. F1 is still the fastest-growing major sport on social fueled by both an exciting on-track season and increased cultural relevance globally, highlighted this quarterly with buzz around the F1 movie. Social media followers are up nearly 20% of the third quarter to 111 million with notable growth on TikTok. Following the F1 movie, we were thrilled to announce that we are deepening our partnership with Apple as F1 news U.S. broadcaster distributor in a 5-year deal beginning in 2026. This is a partnership between 2 iconic global brands with a shared passion for innovation, entertainment and technological excellence as well as a very aligned customer demographic. We are working with Apple on an ambition plan to elevate how the sport is presented to U.S. fans through innovation on the broadcast feed amplified across their vast ecosystem of products and services, whether streaming the race itself or showcasing content on Apple News, Apple Sport, Apple Music, Apple Match, Apple Fitness and more. As shown by the success of the Apple movie, Apple marketing and activation power, coupled with its integrated ecosystem can have a significant multiplier effect on brand awareness. We look forward to sharing more with Apple in the coming months. Turning to other commercial updates. We continue to see competition for our exclusive rights and IP across revenue streams. We had another active quarter of media rights negotiations. We recently announced that Grupo Televisa has become our official broadcast partner in Mexico throughout 2028, and we are close to finalizing the remaining agreements required for territories where rights expire at the end of the season, including Japan, Latin America and Pan Asia. We are constantly innovating across both content and distribution to keep the fan engagement. F1 TV is a strategic cornerstone, not only for the flexible and dynamic ways we can distribute race content, but also the direct access it gives us to fan data and insight. We recently announced a new show, Passenger Princess, which aired on YouTube. The first episode featured George Russell and reached 1.5 million views within 1 week of release. This underscore our original content strategy, embedding F1 deeper into pop culture, reaching new audiences beyond race weekend and strengthening our always-on approach to connect with fans. Turning to race promotion agreement. F1 has an active quarter. We renewed Azerbaijan 2030, Monaco through 2035 and Austin through 2034. We are counting down to another unforgettable Las Vegas Grand Prix and are very pleased with the progress we have made this year. Congrats to the Vegas leadership team on the momentum. With a couple of weeks to go, we are pleased to say we are on track with our ticket sales targets. We have a full week of programming across Las Vegas kicking off on Wednesday and culminating on Saturday night with a very special 2 hours [ pre-greet ] show and post race entertainment. On F1 sponsorship, we are finalizing out an incredible strong year with sustained momentum and visibility into our 2026 pipeline and beyond. We continue to roll out new dimension of our partnership with LVMH, including French Bloom and Volcan Tequila. Closer integration between our F1 Global and Vegas Sponsorship team is also benefiting their commercial momentum with strength in Vegas sponsorship coming from both renewal as well as new logos partnering this year. The growth across our other revenue stream is equally impressive, especially in licensing as we continue scaling up our partnership announced early this year. We have also renewed Momentum Group until 2030 to run the F1 authentic website and supply F1 official licensing show cars. We recently announced partnership with Disney, Pottery Barn Teens, Pottery Barn Kids and Hello Kitty, all of which should be a long tail benefit into next year. The announcement of our Hello Kitty and F1 Academy product collaboration reached an outstanding 3.7 million fans over the 3-day announcement period and increased our F1 Academy social media followers by 5,000 across all platforms on the day of our announcement. [ Tracks ] retail sales have grown over 20% through the third quarter. Looking ahead, we aim to continue growing our retail footprint of the track in key races location. We opened a pop-up F1 hub store during race weekend in both Miami and Austin as well as our store activation, where we celebrated F1 75 through historic and new merchandise lines. Strong sales and traffic reinforces the untapped opportunity in fan merchandising in these key location. Formula One momentum continued to span every part of our business. We have built a powerful platform that has enjoyed tremendous growth, and we are increasingly confident in the continued upside ahead. We believe the groundwork we are laying today will continue to benefit our partners, shareholders and most importantly, our fans. I look forward to providing more details on our sports and growth momentum at Liberty's Investor Day and the F1 Business Summit in a few weeks. So for the moment, avanti tutta, full speed ahead. And now I will turn the call to Carmelo to discuss MotoGP. Carmelo Ezpeleta: Good morning, and thank you, Stefano. We are 4 months into our partnership with Liberty Media and are proud to be working together to drive MotoGP forward for the benefit of our fans and partners. We continue to see many ways that we can benefit from Liberty and Formula One's expertise. and have started collaboration on ways to work together. We look forward to sharing more of our strategy at Liberty's Investor Day later this month. The 2025 MotoGP season continues to deliver exciting moments on track. Congratulations to Marc Marquez who secured his seventh MotoGP World Championship at the Japanese Grand Prix, capping a remarkable multiyear comeback from injury and securing his place in MotoGP history. Despite Marquez dominance this year, we have had 13 different riders on the podium across 10 teams and all 5 manufacturers. And in Moto2 and Moto3, we are seeing some of the tightest racing in all motorsport from tomorrow's MotoGP stars. We continue to welcome record crowds across the calendar. This year, we set attendance record at 8 different [indiscernible]. Attendance is up to 4% through Malaysia, and we expect another sold-out crowd in Malaysia next week. We are building on the momentum from last year, brand refresh and our early investments are already yielding success. Social engagement is up to nearly 120% through the third quarter, excluding video pass across our digital platforms has increased over 30% year-over-year, and our social reach has grown nearly 30% year-over-year, driven by TikTok. We look forward to hosting our second season launch event next year in Kuala Lumpur, which is another opportunity to provide content for fans outside of race weekend. Average audience tuning into our broadcast grew 17% through the third quarter, and we are seeing great viewership numbers from the Saturday sprint races, which are closing the gap to Sunday race coverage and demonstrating the value for MotoGP partner across the full race weekend. Subscribers to Video Pass, our direct-to-consumer video services are up 6% from 2024. We have had positive renewals of a number of promoter relationship this year, including Japan through 2030 and Catalonia, Valencia, France, Germany and San Marino through 2031. Early this summer, we announced our 2026 calendar, which we will see MotoGP Race in Brazil for the first time since 1989 and a return to Buenos Aires in 2027. This will both be fantastic location for MotoGP in important growth markets in South America as we work towards optimizing both our circuits and race calendar. We are making investment to support our commercial activities with the goal of expanding our exposure to a wider global audience while maintaining the sport heritage. We have renewed our broadcast agreement with SuperSport. Additionally, we have seen a resulted to a multiyear partnership as the official lubricant supplier of Moto2 and Moto3 and successfully renewed our LIQUI MOLY partnership. Sponsorship remains a large growth opportunity for us, but we expect that it will take time to build our pipeline. We look forward to continuing to update the investor community on our progress. Now I will turn the call back over to Derek. Derek Chang: Thank you, Brian, Stefano and Carmelo. For those of you on the call, we look forward to seeing you in a few weeks at this year's Liberty Media Investor Day. We will be hosting our Investor Day alongside the F1 Business Summit in Las Vegas on Thursday, November 20, in advance of the Grand Prix. We hope to see you there. We will have limited in-person attendance for the Investor Day, but all presentations will be webcast. Tickets are available for purchase for the F1 Business Summit. Please check out their website and e-mail our IR team once purchased, so we can confirm their attendance. Before we open for Q&A, I want to take a moment to recognize Shane Kleinstein, our Head of Investor Relations, on her last earnings call with us. She has been instrumental in our Investor Relations and broader communications functions at Liberty and has left an indelible mark on our company. On behalf of the entire Liberty Media team, thank you, Shane, and we wish you the best in your future endeavors. We will have a new Head of Investor Relations joining us and look forward to sharing that update in the future. In the meantime, we encourage you to please continue to reach out to the rest of the IR team, our e-mail investor@libertymedia.com with questions. We appreciate your continued interest in Liberty Media. And with that, we'll open the call up for Q&A. Operator? Operator: [Operator Instructions] The first question today comes from the line of David Karnovsky with JPMorgan. David Karnovsky: Maybe for Derek and Stefano, on the U.S. rights agreement, I think the dollar figures are fairly straightforward, but I wanted to see if you could speak a bit to how you're looking at this agreement specifically from an engagement perspective and how investors should perceive any risk regarding a move away from linear or ESPN? And what gives you comfort that you can continue to grow the U.S. media audience? Derek Chang: Stefano, do you want to take that? Stefano Domenicali: Yes, of course. Thanks, David, for the question. I mean I think that, as you know, U.S. market is very, very important for our growth. And the fact that we have done an incredible deal with Apple, it's because we do believe that all the elements that will be important for this kind of growth are there. We know that we can count on an incredible brand that is not a brand, it's a social relevant brand. And because our -- the nature of our fans is young, it's dynamic, it's multitasking. I think that the decision was the right one. And in terms of engagement, we are totally committed to make sure that all the content, all the platforms that are through the Apple ecosystem can be provided. We're going to increase even more the ratio we have today. So therefore, as always, when you take a decision on the business side, you put balance risk versus opportunity. And I think on that, it was pretty clear that the risks were minor and the opportunities are huge. Therefore, we are really looking forward to embrace new chapter with them because we know them, we know they can be very progressive in proposing new things that will be very, very important to make sure that the things that I said before, David, on social relevancy of our sport will increase and will go. And of course, this is a multiyear deal because we know that we need to be resilient on this approach. And that's why we are totally convinced that this is an incredible partnership that will be stronger and stronger in the future. Derek Chang: Yes. Thanks, Stefano. I think I would add that the way we look at it now, and I think a lot of folks are looking at it this way is sort of the definition of reach, which historically has really revolved around sort of the broadcast window on television. And I think that's, in our minds, is an antiquated definition of reach at this point in the way a company like Apple and a partner like Apple can touch many different demographics in many different ways. And so I think that's an important thing to understand in terms of how we're thinking about it. I think Stefano's other point about this being a longer-term deal is important because when you're thinking about a company like Apple and the way that they invest behind the product. It's not like the product in the fifth year is going to look much different, I guarantee you, than what you see in the first year. And that's going to be through years of investment in what they do. And I think we are at a great sort of point in time in the U.S. with the races that we've had here with the support that we've received and the new fans that we brought in with the new sponsors we brought in to really take all of this and sort of move it forward in a whole different way with a partner like Apple. And I think we'll see the fruits of this over the next several years. David Karnovsky: Maybe just as a follow-on, it would seem to us that with Apple TV, you have an agreement now with a partner that has reach across most of your territories, and they have rights to the F1 movie. And logically, they could be a bidder in more regions. So I just wanted to get your view on that and whether that global factor was something you considered in your decision to partner here. Derek Chang: Yes, I think it's important -- Go ahead, Stefano, I'll let you start. Stefano Domenicali: Sorry for that. Well, I think that what I can say is that, as you know, we are a worldwide sport where the fragmentation of different deals is crucial to be in the right market with the right partner. And what I can say straightaway is that the fact that we signed with Apple immediately has been a sort of a wake-up call from the actual partners around the world to say, hey, we want to stay with you, we want to invest. So what's next? I think that vitally, it's great because it will attract the fact that Apple is a global partnership. And for sure, if we have countries where we can see different kind of potential where we can work together, we will discuss with Apple, too. But this doesn't mean that we will cover the entire world with only one Apple deal because we do believe that at this time, we are much stronger the way we have structured all our deal around the world on the broadcast side. But for sure, the effect of having said the deal with Apple has been already big around the world. Derek Chang: Yes. And I would add, just in all of these markets globally, you almost have to still take it market by market. The dynamics within these markets have been shifting. And in some places, you have new entrants in other places, there's consolidation and sort of depending on when your deals turn out, those competitive dynamics can come into play. And I think having someone like Apple, and we're in early discussions or early stages of this relationship. And so where their interest is in other locations globally, I think we will see over time. But I think we all understand on the call that any time you have a more competitive environment, you're better off. So we'll leave it there. Operator: The next question is from the line of Bryan Kraft with Deutsche Bank. Bryan Kraft: I had 2, if I could. I guess, first on Vegas, it sounds like you're on track for your budgeted ticket sales for Vegas. I was wondering about the cost side. Can you talk about how you're tracking your cost budget for the event? And then separately, just on U.S. media rights, -- should we expect to see a meaningful step-up in media rights revenue in the U.S. next year when taking into account both the Apple rights agreement and the loss of the F1 TV subscription revenue given that Apple will be taking that over in the U.S. Stefano Domenicali: If I may start, Derek, Yes. Thanks, Bryan, for the question. I mean, first of all, Vegas, Vegas is one of our priority. As I said, ticket sales are on target. But you correctly take one point that for sure, what we have experienced was a big attention on the cost side of the organization. And after the first years, I would say that we are on track in minimizing in the right way the cost because at the beginning, you try to cover a new investment in the right way. And now with all the new partners and the fact that we have renewed for big deals for the next couple of years, we are definitely on track also in controlling the cost of it. I have to say that we have seen a big shift on the community perceive on what Vegas race represent for them. Therefore, working together with them, I think, is beneficial and has already an impact this year with regard to the fact that the cost will be reduced definitely. And this will have, of course, a positive impact at the end on the P&L of the race. Of course, as you know, we are working very hard to make sure that the event will be great, as always has been. We have, as you know, shipped the starting time of the race at 8:00 p.m. on Saturday night. And this is, for sure, very, very important, the fact that the community is really embracing, as I said before, this event. So cost is definitely one lever that we want to make under the control of it, and we are on track also on that. Then with regard to the second question, you asked me, you're right, if we can expect more money. As you know, we cannot give any guidance on that. But I would say what is important to say it's the F1 subscription on F1 TV is a great asset also for Apple. We have a great community that will connect through the Apple platform with our popular F1 TV. So I don't expect that this will have a negative effect. Actually, it will be the opposite because I think that this community is quite solid and the fact that we'll be embraced on Apple platform will increase the value globally for the future of both of them together. Derek Chang: Yes. And I just want to say to our team in Vegas who've done a fantastic job, and these guys are in the last few weeks of bringing this thing home that we are all feeling good about Vegas this year. But I think more importantly, almost is what Stefano was saying about our relationship with folks in the market. and really that we're looking at this as a long-term sort of investment. And I think after coming out of the first 2 years and sort of coming -- as I've seen these guys and interacted with the folks in Vegas, the sort of vibe around the race and where this thing can be longer term continues to be something where we see a considerable amount of opportunity. And I think that's probably the biggest point, the biggest takeaway over the first 3 years of having this race. Operator: Our next question is from the line of Kutgun Maral with Evercore ISI. Kutgun Maral: Two, if I could, around sponsorship. So first, it seems like every other day, you're inking new and attractive deals. Looking at the year-to-date team payment trends, it seems like the full year budget is tracking exactly in line relative to the first 2 quarters of the year. So should we take this to mean that these new sponsorship and maybe licensing opportunities primarily fall in 2026? Or are there other offsets that we should be mindful of? And second, I was hoping to dig into licensing a little bit more specifically. Licensing is still a relatively small contributor to the business, but it seems like the team has really focused on expanding your efforts there. So maybe you could talk about the strategy and long-term opportunity you see ahead? And are you able to accelerate the momentum next year under the new Concorde? Stefano Domenicali: Well, thanks. I mean I -- sorry, go ahead, Brian. Brian Wendling: Yes, Stefano, I was just going to start on the sponsorship and then please add color. But yes, I mean, I think the team is feeling good about where we sit with sponsorship for '26, and a lot of these are long-term agreements, multiyear agreements that accrue to the future years. So as you sign them later in the year, they're going to have less of an impact, obviously, on the current guide. Stefano Domenicali: Yes. Thanks, -- if I may add, I would say, yes, I think that you know that our strategy is not to talk a lot, but do the things. And the fact that we have shown with facts that every couple of months, we are there to be resilient in continuing the growth, this is our nature. It's our business. It's the beauty of what we have built up now as a great foundation. And the fact that not only new partners, but also partners that are part of us since many, many years are staying with us long term means we do have a credible platform. We have a credible strategy that is not diluting at all the value of them being with us, with other people, with our partners. It is getting stronger because we do believe in a cross-contamination of big partners that can enhance the value of our business and our sports. So we are really looking for the fact that we have now deals that is looking into the future. And what I'm saying is not only the dollars that count, is the awareness that we bring connectivity with new fans. The deal what we have done with LEGO, with Disney, with Hello Kitty is showing the fact that we want to have a community that will engage in long term with our platform. That's really our focus. Our focus is for sure to deliver the result that we promised to our shareholders, to the teams, to our stakeholders for sure, but we have a bigger thing ahead of us. We have a headwind that we want to keep running with it because we feel that the fundamentals are totally strong and totally valid for the next years ahead of us. Operator: Our next question is from the line of Stephen Laszczyk with Goldman Sachs. Stephen Laszczyk: Maybe another one on the global media rights opportunity for F1. I'm just curious, as you look out across the globe, where you see the most opportunity up next in terms of increasing monetization? What contracts, what regions, what types of partners do you feel like you could bring in to increase the value either on a monetary basis or along the lines of the holistic partnership where that could be improved? And then maybe secondly, on hospitality, you called out some of the strength in hospitality in the quarter, Paddock Club at F1. Just curious if you could elaborate a little bit more on the drivers of that growth, whether it's strong pricing, whether you've seen more capacity come into the system this year on the back of some race promotion renewals or if most of that is still ahead of us given the renewal calendar when some of those contracts and an expansion of the Paddock Club kick in perhaps next year? Stefano Domenicali: Thanks. I mean if I may, Derek, I will start. So we have other deals on which we are working on. So I would say stay tuned because there will be some other information going around the media deal in the future. As you know, and I don't want to undervalue what is the value for us to be a global sport. We have a global sport with global deals and the nature of the business is growing everywhere. So I think that we need to have a sort of mix situation around the world. Some of them will be linear in the future, some other will move in a different platform because what we need to do is to make sure that we see the relevancy and the opportunity monetizing as much as we can every market, but also checking what is the trend that every market is offering to us. So I think that this deal, as I said before, has had an effect of accelerating the fact that the long-term deal wants to be even be longer with the part that we have. So it's up to us to make sure that we need to do the right choices for the future, but the dynamic in this stream of revenue will be very important in the future. And even if some of the people will say that the shift between linear or pay TV versus digital will have a sort of drop in dollars optimization, I do believe that the nature of the business that is global will cover that for us in the future because the competition is very high in the different platform. Then with regard to the hospitality, I think that the reason why we feel confident in the future, this is another asset that despite a long-term deal with a lot of partners, some can say where is the gain that you can have with them. Actually, it's the other way around. because we know that the hospitality hand side is a limitating factor in terms of capacity for us. And the only way that we can have with the promoters to make sure that also this asset will be even stronger is to give them the chance to invest long term. Therefore, that's the strategy we're going to do in a lot of markets because we don't have to forget that we want to increase the quantity of availability, but we cannot lose the quality approach of what we are offering to our customers. And this is not negotiable. We have some examples this year, look what Hungary did in terms of renovation of the infrastructure, what they're going to still doing in the future. And this has an effect that, for example, you have seen what will happen in Austin in terms of new facilities that will be beneficial to our hospitality plan. So everything has an effect in a constructive way with everyone that is part of our ecosystem. Derek Chang: Yes. I would also just point you to Stefano's previous comments on that we've done -- we just recently announced a deal with renewal Televisa in Mexico. We previously announced the deal with Globo in Brazil. And as he said, there's a couple more deals on the table that are coming on the media rights side. So I think it is shaping up to sort of be an environment going forward here. We've got the right partners in the markets that are important to us, and that will continue to drive, I think, engagement and awareness of the sport. Operator: Our next question is from the line of Joe Stauff with Susquehanna. Joseph Stauff: First question is on Vegas. I'm wondering I think in general, is it fair, number one, to assume most of the growth this year will be from the higher end? And if you can give us maybe a little bit more color on what you're seeing from the lower end? That's the first question. Second question is on MotoGP and race renewals. I guess since Liberty did for Moto, where our count is that there's been approximately 9 renewals. I think there -- I guess it's more of a clarification, another 6 to 7 to go that expire at the end of '26. Shane Kleinstein: Joe, I think we got your second one, but we missed your first. So why don't we have Carlos take the second? And then if you could just repeat your first question after, please. Carlos Ezpeleta: Yes, we have seen a lot of traction on a number of fronts since the announcement of Liberty Media. One of those has definitely been promoters where we see a lot of interest, of course, with a limited number of races. And we do see a lot of increases in the renewals. The total number was higher than that actually, but a number of those have already been renewed. We still have 8 events to be renewed for the 2027 season and 8 of which have already been renewed or announced in the past 12 months. And we continue to see a lot of interest from both new locations, but also interest in expanding the current events in Europe and outside with increases. Joseph Stauff: Understood. I'll repeat my first question. I apologize for the background noise. In Vegas, is it fair to assume most of the growth you'll see this year is coming largely from the higher end? And just wondering if you could comment on what demand looks like VA or the lower end of demand. Stefano Domenicali: Thanks, Joe. I mean I can say 2 things that are relevant to the fact that this year, we do believe that everything is on track and what we wanted to have another successful season. First of all, there has been a big change on the pricing and how we position our tickets during the year. What has happened is factual in the past has been the last couple of weeks a drop in pricing. But what we have done this year is exactly the opposite. We were announcing a great different packages offer with the fact that we were explaining to everyone that has been that our strategy was different. Therefore, do not expect to see prices going down because this will not happen. It actually is actually not happening. The other thing is it's -- of course, the demand is very strong, much stronger in all the areas. We have also created packages for GA to allow even the community to be closer to the event. And this is something that is hand-on-hand with the fact that we also have a ticket -- daily ticket that has been in the package. And of course, this is -- we said since the first day coming in Vegas. we had to learn the lesson of being in a community that is new -- was new for F1. Therefore, I think that the incredible job that Emily and her team is doing is taking the experience that has been done in the first years in order to progress in all the dimensions of this business. That will be -- I don't want to say something that people will not believe me, a great success because Vegas is understanding the value of our business there, too. And this is very, very important also for them. Operator: The next question is from the line of Peter Supino with Wolfe Research. Peter Supino: Shane thank you, and best of luck, you'll be missed. I wanted to ask about operating leverage generally and the Concorde agreement specifically. I think your last comment on the Concorde agreement in '26 is that it provides for modest operating leverage, assuming the business is on track. And I wonder if you could give a perspective on refresh that and then talk about the possibilities beyond 2026. Brian Wendling: Yes, Stefano, I can start with that and feel free to add any color. But yes, with the new agreement, we would expect some modest leverage. We can't really say much more than that into 2026 and similar to what you've seen over the last few years. And then beyond that time, the percentage we would expect to be fixed and then you'd hope to see leverage in the underlying base business. Stefano Domenicali: Yes. I mean, Brian, you are very clear. And I would say, for me, what we can add is really the fact that we can see a great stability in the sport in the future with regard to the governance to the fact that we are solid looking into the next 5 years in a condition where we really think that everything will be done, understanding that the team are part of the growth. And their financial strength is the strength of the business. And this is very, very important to recognize that. Therefore, on everything, I do believe that now we are finalizing the details. I want to thank not only the team, but also the President of FIA, Mohammed Ben Sulayem because we are sharing a great future together that is great because in this moment, we just need to make sure that all the conditions are stable to keep growing together. Operator: The next question is from the line of Steven Cahall with Wells Fargo. Steven Cahall: First, Stefano, I just wanted to ask you on competitive balance. We've seen some good racing this year between some of the top drivers and the top teams. I think we still have about 6 out of 10 teams that don't race for podiums most weekends. And I was wondering if there's anything that you might be implementing in the next couple of years that could improve that since it can tie to future growth in the value of the sport. And then, Derek, I think you said you expect some continued growth in the cost base this year as you invest into growth strategies. I was wondering if you could just expand on what those elements are and what the return on investment for some of those things look like? Stefano Domenicali: Steven, I mean, with regard to the competitive balance, I would say we've never seen such in the last couple of years, a competition with a lot of teams that before we were not even able to score any points. I can nominate one team on top of the other is has, just to give you an example. And the gap between the cars and the driver is minimal. And therefore, I would say what we are living today is really something unique and which we are very proud of. And all the teams now due to the budget cap, due to the fact that the races are very interesting due to the fact that the business is so solid, are willing to invest and be even more stronger into the future. And this is very, very important. And we don't have to forget this is very relevant to make sure that without this kind of situation living today, Audi Honda Ford Cadillac would have come next year in our sport or even more with more investment. So as we always said, the sport is at the heart of our platform and never -- and no one has to doubt about it. You know that next year, we're going to have change in order to be cope with the fact that the technology applied to F1 has been always very relevant. We will have sustainable fuel at the center of the use of new powertrain. And it is normal to think that when there is such a big change of regulation, there could be a big difference at the beginning. But the regulation is done in a way that if this would happen, we know that there are mechanisms to make sure that the gaps can be reduced in a smaller time than normal. And therefore, this is a very important element to keep the dynamic of our sport at the center. And therefore, I think that no one -- and if you didn't have these dynamics, no one would have been interested to come in, in our sport. That's why, as I said, Steven, this is, for sure, one of the main focus that we need to keep to keep the center of our business, the sport and the racing itself. Derek Chang: Thank you, Stefano. And an exciting off the track news, Charlotte I was engaged yesterday. On the question of incremental costs, I think that was related to MotoGP. And I think we've made this comment in the past, and it's not dissimilar to sort of coming into a new business, trying to ultimately drive growth and drive revenue growth long term, but making upfront investments that will lead us to that point. I think as we've talked about previously, some of the investment in sort of expertise, personnel with the right expertise to drive the commercial side of the business, but also even revenue-generating assets, including things like the track, signage, investments into the video pass product, enhancements, all that sort of stuff is sort of ongoing and had already been ongoing prior to us closing the deal. But I'll let Dan give some more detail on that. Dan Rossomondo: Thanks, Derek, and thanks, Stephen. I think Derek hit on a few of the really key areas of investment that we have started as early as last year, focused on, one, on the marketing side of the business in terms of new hires and also on the storytelling side, how do we reach new fans -- and not only new fans, but new fans based on the geographies that they are, we have to tailor that content to them. So that is taking significant time and investment in order to reach those people. Derek also mentioned what we've done to improve the look and feel of both the racetracks, the circuits and also The Paddock. So we've done some investment there. And the last thing I would say is we continue to innovate and iterate on our digital properties, specifically video pass to try to make sure that the digital offerings we have to consumers matches the innovation that we have on track. Operator: The next question is from the line of David Joyce with Seaport Research. David Joyce: Another MotoGP question. You mentioned that new races are coming in Brazil and Argentina, but you've also had a number of other renewals. So as you go through these renewals, do they allow for some rotating races given that you're already maxed out at 22 per year given your agreement with the teams? And does that somehow impact your media rights renewals cadence? If you could provide some color on that. Derek Chang: Sure. This is Derek. Look, I think right now, we are in a position where we have either some capacity in the sense that some races come up for renewal that we may -- if we choose to go to a different location, we have that capability to go do that. So the concept of rotating races right now is probably not in the near term. And I will then -- I guess, Carlos, if you want to comment on that further, go ahead. Carlos Ezpeleta: Yes. Thank you, Derek. I would completely agree. We don't see sort of the short-term need to have rotating races. We think it's important. One of our main goals that's been sort of confirmed also in these first months of Liberty Media is one of our key priorities and targets is to invest in our events and turn our races into more and more of entertainment events globally. And a part of that is, of course, improving the events itself and where possible, also the event locations. We have Brazil coming in already in 5 months from now after more than 25 years and Buenos Aires, which will be another city where we race that. So all these events are a key focus for us in entering new markets. We do see that we still have capacity to bring in new events probably outside Europe, and there's no need to sort of rotate on current events in the short term. We don't see this impacting our media rights at all. We continue to have 22 events. All 22 events have sprints, and that's been a part of the investment of making these events more of entertainment events, having more action, more notorious action on track around the whole weekend. And that's something that we've also leveraged together with other assets to be able to increase on our media audiences. So we don't see that the race mix will affect our media rights. Derek Chang: The whole concept here is to improve sort of the quality of the product across the board, including where we have races, who our local promoter partners are that help us drive promotion of the sport and all that, which will ultimately lead to deeper and broader engagement, which in theory will drive media coverage and media rights. Operator: Next question is from the line of Ryan Gravett with UBS. Ryan Gravett: Just in terms of the upcoming split-off, does anything change in terms of your capital allocation plans or priorities at Formula One Group? And along those lines, any expected changes to operations or the commercial relationship between Quint and Formula One after the split occurs? Derek Chang: I'll take that. So that would be probably no on both, and we'll leave it there. Ryan Gravett: Okay. Fair. Just maybe just a follow-up on MotoGP then in terms of the hospitality offering for that business. I was wondering if you could talk to the opportunity there and when some of the benefits of the integration could start to materialize? Derek Chang: Yes. I think we do see significant opportunity on the hospitality side of Moto. I don't know if any of you guys have been to a motor race, but it is a pretty thrilling event to attend, I think where we do see opportunity is sort of the experience at the track that goes beyond what you're watching and what you're feeling. And so just like the F1, having that opportunity to upgrade elements of that hospitality product is something our team is -- Dan and his team are very focused on and actually working with Quint on that particular dynamic. So Dan, if you want to give a little bit more color, feel free. Dan Rossomondo: Yes. Thanks, Derek. I think what he said is correct. I think we do have a lot of -- we've made some really good improvements at MotoGP in the hospitality offering from both a service and an experience standpoint. We now have to execute on a plan that is to reach both our existing consumers to get them more involved throughout the weekend and also, though, to find a new set of fan base, a new group of fans to purchase hospitality, particularly at the races where we do well but have room for capacity room. So what I would say is working with Quint, what we're trying to do is not only look at pricing, but look at the ladder, making sure that we get a good product ladder so that we can offer people things at different price points so we can upsell on experiences because what MotoGP does have is we are a hugely accessible sport. So we have the ability to package in really great experiences with our base hospitality program that I think is unique in the sports industry. So we see a good upside here. It's just going to take some execution, and we're looking forward to collaborating with Quint on that. Operator: Our last question will be coming from the line of Matthew Harrigan with Benchmark Company. Matthew Harrigan: Actually, first of all, thanks to Shane for all the classic Investor Day schedules, which I hope are going to be available on an archival basis because they were really, really great. Obviously, other people at Liberty were involved, too. I think Shane was a main architect. I think my questions are partially answered, but are you seeing all the teams be able to adequately cope with the new 26 engine regs? And do you see anything commercial and tangible coming out of the Saudi Aramco Synfuels venture? I know you touched on those questions to some extent, but if you could amplify a little more, that would be great. Stefano Domenicali: I definitely think so. I definitely think so. I think the fact that on The Paddock, everyone believes that it's faster than the other means that there are so many variables that everyone believe to have the secret recipe of being more competitive. I do believe that, of course, the level of technology that is needed in terms of knowledge is not only on the power unit. We forget that it's a new car. We forget that it's a total different dynamic on how you have to drive your car is a dynamic aerodynamics. It's a different way to manage the tires. It's a different way to manage the energy. It's a different way for the drivers to drive with the new regulation. So everyone is really focused on. And the beauty of that, that we have still teams that are fighting for points that are -- will be converted in dollars at the end of this season for the championship. So there are still some developing during these -- the last couple of races because no one wants to give up. So it's all fascinating. I think that really all the elements of adventure are there and which we should be very, very proud. Derek Chang: Great. Thank you, Stefano. I think with that, we're going to wrap it up. Again, thank you, Shane, for all of your great work over the years. We look forward to seeing where you go next. Stefano Domenicali: Thank you Shane, from the F1 side. altogether, one family. Derek Chang: Thanks, Stefano. With that, we'll wrap it up. And again, just finally, Investor Day on the 20th, followed by the F1 Business Summit in Vegas for those of you who can make it. See you there. Operator: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.
Henrik Andersen: Good morning, and welcome to Vestas' Q3 reporting and also closing and looking forward to close a very solid year 2025. I'll also take here the opportunity to extend a big thank you to our customers, colleagues and not least our external stakeholders, great support and commitment through the current environment through the first current 9 months of the year to the execution we are talking and going to talk much more about, today. So with that, could I go here to the key highlights. So, key highlights, revenue of EUR 5.3 billion. That's an increase of 3% year-on-year driven by higher deliveries, despite negative foreign exchange development. When we look at the EBIT margin of 7.8%, earnings achieved through improved Onshore project execution, lower warranty costs, partly offset by our manufacturing ramp-up, which is continuing, but also progressing well. When we look at the order intake of 4.6 gigawatts, up 4% year-on-year, driven by U.S. and Germany and Onshore is up more than 60% quarter-on-quarter comparison to last year. When we look at the manufacturing ramp-up, the driver cost and also investments the Onshore and Offshore ramp-up is progressing as we focused on delivering a very busy fourth quarter but also as importantly, getting a strong start of 2026. By this, we also decided to return value to our shareholders, I think, most importantly, in line with our capital structure strategy and also solid liquidity position, a share buyback of EUR 150 million will be initiated and will be starting as of tomorrow morning. And then on the outlook, we narrowed the outlook in terms of turnover EBIT, reflecting the lower Service EBIT, but also the stronger Onshore execution. With that, I will talk about the market environment we are in. And again here, wind energy is key to affordability, security and sustainability. That is our narrative and we can see it actually working in across many of our markets, as you've also seen in our order intake and not least also in our delivery table. When we look at our global environment, no doubt, inflation, raw materials and transport costs are stable, but tariffs will increase cost over time for the end user. When we look at the ongoing geopolitical and trade volatility leading to a regularization. We have spoken about that in now many of the previous quarters, and I will almost say the previous years. And we are seeing it's continuing, and we are dealing and planning and executing well in it. When we look at the market environment, there is a heightening focus on energy security and affordability across many of our main markets. The grid investment is prioritized in our key markets and we can see it's progressing in a number of markets, but also probably have status quo in the numbers of others. On the permitting side, it is improving in some markets, but overall permitting auctions and market design is still challenging. Maybe here is the perfect place also to just express a bit of a concern with Europe's continuing introduction of rules like CSRD, CBAM and others, while the rest of the world are after competitiveness. However, when we then look at the project level, I will say, Vestas, we see a strong project execution in the quarter and also year-to-date. We see some regional disruptions from time to time, but we are coping very well with it. And of course, that's then leading to the result we are also seeing in Power Solutions today, which I'm sure Jakob will talk us much more in details about. When we look at the Power Solutions in Q3 2025, strong quarter across all key markets. So, when we look at the Q3 order intake of 4.6 gigawatt, that's up 4% compared to the last year. The increase was mainly driven by strong order intake in the Americas, especially in the U.S. as well as continued positive momentum in EMEA, especially in Germany. There are no Offshore orders in Q3, so it is a clean Onshore order intake quarter. The ASP declined to EUR 1.01 million per megawatt in Q3 compared to EUR 1.11 million per megawatt in the prior quarter. The decline was driven by a change in the order mix with higher share of supply-only orders in the U.S. Generally, we are very pleased with the positive continuing price and price discipline we are showing and our customers' support and understands it. When we look at the order backlog in Power Solutions, it increased to EUR 31.6 billion. That's up EUR 3.3 billion compared to 1 year ago as our energy solutions continue to have good traction with customers across our core markets. And you can see more of the details in the chart to the right. With that, on to Service. So, Service outlook revised and also the recovery plan is progressing as we go through and we are now three quarters in. So, the Service order backlog increased to EUR 36.6 billion from EUR 35.1 billion a year ago, despite EUR 1.5 billion headwind from foreign exchange rate movements year-to-date. When we see a Service, it reached 159 gigawatt under Service. It's flat compared to Q2, as additions were offset by a higher level of expiries and also deselecting in the quarter as the commercial reset continues. This is some of the consequences we have spoken about in the previous quarters as part of our Service turnaround. And I think we can now start seeing that some of it also shows at least in the Service under -- the gigawatt under Service as such. When we look at the Service recovery plan, which runs until the end of 2026, it's progressing, and we are seeing early signs of operational improvements and also a reduction especially in our overdue work orders and the backlog of the same. That's very healthy, and it's very positive to see. And of course, we will continue working with that, and we look forward to talk more in details over the coming days. However, earnings in Service are also affected by foreign exchange rate headwinds as well as some costs related to some specific Offshore sites, which has led to a revision of the 2025 outlook of Service. You will see here to the right, the breakdown of the Service order backlog, EUR 36.6 billion overall, of which EUR 31 billion is Onshore, 159 gigawatts under active Service contracts and then an average duration of 11 years. You will see the breakdown on the regions below. And as you will also not surprisingly see in Asia Pacific, if you don't have new order intake, it also is limited to how much you grow gigawatt under Service. With that, take you through development. Development, not a lot, so I'll have that pretty quickly. Discipline, the same. We also focus very much about finding projects and advancing projects. But as you can also see, the environment right now is a lot of focus on in the key markets to progress projects, and we haven't really progressed anything in Q3. So, I'm pretty sure from a performance point of view, they also feel that for Q4. In Q3 2025, we had a pipeline of development projects that were stable around 27 gigawatts with Australia, U.S., Spain and Brazil, holding the largest opportunities. Strategic focus is on maturing and growing a quality project pipeline as well as conversion of mature projects in project sales and related turbine order intake. You can see the regional breakdown below. And I'll go to sustainability. In Q3, Vestas is the most sustainable energy company in the world, and we keep having that focus also with our customers and stakeholders. When we look at the turbines produced and shipped in the last 12 months, they are expected to avoid 461 million tonnes of greenhouse gas emissions over the course of their lifetime. You will see that here to the right. And of course, as we are ramping up, we expect that to continue increasing. The carbon emission from our own operations over the last 12 months increased by less than 1%, which is actually a very positive achievement, because our activities are increasing. So therefore, keeping Scope 1 and 2 at the current level is a testament to the focus and execution of our operations across. It is also saying when we ramp up Offshore, it is a significant change in business mix. So, there will be an upward pressure on the carbon emission, because we are using and spending more time at sea, at vessels and other transport measures. When we look at the number of recordable injuries per million working hours, that was up from 2.8 to 3.3 year-on-year. Safety remains a top priority for us as we tirelessly work to improve our safety performance across our value chain. I think also here from a personal point of view, I would say this is not good enough. When we see overall the year, we have less serious injuries and we have no fatalities that's positive. But the higher frequencies in especially Northern Europe and North America with onboarding many of our new colleagues, that also means that when we ramp-up Offshore, we see some of those frequent injuries we shouldn't see. So therefore, we have highlighted that. We talked directly to our colleagues, how do we see our colleagues and our family members remain safe on sites in this. So therefore, we are taking it extremely serious that it has not gone down, but actually gone up in the last 12 months after Q3. With that, I will hand over to the financials. Jakob, take it away. Jakob Wegge-Larsen: Thank you, Henrik, and let me take us through details. I'll just flip the slides. Let us take through the details of the income statement and the highest ever third quarter gross profit. Revenue increased 3% year-on-year, driven by growth in Power Solutions offset by slightly lower revenue in Service, primarily as a result of negative foreign exchange rate developments. Gross profit, that I just spoke to, increased to record-breaking EUR 772 million in the quarter, the highest ever in the third quarter. The record was achieved by improved profitability in Onshore, lower warranty costs, partly offset by manufacturing ramp-up costs. And EBIT margin before special items was 7.8% in the third quarter. As mentioned throughout the year, '25 is a backend-loaded year. The third quarter that we are just going out of was a strong start to a busy second half, and we expect a better balance between earnings in the third and fourth quarters compared to previous years. Diving into the segments starting with the strong performance in Power Solutions, as Henrik also alluded to. Revenue increased by 4% year-on-year, driven by higher megawatt delivered at stable average selling prices. EBIT margin before special items improved to 3.9 percentage points year-on-year to 8.1%. The improvement was driven by lower warranty provisions, continued strong onshore project profitability and importantly, execution, partly offset by costs related to the manufacturing ramp-up in our Offshore in Europe and Onshore U.S. Moving into the Service segment. Service revenue declined 3% year-on-year due to lower transactional sales compared to last year, while contract revenue was stable. Revenue growth in the quarter was affected by 3% currency headwind. Service generated EBIT of EUR 153 million, corresponding to an EBIT margin of 17%. The profit levels is in line with recent quarters, but we expect additional costs in Q4 related to some specific Offshore sites. The Service recovery plan continues and it will take time before benefits are visible in the financials. Net working capital decreased in Q3, mainly due to a reduction in inventory as a result of high project deliveries in the quarter and continued focus on working capital management. Important to notice, compared to Q3 last year, we have seen EUR 1.4 billion improvement in the net working capital. That leads us into the cash flow statement, where importantly, and what you have seen also where we say we initiated a share buyback on the back of strong cash flows and our net cash position. Our operating cash flow was EUR 840 million in the quarter, a significant improvement compared to last year. The improvement was driven by better profitability and a favorable development in net working capital, as you just saw. Adjusted free cash flow in the quarter amounted to EUR 508 million, also a substantial improvement, driven by the same reasons as mentioned in above. And then finally, we ended the quarter with a net cash position of EUR 0.5 billion. Total investments in the quarter amounted to EUR 274 million in quarter 3. The spending is primarily related to tangible investments such as transport equipment and tools as well as property plans and equipment across our turbine portfolio, such as the Offshore 15-megawatt EnVentus and our 4-megawatt platform in the U.S. Importantly, we are also very pleased to welcome more than 400 new Vestas colleagues at the Onshore blade factory in Poland, which we took over in September from LM Wind Power. The factory will deliver blades for our EnVentus platform and expand our industrial competitiveness in Europe. Looking at provisions and our lost production factor, we see signs of stabilization. The repairs of the sites mentioned in previous quarters are now largely completed. Disregarding these sites, the underlying LPF has trended down during '25. Warranty costs amounted to EUR 160 million in the quarter, corresponding to 3% of the revenue, and that is a significant improvement from the 6% we saw in Q3 last year. Warranty consumption was EUR 206 million for the quarter. The higher consumption level in the quarter is related to the above-mentioned repairs. And finally, ending on a high, we can report our best EPS and RoCE in 5 years. Net debt-to-EBITDA ended the quarter at minus 0.2x compared to 0.9x a year ago. Investment-grade rating from Moody's, we still have with a stable outlook. Earnings per share, measured on a 12-month rolling basis, improved to EUR 0.9, driven by the better profitability. Our return on capital employed, which broke the 10% barrier last quarter improved again and now to 13.6% as the earnings recovery continues. And finally, our strong financial position and improved key metrics allows us to return cash to shareholders. Thus, we are initiating a share buyback of EUR 150 million starting tomorrow. And now back to Henrik to take us through the outlook. Henrik Andersen: Thank you so much. So thank you, Jakob, and thanks very nice slide to finish with. And if we were a bit out of sync, I have to catch up with that change of your slides in the future. But we will rehearse that. When we look at the outlook, the outlook for the year, revenue narrowed EUR 18.5 billion, EUR 19.5 billion from previous EUR 18 billion to EUR 20 billion. Of course, there are some negative foreign exchange that you picked up. On the EBIT margin before special items, 5% to 6% narrowed from 4% to 7%, and Service is expected to generate an EBIT before special items of around EUR 625 million. And then total investments remained stable at EUR 1.2 billion, as we also had in our previous outlook. With that, I will just say thank you for listening in. I will pass to the operator, and we will go to the Q&A. And also in that slide, you will be able to see the financial calendar for 2026. Over to you, operator. Operator: [Operator Instructions] The first question comes from the line of Sean McLoughlin from HSBC. Sean McLoughlin: Let me just come to Offshore. The ramp looks to be progressing as expected, but you've postponed the investment in the blade plant in Poland. I wanted to understand just what is your latest view here on the market? And what is the risk that we might see in early peak of deliveries in '26 and '27 and potential underutilization thereafter? And ultimately, what would it take in your mind to kind of put that blade expansion back on track? Henrik Andersen: Thank you, Sean, and with a little bit of risk of using an expression here and throwing a good colleague under the bus. I will sort of say here, that blade factory that is so-called stopped in Poland was never built in Poland either. It's actually an old decision that was paused 18 months ago. It got interpreted a bit and probably got its own life and that I will use a bit also to say to everyone here on the call and others listening in. It seems like Offshore is getting an unreasonable bashing everywhere in the day-to-day press or among analysts. Yes, there have been headwinds and others. But from us, we don't see that. It is a piece of land we have. So if we, at some point in time, wanted to do a further capacity expansion, then it's an opportunity and option for us. And right now, we are working well. We are progressing well with our own capacity plant upgrade and that we will just wait and see. This is a dependency on what happens in the backlog when we look 4 years plus ahead that's where we will adjust capacity. Currently, we don't see any reason for raising the question or question too, if we need to adjust capacity downwards. That's for sure, Sean. So, we are ramping up. And therefore, in a call like this, start talking about capacity downwards. That's not -- we have a backlog of more than EUR 10 billion of projects and we will be throughout this year, next year and into '27 reach what we will call a more stable full capacity utilization. Sean McLoughlin: And if I could just follow up on Offshore is looking at the moving parts for you effectively not lifting the midpoint of the guidance after the strong Q3 surprise? I mean, is Offshore a component of that? Or is that really driven by Service? Henrik Andersen: I don't -- as I said here, if we look at the midpoint here, you can sort of see if you have three quarters now, you can see we struggled to absorb the Offshore ramp and the ramp-up cost in generally, if we are laying around EUR 2.5 billion in turnover. Now we are above EUR 5 billion. We have a very good quarter. But again, there, it's a lot easier to absorb it when we have a higher turnover. So, we are pleased with where we are, probably is around the maximum of the ramp we are seeing here in the second half of the year. So therefore, coming into '26, we should start seeing also, it's reducing and disappearing over time. So, that is sort of the -- in our heads, the timing of it. And then as I said, in the mid-range, also here, Sean, of course, we still have also the business absorbing for instance, tariff and other exchanges that happens in the world. So, we're not -- we're actually very pleased with what is in here, and we're also very pleased with what Onshore execution is supporting our continued investment into Offshore. Operator: The next question comes from the line of John Kim from Deutsche Bank. John-B Kim: Two questions, if I may. If we think about the updated guidance here and include the headwinds in Service, I believe it still implies a sequential -- a weaker margin in Q4 for Power Solutions. I'm just wondering if you could give us a bit of color here whether it's more about the cadence of the Onshore deliveries or potentially a bigger drag in Q4 from Offshore? How should we think about that? Henrik Andersen: I think here, it's the busiest quarter again in Q4. We walk into Q4. You will have seen it. We always said when we started the year back end loaded, but it's second half of the year. I will sort of say here, when you look at that, John, I would much rather see it in that we have managed to equalize Q3 and Q4 much better. Last year, we didn't. So therefore, compared to last year, we are looking into a Q4 that looks fairly much as execution of Q3. And then there can be a variation to the theme of what do we have in the backlog in there. You shouldn't read more into that. Then it is a busy quarter. We got 56 days to go, and we will always be subject to the normal variables in Q4. So that -- yes, we won't try to make it worse, that's for sure, in the Onshore execution, which we so far have had a really good run at this year. John-B Kim: Okay. Helpful. And on the Service guidance, EUR 625 million as the updated guide. I want to say there's a little bit under EUR 20 million in FX headwind. Is the remainder of the difference from EUR 700 million to EUR 625 million due to the Offshore that you had mentioned in the commentary? Henrik Andersen: I won't comment on your FX calculation. I think, we probably will see it slightly a bit more than that. But as I said, let's not do that. What we are just saying here, if we have a couple of things where we put a lot of vessels and a lot of people see in a Q4, it will drag something. So when we see that in a Q4 of a Service, which, let's just say, between us, we maybe end up around EUR 1 billion in turnover, then you can easily invest EUR 20 million in some of these Offshore sites in a quarter, and that's why we are guiding towards the EUR 625 million. Operator: The next question comes from the line of Kristian Tornøe from SEB. Kristian Tornøe Johansen: I have two questions. First one is about the production ramp-up in Offshore and Onshore as well. So, you've been fairly clear stating that it has a material earnings dilution impact this year. Considering the progress you've done so far, how confident are you that this will have a materially lower dilution next year? Henrik Andersen: How material are we, we had listed. We know that it's ordinary ramp. So, that means, the longer you get in, the better we get added, Kristian. But it's also here for both the Onshore U.S. and Offshore. We see a tendency too that we are further into the Onshore U.S. So, that should be definitely disappearing over the coming 2026. And then, as I said, in the Offshore ramp, listen, we opened these the nacelle factory less than 6 months ago. So therefore, we are at a maximum of both onboarding and running the education and training there. So, I can't give you a date where it maxed out and then it starts coming down, but we do everything we can to actually having coming out gradually over '26. Will it be totally done in '26? I don't know, because there always be things. So that we will talk more about when we get to 2026 outlook in February. But we are comfortable with it, and that's probably the main reason here. We have more than 0.5 gigawatt I see now in the Baltic Sea and the North Sea. So, we see that progressing. But of course, we are into the winter season where it's a slightly different environment to construct and install Offshore. Kristian Tornøe Johansen: Understood. Fair enough. And then, my second question is on your order intake in the APAC region, which again this quarter was fairly low. So, just any commentary on the outlook and your optimism for actually seeing APAC orders pick up? Henrik Andersen: I would just say nothing more than he should be doing better. There's a whole region out there in Asia Pacific, so that we encourage them to do. I think, it's lumpy when you are in markets of the nature of what they have in Asia Pacific. They are a bit more depending on when does it come over the finish line. I'm pretty sure that it's a whole region and not wanting to show us and you that they are good. They're doing zero in fourth quarter, because that's not the intention. So, we'll see where they end in 31st of December, but game on for the region to build a proper FOI in fourth quarter. Operator: The next question comes from the line of Dan Togo Jensen from DNB Carnegie. Dan Jensen: Sorry, can you hear me now? Henrik Andersen: Yes. Dan Jensen: Okay. Good. A couple of my questions from my side as well. On warranty provisions, low this quarter here, but how should we think of this level both absolutely and also relative, of course, as you put on more on the Offshore side? Can you maintain this level here? Or is there a risk that we will start to see level or an increase in that ratio? And then a question on the share buyback, the EUR 150 million. Can you elaborate a bit about the math behind reaching the EUR 150 million? I mean, cash flow -- free cash flow generation was more than EUR 0.5 billion, and you have almost EUR 0.5 billion in cash by end Q3, and how should we think of it by end Q4? Will you again be possibly in a position where share buybacks could roll into the current program be released by a new program? Jakob Wegge-Larsen: Dan, this is Jakob here, let me take the first part, and then Henrik will comment on the latter. Warranty, what we should remember, and I'm sure that those are also the numbers you're looking at. '23, we had more than 5%. '24, we were down to 4.3%. And then this year, we are hovering around the 3%. So, it's something we're really proud of, and it's an outcome of our focus on quality. We also see the underlying LPF reducing as we say, except for these couple of sites. And our ambition is to continue that journey down. And again, looking at next year, we'll talk about after Q4, but it's certainly our ambition. We are not satisfied with the current level of 3%. We see further potential and we have higher ambitions. Dan Jensen: Okay. Sounds good. And then, on share buyback? Henrik Andersen: On the share buyback, I think always when we do these things, we look at it in a bigger scheme of things. We have had a highest EPS, as Jakob mentioned, highest EPS and highest return on capital employed for 5 years. As you know, our Chairman very well. It's probably also the highest EPS for most of the 10 years. So therefore, when we look into this, we think it's fairly reasonable that we also say to shareholders, you will get cash back. Could we have done more? Yes. Could we have done less? Yes. But we ended EUR 150 million, because it's also the time of the year where we can get this done until the 17th of December. And then, of course, we get together again in beginning of February. And as you're rightly saying, we're not about piling up cash here in an environment where we feel very comfortable of the investments we have been doing and still are doing in Offshore, but that is also to say if people have struggling to see the value in Vestas shares, then share buyback is the best way we can also say, we -- at least, we trust in the Vestas share. Operator: The next question comes from the line of Akash Gupta from JPMorgan. Akash Gupta: My first one is on Service. So, I think when we look at your Q4 -- implied Q4, it's slightly over EUR 140 million adjusted EBIT, which is smaller since 2020. Can you tell us maybe how much of this is structural and how much of this is like temporary figures? And can you also talk about growth rates for Service in Q4, given last year, we had 30% year-on-year growth in Service top line. So, that's the first one. Henrik Andersen: Thanks, Akash. I will say sort of top line first. When you see the Service top line, there can be, and there was also last year some repowerings. Therefore, if Q-on-Q, there are differences in the top line that can relate to special things like that. And you will also appreciate we do have transactional sales as part of it, which can vary. We don't comment much about that and don't want to comment much about it. But as we also discussed over the last quarters when we have embarked into this Service reset. It is important for us that also we get better in saying, in this quarter, we already know this is what we are going to do in the quarter in especially some of these Offshore sites. So therefore, we have to give you a bit more guidance on some of these. That is not a recurring thing. So therefore, when you're into next year, you should see probably year-to-date and what we have done in the previous quarters is the underlying run rate of the business. So, I'm not so nervous of that, but we got to pick it up with you when we have already now a month into Q4. So that's the reason why we are seeing it. And as I said, it relates to something specifically in Offshore that is in the quarter, dragging it down. Akash Gupta: Are these Offshore sites are same as where you were fixing some quality issues where you took provisions or they are different? Henrik Andersen: They are partly, partly different. So therefore, it's not related to any of that, and it's not related to the 236 either. So, this is something where we just know that when you're in this season, and you got to have it, then it's a focus from us, and it's a focus from the customers, and it is very few customers involved as well. Akash Gupta: And my second one is on produced and shipped turbine in the quarter. You had slightly over 3 gigawatt, which is down 17% year-on-year, and we had growth here in first half, and now we are flat on a year-to-date basis. Can you tell us what is driving it? Are there any supply chain issues like probably sourcing of magnets or any retooling of facilities? So, can you elaborate what's driving this Q3 produced and shipped turbines and expectations for Q4? Henrik Andersen: No, I will say here, and I think Jakob spoke to that, if I can point to a positive here. We get better and better together with our partners in having a straight through on the production and also the supply chain. So, we've been better able to control inventory. And therefore, if we do that, then are we also, to some extent, in some quarters, you can't adjust it completely from what is going to be delivered and constructed next quarter. So, we have been better at that, and there are no -- we haven't yet seen any influence of any supply chain shortages, then we wouldn't have used the expression of very good execution in Onshore. So, we actually, again, coming into Q4, we won't be many weeks away from when we have all what we need on site. So therefore, Akash, we are -- we see good traction on execution towards the end of '25 as well. Operator: The next question comes from the line of Colin Moody from RBC. Colin Moody: Just focusing on the very strong margin performance in Power Solutions this quarter, well understood on the drivers regarding warranties and volumes. But maybe just on that project execution point. Am I right in thinking this is essentially a contingencies release? And could you help us understand how much of a contributor this was and generally, should there be some more in Q4 to come? And generally, on contingencies, do you recognize the benefits of that release every quarter as projects approach the end or more kind of towards the back end of the year? Henrik Andersen: I don't know if I'm commenting on something a new special way of doing. We do exactly what we've always done. If we have a project, we do a pre and post cal cap, when we get the final payment from the customer, we put it into our P&L. So therefore, I can't comment on what others are doing in contingencies or whatever. We run whatever we do when we have a project, as you would expect us to do, there's always something in a project where you have what if something goes wrong. And of course, that gets released when you also have the project completed. So, it's a quarter where Onshore execution has been and delivered this. And of course, even in this quarter in Power Solutions, we have also spent quite a lot of amount in ramping still and investing in the Offshore and Onshore ramp. So for us, this is a normal quarter. But I think you should read back to what I started saying by it is difficult to absorb our investments in ramp when you have a much lower turnover and top line as you saw in Q1 and Q2. That's what you should read into it. There is nothing else. Then it's just a clean execution and profitability, and that's also what we are looking in for the full year. Colin Moody: Well understood. And then maybe just a second question, if I could. On U.S. market trends, clearly, very strong U.S. orders intake year-to-date. Just thinking about the July safe harbor coming up in 2026. How do you think about order developments going forward? And am I right in thinking that you shouldn't necessarily expect a big peak or ramp ahead of that deadline. But actually, you could continue to see very strong order momentum even beyond 2026 into 2027 and beyond? Henrik Andersen: Yes. Thank you. As I said, it's always difficult to predict in individual quarters. You know my statistics in that, that has been relatively poor, as Claus Almer will remind me of. So I think here, we are also saying we take the orders we can get to. I think it's also fair saying we are pleased with what we are seeing. We are having a well-covered order backlog in the U.S. and people are building out and planning for building out. What is that based on? That's based on that the Wind also in the U.S. has a very attractive levelized cost of energy. It goes well in combining up against gas and others. So therefore, it's a build-out ROCE that we will continue to see in the U.S. also beyond whenever PTC is expiring or not. I think we will probably have had more orders if we haven't had some uncertainties around the tariff side. But outside that, no, we love getting close to our customers in the U.S. and keep developing that plan for the coming years. So, we're in a good state. I won't comment on when orders are coming because that's simply too difficult to predict. But don't forget, when we talk about tariffs, we have a very, very large local supply chain that has been there for more than 2 decades. And of course, that we are supported well for and customers can come and see both the sourcing of the components and supply chain into the U.S. factories, which gives a very comfort situation and confidence situation between us and customers in the U.S. Operator: The next question comes from the line of Claus Almer from Nordea. Claus Almer: First of all, congratulations with the solid Q3. I will not ask about orders, but about the tariffs. So, first of all, did tariffs in Q3 had an impact on the profitability in power? That would be the first one. Henrik Andersen: Yes, it will always have now because if you're paying and your sourcing and you're constructing, Claus, you can see the deliveries in the table we have in the interim report. So therefore, of course, part of that is already under influence of tariff. And of those, that is -- that will be fully booked under and also split in the ratio between customer and us. Claus Almer: So, it's the quote that you're expecting to be able to mitigate some of these effects. So, could you maybe quantify what was the headwind in Q3 that maybe will vanish over the coming quarters or years? Henrik Andersen: That goes a little tight in what we are sitting with. So, we have a P&L to optimize in and for our customers and that we do very well. We can't mitigate 100% of tariffs, because there is not an opportunity to be 100% local sourcing in the U.S. So therefore, there will be a tariff and they will come on either projects or components and therefore, be booked up against the projects when we execute on them. We don't have an interest in sharing that. Why is that? It's not a market for many. So therefore, we keep that execution with us and our customers. They understand what we are doing and they support what we are doing, and I think we are in the best possible way, trying to mitigate what we can mitigate, but mitigate all of it, not possible. Claus Almer: Fair enough. Then my second question, which is also tariffs. So, there's been some quotes out today from you, Jakob, that U.S. customers are holding back due to the tariff uncertainty, which also was mentioned on this call. I guess this is mainly the ongoing U.S.-China situation which may last for quite a while. So, is there any way that you can reduce this uncertainty and thereby unlocking some of these projects in the pipeline? Henrik Andersen: I will just say maybe Jakob better comment on his -- himself. We fully agree on that. Of course, as I also said to the previous one, we will probably have taken more if it wasn't for the tariff, and that's absolutely right. And there is also probably a continuing backlog sitting and waiting for clearance on a few of these things. So therefore, let's see what happens there. But as I said, I'm not trying to predict sort of macroeconomics and geopolitics these days, because it's simply not predictable. So therefore, we do what we do. Whenever there is clarity and whatever the offtake is there, there are also cases now where the offtake is so much in demand that you actually will execute on it, whether there is small, low or even high tariffs on it, because that's what you need to get to your electricity and your energy supply. So year-to-date, we have more than 2 gigawatt of orders and our U.S. team are doing a cracking job in doing that. So, we do what we can to support them, Claus. So I think here, really, really good progress. Claus Almer: There's no doubt on 1.8 gigawatts from the U.S. -- player from the U.S. was quite amazing in the quarter. That was all for me. Operator: The next question comes from the line of Ajay Patel from Goldman Sachs. Ajay Patel: A couple of questions, please. Firstly, on Offshore, we're largely through this year, I'm just thinking about the Offshore business where that has been hampered by a number of issues this year, fixed cost absorption, ramp-up cost, maybe lower margins on the contracts. And I'm thinking beyond because that's a sizeable proportion of the reflection on the profitability of Vestas. Is there any sort of guide you can give on the ramp-up costs this year so that we can have better modeling of how that profitability may turn? And then the second question I had was you're performing really well on the Onshore side. You can see the green shoots of Offshore turning around sizably. You talked to Service margins improving by the end of the Service plan. It looks like the significant profit improvement to happen over the next 2 to 3 years. I'm just thinking today's buyback. Can we infer that sizable amount of cash flow that buybacks will be very much part of that debate. And that really, we're really looking at a picture that's got returns of value as a sizable proportion of the investment case? Henrik Andersen: You're asking me quite a number of questions in the question. S,o, I will try to, sort of, we believe very much in our three business areas. Onshore, very mature, very well developed. And you can say the Onshore has been -- if I was an inside Vestas colleague has been paying a lot for some of the investments we have continued doing in the Offshore. We are absolutely convinced and we adamant that Offshore will be a really great business area, not only for Vestas, but for a few around and also for our customers. So, we are not being caught by the same, I call it, a bit the frustration or depression over Offshore. But the great days of Offshore in the P&L for Vestas will rightly so come when you look beyond the further ramp-up in terms of projects in '26. So therefore, second half '26 into '27, you're right, Offshore would start looking much more like what we're also seeing in the Offshore profitability. That comes together with that we are doing the right things in Service. So yes, you can definitely come into a higher EBIT margin when you do the future years. It's not why we are looking at a share buyback in an individual quarter. But I think it's a testament from the Board and also from management here to see, we feel confident of what we are doing and where we are and that confidence you need to see. Because if there's something we probably discussed in the last 4 quarters, which is, when did the business turn around, when was it, we were comfortable of the turnaround we have done? And is it working? And I think today, we can definitely say to people, this is the first sign of it's working and then, of course, everyone can do their predictions. The more cash we get available, the more we will probably redistribute back. Because the biggest part of the investment we needed to get done in Offshore is actually behind us. Operator: The next question comes from the line of Alex Jones from Bank of America. Alexander Jones: Great. Two, if I can. First, just to follow up on tariff costs. To what extent were those already hitting the P&L this quarter? Or are there still the sort of incremental increase in tariff costs ahead as you work through inventory imported before the various tariff measures were put in place? And then second question, if I can, on Offshore. And sorry if I missed it, but could you explain exactly what is happening at the Offshore sites either because of technology or because of your customers' demand that is driving additional costs in Service in Q4? Henrik Andersen: If I take the Offshore first, then I can leave the tariff a bit more on to Jakob. I think we've spoken about the tariff already. But on the Offshore, it is specific sites. It is where we are manning up. It is not related to our 236, and it's not related to the, sort of, back in Q3 and Q4 last year, where we had a component failure in one of the platforms. So, this is about that we have, what I would probably more call a hyper care in a couple of Offshore sites where we agreed that with the customer. And therefore, of course, we are also investing in that. So, that is in winter and a high season for Offshore is a way of also us saying we are investing with in also prioritizing cost here. So that's what we have done and that's what we are sort of pre-guiding you on for Q4. Jakob Wegge-Larsen: And on the question around tariffs, it is hitting our books right now. As Henrik also answered in the previous question, continue hitting in Q4. But what is important is, and that's what we're also saying with our narrowed guidance, we can keep that within the narrowed guidance and you will see doing the math that we have the same midpoint as we had basically since the beginning of the year. So in that sense, yes, it's in there, and it will continue to be in there. Operator: The next question comes from the line of Max Yates from Morgan Stanley. Max Yates: Just one question from me. Just on the Services business. Could you give us an update on how the turnaround program is going? Are customers kind of accepting the renegotiated terms? And I guess maybe if you could just help us with the kind of how long we will actually -- how long it will take to actually see this in numbers? I guess you're kind of operating in a 16% to 18% margin. I appreciate you won't want to give guidance to '26, but do we still see sort of '26 as a year where the groundwork is being laid for future margin improvement? Or do you really see it as we'll start to see some of the improvement is actually coming through in kind of growth and margins in the Service business as we go into 2026? Just trying to get a sense of -- so we don't anticipate it happening sooner than we actually see it in numbers. Henrik Andersen: Max, I'll really, really appreciate your comment in that way, because I couldn't agree with you more. This is a global business that has 159 gigawatt under Service. And we have more than 15,000 employees. So, when you do a reset and a turnaround of the business, it will take longer time. So, please don't start making things in 22% or 25% Service margin in '26. We have said it takes the 2 years. We are 5 quarters away from finishing this work, because it does take some time. I'm really pleased with where we are in the Service team and Christian Venderby, who heads it, have done a really good job. We know the details of what we are going through, but I think also as we are hinting here. When we looked and talked about this 2 or 3 quarters ago where we said we probably would foresee that we will have some flat gigawatt under Service, then surprisingly it didn't happen in the first 1 or 2 quarters. Now it does happen, because we are getting to some of the gigawatts where, as I think we also spoke about that, for instance, something like multi-brand, it doesn't make an awful lot of value for shareholders, and it doesn't make an awful lot of sense for us, unless we have customers that ask us specifically to do it more on a cost-plus basis. So therefore, you will see now that we're actually having a real firm grip of what is happening from quarter-to-quarter. So, we're in good momentum. We're in good momentum of addressing where we wanted to have a better operational environment. And then we have a good momentum and also talking to customers straight and that includes even escalations to me as well. So, we are actually pretty pleased of where we are with the commercial reset and we are not done with it. That will be wrong. But that's because you cannot fix that much in 1 or 2 quarters. But run rate up until third quarter is the run rate. I will say, and that's, for me, the middle of the road we are going with. Operator: The next question comes from the line of Lucas Ferhani from Jefferies. Lucas Ferhani: Just a follow-up on Offshore. When are you kind of booked out to? I know you said you have EUR 10 billion of projects in the backlog that kind of last you until 2027, even into 2028. And then, when you look at the kind of the recent failed auction in several countries in Europe, and maybe the AR7 in the U.K. that was maybe slightly below expectations. It depends on who you asked to, how do you feel about kind of the ability to kind of get those redone and then rebid and then the orders coming through to the turbine suppliers kind of roughly on time? Henrik Andersen: Yes. No, as I said, it's a good 10 gigawatt. We are sitting and muscling around. We have more PSAs, but there are also more PSAs in discussions. So, I'm not so worried about that. And then, when you look at the near term right now, we have a lot to do in the coming 3 to 4 years. So that is also the cycle of it. So, where you come from -- and I keep in currency stay -- don't compare. Compare, but don't compare between the backlog and the process we're running between Offshore and Onshore. Because Offshore processes are longer and therefore, not so nervous about that. If there's one thing that concerns me and I hinted that a bit here is that we, at least in Europe, where Offshore should be one of the biggest solutions to get our, I would call it, less energy dependence on friends outside Europe. We are 50% dependent on energy import and Offshore should be one of the things we scale faster. But it seems like every country in Europe choose to go through a failed auction before they get it right. And of course, that takes time. And we've seen a number of countries, including the Danish government went through, I think last year, but that also means now you have a CFD backed. And even with the CFDs that will significantly improve the Danish electricity price as well. So therefore, it works and it works across. So, we are not so nervous about that. And when we look at AR7 in the U.K., I can only give a praise. Maybe I will also have one of the ones that would like to have a bit larger budget committed. But on the other hand, the government and the Secretary of State, that knows a lot about, Ed Miliband. Yes, he has conditioned himself that he can take individual projects out and also potentially progress that. So, I think we got to work through this. And if somebody wants to characterize it as an Offshore crisis, I'm not in that category. So, I think it's a proven technology. It's a proven market access that works and therefore, now is the time to show leadership, both from developers and OEMs to get it built out. So, we are more positive on that. We see '25, '26 to some extent, I'm happy that we are doing what we are doing right now, because if we had more stress on the factories and the ramp-up, that would only -- that will actually only create more concerns at Vestas. So, we don't have that. So, we are comfortable executing on it. And what I'm probably most encouraged by is also our customers like the discussions and the detailed discussions we are having leading up to 2030 and even beyond. Lucas Ferhani: Perfect. And just a quick follow-up on tariff. I think most of what we are seeing and what has impacted you so far is more the section 232 on maybe steel or specific components. But there's also a probe that has been launched in the U.S. into Wind specifically. Can you talk about how do you understand that? I obviously see that there's not much information out there. But how do you look at that risk of what could come out of this probe? Henrik Andersen: I know and there is sections and there are EU tariffs and there are other tariffs that seems to be changing every quarter. So, we are basically taking the stand that we will deal with it as it's being thrown at us, and therefore, we are also dealing with this. Outcomes, I can't predict, but what we are both guiding for, for the rest of the year is what we know and what we are dealing with and therefore, it's priced in. And I think we are best doing and best served with doing that. Because otherwise, we have to start changing every time there is a change in legislation. It might be -- it goes up in tariff, it might be that it goes -- I think the last week, we've seen initiatives that seems to be maybe talking to tariff returning towards the zero again in some areas. But let's see. I don't comment on that because it's way outside my area where I can affect it. What we can affect is how we execute and how we deal with them. And that's where we have a fantastic team in the U.S. and North America that are absolutely on the details with that. Operator: The next question comes from the line of Henry Tarr from Berenberg. Henry Tarr: Congratulations again on a strong quarter. The first question is just around Onshore and Onshore margins into 2026. Clearly, that business is running very well today. As I look into next year, what are the key drivers, sort of, volumes look relatively stable, pricing seems to level out. How are you seeing, sort of, cost trends and mix? Do you think there's more -- a little more juice left in that onshore margin as you look out? Or are we already sort of performing as well as you can hope? Henrik Andersen: Thanks, Henry. I think, I don't know, juice left, maybe I should comment differently. I think on '26, we'll comment on the 5th of February. I've learned that lesson over the years. We do nothing in the Onshore business to try to make it run worse right now, and we're actually doing reasonably well. So, what we have seen here expect more of the same. If we can do more and we can get more, it's probably where we have more concurrent projects where we can avoid having change cost and other stuff in the Onshore. But I'm really just pleased with seeing what is happening in the Onshore. And of course, we don't do that. I think that's also only fair, because there are limited players. So there's no need for them to sit and read the P&L of individual business segments between Onshore and Offshore. Onshore really well, and we will see if we can do more of the same next year. And we will try very hard. Henry Tarr: Fair enough. And then, just on staying on the Onshore from an orders outlook. You sort of covered the U.S. How about the rest of the world as you look to Europe and so on? I know you sort of referenced in the materials that you see potential for high single-digit growth in Onshore wind, sort of, globally out to 2030. Are you still, sort of, happy with that view and you still see a lot of movement and activity in Onshore Wind in Europe as you look out over the next few years? Henrik Andersen: I think there are two reasons in Europe. I think some of the countries are leading the way. If you take Germany, if you take a couple of countries like Romania and others, I think they are leading the way and saying, this is how we can get more done and built. And I think, those countries are absolutely examples to follow. I think on the -- on top of that, I think it's getting more and more discussed in details how we can do a repowering in Europe which again speaks back to Wind was very much founded and invented out of Europe. And therefore, we also have an aging fleet and that, of course, opens up a European repowering that could be a real business opportunity for people like us. It could also be a huge business opportunity for the owners and the developers. And secondly, it's a fantastic way of increasing the energy production in Europe. So that -- there are two levers there. I will avoid -- I would avoid commenting on countries where they potentially haven't got it right. But let us say, we are very pleased with our Spanish colleagues and our factory in Spain. But I think on the permitting side and the flow of projects in Spain, there's probably still some outstanding to wish for. So therefore, in Europe, we see really positive underlying. And of course, Germany is one, if you -- if we spoke about it 3 years ago, Henry, we wouldn't have gotten to the number we see today. And that's thanks to both current and previous government in Germany. When it comes to Asia and Asia Pacific, a lot is being done. A lot of also is being considered. Some of the countries are a bit new on the block getting into that. But as I said, there's still some firm order intake to be shown from our colleagues in Asia Pacific. And then, in Latin America, similar, we have had Brazil that's probably gone very low in PPAs. And therefore, we'll see when Brazil returns to that. But we do have some good feelings around that also Latin America will start showing some strength again, because some of the data centers and others are moving into LatAm across. So, I think bit disappointed probably where we are year-to-date in Asia Pacific and LatAm, very encouraged by where we are in North America and in Europe. And that, I think, is a trend that we see continuing. Operator: The next question comes from the line of Casper Blom from Danske Bank. Casper Blom: A bit of another kind of question from my side. I think it's been close to 7 years since you launched the EnVentus turbine platform. And we now see that more and more of the orders you get in are for these larger 6, 7-megawatt Onshore turbines. At the same time, we've also seen you talk about stable pricing environment now for the last 3 years or so after that was this material price hike a few years ago. Is it fair to say that there is an opportunity from you guys, sort of, sticking to the current technology, keeping pricing flat, and then basically just having, how could you say operational efficiency from the fact that you have now gained very, very material experience in developing this turbine? And as a supplement, do you have any kind of plans of adding new platforms in the foreseeable future? Henrik Andersen: First of all, platform introductions never happened on an analyst call. So Casper, that's the first. The other thing is EnVentus, we are super pleased. And you can say that you're touching spot on. The more we ramp up and the more we get in the backlog, the better we become at it and that also goes for our supply chain. So, when I started extending a big thank you here, it also goes to our partners in the supply chain, because they help us getting some of those costs out. And I think today, from when we have been in an environment where inflation was very close to zero or even at par and then interest rate. Everyone have seen a cost inflationary which, of course, also for some projects have either potentially dangered the project for being built. Now it's also about getting and returning and getting it built, and therefore, cost out is absolutely name of the game for all of us. So that goes through the supply chain and it goes into our factories. And the more volume you have, the better you get at it. So, that's an overarching one. And I think you saw some of that. If you take the V163, 4.5 megawatts that are now selling across most of the world, but particularly in North America and in the U.S. That was developed as a probably an 80% component from a 4-megawatt platform. And that also means that we are running high cost-out programs on. So of course, that's a school and textbook example of how we want also to build the EnVentus. So, you're right, Casper. And I think some of it will be using to continue to improve our profitability. Some of it, we will definitely also let go back to the customer. So, we make sure that the projects are being built and not being stopped for not having attractive enough investments case with local governments. Casper Blom: If I may supplement. I think, if one goes back in time, there was sort of a general rule of thumb that pricing would come down by maybe 3% or 5% a year due to technological advantages and sharing this with customers. Isn't it then fair to assume that, when -- as long as you can stick to current pricing and you continue to get better, then it's in favor of your margin? Or is that too simple? Henrik Andersen: I think, it's maybe a bit from an industrial company of nearly EUR 20 billion and maybe it is a little simplified. But I will say here, now you bring 5% in as a price reduction and other stuff. I think, we are now back at a profitable area for Vestas. So, it's not this morning, we got up and said, now we need to lower prices. As I said, we like the commercial discipline. We need to make money. If we don't make money, we don't invest in the technology for the future either. So therefore, it's a combination. But as I said here, we will share it in a reasonable ratio with our partners and customers. Come on, there's nothing better than having a signature and winning a business with a customer. So therefore, that's the prime target, and that pays for the rest. So therefore, Casper, what you've seen today is we can now definitely say and prove that we are out of the dark days of '22. And I think that's really what we want to say to both you and the rest of the market with what we are doing today. Operator: The next question comes from the line of Deepa Venkateswaran from Bernstein. Deepa Venkateswaran: I had two questions. So Henrik, I wanted to pick up on something that you mentioned, which probably is not something a lot of investors focus on, which is your CapEx. So this year, you're spending over 6% of revenues on CapEx. You've also said that your big investment program in Offshore is nearly done. So, on an ongoing basis, particularly given cash is king and can be buybacks in the future, what is a more reasonable level of CapEx for your business going forward, either absolute or percentage of revenues, of course, assuming no big investments and further platforms, right? So that was my first question. And secondly, I think on demand, particularly in the U.S. there's a lot of hype about demand from AI. People want to be building a gigawatt a week and so on. So, what are you sensing in terms of the opportunity for Vestas to kind of capture and what are you hearing from your customers on the impact from this new AI demand? Henrik Andersen: First of all, a gigawatt a week, then I will not get much sleep, that's for sure. Deepa Venkateswaran: Maybe that was global. Henrik Andersen: Okay. But as I said here, the reality is real. And that's maybe the way to prevent it. In AI terms, the reality is real. It's happening, and the electricity demand is going up. Then we can always discuss sometimes is the demand and supply out of sync. Then of course, it only gives one thing, which is an underlying increase of electricity prices, which unfortunately, you are seeing in part of the U.S. And I think, for that matter, will come to Europe as well. So I think there's something in this AI where we as said, we are part of the underlying base load. So therefore, we are the ones that has to build part of the baseload together with many others. So therefore, energy in demand is definitely it. And I think if we look at a country that normally does very long-term planning, namely China, you can see how they have built out energy sources in the last 3, 4 years. And namely, last year, they build as much renewable. They build as much coal. They build as much some of the nuclear as the rest of the world did together. So, somebody is taking bigger upfront decisions than probably the rest of the world are doing. And so for me, as a pretty fact-based person, I like to see that we take some of these decisions may be a bit quicker, and that also goes for the U.S. So U.S. are in a demand for energy and electricity. And therefore, we will continue to see that build out and Wind is part of it. Maybe we should call it something else than wind, but it actually is with a low LCOE, and it does local manufacturing, and therefore, it's supporting U.S. in its energy supply. So that's really. On the CapEx side, don't underestimate, there will still be tools and there will still be factories and other stuff that from time to time will affect the CapEx. But I think Jakob is nodding that when we look at EUR 1.2 billion, that's probably a bit where we spent quite a lot this year. But if a factory or other footprint comes in, that will then variate and deviate to the theme. But as we said all along, it should be start going slightly lower, but we won't give a guidance for it until we are in February for the coming year. And then, as you can see, we are not nervous for actually using the cash to buybacks. Because if we're not forced to invest more, then actually buying our own shares is with a pretty good return on the multiples we are seeing. Could we have the last question, Operator? Operator: So the next question comes from the line of Martin Wilkie from Citi. Martin Wilkie: Just a follow-up to that question on data center. When we look at some of the hyperscalers and where they're signing renewable PPAs. A lot of it seems to be in Latin America and Europe and actually not very much in the U.S. And when you look at the outlook and potential for data center orders, is that how you see it as well that they're actually more realistic in those regions? Or is there actually sort of pent-up demand opportunity in North America, where obviously, the volume of data center is probably a lot higher. Just to understand regionally how we could think about that. Henrik Andersen: Martin, I will say, I don't think so. I think, when you see other continents like Europe and Latin America wanted to announce data centers, I think it's actually because they want to have a bite of the party. I think the two main places to have these data centers will be China and the U.S. That's where the AI balancing act is happening. We are behind in Europe. So, if we get a data center somewhere in Europe and we are building it, yes, sure. We will applaud it. But I think the underlying is that U.S., but they are probably not just announcing it to the same extent as you are seeing. Because as much as you see the demand and supply, the demand side is right now higher than the supply side of possible build-outs. And that's probably why you're seeing less of those announcements in the U.S. But working for an American bank, I'm pretty sure you will know a lot of what goes on in the U.S. as well. So thanks, Martin. Martin Wilkie: Can I just have one unrelated follow-up just on Service. And obviously, you talked about these costs in the fourth quarter. But just to clarify, these will be effectively a onetime hit in the fourth quarter. And obviously in the past when you have percentage of completion, then you can amortize these costs over the life of service contracts, but we shouldn't read anything into the revised outlook for the fourth quarter in terms of what it could mean for '26. And I know you're not guiding '26 yet, but just so we can understand that these costs should be contained in the fourth quarter? Henrik Andersen: You're absolutely right. It should be contained in fourth quarter, and we don't intend that, and that also sits outside any POC for the service contracts in Offshore. So you're absolutely right -- assumption is right, Martin. Okay. With that, thank you so much. Thank you for listening in. Thank you for all your interest and the question. Really look forward to meet many of you over the coming days. And therefore, thanks again year-to-date, and see you soon.
Operator: Greetings, and welcome to the Kodiak Gas Services Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host, Graham Sones. Please go ahead. Graham Sones: Good morning, and thank you for joining us for the Kodiak Gas Services conference call and webcast to review third quarter 2025 results. Participating from the company today are Mickey McKee, President and Chief Executive Officer; and John Griggs, Executive Vice President and Chief Financial Officer. Following my remarks, Mickey and John will discuss our financial and operating results and 2025 guidance, then we'll open the call for Q&A. There will be a replay of today's call available via webcast and also by phone until November 19, 2025. Information on how to access the replay can be found on the Investors tab of our website at kodiakgas.com. Please note that information reported on this call speaks only as of today, November 5, 2025, and therefore, you are advised that such information may no longer be accurate as of the time of any replay listening or transcript reading. The comments made by management during this call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views, beliefs and assumptions of Kodiak's management based on information currently available. Although we believe the expectations referenced in these forward-looking statements are reasonable, various risks, uncertainties and contingencies could cause the company's actual results, performance or achievements to differ materially from those expressed in the statements made by management, and management can give no assurance that such statements or expectations will prove to be correct. The comments today will also include certain non-GAAP financial measures. Details and reconciliations to the most comparable GAAP measures are included in yesterday's earnings release, which can be found on our website. And now I'd like to turn the call over to Kodiak's President and CEO, Mr. Mickey McKee. Mickey? Robert McKee: Thanks, Graham, and thank you all for joining us today. I'd like to begin today's call, as we do with all meetings at Kodiak with a safety topic. As we head into the holiday season and prepare to travel and spend time with friends and family, I want to remind everybody that safety doesn't stop at the workplace, whether you're commuting, visiting family or running errands, please avoid distractions while driving. No text or call is worth risking your safety. Please join me in committing to staying focused behind the wheel so we can enjoy the holidays with those who matter most. We had a busy third quarter, delivering solid financial results and executing on several strategic actions to improve the operational and financial outlook of the company while remaining focused on returning capital to shareholders. Let me begin by discussing some of the strategic actions we have taken over the past few months. First, we went live with our new ERP system in August that was delivered on time and under budget. We consolidated several legacy systems into an integrated platform that will increase our visibility with real-time financial and operational information and enable us to deploy multiple facets of AI technology into our everyday business. The implementation of the new ERP system involved a lot of hard work by the team, and I want to thank everyone involved for their dedication to getting this important project over the line. The new ERP system is a foundational step in our agentic AI initiatives. The team is currently working on multiple AI agents across a broad range of processes, including parts sales, customer order handling and supplier and inventory management. We're specifically excited about our tech parts agent, which will assist our field service technicians in locating the right parts for the job in an expedited manner. These agentic AI initiatives complement our operational AI initiatives, which include condition-based preventative maintenance scheduling and predictive failure detection, just to name a few. The next, as a result of the CSI acquisition 18 months ago, we inherited operations in 5 foreign countries. As part of our strategic goal to high-grade our fleet and concentrate capital and efforts on markets with the best combination of growth and returns, we made a decision to exit all of our international operations. I'm pleased to report that during the third quarter, we successfully exited the last of our international operations by divesting our operations and assets in Mexico, which included the sale of approximately 19,000 operating horsepower. We had great people in those countries, and I wish the buyers well, but we firmly believe that the U.S. is the right place to be for Kodiak in the contract compression business. Relative to the international markets where we previously operated, including Argentina, Canada, Chile, Romania and Mexico, we believe the U.S. offers higher returns, lower operating risk and a superior growth outlook for many years to come. And we successfully divested all of these operating areas in under 18 months from the close of the highly successful acquisition of CSI. The next major initiative in Q3 that I'd like to highlight is the strategic moves we made with our balance sheet. During the quarter, we termed out $1.4 billion of debt through 2 bond offerings at a weighted average cost of debt of 6.6%, including the first ever 10-year term bond issuance in the compression sector. These offerings were another strategic step in derisking our business and setting us up for continued growth and success by allowing us to stagger and extend our debt maturities and significantly increase our liquidity. We ended the quarter with $1.5 billion of availability in our ABL Facility, giving us ample flexibility to pursue exciting future growth opportunities. Finally, we returned an industry-leading amount of over $90 million to our shareholders in the quarter through a $50 million share repurchase and our dividend. Furthermore, as a result of the underlying strength of our business fundamentals, our strong financial results and our outlook for future discretionary cash flow, we increased our quarterly dividend by another 9% to $0.49 per share, equal to approximately 35% of our discretionary cash flow, our stated goal for return of capital to our shareholders. Since September 2024, the $110 million in share repurchases we've completed, have allowed us to reduce our share count by nearly 3.5 million shares. We have approximately $65 million available under this program, and we expect to use it. Share repurchases are a fundamental and exciting part of our overall shareholder return strategy. We ended the quarter with $4.35 million in revenue-generating horsepower. Average horsepower per revenue-generating unit was $965, a figure that continues to lead the industry and that has increased each quarter since we closed the CSI acquisition. In the third quarter, we deployed approximately 60,000 new horsepower that averaged more than 1,900 horsepower per unit and roughly 40% of those new units were electric motor driven. We also added about 30,000 operating horsepower through a small purchase leaseback with an existing customer and through the exercise of an early buyout option on some previously leased units. Including the exit from Mexico, we divested approximately 26,000 operating horsepower of nonstrategic units during the quarter. Our investments to grow the fleet, along with strategic divestitures of noncore units drove our fleet utilization to roughly 98% another industry-leading metric. Our large horsepower units remain fully utilized at over 99%, reflecting the continuing strong demand for large horsepower compression, and we expect that to continue. With new or expanded pipelines representing over 4.5 Bcf a day of incremental Permian gas takeaway capacity coming online by the end of 2026, our Permian customers have been very active this fall in ordering new compression to be delivered next year. In addition to the new pipelines, there's another 4 Bcf a day of sanctioned pipeline projects that are expected to be online by the end of the decade with numerous other Permian egress projects in the works. Given the recent surge in new compression orders, new pipeline takeaway capacity and forecasted natural gas volume growth, lead times for new compression equipment has significantly stretched out to upwards of 60 weeks. We'll give you more details on our 2026 capital spending plans next quarter, but as a result of the high level of demand across the industry and our customers' needs, our capital plan for 2026 is effectively fully under contract. Before we discuss our third quarter financial results, a few thoughts about the macro environment. Since oil broke below $70 in the first quarter, we have seen the U.S. E&P industry adjust to the lower pricing environment in different ways. Permian operators have high-graded their drilling locations and realized increases in drilling and completion efficiencies, such as reducing days to drill to help offset the decline in oil prices and rig count. The result is that we continue to see oil production growth from the Permian Basin and the U.S., and our customers continue to see accelerating growth in natural gas. So we expect 2026 to be a big year in gas growth from the Permian Basin. Given this backdrop, combined with the strength of our business model, the demand outlook for large horsepower compression remains very strong. Kodiak has continued to deliver top line revenue growth, margin increases and Contract Services segment growth throughout the year. Also, as I'll discuss shortly, we have taken several steps to reduce cost and boost our operating efficiencies. We see no reason why this dynamic won't continue into 2026, driving further revenue growth and margin improvement. Now turning to third quarter 2025 results. We once again delivered sequential growth in contract services adjusted gross margin and set another record in quarterly discretionary cash flow. As John will discuss in more detail, adjusted EBITDA for the quarter of $175 million was negatively impacted by over $5 million of nonrecurring SG&A expenses associated with the divested Mexico business. Given strong customer demand, historically high industry-wide utilization and disciplined decision-making by the contract compression industry, pricing conversations with customers continues to be constructive. We completed the majority of our planned 2025 contract renewals in the first half. But in Q3, we recontracted just over 200,000 horsepower at above our current fleet average. Contract Services adjusted gross margin percentage matched the high watermark we set last quarter at 68.3%, a 230 basis point increase compared to the third quarter of 2024. In addition to fleet growth, optimization efforts and pricing, we're seeing margin improvements from setting new large horsepower units and our investments in technology to drive fleet uptime and reliability. Specifically, we've reduced lube oil consumption on a per horsepower basis through our AI and machine learning deployment. And our fleet reliability center that monitors our fleet remotely 24 hours a day is helping us identify problems before they become more expensive repairs with longer downtime. This drives lower engine and compressor repair costs and leads to better uptime for our customers. In our Other Services segment, third quarter results were consistent with our expectations. We're seeing positive momentum in our station construction business as evidenced by the recent award of a 30,000 horsepower compressor station that will feed supply fuel gas to a power plant located in Texas. This project is expected to kick off soon and will take roughly a year to complete. As Texas and other areas in the country look for additional natural gas-fired power plants to satisfy surging electricity demand, we're optimistic that more opportunities like this will arise. I'd now like to pivot to a few things that I believe are an underappreciated part of Kodiak's investment case, our short cash conversion cycle and our industry-leading discretionary cash flow yield. Unlike other midstream and infrastructure companies with lengthy construction projects that require substantial percentages of total capital expenditures long before revenues are generated, Kodiak has a short time frame between capital outlay and first revenue. The ability to quickly generate cash plus the strong returns on our growth investments allows Kodiak to generate a discretionary cash flow yield that we believe to be among the best in the midstream investment universe. We generated nearly $117 million in discretionary cash flow in the third quarter and over $450 million over the last 4 quarters. That equates to approximately 15% discretionary cash flow yield at our current stock price. We define discretionary cash flow as adjusted EBITDA less cash taxes, cash interest and maintenance CapEx. This represents a starting point for our capital allocation framework. We continue to use this cash flow to return capital to shareholders, buying back approximately $50 million in stock in Q3 2025 and paying out a well-covered quarterly dividend. Now I'd like to turn to the outlook for the remainder of 2025. Even following the sale of Mexico and the incurrence of extraordinary and nonrecurring SG&A expenses during Q3, we remain on track to hit our annual revenue, margin and adjusted EBITDA guidance, and we're right where we expected to be with capital spending. At the end of the quarter, we have deployed about 90% of the new units for the year with the remainder expected to be installed in the fourth quarter. Given our reduced outlook for cash taxes, we're on pace to exceed our discretionary cash flow guidance. Therefore, we increased our outlook on this metric for the year. In summary, we're very pleased with our third quarter results. We're on track to achieve our full year guidance and the steps we've taken this year position us for continued margin growth in the future. Our focused large horsepower business model is helping us generate industry-leading discretionary cash flow yields, position us to further strengthen our balance sheet and return cash to shareholders. And now I'll pass the call to John Griggs to further discuss our financial results and our updated guidance for the year. John? John Griggs: Thank you. As Mickey made clear, we accomplished some really important strategic objectives during the quarter, actions that serve to set us up well for the next leg of returns-oriented growth in the years to come. Let's turn to the quarter's highlights, and I'll start with our Contract Services segment. We generated solid revenue growth in this segment in Q3 as evidenced by a year-over-year increase of 4.5% and quarter-over-quarter increase of 1.2%. Revenue per ending horsepower was $22.75 this quarter, a nice uplift versus the same quarter last year and effectively flat sequentially. We anticipated this outcome, and we called it out on our last quarterly call because we knew we were adding a lot of revenue-generating horsepower during this quarter, but only a portion of that horsepower's revenues. With less new horsepower being set in Q4 and in conjunction with the recontracting rate increases and solid pricing for new units, Mickey already spoke to, we expect to see a nice uptick in the revenue per horsepower metric for Q4. Relative to Q3 of '24, Contract Services adjusted gross margin percentage increased by 230 basis points to 68.3%. The margin improvement is a reflection of the success we've realized in achieving higher pricing per horsepower alongside lower operating expenses per horsepower. We've driven these results through a relentless focus on high-grading the fleet through large horsepower, gas and electric additions, combined with the sale of noncore, low-margin units. And we're habitually rolling out new technology and process initiatives that either reduce costs, defer spend or improve labor productivity or some combination of the 3. In our Other Services segment, we generated revenues and adjusted gross margin in line with our expectations. We've seen a resurgence of contract activity and that, plus our backlog gives us confidence that we remain on track to achieve our annual revenue and margin guidance. Reported SG&A for the quarter was $37.8 million. And after adjusting for nonrecurring or noncash items, it was $31.5 million. As Mickey mentioned, the $31.5 million still includes approximately $5 million in professional expenses associated with the cleanup and sale of our former Mexico operations. With our Mexico operations and assets now sold, we expect SG&A to revert back to a more normalized level during Q4. During the quarter, we booked a noncash charge of $28 million in other expenses that was related to our multiyear negotiation with the state of Texas over the taxability of our compression assets. We've recently made significant progress in gaining clarity on the issue and ultimate potential settlement. The charge takes our reserve to an amount we believe will satisfy this obligation in full. Based on our current discussions, we'd expect to pay the state and close out this accrual in early '26. By doing so, we'll eliminate a significant contingent liability that has been with us for many years. And importantly, we believe that our view and the state's view on taxability of these assets is relatively aligned, and we don't foresee any changes to our future margins or return on investment associated with the tax structure going forward. Net loss attributable to common shareholders for the third quarter was $14 million or $0.17 per diluted share. Excluding the loss on the sale of our Mexico business, the Texas sales and use tax charge and other onetime items, adjusted net income was $31.5 million or $0.36 per diluted share. Maintenance CapEx for the quarter was approximately $20 million and trending toward the low end of our guidance range for the full year. Our investments in technology and the insights we're gaining from that are allowing us to extend preventative maintenance intervals and commensurately associated spending on a major portion of the fleet. We're increasingly seeing the benefit in our maintenance CapEx and believe we'll see more of that going forward as well. As expected, growth CapEx more than doubled quarter-over-quarter to approximately $80 million based on the addition of the roughly 60,000 in new horsepower. Year-to-date, we've added roughly 140,000 horsepower, and we're on pace to slightly exceed our forecast of 150,000 for the year. Other CapEx was $12 million for the quarter. As we previously highlighted, other CapEx was front half weighted in 2025 due to capitalized spend on our new ERP system as well as some residual spend on our CSI-related fleet upgrades, which are now complete. The discretionary cash flow came in at $117 million, an increase of approximately $14 million versus the comparable quarter from last year. Free cash flow for the quarter was $33 million. With regard to the balance sheet, we made great strides in the execution of our finance strategy. We achieved our goal of terming out the majority of our ABL into bonds with staggered maturities, including the first 10-year bond in the compression space. These actions derisk our balance sheet and add a further element of cash flow stability to our business, which in turn helps us execute on our capital allocation and shareholder return strategies with enhanced confidence. During Q3, we issued $1.4 billion of bonds, exiting the quarter with $521 million drawn on the ABL and leaving us with approximately $1.5 billion in availability. Total debt at quarter end was approximately $2.7 billion. We exited the quarter with a credit agreement leverage ratio of around 3.8x, up from the prior quarter, mainly as a result of debt financing fees as well as our $50 million share repurchase from EQT. We expect to exit the year at about 3.6x. Last, our Board recently declared an increased dividend of $0.49 per share. Even with 2 increases totaling nearly 20% this year, our dividend is well covered at 2.9x. Briefly on guidance. As we close out the year, we remain on track to hit our segment level guidance for revenues and margins as well as adjusted EBITDA, even after all the extra spend on Mexico during Q3. On CapEx, our prior guidance remains unchanged as the vast majority of 2025's capital spending is now behind us. We expect the fourth quarter CapEx and new unit growth will decline from Q3 levels. Thanks to our reduced outlook on cash taxes and reduced spend we're seeing in maintenance CapEx, we're on pace to exceed our prior guidance for discretionary cash flow. We now expect to generate between $450 million and $470 million in discretionary cash flow for the year. And with that, I'll hand it back to Mickey. Robert McKee: Thanks, John. Our business model, which generates stable and recurring cash flows is performing well in the current market. The demand outlook for contract compression remains robust, demonstrated by our ability to maintain strong pricing and continued growth in our industry-leading horsepower utilization. Additionally, our new unit horsepower order book is essentially fully contracted for 2026 as we capitalize on the robust outlook for growth in natural gas. Besides the top line growth, we are successfully making steps to increase margins by divesting noncore units and investing in technology to reduce costs and increase uptime. These targeted actions have enabled us to reach new financial milestones across several important metrics. As a result, we delivered year-over-year increases in Contract Services revenue, adjusted gross margin and set a new quarterly record in discretionary cash flow, strengthening our ability to return capital and drive ongoing value for Kodiak shareholders. Thank you for your participation today. And now we're happy to open up the line for questions. Operator? Operator: [Operator Instructions]. Our first question comes from Doug Irwin with Citi. Douglas Irwin: I just wanted to start with '26 here. And I realize you haven't given any explicit guidance, but it sounds like you have a pretty good idea of what bookings are looking like into next year at this point. So just wondering if you could maybe provide a bit more detail about how the backlog is shaping up and maybe just high level, how you're thinking about fleet additions and pricing power relative to the last few years. Robert McKee: Doug, this is Mickey. Thanks for being with us today. Yes, we're not quite ready to give guidance into '26 quite yet. But like we said in our prepared remarks, we're effectively fully contracted out for what we plan on spending for next year. We've been pretty clear about the fact that our plan is to spend kind of roughly 60% of our discretionary cash flow on our growth capital for any given year. And we think that next year ought to be pretty comparable to that. And we have contracts out into the latter parts of next year that ought to be somewhere in that ballpark. So next quarter, when we give official guidance for '26, we'll give that more detail, but we feel pretty good about where we're at right now and set to have continued growth into next year. Douglas Irwin: Understood. And then my second question, just around M&A. I think so far this year, you've been focused on more kind of smaller acquisitions and divestitures, but it sounds like a lot of the obvious high grading is maybe concluded at this point. So just curious if larger scale M&A is something that's on your radar? And if so, what kind of deals might make sense? And would you maybe even consider stepping outside of traditional compression if the right opportunity presents itself? Robert McKee: Yes, Doug, I mean, we definitely would consider that. We don't comment too much on potential M&A deals. But I will tell you that the strategic actions that we took this year set us up to be in a position to consider some of that stuff for next year. So we went live with our ERP system, which was a huge step for us to dial in technology and utilize AI going forward as well as the bond issuance that we did that's freed up $1.5 billion worth of availability on our ABL. So as of this quarter, we have a balance sheet that's in a position to pursue some M&A activity if the right opportunity presents itself. Operator: And our next question comes from John Mackay with Goldman Sachs. John Mackay: Last quarter, you -- we spent a fair amount of time on some of the initiatives you were working on with your customers, kind of sale leasebacks or other kind of similar types of deals. Can you maybe just catch us up on where those sit and how conversations gone so far? Robert McKee: John, good to talk to you this morning. So in Q3, we had a small purchase leaseback transaction that we executed on that was really good for us and helped us grow the revenue-generating horsepower by above that 30,000 horsepower mark. So we've got good conversations with that kind of stuff going on. Nothing -- no big things super imminent right now, but those conversations are happening with customers. And just kind of back to Doug's question that I just answered, right, like the strategic initiatives that we executed on in this quarter with the ERP implementation that allows us to get that real-time financial and operational data at our fingertips as well as the bond issuance freeing up a lot of liquidity for us is those were 2 really important steps as a prerequisite to executing on some larger type of not only M&A, but also kind of like strategic transactions with our customers. So we had to get those steps out of the way first before we could take the next one. So we're excited about the progress we made in the third quarter. John Mackay: Understood. And then going back to your comment earlier around, I guess, you're doing some station construction for some power out in the basin. Can you talk a little bit more about what the opportunity set looks like there for you guys and whether Kodiak could get more kind of directly into the power gen side? Robert McKee: Yes, absolutely. I mean that specific opportunity is one of our station construction deals. We've got a ton of backlog that it looks like for opportunities in our pipeline for that station construction business, a lot of interest in the power sector. And so we are doing a lot of work there. We're gaining a lot of valuable expertise and industry insight there. And if the right entry point presents itself, then we will probably take advantage of it. But nothing to report just yet, but we're doing a lot of work, and we're very interested in the segment. Operator: And we'll go next to Connor Jensen with Raymond James. Connor Jensen: I noticed that lead times are back above 60 weeks for equipment, which lines up with what we've heard from others. Wondering if this will potentially lead to higher prices down the road on incremental orders that you could maybe capture through higher prices and just kind of how you're thinking about that dynamic? Robert McKee: Yes. I mean I think lead times are a function of the demand in the industry, right? And so I think you're seeing this -- the industry see an extraordinary amount of demand from not only takeaway capacity increases in the Permian Basin, but significant volume increases that are being projected for natural gas, not only in the Permian, but in other basins as well. So I think you're starting to see this LNG capacity come online and you're starting to see a significant amount of volume increase projections from our customers and others that are saying, man, we need a lot of compression, and we need a lot more of it. So I think that is all going to be positive for pricing going forward, and we expect that we will continue to have positive pricing discussions with our customers. Connor Jensen: Got it. That makes sense. And then a nice job exiting all the international operations focus on the core U.S. market. Is there any cost savings to be had being an entirely domestic business? And how should we think about divestments following this presumably at a lower pace now that you have all the international businesses sold? Robert McKee: Yes. I think going forward, the divestitures will come at a lower pace, now that we've successfully exited Mexico and Argentina. Those businesses were definitely at a lower margin contribution than the standard large horsepower compression that we have that's very, very concentrated in the U.S., especially in the Permian Basin. So we're certainly divesting of lower-margin business there. So I would consider -- I would definitely think that it would be helpful to our overall margin. So -- but it's a pretty small contribution. So it's not going to be a big impact. John Griggs: And I will add to that, this is John, to -- and we called it out in the prepared remarks. It was in our press release. So we explicitly spent about $5 million on professional expenses in the third quarter in SG&A for a business that's now sold. So that's kind of all wrapping up. And so there is a bona fide savings you won't see repeat in the fourth quarter and beyond. Operator: Moving next to John Annis with Texas Capital. John Annis: For my first one, with the new horsepower added this quarter, can you talk about how much of that is electric? I think you may have mentioned around 40% in your prepared remarks, if I heard you correctly. And then just more broadly, has there been any recent changes in your customers' desire to add electric motor drive compression? John Griggs: Yes. Thanks. This is John. I'll tackle the first piece and then hand it back to Mickey for the customer kind of feedback. So in the third quarter, we added around 60,000 new horsepower and about 40% of it happened to be electric. We also, over the course of the year, have kind of told everybody that about 40% of the total order book for '25 was electric. So that was just a coincidence in terms of the third quarter versus the year. In terms of what Mickey is saying in the future, I'll turn it back to you. Robert McKee: Yes. I mean I think that you're definitely seeing a little bit of a pullback away from electric-driven compression orders and inquiries coming in. It's just a power problem, especially in the Permian Basin. They're just the lead times for getting power and connecting the grid access is just a problem for people that have aspirations to go to electric. I think those aspirations are still there. They just are looking at shorter-term solutions and that kind of thing that are kind of then the longer-term electric desires that they have. So the power problem is real, and it's kind of shifting some of those customers' desire to go electric. John Annis: Terrific. For my follow-up, you highlighted robust natural gas demand drivers, including power for data centers and LNG. Can you quantify what portion of your new unit deployments or backlog are directly tied to serving these emerging areas versus traditional wellhead production? And then are there any differences in contract terms, duration or equipment requirements for these applications? Robert McKee: John, it's really hard for us to quantify what of our -- how much of our compression is going to serve LNG versus data center demand and that kind of thing. Once that gas gets into a pipeline, you never know if that certain molecule is going to support fuel for power for a data center or it's into the Gulf Coast to be liquefied and said to Europe for LNG. So we really can't tell the difference from our standpoint. We do know that there's a lot of demand for natural gas and it all requires multiple stages of compression. It's good for our business. So we see it coming down the pipeline, and we don't see any differences really from those standpoints of contract terms or duration there. So from where we sit in that value chain, it's too early to kind of determine. Operator: Moving next to Zack Van Everen with TPH & Company. Zackery Van Everen: Maybe just going back to the 60 weeks on new equipment. Does that kind of indicate you're already starting conversations with customers for 2027? And would you guys be willing to order some on spec just to make sure you have the equipment when it's needed? Robert McKee: I would think that the discussions for 2027 will start happening really quickly. We've been pretty busy here so in the last month or so. So I haven't heard about many discussions into '27, although I do know that they're starting to happen. We haven't traditionally ordered equipment on spec, Zach, but -- and to the extent that we can avoid doing so, we will for compression. But there's some things we can do in working with packagers and working with the Cat dealers on making sure that there's engines kind of in the pipeline coming down and that we can have access to. So there are some things we can do to kind of manage our supply chain there without having to really step out on a limb and order full equipment packages on speculation out with that longer lead times. Zackery Van Everen: Got you. That makes sense. And maybe related to the same question, have you seen contract duration get extended as we see continued rates increasing for customers is when they renegotiate. Has that gone out from the typical 3 to 5 years? Or are you still within that range for most new contracts? Robert McKee: Most new contracts are still within that 3- to 5-year range. So we are starting to see some interest from some customers that want to term equipment out for longer than that, but haven't gotten too much traction there as we're really more prone to key in on price rather than term for those contracts. Operator: [Operator Instructions]. And we'll go next to Selman Akyol with Stifel. Selman Akyol: I just want to go back to the station construction opportunity that you're seeing. And you talked about backlog, and I just want to make sure I understand that. Is backlog opportunities that you've identified? Or is that stuff you've identified and you actually expect to become order and we should expect to see it at some point flow through? Robert McKee: A little bit of both, Selman. I think that we probably have more opportunities in our pipeline today than we've probably had in the last couple of years. Now conversion rate on those, I think we expect to be pretty high, but haven't signed, sealed the deal on all of those yet, but we feel pretty good about that business model going forward and the contribution that it's going to have in 2026. Selman Akyol: And then as we think about margins, you've talked about divesting lower contributions. You've got your ERP system. You've talked about AI. What should we be expecting margins as we kind of go through '26? Is there still upward pressure to those numbers that you're putting up? Robert McKee: I think so. I mean we're not quite ready to guide on '26 what margins are going to look like yet, but we would expect those to be higher than they are today. Selman Akyol: Got it. And one last question, if I could squeeze it in. Can you just talk about what the outlook is for other basins besides the Permian? I know the Permian gets all the attention, but seeing any uplift in any others? Robert McKee: Yes. Selman, good question. And quite frankly, the bulk of the capital spend by our customers has gone to the Permian Basin, like you said. So we key on the Permian probably more than most people. But I will tell you, there is some uplift in opportunities that we're seeing in some other basins. We've got some really interesting opportunities that we're taking advantage of up in the Northeast as well as in the Eagle Ford as well as in the Rocky Mountains. So we're seeing some of those other basins start to have a lot more interest and activity. So it's a good thing. And we think that certainly from a natural gas standpoint of supporting LNG build-out and data center build-out and that kind of thing, some interest from these other basins is a quality thing for us. Operator: And we'll hear next from Eli Jossen with JPMorgan. Elias Jossen: Maybe just on some of the strong liquidity you guys have and the optionality it creates. I recognize that '26 is pretty filled out, but can you just talk about what makes the most sense to do with that dry powder? I mean, could we think about something bigger in the Power Solutions realm? I know you guys talked about you're looking at those, but maybe just stacking that kind of opportunity set versus some of the M&A that's out there. John Griggs: Yes, sure. So this is John. I'll tack it, and I'm sure Mickey will chime in, too. So look, you asked a broader question. I am going to say that our capital allocation framework that we've been consistently applying since we went public is still the one that we're going to stick to, and that's an algorithm that kind of looks at that 3% to 4% growth in horsepower on a year-over-year basis for several years, generates upper single digits EBITDA growth for several years in a row, and that should translate into a similar, if not slightly higher discretionary cash flow growth rate going forward as well, too. We want to honor the 3.5x long-term leverage target that we've kind of set forth. And so we will always want to protect that balance sheet. But then we've got this great pile of discretionary cash flow that we have the optionality and what we're going to do stuff with. We're still seeing wonderful returns. We always talk about kind of the new horsepower sets that we see and generating really, I guess, high-quality returns well above our hurdle rates on new horsepower. So we'll continue to do that. And then as we think about M&A, Mickey answered a lot of those questions at the beginning. So we've gotten so many of these things that have kept us pretty focused post going public, post-CSI integration, exiting the international operations, exiting the small horsepower business, implementing the new ERP system that were really real geared up to just take advantage of this kind of, I'll call it, new management capacity that we have for the next chapter of Kodiak's growth. So we're going to look at all opportunities within compression that fit our kind of pistol, which is going to be the large horsepower, high-quality assets in the right basins. And then as we think about power, how can you not think about power in a world that we live in? Our customers ask us to do it. We're in the electric power business. We have relationships with all of the people that are buying their own distributed power that are concerned about what's going to happen to the grid and stability. So it's conversations that we'll continue to have going forward. And then the last is that opportunity to work creatively with our customers to potentially do the purchase leaseback type transactions. Those would be wonderful ways to grow our business without growing industry capacity to a degree and can make great financial sense for investors. So it's really -- it's -- we're sitting really well for 2026 to try to think about, once again, the next chapter of Kodiak's growth that is in addition to this awesome long-term business model that we have in large horsepower U.S. compression. Elias Jossen: Yes. Awesome. Really appreciate the color there. And then maybe just kind of back to some of the 60-week lead times and the contracting that you're seeing. Can you just talk a little bit about pricing trends, particularly in the Permian? I know those continue to move up and to the right, but just what you guys are seeing on the pricing front and how you expect that to evolve in the future? Robert McKee: Yes, Eli, we don't expect things to change that much. I think we've still got the ability to command leading-edge pricing that we have for the last couple of years. We've repriced a good bit of our fleet, but there is still a significant piece of our fleet that we haven't repriced. And so we expect kind of the existing price book of the existing fleet to continue to move up over time as we adjust some of the legacy contracts that we had that are 3 or 4 years old. And then we expect to continue to command kind of leading-edge pricing on new unit deployments that we have coming out the door, too, because, quite frankly, with the inflation and increased cost of operations on that stuff, we have to command a higher price to command the same kind of margins that we've had. So we'll be focused -- laser-focused on those, but we think that the pricing situation remains pretty status quo, and we think we can still drive pricing on new units and the existing fleet. Operator: Anything further, Mr. Jossen? Elias Jossen: I leave it there. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to Mickey McKee for closing comments. Robert McKee: All right. Thank you, operator, and thank you to everyone participating in today's call. We look forward to speaking with you again after we report our results for the fourth quarter. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to Ovintiv's 2025 Third Quarter Results Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] Please be advised that this conference call may not be recorded or rebroadcast without the expressed consent of Ovintiv. I would now like to turn the conference call over to Jason Verhaest from Investor Relations. Please go ahead, Mr. Verhaest. Jason Verhaest: Thank you, Pam, and welcome, everyone. This call is being webcast, and the slides are available on our website at ovintiv.com. Please take note of the advisory regarding forward-looking statements at the beginning of our slides and in our disclosure documents filed on EDGAR and SEDAR+. Following the prepared remarks, we will be available to take your questions. Please limit your time to one question and one follow-up. I will now turn the call over to our President and CEO, Brendan McCracken. Brendan McCracken: Thanks, Jason. Good morning, everybody, and thank you for joining us. We're excited to talk to you today about another great quarter and some significant strategic actions we are taking to crystallize our vision to becoming the leading North American independent E&P. First, we've entered into an agreement to acquire NuVista Energy, who have built an incredible asset base in the core of the Alberta Montney oil window. This transaction is priced right and we expect it to create exceptional value for our shareholders. It is immediately accretive on all financial metrics, highlighted by a 10% boost to our go-forward free cash flow per share. It's leverage-neutral at closing, it comes with valuable spare midstream capacity and valuable downstream gas price exposure and it adds significant inventory in the high-return oil window of the Montney. Second, we plan to commence the divestiture process for the sale of our Anadarko assets. Proceeds will be used for accelerated debt reduction, and we now expect to be below our $4 billion debt target by the end of 2026. That will enable us to allocate a higher percentage of our free cash flow to shareholder returns. Third, we have continued to meaningfully add to our Permian well inventory at highly attractive prices by prosecuting our ground game strategy in the Midland Basin. Finally, we continue to deliver exceptional performance across the organization, highlighted by our strong third quarter results and positive full year 2025 guidance revisions. Collectively, these actions streamline and high-grade our portfolio help us to meet or exceed our debt target and uniquely position us with significant inventory duration in the two most valuable oil plays in North America, the Permian and the Montney. Before we get into the transaction details, Corey will give you a quick overview of our third quarter results. Corey Code: Thanks, Brendan. We delivered another strong quarter, once again meeting or beating all of our guidance targets, setting us up for a strong finish to the year. We generated cash flow per share of $3.47 and free cash flow of $351 million, both beating consensus estimates. We also returned approximately $235 million to our owners through share buybacks and our base dividend and reduced net debt by $126 million. Production during the quarter was at the high end of our guidance ranges across all products. The beat was largely driven by the Montney as we continue to see strong efficiency gains from our recently acquired Karr and Wapiti assets. We came in below the midpoint on capital, and we also match or beat our guidance on all per unit cost items. Our third quarter results demonstrate the ongoing resiliency of our business and our constant pursuit of capital efficiency. Despite the more than $10 per barrel drop we've seen in WTI oil prices since the first quarter of 2024, our cash flow per share has remained relatively consistent. We've updated our full year guidance to incorporate our year-to-date results and improved Q4 outlook by increasing our production targets for all products while maintaining our capital guide. As a reminder, we lowered full year capital by $50 million last quarter to reflect our efficiency savings. For full year 2025, we now expect to deliver 10,000 BOE per day more production or $50 million less capital compared to our original plan. In the fourth quarter, we expect our total volumes to average approximately 620,000 BOEs per day including about 206,000 barrels per day of oil and condensate and capital is expected to come in at about $465 million. We've also adjusted our guidance to include an anticipated reduction in our 2025 cash tax bill of about $75 million or about 50% less than we originally expected. This reflects the impact of an internal restructuring and evolving U.S. tax guidelines. We expect these reductions to be durable for the next several years. In short, the team turned out another great quarter, and our 2025 outlook has improved once again. I'll now turn the call back to Brendan. Brendan McCracken: We've been operating in the Montney for more than 20 years and in the Permian for over a decade. Bolstering our position in these 2 basins where we have a competitive advantage means we can continue to deliver durable returns for many years to come. Today's transaction marks a culmination in our strategy in our strategic positioning of the company to create a focused, high-return deep inventory portfolio. In total, since 2023, we've increased our Permian and Montney drilling inventory by more than 3,200 locations at an average of $1.4 million per net 10,000 locations. This inventory like expansion has been unmatched by our peers and leaves us with one of the most valuable inventory positions in the industry. This portfolio, combined with our execution capability, uniquely positions our company to generate superior returns for a long time to come. The NuVista acquisition checks all the boxes. It's accretive across all key financial metrics. The combination enhances our returns, add scale and extends our future inventory runway in a core area. It boosts the quality of our oil inventory and enables us to maintain a strong balance sheet. We identified NuVista through an in-depth technical and commercial analysis of the Montney to identify the highest value undeveloped resource. That analysis highlighted the NuVista assets along with the Paramount assets we acquired earlier this year as being the most attractive and most complementary to our existing Montney position. NuVista sits in the core of the oil-rich Alberta Montney. It's directly adjacent to our existing operations in Karr, Wapiti and Pipestone. It is largely undeveloped and it comes with significant processing capacity for future oil and condensate growth optionality, along with the downstream market access portfolio, that provides valuable natural gas price diversification outside the AECO market. This is one of the highest quality undeveloped acreage positions in North America and the overlap with our existing land makes us the natural owner. While the assets are among the very best in the Montney on a stand-alone basis, the combination with our acreage is an ideal setup to unlock significant value. This transaction will add approximately 930 net 10,000-foot equivalent well locations across 140,000 net acres. Extending our Montney oil inventory to the higher end of our existing 15- to 20-year range. But this transaction does not just add inventory, it makes our overall Montney position better. Folding in NuVista will result in a 10% uplift to our average Montney oil type curve. Importantly, we are acquiring this high-quality inventory at a reasonable cost. For about $1.3 million per well location, which is very attractive compared to recent transaction metrics in the Lower 48. The acquisition provides strong financial accretion and will result in immediate and long-term expansion in our per share metrics like cash flow, free cash flow as well as increased ROCE. It will enhance our scale in the basin increasing our 2026 expected Montney oil and condensate volumes to about 85,000 barrels per day. The acquisition is expected to be leverage-neutral at close, and we will retain ample liquidity and a strong balance sheet. With this transaction, we are creating a stronger business that will be even better positioned for near- and long-term value creation. Let's dive in with some more details about the NuVista assets. The team at NuVista has done a great job building a contiguous position in the core of the Montney oil window, and we're excited to combine it with our existing assets. The acreage pairs incredibly well with their existing land base. As you can see on the map, it could not be a better fit. We acquired acreage is about 70% undeveloped with about 400 horizontal wells producing today. In 2026, we estimate the NuVista assets will deliver average volumes of about 100,000 BOEs per day, including about 25,000 barrels of oil and condensate and 400 million cubic feet a day of natural gas. The transaction also comes with significant AECO price mitigation and diversified market access, which Greg will describe in more detail later in the presentation. I should point out that as a Canadian company, NuVista reports its volumes on a net before royalties basis and uses Canadian dollars as its reporting currency. So the numbers we quote will look different than their reported numbers. I'll now turn over the call to Greg to walk through more of the details. Gregory Givens: Thanks, Brendan. This transaction adds depth and duration to our premium inventory and further expands our leading Montney scale. The 620 premium locations assume spacing of 10 to 14 wells per section, while the 310 upside locations assume up to 16 wells per section in the most prolific areas, plus additional infill opportunities. This is consistent with the development approach taken on our legacy assets, including the Paramount assets acquired earlier this year. Next year, we expect our pro forma 2026 total Montney production to average about 400,000 BOE per day, including 85,000 barrels per day of oil and condensate and 1.75 Bcf per day of natural gas. We anticipate running an average of six rigs and one to two frac crews. We'll have further details to share on our 2026 capital program when we issue our full year guidance in February. We are confident in our ability to unlock significant value from the NuVista assets using our proven development approach to generate superior asset level returns and unmatched capital efficiency. We expect to capture about $100 million in durable annualized free cash flow synergies. About half of the synergies are from lower capital costs. We expect to achieve a savings of $1 million per well consistent with our current Montney well costs from streamlined facility design and faster cycle times. The balance of the synergies come from other non-well capital savings, lower production costs driven by enhanced scale connecting the wells to our Grand Prairie operations control center, where we use automation and in-house AI tools to optimize production and reduce downtime as well as lower overhead. We are highly confident in our ability to realize these synergies given our strong track record of asset integration, which we demonstrated most recently by achieving our synergy target within the first 6 months of owning the Paramount assets. We also see the potential for significant future savings from things like the ability to optimize our development plans, giving more available processing capacity. The ability to extend the lateral length of our wells currently are constrained by lease lines and the opportunity to further optimize our base production, thanks to more integrated infrastructure. The enhanced value of our business is both structural and durable and will support increased direct returns to shareholders and higher return on capital employed. Our confidence in the quality of the new assets is evident in the strong well results from NuVista on this acreage. When we overlay NuVista's average well productivity from 2023 and 2024, the acquired assets have delivered impressive cumulative oil rates. Integrating these assets into our Montney development plan results in a 10% oil and condensate productivity improvement for our previous program type curve. This is illustrated on Slide 13, where the dashed orange line shows our previous repeatable program and the thick orange line represents our new repeatable program with the addition of the NuVista assets. This is a powerful demonstration of the underlying rock quality we're acquiring. The returns in the Montney oil window are competitive with the best plays in North America. This is a result of the high well productivity, the low drilling and completion costs, the favorable royalty structure and the fact that Canadian condensate generally receives very close to WTI pricing. The economics are not dependent on a higher NYMEX or AECO price. Even at very modest AECO prices, these wells would still compete for capital in our portfolio. Our analysis of the pro forma assets show that at the current strip pricing, we expect the NuVista assets to generate a 55% rate of return in 2026. The transaction comes with about 400 million cubic feet per day of natural gas. NuVista's downstream firm transportation agreements and hedging arrangements will lower our exposure to AECO on a pro forma basis. Ovintiv's 2026 AECO exposure will go from about 30% of our Montney gas production free transaction down to about 25% pro forma. NuVista's approach to AECO price mitigation is very similar to ours. They have done a great job of building out a diversified portfolio of firm transportation contracts to markets across North America, for about 250 million cubic feet per day of their natural gas volumes. They've received strong realized pricing as a result. Year-to-date, as of the end of the second quarter, the pre-hedge gas price realization was approximately 180% of AECO. In addition, they have JKM link contracts for 21 million cubic feet per day starting in 2027. They also have a strong financial hedging program with a current mark-to-market value of about $120 million. NuVista's significant processing capacity unlocks future growth optionality for us. They have secured 600 million cubic feet per day of long-term raw inlet processing capacity, which when combined with our existing Montney processing will provide optionality for Ovintiv to grow our oil and condensate volumes by more than 5% for the next 3 to 5 years with no major infrastructure spending requirements. We've had good success collaborating with midstream partners to improve uptime at the facilities we inherited through the Paramount transaction, and we are confident we can continue to add value with future processing optimization efforts across the play. I'll now turn the call back to Brendan. Brendan McCracken: Thanks, Greg. Our work to build inventory depth is not restricted to the Montney. Over the past several years, we've extended our Permian oil inventory runway to nearly 15 years. It's no secret that the price of inventory has gone up dramatically since 2023 when we acquired over 1,000 drilling locations in the Midland Basin for an average cost of about $2 million per well. We were ahead of the pack and as recent transactions in the play value the inventory as much as $7 million per well. While many people think there are no opportunities left to add inventory and make a reasonable rate of return, our team has continued to focus on bolt-on blocking and tackling across our acreage position. Our Permian ground game has yielded impressive results, acquiring low-cost, high-quality inventory in the core of the play. Year-to-date, we've added 170 drilling locations, 90% of which are premium for an average cost of $1.5 million per well. These transactions do not include any producing wells. They are inventory accretive, and they're offsetting our existing acreage and compete for capital immediately. We think there are more opportunities for reasonably priced bolt-ons in the play and we will continue to take a value-driven approach to evaluating future prospects. We are funding the NuVista acquisition with a balanced mix of cash and equity. The sources of cash include cash on hand, borrowings under our credit facilities and proceeds from a term loan. We've chosen to pause our share buyback program for 2 quarters until around the time the transaction closes. This decision, coupled with our balanced financing mix should result in a leverage-neutral transaction at the time of closing. During this time, we've also caused bolt-on spending, and our base dividend is unchanged. Debt reduction remains a key priority for us and we remain committed to reaching our net debt target of $4 billion or about 1x leverage at mid-cycle prices. As such, we have chosen to accelerate our pace of debt reduction and further streamline our portfolio through an asset disposition. We remain committed to preserving our investment-grade credit profile, and we do not expect a negative impact to our investment-grade ratings because of the NuVista transaction. We plan to commence a sales process for our Anadarko assets that we expect to complete by the end of next year. The Anadarko is a highly valuable asset with a low decline rate, strong realized pricing and low LOE. It punches above its weight in free cash flow generation. In the third quarter, it produced roughly 100,000 BOEs per day, including 29,000 barrels a day of oil and condensate. Following the divestiture, we expect to be well below our net debt target enabling us to allocate a greater portion of our free cash to shareholder returns. We continue to believe our equity is undervalued and share buybacks continue to screen as a superior return on investment compared to investing in growth. We will provide more details on what a refreshed shareholder return framework could look like as we get closer to the sale of the assets. In summary, yesterday's announcement reflects years of work to build the portfolio that delivers on our durable return strategy, and we're excited to reach this milestone on behalf of our shareholders. I'd like to recognize the efforts of our team to get us here. The NuVista assets in our ground game additions strengthen and expand our position in the top 2 oil basins in North America. The NuVista transaction is strongly accretive to our financial metrics as well as our premium inventory debt. It significantly boosts free cash flow per share, provides significant oil growth optionality, valuable gas price diversification and maintains our investment-grade rated balance sheet. Our track record of asset integration and operational excellence gives us confidence in our ability to deliver on the targets we've set out today. We have one of the most valuable premium inventory positions in our industry. We have worked diligently to focus and high-grade our asset base while strengthening our balance sheet. We now have the achievement of our debt target firmly in sight, and with that, the inflection to deliver increased returns to our shareholders. Operator, we're now ready to open the line for Q&A. Operator: [Operator Instructions] Your first question comes from Kalei Akamine with Bank of America. Kaleinoheaokealaula Akamine: Congratulations on the deal. I want to ask on the growth outlook for the NuVista asset. So NuVista was prosecuting a linear growth strategy through a decade in, and that was really enabled by their investments in gas processing capacity. And the timing of that, it's pretty imminent. So my question is, how are you thinking about balancing or optimizing those plants versus your capital discipline approach to capital spend? Brendan McCracken: Yes. Kalei, thank you very much. Appreciate the comments and the question. Yes. So we're going to fold this in and run our combined business in the same capital disciplined way that you've seen us do over the last several years. And really what that has us thinking about is a couple of items. One, what's the macro, what's the demand for growth from large E&P companies? And I think today, it's fair and reasonable to say there is not a market demanding more barrels or BTUs be produced. And so that signal calls for a maintenance level investment. And then the other signal we look closely at is can we get better cash flow per share growth from buying our shares back or from adding activity in the field. And again, that signal is telling us it's a better option for our shareholders to buy the shares back to generate that cash flow per share growth. So when we incorporate these NuVista assets, we're going to fold them into that same capital allocation strategy. And so we'll be slowing that rate of growth investment down and running the assets for free cash generation if the environment continues to be the same. Kaleinoheaokealaula Akamine: I appreciate that. For my follow-up question, I want to ask about the 900-plus locations that you're acquiring with NuVista. That includes 300 upside locations. I want to understand the plan to derisk those upside locations and whether that process is kind of already on the way, considering that you're doing some similar work on the Paramount assets that you acquired earlier this year. Brendan McCracken: Yes, Kalei, great question. I'll probably get Greg to comment here, too, because you're exactly right. This acreage sits side-by-side with both our legacy Montney acreage, but also the -- now, I guess, now legacy acreage from the Paramount acquisition. And so the ability to take the learnings on well density across into this new acreage has given us a lot of conviction. But Greg, you can kind of comment on some of the specifics on time line. Gregory Givens: Yes. Thanks, Brendan, and thanks for the question, Kalei. You're spot on. If you look at the map, this acreage just really nicely fits in that hole between our Pipestone acreage and our Paramount acreage we acquired earlier this year. We'll take the same approach. In some areas, that's going to be two zones, up to three zones, 10 to up to 16 wells per section. We're already well on our way at delineating the Pipestone acreage to see how much of that upside we can convert to base. We'll take the exact same approach here on the NuVista acreage. They've already done a pretty good job of that, but we feel like there's some room to go. So it will just really fold right into the work we're already doing. Operator: Your next question comes from Phillip Jungwirth with BMO Capital Markets. Phillip Jungwirth: On the year-end '26 time line for the Anadarko sale, is there anything you're looking to prove up ahead of the sales, such as maybe like 3-mile laterals or more optimized cube? Or do you think most of this work has been done? And then I just want to ask also if there's been any reverse inquiries received to date, recognizing you're starting to process early next year. Brendan McCracken: Yes. Thanks, Phil. Great questions. Lots of interest in the Anadarko asset. As you might imagine, there's been some precedent transactions in that basin. So our interpretation is there's a very strong buyer market in that basin for assets like ours and so I think on time line, nothing to prove up technically in the play. This is a really well understood, low decline basin with lots of certainty in it. And so I think the time line will just be about maximizing proceeds for our shareholders. So that's how we'll be thinking about the time line. Phillip Jungwirth: Okay. Great. And then just depending on the actual proceeds received from the sale, how much below $4 billion of net debt would you view as a floor? I think in the past, you've talked about some interest in going below that. Our model would put net debt at low 5s, call it, by year-end '26. So feel like you could be quite a bit below this $4 billion target. I'm just wondering how -- where would you view the floor as we think about go-forward capital returns? Brendan McCracken: Yes. Great question. Love the forward look there. I think the way we'll talk about that is we've got to get there and make those decisions with the facts of the moment and the macro at the time. But if you took today's lens and you looked at it, that would be a tremendous opportunity for boosting those shareholder returns as we've indicated. Operator: Next question comes from Scott Gruber with Citigroup. Scott Gruber: Curious about Montney maintenance CapEx over the long term. We can do the math on where that probably lands in '26. But curious kind of your ability to push that down over the next 2 to 3 years after you realize the cost savings underpinning the deal and optimizing activity without a common lease line, just some thoughts on being able to squeeze Montney maintenance CapEx down even further and where you think that could land? Brendan McCracken: Yes. Thanks, Scott. I love how you're thinking about it. We highlighted a number of longer-term synergies. We've obviously pointed to the shorter term capital and cash cost synergies, but there are some longer-term synergies here as well putting these two asset bases together, boosts our type curve, ability to drill longer laterals, things like that. But Greg might have a comment on how we'll think about continuing to add efficiencies in the play. Gregory Givens: Yes, thanks for the question. We'll -- in the very short term, we'll work on getting the cost structure on these new assets down to our cost structure, which will be around $525 a foot. But then over time, in all of our plays, we usually are able to continue to see a 2% or 3% reduction year-over-year just due to efficiencies in our program. So we'll continue to drive that down, just organically. And then some of the really, I think, attractive opportunities of -- if you look at the map, I mean, this is just ripe for opportunities to lengthen laterals across lease lines, to share infrastructure. We've already identified some spots where it looks like some of their infrastructure will replace capital spend that we were planning on in the next year or 2. So we feel like we're going to be able to drive down our capital structure here significantly over time. If you think about -- we're not ready to give guidance for next year, but we'll probably have about 1/3 of our activity on this new acreage, 1/3 on the acreage we acquired last year and 1/3 on our legacy. So we'll have opportunities to learn and get better in all three places. So we feel like over time, we're going to continue to just drive down what's already an industry-leading capital efficiency up there. Scott Gruber: I appreciate the color. A quick follow-up on the well productivity delta. It's a decent step above yours and looking for a nice 10% improvement on a blended basis. Is the delta there all rock quality? Are they undertaking a different style of completion? What do you attribute that Delta 2? And if it is rock quality, do you think about pivoting more activity in that direction over time? Brendan McCracken: Yes, Scott, great question. Yes, it's all oil mix. So this is really a fluid window. So where the NuVista acreage sits relative to the basket of Ovintiv acreage, it runs just a little more oily. So net-net, our oil type curve goes up on mix. So that's the driver there. Operator: Your next question comes from Betty Jiang with Barclays. Wei Jiang: Congrats on the acquisition. I want to ask about the processing capacity and on the midstream front, specifically for the Montney. With expanded scale, are there opportunity to optimize how you utilize the different plants, the flows, utilization of different plants and the opportunity to potentially negotiate better contract on the midstream front. Brendan McCracken: Yes, Betty, thank you for your comments and the question. Absolutely on the midstream side, it's one of the deal synergies that's sort of baked into some of the cash cost piece, but also the capital and then in the longer-term unquantified synergy bucket here, too. So there's lots to talk about here. If we focus on the midstream side, Greg just alluded to this earlier, there are several places where we can avoid some capital expenditure that we would have had for minor infrastructure projects that now could come out because these assets come with spare capacity. So that's kind of immediate. One of the big wins we've had on the Paramount integration is around run time. And so we expect an integrated asset here is going to also be able to boost run time through these midstream and processing facilities. And then the final piece is around the ability to grow into these assets over time when the macro calls for that in the future. So a lot of good wins to capture on the midstream infrastructure side here. Wei Jiang: That's great. And then a follow-up on the gas marketing side, just given the larger position, do you see adding scale enabling more opportunities to market gas, whether on the global LNG front or other ways to mitigate your exposure to AECO. Brendan McCracken: Yes. Absolutely, Betty. So our strategy has been to minimize our exposure to AECO and we've been steadily chipping away at that over the last number of years, and in particular, since we acquired the AECO exposed gas from Paramount. And we're going to continue to do that. One of the deal features we love here as it does reduce our AECO exposure in the next several years from about 25% -- sorry, from about 30% down to 25%. So there's a built-in step change from combining these assets together. And we will continue to look for other downstream markets to diversify our AECO away from. And I know our midstream marketing team is hard at work on that today. Operator: Your next question comes from Lloyd Byrne with Jefferies. Francis Lloyd Byrne: Congratulations on the transaction and the -- frankly, the entire portfolio transformation over the last couple of years has been really good. Can you just start with -- maybe the question that started off on potential growth going forward. We kind of think you can grow these assets on a liquids basis, if you want. And is there any infrastructure processing constraints that you have that would block that? Brendan McCracken: Yes. Thanks, Lloyd for the comment and great question. So if you think about what this transaction does, we had already built a real growth option in the Montney oil with the addition of the Paramount acreage because that came with some spare processing and midstream capacity as well. This one boosts that up. So we had previously been talking about kind of that low to mid-single-digit growth potential for oil and condensate compounded over several years. This now boosts us up to be able to do over 5% growth for up to 5 years. And so if you think about what that could mean, it could take our 85,000 barrels a day in the play up well north of 100,000 barrels a day over that period if we chose to make those investments. So again, I'll caution that is not our capital allocation plan today in this macro environment. But in the event of a stronger macro environment, this -- both the inventory depth and the processing facilities are there to be able to facilitate that growth without major infrastructure investment. And you didn't ask it, but I'll pile on a little bit here. Obviously, the addition of our ground game locations in the Permian also give us a lot of confidence in that growth option as well. And that is also a place where there is ample processing capacity available should we choose to exercise that. So really, we've got that growth option unlocked across the future portfolio here. Francis Lloyd Byrne: That's great. Brian, you beat me to my second question. I just wanted to ask you about the ground game in the Permian. And just what is it that allows you to keep adding those locations at an attractive price? And can you -- do you think you can continue that going forward? Brendan McCracken: Yes. Thanks, Lloyd. I appreciate you hearing me back there. This is a great example of how the ingenuity and approach that our team is taking is exposing our shareholders to a unique value-creation options. So really where our comparative advantage comes into play here is if you're a large mineral rights holder in the Permian, the operator of choice for you is Ovintiv. We're going to get you the best royalty stream off of these assets because of our cube development approach and because of our reoccupation strategy and how we conduct our operations in the basin. So that's allowing us to access really high-quality resource at a very attractive entry price for our shareholders, and we look forward to seeing what that can yield in future years as well. Operator: Your next question comes from Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: So obviously, you've set the table for the Anadarko sale. I wonder we're coming into potentially what some would think is a softer oil outlook. Are there any conditions where if you don't get what you hope to achieve in terms of valuation that you would hang on to that asset longer? Or is it a sale regardless of the -- I mean how are you thinking about framing the conditions of sale? Brendan McCracken: Yes. It's the right question, Doug. I think, look, the one thing I'll point out, first of all, is the Anadarko, while it makes a fair amount of oil, it's about 1/3 oil, 1/3 NGLs and a third gas, so it does have good commodity exposure across the three products here. So it's not exposed to one exclusively, which is helpful in really any environment. And then this is a really high-quality asset. It's going to attract, I think, a lot of attention. And then we've given ourselves a reasonable running time here to execute. And so we'll be working through that time period to maximize the proceeds to our shareholders, but certainly cognizant of making sure we do that. . Douglas George Blyth Leggate: And then I wonder if I could be predictable and ask you about the capital return strategy. You're taking a pause on the buyback. We certainly can't understand why your free cash flow yield is as high as it is. But at the same time, we look at the capital structure and I think share buybacks are glacial. They're not working in terms of forcing market recognition of value, and you've got this opportunity to pause and basically test perhaps what happens if you lower your net debt and transfer that value to equity. So I guess my question is, you seem to be messaging the $4 billion floor and then a reset potentially in the share buybacks. Why not just take the debt down and reset your capital structure altogether? Brendan McCracken: Yes. I think, Doug, that's exactly what we'll be doing with the transaction. So I think we continue to be in agreement here about where we're trying to get the business to. And so we think the prudent approach we're taking here with the pause until close allows us to be leverage neutral with where we are pre-deal. And then the transaction on Anadarko would enable us to immediately step change below that debt target, so -- and give us the flexibility from there. So yes, I think we're agreeing with you. Operator: Your next question comes from Greta Drefke with Goldman Sachs. Margaret Drefke: I was just wondering if you could speak a bit on the drivers of the $100 million in annual capital and cost synergies outlined with the NuVista acquisition. Are these similar changes to the changes made while incorporating the Montney acreage from the Paramount acquisition at the start of the year? Or are there different opportunities you would highlight there? Brendan McCracken: Yes. Gret, I'll let Greg chime in on that. Gregory Givens: Yes. Thanks for the question. First off, I just want to complement NuVista. They've done a really nice job with the assets to this point, which is why we were so interested in acquiring them. But our team has developed a really well-defined and refined integration playbook that we'll start. Think of it kind of in two lenses. There's the short term, that first day up to the first 6, 9 months. And then longer term, how we approach things. But just immediately after close, we'll be connecting their rigs up to our drive center where we'll use in-house algorithms and AI to further refine our drilling efficiencies as well as our cost base in learnings on things we've learned here in the U.S. We think that's going to drive several days out of drill times. On the completion side, we're going to utilize our real-time frac optimization center, which will refine pumping schedules, shorten cycle times. Our use of local sand there in the basin which should also generate some really good cost savings shortly after close. And then on the facility side, we see some significant opportunities to reduce cost of both the new facilities we're going to build, but then longer term, as we showed on Slide 15 there, our acreage position in midstream are really well aligned where they're located close to each other. So we should be able to reduce facilities costs going forward and optimize that. So on the capital side, that will make up about half of the efficiencies we're going to see. And we think that's going to happen pretty quick. I mean we're going to measure that in months, not quarters or years. But then just importantly, on the production side, we're going to reduce costs there and get more efficient. We'll do just what we did on the last transaction. We're going to connect the wells to our operations control center in Grand Prairie very quickly and inexpensively. And from there, we'll be able to optimize production using our in-house AI tools and algorithms to optimize production on all the wells with set points on artificial lift, those types of things. But also what we found to be very effective is the automation that we put in place. So we can not only shut in wells remotely, but also bring them back online in minutes. And so while we've really improved the midstream reliability, and we think we'll be able to work with the new midstream providers here to help them as well. When inevitably you do have a downtime or a turnaround, we can bring our wells back online faster than anybody else in the industry up there. And what that does is just really increases our uptime. So you'll see a production benefit there as well as a cost reduction. And then when you look longer term, as I spoke about earlier, we're going to be looking to go to longer laterals. We've got some shared acreage that actually had a shared working interest between Paramount and NuVista historically. We'll be able to make those 100% working interest wells, extend lateral lengths, develop that very efficiently. We'll be able to share up and optimize infrastructure spend. And that will also help base production as well as new wells. So just lots of different ways we're going to be able to achieve this over the coming months and even longer. So really excited team is looking forward to get to work on optimizing this asset. Margaret Drefke: Great. And then just for my second question, I was wondering if you could speak a little bit more about the decision to fund the acquisition through a combination of both equity and cash. Can you speak a little bit about why 50-50 split is the optimal split in your view? Brendan McCracken: Yes. Thanks, Greta. I think the right place to start here is with getting the total consideration right. And so that obviously was the starting point for us. And then the next is to find the right balance on the financing mix. We were very disciplined with how much equity we used in the deal. It's our view that our equity continues to be undervalued. So we wanted to be disciplined with how we use those shares. And then we also wanted to make sure we held leverage neutral, like we've described at close here. And so really, those are kind of the governing features with how we thought about mix, and we think the outcome accretion and across the board, uplifts to the business makes sense with that mix. Operator: Your next question comes from Kevin MacCurdy with Pickering Energy Partners. Kevin MacCurdy: I always appreciate your view on AECO and Canadian gas prices. You made the point with this transaction that it lowers your AECO exposure and you're acquiring some really nice hedges over the next several years. But I wonder if you could update us on your long-term outlook for AECO and the Canadian gas markets and maybe what key projects would make you a little bit more constructive? Brendan McCracken: Yes, Kevin. Obviously, we've been cautious on AECO as the start-up of LNG Canada is helpful and an important milestone for Western Canadian gas producers, but also recognize the basin continues to be highly productive with a lot of growth capacity. And so we've been kind of near-term cautious. I think I would describe it as we look out into 2026, a little more constructive as that LNG Canada ramps up, but still cautious because it's not the end-all and be-all. But if you look forward to the LNG projects that are queuing up towards the end of the decade and into the early part of the 2030s, we think there's a real optimism around Western Canadian pricing. And what the additional egress could mean to the basin. And so built into our Montney business is the gas option, and we are long term excited about the value embedded in that gas option. Kevin MacCurdy: And just for clarification on the Permian inventory additions. Was the $250 million in spending in October, was that just from one transaction? Or was that several small deals that are -- that happen to be closing at the same time? Brendan McCracken: Yes. We bucketed together several deals into that to achieve that. So true ground game fashion there. Operator: Your next question comes from David Deckelbaum with TD Cowen. David Deckelbaum: I wanted to just follow up on some of the allocation conversations and some of the synergies with the NuVista transaction. You guys highlighted obviously the superior well productivity. And I think you talked about kind of splitting your activity evenly between Paramount and NuVista and Ovintiv acreage up in the Montney. I guess is there a future outlook that you would be moving more of the activity to more aggressively accelerate the development? It sounds like you're not constrained from an infrastructure side. On the NuVista acreage so that would sort of increase your free cash per share metrics? Brendan McCracken: Yes. Look, we are going to allocate capital across the Montney to maximize free cash flow, but also bear in mind our reoccupation strategy, which is really a reservoir management strategy to come back and drill cubes beside cubes within 18 to 24 months. And so those will be the two things that largely govern along with processing capacity, but those would be the things that govern our capital allocation across the assets. But like Greg said, it might shift around a little bit, but I think it's pretty stable in that 1/3, 1/3, 1/3 across the three buckets of Montney acreage. David Deckelbaum: Appreciate that. And I know it's a bit early, but I share your view on the valuation for the Anadarko Basin seems like it should be approximately what you paid for NuVista just on PDP alone. So I'm kind of curious, just from a tax perspective, how you think about any tax slippage from transacting there or if you have some offsetting mechanisms? Brendan McCracken: Yes. I'll let Corey cover that. Corey Code: So just on that front, we've got some existing bases on the asset and then obviously, depending on how high the price is, we should be able to cover it with other tax attributes. So we don't forecast much if any tax leakage on the sale. Operator: Next question comes from Chris Baker with Evercore ISI. Christopher Baker: Just a quick one. It sounds like this asset has been identified quite some time ago. I'm just curious in terms of the ultimate timing that we're seeing here. Was that at all influenced by the share sale, obviously, you mentioned in the release? Or just anything around the timing piece given the Anadarko assets there would be helpful. Brendan McCracken: Yes, Chris. Look, you're quite right. So we had identified this as 1 of the 3 assets that made a lot of sense for us as we went through this portfolio transition. And so pleased to be able to get to this point here today. I think the way to think about it is the disclosure from NuVista highlights, they began a competitive process for the asset back in August. And we acquired the shares right at the start of October. So that gives you some sense of the sequencing here. Corey Code: Maybe just clarify that... Brendan McCracken: Sorry, go ahead, Corey. Corey Code: I was just going to say just clarify, you've been one of the... Brendan McCracken: Yes. The Northern Midland Basin, the Paramount and then NuVista with the three, yes. Good point. Christopher Baker: Got it. That's great. And apologies if this was covered earlier, but any sense on what run rate EBITDA looks like for the Mid-Con asset this year? Brendan McCracken: I don't have that number to hand here, Chris, yes. Sorry, I've got -- there's a lot of numbers in front of me right now, but I don't have that one. Sorry, team can follow up with you. Operator: Your next question comes from Geoff Jay with Daniel Energy Partners. Geoff Jay: I just had a couple if I could. First is the soft guide for 2026 pro forma. Is that inclusive of the Anadarko production or exclusive? Brendan McCracken: Yes. Geoff, yes, it's inclusive of the Anadarko production. So we'll update that once we've got clarity on the divestiture timing. Geoff Jay: All right. Great. And then my second is on the -- going back and, I guess, maybe beating a dead horse on Slide 12. But in looking at the future synergies piece, I noticed your AI and production optimization are kind of in two buckets, near term and long term and I am wondering what the long-term, I guess, AI automation piece is and what makes it long term? Brendan McCracken: Yes. I mean we're just at the very front end of applying these technologies into our business. And as you saw, Geoff, when you joined us in the Montney this past summer, we're active in sort of three main areas. We're active in the production operations place. So it's helping us on the uptime and on the artificial lift optimization. It's helping us on the drilling times and costs, and then it's helping us on the completions, both the cost and the productivity of the wells. So -- but we're really early days in trying to figure out what this technology can do for us. And so hard to point to where it's going to go over time, but put us in the optimistic camp here of seeing the potential for this to really transform our business. Operator: At this time, we have completed the question-and-answer session. And I'd like to turn the call back over to Mr. Verhaest. Please go ahead. Jason Verhaest: Thanks, Pam, and thank you, everyone, for joining us today. Our call is now complete. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.
Operator: Good day, and thank you for standing by. Welcome to the Brilliant Earth 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 first speaker today, Colin Bourland, Vice President of Strategy, Business Development and Investor Relations. Please go ahead. Colin Bourland: Thank you, and good morning, everyone. Welcome to the Brilliant Earth Third Quarter 2025 Earnings Conference Call. My name is Colin Bourland, Vice President of Strategy, Business Development and Investor Relations. Joining me today are Beth Gerstein, our Chief Executive Officer; and Jeff Kuo, our Chief Financial Officer. During today's call, management will make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings for a description of the risks that could cause our actual performance and results to differ materially from those expressed or implied in these forward-looking statements. These forward-looking statements reflect our opinion only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events unless required by law. Also, during this call, management will refer to certain non-GAAP financial measures. A reconciliation of Brilliant Earth's non-GAAP measures to the comparable GAAP measures is available in today's earnings release, which can be found on the Brilliant Earth Investor Relations website. I'll now turn the call over to Beth. Beth Gerstein: Good morning, everyone, and thank you for joining us today. As always, we're pleased to share our third quarter results with you, and this quarter is more special than usual as it marks the 20-year anniversary of Brilliant Earth's founding. Two decades ago, Eric Grossberg and I set out to create a company that reimagined our industry with impact at its core. Over the years, we've created industry-leading practices that set new standards for how jewelry is sourced and manufactured. And we have revolutionized how consumers shop for and experience jewelry with a highly personalized and seamless omnichannel shopping experience. I am incredibly proud of our achievements over the past 20 years, and today's results reflect both the consistency and the resilience with which we've built our company. We've built something truly extraordinary that has redefined what luxury means, creating a globally loved brand with beautifully designed collections, and we've shown that purpose and profit can be a powerful force for good. We've been able to do this with an innovative asset-light data-driven business model while achieving consistent profitability quarter after quarter. As we look to the next 20 years, our optimism and ambition are as strong as ever. As one of the largest stand-alone jewelers, we are uniquely positioned to continue challenging the status quo, capturing market share and leading the transformation of the highly fragmented $350 billion jewelry industry. And now turning to our third quarter performance. I'm pleased to report that we delivered exceptional results across the board. Our net sales grew 10% year-over-year, surpassing our guidance and exceeding expectations. This strong performance included a return to growth in engagement ring bookings, our largest quarter ever in wedding and anniversary band bookings and an impressive 45% year-over-year growth in fine jewelry. We believe that we are continuing to outpace industry growth and build brand awareness. And we were able to do this all while delivering another quarter of profitability with Q3 adjusted EBITDA landing at $3.6 million, near the midpoint of our guidance range. I'm particularly proud of how we delivered this profitability with 2 key operational advantages that demonstrate the strength and differentiation of our business model. First, we showed our ability to maintain strong gross margins despite facing some of the most challenging input cost pressures our industry has ever seen. During the quarter, on average, gold and platinum prices were up approximately 40% year-over-year at or near all-time highs, while we also navigated new industry-wide tariff impacts. Despite these significant industry-wide headwinds, we maintained our gross margin within our medium-term target range of the high 50s. This speaks directly to the strength of our geographically diversified supply chain, our strong vendor relationships, our price optimization engine and our ability to adapt quickly in dynamic environments, advantages that truly set us apart from competitors. Second, we achieved remarkable marketing efficiency, driving 300 basis points of year-over-year marketing leverage while still increasing traffic and delivering double-digit revenue growth. Our ability to continually optimize our model and to leverage technology, including AI and machine learning has enabled us to keep refining how we allocate our marketing spend while also driving increased awareness and quality traffic. Now let me take you through some other highlights from the quarter. For Q3, total orders grew 17% year-over-year, while repeat orders grew 16% year-over-year, demonstrating strong brand resonance in attracting new customers as well as driving long-term customer loyalty. As you know, engagement rates are an important first purchase for our customer as well as a meaningful portion of our sales. Over the past several years, you've heard me speak about the multiyear market normalization following the peaks in engagements during 2021 and 2022. I'm thrilled to share that this quarter marks an inflection point in our engagement business with a return to year-over-year bookings growth. We've also seen continued stabilization in engagement ring average selling prices with sequential ASP growth in the last 2 quarters this year. This reflects the strength of our brand positioning and product assortment, especially our exclusive Signature collections. The Signature collections, exclusive collections that we are known for, grew nearly 3x faster than our total engagement ring assortment. This tells us that customers are increasingly seeking Brilliant Earth as a design leader for one of the most meaningful purchases in their lives. Together, our engagement ring acceleration demonstrates that the investments we've been making over the last few years are delivering strong returns as the bridal market recovers. And this momentum extends beyond our bridal portfolio. Our wedding and anniversary band assortment delivered double-digit year-over-year bookings growth, including growth in both men's and women's collections, resulting in our largest quarter of wedding and anniversary band bookings ever. Fine jewelry, which was 14% of our bookings in Q3, continues to be a standout growth driver. Bookings grew an impressive 45% year-over-year, driven by both unit and ASP growth, reinforcing the increasing resonance that we have as a fine jewelry destination of choice. As in engagement rings, our iconic fine jewelry collection significantly outpaced our total fine jewelry growth. This quarter, we added breathtaking new pieces to our design-leading [indiscernible] and Jane Goodall collections, collections that are increasingly establishing Brilliant Earth as the go-to brand for unique and distinctive fine jewelry. The Jane Goodall collection remains our best-performing new collection launch to date and is a testament to how customers connect with jewelry that combines exceptional design with meaningful purpose. Sadly, Jane passed away just a week after we launched our second collection with her. Our hearts go out to her family and The Jane Goodall Institute. Over the past 2 years, I had the honor of getting to know Jane personally. She was an innovator, disruptor and champion for good. We couldn't have asked for a better partner for Brilliant Earth. We're so proud to continue honoring her legacy through our ongoing partnership with the institute. Our business results reflect our continued strategic brand investments, which are delivering awareness and resonance. This quarter alone, we achieved incredible celebrity placements with stars like Justin Bieber, Sabrina Carpenter, Sydney Sweeney, Halsey, and Brittany Snow choosing Brilliant Earth for everything from music videos to the red carpet. These celebrity moments resulted in over 200 placements and generated over 13 billion impressions in Q3. Additionally, our partnership with Tennis Champion Madison Keys as our first athlete ambassador continues to resonate [indiscernible]. These authentic brand moments, combined with our strategic marketing investments are driving outsized success across earned marketing channels, ultimately translating to accelerated order growth and strong brand recognition. As we enter the holidays, I am confident we're more prepared than ever to deliver another successful season. We've approached this quarter with exceptional focus across the business to ensure we maximize this critical opportunity and build on our track record of strong holiday performance. We're exceptionally well positioned for the season from our showroom experiences and marketing strategy to a strong pipeline of new products, including our recent Love Decoded collection and the expansion of our incredibly popular 20th anniversary, Pacific Green Diamond into a new fine jewelry collection. We've curated an incredible range of giftable products under $1,000 that we believe will resonate strongly this holiday season. And as the holidays are also a peak engagement season, we are leading bridal design trends with new styles, including wider widths, bezel settings and fancy shapes alongside our timeless bestsellers and ready-to-ship preset engagement rings. This holiday, you will see us execute elevated visual merchandising, targeted showroom events like trunk shows and increased inventory to continue elevating our overall showroom experience. These investments reflect the application of our continuous test-and-learn approach and the growing sophistication of our omnichannel model. Our captivating delight in the details holiday campaign celebrates the artistry and craftsmanship behind our jewelry through whimsical illustration by renowned French illustrator, Geoffroy de Crécy, capturing both the precision of our collections and the joy of the season. We're still early in the season, but I'm pleased with the performance we're seeing across the business through October, including year-over-year bookings growth in engagement in wedding and anniversary band, strong outperformance in fine jewelry and year-over-year growth in both new and repeat orders. While metal prices and tariffs continue to present industry-wide headwinds, our agile data-driven business model and globally diversified supply chain position us to navigate these challenges and deliver successful business performance this holiday season, just as we've done throughout the year. Before I hand the call over to Jeff, I want to thank our incredible team whose dedication and execution continue to drive these outstanding results. This is just the beginning of what we can achieve as we leverage our 20 years of expertise of designing beautiful collections, driving brand strength and executing with industry-leading operational excellence to capture the enormous opportunity ahead in the global jewelry market. Chuenhong Kuo: Thanks, Beth, and good morning, everyone. As Beth mentioned, we're pleased to report Q3 results where we continue to successfully drive our strategic initiatives, deliver strong top line growth and continued profitability and cash generation. Let me take you through the details for Q3. Q3 net sales were $110.3 million, up 10.4% year-over-year, exceeding the top end of our guidance range by approximately 40 basis points. Total orders grew 17% year-over-year and repeat orders grew 16% year-over-year in the third quarter, demonstrating the effectiveness of our customer acquisition and retention efforts and the resonance of our brand and products with consumers. Average order value, or AOV, was $2,209 in Q3. This represents a decline of 5.5% year-over-year in Q3 and up 6.5% quarter-over-quarter. Our AOV reflects the great success we have had broadening our overall assortment, including strong performance in our fine jewelry collection, which carries a comparatively lower price point, growth in engagement rings and the increases that we've seen in engagement ring ASPs this year. Q3 gross margin was 57.6%, within our medium-term gross margin target in the high 50s and a 320 basis point decline over Q3 last year. We were able to drive this robust gross margin even in the face of record gold and platinum prices and dramatic changes in the tariff environment that were not included in our Q3 guidance. This highlights the agility and resilience of our business model, including our data-driven approach to decision-making and our globally diversified supply chain. We delivered Q3 adjusted EBITDA of $3.6 million or a 3.2% adjusted EBITDA margin within the midpoint of our guidance range, driven by our compelling gross margins, significant year-over-year marketing leverage and overall OpEx discipline. This marks our 17th consecutive quarter of positive adjusted EBITDA and highlights the strength and sustainability of our business model. Q3 operating expense was 58.1% of net sales compared to 61.9% of net sales in Q3 2024. Our disciplined management of expenses while also driving growth and investing in the business is strongly demonstrated in the 380 basis points of leverage year-over-year. Q3 adjusted operating expense was 54.4% of net sales compared to 57.3% in Q3 2024. Adjusted operating expense does not include items such as equity-based compensation, depreciation and amortization, showroom preopening expenses and other nonrecurring expenses. Q3 marketing expense was 23.7% of net sales compared to 26.7% of net sales in Q3 2024. This represents approximately 300 basis points of year-over-year leverage, demonstrating our capabilities to drive significant marketing efficiencies while delivering strong top line growth ahead of expectations. Employee costs as a percentage of net sales were higher in the third quarter by approximately 30 basis points as adjusted year-over-year. This includes growth in showroom employees, including from newly opened showrooms as we continue to strategically focus on our showroom expansion. Other G&A as a percentage of net sales decreased year-over-year by approximately 20 basis points as adjusted for the quarter as we continue to prudently invest in our business while driving strong top line growth. Our year-over-year inventory grew approximately 28%, principally as a result of strategic procurement opportunities in Q3 to purchase inventory at advantageous prices in light of the current tariff environment as we did in Q2. Even with this year-over-year increase, our inventory turns continue to be significantly higher than the industry average, and we maintain conviction that the agility of our data-driven, capital-efficient and inventory-light operating model continues to be a compelling competitive advantage. We ended the third quarter with approximately $73 million in cash. On a trailing 12-month basis, we've generated approximately $12 million of free cash flow, demonstrating our ability to generate cash. And on a pro forma basis, adjusting for the onetime dividend and distribution of approximately $25 million completed in Q3, net cash would have ended the period approximately $4 million higher year-over-year. As you know, our Q3 results also include paying down our term loan, leaving us with no debt on the balance sheet. In Q3, we spent approximately $96,000 repurchasing our common stock. This takes our total spend on stock repurchases to date to approximately $1.1 million as of the end of Q3. Turning to our outlook for fiscal year 2025. We are raising our full year net sales guidance to 3% to 4.5% growth year-over-year. Drivers include improvements in engagement ring bookings year-over-year performance, strong fine jewelry performance, coupled with the fact that Q4 is the seasonally biggest fine jewelry quarter and the growth and annualization of our showrooms. In terms of year-over-year comps, our guidance also considers the fact that 2024 Q4 year-over-year net sales were comparatively stronger than 2024 Q3. For full year adjusted EBITDA margin, we expect that to be approximately 2% to 3% as we continue to manage for strong gross margins, drive marketing leverage for the year and balance making investments with driving near-term profitability. For Q4 gross margin, we do expect some impact from gold and platinum spot prices, which are both near all-time highs with gold and platinum spot prices up 19% and 20%, respectively, just in the time from our last earnings call to the end of October. We are also now incorporating the additional 25% tariff on India announced in August 2025. We continue to believe that we are better positioned than most to nimbly navigate this environment with our agile, data-driven approach and globally diversified supply chain. As mentioned before, we expect to drive year-over-year leverage in marketing spend for the year, including through the use of AI and machine learning to capture efficiencies. And we expect to continue to make near- and longer-term investments through the end of the year, including in employee costs and other G&A while managing the business for profitability. We expect that some metal and tariff headwinds will continue into Q1. We'll provide further perspectives on 2026 in our next earnings call. Our data-driven approach, including agile price optimization, disciplined expense management and our asset-light business model position us well to outperform the industry while delivering profitable growth. This quarter's strong execution reinforces our capability to identify and capture opportunities to drive sustainable, profitable growth and create value for our shareholders. With that, I'll turn the call over to the operator for questions. Operator: [Operator Instructions] our first question comes from the line of Oliver Chen of TD Securities. Oliver Chen: Great quarter. As we think about engagement ring bookings, it was exciting that they returned to growth this quarter. How sustainable do you think the inflection here? And what are your expectations for bridal recovery versus fine jewelry mix over the next year? Second follow-up is the cost of goods sold and inflation that you're seeing now. You maintained some really high gross margins. What do you think will happen in terms of what you're trying to do with hedging going forward? It's a pretty dynamic environment. And how are customers feeling and executing around pricing from what you see in the market? It's a bifurcated consumer with money to spend, but the consumer is being choiceful in our view. Beth Gerstein: Thank you, Oliver. Well, maybe we can start with that in terms of the consumer. We have been pleased with the consumer demand that we have been seeing. And I think you're right that we typically do have a higher income customer and that bifurcation, we haven't necessarily seen some of the volatility in the lower end of the market but have been really encouraged by the response that we've seen in terms of the products, the brand, the overall experience. So generally speaking, we're pleased with what we're seeing on the consumer side. As it relates to kind of the mix that we're seeing around the assortment, I think what we were really excited about during the quarter is just strength across the assortment. So from engagement rings to wedding bands and anniversary rings to fine jewelry, we really saw strength kind of across all of what we were intending to do. And that was, I think, something that we were excited by as well. I think engagement rings, we were really happy to see that bookings increase, and I think you remember last quarter, we saw a big unit increase as well. So we're not going to "call it." We do recognize there are puts and takes in any given quarter as it relates to bridal recovery, but we are pleased with what we are seeing, and we expect to continue taking share, outperforming the industry with the broader market as it continues to recover. So we're very well positioned. And then I would just say we continue to think we have very strong fine jewelry opportunity. It's a massive market. The growth that we're seeing is extraordinary with plus 45% in Q3, and we continue to think that there's an outsized opportunity there across all of our channels. So I would expect to see that mix continue to increase. Jeff, I don't know if -- I think maybe why don't we stop it there. Operator: Our next question comes from the line of Anna Glaessgen of B. Riley Securities. Anna Glaessgen: I'd like to start with the shift in adjusted EBITDA margin guidance. Could you put a finer point on what -- how you're contemplating the various headwinds between the metals pricing and the incremental tariffs? And to what extent you've taken price already to help compensate for some of these? Or could that be layering on to the model in the future? Beth Gerstein: Maybe I can start a little bit on the price. As you know, we've been -- we continually optimize on our pricing. It's basically part of the test and learn culture that we have as a company. I will say that we've taken selective pricing increases. And I think especially as we're leaning more into Signature styles that are proprietary to Brilliant Earth, we've seen strong demand even as we've been increasing some of those prices. So generally speaking, I think there's -- we're on the journey. Q4, we find to be a more promotional season. So I think as we're thinking about price increases, we're much more selective as it relates to the Q4 environment. But generally speaking, I think we've done a really good job in terms of being able to absorb some of the costs, especially in Q3, if you look at how costs increased throughout the quarter, and yet we were still able to maintain that -- the margin that we expected and gave guidance to. I think that's a testament to the strong operational excellence that we have in order to do so. So Jeff, maybe you can talk a little bit about adjusted EBITDA guidance. Chuenhong Kuo: Sure. I'd be glad to. And I think I'd just like to build on what Beth was saying in that we're able to adapt and adjust very quickly to dramatic changes in input costs, and you can really see that in the success of our Q3 results. We are factoring in ongoing metal and tariff changes into our Q4 guidance. As you know, both metal and tariff costs continue to change significantly since our last earnings call. As I mentioned, gold and platinum were up at 19%, 20% even in time just since our earnings call to the end of October, and we're also now factoring in the 25% additional India tariff, which went into effect in August. And so I think those factors are significant. We're able to adapt and mitigate significantly. For outlook for gross margin for the quarter, we do expect a similar year-over change in gross margin as we saw in Q3 as we continue to work to mitigate these changes that we're seeing. And we do believe that over time, we have additional tools at our disposal to continue to adjust and be nimble and really deliver strong top line and gross margin performance. And we think that we're better positioned than most and results that we've demonstrated over the last couple of quarters, I think, are real great illustration of our agility. Anna Glaessgen: Turning back to the Bridal category. Could you remind us what the typical lag is between engagement and wedding bands, if there is one? Just trying to think through if there's a possible tailwind into 4Q and beyond from the inflection in the engagement in 3Q? Beth Gerstein: Sure. I would say that typically, people get married about a year after they get engaged, and there's a very wide range there, including people who will buy a matching set upfront. But that's typically what the profile looks like. And I think the only thing I would add also is just that we're seeing nice repeat behavior. And so it's very important for us to be able to convert that engage our end customer to wedding band and then nurture them to other light stage moments. And so we're happy to see the repeat business that we've been seeing. And I think it's a testament to a lot of the activities that we're doing to drive brand loyalty. Operator: Our next question comes from the line of Ashley Owens of KeyBanc Capital Markets. Ashley Owens: Maybe just to start, Jeff, could you talk a little bit about the top line guidance for the full year? I know comp -- and then just backing into 4Q as well. I know comp isn't as favorable as 3Q, but I believe we're looking at a range of about 2% to 7% top line growth in the quarter, if my math is correct. Just anything to call out in terms of headwinds you're embedding, then any insight as to how we should bridge between those 2 goalposts? It sounds like October is off to a good start, if I'm not mistaken. So is there some caution embedded in that top line number? Chuenhong Kuo: I would say that in terms of the top line guidance that we've provided, we're factoring in things that Beth was saying about what we've seen through October, including growth in engagement and wedding and anniversary bands and the strong outperformance in fine jewelry. And so we were glad to be able to raise our outlook for the year. We've seen good performance in the business overall. And it's a big quarter for us. The bulk of the holiday still lies ahead. So there's naturally some range in terms of possible outcomes. But I think we've seen strong performance. We're glad to see the inflection in engagement rings, and we think that we're very well positioned to deliver a strong holiday. Beth Gerstein: And I would just add that, yes, the comps on Q3 were a little bit weaker than Q4 as well. So that's something that we factored in. Ashley Owens: Okay. Got you. And then just as a follow-up, I noticed AOV declined less sharply this quarter. I think it was mid-single-digit declines versus the double digits we've been seeing for a few quarters now. How much of that improvement is driven by engagement recovery versus a broader normalization within that KPI? And then just as we look ahead, should we think of mid-single-digit declines as a more sustainable run rate moving forward? Beth Gerstein: Jeff, do you want to take that one? Chuenhong Kuo: Yes. I would say that factored into that is, of course, underlying, we've had outperformance in fine jewelry, which is a comparatively lower price point. We've seen that nice inflection in terms of engagement rings. And so that's contributing as well to the overall AOV mix. And I think one other thing that's noteworthy is just the sequential increases in engagement ring ASPs that we've seen in each of the last couple of quarters. And I think that really speaks to how people are resonating with our brand and our products. And so we don't have a specific number out there in terms of forward-looking AOV percents, but we do think that those factors like growth and success in fine jewelry will continue to contribute to the -- what happens to overall AOV, and we're glad to see the strength that we're having in engagement, both bookings and ASP. Operator: Our next question comes from the line of Dylan Carden of William Blair. Anna Linscott: This is Anna on for Dylan Carden. Could you just elaborate further on what efficiencies you're seeing in marketing to allow better sales and leverage in that line item? Beth Gerstein: Yes. Thanks, Anna, for the question. We were really pleased to see the marketing efficiencies. As you picked up, we had about 300 basis points of marketing leverage. And I would say that we've driven this efficiency in a variety of different ways. We've been getting smarter about the allocation of spend across channels. We have a lot of sophistication across our team with machine learning models to help drive increased site conversion. We're seeing strength in the showrooms, which are always a nice lever there as it relates to driving marketing efficiencies as well. So overall, we've been -- we were really happy to see that we had such strong sales growth even as we were able to be much more efficient about deploying our marketing spend and continuing to drive that brand awareness that's so important strategically for us. Operator: [Operator Instructions] For our next question, we welcome back Oliver Chen with TD Securities. Oliver Chen: The cash position is also attractive and brilliant. What are your capital priorities as you think ahead -- as you think about marketing versus collections and international expansion in terms of cash and CapEx? And then on this quarter that we just had, what factors drove the upside in terms of find versus engagement or existing versus new customers, if there were factors that you'd call out? Beth Gerstein: Sure. Well, maybe I can start with that. Overall, I feel like we've been doing a really fantastic job in terms of driving an optimized curated assortment. So the products that we're offering are really resonating with our customers, both in terms of the key diamond collections, those essentials that everybody wants in their jewelry box as well as the designs that we're increasingly known for with our iconic new collections. For example, our [indiscernible] expansion, the Jane Goodall collaboration. All of those, I think, were really received very well by our consumers. And I think the marketing campaigns that we do behind them have been also a standout and helped really break through and are resonant in today's environment, especially for that key consumer that we have. So really in terms of driving upside, it was fine. In fine jewelry, it was repeat, it was new, it was really across the collection. So I would say that there were bright spots all around. As it relates to how we think about our investments, maybe I can start and Jeff, you can please add on. I think you're right that we have a really strong balance sheet with a nice cash position. So that gives us a lot of flexibility. And we continue to invest in opportunities that we see a strong return on investment. So that continues to be expanding our showroom footprint, looking at how we drive brand awareness, but we do it all with a very keen eye towards that ROI. So we have high benchmarks. We continue to see opportunity to invest and have seen good returns on those investments. But I would say that's really the -- how we think about overall that allocation going forward. Chuenhong Kuo: Okay. And on the lab diamond trends that you're seeing now, lab has been an important gifting factor and more. What are the latest lab diamond demand and pricing trends that you'd highlight in your forecast for how that market is growing? Beth Gerstein: Sure. Well, what I would say about the lab diamond product is that there's very wide consumer awareness at this point. I think consumers love the product. On the fine jewelry side, we see a lot of opportunity there and have seen really nice sales growth as it relates to the lab diamond assortment. I think it provides accessible price points for consumers. And that's why you see so many tennis bracelets and more and more, I think, embracing some of the fine jewelry trends with layering multiple earrings, et cetera. So overall, I think that it's been great at expanding that accessible market. And because we've been leaders introducing lab diamonds over a decade ago, I think we've been at the forefront of that. I think one more thing I would just add is that I mentioned we are really excited about the holiday season. Part of that is we've curated an exceptional collection under $1,000. And I think the lab diamond component of that is really exciting. Oliver Chen: That was the last question, Beth, on this holiday, you called it out. Why was this different this year? Or what are your thoughts in the environment that make it conducive to the strategy you're speaking to? Beth Gerstein: I'm not sure it's necessarily different. I just think that we continue to see opportunity, and we're very prepared in terms of the holiday season. We've been doing really well across some of the key moments. So Valentine's Day, Mother's Day, I think we just do a really fantastic job with the team of executing well in key holiday moments. Operator: I'm showing no further questions at this time. I would now like to turn it back to Beth for closing remarks. Beth Gerstein: Thank you, everyone, for joining us for our Q3 quarterly call. Hope you all have a fantastic holiday, and we look forward to talking to you in Q1. Operator: All right. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Beth Gerstein: Thank you.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Targa Resources Corporation Third Quarter 2025 Earnings Webcast and Presentation. [Operator Instructions] It is now my pleasure to turn the call over to Tristan Richardson, Investor Relations and Fundamentals. Please go ahead. Tristan Richardson: Thanks, Tina. Good morning, and welcome to the Third Quarter 2025 earnings call for Targa Resources Corp. The third quarter earnings release and a supplement presentation that accompany our call are available on our website at targaresources.com. Additionally, an updated investor presentation has also been posted to our website. Statements made during this call that might include Targa's expectations or predictions should be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from the those projected in forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our latest SEC filings. Our speakers for the call today will be Matt Meloy, Chief Executive Officer; Jen Kneale, President; and Will Byers, Chief Financial Officer. Additionally, members of Targa senior management will be available for Q&A, including Pat McDonie, President, Gathering and Processing; Scott Pryor, President, Logistics and Transportation; Bobby Muraro, Chief Commercial Officer; and Ben Branstetter, Senior Vice President, Downstream. I'll now turn the call over to Matt. Matt Meloy: Thanks, Tristan, and good morning. We had another outstanding quarter with record adjusted EBITDA, driven by record volumes across our footprint. With 3 quarters completed, we now expect our full year 2025 adjusted EBITDA will be around the top end of our previously provided guidance range. . Our Permian volumes grew more than 340 million cubic feet per day and nearly 700 million cubic feet per day compared to this time last year. Our Permian growth is driving additional NGL volumes through our integrated system as NGL volumes increased about 180,000 barrels per day compared to this time last year. Incrementally, the customer success we achieved in 2024 has started to show up in our volumes, some this year, but really adding to our longer-term confidence of continued Permian volume growth. Our customers' success has continued as our commercial team has added to our leading Permian G&P position with acreage dedications from new and existing customers in and around our footprint, further bolstering our long-term growth outlook. To accommodate this continued volume growth from our customers, in September, we announced several new growth projects, including our Speedway NGL transportation expansion, the Yeti gas processing plant in Texas in the Permian Delaware and Buffalo Run, an expansion of our Permian natural gas pipeline system. And today, we announced our next gas processing plant Copperhead in New Mexico in the Permian Delaware. Also, our previously announced Forza natural gas pipeline in the Delaware had a successful open season, and we are moving ahead with that project. We continue to expect meaningful long-term growth in Permian gas and NGL volumes across our footprint. Our conviction is supported by multiple factors, including the bottom-up forecast from our existing producer customers, our continued commercial success and the continued industry trend of rising gas to oil ratios. We have a lot of projects in progress, which means growth capital is elevated in 2025 and 2026, and these attractive investments will drive significant increases in adjusted EBITDA. Our chunkier downstream projects are set to come online in 2027. Both the Speedway NGL line and our larger LPG export expansion have sufficient capacity to handle our growing volumes for many years. Once these projects are online, we expect our downstream capital spending will be significantly lower for years to come, driving a substantial increase in free cash flow. And this expected increase in free cash flow will be durable, meaning even if we are in a stronger growth environment driving elevated spending on the G&P side, our downstream spending should still be modest. So in late 2027, our downstream NGL capital is expected to be significantly lower than today's and our adjusted EBITDA is expected to be much higher than today's. This results in a strong and growing free cash flow profile for years. This is what our team is working towards every day, execute our large capital projects in the near term while continuing to invest in high-return projects, leading to Targa's next transformation. A large investment-grade integrated NGL infrastructure company that provides industry-leading growth and generate significant free cash flow year after year. This is a value proposition we are excited to be a part of. This is our focus. And as we look out over the medium and long term, we expect to be in a unique position to grow adjusted EBITDA, grow common dividends per share, reduce share count generate significant and growing free cash flow and do this all with a strong investment-grade balance sheet. Before I turn the call over to Jen to go over our operations in more detail, I would like to thank the Targa team for their continued commitment to safety and execution and for consistently delivering reliable, high-quality service to our customers. Jennifer Kneale: Thanks, Matt. Let's talk about our operational results in more detail. Starting in the Permian, our natural gas inlet volumes averaged a record 6.6 billion cubic feet per day in the third quarter, representing an increase of 11% versus a year ago and strong sequential growth. In October, our Permian volumes were impacted by some producer shut-ins from low commodity prices and storms, but these volumes are now largely back online which we have taken into account and the updated color that we expect to be around the top end of our guidance range for adjusted EBITDA. The second half ramp that we are forecasting at the beginning of the year has materialized and we see at least 10% growth in our Permian volumes for 2025. And based on the visibility that we have today, we see 2026 as another year of strong low double-digit growth. In the Permian Midland, our Pembrook II plant came online during the third quarter and is running at high utilization. And in Permian Delaware, our Bull Moose II plant commenced operations recently in October. We expect our processing infrastructure currently under construction will be much needed at startup and our projects are on track with previously provided time lines. Largely driven by requests from our customers, we are continuing to build out our intra-basin residue capabilities in the Permian, which will help us manage tightness in natural gas egress from the basin until the next wave of takeaway comes online in 2026. The Bull Run Extension in the Delaware is expected to begin operations in the first quarter of 2027 and Buffalo Run, our Midland residue expansion is expected to be completed in stages and fully complete in early 2028. Our newly announced Forza pipeline, a 36-mile interstate natural gas pipeline to serve growing natural gas production in the Delaware Basin in New Mexico is expected to be in service in mid-2028 subject to receipt of necessary regulatory approvals. As demonstrated over the last number of years, we've taken a deliberate approach to enhance flow assurance and do an excellent job of managing takeaway for our customers, ensuring we have access to a wide portfolio of markets. The Blackcomb and Traverse pipeline where we have a 17.5% equity interest are currently under construction, and Blackcomb remains on track for the third quarter of 2026 and traversed for 2027. Shifting to our Logistics and Transportation segment, Targa's NGL pipeline transportation volumes averaged a record 1.02 million barrels per day. Our fractionation volumes ramped sharply in the third quarter, averaging a record 1.13 million barrels per day following the completion of planned maintenance at a portion of our fractionation facilities during part of the first and second quarters of the year. Our LPG export loadings averaged 12.5 million barrels per month during the third quarter. Given the anticipated growth in our Permian G&P business and corresponding announced [ plant additions ], the outlook for NGL supply growth in our system remains strong, and we have a number of key projects currently underway. In the Permian, our Delaware Express NGL Pipeline expansion remains on track to be complete in the second quarter of 2026. Our next fractionator in Mont Belvieu, Train 11 is expected to be complete in the second quarter of 2026 and Train 12 remains on track for the first quarter of 2027. Our LPG export expansion, which will increase our loading capacity to approximately 19 million barrels per month remains on track for the third quarter of 2027. Speedway, which will transport NGLs from the Permian to Mont Belvieu with an initial capacity of 500,000 barrels per day is expected to begin operations in the third quarter of 2027. Our existing NGL transportation system is running full. And with 5 Permian plants under construction, we will be leveraging third-party transportation ahead of Speedway coming online. This positions us to aggregate significant baseload volumes that we can transition to our NGL transportation system when Speedway begins operations, meaningfully derisking the project. Our existing contracts with our best-in-class customer base that allowed us to fill Grand Prix in 6 years will continue to drive the volume growth that will fill Speedway. We are well positioned operationally for the near, medium and long term and believe that our leading customer service-driven wellhead to water strategy puts us in excellent position to continue to execute for our customers and for our shareholders. Our strategy is unchanged as we execute the same core projects with strong returns along our integrated value chain in the same core areas where we have been building Targa for years. I will now turn the call over to Will to discuss our third quarter results, outlook and capital allocation. Will? William Byers: Thanks, Jen. Targa's reported adjusted EBITDA for the third quarter was $1.275 billion, a 19% increase from a year ago and a 10% increase sequentially. The sequential increase in adjusted EBITDA was attributable primarily to record Permian NGL transportation and fractionation volumes generating higher margin across our G&P and L&T segments. Given the strength of our 2025 performance, we now estimate full year 2025 adjusted EBITDA to be around the top end of our $4.65 billion to $4.85 billion range. At the end of the third quarter, we had $2.3 billion of available liquidity and our pro forma consolidated leverage ratio was approximately 3.6x, comfortably within our long-term leverage ratio target range of 3 to 4x. As we provided in September, we estimate net growth capital spending for 2025 to be approximately $3.3 billion and we continue to estimate 2025 net maintenance capital spending of $250 million. We announced today, we intend to recommend to Targa's directors to increase our annual common dividend to $5 per common share. This incremental $1 per share equates to a 25% increase to the 2025 level. If approved, it would be effective for the first quarter of 2026 and payable in May 2026. We remain active in our opportunistic share repurchase program as part of our all-of-the-above capital allocation strategy. During the third quarter, we repurchased $156 million in common shares, bringing year-to-date repurchases to $642 million, including purchases made subsequent to the end of the third quarter. We are in excellent financial shape with a strong and flexible balance sheet, and we are well positioned to continue to create value for our shareholders. And with that, I will turn the call back to Tristan. Tristan Richardson: Thanks, Will. For Q&A, we ask that you limit to one question and one follow-up and reenter the queue if you have additional questions. Tina? Operator: And our first question comes from the line of Jeremy Tonet with JPMorgan. . Jeremy Tonet: Was just curious with you guys trending towards the top end of the guide here. Just wondering how things have unfolded versus original expectations. Is this more wells coming on to the system? Or is this better productivity per well? Or what factors would you say are driving this upside versus original expectations? Jennifer Kneale: Jeremy, this is Jen. For 2025, when we gave our guidance back in February, our biggest caution was that it was predicated on a big back half volume ramp based on the best available information that we had from our producers at the time. I think those volumes have largely materialized consistent to better than our expectations than we initially forecasted, and that's what's driving record Permian NGL transportation and fractionation volumes and providing us with meaningful tailwinds. And we've also seen a fair bit of volatility across the year, which has provided us with some incremental natural gas and NGL marketing opportunities. We don't typically forecast those when we give guidance. So the fact that we're outperforming a little bit relative to the fact that we really didn't have anything material in our guidance is also a little bit of a tailwind this year. But I'd say the producer is largely performing on track to a little bit better than expectations. We have not seen a material change or shift in activity levels on our systems. And I think that's really supporting the strength of performance that we've seen really across this year. But in particular, you saw a big ramp Q3 relative to Q2. You saw a big ramp Q2 relative to Q1. And then as we look forward to 2026, it just really puts us in a good position ending this year as well. . Jeremy Tonet: Got it. That's helpful. And I appreciate the commentary with regards to 2026 with a low double-digit growth there. Not to get too far ahead of ourselves here, but some of your key producers have put out kind of long-dated looks into what the growth would look like in the Permian. And so just wondering what sense that provides for you as far as kind of more a medium-term look as far as how you think things could unfold for growth. Matt Meloy: Jeremy, this is Matt. I think we have the best-in-class footprint in the Permian across both the Midland and the Delaware with really active, high-quality producers. And so when we look out, not only in 2026, but in 2027 and beyond, we get bottoms-up forecast from our producers. And I think that really underpins the confidence we have about continuing to grow even with kind of a flat to even modestly declining rig count, our producers are giving us -- they're well scheduled, and it gives us a lot of confidence as we get into '26 and looking at our locations and longer-term growth plans, it really kind of underpins our multiyear outlook. . Operator: Our next question comes from the line of Spiro Dounis with Citi. Spiro Dounis: First question, I want to start with operational leverage, and maybe Matt go back to your comments just around that free cash flow inflection that's coming. I guess on my math, I think I've got another 1 to 2 more processing plant announcements before you need another frac. Speedway, of course, has plenty of headroom here, we think. But in terms of the rest of the system, any other expansions to kind of have on our radar, as you keep adding these processing plants? Or does it feel like we're finally heading to that period where you could benefit from some of the white space on the system? . Matt Meloy: Yes. Good question. And that is, as we kind of look out over the next couple of years, we do see that we're calling really a transformation as we get into the back half of '27. Once Speedway comes on once our larger scale LPG export comes on, the downstream spending should be relatively modest. And really, at that point, only include ratable fracs and that led to be dependent upon how our G&P is growing between now and '27 and as we're looking out into '28, '29. So as you're thinking about multiyear model, we've announced Trains 11 and 12. Those are progressing well. We're evaluating Train 13 and when we'll need to announce that and when that one is going to come on. But for the downstream spending, I think on Speedway and our export comes on, it's really going to be ratable fracs through our system. And so when you look out in the back half of '27 with significantly higher EBITDA, even if we're in a strong growth environment rent on the G&P side, just the fact that we have significantly higher EBITDA and lower downstream spending is going to put us in a really good position to have a free cash flow profile for years to come. Spiro Dounis: Great. That's helpful. Second question, maybe just going to intra-basin residue gas, seeing you lean into that part of the market a little bit more. So just wondering, can you walk us through maybe what that opportunity set looks like and how big that could be? And if we should expect the same kind of 5x to 6x return profile that we see across the rest of the business? . Robert Muraro: Spiro, this is Bobby. The way we work on these things is in coordination with our producers on everything. And when you look at what drives that asset -- that infrastructure investment for us, it's coordinated with our producers on where we can add reliability where we can add redundancy to our plants and then where we can make a really good fee and pushing gas through those pipes. At the end of the day, is that basin has grown and you've seen gas takeaway be more problematic from an individual pipe that is under -- that it's getting worked on at some point in time, and it affects a plant, we end up being able to move gas around the basin and put it into other available capacity, which both our producers and the producers we market for, the producers that market their own gas and the ones we market gas for, look for that optionality in the portfolio. And so ultimately, we've been building these little steps for a little while, we just announced the kind of complete picture recently, and it's all been underwritten by volumes that are flowing on our system that both we market and our big customers that market their own gas market. So -- and when I think about what the investment multiple is, it's really a high-quality return relative to everything we do. So it smells a lot like all of our other reports that we put out on ROIC. So I think it fits in really well with just to point capital in spots where we have on volumes and customers that want it and at similar returns to the rest of our business. Operator: Our next question is from the line of Theresa Chen with Barclays. . Theresa Chen: We have experienced a challenging environment for some time at this point, marked by bearish sentiment on liquids prices and broader macro uncertainty, you've delivered strong results and even guided towards the upper end of your annual guidance range, which underscores the solid momentum that you're seeing. But at the same time, your recent project announcements have drawn scrutiny with some questioning why you didn't leverage or even choose to lever third-party NGL infrastructure for longer versus investing now to increase capacity across your own system. Could you explain the rationale behind this decision and provide additional context supporting your strategy? . Jennifer Kneale: Theresa, this is Jen. I think that we really do try to be very much capital efficient across the portfolio. And what we've tried to do is essentially drop breadcrumbs as we've gone through the last couple of years. And as we've added processing additions continue to have commercial success that's been in addition to the foundational millions of acres already dedicated to us that was going to drive a lot of incremental growth on our system, drop breadcrumbs that Grand Prix was selling quickly, and we are trying very much to be capital efficient around it. We've talked about the fact that we've done third-party offload deals. And that's part of what you'll see in 2026, we'll have some more offload fees than we've had before. But part of what we're doing there is not that dissimilar to what we did with Grand Prix, which was we derisked the investment by -- at the time that the project will come online with Speedway, we will have already flowing volumes that we can move on to our pipeline. At the end of the day, we are in the business of providing the best-in-class operational support for our producer customers. And we think we do that really well from the wellhead all the way to the water. And an important part of that is being able to operate our assets, being able to leverage our integrated footprint, being able to provide our producers with flexibility and fungibility and redundancy. And at the end of the day, be able to completely derisk our enterprise and best position Targa to create value for our shareholders. And that's part of what we believe we're doing here. We've got 5 plants that are in progress. That's going to be a lot of incremental NGLs that we will need to move on our system. And what we will do is we will utilize third-party transportation for a period of time that we're comfortable with. And then again, we will baseload our next investment with those already flowing volumes and then we'll have operating leverage to accommodate the growth from there. And we just believe that, that combination puts us in the best position again, to both deliver for our customers and also to deliver for our shareholders. . Theresa Chen: Excellent. And a follow-up question on the intra-basin residue strategy. This clearly has become a key area of investment. Where do you anticipate the next bottlenecks to be within the Permian? . Robert Muraro: This is Bobby. When I think about the bottlenecks in the Permian, it kind of goes to plant specific, which is what that header system is for at times of interruptions on long-haul pipes. But when I think about takeaway on residue in particular, and you may be asking about more than residue, but it's obviously extremely tight right now with where basis has gone every time there's bottle and a long-haul pipe. But we're excited about the end of '26 with 2 pipes coming online and material capacity. But we've been growing fast, and I think those pipes will be not only needed but well utilized when they come online. Operator: Next question comes from the line of Keith Stanley with Wolfe Research. Keith Stanley: So you're pointing to around the top end of the guidance range for the year, which at the exact top end would imply EBITDA is down in Q4 versus Q3? Or are there any headwinds to be aware of? You cite some of the October shut-ins, just how to think about Q4 growth relative to Q3? Jennifer Kneale: Keith, this is Jen. I'd say that I think we tend to be a conservative bunch. So I'll start with that. And I'd say that we feel really good about setting another year of record EBITDA in 2025. I think a little bit of the conservatism is borne out of the fact that we've got 2 months to go in the year. We did see some shut-ins from lower commodity prices in October, which we haven't really seen before, there's continued maintenance on a number of natural gas pipes out of the Permian expected for November. And so a little bit, it's going to be what are the implications of that. Now what's great is we've got a little bit of a natural offset where, to the extent we've got weakness in Waha pricing, we're able to leverage our extensive footprint to benefit on the marketing side. . But it's a little bit of just some conservatism as we go through the next couple of months, which may be choppy. But I think the key point is we are really well positioned. And it's probably likelier that we're above the top end of the range than below the top end of the range. But with that conservatism, just felt comfortable saying that we felt we'd be around the top end. . Keith Stanley: Got it. Other question just on the frac volumes. So Q3 was obviously up, I think it was 17% quarter-over-quarter. Should we think of that as a good run rate from here? Or did you have a lot of unfracked inventory from the maintenance work earlier in the year that boosted Q3. . Unknown Executive: Sure, yes. This is Ben. You're right, we did have a turnaround in the first and second quarters that really impacted us to essentially a frac down in terms of available frac capacity. And with the fracs fully back online in the third quarter and the turnaround going well, we were essentially full. And I'd just say, we're very much looking forward to Train 11 and Train 12 coming online, and those will come on highly utilized. . Operator: Our next question comes from the line of Michael Blum with Wells Fargo. . Michael Blum: Can you discuss the decision to increase the dividend 25% next year versus leaning more heavily into buybacks? I imagine you haven't been too thrilled with the recent stock price performance given the strong underlying performance of the business. So I just wanted to get your thoughts how you're weighing between dividends and buybacks. . Matt Meloy: Yes. Michael, we've kind of talked about doing all of the above approach. And when we just look out at our forecast over multiple years, we have a lot of room to meaningfully increase the dividend. So it is a little bit more heart than science. We talk to our Board and say, what is a good balanced approach to increasing the dividend and also being able to have a strong balance sheet to be opportunistic with share repurchases. You've seen us pretty active so far this year on share repurchases. I think that's going to continue to be the framework going forward as we plan to be opportunistic with our share repurchases. It will bounce around from quarter-to-quarter and year to year, but I think that will be part of our return of capital. So I really think we can do both. I think the dividend growth that we're providing is still something we can look out over multiple years and continue to grow it even from here. And I think that's just supported by our underlying fundamentals in our business of growing EBITDA and free cash flow generation going forward. . Michael Blum: Okay. Makes sense. And then I just wanted to ask on LPG exports. Would you say volumes for this quarter were basically seasonally in line with your expectations? And can you give us an update on end market demand and specifically where you might be seeing areas of strength or weakness across different regions? . D. Pryor: Michael, this is Scott. I would say that typically, throughout the year, at times, the second and third quarter volumes dip a little bit relative to what we see in the fourth quarter and the first quarter of each year. Fundamentally, nothing has changed on the export front. We continue to be highly contracted. The demand is growing really across the globe. There is also some seasonality as it relates to the kind of the product mix relative to propane and butane. But we continue to add contracts and we got some we will get some benefit in the fourth quarter with the small balancing project that is now online that gives us a lot of flexibility and provide some reliability to our export facility. But really, when you look our export project that we've got coming online in the third quarter of 2027, that's related to expected global demand that is going to continue to grow across various regions. We're going to see increased production from our upstream with the number of plants that we've got coming online. Obviously, Grand Prix and Speedway Pipeline, providing products to our fractionation footprint, which is growing. And then the product itself will just be priced to move across our export dock can provide a lot of operating leverage that we will have going forward. So again, the fundamentals have not changed. The demand is continuing to grow and we'll be a broad participant across various regions across the globe. Operator: Your next question comes from the line of Manav Gupta with UBS. Manav Gupta: I wanted to ask you about the Permian sour gas opportunity. You guys were the first mover. You are the biggest processor of Permian sour gas. But as your returns have been very good. Some others are trying to now chase. And I'm just trying to understand the competitive advantage over there. And the growth and opportunity that you see in the that region of Eddy and Lea in terms of Permian sour gas, what are you seeing out there? If you could talk a little bit about that. . Patrick McDonie: Yes. I think what we said on the last call is that we implemented our sour gas strategy many years ago. We saw the need, we saw the economic benefit of few of the benches in the Delaware specifically that had sour gas, mainly H2S and CO2, that again, were economic benches that weren't getting developed because of the lack of sour gas infrastructure. So Again, a long time ago, we started investing in the sour gas treating facilities. We began tying up acreage as sour gas began to get developed. So we were really a front runner in front of a lot of other people and were able to get a lot of acreage tied up. We continue to see the development now of those ventures. So our sour gas production continues to grow. Certainly, other people have stepped in to that realm because they've been, frankly, unable to participate in the growth in those benches without that capability. So I'd say we were a first mover. We're well positioned. We've tied up a lot of acreage, and we're seeing the benefit of that strategy unfold and continue to unfold over coming years. . Matt Meloy: Yes. And I'd just add on to that, too. I mean we have a system that has fungibility and redundancy really unlike any systems around. I mean our Red Hill system can handle sour gas. Our Bull Moose Wildcat complex can handle sour gas, and we have a 30-inch wet gas line between those that can move volumes in between, and we have multiple AGI wells at several different facilities across Targa. So we offer a service to our producer customers that's really unmatched. . Manav Gupta: Just my quick follow-up is on the Forza project. I think you mentioned you had a successful open season. Our understanding is it's a lower CapEx project, so the returns would be very attractive. Could you talk a little bit about this particular project? Jennifer Kneale: I mean Forza is a 36-mile pipeline interstate. So it will allow us to move volumes from New Mexico down into Texas to more liquid markets. I'd say that it's a project that we're excited about, really driven by producer interest. It's in addition to the other projects that we have underway that are really just focused on how can we continue to provide the best services to our customers that allows us to aggregate volumes in different places and then move them to the best markets on behalf of our producers. . So I think returns, as Bobby articulated earlier around our broad residue strategy are very much commensurate with how we invest across the rest of our portfolio. But what we like about this strategy is it's already taking existing volumes plus some of the growth we have from some of our new plants that are in progress and underway and really leverage all of that additional volume to, again, provide more flexibility to our producer customers. And at the end of the day, it's really that best-in-class service that we think is what differentiates us relative to others. Operator: Next question comes from the line of AJ O'Donnell with TPH. Andrew John O'Donnell: I wanted to go back to maybe a follow on to something that Spiro asked earlier in the call, just about lumpier downstream projects and just overall CapEx. Looking at the Speedway project, just curious on -- given your volumes have been trending above estimates and continue to perform pretty well, at what point in time do you think you would anticipate needing to expand the pipe to the full 1 million per day design capacity? And if it was sanctioned, is that something that you would pursue the capacity all at once? Or could it be a phased approach? Matt Meloy: Yes. No, good question. That would be a good CapEx project for us to undertake for sure, a great CapEx project because most of the capital goes into getting that initial capacity to move from 500,000 barrels up to 1 million is really just putting on pump stations. And so as we see volume growth it would be a fraction of the capital compared to the initial capacity. So we'd be able to highly economically just layer on some pump stations to go from 500,000 to 1 million. And I think we'll just do that ratably over time as opposed to announce, we're going to go from 500,000 to 1 million. It's likely we'll stage them in over time as volumes ramp. Jennifer Kneale: Very much like we did with Grand Prix. Matt Meloy: Yes, very much like Grand Prix. Right. Andrew John O'Donnell: Okay. I appreciate that. And then maybe if I could just shift to the Mid-Con. I think we've seen some commentary from producers and one of your peers specifically talk about activity moving to gassier areas of the basin. Just curious what you guys are seeing on your system and how, if at all, that's impacted your thoughts on your central region platform. Patrick McDonie: This is Pat. What I would say is that we have seen some levels of activity that we haven't seen over the last 2 to 3 years. I wouldn't say there's a huge surge in activity. Certainly, some of our key producers are starting to poke around and do a little bit more. Our Arkoma assets, our South Oak assets is what we call them. We're seeing increased activity and opportunity. Do we see it as a huge growth opportunity in the short term? No. Over time, if gas prices get a little stronger, certainly, I think that becomes an opportunity. Obviously, we have plant capacity. So our capital investment and our ability to get returns on that is very favorable. So I would say there is an increase in activity. It's not huge. Hopefully, it grows over the coming years, and we're well situated to take advantage of that. Operator: Your next question comes from the line of John Mackay with Goldman Sachs. . John Mackay: Just 1 quick one for me. Kind of sticking on Permian activity levels and the macro. Earlier this year, kind of had a couple of conversations about how you'd expect the Midland versus the Delaware to ramp. Just curious kind of where that sits now? What you're hearing from your customer sets on either side, and whether or not that view, I guess, before that kind of Midland plans would ramp quickly, Delaware could take some time, whether that's shifted at all? . Matt Meloy: Yes. I mean we've seen, as Jen said, we've seen really good growth across our footprint this year, more or less in line with our expectations. And I think even as we look out into 2016, it's kind of progressing as we had thought. I think what you're seeing now is a little bit and you saw it this quarter, a little bit stronger growth rate in the Delaware. So as we're kind of moving out, I think we're going to see good strong growth in really both sides of the basin, both Midland and the Delaware, but you're seeing a little bit more strength in the Delaware. So I think both of them are going to be needed at startup. We have had the benefit of just with our expansive system on the Midland side, when you bring up a plant at depressures and you end up getting some flush production that fills it up. I think we're starting to see, as we're building out our Delaware, it's starting to look more like that. So I think we're really optimistic on all the plants going in to be highly utilized. John Mackay: Is clear. And I'll actually ask a second one. Just a look across the basin, certain pockets are getting more mature than others. Are you starting to see kind of big swings in GORs kind of from one region to another? And maybe just a broader comment on kind of how you'd expect that to progress from here? . Jennifer Kneale: I wouldn't say that we're seeing broad swings or big swings in GORs across the footprint. I mean, a little bit is producer-by-producer and area-by-area dependent. But I'd say that what we continue to see is a broad theme of increasing GORs, which were certainly a beneficiary of. And we're not really seeing any changes to that, if anything, it's just continuing to strengthen. . Operator: Your next question comes from the line of Jean Ann Salisbury with Bank of America. Jean Ann Salisbury: Just 1 for me. You all mentioned on the last call that processing plant costs had risen. I think you gave a new range of $225 million to $275 million. I think you saw at the time, it was partly for more sour gas and the mix as well as tariffs. But I guess my question is if the cost escalation is causing any change to your margin expectations or if you can pass most of that through. Matt Meloy: Yes. So, no, I think that range that we gave is still pretty good range. I think the sour end, you're probably in the $250 million, maybe a little bit more first our plants and you're probably in the low end of that range if you're putting in a sweet plan, depending on how much treating you want to put in, but it's somewhere around that range. . Capital costs aren't a direct pass back to the producers. There are some fuel and operating costs that do get passed back. But the capital costs, those are borne by Targa, and it just goes into our overall rates that we're charging and how competitive we are for new volumes in the Permian. So still had a lot of commercial success. We're still earning good returns through our integrated systems. So I still see us being highly competitive at those capital costs. Operator: Our next question comes from the line of Jason Gabelman with TD Cowen. Jason Gabelman: I want to about the competitive dynamics in the Permian Basin. You mentioned you secured additional acreage dedications over the past quarter. And I'm wondering, given kind of less producers growing other basins, obviously, other oil basins not growing. How is the competitive landscape for going after that Permian acreage? Is it becoming more competitive there? And are you seeing some of, kind of, the fees that you're able to extract shrinking? Or are you able to leverage some of your competitive advantages to maintain kind of a premium on the fees? . Jennifer Kneale: Jason, this is Jen. I'd say that it's always competitive. It's always been competitive. It's likely to continue to always be competitive. I think that our business model is to execute the difficult elements of the gathering and processing business and do that really, really well and create a lot of fungibility, redundancy, reliability for our producer customers. And I think that, that's part of what separates us. We've talked a little bit about our sour gas strategy and how we've been sort of a big first mover in that over many, many years. So now we've got more than a 2.5 Bcf a day capacity on the sour side, 7 AGI wells, really well positioned to not only service our existing customers, but to the extent that there are any customers that aren't getting the service that they otherwise need, we can sometimes step in and help as well. So I think that from our perspective, it really starts with the assets and the systems that we've built out. And then that wellhead to water, value proposition that we're able to provide, I do think we just do it very well. We've been doing this for a long time. We take it very seriously. We invest on behalf of our producers across cycles. We try to make sure that we are exceptional partners to our producers really work well alongside of them. Again, I think that's part of the flexibility that we offer. And then we've just got some inherent advantages because of the size of our system and the vastness of our system that we're able to step out into areas to the extent it makes sense, more easily sometimes than others or we're able to utilize the fact that we've got more than 40 plants interconnected, many of them interconnected to, again, help our producers where they may need it. So I really think it's what we already have in place and then just a continued strong commercial effort by what I think is the best commercial team in the business to go and continue to identify ways to both work with our existing customers and do more business with them and then, of course, continue to chase new opportunities too. And that's part of what you're seeing. We're not resting on our laurels that we already have millions of acres dedicated to target in the Permian or in other areas. We're continuing to chase new business because we think we can do a really good job of helping our producer customers, and we believe we offer a differentiated service. And so we'll continue to chase that. And again, are having good commercial success that at the end of the day, ends up being additive to that really strong foundation of dedicated contracts that we already have in place. . Jason Gabelman: Great. That's really helpful color. And then my other question, just kind of following on to what Jean An just asked. Impact from tariffs and kind of more broadly, how you feel about that $1.6 billion cost for the Speedway pipe. Is that kind of fully baked? Or do you have perhaps some contingency baked in there? Or is there a potential for tariffs to further increase that cost? Jennifer Kneale: Jason, this is Jen again. I think we feel really good about it. Our engineering team, our supply team did an exceptional job of procuring pipe long before we made the announcement that we were moving forward fully with the project publicly. And so I think that, that means that we are in a really good position to deliver, hopefully, under budget to any of our folks that are listening. But at the end of the day, I feel good about the budget that we put out there. We always do have some contingency in all of the projects that we move forward with. And then I think our team does a really good job of trying to ultimately beat that and not use that contingency. So similar to all of our projects, we just have a really strong team that's working day in and day out to try to outperform relative to the expectations that they've provided us with. And we feel really good about the Speedway project. Operator: Next question comes from the line of Sunil Sibal with Seaport Global Securities. . Sunil Sibal: So I think last year, your team had given a kind of a longer-term steady-state CapEx number of $1.7 billion. I was curious, where does that number stand today with the growth in the portfolio that we're seeing. Jennifer Kneale: Sunil, this is Jen. I think the frameworks that we provided back in February 2024 are very much still helpful. And I think that if you tried to mark-to-market, which, of course, we haven't done publicly, but if you just look at some of the pieces, one, we've seen some costs a little bit higher. We've just been received a couple of questions around tariffs. And so you've got costs that are a little bit higher. We, of course, have a much bigger footprint today than we did when we published that back in February of 2024. But we're not talking about meaningfully higher, you call it modestly higher. And then the other additives are when we came out with that framework, we didn't have residue spending, and we didn't have CCS--CCUS spending included in that. And again, we've got some modest projects underway on both fronts there. So I'd say that it's very much still helpful. I think that particularly when you think about what Matt talked about, which is a much higher EBITDA base now, even if the capital is a little bit higher than what we put out back in February 2024, it just highlights that across environments, we have a very robust, very strong and strengthening free cash flow profile. . Matt Meloy: Yes. And just to add on to that, too, the framework we've put out was a multiyear average. So kind of baked into that $1.7 billion capital number was an average spending for downstream. We're going to be above average here kind of through Speedway coming on. And then once Speedway comes on, we'll be less than that average. So it will be a little bit higher in the short term and in the medium term will be below. And then it really just be dependent on the G&P side of things. . Sunil Sibal: Okay. And then it seems like there has been some growing interest among the data center community to tap on to the Permian gas. I was curious, is that something that has kind of crossed your interest? And if you have any thoughts on that? . Jennifer Kneale: This is Jen, Sunil. I'd just say that we're having a ton of conversations with a lot of people. From our perspective, given our position in the Permian and the amount of natural gas that we aggregate and transport every day, we're well positioned to help supply the increasing demand for natural gas and the tailwinds of incremental demand for power generation, for data centers, alongside the doubling of LNG capacity in the U.S., those are all really good for Targa. And we've got a lot of conversations underway about how we can help customers all the way along the value chain. Operator: Our final question comes from the line of Brandon Bingham with Scotiabank. . Brandon Bingham: Just wanted to maybe go to the NGLs outlook. You announced a plant for 2027 today, not long after announcing the prior one. So is it just possible that maybe some of those illustrative plans outlined in the slides starting in 2028 could be pulled forward into earlier years? Or is maybe they're a way to, instead of a 1 to 2 a year cadence that might shift to 2 to 3 for a little bit? Just trying to figure out some of the potential upside to that, call it, medium, longer-term outlook. . Jennifer Kneale: Brandon, this is Jen. Ultimately, the medium- and longer-term outlook will be supported by activity from our producers, both on all the contracts that we already have in place and then our commercial execution going forward. I think what you saw us talk about last fall was that we were needing to accelerate some plants because of that incremental commercial success that we've had. I think you've heard us talk today about continued commercial success, but ultimately, over the medium and long term, are we continuing to talk about low double-digit growth? Are we talking about high single-digit growth? Ultimately, that's what will drive the gathering and processing spending, both for gathering lines, compression as well as plants and dictate the cadence of plant adds that we need to think about going forward. . Brandon Bingham: 9 Okay. That makes sense. And then just maybe shifting over to the free cash flow inflection, call it, late '27 into '28. And just how we can maybe think about the payout target of 40% to 50% and how that might shape up through that point? And then if maybe we're understanding it's a multiyear outlook and it's an average, just if there might be some catch-up that could happen once that free cash flow inflection hits, if the payout ratio might be a little bit below over the next couple of years in light of the anticipated spending profile? Matt Meloy: Yes. As we outlined 40% to 50% return of capital through a combination of growing dividend and opportunistic share repurchases. You're right, it's over multiple years. So there could be some years we're on the low end or even lower than it. And some years, we're on the high end and above it. I think once we get into that back half of '27 when Speedway and our export projects are completed, we're going to be in a really good position to be deciding what to do with all the free cash flow. I think you'll see continued dividend increases. I think you'll see continued share -- opportunistic share repurchases. And we've kind of talked about it was years ago. We talked about being at the lower end of our leverage ratio range and then giving ourselves a little more flexibility and perhaps lowering our leverage ratio a bit is also something -- our primary focus will be continuing to invest in the business. So organic growth, returning capital to shareholders and reducing leverage. I think we'll be in a good position to do all of those things. Operator: With no further questions in queue. I will now hand the call back to Tristan Richardson for closing remarks. Tristan Richardson: Great. Thanks to everyone for joining the call this morning, and we appreciate your interest in Targa Resources. Operator: Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the SmartRent Q3 2025 Earnings Call. [Operator Instructions] Now I would like to turn the call over to Kelly Reisdorf. Please go ahead. Kelly Reisdorf: Hello, and thank you for joining us today. My name is Kelly Reisdorf, Head of Investor Relations for SmartRent. I'm joined today by our President and Chief Executive Officer, Frank Martell; and Daryl Stemm, Chief Financial Officer. Before the market opened today, we issued an earnings release and filed our 10-Q with the SEC, both of which are available on the Investor Relations section of our website. Before I turn the call over to Frank, I would like to remind everyone that the discussion today may contain certain forward-looking statements that involve risks and uncertainties. Various factors could cause our actual results to be materially different from any future results expressed or implied by such statements. These factors are discussed in our SEC filings, including in our annual report on Form 10-K and quarterly reports on Form 10-Q. We undertake no obligation to provide updates regarding forward-looking statements made during this call, and we recommend that all investors review these reports thoroughly before taking a financial position in SmartRent. Also, during today's call, we will refer to certain non-GAAP financial measures. A discussion of these non-GAAP financial measures, along with the reconciliation to the most directly comparable GAAP measure is included in today's earnings release. We would also like to highlight that our quarterly earnings presentation is available on the Investor Relations section of our website. And with that, I will turn the call over to Frank. Frank Martell: Thank you, Kelly. Good morning, everyone. I'm pleased to report that the third quarter was a period of substantial progress for SmartRent. We continue to grow our annual recurring revenue and significantly narrowed our operating loss in line with the commitments we made on our last call. During Q3, we continued to expand our installed base, which now includes more than 870,000 units, up 11% from prior year. SaaS revenue grew 7% from prior year levels and now represents 39% of total revenue, up from 37% in Q2 of this year. SaaS growth is being fueled by our increasing installed unit footprint and higher pricing. As we look forward to the balance of this year and into 2026, we expect to continue to significantly expand our installed base as we capitalize on the investments we are making in our sales organization as well as expanding platform capabilities to deliver even greater ROI to property owners and operators. Let me now highlight 3 important milestones from the quarter. First, we completed the actions necessary to reset our cost structure that we outlined last quarter, unlocking more than $30 million of annualized expense reductions. We believe that this will result in adjusted EBITDA and cash flow neutrality on a run rate basis exiting 2025. Cost efficiency was the primary factor in narrowing our adjusted EBITDA loss from $7.4 million in the second quarter of this year to $2.9 million in Q3. Second, our relentless focus on achieving profitability, combined with disciplined working capital execution helped us to exit the third quarter with unrestricted cash of $100 million compared with $105 million at the end of Q2. Maintaining our strong liquidity position should provide ample capacity to fund high ROI reinvestments, which are expected to drive customer and shareholder value and build a strong base for long-term success. And third, we added a seasoned expert during the quarter with a consistent track record of transforming key workflows and processes. Our go-forward goal is to simplify and automate our key internal processes over the next 18 months. We expect to see significant financial and operational benefits from this initiative beginning in 2026. Our progress in Q3 is the outcome of clear priorities, disciplined execution and a focus on what matters most, building expanding profitable and durable platform. I will now focus the remainder of my comments today around our business model and why we believe it provides a platform for durable revenue growth and higher levels of sustainable profitability in 2026 and beyond. From my point of view, SmartRent's opportunities for accelerating profitable growth and sustained market leadership are compelling. We operate in a large expanding market with a purpose-built differentiated platform and a growing SaaS footprint. As a hardware-enabled SaaS company with meaningful scale, our foundation is domain expertise and close alignment with the needs of our customers. Our solutions are retrofit friendly, integrates seamlessly with third-party hardware and systems and are designed to deliver measurable ROI. With IoT-focused platforms deployed 870,000 rental units and over 1.2 million users relying on our operational and community management workflow tools, we have a significant advantage. I believe we are increasingly poised to leverage our scale advantage to improved operational execution, the introduction of new and enhanced capabilities driven by data and analytics and the infusion of AI. SmartRent delivers strong value that our customers rely on. As a result, we have developed sticky and long-term customer relationships. Our net revenue retention rate is well above 100%. In a recent survey, 90% of property managers cited net operating income expansion as a key reason for continued investment in SmartRent. I want to conclude my prepared remarks today by saying how energized I am about the opportunities for growth and transformation at SmartRent. Over the past 4 months, I've had the chance to spend significant time with many of our key stakeholders, including our largest customers. These sessions have provided me with critical insights into both the company's foundational strengths as well as areas we need to address to realize our full potential. On the next call, I will be providing a 3-year strategic framework for evolving our business model to capture the unique benefits we provide to the rental market and its key participants. In closing, I believe we made important progress in the third quarter and are well positioned to exit 2025 with accelerating momentum. I want to thank our team of dedicated SmartRent employees for all their focus and commitment. It's making a difference. I will now turn the call over to Daryl for a detailed discussion of our Q3 financial results. Daryl Stemm: Thank you, Frank, and good morning, everyone. We appreciate you joining us today to discuss our third quarter 2025 results. Our third quarter results demonstrate clear progress across both profitability and operational execution, highlighted by reduced losses, lower operating expenses and a stronger recurring revenue mix, and we remain firmly on track to achieve our run rate targets as we exit 2025. For the third quarter of 2025, total revenue was $36.2 million, down 11% year-over-year. The decline primarily reflects our strategic move away from bulk hardware sales that occurred in advance of customer implementation time lines in favor of a more sustainable SaaS-focused revenue mix. Breaking this down a bit further, SaaS revenue reached $14.2 million and increased 7% year-over-year. SaaS revenue now represents 39% of total revenue compared with 33% of total revenue in the same period prior year. Hardware revenue totaled $11.5 million in the third quarter, a 38% decline year-over-year for the reasons previously noted. And Professional Services revenue increased by 113% year-over-year to $7 million, reflecting the higher installation volume and improved project efficiency. The shift in revenue mix towards SaaS continues to strengthen the quality and predictability of our model, a key objective in our path to profitability. Our annual recurring revenue reached $56.9 million, up 7% year-over-year reflecting steady expansion of our recurring base and the successful execution of our strategy to scale higher-margin platform-driven growth. As of September 30, our installed base reached 870,000 units, up 11% from the prior year, with 83,000 net new units added since the same quarter prior year. We deployed more than 22,000 new units during the quarter, a 49% increase compared to the prior year period and booked 22,000 units for a 30% increase, reflecting continued customer demand and stronger execution resulting from our investment in our sales organization. Turning now to profitability. Gross margin was 26%, lower year-over-year as a result of nonrecurring inventory charges related to our decision to sunset our parking management solution and focus on our core IoT and smart operation solutions, partially offset by a higher mix of our higher-margin SaaS revenue. Professional Services gross profit improved by $3.7 million, shifting from a loss of $3.5 million in the prior year quarter to a profit of $200,000 this quarter. We believe the breakeven performance of our Professional Services revenue stream, which was driven by ARPU increases and cost reductions is sustainable. Operating expenses decreased by 34% year-over-year to $16.6 million, an $8.6 million reduction from the prior year period. Our third quarter operating expenses were aided by approximately $2.5 million of accrual reversals, which we don't expect to recur in future periods. Net loss improved 36% year-over-year to a loss of $6.3 million and adjusted EBITDA improved 23% to a loss of $2.9 million. Our $30 million cost reduction program is complete. These efforts have meaningfully reshaped our expense base, aligning them with our current revenue level and created a leaner, more efficient operating structure that supports future growth. We ended the quarter with $100 million in cash, no debt and $75 million in undrawn credit, giving us a strong balance sheet and the flexibility to execute from a position of strength. Net cash burn improved by 79% from roughly $24 million in the same period prior year to $5 million this quarter. This improvement is primarily driven by a reduction of operating losses and improved accounts receivable collections. From here, our focus turns to selective reinvestment especially in our sales and account management functions where we're seeing early traction from targeted hiring and process improvements. Equally important, we're investing in product innovation, as Frank mentioned, to strengthen differentiation and fuel long-term growth. We remain committed to preserving the cost discipline and operating rigor that have driven our turnaround. We're operating with discipline, building momentum and have clear line of sight to achieve run rate non-GAAP neutrality exiting 2025, positioning SmartRent for durable, profitable growth in 2026. Thank you for joining us today. Operator, you may now open the line for questions. Operator: [Operator Instructions]. And your first question comes from the line of Ryan Tomasello. Ryan Tomasello: Looking at SaaS revenue growth of 7%, that came in lower than deployed unit growth of 11%. And it looks like the drivers there are ARPU related, which I think is partly driven by site plan. So I guess my question is, what's the current strategy at site plan, which seems to be a drag on growth? And then within core IoT ARPU, it looks like that was still flat sequentially, backing out site plan. So are there any other drivers there to call out? I think you mentioned the sunset of your parking management solutions, whether or not that was an impact? Any color on that would be helpful. Daryl Stemm: Yes. Thanks for the question, Ryan. So first of all, with regards to the overall SaaS ARPU, I would say that this is a 1 quarter aberration. We had some adjustments to revenue, SaaS revenue that were non-IoT related. So primarily smart operations were site plan as you mentioned. And that had an impact of about $0.15 on our reported SaaS ARPU number, which should correct itself in Q4. And so I would expect to see a return to the $5.65 to $5.70 range of SaaS ARPU in Q4. Ryan Tomasello: Can you just elaborate what that -- what those adjustments were? Daryl Stemm: Yes. We have a number of accounting estimates that we make on both revenues and on expenses. And so the adjustments were really just around some estimates that we use in our calculations. And we're constantly tweaking our estimates to make sure that our financial statements are reasonably representing to use the auditing term, our true financial results. This quarter, it was just a little bit larger than typical. Ryan Tomasello: Okay. And then Frank, your commentary certainly is suggesting optimism about growing the installed unit base next year. Can you elaborate just on the progress you've made specifically within the sales organization? And if you're able to, at a high level, discuss the type of annual unit deployment capacity you think the business can structurally support based on your current sales and installation infrastructure? Frank Martell: Yes, look, I think I'm -- the company has kind of settled in that 20,000 to 25,000 level. We can do more than that, significantly more than that with the current capacity. As I said in my prepared remarks, I visited most of the major clients. Everybody is talking about their plans, which include potentially quite a number of units to be installed. The macro environment is a little challenging. So that's creating a little bit of friction. But by and large, I think there's a lot in the hopper out there. We did add a leader about a year ago, terrific person that's really driving expansion. We've expanded dramatically our account -- key account management structure. We have a lot of, as you know, large clients. So more specific attention to those clients. We launched a customer council, which we're excited about, which will allow us to better coordinate our -- some of our new products and solutions that we have in place. So that's a positive. And then I think we have just more sales folks, some former employees that have come back, plus a few new ones. So we will, I think, be positioned well to ramp up from the current levels. We're doing 22,000, 23,000 units right now. And I expect that to increase, but more to come on that front. And you mentioned site plan. So as Daryl alluded to, smart IoT and operations are the core of this company and will remain the core of this company. We're actually holding serve at smart operations. We have over 1 million users. We're putting some investment behind the solution sets there, and we'll continue to do that, probably accelerate that into next year. So smart operations is a core component. It's is not declining. It's kind of holding serve. So I just want to make sure that, that was clear. Operator: And your next question comes from the line Yi Fu Lee with Cantor Fitzgerald. Yi Lee: Great work on reaping operational improvements in the cost structure and flowing this benefit to better profitability. So Frank, I just want to start with you. You mentioned like the past 4 months, you spoke with a lot of stakeholders, right? Just want to get your feedback, like what are some of the positive and negatives you're seeing in the field? Frank Martell: Sure. Look, I think I've covered a lot of ground with customers. And I think one thing about SmartRent that's very interesting is that the companies like the solutions very much. They value the return on investment that we generate. They're very supportive of the company despite some of the challenges over the last year or so. And I would say it's a very open collaboration. So I think from a customer point of view, it's actually quite positive for SmartRent, support of SmartRent. And I think that's fantastic. It's also -- it's a collaborative discussion with them about how we can continue to evolve our products and solutions to be a bigger part of their business. And that's why I think things -- we did not have any problem creating our customer product council, which we've already kicked off and was very active. So I think that's, again, a kind of encouraging sign. And the last thing I'll say is we don't -- we have very little to none customer turnover, which is not something that's very common. And so I think from that point of view, we are a sticky solution. And I think from that perspective, it's a great base to work with. So it's really encouraging from that perspective. I think now that we've got more predictability in the business, I'm hopeful that we'll see an acceleration in unit orders despite the fact that there's some challenges in the macro environment. Yi Lee: And with that, Frank, like, I know like, Ryan, asked about the sales organization. I want to continue to focus on that. You guys made a lot of investments from last year, bringing in a new CRO, hire a couple of folks in key pillars, right? Just want to get a sense, what are the things like in terms of go-to-market that you think -- and you mentioned the run rate is about 20,000 to 25,000 units per quarter, right, of new net units. What are the go-to-market things that you think the changes you made that could help improve, let's say, in 2026? Frank Martell: Yes. I think, first of all, one thing I would just say on the unit count that Daryl talked about in his presentation, we've been working through the overhang of these bulk hardware sales that were made over the course of early 2024 and late 2023. That had a reduction -- an effect of reducing our run rate on units because they were pulling forward into earlier periods. We should be through that by the end of this year. So we'll have a run rate that looks more like the market demand cycle looks and that should be a benefit. It's not very far from 23,000 to 30,000 units, really. And so we're shooting for a much higher number and building the organization to accommodate that. And I think things like improving the sales organization in terms of numbers of people, and frankly, the underlying systems that support that group, that's all well in hand. As I said earlier, we have a fantastic leader that's really doing a very good job on the organizational enablement front and also the client relationship building front. I will remain active with the clients. And I think there's a lot of upside there. Yi Lee: Got it. And then Daryl, flipping to you on the financial side. I think Frank mentioned that by the end of this year, the bulk hardware sales should normalize the headwind. I was wondering, can you give us some color? Does it mean like in 2026, we should see a smoother growth rate quarter-over-quarter? And then your comments about run rate cash flow neutrality to exit 2025, should we get used to this going forward, Daryl? Daryl Stemm: Yes. So first -- to answer your first question with regards to what the growth rate might look like, what you've been seeing for most of the past year is that our hardware revenues, in particular, have been muted because we've made the shipment of the hardware for much of the installation volume that we're still now undertaking a year ago plus. So our -- I would expect that even if our volume were simply to stay in the 20,000 to 25,000 units per quarter range, that our hardware revenue would increase as we have to, then as we work through the whole hardware sales, we will be shipping hardware for current period installation. So there'll be a more closely coupled cadence to the hardware revenue with the deployment volume. And can you repeat your second question, please? Yi Lee: The second one was the possibility. You mentioned our free cash flow exiting end of this year to be positive. So that -- should we get used to this discipline -- financial discipline in 2026, meaning like this consistency? Daryl Stemm: Well, we're certainly going to strive to be as disciplined as we have been this past quarter and for Q4. I think that our initial desires were simply to reduce the cash burn so that we can then evaluate how to use the $100 million of cash that we have in -- and apply it for its best purpose, be it reinvesting in the company or otherwise. So my expectation would be that we'll continue to remain very disciplined in our use so that we can then make very disciplined decisions around how to best use the $100 million. Operator: There are no further questions at this time. That concludes today's call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the American Financial Group 2025 Third Quarter Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Diane Weidner, Vice President, Investor Relations. Please go ahead. Diane P. Weidner: Good morning, and welcome to American Financial Group's Third Quarter 2025 Earnings Results Conference Call. We released our results yesterday afternoon. Our press release, investor supplement and webcast presentation are posted on AFG's website under the Investor Relations section. These materials will be referenced during portions of today's call. I'm joined this morning by Carl Lindner III and Craig Lindner, Co-CEOs of American Financial Group; and Brian Hertzman, AFG's CFO. Before I turn the discussion over to Carl, I would like to draw your attention to the notes on Slide 2 of our webcast. Some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties that could cause our actual results and/or financial condition to differ materially from these statements. A detailed description of these risks and uncertainties can be found in AFG's filings with the Securities and Exchange Commission, which are also available on our website. We may include references to core net operating earnings, a non-GAAP financial measure, in our remarks or in responses to questions. A reconciliation of net earnings to core net operating earnings is included in our earnings release. And finally, if you're reading a transcript of this call, please note that it may not be authorized to review for accuracy. And as a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statements. Now I'm pleased to turn the call over to Carl Lindner III to discuss our results. Carl Lindner: Good morning. I'll begin by sharing a few highlights of AFG's 2025 third quarter results, after which Craig and I will walk through more details. We'll then open it up for Q&A, where Craig, Brian and I will be happy to respond to your questions. We're pleased to report an annualized core operating return on equity of 19% for the third quarter. Our underwriting margins in our Specialty Property and Casualty insurance businesses were strong. Net investment income increased by 5% year-over-year despite muted returns from our alternative investment portfolio when compared to the long-term historical performance of those investments. Our compelling mix of Specialty Insurance businesses, entrepreneurial culture, disciplined operating philosophy and an astute team of in-house investment professionals continue to position us well for the future and enable us to continue to create value for our shareholders. Craig and I thank God, our talented management team and our great employees for helping us to achieve these results. I'll now turn the discussion over to Craig to walk us through some of the details. Craig Lindner: Thank you, Carl. Please turn to Slides 3 and 4 for third quarter highlights. AFG reported core net operating earnings of $2.69 per share compared to $2.31 per share in the prior year period, a 16% increase. I'll begin with an overview of AFG's investment portfolio, investment performance and share a few comments about AFG's financial position, capital and liquidity. The details surrounding our $16.8 billion portfolio are presented on Slides 5 and 6. Net investment income in our property and casualty insurance operations for the 3 months ended September 30, 2025, increased 5% year-over-year as a result of higher interest rates and higher balances of invested assets. As shown on Slide 6, nearly 2/3 of our portfolio is invested in fixed maturities. In the current interest rate environment, we're able to invest in fixed maturity securities at yields of approximately 5.25%. The duration of our P&C fixed maturity portfolio, including cash and cash equivalents, was 2.7 years at September 30, 2025. The annualized return on alternative investments in our P&C portfolio was approximately 6.2% for the 2025 third quarter compared to 5.4% for the prior year quarter. Although the overall return on our multifamily investments continue to be tempered by challenges within the broader economic environment, we're seeing evidence of recovery. Strong occupancy, a return to historical levels of lease renewals and more stability in the overall rental rate environment contribute to improving conditions despite a prolonged softer market caused by excess supply of new properties in several of our targeted regions. Importantly, a large portion of our portfolio of multifamily properties is located in desirable geographies with strong job and wage growth. Although the supply of properties in these locations is elevated as compared to historical levels, new starts have declined significantly and at a faster pace than in other regions. We believe that tightening supply and a significantly reduced development pipeline will drive higher rental and occupancy rates and improve results by the end of 2026. Longer term, we remain -- we continue to be optimistic regarding the prospects of attractive returns from our overall alternative investment portfolio with an expectation of annual returns averaging 10% or better. Please turn to Slide 7, where you'll find a summary of AFG's financial position at September 30, 2025. During the third quarter, we returned $66 million to our shareholders through the payment of our regular quarterly dividend. In October, AFG's regular quarterly dividend was increased 10% over the previously declared rate to $0.88 per share and paid on October 24, 2025. In conjunction with our earnings release, we declared a special dividend of $2 per share payable on November 26, 2025, to shareholders of record on November 17, 2025. The aggregate amount of special dividends will be approximately $167 million. With this special dividend, the company has declared $54 per share or $4.6 billion in special dividends since the beginning of 2021. Carl and I consider these special dividends to be an important component of total shareholder return. We expect our operations to continue to generate significant excess capital throughout the remainder of 2025 and into 2026, which provides ample opportunity for acquisitions, special dividends or share repurchases over the next year. We evaluate the best alternatives for capital deployment on a regular basis. We continue to view total value creation as measured by growth in book value plus dividends as an important measure of performance over the longer term. For the 9 months ended September 30, 2025, AFG's growth in book value per share, excluding AOCI plus dividends, was nearly 11%. I'll now turn the call over to Carl to discuss the results of our P&C operations. Carl Lindner: Thank you, Craig. Please turn to Slides 8 and 9 of the webcast, which include an overview of our third quarter results. Our commitment to underwriting discipline and prudent growth was evident in the solid performance of our Property and Casualty businesses in the third quarter. We're finding attractive opportunities to grow our Specialty Property and Casualty businesses despite walking away from challenging market conditions in a few markets or poorly performing accounts. I'm pleased with the overall underwriting profitability in our Specialty Property and Casualty businesses in the third quarter of this year and remain confident about the strength of our reserves. A continued favorable pricing environment, increased exposures and new business opportunities enabled us to selectively grow our Specialty Property and Casualty businesses. Although the timing of reporting of crop acreage by our insureds shifted some crop premium from the third quarter to the second quarter, as we discussed on last quarter's call. This tempered premium growth in the third quarter. We continue to expect premium growth for the full year in 2025 in the low single digits. In addition to organic growth opportunities and evaluating acquisitions, always try to maintain a pipeline of start-ups that have the potential to become new business units in our portfolio of Specialty businesses. Taking an early look at next year, we currently project 2026 premium growth to rebound as we're optimistic about the growth from these start-ups and the near completion of numerous underwriting actions taken in our Specialty and Casualty businesses. Turning to Slide 8, you'll see that underwriting profit in our Specialty Property and Casualty insurance businesses grew 19% and generated a 93% combined ratio in the third quarter of 2025, an improvement of 1.3 points from the prior year period. Results for the 2025 third quarter include 1.2 points related to catastrophe losses compared to 4.4 points in last year's third quarter. Third quarter 2025 results benefited from 1.2 points of favorable prior year reserve development compared to 0.8 points in the third quarter of 2024. Third quarter gross and net written premiums were down 2% and 4%, respectively, when compared to the third quarter of last year. Excluding our crop business, gross written premiums grew 3% and net written premiums were flat year-over-year. Average renewal pricing across our Property and Casualty Group was up approximately 5% in the third quarter, both including and excluding workers' comp. We reported overall renewal rate increases for 37 consecutive quarters, and we believe we are achieving overall renewal rate increases in excess of prospective loss ratio trends to meet or exceed our targeted returns. Now I'd like to turn to Slide 9 to review a few highlights from each of our Specialty Property and Casualty business groups. Details are included in our earnings release, so I'll focus on summary results here. The businesses in the Property and Transportation Group achieved a solid 94.1% calendar year combined ratio in the third quarter of 2025, an improvement of 2.7 points from the comparable 2024 period. This group's third quarter 2025 combined ratio included 0.4 point attributed to catastrophe losses compared to 3.7 points in the 2024 third quarter, which was the primary driver of the improved year-over-year profitability. Third quarter 2025 gross and net written premiums in this group were 6% and 9% lower, respectively, than the comparable prior year period. As mentioned before, the earlier reporting of crop acreage by insureds impacted the timing of the recording of crop premiums and contributed to the year-over-year decrease, particularly when compared to later reporting of acreage the previous year. Excluding the crop business, gross written premiums in this group grew by 2% and net written premiums were flat. We continue to see new business opportunities, a favorable rate environment and increased exposures in our transportation businesses. Overall renewal rates in this group increased 6% on average in the third quarter of 2025. We continue to remain focused on rate adequacy, particularly in our commercial auto liability line of business, where rates were up approximately 11% in the third quarter. In our crop business, harvest pricing for corn and soybeans settled 10% and 2% lower, respectively, than spring discovery pricing, which is well within acceptable ranges and yield expectations are steady. Based on these factors, we continue to anticipate an average crop year. Our third quarter results reflect an element of seasonality as most of our crop insurance premiums are earned in AFG's third quarter but booked at a more conservative combined ratio until the fourth quarter. Over the coming weeks, we'll have better visibility into actual yields and claim activity in our MPCI businesses, and we'll also have a clear indication of the performance of our private products business. With this more complete picture, we'll record the majority of our calendar year crop profitability in the fourth quarter as is our standard practice. The businesses in our Specialty and Casualty Group achieved a 95.8% calendar year combined ratio overall in the third quarter, 3.7 points higher than the 92.1% reported in the comparable period in 2024. Third quarter gross written premiums increased 3%. Net written premiums were flat compared to the same prior year period. Primary drivers of growth included new business opportunities and favorable renewal pricing in several of our targeted market businesses and an increase in M&A activity that contributed to growth in our mergers and acquisitions business. This growth was tempered by lower premiums in our excess and surplus, executive liability and social services businesses. Overall renewal pricing in this group was up approximately 7% during the third quarter, an increase of about 1 point from the previous quarter. Average renewal pricing, excluding workers' comp, was up approximately 8%, in line with pricing in the second quarter. And I'm pleased that we again achieved renewal rate increases in the mid-teens in our most social inflation exposed businesses, including our social services and excess liability businesses. In addition, our workers' compensation businesses collectively achieved a modest pricing increase during the quarter, a favorable trend. Several businesses in this group, particularly our excess liability businesses have been navigating the challenges of social inflation for several years and have demonstrated their nimbleness and resilience through the cycle. Over the last 5 years, one of our largest excess liability businesses has decreased aggregate limits by 25% while more than doubling premium, primarily as a result of rate increases. We're continuing to exercise discipline through the use of predictive analytics, risk selection and careful coordination between our underwriting, actuarial and claims professionals to ensure that our businesses are earning targeted returns. The Specialty Financial Group continued to achieve excellent underwriting margins and reported a combined ratio of 81.1% for the third quarter of 2025, 11.2 points better than the comparable period in 2024. These results reflect 4.1 points related to catastrophe losses compared to 14.4 points in the prior year period, contributing to higher year-over-year underwriting profitability in our financial institutions business. Third quarter gross and net written premiums in this group were up 3% and 1%, respectively, when compared to the prior year period. The growth is primarily attributed to our growth in our financial institutions business and our Great American Europe business, which designs and delivers a broad portfolio of innovative and customized insurance programs across the U.K. and Europe. Net written premiums were tempered by our decision to cede more of the coastal exposed property business in our lender services business. Renewal pricing in this group was down approximately 2% in the third quarter, reflecting the strong margins earned overall in these businesses. Craig and I are proud of our history of long-term value creation. We have years of experience navigating economic and insurance cycles. Our insurance professionals continue to exercise their Specialty Property and Casualty knowledge and experience to successfully compete in a dynamic marketplace. And our in-house investment team has been both strategic and opportunistic in the management of our $17 billion investment portfolio. One of our greatest strengths is finding opportunities in the times of uncertainty. We're well positioned to continue to build long-term value for our shareholders for the remainder of 2025 and beyond. Now we'll open the lines for the Q&A portion of today's call. And Craig and Brian and I will be happy to respond to your questions. Operator: [Operator Instructions] Our first question comes from the line of Michael Zaremski of BMO Capital Markets. Michael Zaremski: First question on capital management. We clearly saw the special dividend announcement. But curious why there were no buybacks or not material buybacks in the quarter. Last quarter, you had done buybacks and valuation wasn't too dissimilar from the average this quarter is my understanding. So just curious, any color there? And do you expect repurchases to resume depending on your, I guess, your answer. Craig Lindner: Yes. Mike, this is Craig. What I would say is if you look at our purchases, we become very active when the stock is trading at a very significant discount to what we believe is the appropriate value. There have been periods when we have repurchased very large amounts of shares period back in -- I think it was 2008 through 2010, we repurchased around 30% of our shares at a very attractive level. So I wouldn't read too much into one quarter's repurchases or lack of repurchases. What I would say is we've retained a lot of dry powder to be able to take advantage of the opportunity to repurchase shares if it presents itself. Michael Zaremski: Okay. That's helpful, Craig. Pivoting to the operating environment on the P&C side. I thought it was -- it's a good comment to hear, but I thought it was a bit surprising, at least we got some reaction last night from investors when you said that pricing was about 5% with and without comp, and you believe you're achieving rate in excess of prospective loss trends because most -- many companies, and I think if you look at Triangles too would kind of estimate loss trend is north of 5%. Any commentary you'd like to elaborate there on in terms of my assumption there? Carl Lindner: I can't speak for other companies. I can speak for us. And an overall 5% price increase is still exceeding our prospective loss ratio trends. We have a decent chunk of our business in workers' comp where loss ratio trends are really pretty benign. And a lot of other businesses, we have a very diverse portfolio. So not all of our businesses are -- reflect a casualty loss ratio trend in that. So I can only speak for our own mix of business and what our own actuaries tell us. Michael Zaremski: Got it. And so just -- that's helpful, Carl. And so sticking to kind of loss trend and pricing. If we can kind of try to laser in on some of the lines of business that have been causing more friction over the past year for you all in the industry. Obviously, appreciate your ROE -- AFG's ROE is industry-leading. But if we think about the social inflationary lines of business, are we seeing pricing, which had been accelerating kind of stopping its acceleration trend? And do you believe loss cost trend is kind of remaining stable? Or are we continuing to see some upwards bias? It's looking at the underlying loss ratio and Specialty and Casualty, for example, the trend line there moving a bit north? Carl Lindner: Again, with 30 businesses, there's -- we adjust loss ratio trends every quarter. We do actuarial valuations and evaluation of the business. And some loss ratio trends improve, other loss ratio trends, particularly in social inflation-exposed businesses. We're very careful about trying to be conservative enough to consider pricing in that. So I think not a lot of changes, I don't think over the past couple of quarters in overall loss ratio trends in that. But some businesses would have improved, some businesses would have increased a little bit. In our case, the part of our business where we had a slight decline was in our specialty financial business and particularly in our lender-placed property business, which at the big margins that, that business have earned for us. And after multiyears of pretty significant rate increase, it's not surprising that there was some plateauing of price on that business in that. So compared to what a lot of the E&S market and some of the large property guys are seeing with price change, I'll take a couple of percent decline on our lender-placed property business over the chunk of business that's seeing double-digit declines, if you understand what I'm saying. So I think that was one of the main drivers of our pricing being a little bit lower in that. I think what I am happy about is the pricing in our Specialty Casualty, excluding comp, is still up 8% in the quarter. And to boot, I'm very pleased that we saw some price increase in our overall workers' comp book, particularly being led by California and that clearly. And I think the California will probably only get better. Brian, you were telling me that they're going to be taking 11% increase and was it September? Brian Hertzman: Effective September 1. Carl Lindner: Yes, effective -- yes. So I think that's the price increase there in California should just get better in that. I hope that gives you a little color. Operator: Our next question comes from the line of Andrew Andersen of Jefferies. Andrew Andersen: Maybe just back on the workers' comp. It was good to see that price tick up, and it sounds like California could see some further momentum. But perhaps we could touch on some other geographies. Are you seeing some pricing tick up a little bit elsewhere? Carl Lindner: In our strategic comp business, which is a fairly sizable business, there was some positive price change there also in that. I think in the Southeast and the Summit business continues to be some kind of a mid-single-digit price decline in that. Andrew Andersen: Okay. And maybe a bigger picture macro question just on crop. Pricing on corn and soybeans has been coming in for a couple of years, and I suppose that could partially be due to some change in trade policies. But I'd be interested in hearing your thoughts just kind of on the outlook maybe intermediate term for crop premium and crop pricing as kind of trading with global partners changes. Carl Lindner: Well, I think you probably need a pretty good crystal ball trying to figure that out. You would think that probably the trade aspect of soybeans is probably being reflected in the futures prices at this point, which would lead you to believe that premium should be stable or maybe even increasing corn when you look at futures prices into '26, it looks to be pretty stable against spring discovery prices this year in that. That said, we don't know until the actual 30-day average in the first quarter next year establishes spring discovery prices in that. But what I've seen so far, it seems like prices should be stable or if there's an improvement in the China relationship with the U.S., maybe soybean pricing continues to improve more. Operator: [Operator Instructions] Our next question comes from the line of Meyer Shields of Keefe, Bruyette, & Woods. Meyer Shields: I also had 2 questions on crop. The first, I completely understand the comments about written premium having moved to the second quarter. I'm wondering whether there was a higher percentage of earned premiums in Property and Transportation this year rather than last year as a contributor to the higher attritional loss ratio. Brian Hertzman: This is Brian. So if you remember, last year at this time, we were feeling pretty optimistic about the potential for an above-average crop year. And then in the fourth quarter, there was some variation in harvest by county that caused us to end up at a more of an average crop year. So we booked a little bit more crop income last year in the third quarter than we did this year in the third quarter. So this year, in the third quarter, we have about half of our crop premium earned for the year in the quarter, booked at close to 100 combined ratio. If you pull out all the noise from crop, our accident year loss ratio for Property and Transportation actually improved due to lower frequency in our transportation and marine businesses. So if you kind of put the noise of crop the side, we did see an improvement there in the loss ratio. Meyer Shields: Okay. That's very helpful. And I'm just wondering, bigger picture in crop. So there's a new participating insurance company over the last couple of years. Is that having any impact on the amount of premium you're getting from agents or maybe some agents moving along? I don't know how mobile we should think of that premium as being. Carl Lindner: I think it probably impacts us marginally on that. What our guys would say is they're probably getting some of the business that we'd be least excited about. Operator: [Operator Instructions] Okay. I'm showing no further questions at this time. I'll go ahead and turn the call back over to Diane Weidner for closing remarks. Diane P. Weidner: Thank you all for participating today. We appreciate your questions and look forward to talking to you again next quarter when we share our fourth quarter results. Hope you have a great day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.