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Operator: Welcome to BICO Q3 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Maria Forss; and CFO, Jacob Thordenberg. Please go ahead. Maria Forss: Hello, and welcome to BICO Group's Quarter 3 2025 Earnings Call. I'm Maria Forss, President and CEO, and I will, together with BICO's CFO, Jacob Thordenberg, present this interim report. Here's today's agenda. I will open today's session by presenting how BICO serves the world's leading pharma and biotech companies with solutions that transform how labs operate and innovate. Following that, Jacob will provide a summary of the quarter's key developments and present the Group's financial performance. We will proceed and comment on our 2 business areas, Life Science Solutions and Lab Automation. Additionally, we will highlight our R&D pipeline with ongoing product development efforts. And this session will conclude with final remarks before opening up for Q&A. At BICO, we serve the world's leading pharma and biotech companies. Our portfolio ranges from Biosero's market-leading Green Button Go software, enabling full lab orchestration to off-the-shelf automation products and bioprinting from our Life Science Solutions business. Our solutions enable smarter, faster and more efficient labs and here lies an underlying strong demand. Pharma and biotech companies face the same fundamental challenge, long and costly development cycles for new therapies. And the development of a new therapy often takes more than 10 years and cost between USD 2 billion and USD 4 billion, where 90% of the pipeline ultimately fails. To overcome this, these companies are investing heavily in automation to increase efficiency, speed and quality, bringing innovations to the market faster and at a lower cost. The next wave of automation goes beyond instrument orchestration to connect entire workflows and data streams, where AI and machine learning continuously optimize experimentation and decision-making. And BICO is at the core of this development, providing the data backbone that unifies AI-powered services with Lab Automation. Our products and services enable our customers to connect data across diverse informatics systems and apply AI tools to plan, run and optimize experiments in real time. And already today, we are powering AI drug discovery workflows that follow the design, make, test, analyze paradigm using our Green Button Go platform. Further, we integrate AI-driven image analysis as high throughput analytical tools into cell line development workflows, enhancing speed and precision in bioprocess optimization. Today, researchers spend too much time on manual tasks and fragmented data, resulting in wasted samples and stalled projects. And combined with macroeconomic pressure, talent shortages and cut of budgets, automation has become not just a competitive advantage, but a necessity for the future of discovery. BICO is at the core of this transformation, connecting workflows and data streams and enabling AI powered experimentation. And this is what our mission and vision is all about. Our Vision is to enable and automate the life science lab of the future. And our mission is to be the first-choice lab automation partner and provider of selected workflows to pharma and biotech. And this brings us to a video I'm about to share, which shows an example of an integrated lab automation solution we have designed and delivered to one of our customers. And in my view, this truly reflects our mission. [Presentation] Maria Forss: With this introduction, my aim has been to emphasize BICO's mission, our strategic direction and the value we deliver to our customers. We lead the way in solving the challenges in life science with speed, accuracy and efficiency. Speed by reducing the time to find optimal candidates for treatment therapies and supporting our customers in driving forward a personalized approach to treatment. Accuracy by enabling the development of physiological relevant models and enhancing the reproducibility through automated processes that reduce variability in experimental outcomes. And by efficiency, we develop solutions to maximize productivity of automated lab equipment and scientists. All in all, our customers can run their processes faster, improve their quality of data and ultimately make better decisions. I will now hand over to Jacob to present the results for the third quarter. Jacob Thordenberg: Thank you, Maria. I will summarize the third quarter of 2025 for the group and then provide more financial details for the quarter. When looking at the performance for the third quarter, Life Science Solutions delivered 4% organic sales growth, in line with market performance. The growth was mainly driven by a positive uptick in diagnostics as well as increased demand for Lab Automation components. Scienion continued to perform well, delivering double-digit growth after major commercial and operational improvements in a diagnostic market, which is coming back to more normal investment levels. Lab Automation delivered 35% organic sales growth, rebounding after an abnormal Q2. Good progress has been made in the execution of the action plan, significantly enhancing processes, leadership and operational capabilities. In addition, Biosero received orders from a global pharma company worth USD 15.2 million as a part of a global master framework agreement. This showcases the strong underlying demand for Lab Automation and Biosero's market-leading software suite, Green Button Go. We have also resolved impairments in Discover ECHO and Biosero totaling SEK 1,036 million. These impairments will not affect cash flow but impacted EBIT for the quarter. With that said, I would like to highlight that we anticipate long-term growth of around 10% CAGR, which is in line with our financial targets for both Discover ECHO and Biosero. I will elaborate more about this shortly. The closing of the transaction of the divestments of MatTek and Visikol was finalized in early July. These divestments generated SEK 740 million, which significantly strengthened our cash position. Next slide, please. Q3 was a quarter of solid progress. Net sales reached SEK 387 million despite ongoing macroeconomic challenges and funding headwinds in key markets with an organic sales growth at 12%. We also experienced that academic and biotech funding remains constrained, especially in North America, which has led to cautious customer spending and extended sales cycles. Adjusted EBITDA amounted to SEK 17 million, corresponding to an adjusted EBITDA margin of 5%, which is an improvement in the adjusted EBITDA margin of 3 percentage points year-over-year. The improved margin is a result of continued cost control activities, mainly due to synergies derived from centralization of functions as well as initiatives for operational efficiencies. Maria will now comment on the progress of the execution of the comprehensive action plan to scale up Biosero. Maria Forss: Since September, we have a new Managing Director in Biosero with long and extensive experience in the global life science industry, and he has the right toolbox to drive sustainable growth and create long-term value for customers and shareholders. And we have made solid progress in executing the action plan, significantly strengthening not only leadership, but also processes and operational capabilities. We have also continued substantial investments in operational resources to better serve our customers and accelerate closing of delayed projects. Furthermore, we're implementing more standardization to scale the business and introducing new commercial concepts with shorter lead times to balance the project portfolio. Also worth mentioning again is that Biosero secured several orders from a global pharma company valued at USD 15.2 million in the quarter. And this project will develop integrated lab automation solutions, which will support this big pharma customers' drug development process. I will now hand over to Jacob again for comments on the divestments and impairments. Jacob Thordenberg: Thank you. Well, in Q3, we completed the divestments of MatTek and Visikol, generating SEK 740 million, as previously mentioned. And this significantly strengthened our cash position. And these divestments follow our updated strategy with a focus on Lab Automation and selected workflows. Sartorius acquired both companies at a 2024 sales multiple of 3.7x and an adjusted EBITDA multiple of 15.3x. The companies have been treated as discontinued operations from Q2 2025. And if we move on to the next slide. In the quarter, we also resolved SEK 1,036 million in impairments for Discover ECHO and Biosero, which are noncash flow affecting one-off items, but affecting EBIT in Q3. In May 2024, we implemented an updated model for impairment with shortened the forecast period before terminal calculations from 10 to 5 years, following recommendation from the Swedish Financial Reporting supervision. The impairments stem from a short forecast period and lower year-to-date trading in 2025, leading to changed forecast assumptions compared with previous periods. With that said, we see a strong underlying demand for Biosero's integrated lab automation solutions centered around the company's market-leading software suite, Green Button Go. And in ECHO, we see a market recovery in the U.S. academic segment over time. We anticipate long-term growth of around 10% CAGR in both companies, which is also in line with our financial targets. I will now move on to the next section, group financial performance. In Q3, sales amounted to SEK 387 million and grew 5% in total and 12% in organic sales growth. The difference of 7 percentage points is mainly explained by a weaker U.S. dollar against the Swedish krona. Adjusted EBITDA amounted to SEK 17 million, corresponding to a margin of 5%. The improved margin is a result of continued cost control activities, mainly from centralization of functions as well as initiatives for operational efficiencies. And if we move on to Q3 cash flow. Cash flow from operating activities amounted to negative SEK 32 million, impacted by working capital changes of negative SEK 30 million. Total cash flow during the quarter amounted to SEK 570 million. And as mentioned before, MatTek and Visikol were divested as of July 1, 2025, and generated net proceeds of SEK 740 million. We also made a third bond buyback in our convertible debt in August 2025, which amounted to SEK 98 million. So in connection to this, I will also comment on BICO's outstanding convertible debt and our cash position. In total, we have made 3 buybacks in our convertible bond between November 2024 and August 2025, totaling a nominal amount of SEK 492 million. The rationale for the bond buybacks has been to optimize BICO's capital structure and further reduce long-term debt. Post buybacks, the convertible debt now amounts to nominal SEK 1,008 million. As per Q3, BICO's cash position was SEK 1,241 million, leaving BICO with a positive net cash position. As mentioned on the previous slides, the effects of changes in working capital amounted to negative SEK 30 million for the quarter. And out of this, operating receivables increased by SEK 96 million, inventories increased by SEK 1 million and operating liabilities increased by SEK 65 million. In percentage of last 12-month sales, net working capital in the quarter corresponded to 13%, confirming that the operational excellence actions implemented in 2023 and onwards have been successful. For Q1 up until Q3 in 2025, the further decrease in net working capital to low double digits is primarily an effect of less net working capital in Biosero due to decreases in receivables. I will now hand over to Maria to present the results in our 2 business areas. Maria Forss: Thank you, Jacob. Let's now turn to our target business -- largest business area, Life Science Solutions, which accounted for 2/3 of our revenue this quarter. Life Science Solutions delivered SEK 263 million in sales with a 4% organic sales growth and an adjusted EBITDA of SEK 19 million, corresponding to 7% adjusted EBITDA margin. The growth was mainly driven by a positive uptick in diagnostics as well as increased demand for Lab Automation components. Scienion continued to perform well, delivering double-digit growth after major commercial and operations improvements in a diagnostic market, which is coming back to more normal investment levels. And if we move on to our business area Lab Automation. In quarter 3, Lab Automation delivered 35% organic sales growth year-over-year, rebounding after the abnormal quarter 2. The business area sales for the quarter amounted to SEK 124 million. The adjusted EBITDA was SEK 10 million, corresponding to an adjusted EBITDA margin of 8%, turning the negative trend from the recent quarters. The profitability is still impacted though by continued substantial investments in operational resources for the benefit of our customers to accelerate closing of projects. And as mentioned earlier in this presentation, good progress has been made during the quarter in the execution of the comprehensive action plan to scale Biosero. We have significantly enhanced processes, leadership and operational capabilities. I will now introduce a new section where I will share our data on our ongoing product innovation efforts. One focus area for growth is continuous product innovation. BICO has a solid R&D pipeline and road map in place, and this is based on the portfolio strategy, which is part of BICO 2.0. Our current product portfolio covers the full spectrum of lab automation solutions and selected workflows. And it's important to emphasize that we have lab automation products and solutions in both of our business areas. And this is illustrated on this slide where you can see instruments from various BICO business units positioned along different stages of the Lab Automation continuum. Products in the business area Life Science Solutions are also Green Button Go ready. In BICO, we invest substantially in product development. We're continuing to bring new products and innovations to the market. Recent product launches include I.DOT LT and TurnStation. The I.DOT LT is a new addition to the I.DOT series and offers a compact solution optimized for automated low-volume liquid dispensing. This product is Green Button Go ready. TurnStation by QINSTRUMENTS is a Lab Automation device for liquid handlers. It optimizes the workflows for plate handling and it's purpose-built for seamless Lab Automation. This is an example of how we are driving growth through synergies in the BICO Group. Let's now move on to an example of a successful product launch from an ongoing external collaboration. This is a result of the scientific collaboration between Sartorius and BICO. Sartorius' Octet and Biosero's Green Button Go is an integrated solution, delivering faster results to the market, enabling labs to operate more efficiently and effectively. And these were just a few examples of recent launches and collaborations. Let's now move on to look at R&D pipeline and road map. We have a comprehensive product development pipeline within our prioritized focus areas, as you can see on this slide. The majority of the R&D investments are made in software development, while there are several upgrades of the instrument portfolio meeting customer needs. Multiple product launches are planned for 2026, and these include both software, instruments and consumable products. And as mentioned before, we are also introducing new commercial concepts in Lab Automation, with shorter lead times to balance the product portfolio. And these concepts are developed both through internal collaboration between the 2 business areas as well as together with external collaborators. Before the Q&A, I will give some concluding remarks. One year ago, we launched BICO 2.0, which is our updated strategy to enable and automate the life science lab of the future. Since then, we have streamlined our portfolio, we have strengthened our commercial engine, we have invested in our people and culture and delivered operational excellence. It's been a year of change, and we have worked hard. The impact that we together have achieved is clear, significantly strengthened cash position, leaner operations and a more customer-centric solutions, and this is just the beginning. We're excited to drive Lab Automation forward and equip pharma companies with tools to shorten drug development time lines. By enabling increased success rate and reducing time to market, we empower scientists to accelerate innovation and deliver breakthroughs that shape healthier societies. I would also like to take the opportunity to thank our customers for your continued trust in BICO as well as our employees around the world for your work and dedication, which enable our customers to deliver what matters the most, the discoveries that advance human health. This was our final slide before the Q&A. I will hand over to the earnings call host for further instructions. Operator: [Operator Instructions] The next question comes from Ulrik Trattner from DNB Carnegie. Ulrik Trattner: A few questions from my end. And if we can start off with Lab Automation, and you talked about healthy demand in Lab Automation. If you can clarify what that entails? Maria Forss: Well, as we can see in the quarter, we are landing substantial orders of more than USD 15.2 million, and we continue to see demand also from other big pharma customers, and that's what is the basis for our claim of healthy demand. Ulrik Trattner: And just to sort of clarify, are you seeing increased tender activity? Are you seeing a growing order intake? Or is there customer assessment of your software or like just to get some sense on how this could be quantified? Maria Forss: As you know, like we are never guiding or talking about our order stock or order intake due to competitive reasons, but we have several ongoing discussions with customers and help the business. Ulrik Trattner: And I know that you don't quantify sort of order intake, but in terms of any type of granularity, have this improved over the last 6 months versus -- in terms of customer interest? Or how should we view this? Maria Forss: I think the customer interest has been retained. But as we have talked about in previous calls, and we'll talk about today, too, is that the first half of 2025 has been a challenging first half for us as well as many other peers, and that has also been reflected in not the demand, but the time it takes to close orders. And some of those orders are now being executed. Ulrik Trattner: Do you expect the sort of time line from sort of interest to close the deal have sort of shortened? Or is it still the same? Maria Forss: When you have master service agreements with large pharma customers or customers overall, of course, those will facilitate the time it takes to get orders in place. Ulrik Trattner: Okay. And again, on Lab Automation, and you've done some structural changes in the management of these contracts. Does this apply for the newly assigned contract, the one you signed in September? Or is this under the sort of same type of agreement that you had in -- like prior to doing the restructuring? Maria Forss: We have changed the way we are operating overall, both in terms of how we run projects, how we are scoping the projects, the way we are structuring the contracts to make sure that, that is clear moving forward. So I would say it's a new way of working that has been implemented since earlier this year, which is now starting to show effect. Ulrik Trattner: Great. And on the phasing of the USD 15 million contract, should we sort of assume and apply the same type of phasing that we have seen historically, which has been a lot of revenue and profit being front-end loaded and then that being tapered off gradually throughout '26 when -- since it's set to be delivered throughout '26 as well? Jacob Thordenberg: Yes. Maybe I can answer that question, Ulrik. And the short answer is yes, and that is due to the revenue recognition profile that we have in Biosero, which is based on percentage of completion. And our percentage of completion model is based on anticipated costs. And in these projects, a large chunk of the anticipated costs is indeed related to hardware. And roughly speaking, the other part of the anticipated cost is labor hours. And given that we typically buy a lot of instruments when we start a project, you usually see a spike in revenues due to the purchase of hardware and that being a quite significant share of the anticipated costs. And then you have less acceleration in revenue recognition related to the labor hours. So yes, it has a similar profile as we have seen from previous large orders. Ulrik Trattner: And I guess you assume given sort of your outlook that you will be signing new orders to bridge sort of that gap into '26? Jacob Thordenberg: I'm not sure I follow that question, Ulrik. Ulrik Trattner: Given the tapering off of revenues into '26 in order for you to grow from the level in absolute terms, you would need to add additional contracts? Jacob Thordenberg: Yes, correct. Yes. Ulrik Trattner: Great. And just on the discontinuation effects, both in the quarter as well as for Q4, if it's possible to quantify to what sort of -- what are the sort of actual numbers here that we should be modeling for Q4? Jacob Thordenberg: The numbers are -- we don't have any effect from MatTek and Visikol in the quarter, given that they were sort of completely out of our books as of July 1. Ulrik Trattner: Yes. But if it's possible to quantify, I know that you've restated it, but based on sort of general modeling purposes for... Jacob Thordenberg: But there's nothing in our books in Q3. So there's nothing to quantify because the assets are not in our economic ownership anymore in the quarter. Ulrik Trattner: Sure. But from a comparable perspective in Q3 last year, they were in your books and in reported numbers and [indiscernible] deviation. Jacob Thordenberg: Yes, [indiscernible] in the report. So there's no effect in the report. It has been excluded in the comparison. Ulrik Trattner: Yes, yes. Sure. Yes, yes. But if we were to quantify it for Q4 then, I guess like you reported some sales in Q4 for some of these subsidiaries that will not be presenting for Q4... Jacob Thordenberg: Okay. So the comparison figure for Q4 last year. I can perhaps provide you that separately. I don't have those numbers in my head right now. Ulrik Trattner: Okay. Great. And just last 2 questions from my end. I know that sales expenses is down sequentially while your top line is up. Is there something to read into that? Are you doing something different in terms of your selling expenses? And secondly, where is kind of sort of a steady state like working capital level to top line in percentage terms? Jacob Thordenberg: Yes. Do you want to answer the first question, Maria, in terms of – Maria Forss: Yes. I think overall, we have -- as we have talked about earlier, we have made sure that we can get the commercial synergies as well as operational synergies in the group. And with our sales skills group as well as other commercial skills group, we are then reaping those synergies. Part of the cost management that Jacob talked about earlier in the call is about those synergies, but also centralizing some functions as well as operational efficiencies. So that's where the improvement in the margin comes from. And then this second part of... Jacob Thordenberg: I can answer the second question in terms of working capital in relation to sales. And as we mentioned in the call, we're very happy to see that we have had great progress in our working capital, and now it's down to 13% in relation to LTM sales. We do believe that a stable level should be between 15% and 20% of sales. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: So continuing a bit on Lab Automation. Sales was positively affected by this order you received in September. So I just wonder if you could elaborate a bit more on the effect we saw here in Q3 and whether the positive contribution will increase sequentially as we move into Q4? Jacob Thordenberg: That's a good question, Ludvig. And I expect to see a similar type of impact in Q4. I won't disclose how much the impact will be, but we saw a positive impact from the purchase of hardware in Q3, and we will see a similar impact also in Q4 [indiscernible] Ludvig Lundgren: Yes. Great. And then also on Lab Automation. So I think like median reported EBITDA margin in the last 3 years is close to the current level actually at 80%. So I just wonder like if you can give some flavor on this current margin level and if it's reasonable to expect a significant increase in margin for Lab Automation as we move into '26 because you highlight some elevated costs here in Q3 as well. Jacob Thordenberg: Yes. I won't go into sort of specifically commenting on what kind of margin we can expect, but we do have higher ambitions for the cost base in Biosero, and we expect to be able to scale that cost base in a more efficient way going into 2026. And by that, of course, also expand our EBITDA margins that we do believe could be higher than the margins that we see today. Ludvig Lundgren: Okay. And so it's largely a consulting business. So like is it possible to quantify the utilization that you currently have? And like how much more projects could you add on this current cost base without -- yes. Jacob Thordenberg: Yes, we won't go into utilization rate because that would be quite commercially sensitive, but we do believe that we can gain more efficiencies on the cost that we have in Biosero and by that, also be able to take on more projects. But we won't comment specifically on what kind of utilization rate we have as of today. But we do believe that we can scale the cost base in a more efficient way in Biosero. Ludvig Lundgren: Perfect. Great. And then finally, on the framework agreement, I just wonder if you could share a bit more on the potential for further similar orders from this customer. Like does this relate to only one location and then they could possibly expand it to other locations as well? Or how should we view this in the longer-term? Maria Forss: The framework agreement that was signed early in the quarter is a global framework agreement. And the orders that we won now in quarter 3 are for one project in one site, but the framework agreement applies to all the different sites for this big pharma customer. Ludvig Lundgren: Okay. So is it fair to assume then if this is a successful project, then they could expand this to other sites as well, I guess? Maria Forss: Yes, that's correct. Having that framework agreement in place facilitates the whole procurement process, which is usually quite long and tedious in big companies. So it's a very good thing to have that in place. Ludvig Lundgren: Okay. Just a follow-up on that then. So like what would you say is the visibility for an order from this customer? Like will you have some -- how much visibility will you have into an order coming in, so to say? Maria Forss: Well, with these type of large customers, it's really a strategic collaboration. And some of these strategic collaborations, they have usually plans for a couple of years ahead. And then it's a dialogue between us and the customers, so we can ensure that we have the capacity and resources when -- to meet their demands when the different orders will come in. So it's a good collaboration. Operator: The next question comes from Suzanna Queckborner from SHB. Suzanna Queckbörner: Suzanna Queckborner, Handelsbanken. Just a follow-on on the Biosero. Regarding the write-down, perhaps you could give us a better or like a more detailed explanation of how you're thinking about this given that you see continued high demand, but you have now reduced the forecast for 2025 and to some extent beyond. So maybe explain what the thinking is here and how we should think about it? Jacob Thordenberg: Yes. Thank you, Suzanna. Well, I think the way you should see it is that when we started 2025, we had much higher ambitions for Biosero and expected more out of Biosero. And now when we are about to conclude the year, we can see that we will not meet the expectations that we set for Biosero when we started 2025. And by that, we also see that the implicit growth then between what we expected in 2025 and what we then expect for 2026 was too ambitious given where current trading is at Biosero. And when looking at year-to-date trading in Biosero and what we expected for 2026 going into 2025, we realized that the growth targets for 2026 were too high and have adjusted those targets, but with that said, still high ambition. But given the outcome in 2025 and the year-to-date trading in 2025, we realized that we had to revisit 2026. And by that, we also had knock-on effects for the following years following 2026. Suzanna Queckbörner: Right. And then also a question on consumables and services. You've seen a pick up. Should I see this as a one-off? Or are you actually making some kind of transition to selling more consumables, for example? What's happening here? Maria Forss: There are several initiatives to increase recurring revenue. That's one of our 5 focus areas commercially. And as you can also see from other peers in the industry, consumables is going very well. We have also focused on increasing our service sales. And as you noted, Suzanna, there has been an increase in this particular quarter. I think we should look at that trend looking at several quarters and because there can also be an effect of the product mix, but much focus on consumables and service overall. Operator: [Operator Instructions] The next question comes from Filip Einarsson from Redeye. Filip Einarsson: So I'd be curious to get to understand a little bit more on the sort of operational efficiency and margin improvements, which we saw in Q3. Could you help us with sort of a reasonable expectations on the OpEx base for the coming quarters? That's the first. Jacob Thordenberg: Okay. Well, in terms of the OpEx base, I would say that it's quite stable at the moment. We do talk about in the report that we have elevated costs in Biosero as we're investing into our customers. And if anything, we want to continue to scale on the current OpEx base rather than increasing costs in the coming quarters. And as we have also been quite clear, we do keep a strict cost control, and we want to continue that and get operational leverage on our current cost base. Filip Einarsson: Okay. And a short follow-up on that would be then on what sort of line item in the income statement would you see you can make the sort of primary savings with the current outlook? Jacob Thordenberg: No, I wouldn't say that we see any primarily savings. The opposite, I do believe that we should be able to grow while keeping all lines in OpEx flat. Filip Einarsson: Okay. Okay. So I've got one more, which is sort of a broader type of question. But I mean, we saw that Sartorius lowered the equity exposure in the second half of 2025. And I just thought maybe you could provide some additional color on this. It might be hard for you, but anyway. And maybe if you could also provide some commentary on the current status of the collaboration with Sartorius after the divestments. Jacob Thordenberg: Yes, I can answer the first question, and then Maria can answer the second question. And the first question is quite simple. We cannot comment on sort of the activities of Sartorius. That's not our job to do that. It's the job of Sartorius. Maria Forss: And when it comes to our collaborations, we have a handful of different scientific collaborations ongoing that will eventually coming to the market and these are all going great, and are evaluated on a continuous basis to make sure that assumptions and business cases are holding. And so all fine when it comes to the collaborations. And you saw an example of a result of a collaboration with Sartorius in our presentation with Octet and powered by Green Button Go, which was launched earlier this year, has been a good commercial success so far. Filip Einarsson: Right, right. So what -- that was out was more like there are no -- has there been any sort of changes in the sort of collaboration dynamics following the recent half year of happenings? Maria Forss: No. Filip Einarsson: I would take that as a no then. Maria Forss: No, no. Things are going according to plan. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: So just a follow-up on the cost base that you mentioned there. So R&D on a gross level has really decreased a lot in the last 12 months at, I think, around SEK 50 million now in Q3. Like is it fair to extrapolate this level of R&D ahead? Or will this increase in Q4 as you typically have somewhat of a sales increase there as well? Or for us to model this, how would you do it? Maria Forss: I think it's important to understand here that we do substantial investments in R&D. And what you find in the report is capitalized R&D, what is put on the balance sheet. And we have taken on a much, much more conservative way of capitalizing R&D. So then it's the different projects will have to pass toll gate 3 in our gate stage project model before we capitalize any R&D to make sure that we have more security and success of the project. So the capitalized R&D and the level of that is not an indication of the amount of R&D that we're doing, but rather what we put on the balance sheet or not. Ludvig Lundgren: Okay. I was actually referring to the like gross total level, including both the amount in the P&L and in the balance or in the cash flow. And that one as well has decreased a lot. So just this SEK 50 million, is that a sustainable level in the P&L then? Jacob Thordenberg: Well, yes, it is a sustainable level. And I don't see that we will change this. However, as Maria mentioned, we have a much more stringent model now in terms of capitalizing R&D. And that is contingent that the different R&D projects within the group pass certain toll gates. But the level of R&D, I don't expect that to -- in terms of both P&L and what's capitalized I don't expect that to change dramatically in the coming quarters, no. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Maria Forss: Thank you for all the questions received. And thank you for your continued interest and support in BICO Group. Together with Jacob, I wish you all a great Tuesday. Thank you, and goodbye.
Operator: Ladies and gentlemen, welcome to the HUGO BOSS Q3 2025 Results Conference Call and Live Webcast. I'm Moritz, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christian Stohr, Senior Vice President, Investor Relations. Please go ahead. Christian Stoehr: Thank you and good morning, ladies and gentlemen. Welcome to our third quarter 2025 results presentation. Hosting our conference call today is Yves Muller, CFO and COO of HUGO BOSS. Before we begin, please be reminded that all growth rates related to revenue will be discussed on a currency adjusted basis unless stated otherwise. To ensure a smooth and efficient Q&A session, we kindly ask you to limit your questions to 2. And with that, let's get started. Yves, the floor is yours. Yves Muller: Thank you, Christian, and a warm welcome from Metzingen, ladies and gentlemen. As outlined in our press release this morning, HUGO BOSS delivered a solid set of third quarter results despite ongoing headwinds across the global consumer landscape. While the environment remained volatile and traffic levels in many markets faced pressure, we executed with discipline and focus, prioritizing the levers within our control. In particular, we stayed committed to advancing our long-term priorities with a strong emphasis on further strengthening our brand equity through investments in brand building initiatives. This dedication coupled with our focus on operational excellence and strict cost discipline resulted in robust gross margin improvements and notable bottom line enhancements. Let's, therefore, take a closer look at our Q3 financial performance. Group sales declined 1% year-over-year mainly due to an unfavorable timing of wholesale deliveries. In reported terms, revenues were down 4% as substantial currency headwinds, particularly from the weaker U.S. dollar, weighed on the top line performance. Meanwhile, EBIT remained stable at EUR 95 million with the EBIT margin improving by 30 basis points to 9.6%. This solid margin expansion highlights the success of our structural efficiency measures across both COGS and OpEx. Beyond the numbers, Q3 was marked by several high profile initiatives that further elevated the desirability of our brands fully aligned with the priorities of our CLAIM 5 strategy. The 2 key events deserve a special mention. The BOSS Spring/Summer 2026 Fashion Show in Milan, which captured global attention and achieved even higher social media engagement than last year's event. Additionally, the second drop of the BECKHAM x BOSS collection in late September saw a successful start delivering strong social media results and promising sell-through rates. This underscores the relevance and influence of David Beckham and the unique value of our partnership. Building on these achievements, let's take a closer look at how our brands performed in Q3. Our BOSS Menswear business once more demonstrated its resilience in the third quarter with revenues remaining stable year-over-year. This performance highlights the enduring appeal of our premium positioning and the versatility of our 24/7 lifestyle approach. At the same time, we advanced our strategic efficiency measures initiated earlier this year for BOSS Womenswear and HUGO. These initiatives focused on sharpening product assortments and refining distribution strategies are now in full swing and are critical to positioning both brands for sustainable value creation in the years ahead. And while they are temporary, weigh on top line development with revenue for both BOSS Womenswear and HUGO below prior year levels in Q3, we remain confident in the underlying strength of both brands. By addressing these short-term challenges we targeted and decisive actions, we are creating a solid foundation for future growth. Let's now turn to our performance by region. In EMEA, sales declined 2% year-over-year. Revenue improvements in both Germany and France were offset by softer trends in the U.K. reflecting the muted discretionary spending across the market. Moving over to the Americas where momentum continues to improve sequentially and drove revenues up by 3%. The performance was supported by another quarter of growth in the important U.S. market while Latin America even accelerated to double-digit growth. In Asia Pacific, sales declined 4% year-over-year mainly driven by lower revenues in China. Encouragingly, however, revenues in China showed a slight sequential improvement quarter-over-quarter. To further support brand relevance locally, at the beginning of October we celebrated the release of the latest BECKHAM x BOSS collection with a pop-up launch event in Shanghai. Meanwhile, Southeast Asia Pacific achieved a modest revenue increase in Q3 supported by another solid performance in Japan. Turning to our channel performance. Our brick-and-mortar retail business showed a modest sequential improvement with sales remaining stable versus prior year period. This performance was primarily driven by stronger conversion rates and higher sales per transaction, which helped to offset muted store traffic seen across several markets. Also, our digital business continued its positive trajectory with sales up 2% to last year. Growth was supported by a solid performance on hugoboss.com alongside sustained momentum in our digital partner business, both grew by 2% in the third quarter. Meanwhile, in brick-and-mortar wholesale, sales declined 5% year-over-year primarily due to the timing of delivery, which impacted Q3 performance by approximately EUR 20 million. However, we are confident that this effect will be fully offset in the fourth quarter as our Fall/Winter collections continue to resonate well with our partners. Accordingly, we anticipate a recovery in wholesale revenues in the final quarter complementing the momentum in our retail business as we approach year-end. Turning to the gross margin, which was a clear standout in the quarter and a testament to our progress in driving structural efficiency. In Q3, our gross margin improved by a strong 100 basis points reaching 61.2%. The expansion was fueled by further efficiency gains in sourcing, lower product cost and reduced global freight rates. At the same time, we experienced slightly negative mix effects while promotion activity had a neutral impact on gross margin development. Let's now shift to our cost base. Operating expenses declined 3% year-over-year marking 5 consecutive quarters of disciplined OpEx management. These gains were achieved across key business areas including sales, marketing and administration and underscore our commitment to operational excellence. In particular, selling and marketing expenses decreased 3% supported by a 4% reduction in brick-and-mortar retail expenses. In addition, we further optimized marketing investments, which amounted to 7.1% of group sales in Q3 and 7.4% for the first 9 months. Our approach remains highly targeted, prioritizing brand initiatives that generate the greatest commercial impact while continuously strengthening brand relevance. Lastly, administration expenses declined 2% compared to the prior year period as we continue driving efficiency across our global support functions. Driven by the robust gross margin expansion and our focus on optimizing operating expenses, EBIT reached EUR 95 million in Q3, thus stable compared to the prior year period. This translated into a 30 basis point increase in the EBIT margin reaching 9.6%. Below the operating line, our financial results significantly improved year-over-year supported by favorable ForEx effects and lower interest expenses. As a result, net income after minority increased by 7% translating into earnings per share of EUR 0.85, equally up 7% compared to last year. Also when we look at the first 9 months of the year, we delivered solid profitability improvements. Our gross margin expanded by 30 basis points to 61.8% while operating expenses declined by 2% underlying the continued success of our various efficiency measures. Consequently, the EBIT margin improved by 30 basis points to 7.9% in the first 9 months while earnings per share rose by 9% year-over-year. Looking at cash flow and key balance sheet items. Trade net working capital increased 11% in currency-adjusted terms reflecting both higher inventories and lower trade payables. Importantly, when compared to the previous quarter, inventories improved slightly and were down 1% reflecting our ongoing commitment to inventory management. On a 12-month moving average basis, trade net working capital amounted to 20.2% of group sales. Capital expenditure, on the other hand, declined substantially year-over-year down 51% to EUR 44 million. The decline was driven by increased investment efficiency and a more disciplined allocation of resources. As a result, for the full year, we now expect CapEx to come in at the lower end of our guidance range with investments expected to total around EUR 200 million in 2025. Altogether, our disciplined cost control combined with enhanced CapEx efficiency drove a solid improvement in cash flow generation in the third quarter. Free cash flow increased by 63% to a level of EUR 66 million. Importantly, we further expect improvements in cash generation in the final quarter, which has historically been our strongest period for cash generation. Ladies and gentlemen, this concludes my remarks on the third quarter performance. Let's now turn to the full year outlook and how we're approaching the final quarter of 2025 from an operational perspective. As we enter Q4, we remain fully committed to executing our strategic agenda. Building on the progress of previous quarters, our approach is twofold. First, to unlock growth opportunities and strengthen brand relevance in order to support top line momentum. And second, to drive operational excellence while optimizing cost efficiency across key business functions. It is our deepest passion to inspire our consumers globally and strengthen engagement with both our brands, BOSS and HUGO, and Q4 has a lot to offer in that regard. After a busy October with a stunning BOSS Bottled event in New York City and the immersive in-store experience with Aston Martin, the countdown to BOSS Holiday Campaign has now begun. Officially launching tomorrow, the capsule represents a unique collaboration between BOSS and iconic plush toy company, Steiff. It will be visible across all key markets and will help to further fuel brand excitement heading into the peak season. Driving customer engagement remains another priority. In this context, we are building on the successful rollout of our customer loyalty program HUGO XP, which was launched in China and the U.S. during the third quarter. With now almost 30 million members worldwide, the global expansion of XP is well underway. The program enables us to deepen relationships with our most important customers, foster long-term loyalty and leverage commercially relevant moments during the upcoming holiday season and beyond. Equally as important, we will continue to leverage our global sourcing platform in the fourth quarter to secure additional efficiency gains and thus tailwinds to our margin development. In addition, the low to mid-single-digit price increases that we are currently introducing with the Spring/Summer 2026 collections are expected to provide a modest positive contribution to profitability in the final quarter. Last, but not least, we will stick to our rigorous optimization of operating expenses, particularly in sales and marketing and administration. Taken together, these actions will ensure that HUGO BOSS is well positioned to strengthen its earning profile and successfully deliver on its full year commitments. In light of our performance during the first 9 months and our determined improvement game plan, we confirm our full year outlook for both sales and EBIT. As indicated in today's release, we now anticipate both top and bottom line results to come in at the lower end of our respective guidance ranges. This reflects the ongoing volatility in the global consumer environment as well as substantial currency headwinds recorded throughout the year. To be more precise, we now expect group sales for fiscal year 2025 to come in at a level of around EUR 4.2 billion. This includes an estimated negative currency impact of around EUR 100 million for the full year, primarily reflecting the depreciation of the U.S. dollar during the course of 2025. Consistent with this, we now expect EBIT to come in at the level of around EUR 380 million, likewise reflecting anticipated currency headwinds of up to EUR 20 million. Accordingly, we now forecast EBIT margin to improve to a level of around 9% as compared to 8.4% in the prior year. Ladies and gentlemen, let me briefly summarize today's key takeaways. As we look back on the third quarter and forward towards the end, a few points stand out. First, our performance in Q3 demonstrates the resilience and strength of our business model supported by sequential improvements in brick-and-mortar retail, solid gross margin expansion and the continued effectiveness of our cost efficiency measures. These factors provide a strong foundation as we enter the final quarter of the year. Second, while Q3 wholesale revenues were impacted by the timing of deliveries, we anticipate a recovery in Q4. Alongside continued efforts to drive our global D2C business, this positions us for a renewed acceleration of group sales heading into year-end. And third, the disciplined execution of our operational priorities together with our ongoing brand investments positions us well to further progress in Q4 and achieve our full year targets. Finally, looking beyond 2025, we are set to take the next steps on our CLAIM 5 journey. On December 3, we will share an update focused on the progress achieved so far in the key strategic areas that will guide our work in the years ahead. The update will reaffirm our strategic direction and underline how we are building on the foundation established over the past 4 years. And with this, we are now very happy to take your questions. Operator: [Operator Instructions] And the first question comes from Grace Smalley from Morgan Stanley. Grace Smalley: My first one, Yves, would just be on the strategic update in December. You touched on it at the end there, but could you just give us an idea of what we should be expecting come December? Will there be kind of multiyear financial targets, 3-year targets, 5-year targets? And just broadly, any high level thoughts on how you see the strategy evolving from here? And then my second question, understood on the wholesale shift between Q3 and Q4. But as you look at wholesale order books into 2026, could you give us an update on how you're seeing those order books evolve especially in the U.S. market given the uncertainty there? Yves Muller: Yes. Thank you very much for your questions. Taking your first question regarding the strategic update. Yes, like I said during my presentation, we will talk about what we have achieved during CLAIM 5 and we will give you a kind of strategic update for the next years. Don't expect this to be for the next 5 years because I think in this kind of volatile environment, a 5-year horizon is far out. So rather expect a kind of, let's say, midterm perspective of strategic priorities that we are taking on our journey. And regarding the wholesale shift, yes, overall, our Q3 results, and I just want to make it clear, were impacted by around EUR 20 million. The positive thing is we can see already in Q4 that we see the reversal of this delivery shift. So the October results show a material improvement regarding the wholesale development in Q4 and that this delivery shift has somehow reversed, which is a positive. And overall, we have seen regarding our wholesale orders and I said this already back in August that we have seen a kind of softening of our wholesale orders. I think please bear in mind that over the last years we have seen -- over '21 and '24, we've seen a CAGR of 20% of growth in wholesale brick-and-mortar and this is actually what we overall have expected a kind of softening. And for the Fall collection, we are just selling it. It's too early to call because we're in the middle of the selling period. So no further news on these kind of order impacts. Operator: And the next question comes from Manjari Dhar from RBC. Manjari Dhar: I had 2 as well, if I may. My first question is just a quick follow-up on wholesale. I just wondered if you could give some color on how much the replenishment business is down and perhaps sort of color -- I presume most of the softness there is in the U.S., but any color on that would be helpful. And then secondly, just a question on the sourcing efficiency gains. I just wondered sort of as you look forward, how much more upside do you see for gross margin from sourcing efficiency and how much more work do you think there is to be done in improving that sourcing layout? Yves Muller: Manjari, I was just talking to Christian because I tried to recall your first question regarding wholesale and the replenishment business. So the replenishment business in Q3 was down by low to mid-single digit. It was more or less somehow also expected was a kind of slight improvement also versus our Q2 results. And regarding U.S. wholesale preorders, it's pretty similar with the overall general view that we have given. So the order intakes and the delivery, it's very much in line with the global development. So not a kind of, let's say, further comments that need to be done on the U.S. market. And regarding your second question regarding sourcing efficiency, I think sourcing efficiency was a major driver in Q3 regarding our performance on gross margin and this is actually to be continued going further. So we still see more potential in terms of vendor consolidation and optimizing our portfolio and this should be continued. And actually what we are expecting for our gross margin going into the -- or finalizing our year 2025 that we want to be actually above the 62% gross margin. Originally that was our target. And we are very confident that with the support of the sourcing efficiency and with the freight cost optimization that we will get beyond the 62% gross margin mark. Operator: And the next question comes from Jurgen Kolb from Kepler Cheuvreux. Jurgen Kolb: First of all, on number of stores. If my numbers are not incorrect, I think you closed stores in the APAC region for the first time in a long history. Is that a change of positioning in that region? First question. And then secondly, on the inventory side, which is still obviously a little bit up or, let's say, inflated. How much of this inventory level is covered by your order book and how do you see really the freshness and the current situation of the inventory side? Yves Muller: Jurgen, thank you very much for your 2 questions. Regarding the space in retail. So I think it's worth mentioning that if you compare the space Q3 2024 versus 2025, there has been actually no effect from space so it was on the same level. And those stores that might have disappeared in APAC, these are actually continued optimizations that we are taking. For example if we don't achieve those results in renegotiating the rents, we take a risk approach in closing stores. I think I said this already in August and this will -- at the end, we want to have a robust store portfolio and this applies not only to APAC, but also applies to EMEA and the United States. We have defined clear profitability levers and if we do not achieve this by renewing the rents, we might take the action to close those stores. So there's nothing specific that we want to call out besides a continuous optimization of the store portfolio. And regarding the inventory, I think it's also worth mentioning that our inventory position slightly declined versus Q2, point one. And point two is that our aged merchandise, if I compare my aged merchandise in comparison to last year, has also in percentage improved versus last year. So the merchandise is very fresh. It's driven by stock in transit and by the current collections and the aging of the inventories have not deteriorated year-over-year. Operator: And the next question comes from Andreas Riemann from ODDO BHF. Andreas Riemann: Two topics. First one, HUGO and Womenswear, both are down significantly year-to-date and it sounds like you are reducing the product range and there's also adjustment in the distribution. So can you explain that in more detail and when is this exercise going to end? This would be the first topic. And the second one, the U.S. business. So to what extent did you adjust the prices actually in North America? And would you say your price increases in the U.S. are in line with what you see in the market or did you differ? These would be my 2 topics. Yves Muller: Yes. Andreas, thank you very much for your 2 questions. Actually you already took your answers for HUGO and BOSS Womenswear. So we are streamlining our product range. This is point one for both brands, BOSS Womenswear and HUGO. So this has something to do with collection complexity. So the mindset is to get better before bigger. So this is the mindset we have for those 2 brands. And the second thing is that we look at the distribution and for example, especially for BOSS Womenswear, if our space is somehow limited, we'd rather take BOSS Womenswear out with BOSS Green into those spaces if the space is somehow limited in the distribution. This is the exercise that we have now started with Q2 and will materialize over the second half of this year. And I think further comments I would somehow refer to our strategic update on the 3rd of December to be more explicit for the way forward for both brands, BOSS and HUGO. And regarding U.S. so like I said already back in August, we have taken a kind of global price increase overall low to mid-single digit for the Spring campaign. So this will be visible now in the second half of Q4 where we drop this kind of merchandise. This will also help us in terms of top line development globally and also will help us from a profitability standpoint. But your question was related to the U.S. I think we try to do smart price increases and we are very much in line with our competition here how we increase the prices and we observed the market. But nothing that would -- really needs to be emphasized regarding the U.S. market. Andreas Riemann: Yes. But maybe a follow-up. Is the U.S. then more than low to mid or is it in line with low to mid that you did for the group? Yves Muller: It's in line with low to mid. Operator: And the next question comes from Anthony Charchafji from BNP Paribas. Anthony Charchafji: Just 2. The first one on top line and then one on profitability. So just on top line given the low range of the guide, it would imply an organic growth in Q4 rather flattish to slightly positive, which would be 1 or 2 percentage point improvement. Could you please comment on the retail part? Comps are getting quite tougher especially in December for the whole sector. Could you maybe give some color on current trading retail and how you see it evolves? And my second question is on profitability. If I take again the low end of the guidance, EUR 380 million, it seems that your Q4 is quite derisked because you have some quite a bit of impairment in the base EUR 47 million. What changed in terms of deciding, I would say, to narrow the range? Do you previously expected some impairment reversal and now not anymore or is there anything else to have in mind? Yves Muller: Anthony, thank you very much for your questions. So first regarding top line, let me try to phrase it. First of all, I think from a wholesale point of view, you have to keep in mind that this delivery shift will or, like I already said, has materialized. So this is the kind of tailwind that we are seeing. Secondly, regarding retail brick-and-mortar, you have seen now over the last quarters a kind of sequential improvement coming from minus 4% to minus 1% now to flattish in terms of retail improvement. So we expect that this improvement will prevail also going into Q4. Thirdly, I think what is worth mentioning is that with the sale of the Spring season, you will see also a kind of price increase that will somehow materialize and will help us. And fourthly, I think we are now really entering into Black Friday. You have seen also on hb.com and our digital sphere that we have seen major improvements from Q3 versus Q2. So we will somehow take this kind of improvement also into Q4 to reach our top line targets. And regarding profitability, I think you're right. We have disclosed we had our impairments last year on the level that were close to EUR 50 million. They were definitely kind of elevated if I look at the latest -- if I look at the last years of impairments that we did. So I think what you can expect from a bottom line perspective that we can see a kind of technical support coming from the impairments for the year in 2025. Operator: And the next question comes from Daria Nasledysheva from Bank of America. Daria Nasledysheva: This is Daria from Bank of America. Can I please ask what is your view on promotional backdrop as we head into Q4? Wondering on a global basis, but also in the U.S. considering the inventory positions, yours and more broadly for the industry? And my second question is could you please help us contextualize the trends that you have seen during Q3 especially on retail? What has been the cadence of the quarter? Did trends improve in September to support your expectation of improvement into Q4? Yves Muller: Thank you, Daria, for your questions. So regarding promotions, I think it's worth mentioning that overall that the promotional activity is overall intense. On the other side, you have to bear in mind that our promotional numbers were somehow neutral in Q3 and actually we expect this also for Q4 that they are more or less neutral. I mean they have been elevated now for the last 5 quarters and we expect that the promotional activity, I would say, globally because if you look at the consumer sentiment globally, I think it's a remark that applies for a lot of important markets. I think they will remain on this elevated level and our expectation is that they remain -- it's neutral. And regarding retail, I was pointing out in the last question in my answer that actually for Q4 that we further expect the kind of, let's say, sequential improvement also that were visible now for the latest quarters, I said Q1, Q2, Q3. So we've seen this kind of slight improvement over the last quarters and we expect that this continues to prevail now for the final important quarter. Operator: And the next question comes from Robert Krankowski from UBS. Robert Krankowski: Just 2 questions for me, please. So first one is just on the cost control. You made pretty good job on the cost control year-to-date. But I just want to think in terms of, let's say, persistent pressures on your top line going forward, would you consider maybe stepping up investments behind the brand to support the growth? And you talked about the acceleration in Q4 that you expect towards the end of the year and could you talk maybe a bit about the beginning of the quarter? I think the comp is relatively changing. Maybe if you could give us a bit more color on the regions; the U.S., Europe; how the quarter has started. Yves Muller: Yes. So thank you very much for your words around cost control. So I think it's worth mentioning that we are continuously working on cost control. You have seen that we started actually last year in Q3 with these kind of cost decreases and now actually the comp base is getting more difficult. But I think we have shown also in Q3 that we really have a high cost discipline and that we have come up with some structural efficiency moves also when it comes to cost now because now year-over-year, we have seen 2 years not only in 2024 and Q4, but also in 2025 in Q3, a kind of cost decrease. So we really lay emphasis on this in order to have the full alignment between our top line performance and bottom line. And definitely even if you look at marketing, we are now after 9 months at 7.4% marketing spending. We always said during CLAIM 5, we want to be in the range between 7% and 8%. So I would say even from a marketing perspective, we are well in line with what we have promised to the capital market. Of course we see positive impacts. We are now starting our Holiday Campaign. So we keep on investing into the brand. I think this is very important for us. On the other side, I want to highlight that we want to make our marketing spendings more efficient. So the idea is always to get most out of EUR 1 spend. A good example is for example the Fashion Show, which was less expensive than last year, but we got higher media value out of our Fashion Show with positive comments. I think this is what we like if we spend less and actually get more out of it, it has a higher impact. So definitely, we want to invest in our brand. There are a lot of initiatives coming up in the most commercial period of the year and at the same time we keep our costs under control. And regarding the color of current trading, let me be -- let's say, let's keep it on a global level because otherwise the discussion gets, let's say, too detailed around regions. But I can comment that we were happy how we started into the Q4 like I already said in the beginning. Christian Stoehr: Great. Thank you, Yves. Thanks, Robert, for your question and thanks to all of you for today's session. There is no further questions or hands raised in the queue. So I would like to thank you for dialing in today. This officially concludes today's conference call. Thanks for your participation. And of course we look forward to connecting with many of you over the next days and weeks. Look forward to speaking to you soon. Thanks very much. And in case of any questions, please reach out to the IR team. Yves Muller: Thank you and have a great day. Bye now. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Ladies and gentlemen, welcome to the Evonik Industries AG Q3 2025 Earnings Conference Call. I'm Mattilde, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christian Kullmann, CEO. Please go ahead. Christian Kullmann: Thanks a lot, and welcome to our Q3 earnings call. Looking around in our boardroom, I see a very different setup here today. First of all, welcome to First of all, welcome to Claus Rettig, our interim CFO, who is sitting left to me. Many of you already know him. In his previous roles, he represented Evonik at many investor conferences and Capital Markets Day. His extensive experience and knowledge of our company is helping us in this new role while the search for our CFO is ongoing. I would like to take the opportunity here today to thank Maike Schuh for many years in different roles at Evonik. She has left the company at her own request in September. And while this was very sudden, we have to accept that. I would like to thank her for her efforts and the positive impact she had on our organization. Second, after 49 -- worthwhile to repeat, after 49 reported quarters as a public listed company, Tim is not sitting on the right side of this table anymore. For more than a decade, he has built an Investor Relations program, which is highly regarded by all of you out there. Now he is taking a well-deserved sabbatical. Thank you, Tim, for your lasting commitment to the Evonik Equity story. Christoph, whom all of you already know pretty well, will have a strong foundation to build on in the coming years. And with that, let's go into today's results release. We will be largely focusing on the outlook during the short prepared remarks. You will know that we are facing a very tough environment currently, although already coming from quite a low level, customers currently are acting even more cautiously across all segments and in nearly all end markets. Demand stayed very weak, exiting the summer break. That is why with our prerelease end of September, we had to lower our full year guidance to around EUR 1.9 billion of adjusted EBITDA, coupled with a cash conversion rate between 30% to 40%. Your and our look today goes ahead into the fourth quarter. For that, I'm now handing over to Claus, who will show you why we are confident to achieve our outlook for both EBITDA and cash conversion in the last 3 months of the year. Claus Rettig: Yes. Thank you, Christian. As you already said today, I'm here in my role as interim CFO, which I took over a good month ago. I have to say, during my almost 30 years at Evonik and in my different roles, I've joined quite some meetings, events, investor presentations, presentations, discussions with customers, suppliers and partners. Nevertheless, this earnings call marks a first for me. And unfortunately, we have to report a weak quarter 3 for Evonik. However, I spent most of my time in my new role already on the future. Let me therefore comment on the fourth quarter in 2 parts. I would like to start with the supporting factors for our earnings development. And then I would like to comment also on our free cash flow and net working capital expectations. Starting with the EBITDA. There are several supporting factors in Q4. We will see the typical year-end recognition of sales and earnings in our Health Care segment, which will be more pronounced this year versus a weaker last year. In Animal Nutrition, we will see a pickup in sales coming from the low levels in Q3, especially compared to previous year. And these low levels were, of course, impacted by a planned maintenance shutdown. In Q4, almost full capacity will be available again. And we have already rather good visibility on the booking levels today. Another aspect to address are lower personnel costs. For several quarters, we are seeing a reduction in our FTE numbers, which will come through more and more into the bottom line. In addition, bonus provision releases are further supporting our earnings and also in the upcoming quarter. So all in all, with the environment that will stay tough, the finish until the end of the year will also certainly not be easy. But there are good reasons why we are confident to deliver around EUR 1.9 billion of EBITDA this year. The same is true for the free cash flow. We are on track to deliver our guidance, which we gave as between 30% and 40% cash conversion. In the first 6 months of the year, the weaker-than-expected environment has made it difficult for us to reduce the net working capital as intended. Now we have adapted to the new situation, which has resulted in a positive free cash flow of around EUR 300 million in Q3. And we have seen an acceleration in net working capital reduction throughout the quarter, making most progress in September. This makes us optimistic for further significant steps in quarter 4. To reach the midpoint of our guidance range, we will need another EUR 380 million of free cash flow in Q4. Again, as with the EBITDA, it will not be easy. But looking into the past years, it is doable, and that's what we are going to do. And with that, I hand back to Christian. Christian Kullmann: Thanks a lot, Claus. Ladies and gentlemen, in this tough environment and facing clearly weaker results than we would like to see, the execution of our long-term strategy is more important than ever. Continuing to transform our portfolio and to optimize our administrative and operational processes is a necessity, and we have made good progress in both regards this quarter. A significant milestone is for Europe, carve-out of our infrastructure activities, although maybe not so visible from the outside, this is one of the most complex reorganization projects in our history. More than 3,500 employees are directly affected, many more indirectly. So it is good to see that we are well on track in our initial project plan. The new SYNEQT, that is the name of the new company, will start in January of next year as a 100% subsidiary of Evonik Industries. The different options for the future will then be evaluated. But also our Evonik Tailor Made program and the Business Optimization programs like in high-performance polymers or health care are progressing as planned. Compared to the end of last year's third quarter, the number of employees has shrunk by more than 740 without divestments. And these are mostly leadership roles, mostly in Germany. This impact will be lasting and felt all the more once demand recovers. Executing those projects will help us to focus on our core activities, which is essential in these difficult times. Having said so, we are now happy to take your questions. Operator: [Operator Instructions] The first question comes from the line of David Symonds from BNP Paribas. David Symonds: Yes, two from me, please. So just the first one, if you could give any comments on October trading and what you're seeing so far and whether it's supportive of hitting the EUR 1.9 billion on the nose. And then the second one, so I'm a little bit confused by Advanced Technologies. And if I bridge from last year, taking relatively minor impacts from price, volume and FX sales and the standard drop-throughs, then I would probably come to an EBITDA number of around EUR 260 million for this year's Q3. Then you've reduced full-time employees in this division by around 450 year-on-year. So I would think that would contribute sort of EUR 10 million to EUR 12 million positive. And yet the eventual number was only EUR 202 million EBITDA. So there's arguably -- there's a EUR 70 million gap compared to what I'm able to bridge. And I'm just wondering are there any sort of production effects or anything in this quarter? I can see that you've reduced working capital. Did you reduce production in Advanced Technologies in Q3 in order to support cash and so had less coverage of fixed costs? Or where does that gap come from, please? Christoph Finke: Yes. Thank you, David. Both questions actually go to Claus. So the first one on Q4 and October trading and the second one and then on Advanced Technologies. Claus Rettig: Yes. Yes. Thank you for the question. And let me answer them as following. Maybe first on current trading and outlook. Like I said before, we are absolutely confident to reach our guidance around EUR 1.9 billion. And there are certain factors that are supporting this. So like I said, we have a very strong demand on the health care side, which we see in Q4. And we have some of the negative impacts we have seen in Q3, not anymore, like that goes into costs for maintenance shutdowns we had. Our methionine business was really weak in Q3 because of this maintenance shutdown costs plus lower business. This we don't have in Q4 anymore. And we also, like I said, have already a good visibility in our order book on the methionine side. So this is clearly giving us confidence. Another piece that gives us confidence is when you look to our Q3 development month by month, September was already clearly on the upside. We had a weak August, but also not as weak as August, but a weak July. September, certainly better. September contribution margin from the market was above the average of Q2. And first indications of October are also that we are on the level of September. So we head into the Q4 really along what we are expecting. And that makes us very, let's say, confident that we can reach our guidance range as published. Maybe so far for this one. The other one was Advanced Technologies. Yes, it looks when you -- on the first glance, when you look to the numbers, of course, it looks strange because the EBITDA is much weaker than you would expect when you look to the loss on sales. However, some of the factors I already mentioned here is we had methionine shutdown, which created quite a bit of cost on the cost side. But even more so weighing on the EBITDA was quite a big step in inventory reduction. As we said, last year, we have done inventory management maybe a little bit earlier than this year. That's why we had a better cash flow last year at the same time. Now in Q3, we really, really go down on the cash flow side, management of cash flow, reducing inventories is a big portion of this. And when you look to the numbers we provided to you with our KPIs, financial KPIs, you will see that when you look into the Advanced Technology, yes, we dropped down from EUR 1.5 billion in Q3 '24 to EUR 1.4 billion, you can say, in Q3 '25. And we almost lost the same amount on the EBITDA line from EUR 296 million to EUR 202 million. But when you look on the cash flow side, you see that cash flow increased. So from EUR 146 million previous year's quarter to EUR 182 million this quarter. And that gives you clearly indication this is due to working capital management. And as you all know, this is suppressing EBITDA. And -- so these are the 2 factors, net working capital reduction, maintenance shutdown costs, mainly on the methionine side, with also force majeure on the crosslinker side in the last quarter, which also was jeopardizing our crosslinker business. These elements have contributed to this low EBITDA in Q3. Operator: The next question comes from the line of Martin Roediger from Kepler. Martin Roediger: Three questions. Number one, the earnings effect from the release of bonus provisions in Q3 has been obviously above the EUR 20 million level you had in Q2 already. Can you provide some color how much above EUR 20 million was it? And what are the targeted bonus provision releases in Q4? Secondly, on the cost savings, based on what you have announced or done already so far with restructurings and disposals, what are the incremental cost savings in 2026? And thirdly, a more general question. Do you see any rising imports from Chinese competitors into Europe because export volumes, which were initially dedicated to the U.S. market are now rerouted to Europe due to the implemented tariffs. If so, in which product categories is this the case? Christoph Finke: So yes, a lot of questions for Claus today. So we will start with the cost savings and incremental savings in 2026. And then going to the additional imports from China. On the bonus provisions, Martin, I think I can answer that. We don't comment and break that down in detail. So of course, it has been an impact in the other line in the third quarter. It will continue to support us to a certain degree, but there's also a structural element to that. As we mentioned during the prepared remarks, we have 740 FTEs less this year. So on the personnel cost side, it's a combination of both. And with that, over to Claus for the 2 points on cost savings and imports from China to Europe and the rest of the world. Claus Rettig: Yes, let me comment on this as well. So like I said, we have the structural cost savings from all our cost savings programs, mainly ETM, Evonik Tailor Made. And you heard before, they are actually proceeding fully as planned. So -- and one of the most significant key performance indicators is we are now year-on-year 740 FTEs less by the end of September, and that's a very hard cost saving element. So this is by far the biggest one. And then like Christoph said already, we don't disclose and publish bonus pieces. Of course, they play a role, but to a much lesser degree. And so I think the structural part is going on. It's going to continue into the next year and also going to continue into Q4. So we have the 740 less as we speak. But of course, they are being released or leaving us during the course of the year. That means we don't have the 740 FTE cost impact for full year yet. But in the Q4, of course, we have a full element of this. And of course, even more so in 2026. So from that point of view, we have also -- there's no doubt about it, we have compensating factors. We have inflation. Unfortunately, this year, we had pretty high salary adjustments in the chemical industry. They are on the other side. So that's counteracting these cost savings. Nevertheless, without the structural improvements, we would have a bigger problem. So that's maybe to the cost saving -- maybe inflation last year, salary cost inflation, to give you a number, around 7%. I think that's a pretty high number. Then the other one, imports from China. When you look to the general statistics, imports from China into Europe have been rising. That's clear. We have certain areas in our business where we see this as well. It's sometimes indirectly, I'll give you one example. We have imports on the silica side, so which are used in tires. There we see directly, but you see also an indirect impact that the entire tire is coming from China. And therefore, tire demand or tire production in Europe is going down. So yes, we have these effects. I could not quantify it at this moment in time exactly. But there are elements like this, the crosslinker, I think we mentioned this some time before. We have pretty tough competition from China as well. It's not across the entire range, but in certain areas, it is. And from that point of view, it has an impact. Unfortunately, I cannot quantify it for you now. Operator: We now have a question from the line of Chetan Udeshi from JPMorgan. Chetan Udeshi: My first question was following up on Martin's question in a slightly different way. Maybe this goes to Christian. I think the message you gave us, it seems is much more of earnings pressure due to what you call broad-based demand weakness. I'm just curious, if I look at what BASF mentioned last week that they think the global chemical production is up 4% year-on-year. It doesn't feel like the demand itself is so bad. So what I'm trying to understand is how much of the pressure that you see and not just you as in Evonik, but also as an industry right now in Europe is actually structural in a way because there's just genuinely more competition across many, many product segments than we ever used to. And if that's the case, why should we think next year perhaps will be any different? That's one. And second, maybe a bit related to that. If I look at your Q3 earnings or Q3 EBITDA, if I just run rate that, we are close to EUR 1.8 billion annualized EBITDA right now. I mean what are the key moving parts into next year, which can help your number grow versus that run rate? Christoph Finke: Thank you, Chetan. Christian will start, and I think Claus can then add a few points on 2026 performance, maybe a bit more on the business side. Christian Kullmann: Chetan, I appreciate it to take your questions. Maybe first about the market environment. The simple math is the higher your businesses are positioned in respect of specialties, the better will be a chance in 2026. And if you look at our numbers and figures in respect, for example, of our Custom Solutions businesses, you could see that they have been able, even in this tough environment, to hold the prices up. So that is somewhat I would take as sign, which is providing me with confidence, first. Second, it was about your expectations now in detail. Chetan, as you know, if I could, I would provide you with the very specific details, but it is a little bit early than to give you now a complete picture about what we do see in 2026. But for sure, that we -- and I guess you could do the same. So it's fair to assume that the macroeconomic environment will stay somewhat challenging also in next year. Are there reasons that it could become better? Are their signs? For example, the German stimulus program, which we think the German industry, and that means also we could benefit from the second half of the year. That is something we see as supportive. And then it is to see how the weak U.S. dollar will next year -- how the Americans will manage on the other side. And that is what I guess it is in those times of uncertainty worthwhile to underpin that we do remain delivering on our revised EBITDA and our free cash flow guidance. And here, as Claus has already conveyed to you, we are confident to get it. So in a nutshell, it is about the long view. It is about executing our strategy of reducing costs and bettering our position in regards of growth and optimization. And I guess, having said so, I do hand over to Claus. Claus Rettig: Yes. Thank you, Christian. Yes, Chetan. So maybe to add -- the Q3, I think, would not be a good quarter to extrapolate because I think the reasons I tried to explain before, this is a very weak quarter for certain also extraordinary factors, like we said. 2026, super difficult to judge right now, even though we are in the middle of the discussions of how to see 2026, what kind of budget we are going to have. And of course, we always have the ambition to be the next year better than the year before. But so far, super difficult to judge. However, there are certain areas which clearly make us confident that 2026 for Evonik can be better and should be better than 2025. The total environment, we don't believe will change much. Even though you have seen President Trump and President Xi in South Korea agreed upon, let's say, call it a cease fire, which helps. But since it's only a year, it does not really remove the underlying total uncertainty, but it certainly will help. So from that point of view, we believe the environment will be as tough as it is in 2025. Will it be worse? I don't think so. So then it comes back to our own kind of elements that we believe are supporting us in 2025. We have a very weak Oxeno business, our C4 business in 2025. Here, we clearly see an improvement coming up in 2026. And Oxeno this year is not contributing at all, as you know, this will be different in 2025. Will it be back to 2024 levels? No, but something in between. So that is certainly a major element, which we see. Then we -- like we said, we have capacities that are ramping up. One is older, our polyamide 12. And by the way, polyamide 12 also in 2025 has volume growth. So it's on the way up and it's going to continue. We have the membrane business where is this year a little bit weak. We expect better business next year. We have the price erosion on the crosslinker side that has come to a standstill. It's starting to reverse. And -- yes, then we have methionine. And not to forget, we have methionine as, of course, a challenge, maybe new capacity coming on stream or most certainly on stream. When exactly? Not clear yet. That can have a suppressing factor on the price. At the same time, we have improved our cost position. In Singapore, where I'm living, we have put a new technology into a methionine plant this year, which is not only increasing the capacity, but also improving the cost. And over and above, even bigger cost improvement will come in our U.S. plant once we have the back integration in methyl mercaptan on stream, which also will happen next year. So this is -- then we have new plants. We have a new alkoxide plant in operation now in Singapore. The demand for biodiesel catalysts and biodiesel is strong. So there, it's going to ramp up, contributing next year. We have just started the new plant for aluminum oxide, highly dispersed aluminum oxide used in 2 big fields. One is lithium ion battery and the other big field is coatings. This is moving into markets where the demand is there, and we have this new plant will contribute. Maybe I already mentioned health care. Health care is also a market segment where the demand is strong. So it's not really affected by the general weakness. You know that we have also tendencies that health care production is coming back from Asia to the United States and to Europe. I think we are going to benefit from this. And -- so there are these kind of elements which make us confident that we can increase our business in 2026 a little bit despite still remaining challenging market conditions. Operator: The next question comes from the line of Geoff Haire from UBS. Geoffery Haire: I was just wondering, could you help us understand what the sustainability of the profitability in Infrastructure and Other is? Obviously, that was a big surprise, at least relative to what we were forecasting on consensus going forward because obviously, there's one-offs from bonus releases in there and how -- what proportion of that is one-off and what portion is ongoing. Christoph Finke: Yes. Geoff, this goes to Claus. Claus Rettig: The sustainability -- just to make sure I understood it correctly, is sustainability of... Christoph Finke: The earnings level was better than in the past quarters in Infrastructure and Other lines. Claus Rettig: Others. Yes. Okay. As you know, in Infrastructure and Others, we have grouped our , like I said, infrastructure business, which we are currently carving out into a separate legal entity. And we have also our Oxeno business in this. And here, the profitability improvement is coming from Oxeno in the next year. So this year, like I said, it's weak. Here, of course, we have profited from -- this is a very FTE-heavy operation. So a lot of the -- many of the FTE reductions are taking place there. Also in the course of the carve-out, we streamlined the processes. So absolutely sustainable. And the Oxeno part in it, like I said, we had to deep dive into our Oxeno business, you can believe me. And here, we're also confident that we are improving step-by-step over the next years, and we will certainly make a step in 2026, which we also -- okay, this is, of course, also depending on market conditions. The part which is on the bonus side, which is the lower part in the end is, I have to say, hopefully not sustainable. We all won't have a normal bonus again. And so we are aiming for not making that sustainable, that's for sure. Operator: We now have a question from the line of Anil Shenoy from Barclays. Anil Shenoy: I have two, please. The first one is on lipids. So you've spoken about lower demand for lipids in Custom Solutions in Q3. So I was just wondering if you could quantify in terms of percentage, how much was it down quarter-on-quarter and year-on-year as well? I mean, any kind of color on it would be very helpful. And on that note, if you could give us an update on the new lipids plant in U.S. I'm trying to understand what kind of a contribution could we expect in 2026 from it? And if you could remind us the EBITDA contribution that you expect once the plant is fully ramped up? So that's my first question. And the second question is on the divestments, especially SYNEQT. Now that you have carved it up as a separate entity, do you have a time line? Or would you like to give any color on it as to when can we expect the sale of SYNEQT? And would you be okay with the JV structure like the one Macquarie did with the infrastructure assets of Dow? And would you expect similar kind of multiples to that of Dow's assets? So those are my questions. Christoph Finke: Okay. Thank you, Anil. This time, both questions will go to Christian. So lipids and then SYNEQT. Christian Kullmann: Maybe first about the lipids. We are quite happy with the ramp-up of the capacities we have started to build in the United States of America. And here, we made good progress. So we are confident that we will benefit from it in future. But besides, it is a long-term perspective. So maybe give us now, first of all, a chance to build the -- to finalize the construction and then to ramp the capacities up. But nevertheless, and worthwhile to underpin it, here, we are confident that it will in future become a good and attractive EBITDA contribution business. All the more, as you see that the government of the United States of America has started some reshoring initiatives to bring pharmaceuticals and in particular, these on this very high level, high technological level back to the United States of America. So here, we are confident. In respect of Infrastructure, first of all, yes, we are progressing pretty well in respect of separation. This is close to be completed. And from January next year onwards, we will have a legal entity with SYNEQT fully organizationally and legally independent. And then as you know, all options are lying on the table. What do I mean talking about this? Could it be a partnership? Could it be a straight divestment? Could it be a JV? Yes. And for us, it means that we will tackle these different opportunities and that we will judge upon how to move ahead over the next year. But for Evonik, it is quite clear that the main benefit will be that we will have a less amount of CapEx, which we will pump in future -- which we would have to pump in future into our infrastructure businesses, and that is, for sure, helpful. So having said this, and then maybe that was -- you have asked about the revenues, somewhat -- the revenues and the EBITDA. In 2024, these infrastructure businesses have gained around EUR 1.8 billion of revenues. Here, it is fair to say Marl plus Wesseling plus C4. So in respect of the EBITDA, it was half -- first half of this year, EUR 100 million in the Infrastructure plus C4. But because C4 was virtually -- they have not contributed to the results, you could take this as, by thumb rule, EUR 100 million half a year, EUR 200 million full year in respect of our infrastructure business. I guess these are the two questions I have taken pride to answer. Operator: The next question comes from the line of Thomas Wrigglesworth from Morgan Stanley. Thomas Wrigglesworth: Two questions, if I may. Firstly, on Custom Solutions, you've done well with pricing, but volume has fallen 8%, which might suggest that pricing is coming at the expense of volume, which in itself might be a harsh statement. But then I look at the EBITDA change, much like Advanced Technologies, and it's substantially weaker in 3Q for the loss in sales than we've seen in 2Q. So is it that we're losing high-value tons in the volume? Or -- yes, I'm just kind of keen to unpack that a little further. Secondly, on methionine, I think you called out the methionine prices are down and yet you've been taking maintenance in 2Q and 3Q indirectly managing the volumes into the market. As you add tons and have full availability into 4Q, how do you expect pricing to perform? And do you think that your return of tons will weigh on prices into 2026 as well? Christoph Finke: Thank you, Tom. First one, Custom Solutions to Claus and then Christian on methionine. Claus Rettig: Okay. Good. Yes, Custom Solutions, I can actually first say, when you look -- we can do the same as with Advanced Technologies. If you look to the data we provided you, you will see that some of the EBITDA decline is not reflected in the cash flow. That's because we have also here, not to the same degree as in Advanced Technologies, but also certainly substantial net working capital reduction to align the inventories mainly to the current sales and demand. You can see that even though the EBITDA is down from EUR 287 million in Q3 '24 to EUR 215 million in Q3 '25, cash flow remains the same at EUR 172 million. So this is something we have to consider. Yes, volumes are down, which is unusual, I have to say, for this usually very stable business. And it shows also how broad, I have to say, the weakness in the market is because here in Custom Solutions, as you certainly know, we have a very broad portfolio, which makes it usually resilient because not all markets go down at the same time. But when I look right now to the performance in Custom Solutions, you can see an impact everywhere. I can see it in almost all the businesses. And I think in Custom Solutions, all the businesses have an impact to different degrees, yes, but also in all regions, and it shows -- first of all, it's a general slowdown of the demand. Nevertheless, I think what we are looking into is exactly what you are mentioning, is our price volume strategy, the right one. And are we not sacrificing volume to keep the margins high, and that's certainly on our agenda for the next months to come. And from that point of view, pricing, I think in these days, remains super critical. Also in the market, everybody knows in the market going for market share is not a good idea. And because with lowering the prices, you don't create more demand. But nevertheless, we will look into this. So it's one of the agenda points on our agenda. Christian Kullmann: Okay. And I take then the methionine question. First, maybe let me split my answer up into 2 parts. First, about the expectations in the fourth quarter. Here, we see a demand which remains overall pretty healthy. Yes, fair to say. And that is what we could give to you because we have a quite good visibility on the already booking level for the fourth quarter. So in a nutshell, the volumes will be up compared to the last quarter. And in respect of the prices, it might. It might end up a few cents lower, but it depends. It depends first on the ramp-up of a new capacity of NHU. So here, it depends. I won't call it -- it's a question, but let's say it depends. And second, on the [indiscernible] side, we do have the situation in the United States of America, where the businesses are protected by the U.S. tariffs. That is why I would say, for sure, volumes up compared to last year -- to last quarter and in respect of price, could be down in some sense, but don't forget that there is an exception in respect of the trade tariffs in the United States of America. Now maybe outlook 2026, what do we think about this? First, it's somewhat like an evergreen, an evergreen that we do see a market growth that will continue in an average between to 3% to 4% to 5%, maybe by thumb rule around 4%, which translates into an additional capacity of 80,000 tons per year. On the other side, we are aware that there are some new capacities which could come on stream over the course of the next year, but it is hard to judge as of today when they will come on stream. And you should keep in mind that there's a new brand-new competitor in. We could not really calculate if he could bring his capacity without having any experiences in this market and with this technology right into the market in the first step. So let's see how this will work. And on the other side, don't forget that some older capacities could be taken offline. That is what we have seen, what we have observed over the course of the last year. For sure, the market is in a restructuring period. And let's see how this will work over the course of 2026. That is what we could give to you in respect of methionine for 2026 as of today. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Christian Kullmann for any closing remarks. Christian Kullmann: Yes. Ladies and gentlemen, it was great having had you today. This is what now ends our call. So far, thanks a lot for your attention. Have a happy autumn and hope to meet you soon in person. Take care, and goodbye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good morning, everyone, and welcome to the CareRx's Third Quarter 2025 Financial Results Conference Call. Please note that this call is being broadcasted live over the Internet, and the webcast will be available for beginning approximately one hour following from the completion of the call. Details of how to access the webcast replay are available in today's news release announcing the company's financial results as well as on the company's website at www.carerx.ca. Today's call has been accompanied by a slide presentation. Those listening on their phones can access the slide presentation from the company's website in the Investors section under Events and Presentations. Certain statements made during today's call, including answers that may be given to questions, may include forward-looking information, including information constituting a financial outlook under applicable Canadian securities laws. Forward-looking information, including financial outlook information, includes statements regarding future events, conditions or results, including the company's future plans, strategies, objectives and expectations. Forward-looking information and financial outlooks are based on the information available to management as well as their assumptions and expectations as of the date of the presentation. Forward-looking statements and financial outlook information is given as of the date of this presentation, and the company assumes no obligation to update any forward-looking information as a result of new information or future events, except as required under applicable laws. Forward-looking information is subject to risks and uncertainties, some of which may be unknown to management or beyond the control of the company, which could cause actual results to differ materially from those contemplated by the forward-looking statements or financial outlook provided today. Given these risks and uncertainties, investors are cautioned not to place undue reliance on the company's forward-looking information. For additional information on the risk factors that could cause actual results to differ materially from those contemporary forward-looking information and the factors and assumptions associated from such forward-looking information, please refer to the company's MD&A for the 3- and 9-month periods ended September 30, 2025 and 2024, and other documents filed on the company's profile on www.sedarplus.ca. I would now like to turn the call over to Puneet Khanna, President and CEO of CareRx Corporation. Thank you, and over to you, sir. Puneet Khanna: Thank you, and good morning, everyone. Welcome to our third quarter 2025 earnings call. With me this morning is our Chief Financial Officer, Suzanne Brand. We achieved growth across all key metrics in the third quarter, both year-over-year and quarter-over-quarter. In Q3, we delivered revenue of $93.2 million and adjusted EBITDA of $8.3 million, with our adjusted EBITDA margin expanding once again now to 9%. Net income in the quarter was $1.6 million, our third consecutive quarter of positive net income. Average bed service grew to 91,298. The tremendous progress we've made in our financial and operating results are a testament to the CareRx team's dedication and hard work. I'd like to acknowledge and sincerely thank the teams across the country who every day support the delivery of the best in pharmacy services and continue to deliver exceptional care to our residents and home partners. On September 3, CareRx hosted Ontario's Minister of Long-Term Care, The Honourable Natalia Kusendova-Bashta at our Oakville pharmacy location to showcase the innovative pharmacy services and technologies we use to deliver integrated pharmacy services and programs to residents across the seniors housing spectrum. We also highlighted the critical role our team plays in personalized medication management and enhanced clinical support, helping drive safer, more effective care for Canada's aging population. We continue to have a productive and collaborative relationship with the government. And together with the ministry, our home partners and long-term care associations, our team is excited to help shape the future of senior care. As a reflection of the CareRx team's commitment to a disciplined capital allocation strategy that provides the flexibility to fund growth initiatives while delivering strong returns to shareholders, in the third quarter, the company announced its intention to pay a quarterly dividend and on October 15, 2025, paid a dividend of $0.02 per share. This milestone underscores our confidence in our strong financial position, robust operating performance and the sustainability of our cash flows. Additionally, we renewed our annual Normal Course Issuer Bid since we continue to believe that our share price does not adequately reflect the fundamental value in our underlying business and near- and long-term growth potential. Through our balanced capital allocation strategy, which includes investments in organic and strategic growth, share buybacks and now dividends, we are well positioned to drive shareholder value and are optimistic about our momentum. I will now turn the call over to Suzanne, who will discuss our third quarter financial results in more detail. Suzanne? Suzanne Brand: Thank you, Puneet, and good morning, everyone. As Puneet outlined earlier, we achieved broad-based growth in the quarter, both year-over-year and quarter-over-quarter. Average beds serviced in the third quarter increased to 91,298 from 89,099 in the third quarter of 2024 and from 90,048 in the second quarter of 2025. Revenue of $93.2 million remained consistent from $92.8 million last year and $91.4 million in the second quarter of 2025. The year-over-year revenue comparison reflects a change in the mix of branded and generic pharmaceuticals dispensed even as the number of average beds serviced increased. Adjusted EBITDA for the third quarter increased year-over-year by over 7% to $8.3 million from $7.8 million in the third quarter of last year and increased by over 4% from last quarter. Adjusted EBITDA margin increased by 60 basis points year-over-year to 9% and increased 20 basis points quarter-over-quarter. The year-over-year and sequential improvement in adjusted EBITDA and adjusted EBITDA margin was primarily the result of the onboarding of the new beds and improved efficiencies and cost savings initiatives. We delivered our third consecutive quarter of positive net income at $1.6 million compared with a net loss of $360,000 in the third quarter of 2024 and net income of $561,000 last quarter. The growth in our net income was due primarily to new onboards and lower finance and transaction costs. Cash from operations was $10.1 million compared to $12.2 million last year and $3.8 million in the second quarter of 2025. The year-over-year comparison is largely due to changes in noncash working capital items. Cash at September 30 grew to $15.5 million from $8.7 million at the end of the second quarter, which was the primary driver behind the improvement in net debt to $28.8 million compared to $34.8 million last quarter. Net debt to adjusted EBITDA at the end of the third quarter improved to 0.9x from 1.1x in the second quarter of 2025. Subsequent to quarter end and following the September 30 National Day for Truth and Reconciliation, the company completed a number of transactions that reduced our quarter end cash balance. We made a dividend payment of $1.3 million, repaid $2 million of principal and interest on our outstanding debt and repurchased for cancellation, a 139,500 shares under our Normal Course Issuer Bid at an aggregate cost of approximately $497,000. The initiation of a quarterly dividend and the renewal of our share buyback program are evidence of the confidence we have in the strength of our financial position, our sustained and improving operating performance and the predictability of our cash flows. And with that, I will turn the call back over to Puneet. Puneet Khanna: Thank you, Suzanne. Before we close, I would like to take a moment to highlight some of the ways we continue to engage with our communities, employees and industry partners this quarter. We were proud to introduce our new Voices of CareRx video series on LinkedIn, a bimonthly social media video series which shines the light on CareRx team members. Through their stories, we showcase the compassion, dedication and professionalism that defines our organization, what inspires them about working at CareRx with seniors in our communities and the positive impact our teams have on residents and their families. In addition, our teams also presented at ISMP Canada, the Institute for Safe Medication Practices, where they shared important insights on medication safety in long-term care. Their participation demonstrated our ongoing leadership and expertise in advancing best practices in medication management across our homes and pharmacies nationwide. Finally, I'm proud that our team continues to actively participate in community events, including Long-Term Care Community Engagement Day, an event that brings together residents, health teams, families and community leaders to share stories and celebrate the vital role long-term care homes play in our communities. We also participated in the Strides for Seniors Walk and Run, which raised over $2 million to support York Region's first nonprofit residential Respite Dementia Care Center. These initiatives allow us to collaborate with partners across the continuum of care, advocate for the needs of seniors and strengthen our connection to the people and communities we serve. Together, these activities reflect our commitment not only to operational performance, but to being a trusted voice and a partner in the long-term care and seniors care sector. With that, I would now like to open the call to questions. Operator? Operator: [Operator Instructions] We have the first question from the line of Gireesh Seesankar from Bloom Burton. Gireesh Seesankar: Just on bed growth, it was fairly modest from the end of Q2 to now. Could you provide any color on the gross bed growth for this quarter? And were there any large rollovers? Also, how many beds did you end the quarter with? Puneet Khanna: So I can tell you from a year-to-date growth, we've had just over 4,200 beds. We did have about 800 beds in Q3 that were supposed to start in the last 10 days. And then the customer asked us to push and roll that over into the first 2 weeks of October. So that was a bit of a push where obviously, we wanted to win it, but you want to start off the relationship with the customer, right, and we really ended up pushing that into Q4. Gireesh Seesankar: Okay. And how much visibility do you have on new bed wins for the remainder of the year? And are you still confident in that 6,000 to 8,000 beds added for the year expectation? Puneet Khanna: Yes. Yes. So look, I mean, I think if you look at the 4,200 we've already added year-to-date plus the 8 I just mentioned, we're already at 5. And so even on the low end of our target at 6, it's in sight, and we are looking to close a few more deals, which would get us to at least that number. Gireesh Seesankar: And just one last one. Are you still on pace for the double-digit EBITDA margin by the end of the year? And have you felt the full impact of the Burnaby facility yet? Suzanne Brand: Thank you. So with respect to Burnaby, we continue to manage and try to -- we will get those efficiencies in the latter half -- so in that last quarter. So we're starting to see those efficiencies and gaining that with the lower Mainland now. We're doing everything we can with respect to driving margin expansion in terms of exiting with respect to double-digit growth, but that is something that we would really strive for as we pull through the efficiencies in the P&L in the future. Operator: We have the next question from the line of Gary Ho from Desjardins Capital Markets. Gary Ho: So I believe the Extendicare contract is a shorter-term contract. Just wondering if you have kind of reopened that file with that client for the next contract term? Would you approach the bidding differently this time around? Puneet Khanna: So we are pursuing everyone all the time everywhere, whatever the saying is. So yes, we think we have a compelling service offering and value proposition to customers as well. And so we're always engaged in ongoing conversations with any one not serviced by us. And I think to answer your question, when we amalgamated a number of these pharmacies a few years ago, I think we were still trying to knit it together and figure out who and what we could become. I think we now are pretty confident in, again, that service delivery and who we are. And so -- and I think some of the wins you're starting to see over the last couple of quarters are representative of that. And I think we would take that to the market going forward, be it that opportunity or anyone else. Gary Ho: Okay. Great. And then my second question. I know you've been ramping up the Oakville and North Burnaby mega facilities. Any discussions on looking at our third facility yet? Or is that too early? And also, I just want to get an update on your piloting of the hub-and-spoke strategy, leveraging the scale of these facilities? And what are you seeing so far from locations you've onboarded or tested so far? Puneet Khanna: Yes. So still a bit early to make a decision on anything else. I think from our pilots and what we have moving with the hub-and-spoke, we are extremely encouraged by it. Obviously, we are in budget cycle and sort of taking that into our consideration into our model. But we're being able to leverage those high-volume packaging machines. So particularly in Oakville, the BD rolls that we have to get more use out of it to cover off other locations. And so you're really using that value to help offset labor costs in other pharmacies. So yes, look, we're excited. We think that is the future. But I think as with anything we've done, we're going to be measured and make sure before we jump into anything. Operator: We have the next question from the line of Justin Keywood from Stifel. Justin Keywood: Are you able just to refresh us on the organic growth opportunity? I believe there's several potential RFPs or contracts that are set to go in the next 12 to 18 months? Puneet Khanna: Justin, thanks for the question. So the pipeline continues to look robust. I think we're seeing a number of things like just organic opportunities where we're starting -- we're seeing either RFPs or our sales team that is soliciting have targeted a number of things, and we have those built into our pipeline. I think I've publicly stated 6,000 to 8,000 was our target for this year. We are comfortable for that same target next year for what we see in the pipeline. And then I think the other thing that will continue to be a really strong tailwind are the new developments and new builds that we're seeing. And I think the Ford government announced those 58,000 new and redeveloped beds, which we will see more and more of them come online in '26 and '27. So we will -- we expect to have some growth based on there. And then I think the last piece similar to what we did over the last couple of years on M&A and consolidation. We are seeing that on the home operator side. So when you look at the large REITs and the large players in this market, they're consolidating. And so we definitely have some upside there as well. Justin Keywood: That's very helpful. And then on the mention of the Ontario government investing more in long-term care. Is there any elements of the federal budget today that we should be looking out for that could be of note for CareRx and the sector in general? Puneet Khanna: Not that we expect. So health is provincial and particularly with pharmacy, it's provincially driven. So that's why most of our focus is in conversations with provincial governments in the jurisdictions we operate in. Operator: We have the next question from the line of Kyle McPhee from Cormark Securities. Kyle McPhee: Just on the topic of margin expansion, potentially still on the come beyond what you've already successfully delivered in recent years here, is there any material margin expansion still on offer from your efficiency and cost savings efforts? Or is any material margin expansion largely just going to come from organically adding beds, getting that favorable contribution margin? Just help us understand how those moving pieces might play out over the next year or so. Puneet Khanna: Yes. Thanks for the question, Kyle. So yes, look, I think a couple of different levers for us to pull here. One, we've -- as you said, the bed growth in the system and the network and the platform we've built, we've built capacity. And so when you're adding beds into these locations, we are not doing it at the same labor increment that is required. So you're adding beds not necessarily adding the same amount of labor. So we will get the efficiency from that standpoint. I think we had gone down the path of the lean daily management. We have almost 70% of the network rolled out. We obviously started with our largest locations working our way down so that we got the biggest bang for our buck. So there's those opportunities. And then I think similar to the question that was asked earlier on hub-and-spoke, we feel there's opportunity on margin that. And then just on procurement and continuing to consolidate vendors that we use in our business as further opportunity. Suzanne Brand: Yes. Maybe I can just add to that a little bit. With respect to purchasing efficiencies, Puneet just already commented on that. We'll continue with some of the major providers of things like delivery and supplies. And then we'll continue maybe at a -- it won't be as material, but in terms of managing all of the lines, right, whether that be customer delinquency and/or customer expenses, we continue to manage and ensure that we deliver efficiencies through those methods as well. Kyle McPhee: Got it. Okay. And for the visible near-term bed adds that you would know about internally, how is that contribution margin shaping up on those beds versus the math of the past? Is the competitive environment changing at all, irrational actors out there bidding down the economics? Or maybe most of what you're adding is not even facing competitive bidding processes, can you offer any thoughts on that? Suzanne Brand: Sure. Thanks for the question. We continue to manage and pull on our new offerings from customers at the most economic way. So we continue to manage and ensure that we're doing it most efficiently. Again, as Puneet commented earlier, we'll do that with most efficient labor add and in the most competitive way. So I haven't seen anything different in terms of our approach. Puneet Khanna: No. And I think the other piece is in what we're starting to unleash and being able to offer with respect to robustness in services and programs. That is valuable to the customer, too. So the mindset we've taken, Kyle, is sort of that operating partnership mindset to say, what can we bring forward that helps save nursing time, what -- how do we keep residents healthier longer in these homes, so they're not being transferred back and forth between hospitals. And all of those pieces are valued by prospects and customers. Kyle McPhee: Got it. Okay. I'll squeeze in one last one here. Can you just offer some CapEx guidance for 2026? It sounds like you're still in your budgeting process, but maybe high level, the budget and how it allocates across maintenance versus investment in bed adds versus investment in your efficiency plan? Suzanne Brand: Yes. I appreciate that question. We are still, as you said, hammering out our 2026 planning horizon. With that, we continue to be in around the $8 million to $10 million mark with respect to capital additions annually. And we are -- every year is a little bit different with respect to that allocation, but we'll put the capital behind what provides value at the end of the day. But again, $8 million to $10 million from a 2026 perspective. Operator: We have the next question from the line of Doug Lee from Leede Financial. Douglas W. Loe: Congratulations on the quarter, folks. All arrows pointing upward here. Congratulations, as I said. So maybe just building on Kyle's question about CapEx, maybe just over a longer-term time horizon, I mean your footprint in Canada is considerable in all of what we consider to be the high-value geographies, but there are a few pockets where you could establish fulfillment centers if desired, I guess. So just wondering if there are any plans in order to expand your geographic footprint dependent of the organic head count growth that you talked about in your original comments? Puneet Khanna: Yes. Thanks, Doug. I think we are comfortable in the provinces we are in. I think we've been fairly forthcoming in a discussion that we sort of jumped over Quebec to go into the Maritimes in Moncton, New Brunswick. So we do operate there. We are interested in the Quebec market, but I think I'll be a bit of a broken record here in saying, look, we understand the uniqueness of that market and no different than Central Fill or hub-and-spoke or any of the other pieces we do. We like to do our homework and be comfortable before we jump into anything. And so we'll continue to look at Quebec or any other markets as they present themselves to us. Douglas W. Loe: And then not really a follow-up, but a different question. I mean, I see that in the commentary in your MD&A, I mean you continue to talk about the potential for professional fee reduction in the province of Ontario. Fortunately, that's the gift that keeps on not giving 5 years in counting. But I was just wondering if there's a time frame over which this officially goes away or officially gets established as part of your pricing dynamics in Ontario? That's it from me. Puneet Khanna: Yes. Look, I think it is one of those that -- we've seen that continue to just get rolled over. Again, I think to the conversations we've had, I think the Ford government in Ontario, very supportive of long-term care. This minister, particularly is a nurse, understands the value of pharmacists as an interdisciplinary participant and collaborator in the care spectrum. So look, I think we feel optimistic by our relationship, and those are ongoing conversations we have with both the minister and her staff. Operator: We have the next question from the line of Douglas Cooper from Beacon Securities. Doug Cooper: I just want to dig in further to something -- can you hear me? Puneet Khanna: Yes, we can. Doug Cooper: Just something that was brought up earlier about the consolidation of your -- of the major home operators, Extendicare, Chartwell, and Sienna in particular, for you guys. How many did you -- of the bed growth this quarter, how many were realized through, if any, from wins -- from M&A activity they did, getting beds that you didn't have prior to their M&A activity? And if not seen yet in the third quarter, what do you think that will come in the fourth quarter or early next year? Puneet Khanna: Yes. Good question, Doug. So I think we may have had -- I don't know off the top of my head, but I think there was one small home that got added this quarter. I don't believe we anticipate anything for next quarter, but we do expect some of those bed adds to come through early in '26. Doug Cooper: Can you quantify them at all? Puneet Khanna: It's a retirement home -- it's a retirement group that was acquired. So I think total suites was 1,000, but we don't get full connectivity on all of it. So we're just working through what the exact number of beds would be serviced on that business. But I would -- if I had to guess, I would say, it would be 500 to 650, but again, it should be determined. Doug Cooper: Okay. With your balance sheet now in probably the best shape it's been at certainly in recent memory, I can't remember the last time debt-to-EBITDA was below 1. Will this accelerate any M&A activities you may be contemplating, particularly, I guess, for those companies that may lose beds upon a Sienna or Chartwell acquisition that gets moved to you, somebody is losing them, that may be [indiscernible] for acquisition. Is that -- maybe just some comments on M&A given your balance sheet and the opportunities? Suzanne Brand: Thanks, Doug. With respect to the balance sheet, thank you. It is in probably the best shape that we've seen in a very long time. It is one of those things where it provides great opportunity in terms of making the right choices in terms of how we want to invest for value in the future. So while we have and can rely on the strength of our balance sheet, it really does open up opportunities for M&A that does become available and allows us with flexibility in how we handle that. So it is very strong, and we do have opportunity for choice in how we want to add beds. And I'll maybe add to that. Puneet Khanna: Yes. And look, I think all our competitors know we are open for business, and they all know how to get a hold of me, Doug. Doug Cooper: Okay. And final one from me, just on the dividend. What prompted the -- I guess, the implementation of a dividend and as opposed to M&A, for example, or paying down debt further or whatever, like is it going to be $0.03 per quarter? Is that what you anticipate going forward? Puneet Khanna: Yes. So we did a robust review of cash strategy, which was presented to the Board. And look, I think we felt we were able to provide some value back to shareholders who've been supportive of the business for a long time. And at the same time, continue to have the opportunity. We've got cash. We're going to continue to generate cash to do M&A to support growth to do the NCIB. So we didn't feel like we were handcuffing ourselves. And I think I've been sort of forecasting that a little bit in sort of the last few quarters saying, look, we are really comfortable where debt is at and paying down debt just didn't make sense at this point. Doug Cooper: Okay. Maybe just final one from me. Just Suzanne, what was free cash flow in the quarter? Operating cash flow, you had $10 million, but what was free cash flow? Just -- so dividend payment represents what of free cash flow in the quarter? Suzanne Brand: Yes. Dividend payment represented about $1.2 million with respect to cash flow for the quarter. So -- and maybe I'm not sure if I misheard you, but I just want to make sure that I thought I heard you say $0.03, but it's $0.02 just to confirm. Doug Cooper: Yes, 0.02%. And just wondering what free cash flow was in the quarter? Suzanne Brand: So the free cash flow in the quarter would have been approximately $10 million. I can get that number more accurately for you. Operator: This concludes our question-and-answer session. I would now like to turn the conference back over to the management for closing comments. Puneet Khanna: Thank you, everyone, for participating in today's call and your continued interest in CareRx. We look forward to reporting on our continued progress next quarter. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Eve Holding, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Lucio Aldworth, Director of Investor Relations at Eve. Please go ahead. Lucio Aldworth: Thank you, operator. Good morning, everyone. This is Lucio Aldworth, the Director of Investor Relations at Eve, and I wanted to welcome everyone to our third quarter 2025 earnings conference call. Our CEO, Johann Bordais; and CFO, Eduardo Couto, are joining me on the call today. And after their prepared remarks, we will open the call for questions, at which point, Luiz Valentini, our Chief Technology Officer, will also join us for more technical questions. We have a deck with a few slides and additional pictures that show our achievements in the quarter as well as the testing phase of our full-scale prototype. The deck is on our site at ir.eveairmobility.com. So please feel free to download it and follow along. Let me first mention that today's conference call includes statements about events or circumstances that have not yet occurred. These are largely based on our current expectations and projections about future events and financial trends affecting our business and our future financial performance. These forward-looking statements are based on current expectations and involve risks and uncertainties that could cause financial results to differ substantially from those expressed or implied in this conference call, and we undertake no obligations to update publicly or revise any forward-looking statements because of new information, future events or other factors. For a more detailed list of these risks and uncertainties, please refer to our SEC filings available on our website. With that, I will now turn the presentation over to our CEO. Johann? Johann Christian Jean Bordais: Thank you, Lucio. Good morning, everyone, and welcome to the 2025 third quarter conference call. We had a strong third quarter marked by several key achievements, and we continue to advance the program's development at a steady pace. We are in the final stages of testing our engineering prototype before its flight campaign starts. We announced an additional supplier for our commercial aircraft, the E100, with a contract with Embraer for their landing gear. Additionally, the Iron Bird has begun to operate and is already contributing to the testing of the actual hardware that will equip our aircraft. Our schedule remained unchanged with an expected Type certification and entry into service in 2027. Starting with Slide 3. We have now received from Beta Technology Company, all of the electrical motors for our engineering prototype. They have been previously tested in specially designed equipment and installed in their respective nacelles. As mentioned previously, we had already performed integration test between the prototype and the remote pilot station that we also call the RPS, to make sure that there is a successful communication via the dedicated radio link. As a reminder, this prototype will be remotely controlled with a pilot sitting in the RPS, and this is the white [ track ] at the far end of the right picture. We are running the last set of tests to make sure that electrical power units were properly integrated with the inverters, battery and other systems and subsystems in the vehicle. Therefore, we're confident in starting soon our flight campaign with our first flight by the end of this year or early next year. Slide 4 is about the selection of our 22nd primary system supplier. Embraer will produce landing gear for our aircraft. Embraer comes with a strong landing gear manufacturing heritage for their commercial and executive jets as well as military aircraft. The landing gear was introduced as a result of a constant interaction between Eve and its customers, understanding how the aircraft will be operated. Now, the wheels on our eVTOL will be used for taxiing and repositioning the aircraft. This means greater energy efficiency when compared to the hovering. The landing gears also provide the capability of maneuvering the aircraft on the ground, eliminating the use of ground support equipment for the purpose, facilitating operation and reducing time on ground. The next Slide #5 shows what is now our functional Iron Bird cockpit. As a reminder, the Iron Bird is a deconstructed eVTOL in which we integrate all the different actual components on our eVTOL into a physical system to make sure that all systems work together properly. This is the interface through which the pilot will control the entire system. As you can see, the simulator has approximately 270 degrees view and is connected with all the different rigs of the vehicle system and components. For instance, the joystick is connected to actuators and motors in another adjacent room, and they react physically to all pilots command. All of these are connected to the avionics and the flight control computers with our fifth-generation fly-by-wire control laws. The motors are connected to the battery with its own thermal management system. As much as possible, all wires and cables replicate the composition, width and length of the actual harness that will be on our eVTOL. This assures a representative result of the simulation, allowing the Iron Bird to be used as a tool for vehicle development, flight test clearance of a new feature and product evolution as well as optimize the test campaign. Through this strategy, we maximize the number of prototypes, streamlining the flight test campaign and making the most efficient use of these assets. So, not only does the Iron Bird help us to better integrate and understand how all the systems work together and troubleshoot potential problem on the ground, but it also has an important role for the aftermarket benefit. The Iron Bird will help us improve the system and component maturity, and these are important inputs for successful entry into service and an efficient maintenance program. In total, we have logged more than 10,000 hours of test in these rigs. Another advantage is that the Iron Bird has also helped us to expedite and reduce the costs related to our certification campaign. Keep in mind that some tests can be performed on the ground 24/7, such as electrical systems, circuit breakers, et cetera, and the Iron Bird becomes a very valuable development and certification tool. Moving on to Slide #6. Together with our customers and authorities, we are also developing a strong network of partners in different areas, such as infrastructure and energy, to address one of the many challenges ahead of the Urban Air Mobility, which is to create a whole new ecosystem besides simply developing an aircraft. On the certification side, we participated in ICAO Assembly in Canada, along with ANAC, the Brazilian Air Force and other government officials, along with representative of several other certifying authorities throughout the world. This reinforces our confidence level that we have the right approach to certify our aircraft with ANAC as a primary certifying authority. Besides that, we are increasing our presence in the Middle East with an agreement to support the adoption and growth of eVTOLs in the region with the Kingdom of Bahrain. The agreement positions Bahrain as a regional hub for electrical aviation and will accelerate its regulatory, operational and infrastructure ecosystem for eVTOLs. The agreement also calls for Eve to possibly conduct test flight in the region in 2027. Slide 7 shows our total pre-order backlog that stands around 2,800 aircraft for a total value close to $14 billion based on the list price of 2025. This includes nonbinding letters of intent from 28 different customers as well as Revo’s firm order. Out of the 28 customers, we also have secured contracts with 14 different customers for Eve TechCare suite of aftermarket products and services, which could bring up to USD 1.6 billion in revenue to Eve over the first few years of operation. As you can see, we also have 21 different customers for our air traffic management solution, Vector, and I believe this reflects the market's leading value proposition we bring to our customers. Now I would like to invite our CFO, Edu, to review the financial results and the 2025 milestone checklist. Eduardo Couto: Thanks, Johann. Eve has successfully concluded a new funding raise of $230 million through a registered direct offering in August. This equity placement has not only improved our cash position to its highest level ever, but also extended our cash runway to about 2.5 years. We are very comfortable with our current liquidity and estimate it is sufficient to fund our operations and R&D expenses through 2027. The offering was anchored by 2 strategic and long-standing investors, the Brazilian Development Bank, BNDES, and our controller, Embraer, showing strong investor support and commitment to our project. Also, we had more than 30 U.S. and Brazilian institutional investors participating in this round. The strong institutional participation expanded our public floating and Embraer now has 72% of our total equity, down from 82%, and Eve's daily trading volume in the New York Stock Exchange is averaging $7 million per day. Now moving to Slide 10 (sic) [Slide 9]. Eve is a pre-operational company, and our financials reflect mostly the costs associated with our program development. That said, I would like to highlight some of our numbers. Eve invested $45 million during the third quarter '25 in our program development. We continue to accelerate our program development with more engineers from Eve and Embraer as well as higher engagement with suppliers. We also deployed about $7 million in SG&A during the third quarter, in line with previous quarters. Including R&D and SG&A, Eve reported a net loss of $47 million in the third quarter 2025. We also recognized a gain related to the fair value of our outstanding warrants, which is a noncash gain. Moving to cash flow. Our operations consumed around $60 million in the quarter, reflecting higher program activity and overall engagement with engineering and other R&D functions to progress our eVTOL development. With $143 million in cash consumed in the first 9 months of the year, we are on track to hit the low end of our guidance of total cash consumption between $200 million to $250 million for the full year of 2025, reflecting our cost discipline, simple business model and advantages of leveraging Embraer's capabilities. Finally, on liquidity, we ended the quarter with $412 million in cash, again, the highest ever cash level for Eve. Including an awarded grant and an undrawn BNDES credit lines, total liquidity is now at $534 million. These standby facilities continue to help Eve to preserve a solid cash position. Now going to Slide 10. We remain on track to deliver our milestones this year. As Johann detailed earlier, our first full-scale prototype is concluding final tests and installations to start to perform its initial flights in the upcoming months. In parallel, we continue talks with ANAC, Brazil's certification authority, to detail the certification plans. We expect it to be published by the end of the year to begin certification tests. We continue to engage with suppliers working on the initial parts of our conforming prototypes. And in parallel, we have started to receive the necessary equipment and tooling to produce the certification vehicles. Lastly, our cash consumption for the year is in good shape and in line to reach the low end of our guidance of $200 million to $250 million. With that, we conclude our remarks, and I would like to open the call for questions. Operator, please proceed. Operator: [Operator Instructions] And the first question comes from Savi Syth with Raymond James. Savanthi Syth: Just -- congrats on the progress and financing deals. But I'm kind of curious about the Bahrain update yesterday. Just -- could you talk a little bit more about how that would work? It looks like 2027 you'll be doing work there. Is that flight testing using the engineering prototype or maybe the certification aircraft that you're building? And is that still part of that agreement? Johann Christian Jean Bordais: Great, Savi. Thank you. Yes, we're thrilled about this announcement that we did with Bahrain, with the Ministry of Transportation & Telecommunication. It was also on Sunday, right? We're -- it was talked about at the Gateway Gulf Investment Forum. Very important. We've been in talks with the Middle East and the UAE for some time now. And I think this really proves that we're bringing the solution that they're looking for. This is a sandbox that will work to accelerate the readiness of the regulatory aspect, the operational, the infrastructure also, the ecosystem. We're going to be starting different fronts, like I mentioned, looking at the vertiports, looking at the operation. And when it comes to the testing, we're looking at the possibility of maybe starting some test flights, right, in 2027. It's not defined yet, but this is what we're definitely working on, maybe using a prototype, this is something that we're thinking about, but definitely for the operation in '28 in the region. Savanthi Syth: And does that come with any revenue stream? Or it's just kind of more of a demonstration? Johann Christian Jean Bordais: Well, no, it will have revenue stream. But definitely on the demonstration, we haven't defined exactly the scope and how it's going to be, right, at this stage. Eduardo Couto: No, we expect to get orders, right, Savi, as we start to fly and go to the region, we expect for more orders. PDP is the traditional type of sale with other customers. Savanthi Syth: That makes sense. I appreciate that. And then just on the cash flow side, I just wanted to clarify -- again, congrats on getting that deal across last month or a couple of months ago. But is that -- this current spend still the thought process that this is kind of the level of spend for 2026 as well? Eduardo Couto: Yes, we're consuming around $60 million, right? We consumed that in the third quarter, $6 million. Probably fourth quarter should be around $6 million as well, and we may close the year around $200 million. For next year, if we keep that pace, which I think is, I would say reasonable, we may consume a little bit more, right, than $200 million, so something maybe around $250 million. We're still working on the details for 2026, and we still don't have a guidance. We may provide something by the fourth quarter results, but I think it's reasonable to expect to keep that pace. Operator: And the next question comes from Andres Sheppard with Cantor Fitzgerald. Andres Sheppard-Slinger: Congratulations on the quarter and all the great progress. I wanted to maybe follow up from Savi's first call just on the expansion to the Middle East. Hoping maybe you can give us a bit more detail there? So you're targeting commercial services in 2028 and then further expansion in 2029. But I'm curious, just given the region's maybe more leniency towards the certification process, is there an opportunity here perhaps to commercialize ahead of FAA certification? Is that something that's being explored? Or what's overall the strategy here in the region? Johann Christian Jean Bordais: Thanks, Andres. That's a good question. Obviously, our primary authority is ANAC, and this will start for us with ANAC and then with the bilateral agreement that they have it will be FAA. Now ANAC has been also in contact and have agreements with all other authorities in the world. And it wouldn't be different, like we've done at the Embraer for many, many years where they would accept the ANAC certification. So it's actually independent of what will happen at the FAA, right? But I'll let also Valentini give you a little bit more insight. Luiz Valentini: Yes. Thank you, Johann, and good question, Andres. This is -- this doesn't change the path that we have of certifying first with ANAC and then validating with other authorities. As Johann mentioned, we work to expedite this process by aligning -- or promoting alignment of not only vehicle characteristics and understanding by all of the authorities, but also supporting ANAC and all that we can in their arrangements and agreements for their certification basis to be accepted by other authorities. So we support the process of having these authorities, accept the ANAC certification basis, and that is done in a way to shorten the time that we have their validation once we have the ANAC type certificate. Andres Sheppard-Slinger: Got it. Okay. That's super helpful. Appreciate it. And maybe just as a quick follow-up. Just on your test flight program, just to make sure I have it right. So we are targeting first test flight, I think, before year-end and then to kind of ramp up the program all throughout next year, starting with hover flights and then heading towards a transition. Just can you break that down for us, just what does that flight path look like, just the timing again and just confirm what that looks like for this year and next year? Luiz Valentini: Sure. Yes. So we'll start reengineering prototype flights, as we had mentioned in the end of this year or at the beginning of next year. So that will start first with, let's say, simpler flights with hovering only, and then that will gradually expand what we call the flight test envelope. So increasing speeds, making maneuvers that cover, let's say, a more extended range of capabilities of the vehicle. And then from there, expand also to transition flight, which is what we call the phase of flight between hover and cruise flight, the fixed wing part of the flight, right? So that's made in a way for us to validate parameters of our analysis today. So we still have some calibration, some knowledge that we expect to gain from the hover flights themselves. So for example, we believe that we'll be able to gain more insight on the noise of the vehicle once we start flying the hover. So even the hover test phase has significant information for us. But then, evolving towards the transition is also important for us because even though it's a short phase of flight, it has a significant, let's say, a physical phenomenon happening. So it's important that we get that very well, not only for engineering and certification, but also for the comfort and for the user experience inside the vehicle, right? And then in the end, we'll also perform cruise flights or fixed wing airplane flights with this engineering prototype. But that's the, let's say, the working of the vehicle in which we have more confidence from the background that we bring for previous Embraer programs. So that's the progress that we are expecting to make all that to happen next year. Operator: And the next question comes from Eegan McDermott with Jefferies. Eegan McDermott: Maybe on the supplier with Embraer signing on to provide the landing gear, could you remind us of what other suppliers or component agreements you still need to secure? And maybe at a higher level, what kind of advantages does your extensive supplier network provide compared to peers who have a more vertically integrated approach? Luiz Valentini: So, thank you for the question. So, this is really the last main system that we have introduced to the vehicle with respect to bringing new suppliers in. So we don't expect to have any other supplier for any major aspect of the vehicle coming in from now on the program. And then, we've been working with -- on the second part of your questions, with suppliers that we believe bring a differential to our program given their background on aviation product and their knowledge on certification of these products. So for example, the fact that we are working on the battery supply with BAE, we believe that puts us on a good path for certifying this system, which is one of the critical systems of the vehicle, right? So, as we mentioned previously, we believe that the list of suppliers that we assembled was a list that for our program optimize not only the maturity that they bring to our project and the background that they have on the vehicle, but then optimizes what we have in terms of integration of these systems on the vehicle from the previous experience of Embraer projects. Does that answer your question? Eegan McDermott: It does. Yes. And maybe one follow-up or slightly unrelated question. But in terms of the motor when it comes to performance test, could you provide an update of what you're monitoring there in terms of performance testing? And are you going to continue to dual source motors from Nidec and [ Beta ]? Or is there any intention to source both the lifter and pusher from one supplier? And what would be your priorities in making such a decision if so, whether it's cost performance, scale or else? Luiz Valentini: Yes. So as we mentioned last time, we -- the flight test of the engineering prototype is part of a process for us to optimize the vehicle characteristics, and that goes through choosing what are the right systems and components to compose the vehicle, right? So, we are still on that path that we mentioned on the last call, to understand the opportunities that we have for supply of the motors, both lifters and pusher. And then based on the choices that we have and the fit that we get from the tests, then choose the final configuration. We choose these components on a number of parameters, I'd say, most importantly, parameters related to performance, so such as weight and the controllability that they provide to the vehicle. But also cost, of course, is an important one and what we believe is the capability of these companies to provide a good product for the life of the vehicle, right? So for production, for support, for spare parts and all of that. So it's really a complete set of parameters that we analyze to -- that will eventually lead to the choice of the supplier for these components. Operator: And the next question comes from Sameer Joshi with H.C. Wainwright. Sameer Joshi: I just had a couple of questions. First, on the cash burn expectations for this year. I think I heard that you were expecting to be closer to the lower end of that $200 million to $250 million. Is there a reason for that? Were there some programs that were slowed down? Or what was the -- or were you more efficient than you expected to be? Eduardo Couto: In terms of the cash for this year, you're right. We believe we're going to be closer to the low end of the guidance range of $200 million to $250 million, pretty much because we are trying to optimize our cash consumption the whole time, right? We control expenses. We make sure we're spending money the right way. We try to increase payment terms and have some working capital gains. We are always discussing with suppliers payment terms. There is a lot of work that is done by Embraer as well that we have on the service agreement. So there are different pockets, right, of cash consumption that we're always trying to optimize. We leverage a lot of existing infrastructure, existing capabilities, things that the Embraer Group already has, in order to have this more optimized cash burn, and we're going to continue to do this way, okay? Sameer Joshi: Okay. Got it. And then just a broader question. Of course, you have like a $14 billion sort of backlog of orders, including from the Eve TechCare and Vector offerings. How are you continuing to engage with these customers? Because the flights are -- the commercial flights are not until 2027. What kind of -- what level of interaction do you have with them? Do you have feedback from them on design -- interior design and stuff like that? Johann Christian Jean Bordais: Yes. Thanks for this question, Johann speaking. This is the essence of how Eve is built on, is really based on workshop with our customers, that we have those workshops, whether it's on the HMI, like a human machine interface workshop that tells you how the pilots interact and what we need to have or whether it's all the [ conops ] that we've been doing since the very beginning, whether it's in Rio or Chicago or in London. This is really building together like what will be the Urban Air Mobility environment and type of operation and it shapes not only the vehicle, and this is why you can see over the last 5 years how the vehicle has evolved outside, but also inside. And with the cabin and those full flex cabin concept where you can -- in one day you can change -- within a couple of hours you can change your configuration, whether it's a full cargo or removing the first row, putting in the club configuration for the operation. So this is something that we've been doing since the very beginning, and that's what led us to have the 28 customers and the largest pre-order backlog because we bring not only the vehicle, but the whole solution, where there's the full suite strong from the Embraer heritage, where the 4,000 people that are around the world, the customers understand that we have the DNA and what it takes to support an operation, not only to certify and deliver the first airplane, but make sure that you guarantee a dispatch reliability rate or a [ schedule ] reliability rate, which is exactly what the customers want to make sure the asset is available and it has the most competitive operating cost. And this is the 2 pillars that we have. And the third one is eventually not at the beginning because we can start the operation with the existing infrastructure and airspace management system. But eventually, if we're going to be putting -- and we will be putting thousand, not only us, but the others putting thousands of those vehicles in the air, then we need to make sure that we have urban traffic management software adequate. And I think this is all this DNA that we're bringing, aviation DNA that really pushes the customer to elect Eve. Operator: And the next question comes from Andre Madrid with BTIG. Andre Madrid: When you think about scaling production moving forward, where might you anticipate the largest bottlenecks forming? Or I guess, maybe put more broadly, are there any risks that you see throughout your supply chain currently? Eduardo Couto: No, we believe the way we are going to be doing the manufacturing, right, the industrialization of the eVTOL, is going to be modular, right? We start with -- we're going to have basically 3 modules, right? The first one, 120 eVTOLs per year, 120, doing in the Brazilian factory. Then we can go from 120 to 240 just with an extra shift, right? The first one has 2 shifts. Together, the 240 will go to the third shift. Then we can double the 240 to 480 with some additional tooling and equipment. Nothing major for the 240, probably we're going to be investing around $100 million, for the 480, $150 million. So we have all of that method. The suppliers -- as Valentini mentioned, right, we have very good suppliers. They have production capabilities, a lot of production capabilities as well, and we keep them informed of our production plans. As we ramp up production, we believe suppliers will be ready also to ramp up their supply. So we're not envision any major challenge to get this 500 eVTOLs per year. Of course, to deploy all those eVTOLs in the markets and so on, we may need some local assembly. But in terms of the production of the eVTOL itself, we're confident on this initial 500 eVTOLs per year capability. Andre Madrid: Got it. Got it. I'll return now. Johann Christian Jean Bordais: Andre... Andre Madrid: Yes, go ahead. Johann Christian Jean Bordais: No, sorry, yes, I just want to [ compliment ] another aspect of the -- what we've done with our 22 primary suppliers is those contracts, it took us 1 year, but each of them, it's based on the strong experience of supply chain management the Embraer is bringing. And we know on the conventional aviation, I mean, it is a challenge that we got to cope with and that we've been really learning from. And all the contracts that were negotiated are lifetime agreement, right? Not only for the prototype, not only for the production, but also for the aftermarket. So given all this, we've taken the best breed of negotiation and learning from Embraer and then we've negotiated this contract where one example, I mean, it's not single source program, right? Those are conditions that we had with the suppliers, and it allows us also to derisk the ramp-up or the production, different flows that we can have. So -- and also another one that we've taken to the next level is also we are the face of the customer on the aftermarket. That's another angle just to make sure that we are in touch with our customers on a constant basis and guarantee what I told you from the suppliers and then it goes through us and then we support the customers on the dispatch availability or operating cost, right? So those are really advantages and a strong learning that we've had from the past that -- for someone from a company that's done it for 56 years. Operator: And the next question comes from Austin Moeller with Canaccord. Austin Moeller: So based on you said about Bahrain, is ANAC looking to form similar dual cert partnerships with -- for eVTOLs with other countries similar to the relationship that they have with the FAA once the means of compliance are published? Luiz Valentini: So Austin, the work we've done -- we're doing with Bahrain with respect to certification is very similar to how we're working with other authorities. So we've been trying to, as much as we can, work on the certification basis so that if we don't have a full harmonization, we have good alignment of the requirements. So that means from early on engaging with these authorities to understand their expectation in terms of the requirements for the vehicle and then developing the vehicle in a way that we will be able to show compliance with those requirements, right? So we start talking to these [indiscernible] following what we believe will be important markets for our eVTOL and then start building this alignment on the certification basis. That's something that Eve does. In parallel, as I mentioned earlier, we promote and we try to support as much as we can, a work that is done directly between authorities, so from ANAC to other authorities in the world, in bilateral agreements that they have within the authorities and also agreements that they have with respect to validation of type certificates, for example, right? So we support that. And we try to steer that, and we do that by giving information to the authorities -- is steer that to where we believe we should focus with respect to what markets are most important for our vehicles. So it's a very similar process to what we're doing with the Bahrain certification authority, is to connect with these authorities in the world, build early engagement and then also promote the connection between the authorities to, again, shorten the time that we have for validation once the TC from ANAC is issued. Austin Moeller: Great. And can we talk about what stage we're at on assembly for each of the conforming prototypes right now? And how close any of them might be to finishing assembly? Luiz Valentini: Yes. So for now, we are -- we're still on the definition of much of the design of these prototypes. There are some more long lead parts that are already being manufactured by the suppliers. So those have -- already have drawings released and are also already in production by the suppliers. We will receive -- start to receive those parts next year and then assemble the prototypes next year. So, so far, we are not assembling. We are still working with the manufacturing of the more long lead items and also designing the ones that are, let's say, shorter to manufacture which then we expect to start manufacturing next year. Operator: And this concludes our question-and-answer session. I would like to turn the conference to Lucio Aldworth for any closing comments. Lucio Aldworth: So we accomplished several important milestones this past quarter. We're fully engaged and moving fast, and there's much more to come. So we're going to continue updating you on our progress through the next few quarters, which will be very exciting, and we look forward to meeting you in the upcoming events we're going to attend. As always, if you have any questions, please don't hesitate to reach out to our team. Thanks, and have a good day. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Good morning, and welcome to the Third Quarter 2025 Results Presentation for Hillman Solutions Corp. My name is Tanya, and I'll be your conference call operator today. Before we begin, I would like to remind our listeners that today's presentation is being recorded and simultaneously webcast. The company's earnings release, presentation and 10-Q were issued this morning. These documents and a replay of today's presentation can be accessed on Hillman's Investor Relations website at ir.hillmangroup.com. I would now like to turn the call over to Michael Koehler with Hillman. Michael Koehler: Thank you, Tanya. Good morning, everyone, and thank you for joining us for Hillman's Third Quarter 2025 Results Presentation. I'm Michael Koehler, Vice President of Investor Relations and Treasury. Joining me on today's call are Hillman's President and Chief Executive Officer, Jon Michael Adinolfi, or JMA as we call him; and our Chief Financial Officer, Rocky Kraft. I would like to remind our audience that certain statements made today may be considered forward-looking and are subject to the safe harbor provisions of applicable securities laws. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions and other factors, many of which are beyond the company's control and may cause actual results to differ materially from those projected in such statements. Some of the factors that could influence our results are contained in our periodic and annual reports filed with the SEC. For more information regarding these risks and uncertainties, please see Slide 2 in our earnings call slide presentation, which is available on our website. In addition, on today's call, we will refer to certain non-GAAP financial measures. Information regarding our use of and reconciliations of these measures to our GAAP results are available in our earnings call slide presentation. JMA will begin today's call by providing some commentary on our record third quarter results, briefly hit on our guidance and discuss our performance by business segment. Rocky will then give a more detailed walk through our financial results and guidance before turning the call back over to JMA for some closing comments. Then we will open up the call for your questions. It's now my pleasure to turn the call over to our President and CEO, Jon Michael Adinolfi. JMA? Jon Adinolfi: Thanks, Michael. Good morning, everyone, and thank you for joining us. The third quarter of 2025 was a record quarter for Hillman. We recognized the highest net sales and adjusted EBITDA of any quarter in our company's 61-year history. Net sales for the quarter increased 8%. Adjusted EBITDA increased 36% and our leverage improved to 2.5x versus 2.7x a quarter ago. These outstanding results were driven by our team's commitment to taking great care of our customers, successfully navigating the current tariff environment and operating efficiently across our global supply chain. I'm especially proud of this team because we accomplished these great results despite market volume headwinds and tariff volatility. Our results for the year-to-date period have been strong. We are positioned well to build off this strength and expect to see continued growth for the remainder of 2025 and for 2026. For the first time in a long time, we are encouraged with some of the leading macro indicators. For example, 30-year mortgages are down 50 basis points lower since last quarter. We are hopeful that lower rates, coupled with the elevated level of existing homes currently for sale will help drive existing home sales in the near future. Based on our performance so far this year and our expectations for the rest of the year, we are reiterating our full year 2025 net sales guidance and increasing the midpoint of our full year 2025 adjusted EBITDA guidance. We maintain our expectation that our full year 2025 net sales will be between $1.535 billion to $1.575 billion, with a midpoint of $1.555 billion. The low end of our net sales guidance represents 4% growth over 2024 and the high end of our guidance represents 7% growth over 2024. As for our bottom line, we are increasing the low end of our guidance and now expect full year 2025 adjusted EBITDA to be between $270 million to $275 million with a midpoint of $272.5 million. The low end of our 2025 adjusted EBITDA guidance represents 12.7% growth over 2024 and the high end of our guidance represents 14% growth over last year. These numbers are very consistent with our long-term algorithm and as we have said many times, we get there many different ways, but this business delivers in just about any environment. Since our founding in 1964, Hillman has built a long and consistent track record. Over the decades, we have proven our ability to perform through every kind of economic cycle from periods of expansion to times of uncertainty. The durability of our business model comes from the essential nature of our products. Our 112,000 SKUs are generally tied to everyday repair, maintenance and home improvement projects. These projects need to be done during good times and difficult times. As a result, we have delivered steady, resilient performance for more than 60 years. Many would argue that the last 3 years have been a difficult market in our space with existing home sales hovering around $4 million annually. This is about 20% below the 10-year average of over 5 million single-family existing homes sold in the U.S. How has Hillman performed during this time? Compared to where we were just 3 years ago, we have increased our trailing 12-month adjusted EBITDA at a 10% CAGR, totaling over $70 million, paid down over $240 million of debt while reducing our leverage over 2 full turns and successfully executed and integrated 2 acquisitions. These outstanding results demonstrate the resilience of Hillman's model and the ability of this team to execute well in any environment. You've heard us say that we are a good business when things are good and a surprisingly good business when things have been challenging. The last 3 years have proved this. Hillman is a great company with a long track record of success. We have an experienced team that has been battle tested, great relations with our customers who are the best in the business at what they do and a world-class distribution network. We believe when the market turns, we will be positioned for outsized growth at both the top and bottom line. Our growth and performance have been powered by our competitive moat and the long-term customer relationships that are unmatched in our space. The Hillman moat includes our secret sauce of 1,200 dedicated sales and service reps working directly in our customer stores, our best-in-class direct-to-store delivery capabilities, category management expertise and retail partnerships that are embedded and strategic. These make Hillman an indispensable partner to our customers. To date, we have successfully managed the current tariff environment, which continues to evolve. Thanks to our team's hard work, we have fully covered the increased costs associated with higher tariffs. We continue to execute our dual faucet strategy where we buy products from multiple suppliers in multiple countries. At the end of the quarter, we held our annual supplier conference in Vietnam. Our sourcing team and I met with many of our top suppliers. This annual event serves as an important in-person touch point to strengthen relationships with our supplier partners, which is especially important given the environment. Meeting face-to-face offers our long-term and new supplier partners a fresh view of Hillman's near-term objectives and how we can work together to achieve our long-term goals. As we have seen throughout this year, changes in tariff policy can shift the market rapidly. The flexible supply chain we have built allows us to react to these changes so that we can always deliver high-quality products to our customers at the best value. Managing tariffs has been a big effort for our team, but we have not lost focus on taking great care of our customers, winning new business and consistently striving to make our operations more efficient. We continue to deliver orders on time and in full to our customers, which have been demonstrated by excellent fill rates, which have been above 95% this year. Now let's turn to results for our quarter. Net sales in the third quarter of 2025 totaled $424.9 million, which increased 8% versus the third quarter of last year. Driving our robust top line was a 10-point increase from price, 2 points from Intex, which we acquired during August of 2024 and 2 points from new business wins. These were partially offset by a 6-point headwind from market volumes, which was consistent with our expectations. For the quarter, adjusted EBITDA increased 36% to $88 million compared to $64.8 million last year. Adjusted EBITDA margins improved by 420 basis points to 20.7%. Adjusted gross margin for the quarter totaled 51.7%. This marks a 350 basis point improvement from 48.2% during the third -- the year ago quarter and a 340 basis point improvement from 48.3% last quarter. Driving our year-over-year sequential margin performance were both improved contributions from RDS and benefit from price cost timing. Our biggest segment, Hardware and Protective Solutions or HPS, had a great quarter with 10% growth versus the comparable period. Adjusted EBITDA increased by 57.3% to $65.8 million. Our results were driven by contributions from Intex, new business wins and price cost, partially offset by a 5.5% decline in HPS market volume. Net sales in Robotics and Digital Solutions, or RDS, were up 3.3% versus the year ago quarter. This is our third consecutive growth quarter for RDS and again illustrated the successful rollout of our Mini Key 3.5 strategy. Adjusted gross margins and adjusted EBITDA margins were both near their historic norms, totaling 74.2% and 31.4%, respectively. As of today, we have over 3,000 Mini Key 3.5 machines in the field, an increase of over 800 during the last 3 months. We remain on track to finalize the rollout of these kiosks to our 2 largest customers by the end of 2026. Turning to Canada. Net sales in our Canadian business were nearly flat, down just 0.2% compared to the prior year quarter. New business wins were partially offset by another quarter of soft market volumes and FX remained a headwind. We continue to expect that adjusted EBITDA margins will remain above 10% in Canada. Overall, this was a great quarter. Hillman's disciplined operations, strong execution and healthy customer relationships position us to continue delivering consistent results in this or just about any environment. With that, let me turn it over to Rocky to talk financials and guidance. Rocky? Robert Kraft: Thanks, JMA. Let's get right to our results, then we'll review our guidance. Net sales in the third quarter of 2025 totaled $424.9 million, an increase of 8% versus the prior year quarter. Our top line results were a record for Hillman, marking the highest net sales of any quarter in our 61-year history. Third quarter adjusted gross margin increased by 350 basis points to 51.7% versus the prior year quarter and improved 340 basis points sequentially. Adjusted SG&A as a percentage of sales decreased to 31% during the quarter from 32% in the year ago quarter. Adjusted EBITDA in the third quarter totaled $88 million, improving 36% versus the year ago quarter. This also marked the highest adjusted EBITDA of any quarter in our 61-year history. Recall that last year, we revised our presentation of adjusted EBITDA to include a $7.8 million write-off of receivables from True Value during Q3. Even excluding the revision, adjusted EBITDA still increased over 21%. Adjusted EBITDA to net sales margin during the quarter improved by 420 basis points to 20.7%. We saw price increases read through our income statement throughout the quarter, while tariffs began to burden our cost of goods sold toward the end of the quarter. This price cost dynamic -- timing dynamic drove record results for Hillman and should begin to normalize next quarter. Now let me spend a minute on cash flows. For the quarter, net cash provided by operating activities was $26.2 million and we generated $9.1 million of free cash flow. Impacting our free cash flow for the quarter was about $30 million of tariff-related costs. At the end of the third quarter, we had about $60 million of new tariffs in our inventory. Turning to leverage and liquidity. We ended the third quarter of 2025 with $672 million of total net debt outstanding, which was [Technical Difficulty] by $3 million from the end of the second quarter. Liquidity available totaled $277 million, consisting of $239 million of availability on our credit facility and $38 million of cash and cash equivalents. At the quarter end, our net debt to trailing 12-month adjusted EBITDA ratio improved to 2.5x versus 2.7x a quarter ago and 2.8x at the end of 2024. We have now reached our long-term adjusted EBITDA to net leverage ratio target, which is at or below 2.5x. We will continue to pay down debt while we evaluate M&A opportunities and use our improved financial strength to play offense. As we announced last quarter, our Board approved a $100 million share repurchase program. This marks the first time Hillman has an active SRP in place since coming public in 2021. During the third quarter of 2025, we deployed $3.2 million to buy back 326,000 shares at an average price of $9.72 per share. We continue to be in the market buying stock. Our SRP activity during Q3 and since falls in line with our anticipated $20 million to $25 million annual spend buying back stock. Our objective here is to offset any dilution caused by employee equity grants and opportunistically buy stock should we feel there is a meaningful discount between the value of Hillman and where our stock is trading. We believe these repurchases will be accretive to earnings per share, drive shareholder value and are an attractive place to deploy capital. Now to our guidance. We are reiterating our top line guidance of $1.535 billion to $1.575 billion, with a midpoint of $1.555 billion, reflecting 5.6% growth over last year. For the full year, the growth at the midpoint of our guide is driven by about 6 points of price, 3 points from Intex and 2 points from new business wins, which are partially offset by a 6-point headwind from market volumes. For the second half of the year, we anticipate about 11 points of price, 1 point from Intex and 2 points from new business wins, which are partially offset by a 7-point headwind from market volumes. For the bottom line, we are increasing the low end of our adjusted EBITDA guidance by $5 million. This raises the midpoint as the top end remains unchanged. Our increased adjusted EBITDA guidance is now between $270 million and $275 million, with the midpoint of $272.5 million, reflecting 12.7% growth over last year and a $2.5 million increase from our previous guide. Our expectation remains that we will end the year around 2.4x leverage. As we discussed, the price cost timing dynamic drove record results for Hillman during the third quarter. Now during the fourth quarter, we will see price increases fully reflected while tariffs burden our cost of goods sold. The result of this will be a step down in adjusted gross margin rate, which will look similar to our gross margins during the second quarter of this year. Before I turn it back to JMA, I want to thank the whole team for delivering such a strong quarter with solid growth on both the top and bottom line. We are confident we can keep this momentum going through 2026 by staying disciplined and focused on our key priorities. That said, with flat market volumes, we expect full year 2026 net sales to grow in the high single to low double digits. The increase will be driven by rollover price and new business wins. However, the price cost timing dynamic we are benefiting from now presents a difficult margin comp next year. Further, we expect adjusted EBITDA to grow next year in the low to mid-single digit range, assuming no change to the current tariff environment. We will give our detailed full year 2026 guidance during our Q4 earnings call next February. The numbers I just provided are directional as we are not predicting what market volumes will be next year at this time. Hillman is in a great position to build on this success, continue growing with our customers and drive long-term value for our shareholders through the rest of this year and beyond. JMA, back to you. Jon Adinolfi: Thanks, Rocky. We are pleased with our results so far this year and are very excited about the future. We continue to work on ways to grow our business within our 4 walls of our existing customers and beyond. Before we wrap up, I want to once again thank the entire Hillman team for an outstanding quarter. Your hard work and commitment continue to drive great results, strong growth, solid execution and momentum. As we look ahead, we're confident in our ability to keep the momentum going. We're focused, disciplined and aligned around the correct priorities, growing with our customers, strengthening our partnerships and creating long-lasting value for our shareholders. Hillman is in a great position and the opportunities in front of us are exciting. I'm incredibly proud of what this team has accomplished so far this year and even more excited about what's ahead. With that, I'll turn it back to the operator for the Q&A portion of the call. Tanya, please open the call for questions. Operator: [Operator Instructions] And our first question will come from Lee Jagoda of CJS Securities. Peter Lucas: It's Pete Lucas for Lee. I guess starting out, have you seen any competitive opportunities or pressures as a result of other suppliers to your customers and their actions around willingness or ability to import product that could be changing the competitive landscape out there? Jon Adinolfi: I mean, from what we're seeing right now, we actually have quite a few different business opportunities that we're quoting on. We're excited about our new business opportunities that will cascade into 2026. So yes, we do see opportunities in the market where we've seen some competitors that have seen some challenges operating in this environment. So yes, we're excited about 2026 and what's ahead of us. Peter Lucas: That's great. And in terms of -- what have you seen in terms of order patterns from your largest retail customers in the last month or 2 compared to sell-through? Jon Adinolfi: They've been very consistent. We've got great relationship with our retail partners. They're running solid businesses right now. And I think all of us are excited about the next run that will be in front of us. So we haven't seen anything out of the ordinary. Peter Lucas: Great. And then just last one for me. On the -- I know you touched on it and we'll hear more about '26 later, but on the last call, you did give us a preview in terms of what kind of growth you might expect to see in '26. Given today's results and the guidance, what, if anything, has changed for your '26 view? Robert Kraft: This is Rocky. Pete, absolutely nothing. I mean, we reiterated the same view that we had before. If you assume -- and again, we're not yet predicting what we think the markets will do in 2026. But if you assume those markets are flat, we believe the top line will be up high single to low double digits and that's primarily driven by rollover price and new business wins and that gives us a lot of confidence in that number. And then when you think about how that reflects down the P&L into EBITDA, that read should be kind of low single to mid-single digits on the EBITDA line. And the reason that we don't leverage in '26 like we normally do in the business is because of the kind of windfall we have for a short period of time in 2025 around tariffs. Operator: And our next question will be coming from Andrew Carter of Stifel. W. Andrew Carter: I want to focus on the Hardware Solutions segment. Price was up 12.5%, volume down 33. Is that kind of a real-time elasticity number? Or were there any helpers to the volume? I think the new business wins were isolated to Protective Solutions. It's -- I think hardware is about as real time as you get with your retailers in terms of sales. But are there any pockets where retailers can take a little extra inventory or whatever? So I'll stop there. Robert Kraft: Yes, I would say, Andrew, the short answer is yes. I mean -- but it depends. I mean, listen, we sell to a lot of different customers, we sell a lot of different products. And so every product and every customer behaves a little differently. If you think about the retail channel that we sell into, clearly, in a period of rising prices, a local hardware store is probably going to buy less inventory in the first turn of that until they see their price read through. When you think about folks, the big guys, we don't send a lot of product through their distribution centers, we go store direct. And so because of that, the ability to take inventory out of the channel is muted, but that doesn't mean there is not an ability to say that our big customers couldn't at times take some inventory out of the channel in a period of increasing prices would be naive. They can. That said, again, compared to someone who's living through a customer's distribution channel or through their DCs, obviously, there's a lot less impact on a business like ours because we're going store direct. So that was a long-winded way for me to say, yes, as prices are rising, there's clearly an impact with our customers around price. As we look at POS, JMA, I mean, October felt okay and the third quarter felt okay. I would say better than it's felt for a while and there's some green shoots, but we're still cautiously optimistic. When -- the one thing we would continue to believe, Andrew, is that we have positioned this business really well for when the market turns and we see housing return. I think when housing returns because of how well we're operating the business, we're positioned to take advantage of that. Jon Adinolfi: Rocky framed it up well. I mean, you think about the repair and maintenance side of our business, very consistent. We see some good trends. And so we see some good things setting up for 2026 and beyond. We're not changing our outlook. But Andrew, we were pleased with how the business performed in Q3. W. Andrew Carter: A second question I would ask about kind of the tariff number. If you said in the script, I apologize, the $150 million. Is that still a good number even with some favorable changes? And from here, if we get favorability here and there, how is that going to work in kind of the pricing with retailers as well as kind of the potential implications to your P&L? Are there -- will you see favorability immediately? Will you have to wait, et cetera? Robert Kraft: Yes, I think we've not come off that -- it's approximately $150 million of total tariff in the business, Andrew. It's interesting because even last week, we saw a 10% reduction in reciprocal as an example, out of China. That said, there were a lot of things that moved in the quarter. And so we're still around that same number. To your second question around timing, to the extent there is a benefit or there are costs, it does take time to run through our inventory. And so we are delayed in whether we see the benefit or the, call it, the bad guy from the timing of tariffs. Jon Adinolfi: Rocky, that's exactly right. So for us, we're running the business, we're always going to put the right products in front of our customers from the country of origin where it makes the most sense. We're going to have the highest quality and make sure that our supply chain stays robust. So Andrew, no macro change with what you just mentioned. And candidly, there were a number of other changes, plus and minuses in tariffs over the past quarter. We don't spike those out separately. Operator: And our next question will be coming from Reuben Garner of Benchmark. Reuben Garner: So Rocky, those second half volume numbers, I think you said market down 7%. Are you -- do you think that the elevated price from the tariffs is driving that? Is it just broadly consumer activity? Like I don't know if you can tell, but I know you didn't raise price necessarily on every product the same, but can you tell how much the price is having an impact on the actual demand in your space? Robert Kraft: Yes. It is virtually impossible to figure out what's driving consumer impact, whether it's price increase or whether it's whatever other thing that's happening in the external environment. We do look at POS, we look at customer trends, but figuring out what is directly related is very difficult. The 7% is the implied number at the midpoint of our guide. I think everyone will remember the implied number in our guide in the third quarter was down about 9% in volumes. We did a little better than that. And our commentary around that was what we told people. It is really hard to predict what's going to happen to market volumes. We were confident that the amount of price that was going into the market that they wouldn't be down 2, it will be bigger than that. And we're relatively confident it would be less than 9% and we ended the third quarter kind of right in the middle of those numbers. I think as we go into the fourth quarter, we're cautiously optimistic that market volumes may be a little better than the guide, but we were down 6% in the third quarter and you think about going into the fourth quarter, could be other macro factors like even think about Christmas spending and things like that, it's probably a good number and will be in the ballpark. Reuben Garner: Got it. And then the sequential improvement in gross margin, you mentioned RDS. Can you talk to us about how much of that improvement was from RDS versus the price cost? And then I guess, what exactly is driving the pickup in the RDS profitability? Robert Kraft: Yes, I mean, the largest percentage of the increase was driven by what happened with price cost. When you think about RDS, that number was up, it was up about, call it, 100 basis points in the quarter. The RDS pickup is really driven by the 3.5 rollout and what's happening there and the profitability of that business. So we feel really good about RDS, the fact that we've grown it 3 quarters in a row and we continue to execute on our 3.5 strategy. But again, the biggest driver of margin improvement in the quarter was the price cost dynamic. And as we said in the prepared remarks, we expect that to come back in the fourth quarter and we would expect the fourth quarter gross margins to look a lot like what we saw in the second quarter of this year. Operator: And our next question will be coming from Matthew Bouley of Barclays. Elaine Ku: You have Elaine Ku on for Matt. I wanted to touch on pricing a little bit. So you've kind of pointed to expectations of price cost neutrality in the face of tariffs. But sort of this quarter, we've seen a sense of price fatigue where some of your peers have kind of not seen that full anticipated price realization. So just wondering, like are you experiencing any similar signs of a bit more elasticity or pushback on price than expected? Or is that price kind of coming through largely according to your expectations? And just what has feedback been on just receptiveness of increases or negotiations, just anything around that? Robert Kraft: Yes. It's Rocky. I'll answer the beginning of the conversation, then I'll let JMA comment on relationship with customers. I think -- it's interesting because I would tell you, it kind of went as expected with lots of twists and turns because as you can imagine, the tariff regime has changed so many times. That said, we had always told everyone that we expected price even before tariffs to be flat during the current year, but a bit of a headwind in the front half. That implied that we would take some price for inflation and we did take some price for inflation in certain channels on certain products where it was necessary. So I think as you think about that, price, in my opinion and in the company's opinion, has played out about as expected. It hasn't been easy, but our customers have -- understand. They live in the same world we live in and so have been fair, I would say, relative to how price has rolled out. And JMA, do you want... Jon Adinolfi: Yes, Rocky. I mean, that's exactly right. I mean the customer conversations have been challenging, but they've been balanced, right? They want the same thing that we want. We want to make sure they continue to flow the supply chain right. They will need high levels of service. They want to make sure their customers are taken care of. And that's why we're doing things with our customers now. We're resetting more in this year and 2025 than we really have in record, if you will. So we're going to continue to make investments in our business. We're going to continue to keep the product flowing because we really are still excited. I won't call when it's going to happen, but when it does, we believe the home improvement market is set up for a great run. So we're excited about where we are. The conversations around price are certainly challenging, but our customers and we are aligned that we want to take care of the end user. Elaine Ku: Great. And second to that, I guess, you had mentioned October felt okay and you're seeing some green shoots. So could you kind of elaborate more on what those green shoots are? And similar to Pete's question earlier, are you seeing any incremental new business wins just given today's market backdrop or opportunity there? Jon Adinolfi: Yes. So I mean, on the market, October was slightly better than what we saw in Q3. I'm not going to go into any specifics on each retailer, if you will. But Elaine, we've seen some certain categories that are what we deem to be non-elastic, if you will, actually doing decently. So just given the complexity of this call, you can understand I won't go any deeper there. We really think the setup as we move forward and kind of where Pete was going, we really feel like the new business wins that we have, we talked about [ ACE ], we talked about our chain win that we had there that's rolled out nicely in 2025 is just an example of things that we're doing. Our teams have a number of big projects in motion right now. We're going to report them out as we realize them versus getting ahead and talking about what we want to win. But we have some exciting opportunities in the hopper and we'll have more to come in future quarters. Operator: [Operator instructions] Our next question will come from David Manthey of Baird. David Manthey: First off, thanks for the 2026 outlook. I guess, did you say that that revenue outlook of high single, low double on the top line is in a flattish market? Is that correct? Robert Kraft: Yes. That is, Dave. What we keep trying to say and we're going to keep trying to say it is that assumes a flat market. At this point, sitting on November 4 to predict next year's market is tough. And so we'll let people make their own estimates. But in a flat market, that's the expectation we have. David Manthey: Got it. And then, yes, it looks like EBITDA, it probably builds more cleanly from '24 than '25, but seems to be right based on what you told us. So thank you for giving us that framework at least. In the quarter itself, could you just talk about -- I mean, there's a lot of variability relative to us, relative to the Street in the third quarter, the fourth quarter, but netting it all out, it looks like it pretty well hit the mark. The high gross margin was expected in the third quarter. Could you talk about why SG&A was also so elevated in the third quarter? Robert Kraft: Yes, Dave, the biggest impact, quite frankly, on the SG&A in the third quarter is the way our bonus accrual works. And so there was a pretty significant bonus accrual relative to the rest of the quarter. And so I think if you took that out, you would see that number be pretty consistent with what we've seen in the other quarters of the year. David Manthey: And so was that some sort of catch-up that you had to smooth it out relative to the first 3 quarters and then it will be normal in the fourth? Is that right? Robert Kraft: That's correct. David Manthey: Yes. Okay. And then when you think about the third quarter and the fourth quarter, again, given the wild variability relative to our own estimates to the Street, what for you came in differently than how you were thinking about things, if at all? When you look at the third quarter and then sort of what you're guiding for the fourth, is there anything in there that you say, well, this is a little bit more, a little bit less than we were originally anticipating midyear? Robert Kraft: Yes. I would say, Dave, as we look back on what we said last quarter, I think it was pretty consistent with our expectations in both the third and what we're seeing in the fourth quarter. So I don't think there was anything really that surprised us. We expected the profitability. We expected the margin rate to increase about 300 basis points. It might have been a little bit better than that, but pretty much in line with our own expectations. I think the team did a really good job of performing again in really tough -- a really tough environment when you think about what's happening macro with tariffs and those conversations with our customers. I think the other thing that I think we're really proud of is we had 2% new business wins in the quarter in spite of all of the noise around tariffs. Again, great job when you think about what our sales team is doing and it really speaks volumes about how much our customers value and trust us when we're able to go out and win new business when we're asking for price at the same time. Jon Adinolfi: Yes. And I think in addition to the sales team doing a great job, our operations team is world-class. We're very proud of what they've done. They've really run the business well. Q3 was an excellent quarter, very efficient. We had a lot of moving pieces and the team was able to execute. So yes, there's a little bit higher cost, as Rocky mentioned. We did do things like labeling on the field. There was a lot of activity in Q3. So we feel like Q3 is set up and we also feel like, Dave, Q4 is on target with what we expected. Operator: And our last question will be coming from Brian McNamara of Canaccord Genuity. Brian McNamara: So Rocky, I just want to clarify the cadence. In May, I think your projection for market volumes and pricing was plus 17, minus 17. Then in August, it was plus 12, minus 9 for H2. And then now it's plus 11, minus 7. Is that correct? Robert Kraft: I think that's -- I think those were quick the way you said that, Brian. But yes, I think it's correct. The only thing I would say when you say those numbers, again, back to the minus 17, that was when there was a $250 million tariff regime. And in that environment, we weren't changing any of our guidance. Brian McNamara: Understood. Understood. I'm curious on the timing of when these price increases hit the shelves, understanding, obviously, it probably varies by retailers. As our work suggests it's kind of late August, early September? Robert Kraft: Yes. I mean, you're spot on. I mean, if you think about traditional hardware, labels are put on throughout the back half of the year. So yes, you didn't see all that price really reading in till Q3, into Q4. And then each of the other retailers, they maintain their own pricing and they drive the retail strategies that they see fit. So you've seen it cascade in throughout the quarter and we expected it to cascade in the fourth quarter as well. Brian McNamara: Got it. And then has there been any pushback on these significant price increases either on the retailer level or the customers within the stores? And I'm curious your thoughts on -- I mean, lumber has been a pretty volatile commodity this year. There's a lot been written in the quarter, obviously, about it was dropping in price. It was up year-to-date. I'm just curious, like how is the price of lumber and maybe other construction materials either directly or indirectly impacted your business? Robert Kraft: Yes. I mean, just go back to here. I mean, customers have been balanced and reasonable. They understand this is a tax and we have to run a business. So I won't say they've been easy, but they've also been fair. We have -- we do business with some of the best retailers in the world as you know and I think that's been reasonable. As far as the impact of lumber, I think from my perspective, this is one man's opinion. I think what you see is we're still seeing the smaller projects are still going forward. People do the repair and the maintenance type activities because they have to take care of that good times are bad. Brian, what we are seeing though is -- and I think this is consistent, I'm not going to quote the retailers, but the larger projects is where you're seeing some pushback. So where we would have had some drywall screws or some structural screws go along with the project and where lumber might be impacting that, that is where I would say that there has been less of the demand than we'd like to see. And that's where we believe the interest rates as well as getting things settled down from a tariff perspective will help in '26 and again, why we're excited about the future. So yes, I think the input prices on bigger ticket items is a pressure point in my opinion. Brian McNamara: Great. And then just if I could squeeze one last one on M&A. Obviously, a big part of your story historically, I'm assuming there's been a pause given tariffs and the like. When do you see that maybe starting to open up a little bit, just given we probably have a little more clarity on tariffs today than we have in acknowledging it changes daily with tweets? Robert Kraft: Yes. Well, I won't comment on that aspect. But back to the M&A piece of it, Brian, we are seeing -- our team is actually getting more inbound now than we saw last quarter or the quarter before that. So actually, we're starting to see some interesting activity. So I'd say the activity and the interest level is ticking up a bit. We're excited about continuing our strategy, which is to drive tuck-ins whether it's we focus on our core business or what we're doing to grow DIY and specifically also we're interested in the Pro. As you know, it's 25% of our business. We're going to look at deals that make sense in all those 3 areas. So we're excited about what M&A will present for opportunities as we move forward. Operator: And this concludes the Q&A portion of today's call. I would now like to turn the call back to Mr. Adinolfi for closing remarks. Jon Adinolfi: Thanks again, everyone, for joining us this morning. We look forward to updating you on our progress soon. Thanks, and have a great day. Take care. Operator: You may now disconnect.
Operator: Good day, and welcome to ONE Gas Third Quarter Earnings Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Erin Dailey. Please go ahead, Ms. Dailey. Erin Dailey: Thank you, Elliot. Good morning, and thank you for joining us on our third quarter 2025 earnings conference call. This call is being webcast live, and a replay will be available later today. After our prepared remarks, we're happy to take your questions. Statements made during this call that might include ONE Gas expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities and Exchange Act of 1934, each as amended. Actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings. Joining me on the call this morning are Sid McAnnally, President and Chief Executive Officer; Chris Sighinolfi, Senior Vice President and Chief Financial Officer; and Curtis Dinan, Senior Vice President and Chief Operating Officer. And now I'll turn the call over to Sid. Robert McAnnally: Good morning. We appreciate your interest in ONE Gas and are pleased to be with you to share highlights and key developments from our third quarter. In August, we raised our full year guidance on strong year-to-date financial performance and the expected impact of Texas House Bill 4384. Based on third quarter results and confidence in our outlook for the rest of the year, we've also tightened our 2025 earnings forecast. We now expect earnings per share to be between $4.34 and $4.40. Our 3 states serve as a cornerstone of the nation's energy supply, producing over 1/3 of U.S. natural gas. The states we serve are committed to economic growth and actively encourage the use of natural gas for both residential and commercial applications. This strong foundation is fueling continued momentum from both our core residential base and high-growth sectors like data centers, advanced manufacturing and utility scale power generation. We are fully leveraging these opportunities to support growth and invest in our system, all while keeping our commitment to customer affordability. One example of our forward-thinking approach to serve this growing customer demand is the Austin System Reinforcement project, which we completed in the third quarter. This project boosts our available winter peak capacity by approximately 25% and provides increased access to natural gas indexed at the Waha hub, which typically trades at a discount to other sources of supply for the Austin metro area. As a result, our customers benefit from enhanced reliability during peak demand periods and improved affordability as we are able to pass on savings from lower cost supply sources. This landmark capital investment, the largest by far in ONE Gas history was delivered ahead of schedule, under budget and without any lost time injuries, underscoring our ability to efficiently execute major projects. As we meet the needs of our residential and commercial customers today, we are confidently pursuing growth opportunities. Now I'll turn the call over to Chris for the quarter's financial details. Chris? Christopher Sighinolfi: Thanks, Sid, and good morning, everyone. As Sid noted, we are narrowing our 2025 earnings forecast. We now expect net income to range between $262 million and $266 million, with earnings per diluted share projected between $4.34 and $4.40. There was no change to the respective midpoints of our net income and earnings per share guidance, which, as we discussed during our second quarter call, are above the levels we initially guided. We continue to project capital expenditures of approximately $750 million for the year. Turning to our third quarter financial results. Net income was $26.5 million or $0.44 per diluted share compared with $19.3 million or $0.34 in the same period last year. Third quarter revenues reflect an increase of approximately $19.2 million from new rates and $1.4 million from continued customer growth. Third quarter operating and maintenance expenses increased approximately 4.9% year-over-year, consistent with our guidance and primarily reflecting higher labor costs and a decision to execute certain O&M activities earlier than initially planned. Excluding interest related to KGSS-I securitized bonds, interest expense net decreased $3.4 million year-over-year in the third quarter, primarily due to lower rates on commercial paper borrowings. In August, we issued long-term debt in the form of a $250 million term loan that will mature in 2026. Our next maturity after this is not until 2029. As I mentioned during last quarter's call, we have fully satisfied our 2025 equity needs and covered a portion of 2026 through existing forwards, which in total represent approximately 40% of our planned 5-year equity need. For added clarity, we plan to settle roughly $200 million of forward shares in December and defer approximately $25 million for year-end 2026 settlement. Our balance sheet remains strong with an adjusted CFO to debt ratio projected to be around 19%, which is at the upper end of the range for our current credit ratings. In addition, last week, we enhanced our liquidity by increasing the size of our revolving credit facility to $1.5 billion and extending the facility's maturity to October of 2030. Yesterday, our Board declared a quarterly dividend of $0.67 per share, unchanged from the prior quarter. Curtis, I'll turn things over to you. Curtis Dinan: Thank you, Chris, and good morning, everyone. On the regulatory front, we completed all 2025 interim filings, including September's approval of a $3.2 million GRIP filing for the Rio Grande Valley service area. As we have noted previously, Texas Gas Service filed a rate case requesting a $41.1 million increase and proposing to consolidate our 3 service areas into a single jurisdiction. The case remains on track with the procedural schedule and a final decision is expected to be effective during the first quarter of 2026. Turning to operations. We continue to invest in our workforce for the long-term success of our business. Alongside our efforts to bring line locating resources in-house, we are also planning to do the same with our Watch and Protect program. While onboarding and training new employees temporarily increases costs, the long-term benefits are clear. Our teams operate more efficiently, deliver strong performance, create a pipeline of future talent and reduce our reliance on external contractors. In-sourcing line locating has delivered significant operational improvements as total excavation damages have decreased by 13% year-over-year, even though we've seen an 8% increase in ticket volumes. Capital execution remains strong. We have completed approximately $575 million in capital projects through the third quarter, keeping us on pace to deliver our $750 million full year budget. This included the Austin system reinforcement project, which represents our most significant project to date. This pipeline installation was technically challenging, requiring 3 complicated riverbores while working in a busy metro area. Ultimately, we installed approximately 50,000 feet of pipe, introducing a new source of supply and expanding system capacity to support system reliability and to meet growing demand in the Austin area. Delivering this large and complicated project ahead of schedule and under budget demonstrates our ability to effectively execute the many utility scale generation, advanced manufacturing and data center opportunities that are moving forward across our 3 states. For many of these large-scale projects, partnering with us as the -- utility is a natural fit. Our proximity to major natural gas production and existing pipeline infrastructure allows us to provide fast, cost-effective service whether through new connections, short line extensions or system upgrades. We are able to serve these customers under our fully regulated framework and in most cases, with only modest increases to our forecasted capital budgets, all while keeping natural gas service affordable for our residential customers. To provide greater clarity on these opportunities, we are working across all 3 of our states on significant utility scale power generation projects, approximating 1.5 gigawatts of capacity. Customers are now progressing through the mid- to late stages of their investment decisions, and we are ready to execute these projects as they advance. Other examples include providing natural gas to a 200-megawatt fabrication plant and data center and a project we announced earlier this year that supplies natural gas for on-site power generation and receives renewable natural gas from the customer's facility. Our approach to these opportunities is deliberate, prioritizing projects that enhance our system, position us for additional growth opportunities and provide benefits for all customers. We will provide more details once final agreements are in place. With that, I'll turn it back to Sid. Robert McAnnally: Thank you, Curtis. As we pursue these new large-scale projects that will support our region's economy, we remain committed to our current customers, providing them with safe, reliable and affordable natural gas to keep their homes warm and their businesses running. With winter approaching, I want to thank all of our coworkers whose dedication allows us to deliver comfort and value to our 2.3 million customers. I'm proud to work alongside each of them. Operator, we're now ready for questions. Operator: [Operator Instructions] first question comes from Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Maybe just to start at the highest level here. I mean, how are you thinking about the long-term 4% to 6% here given both, obviously, the tailwind of the legislation as well as some of these recent Fed cuts? And maybe, Chris, specifically, I'd love to get your thoughts about what's reflected in guidance and especially what this means for forward-looking views given the latest Fed actions here. Christopher Sighinolfi: Yes. Thanks, Julien. Maybe I'll take those in reverse order. If you think about interest rates and just a reminder, we utilize commercial paper to finance the initial investments we make in rate base before they're included in regulatory outcomes and formally in rate base and to underwrite our investments in gas and storage above recovered amounts. And on average throughout the year, that at present sizing is about $800 million of carried CP. If you go back a couple of years ago, we had outlined -- when the Fed policy rate was at 5.5% and our CP rate was 5.6% to 5.7%. We had outlined a model in our financial forecast of 10, 25 basis rate cuts by the end of 2027. We have achieved with the Fed cut last week 6 of those 10 cuts. They each came earlier than we had expected them to. And that 10 cut in total got down to a rate that we saw as normalized against what the Federal Reserve stipulates its own normalized policy rate to be. So we still expect 4 additional cuts over the next couple of years, in line with the Fed's forecast of normalization. If you think about order of magnitude, at $800 million of average CP and our tax rate, every 25 basis point cut, if true for the full year is about $0.025 of EPS pickup. So we -- our plan did contemplate a normalization in monetary conditions. We've seen that. We've seen that come faster than we initially expected it to, and we do fully expect more to come. If you think about the 4% to 6% EPS guidance range and note that this year, we talked about being at the high end of that range. In the wake of strong year-to-date performance and then the signing of the Texas House bill in June, we had updated our forecast in September's Investor Relations deck to note that we would be above the high end of that range with the impact of those items. So that's as much as I think we'll say now. A reminder, we will have a refreshed 5-year outlook and a more specific 2026 outlook on our normal cadence ahead of Utility Week in December. Julien Dumoulin-Smith: Totally Excellent. If I can follow that up, and I don't mean to nitpick too much, but any color on the tightening of the '25 guidance range? Just you took $0.02 off the top. Like I don't mean to nitpick, but curious to juxtapose that against the comments you just provided a second ago. Christopher Sighinolfi: If you note in my prepared remarks, Julien, it's a good question. I noted that some of our O&M experience this year was the result of doing some activities earlier than we had previously planned to do them. There are certain -- for example, there are certain environmental remediation projects where we received permits to take action earlier than we had expected to. And so there's a couple of million dollars of additional O&M that we expect to bear this year that was not originally in the forecast. Julien Dumoulin-Smith: Got it. It seems like more of a timing issue than anything there. Christopher Sighinolfi: That's correct. Operator: We now turn to David Arcaro with Morgan Stanley. David Arcaro: I was wondering if you could -- maybe just on the growth rate that you've indicated would be above the 6% level here through the plan. Just curious if you would consider that to be kind of a structural higher growth outlook for the core of the business? And could that be considered to be longer term? Could we see growth continue at that rate? Or is it more -- is 4% to 6% still the right level? Just maybe depends on the starting year as to how you think about that? Christopher Sighinolfi: David, it's Chris again. Yes, I do believe it is structural in nature. That's why we've outlined it that way. Again, 4% to 6%, the initial high end of that range. And then with some of the changes in the environmental backdrop suggesting in our Investor Relations materials in September that we would be above the high end of that range for the duration of the 5-year period. I think you can look as your question assumes at those component items as being structural in nature and having a carryforward effect that we believe is durable. David Arcaro: Excellent. Yes, that helps. And then I appreciate the update here on the large load activity that you're seeing. I was wondering if you could talk about maybe just any other clarity on where you're seeing that 1.5 gigawatts come in and what the potential investment opportunities might look like on the back of potentially finalizing some of those new large load projects. Curtis Dinan: David, this is Curtis. And as I mentioned in my remarks, we're seeing that across all 3 states, opportunities to provide service to different entities that are looking at much larger scale than perhaps we've served in the past and that's been built in and around our systems. The last part of that answer is really important, the in and around our systems. We're trying to leverage our existing system, our existing workforce and everything that goes to support that to respond to these customer inquiries. There's certainly more in the market, and we can read about those each day, but we're staying very disciplined in those projects that we will pursue. And for those reasons, there are lower capital needs. We have infrastructure in place. We have folks in place, and we can respond to them very quickly. And that's the need of those customers in many cases is the quick response. And so I think we're best positioned to be able to do that. We'll continue to look at different opportunities that come up, but it's, again, a fairly tight set of criteria that we look at to evaluate those before we put a lot of resources behind to chase those. So my comments around not a lot of -- or not a significant impact to our capital forecast really ties back to that. We're leveraging off of our system that's already there. It's working with our upstream providers, the relationships we have established there to be able to respond to these requests. And I think that makes us very efficient in being able to do that. Operator: We now turn to Gabe Moreen with Mizuho. Gabriel Moreen: I just wanted to ask about, I think, the additional investment in bringing stuff in-house. Will that impact you think O&M upfront? I know you've been really successful at line locating and maybe you just had a little more cost upfront for savings later. Is it going to be kind of a similar sort of cadence with this and how material would it be? Curtis Dinan: Gabe, this is Curtis. And one of the items that Chris was talking about earlier on some of the things that we pulled forward, it's a continuation of those initiatives. We're opportunistic when we do it, looking at a couple of things, our past experience and where we are in the maturity of those folks that have joined the company and developed and gotten their qualifications to be able to go into full service. And then it's looking at what's available in the market. We've seen a lot of opportunities to hire some really quality individuals to join our company as well as having really good experience of the folks that we've brought in, allowing us to get ahead. We realized some of the benefits quicker. And so that's given us the confidence to move a little bit earlier to in-source some of those additional activities. So it's somewhat episodic in terms of when those larger classes are brought in and we go through that process. But as you said, at the front end of it, it's a little bit higher investment, but it's yielding really good benefits for us. And we continue to expect even more benefits in the longer term. Robert McAnnally: So Gabe, this is Sid. You're wise to compare this to line locating. We shared with you a number of years ago that we believe there would be a benefit to in-sourcing line locating from both an execution standpoint and building additional capacity that we could deploy when there was no line locating to be done. And over the last 3 or 4 years, we've really proven that. We've seen the value add. We've seen it be accretive, and we've also seen the quality of the work. So Watch and Protect is just another step in that direction, and we wanted to be transparent about it. But we believe, given the fact that we've presented a theory, tested the theory and proven it, now we can go on this with a pretty high level of confidence and run the same play with Watch and Protect. And to your question about materiality, the scale of Watch and Protect is much less than line locate. So the impact will be less, but you're right that there's a front-end cost in bringing people along and doing the training on the front end. Gabriel Moreen: Got it. And then maybe if I can ask on '26 CapEx. You grew rate base a little bit less than I think your intended CAGR in '25. You also finished up that big Austin project. But is it right to assume there'll be some sort of acceleration in '26? And are there any discrete other projects you'd kind of point to around '26 CapEx plans? Christopher Sighinolfi: Gabe, it's Chris. I think you're right, given the commentary from Curtis about activities in the territory to think about an upward sloping trajectory of capital expenditure, and there might be a more punctuated step-up next year. Again, full details for that, I'd hold your patience until we come out with that formally in about a month's time. But you're thinking about the component items in the way I would if I were you. Curtis Dinan: One of the other things to think about is in some of those capital projects, too, depending upon the type of contract that it is, the term of service that a customer wants, they may be actually the ones paying the capital in those situations. So to derisk the exposure to us and to all of our other customers in the longer term, that may hold a lid on capital somewhat compared to what you might think it would be given the activity levels. Operator: We now turn to Bill Appicelli with UBS. William Appicelli: Just a question on the benefits of the legislation in Texas. I don't know if you can quantify what that's been year-to-date and maybe what that would be on a full year run rate? Christopher Sighinolfi: Yes, Bill, I would point you back to the commentary we had in last quarter's call. Effectively, what we were seeking to do with that is give you some context based on our experience with the safety-related 8.209 regulatory structure that's been in place in Texas for a long time. Given that the accounting treatment under that context is now applicable to all capital, we were giving some context about how you would -- you could gross that up on a full year basis. And what we were noting with 8.209 is it was $4 million to $5 million of operating income benefit for about 25% of our capital deployment that would now be applicable to 100% of the capital deployment in Texas. One thing just to note is that capital deployment is not a uniform thing. We don't deploy the same amount of capital every day throughout the year. And obviously, there's a greater impact on projects that close in January than projects that close in December. And so there's somewhat -- I'm a little bit apprehensive to index to any particular quarter or anything of that nature. I wouldn't want you to take a look at third quarter, for example, and think that it's emblematic of every quarter, there are fluctuations that will occur. But I think if you anchor back to the commentary we offered on the second quarter call, that's as good a representation as I can offer you. William Appicelli: Okay. And then, I mean, does that influence the capital plan moving forward in terms of whether it's the sequencing of projects or the level of investment because of this mechanism. I mean, just comparing to -- I don't know how much of that was contemplated when the original guidance was given this time last year and the target of where you expect to be within the earnings range. I know we're going to get an update on all that here in the next few weeks. But just any color in terms of how you guys are -- is that a meaningful tool in the toolkit now that influences sort of the capital allocation decisions? Or is it more of a -- I don't want to make more of it than it is. Robert McAnnally: Yes. Bill, it's fair. Your observation about the landscape having changed since we offered guidance for 2025 is accurate. And you'll see that reflected as we share our guidance in just a few weeks. In terms of the impact of the Texas legislation on our forward planning, we allocate our system integrity investments based on system needs. There's no attempt to leverage anything external. It's really looking at what the system needs and where we need to invest to keep operating a system that's safe and reliable. On the growth side, as Curtis said, we've been pretty disciplined around how we analyze projects that come our way. And we're thinking about not only where can we find an opportunity to be supportive of economic development across our footprint, but where does this fit our forward plans for our system on the whole. So there's enormous growth in Texas, but we also see growth in Oklahoma as the Dallas area continues to grow north. There are many opportunities for us. I guess the safest thing for me to say to you is we are grateful for the Texas legislation, but it will not [ thwart ] our spending in terms of system integrity or growth. We're going to pursue opportunities using the same strategy that we have before. We just have more opportunities and at a greater scale. Operator: We now turn to Selman Akyol with Stifel. Selman Akyol: I appreciate the comments and the results you're getting on the line locating and bringing that in-house. And I heard you loud and clear in terms of the Watch and Protect program being somewhat less. But just curious, are there other opportunities you see beyond those 2 as we think longer term? Curtis Dinan: Yes. Selman, this is Curtis. And you're absolutely right. There are other things that we're looking at. In addition to the Watch and Protect, we still have more to go in what we want to get to from a line locating process. So I think that opportunity will continue for a few more years in addition to Watch and Protect. There's other areas that we have been using more internal crews to complete around some of our construction projects. So we've been growing our capabilities in that regard, both from an engineering standpoint as well as our execution in the field. So we've relied on those internal resources more, and we've added to those crews to be able to respond to it. So just like our thought processes around the line locating and the Watch and Protect, we'll continue to look for those types of opportunities where it makes sense for us and where we can get more value out of bringing those in-house and again, at the same time, grow our capabilities as a company. So it's a really good spot to be in, continuing to invest and grow in that regard. And we've proven we can do it, and we're seeing the benefits of having taken those actions. Selman Akyol: Got it. And I guess this next one really sort of a 2-parter in and around large load and data center. But curious, do you see -- are your conversations like '26, '27? Or do they extend all the way through '30, or when people would be looking to get in service? And then I guess -- and I'm really thinking about sort of your growth profile and does this opportunity set bend that higher? And then the other question related to that is, is everything you're discussing being done under the regulatory framework? Or would there be any chance to get higher returns outside of that? Curtis Dinan: Yes. So a couple of parts to your question there. Let me talk about the term of some of these. Some of the larger projects would end up being multi-trains of what I would think of in terms of the number of generators that they will deploy over time. So those will extend out over a number of years and will scale into larger opportunities. That's also true in some of the advanced manufacturing facilities that we're talking to. There's an initial project load, but they have plans to continue to scale that over the next 4 or 5 years. So that does build in a growth profile from that respect. And then there are other smaller projects like the one that I mentioned in my prepared remarks, we announced it earlier this year. That project will be in service here in the fourth quarter. So obviously, a much shorter time frame from execution of the contracts to completion. And I think that speaks to our approach of pursuing those projects that are in and around our system. That wasn't a significant build to be able to serve that customer to deliver them gas off of our system and then as they produce RNG to be able to take that gas back into our system where they're able to recognize the value of those RNG credits that they can generate. So that's -- I know that answer sounds a little broad, but it truly is all over the board, both in terms of the size and the timing of when those projects will continue to be developed. In terms of our regulated model or trying to create something outside the regulated model, we are not looking at something outside the regulated model. I think this is a really good opportunity to continue to serve our existing customers. When we do things like the Austin System Reinforcement project, that was a project to reinforce our system as the name implies in the Austin area but it also because we're bringing additional supply into that community, it gives us the chance to support additional growth. There will be other projects that do that same thing that help reinforce the supply we have coming into our existing communities and trying to pair those with growth opportunities, be it generation, be it data centers or whatever those needs are. We just think we can be much more efficient when we compare several different opportunities together and solve several customers' problems that will create more value for those customers and we will continue to grow our company. And the net benefit of that is to our existing customers where they're going to have more reliable supply, just like we described in the Austin project. So a lot of good things happening there, and we see a real advantage of being able to do that within our regulated model. Operator: That concludes the question-and-answer session. I would now like to hand back to the ONE Gas team for closing remarks. Erin Dailey: Thank you all again for your interest in ONE Gas. We look forward to seeing many of you at conferences in New York the second week of December. Our quiet period for the fourth quarter will start when we close our books in early January and extend until we release earnings in mid- to late February. We'll provide conference call details at a later date. Have a wonderful day. Operator: This concludes the ONE Gas Third Quarter Earnings Conference Call. You may now disconnect.
Operator: Good morning, and welcome to IPG Photonics Third Quarter 2025 Conference Call. Today's call is being recorded and webcast. At this time, I'd like to turn the call over to your host, Eugene Fedotoff, IPG's Senior Director, Investor Relations, for introductions. Please go ahead with your conference. Eugene Fedotoff: Thank you, and good morning, everyone. With me today is IPG Photonics CEO, Dr. Mark Gitin; and Senior Vice President and CFO, Tim Mammen. On today's call, Mark will provide a summary with a quick look at our third quarter results and the overall demand environment, then walk you through the progress we are making on our long-term strategy. After that, he will turn it over to Tim to provide financial details. Let me remind you that statements made during this call that discuss our expectations or predictions of the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from those projected in such forward-looking statements. These risks and uncertainties are detailed in our Form 10-K for the period ended December 31, 2024, and other reports on file with the Securities and Exchange Commission. Any forward-looking statements made on this call are the company's expectations or predictions as of today, November 4, 2025, only, and the company assumes no obligations to publicly release any updates or revisions to any such statements. During this call, we will be referencing certain non-GAAP measures. For more information on how we define these non-GAAP measures and the reconciliation of such measures to the most directly comparable GAAP measures as well as additional details on our reported results, please refer to the earnings press release, earnings call presentation and the financial data workbook posted on our Investor Relations website. We will also post these prepared remarks on our website after this call. With that, I'll now turn the call over to Mark. Mark Gitin: Thanks, Eugene. Good morning, everyone. Third quarter revenue was at the top end of our expectations, flat sequentially and up 11% year-over-year, excluding divestitures. There were a number of positive factors that drove the results this quarter. Stronger demand in battery production driven by e-mobility and stationary storage supported higher sales in welding. With our adjustable mode beam laser, weld monitoring and beam delivery solutions, we continue to win orders with some of the largest battery and automotive manufacturers across multiple regions. General industrial demand was stable compared with the prior quarter, and our cutting revenue was essentially flat and consistent with the past several quarters. We began shipping the new generation of our high-power rack-integrated lasers to cutting OEM customers globally. These next-generation lasers use our new higher power diodes, have a smaller footprint and lower manufacturing costs. Demand in additive manufacturing applications was very strong, and we won new business with our single-mode lasers tailored for that application. Cleaning continued to grow, supported by the cleanLASER acquisition. Outside of industrial applications, we delivered year-over-year growth and built momentum towards longer-term value creation through new product introductions and new business wins. One exciting example of this is the growing interest in our CROSSBOW-directed energy solution, which I'll touch on shortly. I'm also pleased to share that we've received FDA clearance for the next generation of our thulium medical laser systems. This is an important step for the business, and we expect shipments to start by the end of the fourth quarter. I'll provide more detail on this milestone later in the call. Our financial results improved in the quarter as we increased gross margin, managed operating expenses and delivered adjusted EBITDA and adjusted earnings per share at the top end of our expectations. Order activity remained healthy with book-to-bill of approximately 1. While uncertainty in the demand environment persists, leading indicators such as PMIs continue to show improvements, and we remain cautiously optimistic going into the year-end. Now I'd like to take a step back and offer some broader perspective on the longer-term trajectory of our business and the progress we're making on our strategic initiatives. Over the last 17 months, I've been methodically working to transform the organization, creating a disciplined high-performance culture that is fully prepared to take on the opportunities that lie ahead of us. This transformation involves moving IPG from a founder-led approach to a team-led operating model that can support further growth. Last quarter, I highlighted some of the additions I have made to strengthen our executive leadership team. This top talent has brought deep expertise and fresh perspective, and they are already having a significant impact on our execution. The results we're delivering today show that the strategy we outlined earlier this year is taking hold and is beginning to drive meaningful improvement across our businesses. Our progress reflects disciplined execution, sharper focus and a stronger alignment around our growth priorities. The steps we've taken to streamline operations, strengthen decision-making and accelerate product development are translating into better performance and greater consistency across the business. Our focus remains on sustaining this momentum, balancing operational discipline with investment and innovation to position IPG for long-term profitable growth. The powerful combination of innovation and execution is driving progress across our key growth initiatives. Our fundamental strategy is based on converting incumbent processes and applications to our differentiated laser-based solutions. This enables us to expand existing laser use cases, create new laser applications and extend our reach into new high-growth applications such as medical, micromachining and directed energy. These are large opportunities with the potential to significantly expand our addressable market. We continue to strengthen our position in core industrial applications such as welding and cutting by focusing where differentiation matters most and where our technology delivers a clear performance or cost advantage. This is evidenced by our business wins and positions us to outpace the market as industrial production recovers. We're also moving up the value chain with our world-class laser applications capability that enables us to integrate our fiber lasers into differentiated subsystems systems to solve our customers' most challenging problems. This approach allows us to capture a greater share of customer spend and deepen long-term partnerships. We have already demonstrated these benefits in welding, which has become our largest application. Our unique solutions enable safer and more reliable welding processes for thin foils and alloys used in advanced batteries for EV and stationary storage applications. We are also accelerating the adoption of lasers in other large industrial applications, displacing incumbent technologies. By combining our laser technology with deep applications expertise, we are solving complex challenges for our customers where precision and efficiency matters most. Laser cleaning is a great example of this approach. Customers convert to laser cleaning from conventional abrasive or chemical methods because our laser solution offers greater speed and control, is easy to automate and provides a safer and environmentally superior outcome. Lasers will continue to be adopted, driven by these advantages, and we are leading the change, accelerating broader implementation across the industry. Finally, we're penetrating new nonindustrial applications in markets where laser-based solutions also offer clear cost benefits and superior outcomes relative to incumbent approaches. We are focused on medical, micromachining and directed energy verticals where our innovative laser-based solutions provide strong competitive advantages. I'm pleased to report that we're making meaningful progress across each of these opportunities. In medical, we've been making strategic investments in urology applications. Our thulium lasers provide a superior solution for eliminating kidney stones and have demonstrated improved results versus legacy laser processes. On previous calls, I discussed a new customer we won earlier this year that has helped to drive strong revenue growth in the business in 2025. I'm happy to report another major milestone on today's call, FDA clearance and the upcoming launch of our next-generation urology system. This new system incorporates our proprietary StoneSense and advanced pulse modulation technologies, which deliver improved precision and control continuing to enhance results in kidney stone removal procedures. Shipments are expected to begin in the fourth quarter. This marks another important step in expanding our medical portfolio and demonstrates how our innovations continue to advance patient care and broaden our reach beyond industrial applications. We're executing against a clear road map that we believe will drive significant revenue growth including recurring consumables revenue over the next 2 to 3 years. Last quarter, we discussed CROSSBOW, a scalable and cost-effective laser defense system that can neutralize the threat of smaller Group 1 and Group 2 drones. CROSSBOW is a disruptive turnkey directed energy system enabled by our single-mode lasers, systems expertise and our high-volume manufacturing capabilities. CROSSBOW can operate as a stand-alone system or can be integrated into layered defense architectures. This system was showcased during 2 recent defense shows DSEI in London and AUSA in Washington, D.C. Interest was high from both defense and commercial customers for protection of critical military and civilian assets. We are working on converting leads into orders and are having conversations with multiple potential customers. We're proud to announce the opening of our new IPG defense customer center and production facility in Huntsville, Alabama, which is dedicated to supporting the CROSSBOW product line. Over the last few months, there have been multiple examples of large international airports that were forced to shut down all flights due to the incursion of drones. We are optimistic that our solution can become a standard approach across many situations and scenarios to deal with these ever-increasing threats. We believe this growth strategy best aligns our differentiating laser technology, market leadership and deep applications expertise to solve the most challenging problems and enables us to deliver a compelling value proposition that makes IPG a trusted partner in the industries we serve. With that, I will now turn the call over to Tim. Timothy P.V. Mammen: Thank you, Mark, and good morning, everyone. My comments will generally follow the earnings call presentation, which is available on our Investor Relations website. I will start with the revenue trends by application on Slide 4. Revenue from materials processing increased 6% year-over-year, drove higher sales in welding, additive manufacturing applications, cleaning and micromachining, partially offset by lower sales in marking and divestitures, while cutting revenue remained nearly flat. Revenue from applications driven by higher sales in medical and advanced. Our emerging growth products performed well in the quarter, increasing on a year-over-year basis but declining slightly sequentially and accounting for 52% of sales in the third quarter, down from our record high of 54% in the prior quarter. Moving to the revenue performance by region on Slide 5. Sales in North America decreased by 16% sequentially but were up 8% year-over-year. Sequentially, sales declined due to the timing of some large orders in welding and advanced applications, while year-over-year growth was driven by higher revenue in advanced applications and medical as well as improved cutting and cleaning sales. Sales in Europe increased 11% sequentially and 4% year-over-year, excluding $7 million in divestitures. The sequential increase was driven by higher sales in welding, cutting, additive manufacturing, while the year-over-year improvement was driven by the acquisition of cleanLASER as well as higher sales and cutting and additive manufacturing. Revenue in Asia increased 5% sequentially and 15% year-over-year, driven by higher welding sales in China, Japan and Korea as a result of stronger demand and business wins in battery applications. Our differentiated solution, including the combination of our AMB laser, weld process monitoring, and beam delivery is improving yields and battery safety and driving adoption by major battery manufacturers in the region. Moving to the financial performance review on Slide 6. Revenue came in at the top of our expectations at $251 million, flat sequentially and up 8% on a year-over-year basis or 11% excluding divestitures. Foreign currency increased revenue by approximately $3 million or 1% this quarter. GAAP gross margin was 39.5% and adjusted gross margin was 39.8%, above our guidance and was driven by improved manufacturing cost absorption and a decrease in inventory provisions, partially offset by higher cost of products sold and increased shipping costs on a year-over-year basis. The impact of tariffs was 140 basis points in line with our expectations. We continue to work on mitigating tariffs, and the impact will likely continue in the fourth quarter. Operating expenses were flat sequentially but above last year's level, primarily due to the investments we are making to support our strategy and strengthen our organization, which Mark highlighted earlier on this call. GAAP operating income was $8 million, and our adjusted EBITDA was $37 million, slightly above the top end of our guidance. GAAP net income was $7 million or $0.18 per diluted share. Adjusted earnings per diluted share was $0.35 in the third quarter at the top end of our guidance. Moving to a summary of our balance sheet and cash flow on Slide 7. We ended the quarter with cash, cash equivalents and short-term investments of $870 million, $30 million in long-term investments and no debt. During the quarter, we spent $21 million on capital expenditures and $16 million on repurchasing IPG shares, supporting our balanced capital allocation framework of investing in growth and returning cash to shareholders. As expected, operating cash flow started to improve significantly in the second half of the year, more than offsetting CapEx and driving positive free cash flow in the quarter. Looking ahead, we will likely come in well below $100 million in CapEx this year due to the timing of expenditures for our major investment in Germany. We still expect CapEx to decrease to about 5% of revenue and free cash flow to improve once the project is complete, but the timing of this project may keep next year's CapEx at approximately the same level as in 2025. Moving to our outlook on Slide 8. For the fourth quarter of 2025, we expect revenue of $230 million to $260 million and adjusted gross margin between 36% and 39%, including a potential impact of tariffs of about 140 basis points. With investments in the growth of our business, and strengthening the organization, including leadership, we expect our operating expenses to remain elevated between $90 million and $92 million in the fourth quarter. We anticipate delivering adjusted earnings per diluted share in the range of $0.05 to $0.35 with approximately 42.5 million diluted common shares outstanding. Our adjusted EBITDA is expected to be between $21 million and $38 million. In summary, we are pleased to see further signs of continuing revenue stabilization coupled with margin improvement while investing in our strategic initiatives. We continue to believe we have significant operating leverage in our model. Our strong balance sheet gives us a significant advantage given the near-term uncertainty in the operating environment. I will now turn the call back to Mark. Mark Gitin: Thanks, Tim. In closing, we are encouraged by the progress we've made and energized by the scale of the longer-term opportunity ahead. We believe we have strong growth opportunities driven by our differentiated solutions that have been successfully winning business even in a subdued industrial environment. As general industrial activity recovers, this positions us well to outgrow the market. Our market leadership, applications expertise and complete solutions enables us to drive adoption of lasers replacing incumbent technologies and expanding the addressable market. We are excited that our growth initiatives in medical, micromachining and defense are already showing meaningful progress in driving incremental revenue. While we are cautiously optimistic about the demand environment, we continue to transform the company to create value for our customers and shareholders for the longer term. With that, we will be happy to take your questions. Operator: [Operator Instructions] Our first question comes from Ruben Roy with Stifel. Ruben Roy: Mark, I'd like to start with maybe just a little more detail on how you're thinking about the outlook for Q4. It's nice to see the progress coming out of Q3 and the book-to-bill and some of the sort of new areas that you're focused on continuing to contribute. So maybe you can walk us through -- I know you've used the term cautiously optimistic going into year-end here. But with PMIs improving, et cetera, and where the bookings are, it's a wide range of guidance again. What are some of the puts and takes to get to the lower end of that guided range or the higher end? Mark Gitin: Yes, sure. Nice to talk to you, Ruben. See, first of all, we're quite happy with the performance around the world. As I mentioned, the book-to-bill continues to be about 1 globally at this elevated revenue. And it's showing continued strength in each of the regions actually in Asia, including Japan, Korea and China. Europe is stabilizing, and we've been seeing some upside in North America. And we're really encouraged with these early signs of industrial expansion, as you mentioned too, PMIs are tracking a little bit higher now. So with the U.S. about [ 52.5 ]; the Eurozone, now stabilizing at about [ 50 ]; China, a bit over [ 50 ] as well. So those are positive pieces. And even in what has been muted industrial market, we're really seeing the benefits of our differentiation, right? The technology, the product quality, reliability and the applications expertise that we've got and tie into that, the global support infrastructure that we have. Those things are starting to really give us some benefit. And we've seen that in the cutting revenue, for example, that's been essentially flat now and consistent the past several quarters. And I've talked about this before, but our OEM inventories and cutting our OEMs, their inventories really normalized. Happy that we've got our rack-integrated platform out. So this helps to contribute to how we guide. The new product is out now, and it's been qualified by most of our OEM customers. And again, that's the system that has the new diode lasers, that's higher power, smaller form factor, lower cost structure. And then as I mentioned in the prepared remarks, we're continuing to get share gains in welding and additive manufacturing, that's going well to cleaning. So I really feel good about that, that we're positioned to outgrow the market as the industrial output starts to improve. And then, of course, as I mentioned, we're also focused on the key areas that we're investing in the nonindustrial areas, right? So we've focused on the areas of medical, micromachining and the defense area, the advanced area with our CROSSBOW system, and we're seeing some pickups there in each of those areas as well, new customer that we've talked about in medical, new product coming out in Q4, where we're starting to get some shipments. So all of those are contributing as well. So overall, I'll say again, cautiously optimistic and certainly feel better about the business now than we did a year ago at this time. Ruben Roy: Great. I just had a quick follow-up on that and a quick one for Tim. Just a follow-up. It was nice to hear the e-mobility related welding revenue strengthen a bit. Was that geo specific? Or was that something that you saw more broad-based? . Timothy P.V. Mammen: So actually, we're getting share gains globally. The -- if you look at Asia, we've had strength in Japan and Korea and continued share gains also in China. And then we've also had uptick in Europe. And we've had some wins also in the U.S., although the U.S. is a little slower. And one thing I would point out is that it's really about battery. It's not just EV. There's quite a lot of work going on now in stationary storage as well. So in China, which has the largest growth in has -- about 1/3 of it is due to stationary storage with 2/3 about EV. And overall, just to point out too, the EV market is continuing to grow. It's year-to-date has grown about 25% year-over-year. Ruben Roy: Yes. Got it. Okay. A quick one for Tim. On the gross margin, Tim, just thinking about the outlook. It sounds like the -- unless I missed this, the tariff impact is about the same as you saw in Q3. Revenue at the midpoint is a little bit lower, but you've got a downtick in the gross margin. So maybe some moving parts there and how you're thinking about the margins as you get out of this year? And what's the expectation for tariff impact, if any, as you get into '26? Timothy P.V. Mammen: Sure. I think, first of all, gross margin, both actually on a GAAP and adjusted basis was strong in Q3. I was actually very pleased with it. Some of the positives on that were that we started to see some improvement in product gross margin, which we've mentioned have been a bit weaker in the second quarter. So that's really good because that shows that some of the cost reduction initiatives that we've got. Mark mentioned that around the RI laser. We're also trying to roll out the higher-power diodes across the platform more broadly, for example. There are other applications where we've introduced lower-cost lasers. So that was really pleasing to see that develop during the quarter for me. The other benefit on gross margin, a couple of other ones. Inventory provisions were lower, so I'd said that we expected to see those come down in the second half of this year given the work we've done around managing inventory. And then the final benefit was really an improvement in under-absorbed costs. So the overall absorption was pretty good in Q3. That, though, did result from growing inventory a bit. If you look at the balance sheet, inventory is up about $20 million. That was an intentional investment in inventory really to reduce lead times to customers and support the business at this point in time. We're not expecting -- expecting a much more moderate impact from inventory in the fourth quarter. So kind of the midpoint of my gross margin guide factors that in. It's not factoring in any other significant increase in tariffs. We're trying to mitigate some of the effect of tariffs. I said fairly clearly. I don't think companies are going to get rid of the cost of tariffs given how pervasive they are, but we're looking at where we can increase pricing a little bit. We're looking at other programs internally in terms of manufacturing drawbacks of tariffs and things like that. They do take time to put in place. There's a huge amount of data, analytics and approvals that you need to go through to get those in place, but they should start to see some of that tariff impact potentially ameliorate a bit going into next year. Operator: Our next question comes from James Ricchiuti with Needham & Company. James Ricchiuti: I had a couple of questions. First on CROSSBOW. Wondering, Mark, how we might think about the opportunity looking to 2026. It sounds like you had good interest at the recent shows that you've participated in. Are you working with any other partners at the moment besides Lockheed Martin? Mark Gitin: Jim, let me just step back for a minute. So yes, we're quite excited with CROSSBOW. And just to remind everybody, that's directed at the smaller class of drones, the Group 1 and Group 2. And we have really a unique position because it uses our high-power single-mode lasers plus the surrounding photonics that we make. And systems. And we do this at scale at large volume manufacturing. So we're able to deliver that and provide kind of a unique solution. And we demonstrated that or showed that at the 2 big shows the DSEI, which is in London and also at the AUSA just a couple of weeks ago in Washington, D.C. And Jim, what I would say is that we had quite a lot of interest, quite a lot of leads for that and that was both in the military space, but also in the civilian airspace, that's been a recent -- just in the last 6 weeks or so, we saw drone incursions shutdown major airports in Europe. Oslo, Copenhagen, Munich, all had long shutdowns. So there's interest also in that civilian space. So quite a lot of leads that we're working through. We have, obviously, the link with Lockheed, but that's not -- it's not only Lockheed, we have conversations going on with quite a few other potential customers in both the defense and civilian aerospace areas and globally. James Ricchiuti: Now if we think about the opportunity, looking out to next year, it sounds like you've got a few -- more than a few irons in the fire in that -- I guess how do we think about it in terms of material revenue where I'm going with this? Mark Gitin: Yes, sure. I understand, Jim. So what I would tell you is that we're qualifying leads. This does take some time to go through, so we do expect to get some revenue in 2026, but it takes some months certainly to qualify and turn leads into orders. James Ricchiuti: Got it. Just with respect to the new urology system, which I guess you're skipping this quarter, again, similar question, looking out to next year, is this -- how significant product launches this review in terms of, I think, additional momentum in the medical market here? Mark Gitin: Yes. Thanks, Jim. I'll tell you, you're a little bit garbled in your voice, but I think I understood the question, and that was around the launch of our new urology product here in Q4. So just to reiterate for a moment, we have received FDA clearance, and we are launching this. This is a new product in urology. It's a thulium-based system. Next generation that has a couple of really key features. One is called StoneSense and the other is really a unique way that we're able to modulate the pulse output and both of those are for basically precision and safety. The StoneSense actually can tell the difference between hitting a stone and tissue and therefore, have additional safety in the process. So we're launching that product. That's the first of a road map of new products in urology, and I've been talking about this for several quarters now. And just to point out, I had said several quarters ago that we were targeting a Q4 launch. So that's on track. And the entire road map with this being the first product is -- will give us substantial revenue growth. And I also want to point out too that earlier in the year, I had announced that we had a second major customer that's a leader also in the urology space. Remember, we've talked about Olympus before as one. We can't name the other, but it's another large player in the marketplace. And just to remind you also that as we bring out new product in the system side and gain share, that also brings with it recurring revenue because we also make the disposable fibers that go with each of the treatments. So what I'd say is we're starting to ship the new product in Q4. We're excited about the product. We think it will gain us more share in that market. But I also want to say that it's the first of a number of new advancements that we'll be bringing out over the next couple of years. And we're expecting in urology, which is a $2 billion TAM, we're expecting to significantly grow that and it's -- so it will be a key part of our growth going forward. James Ricchiuti: In terms of 2026, if you were to rank this on some of the other opportunities that you're focused on, where would you place this, say, among the top 3 or 4? Mark Gitin: Yes. So Jim, it is one of the top ones for us. So when we think about the urology road map, we look at that as growing our urology revenue kind of 2 to 3x in the next 2 to 3 years. So I can give you some sense of how to consider that. It is one of the larger ones we're looking at. If we talk about the investments in 3 key areas based upon our differentiation. We've talked about the urology, the micromachining space and then, of course, the area of the advanced area, which includes the CROSSBOW, that together, what I've said is that, that's addressing about a $5 billion TAM and that over the next several years, we're expecting to grow hundreds of millions of dollars in those spaces. Operator: Our next question is from Scott Graham with Seaport Research. Scott Graham: Congrats on the quarter as well. Could you just remind us, when you talk about tariffs, the minus 140 basis points, that's a net number, right, versus your countermeasures? Timothy P.V. Mammen: That's the -- yes, that's the impact on the quarter relative to a normalized run rate say in Q1 or second half of last year. So it's net of some countermeasures at the moment that we've implemented. But for example, if you're trying to change pricing, Scott, you got to go through adjusting pricing, you got to adjust quotes, you've got to ship the existing backlog, you got to wait for orders from customers. So you don't see the benefit from something like change in pricing for quite a significant period of time. And then I mentioned that we're looking at different types of strategies to draw back some duties when you're reexporting product or bringing product back into the U.S. that has U.S. content. But again, those take a lot of time to put in place because they're quite complex to do. Mark Gitin: And just to remind you, Scott, too, as we've talked about for the tariffs, we have actually done quite a lot in terms of mitigation. If you recall that we have a flexible manufacturing footprint, and we actually moved product manufacturing for a number of product lines from the U.S. to Europe, for example, we also flexed our supply chain, and we adjusted where some of the supply was coming from. So we have done quite a bit to mitigate and get us to where we are as well. Scott Graham: Understood. Just my follow-up question is, the fourth quarter operating expenses number looks like about the same as the third quarter. And last year, I believe that number was lower, although your earnings were maybe under more pressure. Can you explain why maybe fourth quarter operating expenses aren't maybe a little bit lower than what your guidance is? I guess that one surprised me a little bit. Mark Gitin: Absolutely, Scott. So as I've been talking about for the last few quarters, we're making some key investments and that's what you're seeing in the OpEx. The first is really around these key programs that I've been talking about in medical, in the urology and the micromachining, in the advanced space, the CROSSBOW is a great example. So we're investing in those key areas. That's a significant piece of it. And then also, we've made some investments really in the organization. I talked about last quarter some very top talent that we've recruited into the organization to help us lead the company into continued growth. So that's what you're seeing. And we expect that to stay at about that level going forward. Operator: Our next question comes from Keith Housum with Northcoast Research. Keith Housum: Good quarter. Just remind me historically, has there been an opportunity for budget flushes in the fourth quarter and any potential benefit from the one big beautiful bill that we saw passed earlier this year? Timothy P.V. Mammen: In seasonality in the fourth quarter, sometimes Q4 can be a bit weaker than the third quarter. It depends upon the geographies is the issues, Keith. I mean you can have slightly lower revenue, for example, in China, where China can be stronger in Q2, Q3, but then you can get some pull-through in other geographies that may or may not offset that. So it's not a particularly meaningful seasonality, I'd say, and it can be a little bit variable from period to period. And then the one big beautiful bill, no, I mean, the way -- one big beautiful bill is very complicated in what it does? There are different ways you have to strategize about that. The way that we've looked at it in terms of preserving some of our permanent deductions that if you accelerate, for example, depreciation, you lose those. We don't see a meaningful change in the effective tax rate going forward related to OB3, you can see some benefit on cash taxes but not really to the effective tax rate overall. Keith Housum: Okay. I appreciate it. Helpful. And then, Mark, you briefly mentioned a new facility in Huntsville, Alabama, regarding your CROSSBOW opportunity there. Can you just expand a little bit more about what you're going to be going down there? Is it going to be manufacturing? Is it just a sales location? Mark Gitin: Yes, absolutely. So yes, so our Huntsville location, so it's a small lease facility, and it's really in the heart of, let's say, of that type of technology, and it brings us closer to some key people that we need in that business. But it's also -- it also has near it cleared airspace for doing a drone type testing. So it all pulls together, and that's why we have that. And we're able to do a customer test there, validation there, and we'll do our -- some of the manufacturing there as well. Operator: [Operator Instructions] Our next question comes from Mark Miller with The Benchmark Company. Mark Miller: I'm just wondering if you can give us some thoughts about margins for defense-related opportunities. Are they similar to corporate margins? Or would they be above or below? Mark Gitin: Yes. Thanks very much for the question. So this is -- the area, for example, CROSSBOW is, again, in one of the highly differentiated areas. So that's where we're investing in these areas in medical, micromachining and this CROSSBOW area, this defense area. So very high differentiation and therefore, margins above what you would see in corporate. Mark Miller: Okay. With chip sales booming and shortages and pricing going through the roof, what's your thoughts about business from semiconductors next year? Mark Gitin: Yes. So I can tell you, we're actually excited about that area. That's an area that we've been concentrating in. So that also falls within that what we call the advanced segment, which has the CROSSBOW in it as well. So the area of semiconductor CapEx, this WFE piece, again, it's where we have significant differentiation. We're working with key suppliers that are in that market, largely in the metrology, inspection and lithography space. And we've gotten some very -- some design wins in that area recently from that work with very differentiated products. So I really like those, that semiconductor area because when you win there, it's really an annuity that lasts for many years. And so as those start to roll out, we've seen some of that happening, that's why you saw our advanced up a bit this quarter was because of some of the semiconductor pull-through. Operator: We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Eugene Fedotoff for closing comments. Eugene Fedotoff: Thank you for joining us this morning and your continued interest in IPG. We will be participating in several investor events this quarter, and I'm looking forward to speaking with you again soon. Have a great day, everyone. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Felipe Peres: Good morning, welcome to our virtual meeting to present the results of the third quarter of 2025. This event is being recorded [Operator Instructions] This event will be divided in two parts. In the first part, our CEO, Delano Valentim and our CFO, Rafael Sperendio will present the main belief of the quarter. The presentation, either in Portuguese or in English can be downloaded from our Investor Relations website at the address www.bbseguridaderi.com.br. In the second quarter of the event, there will be a Q&A session when analysts and investors will be allowed to ask questions. I will return after the presentation to give you instructions if you want to ask a question. Now I would like to give the floor to Delano who is going to introduce himself as the new CEO of BB Seguridade and will share with you the main highlights of the quarter. Delano, floor is yours. Delano de Andrade: Thank you so much, Felipe. It's a great satisfaction to have you here for another BB Seguridade results presentation. where we will share the progress of our third quarter and the paths we are taking toward the future. This is Delano Valentim, CEO of BB Seguridade, and it's a great pleasure to be here with you. Before we dive into the numbers, I would like to share with you some impressions that I have had over these 2 months I've been leading the company. I found an extremely solid profitable company with strong cash generation that consolidates itself a strategic pillar in the generation of value for Banco do Brasil conglomerate. This is the result of the work of highly qualified technical teams and exceptional sales force and above all, the trust that our customers place in us every day. The insurance business, not only at Banco do Brasil, but also at other large bank Brazilian banks has proven to be resilient and essential for the balance of consolidated results, especially at times of greater volatility in economic cycles. Based on my experience of more than 40 years in BB conglomerate, including some time in Argentina, in the United States, I see that it -- the insurance market in Brazil still has enormous growth potential to illustrate in agricultural insurance, for example, we have in Brazil a very small portion of the planted area protected by insurance compared to the American market. In accumulation life insurance is not yet widespread, and in the pension market, a large portion of the Brazilian population does not have a private pension plan or has one that is incompatible with income they want to have in the future. Given this, my intention is to continue what has already been working well, but with focus on improvements. So we're going to do that based on three fundamental pillars: number one, focus on the customer with a review of portfolios and journey seeking to improve the experience, increase the perception of value and strength and loyalty. Number two, innovation and digital transformation. Integrating business journeys, creating new lines and expanding our presence in strategic and profitable segments; and number three, operational efficiency, making the most of the synergies between our investees and between them and our brokerage operation, seeking sustainable gains. And I am, and I see that my team is also very motivated with a challenge that lie ahead. I reiterate here, my commitment to continue seeking alternatives to keep the company's capacity to generate economic value. Now moving to our quarterly numbers. I will focus on the managerial results, which does not include the effect of IFRS 17. We ended the third quarter with historical milestone, the highest recurring net income ever recorded by BB Seguridade totaling BRL 2.6 billion, an increase of 13.1% over the same period of the previous year. Year-to-date until September, we reached BRL 6.8 billion in recurring profit, a growth of almost 14%. This performance was mainly driven by the investment income, which after taxes grew about 55% year-on-year in the third quarter, the same rate observed in year-to-date numbers. Operating income net of taxes also follows a positive trajectory, 2.4% year-on-year growth and 5.7% in year-to-date numbers. In the quarter, we highlight the control of expenses in insurance and pension in addition to the growth in our brokerage business. Year-to-date, the main highlight is the loss ratio which remained at a very good level in all lines showing the quality of the risk contracted. I also highlight two relevant initiatives that we started this year. Number one, credit life insurance for new credit lines for small and middle-sized businesses available as of July. In about 3 months, this initiative has already generated BRL 294 million in prices. credit life for private payroll loans, workers credit launched at the end of March has already then generated more than BRL 160 million in accumulated in premiums. These -- our new portfolios, which help compensate our monetary gaps and still have great potential for penetration, generating important opportunities for expansion as the credit cycle reverses. In line with what I mentioned at the beginning about customer focus, we already have very positive indicators. Our NPS grew by 5.1 points, complaints fell 24%, even though they already represent a small portion of the operations. And we saw a 7% reduction in churn, reinforcing greater loyalty of our customers. These results reflect consistent work of our teams and the trust of our customers. We remain committed to generating sustainable value and building a future even more promising for BB Seguridade. Now I would like to give the floor to Rafael Sperendio, our CFO, to share the financial details of the quarter, and I will be back afterwards for our questions-and-answer session. Thank you very much. Rafael Sperendio: Thank you, Delano. Now starting the details of the numbers of the third quarter. So here, we have BRL 2.6 billion in Q3 2025 with a 13% growth year-on-year. The operation has grown 2.4% after taxes, but the main highlights in the Q3 is the net investment income with a 55% growth year-on-year, accounting for 28% of our bottom line. One of the main factors I would like to highlight the volume rate, especially because of the Selic rate and reduction of the liabilities in Brazil because of Brasilprev because of IGP-M inflation. On next slide, you can see the details of our recurring managerial net income. So we had BRL 288 million came from operating results change. If we break down the operating income the main driver here is the growth of BRL 145 million in retained earned premiums at Brasilseg in contrast with the carryover of premium -- unearned premium revenue from sales done in the past, especially in credit life. We have another highlight, quite significant that Brasilseg that has been repeating itself is a reduction in loss ratio here in all the main lines of business and showing year-on-year numbers. And lastly, part of that was partially offset by higher expenses of BRL 292 million. In terms of the net investment income, BRL 550 million, this is how much we added BRL 530 million. Additionally, as I said before, Q3 year-on-year, some of the justifications are repeated in year-to-date numbers. Here, you can see BRL 426 million came because of volume and rate, basically Selic and the time mismatch in terms of updates of the IGP-M in terms of the liabilities in Brasilprev [ tech ] BRL 21 million and BRL 125 million came from a mark-to-market BRL 8 million positive this year in contrast BRL 117 million negative in the first 9 months of 2024. Now going into details on Slide #6 about our operations, per operations versus insurance operations, premiums written dropped 15% year-on-year in Q3. And then the variation accelerated in terms of premiums in year-to-date numbers for 7, especially because of our performance in rural insurance. If you see the lines that are significant in building our revenues, you can see that credit life and life were better in the third quarter year-on-year than we were seeing in year-to-date numbers. However, the performance of rural insurance, especially agricultural subsegment was slightly worse than what we saw in the first half of the year. And this is evident when we see earned premiums or retained premiums. So retained premiums dropped well below the drop in terms of written premiums, 8% year-on-year and 3% drop in year-to-date numbers. Now if we look at the quality of that performance, here in Q3 year-on-year, there is an increase in the combined ratio, especially because of higher commission ratios and then a reduction in share of agricultural insurance in the premiums, agriculture has the lowest commissions and then average commission goes up year-on-year. We had higher margins in the loss ratio here. And this is an effect in terms considering the comparison basis and agricultural insurance had a significant reduction in the provision of insurance to settle. And here, especially considering the loss ratio, if we look at the third quarter, year-to-date numbers, all rates are behaving very well. and in commissions here, it has a positive effect on the brokerage business loss ratio, dropped in all business lines and G&A ratio, general administrative also dropped a little bit. Net -- recurring net income dropped. And here, the explanation for year-to-date, you can see net income growing 7% year-on-year and also a growth in the net investment income in the year-to-date numbers, 13% growth, same explanation combined with the loss ratio. Now going to pension business, year-on-year, dropping 19% in terms of contributions, very much affected by the IOF in allocations above BRL 300,000. So we had BRL 4 billion negative and BRL 9 billion in the year-to-date numbers redemptions increased year-on-year, 20 basis points and in year-to-date numbers it's low. So reserves growing 9% year-on-year in 12 months, a direct reflects of revenues with the management fees. And here, the balance, it's growing less than the balance because we are concentrating lower risk products, therefore, a smaller management fee. Looking at year-to-date numbers because of fewer business days. In net -- in terms of financial income, which has not been too favorable for Brasilprev especially because of reduction of IGP-M year-on-year. And this has been the main driver for the growth of our income, 19% year-on-year and 19% in year-to-date numbers too. On the next page, here we have premium bonds, Brasilcap, a very good performance. Collections grew 5% year-on-year, 9% in the first 9 months, reserves grew 6% year-on-year. And then we paid lottery prices which grew 42% year-on-year, high of 18% in the first 9 months. Net interest income very robust, 45% growth year-on-year in terms of volume and rates, especially because of Selic rate and increase in the net income of 130 basis points year-to-date, the same thing. And then the investment income is the main driver for growth. So Brasilcap -- so this is the net investment income percent, 31% year-on-year and 4% in year-to-date numbers. Now going to our brokerage business is 4% growth in brokerage revenues year-on-year, 5% in year-to-date numbers. And this is the result, here, you can see the breakdown of the brokerage revenues. So 77% coming from insurance was in '24, and there was a growth in the first 9 months, growing to 81.1%, also in higher -- an increase in premium bonds. Net margin has grown 3% year-on-year, 2 percentage points in the first 9 months of the year because of volume and Selic rate. And for this reason, net income grew at the pace that above that of revenue, 9% year-on-year and 9% in year-to-date numbers. This is the growth of the net income. And to end the presentation this is our guidance for 2025, noninterest operating result ex holding the range was between 1% and 4%. We delivered 5.9% in year-to-date numbers until September, and this growth will converge back to the range in Q4. Written premiums of Brasilseg, we expected a drop of 4% up to 1%. In the first 9 months, there's a drop of 7.9%, especially, as I said during the presentation, this performance of rural insurance affected this and is falling short from our expectations, but we are doing our best in all other lines where we can control better the situation to bring this year-on-year variation at least to the floor of our guidance. PGBL and VGBL pension plans reserves of Brasilprev, so we delivered 9% in the period of 9 months ended in September. These are the main highlights and now I will be together with Delano and Felipe for our Q&A session. Felipe Peres: [Operator Instructions] Our next question -- our first question actually comes from Tiago Binsfeld from Goldman Sachs. Tiago Binsfeld: My question is about Brasilprev. And so you assess the performance in terms of collections this quarter. So it's slightly above redemptions. It's not the different from the first half of the year, so before the tax, which to what seems to be a greater deviation was in portability. Are there any surprises in this breakdown? Or is this what you expected considering the impact of IOF? And also the action plan of the company to handle that. How do you see the main actions to mitigate this more slightly more challenging scenario? Delano de Andrade: Tiago, thank you for your question. Well, in fact, after the IOF changes, there has been impact in withdrawals, but almost 2/3 of the withdrawers seek private credit risk in competition, even though we have many funds in our portfolio self-managed portfolios, open multi-management funds we are not willing to take too much private risk. We are being very cautious in choosing also because considering we have high interest rates and also thinking of working in a very selective and careful way in order not to jeopardize the results of our customers. We are right now working not just in terms of changing the strategy to protect our basis SUSEP, info from August, we are market leaders. We have very strong origination, but we might focus slightly more on periodical allocations than major allocation. Focus more on permanent allocations than on -- rather than on periodical allocations which is what was -- had been going on until then. We have also been working to protect our basis in a slightly more seeking funds that are with the competition. We are also working to create new products. There's a new product that we have already launched an initial allocation of BRL 100, slightly more democratic to protect the base and to assure that we remain market leaders. Rafael Sperendio: Tiago mentioned something very important. So seasonally, the third quarter should be stronger. But in the end, it was not because of the IOF, and as Delano has just said. So there is some difficulty to adapt to this new environment especially the customers that are autonomous, and they have some cash flow concentration in some periods, there will be a limitation in investing their capitals in pension plans, and we need to focus recurrence, especially in PGBL and periodical monthly investments to try and work around this difficulty that we are having now in terms of raise new funds with the IOF being levied. Tiago Binsfeld: Thank you, Rafael and Delano. Just one question, when you look at the Q4 and also considering the guidance, which is around 9%. Rafael Sperendio: Well, Tiago, what we are seeing, that there was a peak between July and August, and we see the portabilities really growing and gaining speed. Today, we are having great difficulty to find issuances with a spread that is adjusted to risks that are interested -- interesting to allocate funds. So in fact, we are not seeing any high portability and with even a slowdown as compared to what we saw in the third quarter. Felipe Peres: The next question comes from Eduardo Nishio from Genial Investments. Eduardo Nishio: I have two questions. Number one, we are going to see a lower Selic scenario. But your top line is slightly suffering the pressures in terms of collection, both in insurance and pension, I think that the IOF really got in the way. In addition to IOF, which are the measures that you are trying to implement to make these numbers positive in your opinion, 2026, with everything that is going on, and we are expecting both in insurance and in pension if you could share with us the prospects for 2026 regarding these two topics. Also, there is a follow-up for the previous question. The portability rate has almost doubled to 3.5%. And has IOF really increased the aggressiveness by third parties in BB Seg considering that IOF is not charged on transferability and if we get at the same levels? Well, the question has been kind of answered, but is there a possibility of being slightly more aggressive in terms of portability of third parties? Rafael Sperendio: Thank you very much, Nishio, for your question. I'm going to answer your second question first. So it's difficult to tell how much of this comes, is because of IOF. Even though the transferability are related to players that, who are essentially focusing on transferability. So this didn't change with the IOF. Now whether there was more aggressiveness because of IOF, we don't know. It's difficult for us to tell and to quantify. But as I said in October, we see a slowdown, and this is a driver for transferability and this is nominal, and it is the return. And our base, as Delano said, and as I said before, and as I reinforced, our assets are essentially more concentrated in public bonds, which in terms of risk are safer than the private per nature. But as the market is more net, this has slightly more volatility in the return that we are reporting to our end customers. And then many times, they don't really like it, then they want to choose private credit because there is less liquidity, even though the risk is higher than it is with public credit. So this is the context we are experiencing, and this is what favored higher transferability in the third quarter. As the volatility goes down, and this is what we are seeing now in October rates closing, this is an additional component for the improvement of this competitive environment, we see transferability going down. So today, with information we have in October, and November, we are not seeing the same level of transferability that we saw in the third quarter. As to your first question, in this context, so IOF being charged, so they will be after BRL 600,000 per year. This was not expected, and we are still adapting to the new scenario. We are not going to go back to the inflow levels that we used to have until last year. This is going to be gradual work, as Delano said, of change and increase in the composition of the inflows with whatever frequency, whether it's monthly, quarterly, but this is long-term work. Now we need to expand our basis, having more recurrence and some customers do not mind paying the IOF and others depending on their properties, 5% of IOF really affects collection, and we will need to work with a higher frequency of investments, and this is along the year, this is gradual and takes a while for us to go back to the same level of gross inflows. In terms of insurance, so what do we expect in 2026? Even though it doesn't look like, it looks like our business is anticyclic because of the behavior of net income. But this is not the essence. It's relatively cyclic differently from other industries in the financial industry, but it depends on credit. So what we are seeing this year with a high interest rate was a reduction in origination in rural with the unique features and credit life that are having more difficulty, both in the origination of new credit and so that the credit life insurance is in there. For 2026, I'm going to use the assumptions based on interest rate cuts. We are expecting rates to go down as compared to 2025. And in itself, this will provide a better environment for credit origination, which somehow helps to go back to more appropriate levels for us to write premium first in credit life and then rural. So today, for 2026, we are working in a process of discussion in terms of our budget, a growth in almost all business lines and a growth is still at 1 -- high digit, especially thinking in terms of reduction of interest rates in 2026. Eduardo Nishio: Congratulations on your performance. Just a follow-up. As to the prospects for 2026, so this means that in theory, you're going to have growth in 2026, at least in top line. Interest rates. What is the level of interest rates you're working with for 2026 and the numbers that we see in consensus average Selic will be practically the same as 2025? What is your opinion about that? Do you agree with that? Or can we count on investment income more or less at the same level? Of course, you have volume to help, but an average Selic similar. Should we expect the same levels of investment income? Rafael Sperendio: Well, -- in order to avoid projections, I'm going to use what's implicit in the curve. So interest rate curves, 1 point reduction in average Selic. So our sensitivity to Selic in the bottom line is the same. So 1 Selic point up or down, it means BRL 100 million impact up or down. So today -- so if this is what happens in 2026, so a reduction in the curve, which is difficult for us to compensate in any other way. It's important to emphasize that another component that has favored our investment income along 2025, which is the gap between IGP-M and IPCA, the market projections indicate that there will be a slight deflation for the IGP-M and IPCA above 4. This has also contributed positive for our investment income, something that we cannot count on for 2026. So today, it's very difficult for us to work on prospects of stability or growth of the investment income of 2026. We are thinking in terms of a reduction. Felipe Peres: Our next question comes from Gustavo Schroden from Citi. Gustavo Schroden: I have two questions to ask. One is still in the dynamics of the premiums. So what do you expect? What can you share with us about the ratio between written premiums and earned premiums. So in terms of written premiums, we have a slightly more negative dynamic. And how should we think of the carryover in terms of earned premiums? So if you could share with us in terms of premiums written and premiums earned and then in 2025. And more specific question for Delano. Could you share with us something slightly more strategic since you take over the company, which are the main topics that you're going to address your challenges, the expected legacy for you to deliver now that you're leading the company? Delano de Andrade: Thank you so much, Gustavo, for your question. As I said just now, my main focus is going to be on seeking synergy between the invested companies so that we effectively have a customer-centered vision so that we can review our journeys, focusing on improving satisfaction, increasing our customer base and making that customer base more profitable. And we are going to focus on operational efficiency. We'll seek to reduce expenses, and we are going to bring that in a positive way also to offset any possible impact in our financial -- in our investment income with interest rates dropping next year. So the idea is for us to continue focusing on innovation, improving our portfolio, improving how we meet the needs of our customers and the services that we provide to them, going to new business lines, combining business journeys between the different companies and favoring the economic growth of our company. I believe that the legacy that I hope to leave is a company that will not just be stronger economically, but also acknowledged as the best insurance company in Brazil. Rafael Sperendio: Well, Schroden, based on your initial question about earned -- premiums written and premiums earned. So we're still expecting to increase earned premiums with a low growth year-on-year. As I said before in the previous answer in terms of what we expect in terms of resuming growth, especially for credit life, but as credit life has a long time, this is not going to be translated in premiums written, and this is going to be a result that is going to be carried over more to 2027 than to 2026. For 2026, we still have a residue, so to speak, of past terms to accrue in the result, and this creates growth, but it's a low year-on-year growth that we are expecting for next year. Felipe Peres: Next question comes from Marcelo Mizrahi of Bradesco BBI. Marcelo Mizrahi: Good luck with the challenge. My question goes to the life farmer. So it's been very successful. So it's a very good level, so with this credit life for farmers. So could this product have the impact of this slightly more difficult scenario in agro? Could it remain resilient, keeping the same levels in the future? How should we think about the credit life for farmers looking into the future? And also about loss ratio, the loss ratio also considering credit life for farmers, it got my attention what it has in terms of the usual life insurance. How should we think about the loss ratio for this product? It's been going down over the last 3, 4 years. Or what should we think in terms of loss ratio for credit life for farmers looking into the future? Rafael Sperendio: Mizrahi, thank you very much for your question. I'm going to start with loss ratio. So speaking about the loss ratio, in terms of the lower loss ratio, also because it is a shorter product than traditional life insurance and with a lower average age. So it has a lower loss ratio. So what it carried over year-on-year, it explains part and we kept the maximum age for maximum capital protected, where we saw that there was room for an increase in risk taking. And then we had a high level despite the slowdown in agricultural insurance. So what we see for that in the future? I do not believe that it's going to be so closely related because farmers have an awareness of protection that is higher than urban citizens because of their experience of risk that they have in a day-to-day in the farm and also considering their experience that they have, even though this is a smaller public that experience they had during the COVID with more than BRL 1 billion that paid in damages during the COVID-19, more than half of that was to farmers. And this helps reinforce the culture of protection that they have. Now in fact, when we look at this growth rate year-on-year, it slows down because this adjustment between amount insured and age. So we started having a comparison basis that's slightly stronger. And the fourth quarter is going to be no difference. The space to penetrate is not as big as it used to be as it is in agricultural insurance. Marcelo Mizrahi: Now I have a question about the loss ratio of rural insurance as a whole. So there was some reversal in August, which is different from last year with a slightly more -- bigger loss ratio. So the costing gets the attention. So should we expect the loss ratio to go up in future quarters? Rafael Sperendio: Well, statistically, that makes sense in the last 3 years, there are 3 cycles in this -- because that were very favorable when we look at countrywide exposure to risk. Now today, in the more up-to-date projections, we are seeing an intensification of La Niña phenomenon in the fourth quarter, and this is likely to have some impact in the loss ratio for the summer harvest that is going to be collected early next year. But when we look at the sequence from the second quarter onwards for 2026, then there's a predominance of it being flat, which is favorable. So it is natural for the loss ratio to go up, especially for the crop insurance. But for now, we don't think this is going to be so significant as in terms of having a material impact in the bottom line, but there will be a higher level if we compare year-on-year. Felipe Peres: Now our next question comes from Maria Luisa Guede from Safra. Maria Luisa Guede: Now still on rural insurance, there are two things that I would like to explore on. Number one, still what Sperendio just said about loss ratio, but now talking about retention. We see the retention rate going up by a few percentage points. I think that with slightly more favorable loss ratio environment. So how do you see the retention thinking in future crops when the loss ratio might get slightly worse? And number two, I would like to understand, considering the bank negotiation program that was launched a while ago, was there any window of opportunity to embark rural insurance? And is there any upside related to that in the second quarter? Or there were no opportunities and the next premiums issued in terms of being related to the last crop. Rafael Sperendio: Thank you for your question. First, the second question. As to the renegotiation, yes, there is an opportunity, but we prefer to work as if it weren't there. We prefer to be slightly more conservative also because of the uncertainties related to the environment as to see something completely new, we prefer to have a slightly more conservative environment, and we are not seeing any upside. And also in terms of the guidance and the best efforts to try and have a variation rate closer to the floor of the guidance, but it is concentrated on other lines that do not depend so much on the rural segment, especially credit life. As to the question involving life insurance, what was your question about retention, especially for rural insurance? I remember now. Sorry, as to retention. Well, we -- so we grant to reinsurance risk, especially for the crop insurance. About 3 years ago, more or less, we conducted a quite deep assessment of the underwriting model, the quality of our portfolio, and we put that against a historical perspective to understand that, yes, we could retain more risk in our portfolio. So we did not just said, but we also worked on a very significant process internally to maximize the operations that we were -- for which we were getting reinsurance. But all the work ended up leading us to the conclusion of increasing retention, but in a conservative way. This was gradual along the last 3 years and the intention in year 3, 2026, we want to increase our retention slightly more. So increasing the retention on that risk in 2026. Felipe Peres: Our next question comes from Guilherme Grespan from JPMorgan. Guilherme Grespan: So I have two questions about rural insurance. It's about the lien insurance. There was an increase in average ticket. Is it related to pricing? Could you give us more details on magnitude? And my second question is about products. I think that there was a gap that is easy to close at [indiscernible]. I would like to explore with you the rural. So we are seeing significant changes in the industry in terms of losing loans against other types of products. Just as a reminder, so does your insurance today include other products other than banking loans and how do you compare? Could you just remind us about the different ways of funding for farmers? Rafael Sperendio: So answering your second question first, Grespan. Thank you. Today, we are working essentially in terms of costing for bank loans. So we are working with CPR in partnership with our investments in the platform, a joint investment that we have with Banco do Brasil. And then we do expect that to expand the scope of operation after 2026. So we are advanced not just in terms of crop insurance for CPR, but it includes the entire rural portfolio materialized in CPR. So life insurance, credit life for farmers and lien and crop insurance. So it's about the Lien. So there was a higher average ticket. Yes. And this is a recurring process that we do. So especially updating machinery equipment prices that were updated, but this was the main driver for the performance of lien insurance. So there is something related here to livestock lien, something that we are exploring more intensively. It's kind of new. I think it's two years old, and it has also contributed more significantly for the growth in lien insurance. Felipe Peres: Now our next question comes from Pedro Leduc from Itaú BBA. Pedro Leduc: So the first question is about the private -- about the credit life for private payroll loan. And the second question is about other lines that are becoming more important in agro credit and there are players other than BB. So how are you going in terms of trying to find new channels for your products? And so it didn't use to be so relevant in the past. Any updates, anything that we can see for the future? Rafael Sperendio: Thank you for your question, Leduc. As to the credit life for private payroll law, so right at the launch, it went very well. There was a slowdown in premiums now, but it has provided a significant contribution, something like BRL 168 million in premiums, new premiums. This is equivalent to the monthly production in terms of credit life here in Banco do Brasil. We still have room today when we look at the penetration in credit life and in the credit life for private payroll loans. So we will be able to use that opportunity as interest rates go down as expected in future years. So for now, it's difficult to attribute that -- to attribute a great growth in the short term. It's going to be diluted as interest rate goes down. As to partnerships in the agro segment, so all the effort that we made in the last 3 or 4 years to expand channels when our focus now is more concentrated on the rural segment where we have a competitive advantage, even more than in other segments. We still place great emphasis. We have expanded significantly the number of partners, but the transition today is very diluted in terms of small partners. So in future years, our intention is to focus slightly more on this segment and seek partners that have a higher capacity for the origination of risk. And this is -- this would be #2. And as I said in the previous answer, also expanding our niche of operation, not just in costing credit, the regular, but also in credits originated from CPR. Felipe Peres: Our next question comes from Carlos Gomez from HSBC. Carlos Gomez-Lopez: I wonder if you can give us a bit more detail about how the rural insurance is evolving. You mentioned that you have just started with the restructuring program from the government. But how have the last few months been compared to your expectations? And how do you think that we have reached a bottom in terms of credit and insurance origination in the segment? Rafael Sperendio: So when we assess the rural segment as a whole, Q4 regardless of renegotiations is likely to be a weaker segment for insurance. We do not concentrate major issuances of crop insurance. We have a program of renegotiation, and we are placing a focus on that, but we are not working with estimates for the cross-sell of insurance. And so we have life and then lien. So today, in the rural segment as a whole and everything that we are doing, even though we believe and we expect growth over a very weak basis that is becoming actual in 2025, it's still a period of adjustment, still very far from when we had more premiums being written in 2022, '23, we are not seeing this happening again in the short term. So as we see it, especially what's going on in the rural segment now is what happened to other industries after the pandemic. There was an imbalance between supply and demand, which went through an adjustment. And this is what is going on with the rural segment right now. Moreover, there was also a reduction in subventions, which has created an additional difficulty for us to be able to continue growing with crop insurance. As these many factors are rebalanced for the industry as a whole, we are likely to see crop insurance growing again also because, as we said in the beginning of the presentation, the penetration of crop insurance in the planted area in Brazil is very low. And so it's 7%, and we saw this number exceeding 10%. But the thing is we will be able to explore this opportunity better once we go through the adjustment, which is likely to happen a long time. It's not something that is going to take place in the short term. Carlos Gomez-Lopez: I mean you are talking about very low growth in premiums. You're talking about a decline in the financial income. Is it realistic to expect flat earnings for next year? Or we should expect a small decline? Or it is too early for you to tell? Rafael Sperendio: Well, overall, Carlos, it's very difficult to keep income stable or to grow in 2026. Today, according to our best estimates, we are seeing very robust performance in 2025, very strong bottom line this year. And as most of the market are aware of the numbers in the third quarter, we'll update their projections for the year and then realize what I'm saying now -- and -- but considering the information that we currently have for 2026 and in terms of a smaller investment income, which has a direct or immediate impact in terms of the growth in revenue and accounting deferral, this is something that happens over time. Today, the impact of the invest income and slightly higher loss ratio, even though it's marginally higher, it's difficult for us to be able to offset with the growth in sales, especially because of the accounting deferral. So today, the basic scenario, we are not working with stability or higher profit in 2026. Felipe Peres: Now we have one last question in the line coming from Antonio Ruette from the Bank of America. Antonio Gregorin Ruette: I would like to steer away from rural insurance and look into other lines and more specifically, credit life. Could you give us more details considering the cross-selling, considering individuals and companies. So there is a negative impact of companies. So I would like you to tell us a little bit more about that. How is penetration evolving? And so there is a significant decoupling between credit life. So could you tell us how penetration is evolving and what you expect in the future? Rafael Sperendio: Antonio, thank you for your question. Well, we assess the behavior of the credit life portfolio just as we are considering the credit cycle. 10 years later, it's not too different from what we saw in 2015, considering the perspective of BB Seguridade. So the breakdown between individuals and companies. So for what we consider eligible today for individuals, this is a portfolio with a risk that is very much under control. It's very resilient. So what we have been feeling in terms of individuals, this is more an issue of interest rates and impact of the higher rate and maybe the insurance, whether it fits into what customers think is appropriate for their payment capacity. But this is not something that has any significant impact. And also the credit life for individuals, it's low. I can't really remember. It's about 2%. It's quite low. Now in terms of companies, especially where we have exposure in terms of micro, small and middle-sized companies, this is where we feel the raise in interest rates. And when we look at year-on-year numbers, so the net issuance for individuals is about BRL 80 million. So this is a level that is well below what we had been having. This number was not negative just because of the increase of new lines, as Delano said, so we are operating with [indiscernible] and all these lines have brought in a new public, a new audience that made it possible for us to bring corporate credit life to the positive side. So as we saw 10 years ago in terms of credit, so this is more concentrated in small and middle-sized businesses. This is where this is slightly more difficult. As interest rates drop, this is a segment that reacts quite fast, and it will contribute to a healthier level of premium originate. Antonio Gregorin Ruette: But in the case of small and midsized businesses, so is it like it is for individuals, it's the rate and higher interest rate and then the price of the installments cannot be included. Rafael Sperendio: Yes. But this is a more sensitive audience. So this is very much focused on civil servants and the INSS, the public and the social security of Brazil. So this is less affected than companies, but the origin is the same. It's just a matter of sensitivity. Antonio Gregorin Ruette: Well, nice, if I could follow up. I think Schroden asked you about what you can do in the company's strategic agenda. And you talked about an efficiency agenda. Is there something more specific that today you think you could do? Rafael Sperendio: Well, there's lots of opportunities in terms of productivity and operational efficiency. As a whole, we have lots of redundancies, and this is something that we will not be able to completely eliminate considering all the portfolio with different partners in different businesses. But yes, there is room for improvement, and we have the intention to place great emphasis on that in 2026, which is a variable that's slightly more under our control. Felipe Peres: We are going to go through some questions that came in writing from the Q&A. So there are many questions, many of them have already been answered live. We just have a few ones. I think that one that we must answer and for you to start on the right foot is the renewal of the contract with Banco do Brasil and all the discussion of contracts, which is something recurring. Delano de Andrade: Thank you, Felipe. Yes, it was funny that no one had asked the question. We have no exposure, nothing on the table about contract renegotiation. This is going to happen at the right time. It would be impossible for me to tell a time for that to happen. And there is -- we are not expecting this to happen in the very short term. So as soon as we have -- we find the most appropriate time with Banco do Brasil, we are going to announce that. But for now, there is nothing on that area. Felipe Peres: Thank you, Delano. Another question that is also recurring about dividends. So the schedule for the payout of dividends and more specifically, if -- is it possible for us to have the extraordinary payout of dividends based on profit reserve? Rafael Sperendio: So as to the payout of dividends, -- so we have a quite robust cash, not just at the level of holding at BB Seguridade, but also at the brokerage firm, which might allow us to have a payout over the profit of the second half higher than what we had for the profit of the first quarter. But in principle, the basic scenario, we are not expecting to pay extraordinary payout of dividends. There should be a good balance between our brokerage business and is the holding BB Seguros and BB Seguridade so that there is no tax loss in the companies. So today, essentially, our expectation is to have a higher payout in the second half of the year, but we wouldn't work with earlier or advanced payment of extraordinary dividends. Felipe Peres: Thank you, Rafael. So in this manner, we finalize our questions. We would like to thank everyone for your participation, and I'm going to give the floor to Delano and Rafael to -- for their closing remarks. Delano de Andrade: So I would just like to thank you once again for your participation, for being here with us. and all questions that may not have been answered. So thank you all so much. I would like to thank everyone for your participation. Thank you very much for being here with us. And I would like to thank BB Seguridade team, all the investees and also Banco do Brasil and everyone contributed for our excellent performance. Thank you all very much, and have an excellent day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning. My name is Madison, and I will be your conference operator today. At this time, I would like to welcome everyone to Harmony Biosciences Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I will now turn the call over to Matthew Beck. Please go ahead. Matthew Beck: Thank you, operator. Good morning, everyone, and thank you for joining us today as we review Harmony Biosciences third quarter 2025 financial results and provide a business update. Before we start, I encourage everyone to go to the Investors section of our website to find the materials that accompany our discussion today, including the reconciliation of our GAAP to non-GAAP financial measures. At this stage of our life cycle, we believe non-GAAP financial results better represent the underlying business performance. Our speakers on today's call are Dr. Jeffrey Dayno, President and CEO; Adam Zaeske, Chief Commercial Officer; Dr. Kumar Budur, Chief Medical and Scientific Officer; and Sandip Kapadia, Chief Financial and Administrative Officer. As a reminder, we will be making forward-looking statements today, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties. Our actual results may differ materially, and we undertake no obligation to update these statements even if circumstances change. We encourage you to consult the risk factors referenced in our SEC filings for additional details. I would now like to turn the call over to our CEO, Dr. Jeffrey Dayno. Jeff? Jeffrey Dayno: Thank you, Matt. Good morning, everyone, and thank you for joining our call today. I want to start off by saying how proud I am of the Harmony team and their exceptional performance this quarter. It reaffirms Harmony's reputation for executional excellence. As we have shared, Q3 was a very strong quarter for Harmony. We reported $239.5 million in net revenue for the quarter, representing 29% growth year-on-year. And with this momentum, we recently raised our net revenue guidance for the year from $820 million to $860 million, taking it up to $845 million to $865 million. We had robust cash generation of $106 million, bringing our balance sheet to $778 million as of September 30. But what I am most proud of is that this performance was driven by the highest number of quarterly patient adds for WAKIX since our launch with an average of 500 patients added this quarter, resulting in an average of 8,100 patients on WAKIX at the end of Q3. Our Chief Commercial Officer, Adam Zaeske, will next be providing more color on some of the things his team is doing to drive this strong momentum in our WAKIX business. There are many different ways to measure impact. Delivering innovative treatments to patient populations living with unmet medical needs is a very meaningful one. With this sustained momentum, we believe WAKIX is rapidly approaching a $1 billion-plus blockbuster status in narcolepsy alone. Along with our very strong commercial business, Harmony also has a robust late-stage pipeline with multiple catalysts coming over the next several years. We continue to have firm conviction in our pipeline and full confidence in our R&D team to successfully execute on these programs. In fact, the IND for pitolisant HD, our pitolisant high-dose formulation has been submitted to FDA, and we are on track to initiate 2 Phase III trials, one in narcolepsy and in idiopathic hypersomnia or IH before the end of the year. Kumar will provide an update on our pipeline programs later in the call, including an update on the RECONNECT study in Fragile X syndrome. Turning to our balance sheet. With over $778 million in cash and cash equivalents, a disciplined approach to capital deployment and a team with extensive industry experience, Harmony is well positioned to strategically pursue value-enhancing assets to add to our pipeline and build a broader product portfolio. That is our intent and a key component of our vision to become the leading patient-focused CNS company, delivering innovative treatments that can help even more patients living with unmet medical needs. We believe that we have built something rare in our industry, a profitable, self-funding biotech company with an innovative catalyst-rich pipeline poised to deliver meaningful value for both patients and our shareholders. It is because of this unique profile that we continue to execute from a position of strength. And coming off of our exceptional Q3 performance, we believe that Harmony is one of the most compelling growth stories in biotech today. With that, I'll turn the call over to Adam Zaeske, our Chief Commercial Officer, for an update on our outstanding commercial performance. Adam? Adam Zaeske: Thank you, Jeff. Harmony's Q3 2025 results were the strongest we've seen since launch. WAKIX delivered $239.5 million in net sales for the quarter, representing nearly 30% year-over-year growth in its sixth year on the market. WAKIX achieved a record increase in approximately 500 average patients for the quarter. This represents the highest quarterly increase we've ever seen and comes after the Q2 increase of approximately 400 average patients, which has only been achieved twice previously. As a result, WAKIX achieved approximately 8,100 average patients for Q3, exceeding our previous guidance of achieving nearly 8,000 patients by a full quarter. The foundation of WAKIX performance has always been the unique position WAKIX owns as the only nonscheduled treatment option, resulting in its broad clinical utility. WAKIX enjoys extremely high brand awareness, is perceived as efficacious and well tolerated and is supported by broad payer coverage that has remained consistent for years. In addition to this, I'd like to highlight some recent areas of focus. We have adjusted our field sales deployment, call plan and messaging and continue to deliver sound sales execution. We've refined our promotion and messaging. We've secured important new payer coverage wins, which continue to expand our already broad payer coverage. And we have made improvements in how we support patients moving from a WAKIX prescription to dispense, reflected in higher rates of conversion and shorter times to dispense. Much of what we're focused on are the fundamentals from sales execution, marketing and promotion, payer coverage and patient support. The adjustments we are making are delivering results, and we will continue to look for additional opportunities in all areas moving forward. As we look to the fourth quarter of 2025, we expect continued growth in average number of patients and momentum. As a result, we recently raised our full year revenue guidance of $820 million to $860 million to the high end of the range between $845 million and $865 million, and we are rapidly approaching achieving $1 billion plus in annual revenue from narcolepsy alone. Looking to the future, the pitolisant GR and HD formulations each target significant unmet patient needs while extending our growth potential with utility patents filed through 2044. Early feedback from physicians and payers on the HD formulation has been particularly encouraging, and we will be able to leverage our commercial infrastructure to drive the next phase of growth through our pitolisant franchise formulations. In summary, the performance of our business has never looked better, fueled by a highly differentiated product, a focus on fundamentals and excellent execution across the organization. We are confident in our continued growth and performance moving forward. And now I'd like to turn the call over to our Chief Medical and Scientific Officer, Kumar Budur, to discuss the advancements in our clinical development programs. Kumar? Kumar Budur: Thank you, Adam. Good morning, everyone, and thank you for joining us today. We continue to make good progress in R&D with 3 Phase III registrational studies ongoing and anticipate up to 5 Phase III registrational studies in 5 distinct indications by the end of the year. And we have some important updates to share on the next-gen pitolisant programs. Starting with our Sleep/Wake franchise, we continue to make significant progress across our next-gen pitolisant programs. I'm pleased to report that we have submitted the IND for pitolisant HD to the FDA. The pitolisant HD program, an enhanced formulation with an optimized PK profile and higher dose, targeting enhanced efficacy for excessive daytime sleepiness and pursuing a differentiated label with an indication for fatigue in narcolepsy is on track for Phase III initiation in Q4 2025. Similarly, the Phase III study with pitolisant HD in patients with idiopathic hypersomnia is also pursuing a differentiated label with an indication for sleep inertia, and we are on track for initiation in Q4 2025. The target PDUFA dates for both programs are in 2028. The other next-gen pitolisant formulation, pitolisant GR, is designed to minimize the potential for treatment-related GI side effects, especially since almost 90% of patients with narcolepsy experience comorbid GI symptoms. In addition, pitolisant GR also provides an ability to start at the therapeutic dose range at 17.8 milligrams, eliminating the need for titration, an important differentiation. To demonstrate this, we conducted a dosing optimization study, which is now completed. We are excited to share that in this study, patients with narcolepsy started pitolisant GR at 17.8 milligram and 100% of the patients, that is all 46 of 46 patients were able to initiate pitolisant GR at the therapeutic dose of 17.8 milligram with no safety or tolerability issues. In addition, 98% of the patients who received pitolisant GR 35.6 milligram at week 2 tolerated the higher dose well. No new AEs or SAEs were observed from this study. Pitolisant GR is a fast-to-market strategy designed to demonstrate bioequivalence to WAKIX formulation. The top line data from the pivotal BE study is on track for Q4 2025 with a target PDUFA in Q1 2027. Utility patents have been filed for both pitolisant GR and pitolisant HD with potential exclusivity to 2044, securing long-term franchise value. Beyond pitolisant, our Sleep/Wake portfolio continues to advance with BP1.15205, a highly potent orexin-2 receptor agonist demonstrating best-in-class potential in preclinical studies. At the recent SLEEP meeting in Seattle and World Sleep Congress meeting in Singapore, we presented comprehensive preclinical safety and efficacy data that demonstrated efficacy at very low doses across all parameters of interest in a standard transgenic mouse model. We are on track to dose the first subject later this quarter, and we anticipate sharing clinical data in 2026. In the Neurobehavioral franchise, as we have already disclosed, the ZYN002 Phase III RECONNECT study in Fragile X syndrome did not meet the primary endpoint of improvement in social avoidance, mainly due to higher-than-expected placebo response. This is disappointing for Harmony and for the Fragile X syndrome community who continue to wait for approved therapies. The in-depth review of full data set is ongoing, and we plan to share additional information in the near future. The ZYN002 program in 22q deletion syndrome has been paused pending the full review of the RECONNECT data. In our Epilepsy franchise, we continue to actively enroll patients in 2 global Phase III registrational trials with EPX-100, the ARGUS study in Dravet syndrome and the LIGHTHOUSE Study in Lennox-Gastaut syndrome. EPX-100, our clemizole hydrochloride is a 5HT2 serotonergic agonist and works we are enhancing serotonergic tone, an established mechanism of action for developmental and epileptic encephalopathies. In addition, it has a unique safety and tolerability profile and the emerging safety profile is supportive of no requirements for additional laboratory or special safety monitoring compared to some of the drugs commonly used in these disorders. We will be presenting some of the efficacy data from the ARGUS open-label extension study and the safety tolerability data on EPX-100 at the upcoming American Epilepsy Society Meeting in December. Finally, on behalf of Harmony, I would like to thank all the patients and their families who are participating in our clinical trials as well as the clinical investigators and site personnel for their efforts and commitment in helping us to advance our development programs. I'll now turn the call over to our CFO, Sandip Kapadia, for an update on our financial performance. Sandip? Sandip Kapadia: Thank you, Kumar, and good morning, everyone. This morning, we issued our third quarter 2025 earnings release and filed our 10-Q, where you'll find the details of our financial and operating results. We delivered strong financial results in the third quarter with our highest quarter-to-date in revenues and cash generation. Our financial performance and profile positions us well to continue advancing our growth strategy for the remainder of 2025 and beyond. We reported net revenues of $239.5 million compared to $186 million in the prior year quarter, representing a growth of 29% year-over-year. The growth was driven by very strong demand for WAKIX as demonstrated by our record increase in average number of patients, along with an increase in trade inventories of a few days as we head into the fourth quarter. We reported total operating expenses for the third quarter of $114.3 million compared to $81.6 million for the same quarter in 2024. The expenses during the third quarter of 2025 included investments to advance our late-stage pipeline, a $15 million milestone for the completion of the enrollment of the ZYN002 trial as well as continued commercialization of WAKIX in narcolepsy. We also continue to show solid net income growth. Non-GAAP adjusted net income for the third quarter of 2025 was $63.5 million or $1.08 per diluted share compared to $57.3 million or $0.99 per diluted share in the prior year quarter. We believe non-GAAP adjusted net income better reflects the underlying business performance. Please see our press release for a reconciliation of GAAP to non-GAAP results. As previously mentioned, Harmony ended the third quarter with approximately $778 million in cash, cash equivalents and investments. The balance reflects strong cash generation, resulting in an increase of $106 million in the third quarter. We continue to actively pursue value-enhancing strategic opportunities to deploy our capital to expand our portfolio and drive value for shareholders. Looking ahead, in 2025, our strong performance through Q3 gives us increasing confidence in our full year outlook. We recently raised our revenue guidance from $820 million to $860 million to $845 million to $865 million. These results also gives us confidence that we are rapidly approaching blockbuster status for WAKIX in narcolepsy alone. With respect to expenses, we expect continued investment in R&D as we advance our late-stage pipeline with the start of 2 Phase III studies for our pitolisant HD programs. As a result, we expect to have 5 ongoing Phase III registrational programs by the end of the year. In addition, we also expect a milestone of $4 million in Q4 related to the initiation of our Phase I trial in our orexin-2 agonist program. In summary, we had very strong results for this quarter, along with positive momentum going into Q4. That, along with our strength of our balance sheet, puts us in a solid position to accelerate our growth strategy and drive value for shareholders. And with that, I'll turn the call back over to Jeff for his closing remarks. Jeff? Jeffrey Dayno: Thank you, Sandip, and my thanks to everyone for joining our call today and for your interest in Harmony Biosciences. In closing, I am very proud of our team's exceptional performance in the third quarter and energized by our progress. Let me highlight a few key points to leave you with. First, we delivered a very strong quarter with 29% year-on-year revenue growth, driven by a record number of an average of 500 new patient adds for the quarter. With this sustained momentum, we believe WAKIX is rapidly approaching a $1 billion-plus blockbuster status in narcolepsy alone. Looking ahead, our late-stage pipeline remains robust, and I continue to have strong conviction in our pipeline programs, which are making excellent progress. Lastly, we continue to strengthen our unique profile of being a profitable, self-funding biotech company with an innovative catalyst-rich pipeline poised to deliver meaningful value for patients, providers and shareholders alike. We believe that this is what makes Harmony one of the most compelling growth stories in biotech today. Thank you. And I will now turn the call back over to the operator for Q&A. Operator? Operator: [Operator Instructions] And we will take our first question from Ami Fadia with Needham. Ami Fadia: [ Congratulations ] on the strong third quarter. My first question is just around kind of your guidance. You've obviously raised your guidance. And even if we look at the year-to-date performance compared to the full year 2024, there's certainly acceleration in the new patient adds this year. So if you could sort of elaborate on how you see the trajectory of WAKIX evolving? It's certainly several years into the launch, but it appears that there is acceleration here. So if you could comment on how you see that evolving into 2026 and if that can be sustained? And then I have 1 or 2 other questions. Jeffrey Dayno: Ami, thank you for your question. I'm going to turn it over to Adam to speak about in terms of the trajectory of patient adds and the strong fundamentals there. And then Sandip can comment on kind of our thoughts and position on guidance. Adam? Adam Zaeske: Yes. Thanks, Jeff. Ami, thanks for the question. So yes, performance is going to be driven fundamentally by patient adds. And as you saw, we're extremely pleased with the quarterly increase in average patients of 500. We haven't seen that high of an increase ever since launch. And it comes on the back of a solid Q2 increase of 400 patients, which we had only seen twice previously. And the last time we saw an increase of 400 patients was, I think, early in 2022. So we're very pleased with the underlying performance of the brand and the fundamentals remain strong and that momentum we expect to carry forward into Q4. But Sandip, do you want to share your thoughts on that? Sandip Kapadia: Yes. No, absolutely. As mentioned on the call, I mean, we recently raised our guidance from $820 million to $860 million to $845 million to $865 million. As reflected in the guidance, we saw really good strong demand, as Adam just talked about. We did also see a slight increase in trade inventory during the quarter, which obviously had an impact. As you may recall, in Q2, it was the opposite. We saw a bit of a drawdown. Again, it's typical wholesaler ordering patterns. Thing is it's hard to predict these things as we go into Q4, but we feel very good about the top line demand growth because ultimately, that's what helps drive revenues at the end of the day. And so what we're seeing, we're very optimistic about top line growth in terms of patient adds as we go into the next quarter. And with regard to revenues, it's really just a question of where we end up with trade inventory sometimes at year-end, it's hard to predict. So again, it's going to be a very strong year, well ahead of our original guidance, again, ahead of our guidance in terms of net patient adds for the year. We had originally guided to about 8,000 patients, and we're well ahead of that as well by year-end. So really, we're going to see great momentum going into the end of the year on top line demand and certainly going into 2026. And of course, we're rapidly approaching blockbuster status for WAKIX. Jeffrey Dayno: Yes. Yes, Ami. And I would just add that I think, obviously, we're very pleased with the recent trends, and we're following them in terms of how that will sustain us going into the future. But underlying fundamentals remain very strong. Pleased with, obviously, some of the things Adam has done with the commercial team, and that positions us well going forward. Ami Fadia: Great. And my next question was just for Kumar. With regards to the GR formulation, can you give us some color on what were the GI AEs seen with the GR formulation and how did the grade or frequency of those AEs compared to the in-market WAKIX sort of titration in the initial dosing period? Kumar Budur: Yes. Ami, thanks for the question. What we are disclosing right now is no new safety or tolerability issues were observed with the pitolisant GR formulation, no serious AEs were observed. The safety and tolerability was, in general, consistent with the established safety tolerability profile of pitolisant GR. We will be disclosing the full data set in upcoming meetings. Haven't decided when exactly. But what's important from the pitolisant GR formulation, Ami, is we initiated 46 patients with narcolepsy with pitolisant GR at 17.8 milligrams. And all of those patients were successfully able to tolerate 17.8 milligrams and about 98% of the patients who went to get 35.6 milligram after 1 week of pitolisant GR, 98% of them were able to tolerate pitolisant GR 35.6 milligram. And this is an important differentiation because if you look at the medicines that are approved for patients with narcolepsy, every one of them, including pitolisant has some level of titration and getting rid of the titration will have the patients to start at the therapeutic dose range, potentially can experience efficacy earlier, potentially less number of dropouts and potentially better overall patient experience. Ami Fadia: If I could just squeeze in one more other quick question. If you could just elaborate on some of the details of what we should expect from the ARGUS open-label extension data at AES in December? Kumar Budur: Yes. Thank you, Ami. Yes, we do -- we will be presenting some efficacy data on EPX-100 from the ARGUS open-label extension study. And we'll also be presenting safety and tolerability data from EPX-100 from the same study, ARGUS double-blind randomized study and also the open-label extension study. You'll see the overall efficacy, the safety, tolerability offers an overall very unique benefit risk profile for patients with developmental and epileptic encephalopathies. In this particular instance, particularly the data that we'll be sharing is in patients with Dravet syndrome. Operator: And we will take our next question from David Amsellem with Piper Sandler. David Amsellem: Just a couple for me. First, I wanted to get your latest thoughts on biz dev and M&A, particularly in light of the failure of Zygel. Are you thinking more expansively regarding acquisitions? Are you open to more of a sizable transaction, perhaps a market-ready or commercial stage asset? Just trying to get a sense philosophically for where your heads are at. That's number one. And then number two, looking a bit longer term regarding WAKIX with the introduction of the first orexin agonist coming potentially before the end of '26, and I know it's just NT1, how are you thinking about the trajectory of WAKIX beyond '26, specifically in '27 with oveporexton potentially in the market? Jeffrey Dayno: David, thanks for your questions. So first, with regards to biz dev and our sort of thinking there. I mean, it really hasn't changed. We have always been focused on business development, being strategic, thoughtful in how we deploy our capital as we have built out our pipeline, obviously, the Zynerba acquisition and then Epygenix. I think at this point, despite the Fragile X data readout, it doesn't really change our strategy. We have a dedicated BD team focused on sort of search and evaluation. And at this point, it really is our intent with our strong balance sheet to pursue innovative assets to build out our pipeline to grow our product portfolio. We are actively evaluating several, and that is our plan, but the strategy remains the same. Our focus in orphan rare CNS disorders to be strategic within the current franchises, but also looking at adjacencies potentially in broader neuro indications where we could utilize the proven commercial engine. So the strategy remains the same. I think a bit more focused with regards to our intent to move forward with business development when we find the right opportunities for us. And I'll turn to Adam in terms of thoughts on WAKIX performance in the setting of emergent orexins. Adam? Adam Zaeske: Yes. Thanks, Jeff, and thanks for the question, David. Look, we're excited about orexins, obviously, because we have one of our own, but it's also an important potential new treatment option for patients. And we remain confident in our ability to grow and perform with WAKIX well into the future. And there's a couple of reasons for that. The first is just the approach to therapy in this market. The hallmark of treatment is polypharmacy. You have a high majority of patients that are on 2 or more therapies, and that will continue. We've recently verified that in market research that we've done speaking with physicians, and they expect that to continue as well. But also, if you just look at the history of WAKIX, WAKIX performance has been extremely steady regardless of new entrants, whether it's brands or generics. And we would expect that to continue as well. In fact, if you look at kind of the narcolepsy market in total, any time there's been a new brand entrant, it tends to expand brand utilization. And we would expect a similar phenomenon with an orexin launch when those come to market. But we're also highly confident just because WAKIX is a highly differentiated product. It's the only nonscheduled treatment option. Physicians will have had 7, 8-plus years of clinical experience by the time of orexins launch, and it holds a unique position in the minds of health care providers. They're highly familiar with it, provides strong efficacy and is -- and they believe it's very well tolerated. So it can be added to combinations of therapies across a very broad selection of narcolepsy patients, and that will continue as well. We continue to hold that position. So for those reasons, I think we're very confident in our continued growth and performance well into the future. Operator: And we will take our next question from Graig Suvannavejh with Mizuho. Graig Suvannavejh: Congrats on the progress. One question for me, just going back to the 2025 guidance. It was nice to see a raising of the guidance. But if you do the math, it does imply fourth quarter sales for WAKIX in the range of, I think, $221 million to $241 million. And on a quarter-over-quarter basis, that's essentially flat or down on a quarter-over-quarter basis. So can you just provide more color on how we should be thinking about whether it's net patient adds or gross to net or seasonality when trying to model fourth quarter? I know you -- Sandip had mentioned some inventory could be a factor, but any other color would be great on the fourth quarter, especially given the great momentum on net patient adds. Sandip Kapadia: Yes. Thanks, Graig, for the question. Again, I think we saw great demand in terms of top line growth that we expect to continue as we go from Q3 to Q4 as well. I think we did -- as I mentioned, we did see a few days of trade inventory increase in Q3, which impacted the sales positively. Just as I mentioned in Q2, it's quite the other way -- the other direction. Right now, I mean, we feel very good about the range that we've put out there. We recently raised it, as you mentioned. This gives us great confidence and I'm sure like every team, I mean, we'll do everything we can to certainly not only meet but potentially exceed the range as well. Again, it's hard to predict again Q4 because there are typical variabilities as you come to Q4, especially around brand and holiday and so forth. So we feel good about where it is. It's very robust growth year-over-year. It's going to be a robust growth over prior year. And we see, again, WAKIX very quickly approaching blockbuster status as we go into '26 and beyond. Graig Suvannavejh: Great. If I could ask a follow-up. Just your net cash position is building quite nicely. I'm sure there are various views on how to deploy that cash. Wondering if maybe in an answer that might be slightly different from David's question on BD, what are your kind of current thoughts on how best to deploy that nicely accruing cash balance? Jeffrey Dayno: [ Sandip ]? Sandip Kapadia: Yes, sure. I mean, look, we -- as Jeff mentioned, I mean, we continue to look for business development opportunities. I think that's been a strategy for us for many years now. And we see attractive opportunities out there that we could potentially transact. And we have, again, a continued growth in terms of cash. We had very strong cash generation last quarter of $106 million, $778 million at the end of the quarter. And I think that gives us increasing confidence that we -- but again, we're going to be, I would say, thoughtful in terms of how we deploy our capital. I think we certainly have multiple ways in which to drive value for shareholders. Certainly, more recently, we've been prioritizing business development. But in the past, we've also done share buyback as well as an opportunity. And again, at the right time, we'll look at various opportunities to drive value for shareholders. Graig Suvannavejh: Yes. Jeffrey Dayno: Graig, I'll just go ahead. No, no, I appreciate the question. I just want to reiterate, I think while one can never predict the timing in terms of business development transactions, as Sandip alluded to, we have optionality, but our focus and our intent is really to pursue innovative value-enhancing assets. We want to build our pipeline. We see that's where the value is going forward as well as build a broader product portfolio in terms of -- we have a strong commercial engine. We want to continue to utilize that with additional products. So that is our intent, and we have a strong balance sheet to execute on that. Operator: And we will take our next question from Jay Olson with Oppenheimer. Jay Olson: Congrats on the quarter. Can you talk about your life cycle management plan for pitolisant GR and HD with regards to new patients? And then which patients currently on WAKIX are the best candidates to benefit from GR and HD? And then for your orexin-2 program, what would you like to learn from your Phase I study? And any lessons learned from the Alkermes and Takeda data at World Sleep? Jeffrey Dayno: Yes. Jay, thanks for your questions. Adam, our life cycle management strategy with regards to patients that would benefit from the formulation. Adam Zaeske: Yes, we're really excited about the 2 life cycle management formulations, the GR and the HD. GR is kind of a fast-to-market strategy. And the strategy there would be any patient -- any new patients that would have been prescribed WAKIX would be prescribed the new pitolisant GR formulation as well as we have the ability because we obtain consent from patients when they start WAKIX therapy. We would also be able to recontact patients that may have been on WAKIX previously but have discontinued to see if pitolisant GR could be an option for them to consider as well. So for GR, it's really around new WAKIX patients and previous patients. And then where the HD comes in with a greatly differentiated profile, we would see the strategy there focusing on not only new WAKIX patients and previous patients, but also existing WAKIX patients. And that's where the transition potential comes in. And we've conducted market research around this. HCPs respond very favorably to the profile of HD. They view it as clinically significantly differentiated, actually superior. And in market research, they tell us they would consider transitioning the majority of their patients that maybe are better but not well. And so that's the strategy for HD. And then both formulations have utility patents filed through 2044. So it really allows us to expand and extend our Sleep/Wake franchise well into the future. Jeffrey Dayno: In terms of our [ orexin-2 ] agonist program and learnings from some of the other development programs. Kumar Budur: Sure. Thank you, Jeff. Jay, thank you for the question. Yes, we are on track to initiate the Phase I study with our orexin-2 receptor agonist this quarter. As we have disclosed in the past, we will be starting a healthy volunteer single ascending dose study. And in parallel, we'll be conducting a sleep-deprived healthy volunteer study as well to bracket the dose a bit. And we are closely watching the data that came out of World Sleep Congress from other orexin receptor agonists, especially as it relates to dosing and the safety and tolerability profile alongside the efficacy. We have one of the most potent orexin receptor agonists based on all the publicly available data, and it lends itself to target the central [indiscernible] on NT2 and idiopathic hypersomnia at very low dose, providing us the dosing flexibility to target these 3 indications. And we are also trying to see how we can accelerate our own program based on the data that is coming out from the other orexin receptor agonists. And you'll be hearing more from our own orexin receptor agonist when we initiate the first-in-human study. And we also anticipate to share some of the clinical data in 2026. Operator: And we will take our next question from Pete Stavropoulos with Cantor Fitzgerald. Pete Stavropoulos: Congratulations on the progress. Could you just touch on EPX-100 epilepsy program? Any clinical data that has been generated and disclosed that sort of gives you confidence in the Dravet and LGS program? Any details on efficacy, durability and safety? And can you also give us a sense of how enrollment is going in the Phase III studies? Any granularity on timing of data or when you expect to complete enrollment? Jeffrey Dayno: Pete, thanks for your questions. I'll turn to Kumar for some more color on the EPX program. Kumar Budur: Yes, Pete, thank you for the question. Yes, I mean, we are excited to share some of the efficacy data at the upcoming American Epilepsy Society meeting in December. As I mentioned earlier in the call, we will be sharing the data from the ARGUS open-label extension study, that's the study in Dravet syndrome. In terms of your question around recruitment and enrollment, yes, I mean, we continue to recruit patients in both ARGUS study and the LIGHTHOUSE Study, that's Dravet and LGS studies, and we anticipate to share top line data in 2026. We'll be providing more granularity in terms of time lines as to the progress with the enrollment. Pete Stavropoulos: And any thoughts on taking EPX-100 into other DEEs or other DEEs remain the focus of EPX-200? Kumar Budur: Yes, Pete, great question. Thank you. Look, there is this discussion around DS, LGS pursuing separately versus going with a broader DEE indication, right? So there are pros and cons with each of these approaches. But right now, we are focused -- laser-focused on Dravet syndrome and Lennox-Gastaut syndrome. We want to keep it that way, mainly to maintain the homogeneity of the patient population and try to get to the top line data as soon as possible and try and help these patients with a product profile, which is very favorable, not just from an efficacy perspective, but also from a safety and tolerability perspective. Jeffrey Dayno: Yes. And Pete, maybe one addition just to remind everyone. So EPX-100, clemizole hydrochloride. So a first-generation antihistamine that was in the market for about 20 years with a proven safety tolerability profile. And in the overall sort of risk benefit in these sort of therapeutic options with other indicated agents such as Epidiolex and the need to monitor LFTs or FINTEPLA with echocardiograms required in the REMS program because of cardiac valvular disease, the risk there. So there is sort of a proven safety tolerability profile. And in the overall kind of risk benefit, we see the opportunity there as we go forward and generate efficacy data in both Dravet and LGS. Operator: And we will take our next question from Danielle Brill with Truist Securities. Danielle Brill Bongero: Congrats on the quarter. Maybe just 2 quick ones from me. Do you have any sense of what proportion of your 8,100 patient base is NT1 versus NT2? And then what findings, if any, in the Fragile X data set would make you consider reactivating the q22 (sic) [ 22q ] trial? Jeffrey Dayno: Danielle, thanks for your questions. Adam, breakdown of patients on WAKIX. Adam Zaeske: Sure. Thanks for the question. It's been very consistent actually for the last several years. We see about 45% of patients from NT1, 55% from NT2, and that's been very stable. Jeffrey Dayno: Okay. Kumar? Kumar Budur: Yes. Danielle, thank you for the question. We are right now conducting an in-depth review of all the data from the RECONNECT study. As mentioned previously, the Fragile X syndrome study did not read out as expected, mainly because of the larger-than-anticipated placebo response. Right now, we are conducting a number of post-hoc analysis. It's very hard to say at this point in time what kind of data sets we need to see before we embark upon 22q deletion syndrome Phase III study. Once all these data sets are available, we will make a decision based on the data that we see. And we should be able to complete this work by the end of this year, and we should be able to provide some update on the Fragile X syndrome study itself and also the implications on 22q deletion syndrome early next year. Operator: And we will take our next question from Corinne Johnson with Goldman Sachs. Unknown Analyst: This is [ Anupam ] on behalf of Corinne. Maybe one question for Kumar. Can you talk about the effect size you are powering for the Phase III pitolisant HD study to show on ESS scale? And what do you think a clinically meaningful difference would be in comparison to the current WAKIX in order to support the HD use? I think the WAKIX shown around 12- to 13-point final ESS score. Any color on that? Kumar Budur: Thank you for the call -- thank you for the question. Look, I mean, pitolisant HD, it's an enhanced formulation -- it's an enhanced next-gen formulation. It's not just the high-dose, but it's also -- it also has an optimized PK profile. Based on the dose response that we have seen with pitolisant in the pivotal narcolepsy clinical trials and also the studies that we conducted in Prader-Willi syndrome and also in myotonic dystrophy and the dose -- and the exposure response data, some of the exposure response data that we have, we anticipate a meaningful increase in the efficacy from an excessive data and sleepiness perspective. But it's also important to note that we are not just targeting excessive data and sleepiness. We are also targeting fatigue in patients with narcolepsy for which there are no approved treatments. And we are also targeting sleep inertia in patients with idiopathic hypersomnia for which there are no approved treatments. And we plan to accomplish all of this without compromising on the safety or tolerability profile of pitolisant. In fact, we conducted a Phase Ib study where we studied pitolisant up to 180 milligrams, which is up to 5x the maximum label dose of WAKIX. And the safety and tolerability profile in general was similar to what we see with WAKIX. So what it means at the end of the day is a very unique benefit risk analysis with established safety profile, established tolerability profile, larger efficacy in excessive daytime sleepiness, targeting symptoms like fatigue in narcolepsy, targeting symptoms like sleep inertia in patients with idiopathic hypersomnia, all while maintaining the nonscheduled status and a very simple dosing regimen of taking pill in the morning. So that's what we plan to accomplish with pitolisant HD. Operator: And we will take our next question from Patrick Trucchio with H.C. Wainwright. Patrick Trucchio: I was wondering if you could elaborate a bit more on the sustainability and as well the drivers of the record approximate 500 patient add in the third quarter. And if we should expect those drivers to continue in the fourth quarter, but as well in 2026? And then separately, on pitolisant HD, I think you mentioned strong early feedback from physicians and payers. I'm wondering if you could elaborate on what's resonating most and as well the implications for the Phase III development program. Jeffrey Dayno: Patrick, thank you for your questions. Adam? Adam Zaeske: Yes. Thank you for the question. So we're really pleased with the momentum we're seeing in increases in patient adds, as you mentioned. And the drivers, look, I think it starts with WAKIX is a highly differentiated product. It's the only nonscheduled treatment option. And that is combined with strong execution across the organization. So if you think about sales effectiveness and execution, marketing and promotional excellence, payer coverage, patient support, we've made adjustments in all of these areas. And we're seeing those adjustments delivering the performance that you're seeing and have confidence that, that momentum will definitely carry forward in Q4 and into 2026. Jeffrey Dayno: Okay. And Patrick, your second question? Adam Zaeske: Yes. So around the HD. And so what resonates, what resonates is the promise of improved efficacy, the no titration starting at a therapeutic dose and unique indications, especially around IH and fatigue. We know that 60% of narcolepsy patients present with fatigue. This would be the only product that has the indication for fatigue in narcolepsy. And they view that as highly differentiated. So I mentioned the feedback from HCPs, but we've also done research with payers. And the response is that we would expect broad payer coverage for the HD product with minimal step edits for WAKIX or no step edits actually prior to LOE. And even after LOE, only some mentions of perhaps some step edits, but only for patients that have never had any experience on WAKIX before, which at this point, I guess we'll be at, what, 8-plus years in the market by then. The vast majority of patients will have had some experience with WAKIX at some point in the past. And then, of course, any patient that presents with fatigue would also not be subject to any step edits through WAKIX even post LOE. So we would expect broad payer coverage pre and post LOE supporting the product and its uptake. Operator: And we will take our next question from Jason Gerberry with Bank of America. Unknown Analyst: This is [ Bhavan ] on for Jason. Just 2 questions from us. The first is on EPX-100. You have 2 Phase III readouts expected in 2026. So maybe if you can just speak to what you've learned from the Fragile X syndrome as well as the prior idiopathic hypersomnia study about managing placebo response in these types of neurodevelopmental studies? And then the second question is on WAKIX. Can you just speak to where new patient growth is coming from? Are you activating new prescribers? Or is the growth primarily from deeper penetration within existing writers? Jeffrey Dayno: Thanks, Bhavan, for your question. Kumar, on EPX-100? Kumar Budur: Yes. Thank you for the question. With the EPX-100, I mean, as you know, what we are studying here is the seizure frequency, which is slightly different from what we studied with ZYN002 in the Fragile X syndrome. Placebo response in general is part and parcel of all neuropsych trials, especially psych trials with behavioral endpoints like Fragile X syndrome. And we had multiple checks and balances within the study to manage the placebo response. With the EPX-100, it's slightly different in the sense seizure frequency is much more observable and much more definitive compared to some of the behavioral symptoms. So these are 2 distinct indications with the distinct endpoints. But to your point, in general, yes, I mean, placebo response can happen in any clinical trials, and that's something that we are watching. And we have checks and balances with our EPX-100 ARGUS and LIGHTHOUSE clinical trials as well. Jeffrey Dayno: Okay. Adam? Adam Zaeske: Yes. And then in terms of WAKIX new patients, so the short answer to your question is we see both new patients from increased penetration of existing writers as well as the addition of new writers. We see quarter-over-quarter a pretty steady increase in new writers every quarter, and that's continued for the past several years, and we would expect that to continue. A little bit more detail. Remember, we call on actually more than 9,000 physicians, and that's 4,000 that are enrolled in the oxybate REMS programs, but also more than 5,000 that are not enrolled in oxybate REMS programs. We have the ability to call on both of those sets of physicians. And in both instances, we see increased penetration as well as new writers. Jeffrey Dayno: Yes. And I would just add -- yes. No, thank you for your question. Just to add at a higher level, just to remind everyone that this is a large market. So in terms of the continued growth of WAKIX, a highly differentiated product profile with broad clinical utility, the only nonscheduled product, which is meaningful as a former neurologist treating patients, very meaningful in terms of therapeutic options. But in a sizable market, 80,000 patients diagnosed. So as this market evolves and grows and more understanding, similar with the learning about fatigue as a prominent symptom in patients with narcolepsy, about 60%. So designing that into the pitolisant HD program. So I think that is the backdrop why we are confident, why the underlying fundamentals and the growth of WAKIX in narcolepsy and our excitement and confidence in the pitolisant HD program and pitolisant GR, I think that has a lot to do with it as well. Adam Zaeske: Yes, I think it's a great point, Jeff. I mean the fact that we're at 8,100 average patients now in a market of over 80,000 diagnosed patients, obviously, we have a lot of room to continue to grow. Jeffrey Dayno: Yes. And also in a polypharmacy market, I think as you're all familiar with, where any chronic neurologic disorders, it's rare that a single mechanism of action will be able to treat difficult-to-treat chronic symptoms. And I think this is what we're seeing as WAKIX continues to grow. Operator: And we will take our next question from Ash Verma with UBS. Ashwani Verma: Yes. So maybe just I wanted to get your latest thoughts on how you're thinking about the overall pipeline and diversification. I mean we've seen 2 different setbacks recently, first on the IH side and then on Fragile X. What gives you the confidence that the subsequent pipeline programs have higher chances of success? And then on the WAKIX $1 billion guide, is that something that you can achieve in 2026 just at the pace at which you're going and where 4Q is annualizing at? With Takeda's orexin expected to launch in 2027, what's your level of urgency to hit the long-term guide before the competitor entry? Jeffrey Dayno: Yes. Thank you, Ash. Let me start with the first question about our pipeline. And I just want to reiterate that I continue to have strong conviction in our pipeline programs, Kumar's leadership in our R&D organization, which has a lot of experience and expertise. We don't have time, but if you look at each of -- if you look at the IH study, if you look at Fragile X, there are good reasons in terms of the outcomes that we've sort of talked about. In the ZYN002 program, in talking with KOLs, unfortunately, that pattern, programs where there were positive Phase II data and a lot of expectation because there are no approved treatments and a high placebo response rate kind of got into multiple Phase III programs, which is the reason why none have been successful. We have learnings from that, and we will take those learnings going forward. But I think I continue to have conviction in EPX-100, our other pipeline programs. And Kumar, any additional thoughts? Kumar Budur: Yes, I think you covered it. Jeffrey Dayno: Okay. Adam Zaeske: Yes. And then thanks, Ash, for the question around achieving $1 billion in revenue. Obviously, it's a little bit premature to provide guidance for 2026 specifically, but we're seeing very strong momentum as you saw in Q3 and in Q2. We'd expect that momentum to continue in Q4 and well into 2026. And we're confident we will achieve $1 billion in revenue well before LOE. So confidence remains high. Operator: And we will take our next question from David Hoang with Deutsche Bank. David Hoang: So I want to ask on eligible patients for WAKIX -- sorry, pitolisant HD and GR. I think for HD, you mentioned new, previous and switch patients, I think, are all on the table. Just wondering what, in your mind, defines a good switch patient for going from WAKIX to HD? And then is switching -- would switching be an option for GR patients? Adam Zaeske: Thanks for the question. So I guess the switch patients, obviously, that's going to be determined by the health care provider, but we know that 75% of patients with narcolepsy continue to struggle with residual symptoms. And so if we're able to offer the HD product with an improved efficacy profile, but the same safety and tolerability profile that they're very familiar with on WAKIX, we would expect HCPs to consider their patients that potentially could benefit from a boost in efficacy and feel confident that they won't be introducing any new safety or tolerability issues. And also any patients that present with fatigue. And as I mentioned before, we know that 60% of patients with narcolepsy do present with fatigue. Those would be prime candidates for the HD as well. And then for the GR, yes, I mean, a switch would be an option certainly for the health care provider. In terms of our strategy, we'll be focused on new patients and previous patients, as I mentioned before. Operator: And I'm showing no further questions. I would now like to turn the call back for any closing remarks. Jeffrey Dayno: Thanks, operator. On behalf of the Harmony team, I want to thank everyone for joining our call today and for your interest in Harmony Biosciences. Have a great rest of your day. Thank you. Operator: This does conclude today's Harmony Biosciences third quarter 2025 financial results conference call. You may now disconnect your line, and have a wonderful day.
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Parex Resources Third Quarter Operational and Financial Results Conference Call. [Operator Instructions] I'd now like to turn the conference over to Mike Kruchten, Senior Vice President of Capital Markets and Corporate Planning. Please go ahead. Michael Kruchten: Good morning, everyone, and welcome to Parex Resources Third Quarter 2025 Conference Call and Webcast. My name is Mike Kruchten, and on the call with me today are our President and Chief Executive Officer, Imad Mohsen; our Chief Financial Officer, Cam Grainger; and our Chief Operating Officer, Eric Furlan. [Operator Instructions] As a reminder, this conference call includes forward-looking statements as well as non-GAAP and other financial measures with the associated risks outlined in our news release and MD&A, which can be found on our website or at sedarplus.ca. Note that all amounts discussed today are in U.S. dollars unless otherwise stated. I'll now turn the call over to Imad. Please go ahead. Imad Mohsen: Thank you, Mike, and good morning, everyone. Throughout the quarter, we have made steady progress across our portfolio, successfully executing our ambitious activity plan and delivering strong results. With the majority of our planned activity now complete or underway, that momentum is translating into stronger production performance and positioning us to deliver a Q4 production average that exceeds the top end of our annual guidance. At our core assets, Cabrestero and LLA-34, continue to see strong reservoir performance through application of secondary recovery and EOR programs that are maximizing recovery rates from the field. At Llanos 32, where we completed the Tuck-In acquisition in March, we've quickly demonstrated our ability to unlock value and deliver superior performance as the fields operator. While Eric will provide more details on the momentum underway, I will say that our disciplined execution was -- has already translated into steady production gains with current rates now exceeding 3x what we inherited at the time of acquisition. Turning to exploration, where performance this year has been strong. We delivered 5 near-field successes at LLA-74, underscoring that our strategy is generating tangible in-year production gains. And we are now looking ahead to our VIM-1 exploration prospects with results anticipated by year-end. Our financial performance for the quarter was strong despite a softer price environment. Our top quartile netbacks reflect the strength of our operating model and durability of our business, driven by favorable Colombian crude oil differentials and continued internal cost optimization. With that, I'll now turn it over to Eric to provide an operational update. Eric Furlan: Thanks, Imad. In Q3 2025, production averaged 43,953 BOE per day, generally in line with our expectations. Building on the milestones Imad highlighted, we're now seeing strong performance carry into Q4 with October production averaging 49,300 BOE per day, representing a 12% month-over-month increase from September. This growth stems from the exceptional execution of our teams against a demanding second half activity plan, and I want to recognize their efforts. Let's take a closer look at some of the key performance highlights. At Cabrestero, we are building on the successful completion of the waterflood phase and are now executing our full field polymer implementation plan. With the project now 80% complete, we are on track to achieve full implementation by year-end. At Llanos 34, we continue to apply lessons learned from Cabrestero with ongoing optimization and waterflood expansion currently underway. By year-end, we also expect to complete the initial polymer implementation at 2 patterns on the field. At Block 32, we've seen strong production ramp-up, driven by disciplined execution. In the quarter, we delivered 4 successful development and appraisal wells, growing production from 4,000 BOE per day when we first took operatorship in April to over 12,000 BOE per day today. What's even more encouraging for LLA-32 is that we progress our activity, we are gaining valuable insights into the field, revealing even greater running room than we initially anticipated. We are looking forward to results in Q4 when we plan to spud a well in the northern part of the field, which, if successful, will derisk additional areas and expand future drillable inventory. At Capachos, our activity is progressing as planned with the first 2 -- with the first of a 2-well development campaign complete. The first well's performance has been strong with drilling underway for the second well. At the Putumayo, we are making steady progress with our activity plan set to commence in the fourth quarter. We are currently mobilizing 2 rigs and expect to spud 2 wells with commencing a waterflood pilot process and the other applying horizontal drilling concepts. The results will provide valuable baseline production data to refine and optimize our 2026 development strategy. And lastly, turning to exploration. As Imad mentioned, we spud the Guapo prospect located on the VIM-1 block in mid-October. This prospect is targeting gas and condensate, and the success here will help derisk nearby contingent prospects, confirm our egress plans for the area and solidify our gas strategy in the basin. We look forward to having preliminary results by year-end. Our near-field exploration program continues to deliver. With the fifth well now online in Block 74, the block success is contributing production in excess of 5,000 BOE per day and demonstrating the value of targeting low-risk, high success prospects. As we look ahead to 2026, we're using our sizable land position to build a robust funnel of opportunities to sustain this performance. Overall, we have made strong progress over the quarter, and we remain focused on operational execution to ensure we maintain momentum into 2026. With that, I'd invite Cam to please go ahead. Cameron Grainger: Thanks, Eric. Despite a lower price environment, we continue to deliver strong financial performance in the quarter. Funds flow provided by operations grew modestly to $105 million, and our FFO netback was steady at $26.07 per BOE based on an average Brent oil price of $68.17 per barrel. Also supporting netbacks has been an improved operated production expense profile. While we have recently seen a slight uptick in power costs, they remain at normalized levels and have been supported by the team's ongoing efforts to deliver internal optimizations, which are proving successful. For Q4, we have hedged roughly 25% of our planned production, utilizing a Brent put spread at $60 and $65 per barrel, which is providing insulation for our cash profile in an environment where we continue to see global volatility. Current taxes were $11 million for the quarter. Given Columbia's progressive tax and royalty system and at strip pricing, we expect our full year effective current tax rate to be between 5% to 8%. Capital spending for the quarter totaled $80 million, reflecting our increased activity levels. We expect expenditures to remain at similar levels through year-end, but we may look to deploy incremental capital to carry our momentum into 2026. The decision will depend on upcoming well results where ongoing success could support additional follow-up drilling. We remain fully funded with our capital program advancing, a regular dividend covered and a modest level of share repurchases continuing. Our balance sheet remains exceptionally strong, underpinned by ample liquidity and financial flexibility. This solid financial position enables us to execute our strategic priorities with confidence while remaining, maintaining resilience in varying market conditions. With that, I will pass it over to Imad for some final remarks. Imad Mohsen: Thank you, Cam. As we've highlighted throughout the call, we are well positioned to meet our annual production guidance and finish the year strong. The team remains focused on sustaining momentum and leveraging near-term opportunities to capture additional value and position Parex for a strong start to 2026. Achieving this has taken focused discipline and teamwork across the organization, and I want to thank all our employees and partners for their hard work and commitment. With that, I'll turn it over to Mike for closing remarks. Michael Kruchten: Thank you again for your attention today. Before we move to the Q&A portion of the call, I want to state that we are committed to providing timely updates to the investment community on our proposed acquisition of GeoPark. But given the current situation, at this time, we will not be providing any further comments or taking questions on this matter. This concludes our formal remarks. I would like to turn the call back to the operator and start the Q3 earnings Q&A session for the investment community. Thank you. Operator: [Operator Instructions] Our first question will come from the line of Greg Pardy with RBC Capital Markets. Greg Pardy: I had a couple of questions, but the first is maybe just to get a better sense of what the trajectory looks like on from a unit operating cost standpoint. I know there's been some volatility. It was a lot lower in 2Q. It's up in 3Q. Just wondering how we should think about that in more of a normalized state. Cameron Grainger: Greg, it's Cam. Yes. So we had an uptick in OpEx in the quarter compared to Q2. That's driven by a few things. Power costs in August and September increased and that impacted our non-operated LLA-34 field. Those have subsided in October and normalized. We also had the Colombian peso increase about 5% over Q2. And then we also had a small nonrecurring adjustment that we recorded in the quarter. So that's what was really kind of driving that increase of $2.50. Looking forward to Q4, with flush production coming from our operated fields and power costs more in line, we're thinking -- we're expecting our OpEx number to be around $12 to $13 per barrel. Greg Pardy: And maybe I'll ask this question in a bit of a roundabout way. But let's just say you owned 100% of Block 34, what would be the plan? How would -- perhaps how would the development plan change from -- maybe what's in place currently? Imad Mohsen: So let me answer that. And first, it will be a very good plan. But other than that, I'd refer back to Mike's comment. We'd rather right now not talk about the GeoPark offer because there's lots going on, and we'd rather not talk about it or answer question. Operator: [Operator Instructions] And that will conclude our question-and-answer session. I'll hand the call back to Mike for any closing comments. Michael Kruchten: Thank you very much, operator. If you have any questions, please feel free to contact me at parexresources.com. Thanks for joining us today. Operator: That will conclude our call today. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Viper Energy 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, Chip Seale, Investor Relations Director. Please go ahead. Chip Seale: Thank you, Amber. Good morning, and welcome to Viper Energy's Third Quarter 2025 Conference Call. During our call today, we will reference an updated investor presentation which can be found on Viper's website. Representing Viper today are Kaes Van't Hof, CEO; and Austen Gilfillian, President. During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with the SEC. In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I will now turn the call over to Kaes. Kaes Van't Hof: Thank you, Chip. Welcome, everyone, and thank you for listening to Viper Energy's Third Quarter 2025 Conference Call. During the third quarter, Viper continued to execute on our growth strategy, bolstered by the closing of the Sitio acquisition and continued organic growth. Our fourth quarter 2025 oil production guidance implies a roughly 20% increase in oil production per share compared to the same quarter last year. Looking ahead to next year, 2026, we continue to anticipate mid-single-digit organic oil production growth from fourth quarter 2025 estimated production. This implies double-digit year-over-year growth in oil production per share relative to 2025. Viper also showcased our differentiated return of capital profile in the third quarter. Because of our high operating and free cash flow margins, strong balance sheet and recent signing of our non-Permian asset sale, we felt it appropriate to lean into our return of capital commitment and returned 85% of cash available for distribution in the third quarter to stockholders. As a result, Viper is delivering on multiple strategic capital allocation fronts this quarter. Our combined base plus variable dividend represents a greater than 6% annualized yield and an increase of almost 10% relative to our dividend from last quarter. This dividend increase is combined with over $90 million of share repurchases completed during the quarter and an incremental $60 million being retained to the balance sheet. In total, third quarter return of capital per Class A share represents a 48% increase versus the second quarter. Looking ahead, as we move to close our non-Permian asset sale, and as a result, move closer to our long-term net debt target of $1.5 billion, we will have line of sight to return nearly 100% of cash available for distribution to stockholders. We continue -- expect to continue to allocate the majority of our cash for distribution to our base plus variable dividend, but feel compelled to buy back shares in today's market given the current market dislocation and unique opportunity to invest countercyclically by increasing our ownership in our high -- existing high-quality mineral royalty assets. Importantly, the share repurchases done today will further enhance our growth in per share metrics and allow us to distribute more through our base plus variable dividend over the long term. On the operational front, we continue to see strong activity levels across our asset base, and as a result, continue to expect mid-single-digit organic growth in 2026 despite the commodity price volatility we have seen over the past several quarters. Following the closing of the Sitio acquisition, Viper is positioned to benefit from a best of both worlds situation. Viper continues to own concentrated interests under Diamondback's core Midland Basin development, which is expected to drive meaningful long-term oil production growth. In addition, Viper now has broad exposure to leading third-party operators across both the Midland and Delaware basins. And our current acreage position has consistently captured almost half of all third-party activity in the Permian. Beyond this, the 25,000 existing horizontal wells in the Permian Basin in which Viper owns an interest provides an invaluable information advantage. In conclusion, we continue to believe that Viper presents a differentiated investment opportunity within the broader energy space. Viper's unmatched ability to deliver sustained per share growth with 0 capital and limited operating costs should result in a differential ability to return increasing amounts of capital to stockholders over the long term. Additionally, given our extremely low breakeven, our business model should provide a more consistent cash flow returns profile during times of overall market volatility. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Neal Dingmann of William and Blair. Neal Dingmann: Great free cash flow story, obviously. My first question, just turning to -- given the nearly $700 million asset sale and what should be probably even over $1.5 billion of free cash flow next year, could you speak to sort of near term and '26 at capital allocation? I mean as I see it, I mean it seems like you'll not only quickly repay that debt, but you could bump distributions up materially and potentially do some buybacks. Would love to hear how you're thinking of it. Kaes Van't Hof: Yes, Neal, I feel like we got a great number on that asset sale, and we debated internally if we should wait or execute on the sale. We decided to execute. And the reason being -- you recall, last quarter, we came out and said when Viper gets to $1.5 billion of net debt, we're going to return 100% of free cash back to shareholders. And with this asset sale proceeds coming in, we feel like we have line of sight to that goal. And so therefore, we're going to lean in ahead of that by adding some repurchases to our story, just given how much the market dislocation has widened between Viper and where it should trade. So high level, I think by the beginning of the year next year, we'll be ready to consistently return almost 100% of free cash to shareholders, but we're not going to stop now. We're going to be a little aggressive as we head into year-end with the buybacks, plus a significant continued cash distribution story. Neal Dingmann: And that kind of leads to my second question. Is that predicated, I guess -- or maybe asked another way, could you just speak to how activity outside of Diamondback is trending? It seems like judging by last quarter, things still appear very active, even more active than what we're seeing from some of these operators out there, but really just want to confirm that's still the case? Kaes Van't Hof: Yes, I think it's really strong. I'll let Austen give some more detail, but this is the first quarter we're looking at a combined Viper and Sitio together, and we think that gives us a broad exposure to a lot of the Permian. Austen Gilfillian: Yes, I mean, we put some new details in the deck, Page 11 being one of those. And what this really does is go back to the beginning of 2023, and it looks at all of the wells drilled across the Permian Basin excluding Diamondback and what percentage of those -- Viper's current asset base would have an interest in. And what you'll see is that we've just captured almost half of all activity across the basin over this time period with a pretty consistent average NRI at around 1.5%. So it will trend up and down kind of with activity a bit. But I really think it speaks to the quality of the acreage and the operators that we have outside of Diamondback deploying consistent capital to this position. That gives us a lot of confidence to the forecast in 2026 and really even beyond that. Operator: Our next question comes from Betty Jiang of Barclays. Wei Jiang: I wanted to ask about the third-party activity. Also, just on the -- the backlog has continued to increase. But even -- I want to understand how much of that increase is driven by the Sitio contribution? And how much is seeing a broader constructive uplift that you're seeing across from the legacy assets from other operators across the Permian? Austen Gilfillian: Yes, Betty, I would say it's pretty evenly mixed. I think being a couple of months in post Sitio closing, that asset base has outperformed the underwriting assumptions. But really, legacy Viper's third-party operating position has continued to outperform as well, mainly as a result of some of the higher NRIs, and you can kind of see that showing up on Slide 11, as I mentioned. So as we look at it today, right, we don't have full visibility into what will happen for the full year 2026, especially in the back half of the year. And we'll continue to monitor new activity as it shows up and the conversion of those permits and those wells that have been spud. But I would say, generally, we're extremely pleased with the third-party exposure and especially the complement that, that provides to the concentrated exposure through the Diamondback drill bit. Wei Jiang: Yes. Those are really encouraging signs to see. My second question is on AI. It strikes me that the royalty model is ideally positioned to benefit from AI integration. And thinking about the impact of predictive nature of future activity, maybe the organization, can you just speak to how you see the tools that are available today could potentially impact your operations and M&A? Kaes Van't Hof: Yes, Betty, I mean, I would say generally, you're correct, right? There's a lot of data flowing through the mineral business. There's a lot of data on 35,000 wells throughout the Permian that can be utilized for a lot of things, right? We can use that data to make operational changes to buy more minerals in areas where something is emerging. But I think in the near term, some of the benefits of AI and automation and machine learning is really to make our business more efficient on the back end, right? Tracking 35,000 wells every month is not -- should not be a manual process. And so we're working to move everything from manual to automated. And then beyond that, it's about finding a way to utilize all this data effectively and efficiently and even potentially monetize it. Should we not see that it provides us a differential advantage, I think it can provide a lot of data to the market. But for now, we're going to keep it all internal and I think focus on some of the automation, and that's actually one of the synergies that the Sitio team brought to the table that we hadn't developed ourselves at Viper. So with all these deals, we end up learning something. And I'd say the biggest thing from the Sitio team has been big data and automation. Operator: Our next question comes from Neil Mehta of Goldman Sachs and company. Neil Mehta: Yes. Just -- congrats on some of these non-Permian divestitures. And it's good to see the business kind of core up around the Permian again. As we think about the cash that's coming in, Kaes, are there any considerations we should be mindful of in terms of the number that's coming in? Are there any offsets, whether it's taxes or anything else around these inflows? Kaes Van't Hof: Yes, we kind of highlighted that there would be a little bit of a tax hit. So I think our net proceeds will be about $610 million. There will be some reduction between effective date and close date. But all in all, I think generally, the proceeds are going to pay down essentially the revolver to 0 as well as almost pay our term loan down to essentially 0. And that would put essentially a balance sheet I define as an almost perfect position with 1 5-year note, 1 10-year note that we executed over the summer, leaving us a lot of optionality and flexibility to buy little deals, but also return a lot of cash to shareholders. Neil Mehta: Yes. And Kaes, can you talk about the A&D market? That's been kind of a hallmark of the broader Diamondback complex is finding those bolt-on opportunities. We think, especially given the softer commodity price environment, that's going to -- does that make it easier or harder to get deals done here over the next 6 to 12 months? Kaes Van't Hof: Yes. Traditionally, it makes mineral deals harder to get done. It's -- you see a lot more upstream deals lower in the cycle than minerals just because of the 0 CapEx nature of minerals. So I think we're probably on a bit of a pause at Viper for now and waiting for what we see is still a significant opportunity set to come our way in the coming years. But Austen, anything else you want to add? Austen Gilfillian: Yes. I think that's certainly the case on the larger, more strategic acquisitions. We've tried to position ourselves to be the consolidator of choice on the $1 billion-plus type opportunities. And it's tough to see those transacting with where commodity prices are today. I would say it's a little bit different on kind of the smaller ground game-type acquisitions. We've had some success in some of those owners might see the royalty checks go down and see that as an opportunity to liquidate it. But that's tougher to scale today relative to the size of the enterprise value at least. So part of our thinking additionally is with the buyback, that's an effective way to buy really high-quality assets that we know and that [ have grown ] the assets today. So it's kind of a combined strategy of how to deploy capital for us today. Operator: Our next question comes from Kalei Akamine of Bank of America. Kaleinoheaokealaula Akamine: Kaes, in your opening remarks, you called out that Viper has been exposed to about half of all third-party activity in the Permian Basin over the last 3 years. In the basin this year, there has been a reduction in activity because of oil price uncertainty. The market expects maybe 0 oil growth in the Permian Basin next year, yet your Permian volumes continue to grow. That's a favorable dynamic. How long do you expect that it can continue? Kaes Van't Hof: Yes. I mean, I think the advantaged nature of the Diamondback-Viper relationship probably drives that growth for at least the next couple of years, if not longer. I think we have somewhere between a 5% and 7% interest expected in all of Diamondback's wells on average for the next 5 years. So that's a pretty unique position to be in. And I think that, combined with -- in our remarks, we kind of highlighted that, that, combined with the broad exposure, otherwise puts us in a pretty good spot here for the next few years. Kaleinoheaokealaula Akamine: I appreciate that. For my next question, one question that we get from investors considers the valuation of Viper. It's the best risk-adjusted return in the Permian, in our view. Another way to look at it is that VNOM shares are trading with great value today. So my question is, would you ever consider using free cash at bank to purchase more interest in VNOM shares? Kaes Van't Hof: Yes, it's certainly on the table. I think Diamondback has some strategic priorities that they need to continue to execute on, mainly reducing its share count as well. But we certainly are kind of trying to pound the table on VNOM's valuation. And also, I think as part of the rationale for the non-Permian asset sale getting executed so quickly is that we can lean in at the Viper level and reduce that Viper per share count. Because I think until the market wakes up to the free cash flow yield plus growth story, we're going to try to take advantage of it as a complex. Operator: Our next question comes from Derrick Whitfield of Texas Capital. Derrick Whitfield: For my first question, I wanted to start with your guidance regarding the soft guide for 2026. How are you thinking about the price sensitivity associated with that guidance from a Diamondback operating perspective? Austen Gilfillian: Yes. So that really contemplates the base case of Diamondback's current activity levels, right, and really maintaining that more maintenance level through 2026. So to draw on their analogy being the yellow light scenario, that's kind of what's underwritten here. Things could flex up or down. I think the beauty of the relationship that Kaes was hitting on it earlier, to the extent that it flexes down, Diamondback will really be prioritizing the highest returning projects in the lower commodity price environment. So Viper tends to be insulated at least in gross reductions in Diamondback activity level and just kind of gives a higher percent exposure and a higher average NRI. Derrick Whitfield: Got it. Makes sense. And then maybe just to build on an earlier question. With the benefit of more time with the Sitio team and their approach, could you guys elaborate on the synergy opportunity you see from a cash savings perspective on just implementing some of the AI processes? And then the opportunity it could generate from a ground game perspective? Kaes Van't Hof: Yes. I would say, obviously, the employee aspect of the deal and those synergies have been realized, and we brought over some select high performers from Sitio that are helping us out today. Second to that, one of the big synergies was cost of capital savings on the debt, on both their debt and ours. And it's clear that Viper got upgraded to investment grade and was able to execute its first investment-grade deal in the quarter in July. And so that sets us up from a balance sheet perspective. And then I think on the automation side, there's certainly benefits to automating the processes that -- at Viper, I think over time, those same people that are working on automating those processes at Viper will then move to automate more at Diamondback. So it's kind of a synergy to the parent co as well. I can't tell you exactly what that number is going to be today, but I think a lot of our business is going to be moving towards less manual entry and more observing by exception versus doing things by hand. So I think a lot to come there. I think the whole industry is working to continue to automate, but you can expect us to be on our front foot. And then on the deal side, I think we -- being in Midland, we have pretty good access to all the deals. There's a saying out here that if a deal leaves Midland, I mean, it might not be a good deal. So we're on the front foot here in the mix, and we have a really good deal flow. Operator: Our next question comes from Leo Mariani of ROTH. Leo Mariani: I just wanted to clarify on the guidance here. I know it's a soft guide for '26. When you guys talk about mid-single-digit growth next year versus 4Q, I assume that's kind of unadjusted for the pending asset sale. So clearly, as we strip those volumes out, then you kind of wouldn't quite hit that mid-single digit growth to be a little bit lower as kind of a pre-asset sale guide here? Austen Gilfillian: Yes. I mean, it's either -- if you look at Q4 being pro forma, right, really, the way to look at it is you're going to have a couple of thousand barrels a day of growth on an absolute basis on the assets that we'll retain. So the Q4 guidance of 66,000 a day of oil at the midpoint, that includes about 5,000 a day of contributions to the non-Permian assets. So if you strip that out, that will be your go-forward starting point for 2026, and then you'll grow a couple of thousand barrels from there, which kind of gets you to that mid-single-digit level. Leo Mariani: Okay. Appreciate that clarification. And obviously, you've got the asset sale done and you certainly spoke to returning a greater percentage of capital to shareholders. You clearly leaned into the buyback pretty heavily. But just trying to get a sense as that debt is paid off, as you kind of spoke to, it sounds like in the next handful of months, are your eyes also looking to maybe kind of accelerate the growth in the variable dividend component as well over the next few quarters? Is that something that investors should also be looking forward to? Kaes Van't Hof: Yes. I mean, I think it's all price related, right? And the key point here on the buyback, which is, in our mind, our third priority return of capital behind the base dividend and the variable dividend, leaning into that buyback sends a pretty strong message that we think the stock is cheap. We do agree with a lot of our large shareholders, Diamondback being the largest, that we want a majority of the return of capital in the form of cash. But I think what's interesting about Viper with the debt position it's in, the balance sheet position it's in is that it can do both. And I think we would, at some point, tap the brakes on the buyback if the market wakes up to this story. But until then, we're going to keep reducing the share count. Operator: Our next question comes from Tim Rezvan from KeyBanc Capital Markets. Timothy Rezvan: I don't mean to beat the dead horse here, but the repurchase news was really notable. It was equal to your prior 2 biggest quarters combined. So is it safe to say this was more of kind of an extreme quarter given shares at the $37, $38 level? Or would you potentially look to go even bigger at the expense of the variable dividend if you thought the dislocation warranted that? Kaes Van't Hof: Yes. I mean -- so I think it depends, right? But I think what's interesting about -- again, about Viper, here we are at $60 oil, generating 92%, 93% margins. There's a lot of flexibility to do a lot of things with cash, right? I think if you put your E&P hat on, you're restricted by how much capital you need to spend to maintain your production base. And here, other people are spending capital for you to maintain your production base. And so that frees up a lot of free cash to do different things with. I think if the market dislocates further, we can just -- we can lean in further without compromising free cash flow generation or the balance sheet. So it's truly -- in my mind, it should theoretically be a lower cost of capital business than where it's trading today. Timothy Rezvan: Okay. Okay. I appreciate that response. And then on the topic of repurchases, there's been some market consternation perhaps overdue about these new holders that you have following the Sitio closing. And I believe there's 4, what people would call unnatural holders at about 13% of shares. Can you talk, Kaes, about any dialogue you've had with any of them? And how high that is on your sort of kind of maybe removing that overhang or sort of addressing that as they look to sell? Kaes Van't Hof: Yes. We'll be prepared to address it should they make the decision to sell. But I'm talking to a lot of them with -- particularly with respect to the Sitio merger, they merged their stock into ours knowing that there's a lot of long-term upside to the combined business. So I can't comment on if they want to or not -- don't want to sell because that's their decision. But I will say we have the firepower to aid that if that ever happened. Just like any other shareholder, right? If there are any other large shareholders looking to sell here, we've got the firepower to buy those shares back. Operator: Thank you. I am showing no further questions at this time. I would now like to turn it back to the CEO, Kaes Van't Hof, for closing remarks. Kaes Van't Hof: Well, thanks, everybody, for participating today. And please reach out if you have any questions, and we'll talk to you in 1 quarter. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to the Greenfire Resources Third Quarter 2025 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions]. I'll now turn the meeting over to Robert Loebach, Vice President, Commercial. Please go ahead, Robert. Robert Loebach: Thank you, operator. Good morning, and welcome to Greenfire's conference call for our Q3 2025 results. Please note that today's call includes forward-looking statements and references non-GAAP and other financial measures. We encourage you to review the associated risks detailed in our latest MD&A. Unless specified otherwise, all monetary figures discussed today are in Canadian dollars. Capital expenditures and production figures presented today are based on our working interest net to Greenfire, unless noted otherwise. Joining us on today's call are key members of the Greenfire team, including Adam Waterous, Executive Chairman; Colin Germaniuk, President; Jonathan Kanderka, Chief Operating Officer; Travis Belak, Vice President, Finance; and Riley Waterous, Principal at WEF and Observer on the Greenfire Board. Upon conclusion of our prepared remarks, we will open the floor to questions from research analysts. I will now hand the call over to Colin. Colin Germaniuk: Good morning, and thank you, everyone, for joining Greenfire's Q3 2025 Conference Call. On this morning's call, there are 3 topics I would like to discuss before opening up the call to questions from our analysts. First, I will provide an overview of Greenfire's recapitalization plan. Second, I will provide an update on Greenfire's current year operations. And third, I'll provide a progress update on our longer-term development plans. As we have previously communicated with our stakeholders, it's no secret that we believe the business today has too much leverage, in part due to the current oil price outlook, but more importantly, due to the significant amount of growth capital that needs to be invested to optimize the assets. At current strip pricing, Greenfire's heavy growth capital focused long-range plan means Greenfire is poised to materially outspend cash flow over the next 2 to 3 years, increasing our debt balance further. Accordingly, we have determined that a refinancing transaction, which results in not only a change in the structure of Greenfire's debt, but also an absolute debt reduction of the business is a critical first step to embarking on our organic growth business plan to fill the plant capacity at the Hangingstone facilities. With that background, I'm very excited to announce a transformational recapitalization plan for Greenfire in which we intend to fully repay all of our outstanding senior secured notes via a combination of cash on our balance sheet and a $300 million equity rights offering, which will be fully backstopped by Waterous Energy Fund. Our rights offering is an equity capital raise offered to Greenfire's existing shareholders, whereby each Greenfire shareholder has the opportunity to subscribe for their pro rata share of the offering, in turn, giving all shareholders an equal opportunity to participate and avoid being diluted. In the event any shareholders elect not to take up their pro rata share of the offering, Waterous Energy Fund serving as the backstop for the transaction will purchase those unallocated shares to ensure the desired $300 million capital raise is met. In addition, we are also excited to announce that we have secured commitments for an upsized $275 million revolving credit facility with a syndicate of Canadian banks. This credit facility is a conventional reserve-based loan with a 2-year term and will have a cost of capital that is approximately 1/2 of the notes we will be redeeming. At closing of this recapitalization plan, this credit facility is anticipated to be undrawn and Greenfire is expected to be debt-free. With regards to the current operations, first and foremost, following strong base well performance at the Hangingstone facilities, we expect to hit the top end of our 2025 production guidance range, which is 15,000 to 16,000 barrels a day. We also reaffirm our 2025 capital guidance target of $130 million. Next, I would like to provide an update on Greenfire's 2 primary operational challenges in 2025, those being the previously disclosed boiler outage and sulfur emission exceedances. With regards to the boiler outage, Greenfire has successfully restored the failed boiler at the expansion asset ahead of schedule, but has elected to proactively refurbish the second boiler for precautionary purposes. Consequently, we expect to return to full steam capacity at the expansion asset by year-end 2025. With regards to Greenfire sulfur emission exceedances, the company continues to engage with the Alberta energy regulator, and we have commenced the installation of sulfur removal facilities at the expansion asset. We expect these sulfur removal facilities will be operational in November 2025, which we anticipate will restore full compliance with emission standards. And finally, I'd like to touch on Greenfire's 2026 business plan. Greenfire's Board of Directors has approved a 2026 capital budget of $180 million with anticipated annual bitumen production of 15,500 to 16,500 barrels per day. Big picture, despite our expectation that the expansion asset will resume at full steam capacity at year-end 2025, we anticipate production levels to nonetheless be relatively flat in 2026, primarily due to 2 reasons. One, all of the growth capital projects at the expansion asset are not expected to reach first oil until late Q4 2026; and two, Greenfire has a planned major turnaround at the expansion asset in May 2026, resulting in a full plant outage for that month. With regards to the specific growth capital projects, as has been previously disclosed, Greenfire anticipates commencing drilling operations at its inaugural SAGD well pad, Pad 7 in November 2025. PAD 7 comprises 13 well pairs with first oil anticipated in the fourth quarter of 2026. In addition to PAD 7, Greenfire plans to drill new wells at the expansion asset in 2026, including 3 infill wells and 3 well pairs from an existing SAGD pad, although first oil from these wells is not expected until 2027. At the Demo Asset in the fourth quarter of 2025, Greenfire intends to pursue redevelopment opportunities at 2 existing shut-in well pairs originally drilled in 2010 with associated incremental production coming online in the first half of 2026. Beyond this redevelopment program, Greenfire's primary focus at the Demo Asset remains on base production optimization to sustain current production rates. This concludes our planned remarks for the Q3 conference call, and we will now open it up to questions. Operator: [Operator Instructions] There are no questions. I will now turn the conference over to Robert Loebach for closing remarks. Robert Loebach: Thank you, operator. On behalf of Greenfire, we appreciate you joining us on our Q3 2025 results conference call. Have a great day. Operator: This concludes today's conference call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Global Payments' Third Quarter 2025 Earnings Conference Call. [Operator Instructions] And as a reminder, today's conference will be recorded. At this time, I would like to turn the conference over to your host, Head of Investor Relations, Nate Rozof. Please go ahead. Nathan Rozof: Good morning. Welcome to Global Payments Third Quarter 2025 Conference Call. My name is Nate Rozof, and I'm Head of Investor Relations. Joining me on today's call is our CEO, Cameron Bready; our President and COO, Bob Cortopassi; and our CFO, Josh Whipple. Our earnings release and the slides that accompany this call can be found on the Investor Relations area of our website at www.globalpayments.com. I'd like to remind you that some of the comments made during today's conference call will contain forward-looking statements, including expected operating and financial results, among other matters. These statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our press release and filings with the SEC. We caution you not to place undue reliance on these statements. Forward-looking statements during this call speak only as of the date of this call, and we undertake no obligation to update them. We will be referring to several non-GAAP financial measures, which we believe are more reflective of our ongoing performance. For a whole reconciliation of the non-GAAP financial measures discussed on this call to the most comparable GAAP measure in accordance with SEC regulations, please see our press release furnished as an exhibit to our Form 8-K filed this morning and other supplemental materials available on the Investor Relations section of our website. With that, I'll turn the call over to our CEO, Cameron Bready. Cameron? Cameron Bready: Thanks, Nate, and good morning, everyone. We are pleased to deliver third quarter adjusted results that accelerated sequentially across our key financial metrics. Our team continues to execute at a high level, driving growth and efficiency across the business as we advance our transformation program. Importantly, our year-to-date performance positions us well to deliver on our expectations for the full year, and we are building positive momentum as we prepare for the closing of the Worldpay acquisition. To that end, we recently received approval for our acquisition of Worldpay from the Competition and Markets Authority in the U.K., which is a critical regulatory milestone. Given the strong progress we have made with the regulatory approval process, we now expect to close our acquisition of Worldpay and divestiture of Issuer Solutions in the first quarter of 2026. Naturally, our teams are eager to complete the Worldpay transaction and begin unlocking the compelling opportunities it presents, including accelerating our strategy to transform Global Payments into a pure-play merchant solutions provider with sustainable growth, leading scale, focused investments and meaningful value creation. We are also pleased to have closed the divestiture of our payroll business in September, further simplifying our business and allowing us to return an incremental $500 million of capital to shareholders during the third quarter through an accelerated share repurchase program. Lastly, before turning to the quarter, I'm happy to announce that we partnered with Google to enable Agentic Commerce using the Agent Payments Protocol. It will enable us to provide secure, reliable and interoperable agent commerce for our customers and partners. We are helping our customers and partners to successfully enter this emerging commerce channel by building bridges between protocols to enable our merchants to accept all Agentic payment types. With this and other Agentic AI frameworks, we are also developing the authentication layer that is necessary to verify that AI agents are legitimate to maximize authorization rates and thus maximize revenue for our customers. For the quarter, we reported 6% constant currency adjusted net revenue growth, excluding dispositions, 110 basis points of margin expansion and 11% constant currency adjusted EPS growth compared to the same period last year. We also produced adjusted free cash flow of $784 million in the quarter, allowing us to end the quarter at 2.9x adjusted net leverage, below the 3x target we had committed to and earlier than the year-end date we had previously anticipated. Our merchant business exhibited ongoing momentum with adjusted net revenue growth accelerating to 6% constant currency, excluding dispositions as we continue to execute across the 3 pillars of our strategy. First, in POS and software, our strategic priority remains on the development and rollout of Genius. Consistent with our focus on front book opportunities, currently more than 90% of Genius sales are to new customers. In the markets where we have launched Genius, sales to new locations increased by more than 20% year-over-year during the third quarter, with new sales ramping nicely throughout the quarter. In fact, monthly recurring revenue from new sales increased 75% from June to September, and the average deal size more than doubled. This rapid uplift in new sales demonstrates how well Genius is resonating in the market. Genius is an incredibly robust business software platform that is architected to be highly modular, configurable, scalable and extensible. As we talk about Genius today and in the future, you will hear us highlight our support across multiple form factors for mobile phone applications to specialized handheld devices, all the way up to our unique countertop, kiosk, digital menu board and kitchen management devices. We will also discuss vertically targeted configurations supporting retail, restaurants, campuses, field services, professional services, age-restricted and more. We may also comment on go-to-market bundles of specific feature functionality to assist customers with diverse needs at multiple price points designed to allow us to specifically tailor our offerings to meet customers how and where they want to be met. With all the impact we are driving across the world with Genius, it is important to understand that this is still one Genius platform. We are unlocking capabilities, geographies, configurations and pricing bundles. We are not launching new discrete products. To that end, having successfully introduced Genius for the restaurant and retail verticals during the second quarter, which are primarily targeted at SMBs, I'm happy to share that we expanded Genius' feature set to support enterprise businesses in September and higher education institutions in October. Genius' enterprise offering provide a unified modern and modular commerce enablement solution designed to meet the complex needs of multi-location quick-serve and fast casual restaurants, sports and entertainment venues and food service management environments for our enterprise customers. On the heels of this launch, we were pleased to be selected by Harris Blitzer Sports and Entertainment to be the official payment technology provider for the Prudential Center and the New Jersey Devils. We will integrate Genius across all food and beverage locations for the Prudential Center, helping to optimize how fans place, pay for and receive their orders across the venue while optimizing back-end operations. While it's still very early for Genius in the enterprise space, we have also already been selected by franchisees of several leading QSR brands to deploy Genius across more than 400 locations. Our expansion of Genius functionality for higher education is ideally suited for a range of campus use cases, including on-campus merchants, dining halls, recreational facilities, departments and clubs, stadiums and more. Many universities do not have the necessary digital payments infrastructure to support their move away from cash and check. Genius enablement solutions, including campus-wide payment acceptance capabilities and reconciliation. It drives commerce and simplifies back-end processes by centralizing transaction visibility, while maximizing revenue streams, minimizing staff time and streamlining compliance. In terms of new form factors, we recently launched our new handheld device for Genius. It features an advanced 6.5-inch high-definition touchscreen, seamless connectivity across WiFi, Bluetooth and 5G and an upgraded processor that speeds performance. Demonstrating the power of Genius' highly modular and configurable platform, I'm pleased to share that the University of Illinois selected Genius and we use our new mobile form factor across revenue centers campus-wide. As for geographic expansion, in addition to offering Genius across North America and the U.S., Canada and Mexico, we recently launched in the U.K. and Austria. And our first enterprise win in the U.K. came within days of our launch with a restaurant change in Glasgow that has ambitious expansion plans. Before the end of the year, we still expect to introduce Genius in Germany. In early 2026, we will also bring it to Ireland and the Czech Republic, followed by Spain, Romania, Poland and Australia. Lastly, we are actively deploying Genius through all of our distribution channels to help drive penetration across the entirety of our front book. In addition to our large direct sales force, we recently launched Genius in our dealer, VAR, financial institution and ISO channels. The feedback from our partners in these channels has been resoundingly positive. Our digital menu boards and new handheld devices particularly resonated with our dealers, and our loyalty solution is highly regarded across our partner channels. It is encouraging to see the ramping of new sales in all of our distribution partners invigorated by Genius. In addition to our success with Genius, we have several notable wins across other software businesses, including Alterra Mountain Company, Oakwood University and Stillwater Public Schools. Turning to our Integrated and Embedded business. We had another outstanding quarter for partner signings with nearly 60 new partners added globally. To continue to drive partner wins, we are investing in our developer experience, including launching easy-to-use tools, modernized documentation and a unified API platform that makes it easier to integrate and deploy our services. In addition, we are excited to have expanded our long-standing partnership with PayPal, continuing to leverage our technology footprint across North America, Europe, the U.K. and Asia Pacific. This multiyear partnership also expands our relationship into the U.S. market and paves the way for global expansion into new verticals, creating significant opportunity for volume growth with PayPal. As part of our transformation program and sales effectiveness initiative, we're expanding our distribution for this channel, which has historically been solely served by an inside sales rep team by adding a dedicated outside sales force and enabling integrated referrals to all of our direct sales teams. With the addition of a field sales force targeted towards integrated opportunities, we expect to increase our win rate in complex verticals like automotive, health care, dental and veterinarian, where clients continue to prefer to have face-to-face interaction. We also expect this to be a point of differentiation as we compete for new partners going forward. As for our core payments business, we achieved several notable wins in high-growth geographies, including Maxi K convenience stores in Chile, Masovian Railways in Poland, Aegean Airlines in Greece and Le Méridien Kuala Lumpur in Malaysia. In North America, we renewed Verizon Wireless and the State of Illinois extended our relationship for a new 10-year term. United Petroleum was a notable win in Canada, and we are expanding into nearly 200 Pizza Hut locations across Mexico. I'm also excited to share that we launched our new merchant dashboard that facilitates cross-selling of value-added services. We built and deploy a modular and open dashboard that allows for a common interface supporting multiple client personas to customize the experience of delivering critical data and KPIs, a generative AI data discovery interface, access to our robust client experience, engagement and loyalty components and the ability to purchase and interact with a rich suite of personalized commerce enablement services and embedded finance tools. These modern and robust points of interaction deliver the capabilities and experiences that our clients and partners desire and expect. Turning to Issuer Solutions. We again saw accelerating sequential trends with revenue growth increasing to 5% on a constant currency basis this quarter. This was largely driven by continued growth in accounts on file and stable underlying transaction volume trends as well as strong project-related revenue. We recently leading European digital bank and OLB, a leading bank in the German market. We also signed new agreement with Allianz Bankia and Brandeskard and continue to have a solid pipeline of new business that extends into 2027. Further, we remain on track with our cloud modernization program and moved 2 more products into production this quarter. We are on schedule with our modernized efforts and expect to make all customer-facing applications commercially available by year-end. As I noted in my opening comments, we continue to make great strides on our transformation journey as we streamline Global Payments into a single unified operating company worldwide. At the core of this effort is investment in our technology strategy to unify our capabilities and expose them ubiquitously to customers around the globe. To facilitate this, we have architected a single-in, single-out customer and partner experience, leveraging modern API environments, complemented by AI assistance to integrate and consume our services. With the orchestration platform capabilities we have discussed in prior quarters, we're enabling the single-in, single-out experience across all of our platforms in all of our geographies on an omnichannel basis. This strategy and architecture allows us to deliver the modern customer experience that clients demand and insulate them from the complexity of our processing environments, while providing us with the ability to simplify our infrastructure by deprecating technologies at a more measured pace without material impact to our customers and partners. For example, this approach has already facilitated our EVO integration by supporting all net new volume and enabling us to migrate clients away from EVO's 7 legacy gateways with minimal client impact. Notably, Worldpay is on a similar journey of using orchestration to enable technology and systems consolidation. Our strategy is to align our orchestration capabilities, which gives us confidence in our ability to integrate and consolidate our technology stacks, unlocking more value and growth more quickly than we could have in the past. In addition to enabling cost savings and margin expansion through infrastructure consolidation, our modern orchestration layer also enables us to distribute products more easily across multiple geographies. This accelerates our pace of innovation, making us more nimble and improves our speed to market. With our API environment and the new dashboard I referenced earlier, this architecture works in harmony to deliver our holistic single-in, single-out vision. To further accelerate product development, we have also aligned our teams around a new product operating model, a foundational shift in how product and technology come together to solve customer challenges at Global Payments. We are already seeing tangible benefits, faster execution, tighter alignment to our priorities and meaningful reductions in churn and waste as well as accelerated delivery of new capabilities. Our Genius rollout is a prime example of this. Further, we're embracing artificial intelligence to improve the productivity of our engineering teams and the experiences of our customers. So far, our teams have used AI to generate nearly 1 million lines of code, saving tens of thousands of hours of manual coding time. AI-assisted coding is also reducing defects, which is accelerating testing and integration cycles. Overall, the integration of AI is enhancing our end-to-end product development life cycle by enabling faster innovation and improved velocity across our technology portfolio. The power of AI is often dictated by the availability of data to train it. Once we combine with Worldpay, we will process nearly $4 trillion in annual volume across 100 billion transactions and serve millions of merchants and thousands of platforms and software partners. That scale of payments data will help us unlock AI-powered insights for our customers as their trusted partner. For example, we will be able to provide our customers with access to fraud tools, predictive inventory analysis, dynamic pricing models, and churn risk analytics, all based on detailed transactional data and delivered in real time. In addition to the investment we're making in our product and technology environments, we're also investing meaningfully to transform our sales force, which is obviously our primary point of contact with many of our customers. As we previously discussed, during the first half of the year, we transitioned our sellers from our 94 compensation plan, which was 100% commission-based structure to a new compensation program that incorporates base pay plus commissions. This change yields multiple benefits for us. First, it enables us to incentivize solution-based selling, which is critical when we are introducing new solutions like Genius. In a 100% commission-based plan, sellers will often take a wait-and-see approach to new products, preferring to take the past of loose resistance to closing a new sale. Under our new plan, we have targeted our strategic commerce enablement solutions in addition to overall sales quotas. This model also makes it much easier for us to hire strong experienced sellers. As we continue to focus on selling more software and commerce enablement solutions, this structure is more consistent with the market for software sellers, allowing us to attract the right talent to sell our capabilities. With this new structure in place and the early proven results, we are expanding the size of our sales force to improve our engagement in the market. Today, we are actively recruiting for 500 additional field sellers in North America. We have also deployed a consistent sales methodology across our sales force, which improves the portability of new leads across channels and the customer experience. This lead portability is facilitated by the last key pillar of our sales transformation, unifying the technology that enables it. We have mentioned in the past that we are consolidating our CRM systems, which is a critical enabler to passing leads between sales channels and harmonizes how we go to market. Now sales professionals from different channels can see the lead in its entire history through the same CRM system. This also allows for greater ability to manage the overall inventory of leads we receive, recycle unsuccessful leads and ensure that no lead is left behind in our environment. We are also deploying sales intelligence tools to automate pipeline management as well as AI agents to summarize our sales call in real time and document any need to follow-up. While it is still early, our new sales methodology and compensation programs are increasing deal count and size. Overall, we are seeing double-digit increases in signed annual revenue per deal and mid-single-digit increases in deal count. We're also seeing speed to first deal increase with our earliest adopting channel improving by almost 40%. Lastly, we've seen attrition in new hires in the first 90 days improve meaningfully. For example, the first sales group to move to this new plan has seen more than a 50% reduction of new hire attrition, since adoption. Our transformation will be catalyzed by the acquisition of Worldpay and simultaneous divestiture of our Issuer Solutions business, positioning Global Payments as a pure-play merchant solutions provider. With the transactions expected to close during the first quarter of 2026, integration planning for Worldpay is well underway with all critical milestones established. Our disciplined approach will ensure alignment with our operating model and drive value creation. Our integration strategy focuses on accelerating growth, enhancing competitiveness, realizing synergies and investing in innovation, while unifying under a single brand and leveraging top talent from both organizations. Through our integration, we are striving to be a better version of the companies we have been until now, not just a larger one, one that maximizes scale and prioritizes growth to ensure lasting results for our customers, our shareholders and our team members. And we will do this by leveraging our unmatched global scale, processing nearly $4 trillion annually across 100 billion transactions and a complementary set of capabilities that strengthen our value proposition. Together, we will expand distribution, enhance our product suite and scale innovation. Our North Star for integration is growth, growth that emanates from an unrelenting focus on the needs of our customers. This incremental growth will be driven by a number of actionable opportunities that leverage the strength of the combined business. For example, we will immediately begin selling Genius and other software solutions into Worldpay's SMB base, while using their channels to broaden reach. Further, Worldpay's PayRig platform and PayFac capabilities will deepen our support for software partners and platforms. Their enterprise and e-commerce strength will also enhance our omnichannel offerings and diversify our client mix, while also providing capabilities we can cross-sell across the breadth of our combined merchant base. We will also extend Worldpay's digital capabilities to SMBs and pursue geographic expansion in the 40 markets, where we already operate. As previously noted, we also have a significant opportunity to drive synergies by leveraging a unified orchestration layer to consolidate platforms and reduce technical debt. Further, our ability to deploy approximately $1 billion in annual capital investment to support a cohesive merchant-centric product road map will serve as a powerful catalyst. This strategic alignment is expected to create a flywheel effect, accelerating innovation, enhancing efficiency and further strengthening our offerings. In support of our execution of all of these opportunities, in September, we were pleased [indiscernible] to directors to our Board of Directors, who filled seats vacated by retiring Board members this past April. Our new directors, there is Patty Watson and Archie Deskus bring a wealth of leadership skills, experience and financial technology expertise to our Boardroom. Their guidance will be helpful as we continue to execute on our strategic ambition to be the worldwide partner of choice for commerce solutions. The Board has also established a new ad hoc integration committee to oversee the integration of Worldpay following the close of the acquisition. This committee will represent a governance best practice for Global Payments going forward. While we currently provide the Board with detailed updates on acquisition integration, the formation of a dedicated committee will allow for deeper engagement and more focused oversight. Leveraging the Board's diverse expertise and experience in this area will be invaluable as we execute on this critical initiative. With that, let me turn the call over to Josh. Joshua Whipple: Thanks, Cameron, and good morning. We're pleased to have reported another solid quarter, highlighted by accelerating revenue growth, healthy margin expansion and strong adjusted free cash flow generation. Importantly, the performance delivered is exactly consistent with the expectations we outlined at the beginning of the year as we continue to execute against our strategy and transformation agenda. Specifically, we delivered adjusted net revenue of $2.43 billion for the third quarter, an increase of 6% from the prior year on a constant currency basis, excluding dispositions. Adjusted operating margins expanded 110 basis points to 45% or 80 basis points, excluding dispositions, resulting from strong execution and benefits from the transformation we began executing last year. The net result was adjusted earnings per share of $3.26, an increase of 12% on a reported basis and 11% on a constant currency basis. Year-to-date, we've generated $2.1 billion in adjusted free cash flow, representing a 96% conversion rate from adjusted net income. Taking a closer look at performance by business. Merchant Solutions produced adjusted net revenue of $1.88 billion for the quarter, reflecting growth of approximately 6% on a constant currency basis, excluding dispositions. This represents a 50 basis point improvement sequentially, consistent with our outlook that we set at the beginning of the year, and the expectations outlined at our investor conference last year. Further, the macroeconomic backdrop remains consistent as we continue to see stable volumes supporting our view that the consumer spending remains resilient. Our POS and software business achieved high single-digit growth, excluding dispositions for the third quarter. We're encouraged by the acceleration in new Genius locations sold having seen a 37% monthly increase since launching in June. We continue to build on this momentum in Q4, we hosted our Genius Dealer and VAR Conference in late September. The conference was well attended with over 200 dealers and key highlights including introducing new Genius handheld along with displaying our enterprise-grade capabilities like digital menu boards to SMBs. We're excited about the progress we've made in rolling out Genius as our singular point-of-sale technology platform across our business. We'll have much more to share in the coming quarters as we build on these accomplishments. Turning to integrated embedded payments. This business also delivered high single-digit growth for the third quarter. We added nearly 60 new partners globally during the quarter, and notably, about half of these new ISV partners were outside North America, underscoring the distinct value we bring as a provider with unmatched global reach. And the compounding power of those one-to-many ISV relationships continues to propel our top line as they ramp. For example, year-to-date, we have seen a 68% year-over-year revenue growth from the cohort of partners that we signed in 2023, while the ramp from new partners signed last year is nearly 15x their contribution in 2024. In core payments, we delivered mid-single-digit growth during the quarter. Our international markets demonstrated relative strength with high single-digit constant currency revenue growth across Central Europe and Asia Pacific as we continue to benefit from strong secular payment trends in these markets. This reinforces our commitment to expand our foothold to meet strong demand and provide our best-in-class suite of capabilities across geographies. We delivered an adjusted operating margin of 51.1% in Merchant Solutions, an increase of 110 basis points over the prior year or 70 basis points, excluding dispositions, again highlighting the impact of our transformation. Moving to Issuer Solutions business, we generated adjusted net revenue of $562 million for the third quarter, reflecting growth of over 5% on a constant currency basis. This represents over 150 basis points of acceleration sequentially and also marks an improvement from our performance in the first half of the year as expected. Revenue growth was primarily driven by new implementations and growth with existing customers as our strategy of aligning with market share winners continues to drive benefits. We also benefited from the recognition of project and fees for service revenue that we had previously expected in Q4. We added 16 million traditional accounts on file this quarter, bringing us to a record of 917 million traditional accounts in total. We completed 2 implementations in the quarter, and we continue to see sustained growth in transaction count. Insurer Solutions delivered an adjusted operating margin of 46.9%, which is a 150 basis point improvement from the prior year period. As I mentioned, reported adjusted operating margins expanded by more than 100 basis points in both merchant and issuer. This reflects not only continued cost discipline, but also incremental benefits we've realized from our transformation efforts. In addition to beginning to unlock top line growth, as Cameron described a moment ago, our transformation has yielded significant cost efficiencies as we streamline our businesses and functions. From a cash flow standpoint, we produced strong adjusted free cash flow for the quarter of approximately $784 million, representing a conversion rate of adjusted net income to adjusted free cash flow of approximately 100%. We invested approximately $170 million in capital expenditures during the quarter and expect capital expenditures to be roughly $700 million or approximately 8% of revenue for the full year, consistent with our previously stated target. We continued our commitment to returning capital to shareholders this quarter, repurchasing $500 million through an accelerated share repurchase in connection with the sale of our payroll business, bringing our total share repurchases to approximately $1.2 billion year-to-date. We continue to see buying back our shares as a compelling opportunity given our confidence in our strategy given our long-term growth profile. We're pleased to report that we've reduced our leverage faster than anticipated. Our net leverage position was 2.9x at the end of the third quarter, down from 3.15x at the end of the second quarter and below our long-term target of 3x. Our continued strong free cash flow generation gives us confidence in our ability to delever back to 3x within 18 to 24 months of closing the Worldpay acquisition. Our balance sheet remains extremely healthy, and we ended the period with approximately $4.1 billion of available liquidity. Outstanding indebtedness is almost entirely fixed rate with an attractive weighted average cost of debt of 3.4%. Moving to our outlook for the full year 2025. We continue to expect constant currency adjusted net revenue growth of 5% to 6% over 2024, excluding dispositions. We anticipate dispositions will impacted reported adjusted net revenue growth by approximately 400 basis points for the full year, which now reflects the sale of our payroll business in September. As we discussed the past 2 quarters, the foreign currency exchange rate environment has continued to evolve, since we established our initial 2025 guidance. We now expect a modest tailwind of approximately 50 basis points from foreign currency exchange rates in Q4. And for the full 2025, we expect foreign currency exchange rates to be broadly neutral to reported revenue and EPS growth. And we expect full-year adjusted operating margin to expand more than 50 basis points, excluding dispositions, which is consistent with the guidance that we provided last quarter. We expect Q4 performance to be generally in line with our year-to-date trends and similar to Q3. At the segment level, we still anticipate our merchant business to deliver adjusted net revenue growth of roughly 6% on a constant currency basis, excluding dispositions for the full year, and we continue to expect adjusted operating margin expansion for merchants to be greater than 50 basis points, excluding dispositions for the full year. For Issuer Solutions, we continue to expect adjusted net revenue growth of approximately 4% on a constant currency basis for the full year. This implies Q4 growth of roughly 4% due to the pull forward that I mentioned a moment ago. We expect adjusted operating margin expansion for the issuer business to be greater than 50 basis points for the full year. We continue to anticipate adjusted free cash flow conversion to be greater than 90% for the full year and we expect to end the year at or below our 3x net leverage target. Altogether, for the year, we remain confident in the trajectory of the business, and we continue to expect adjusted earnings per share growth to be at the high end of the 10% to 11% range on a constant currency basis. In sum, we delivered another quarter consistent with expectations and we remain on track to achieve our outlook for the full year for revenue, margins, EPS and free cash flow. And with that, let me turn the call back over to Cameron. Cameron Bready: Thanks, Josh. I could not be more proud of our team and the positive impact we are seeing in our business from our transformation. The anticipated closing of the Worldpay acquisition and the concurrent divestiture of Issuer Solutions business early next year represent a pivotal moment in our company's evolution. Far from a departure from our strategy, these actions are a natural extension of it, providing unique opportunities to accelerate our transformation. Together, they will crystallize Global Payments position as a pure-play merchant solution provider and a leading provider of commerce enablement solutions with unmatched global scale in an industry, where scale matters more than ever. We remain intensely focused on driving sustainable growth through a combination of expanded and more effective distribution, a more comprehensive suite of products and solutions and our ability to invest in innovation at scale. With approximately $1 billion in annual capital investment dedicated exclusively to merchant and commerce enablement solutions, we are uniquely positioned to accelerate our product road map and deliver differentiated value to our customers. These transactions also reinforce our transformational objectives to enhance operational efficiency and maximize cash flow. Leveraging our increased scale and realizing meaningful synergies, we expect to generate significantly more levered free cash flow than what would have been achievable absent these strategic actions. And our commitment to disciplined capital allocation remains unchanged. In addition to the $1.2 billion we have already returned from the disposition of assets, we remain on track to return $7.5 billion to shareholders between '25 and '27, while simultaneously delevering to 3x within 18 to 24 months of closing the Worldpay transaction. By 2028, we expect to generate approximately $5 billion in annual levered free cash flow, which is 50% more than it otherwise would have been. This level of cash flow generation will provide us with significant flexibility to continue returning capital to shareholders on a sustained basis, while simultaneously investing in innovation to drive sustainable long-term revenue growth and operating leverage. With that, I'll turn it back to the operator to open the line for questions. Operator: [Operator Instructions] And our first question will come from Dan Dolev with Mizuho. Dan Dolev: Cameron, Josh, Nate great results here. It looks like everything is on track and better than expected. I wanted to touch on your comments, Cameron, on free cash flow. I mean the generation is very impressive, and you're pushing probably $9 billion of return right now. So as we get closer to this 2028, how do you think about capital returns given the massive amount of free cash flow that GPN is throwing? Cameron Bready: Yes. Dan. Thanks for the kind comments. I would say our philosophy remains very consistent. As you highlighted over the course of the '25 to '27 time frame, we expect to return close to $9 billion. That's $1.2 billion from dispositions that we've made and obviously utilized the proceeds from those to return capital, and we're still targeting $7.5 billion from just cash flow that we're generating in the business is capital returns over that same time frame. As I just commented, we expect to have free cash flow in the neighborhood of $5 billion by the time we get to 2028. And I would say, given where we are today, our priority would remain returning that capital to shareholders. Obviously, we want to be able to continue to invest in the business to drive growth and make sure that we're innovating at the pace that we want to and maintaining our competitiveness in the market, but recognize that our free cash flow expectation is already built in a $1 billion plus of new investment in innovation annually. So we think we have ample free cash flow in 2028 to return a significant amount of capital to shareholders, while still positioning us to be able to invest in the business the way we need to, to drive sustainable long-term growth. Joshua Whipple: The only thing I would add, Dan, is look, you saw in the quarter, we continue to generate really, really strong free cash flow. Year-to-date, we generated over $2 billion of free cash flow, we converted at 96%. And you also saw that we delevered down to 2.9x. And just given the cash flow profile of this business, we feel very confident that we'll delever back to 3x within 18 to 24 months of closing the Worldpay acquisition. So we feel really good about that. Operator: Our next question comes from Jason Kupferberg with Wells Fargo. Jason Kupferberg: I wanted to ask on merchant, a 2-part question. The first part is on Genius. I wanted to get a sense of what the complexion of some of these initial wins look like? Are you mostly winning restaurants and retailers that are moving to Genius from a non-cloud solution? Are you getting competitive takeaways from the other cloud providers? And then the second part of the question is just on pricing and the environment there. Last week, one of your competitors talked about rolling back some fees in parts of its SMB merchant base. So I wanted to get your take there. Just on the overall pricing backdrop, are you seeing any more price aggression in the market since last quarter? Cameron Bready: Yes, Jason, it's Cameron. Thanks for the question. I'll start and maybe ask Bob to provide a little more color on specifically what we're seeing with Genius. But to maybe answer your question very quickly, I think it's a little bit of all of the above. We're delighted with the progress that we're seeing with Genius. We called out some stats, obviously, in our prepared remarks, but certainly, the momentum we're building around Genius is palpable. I think the reception of the market is highly constructive as it relates to the product, the capabilities, the form factors, in all the feature functionality that we're able to bring to bear through the platform. So as we commented, we're already live in a number of markets internationally. We have plans to bring it to more markets. 90% of our new sales are to new customers, which is really encouraging, and it aligns with our focus, as we've described before, on front book opportunities. We saw new locations increase kind of 20% quarter-over-quarter and a 37% increase, since we launched in June and new ARR, importantly, not only are we selling more locations, but the value of those locations is increasing as well as new ARR is up almost 75%, since we launched in June with an average deal size, it's greater than 50% what it was prior to launching Genius. So I think as it relates to the early sort of proof points around how Genius is resonating with the market, we feel very enthusiastic about the reception we've received and obviously, the momentum we're building. I'll let Bob talk a little bit more about specifically kind of what we're seeing on the wind front. Robert Cortopassi: Yes. Thanks, Cameron. Jason, the way that we think about -- the way that I think about the front book opportunities that we're winning is that the motive competition really varies by geography. And that's less about the intensity of competition or what the product market fit is, and it's more about the maturity of the market sort of inherently. So as you think about where we've got Genius rolled out so far over the last few months, it's primarily North America-based although I think we mentioned that we're live in the U.K. now as well. And across North America, the U.S. is a very different market than Mexico in terms of the penetration of POS technology systems as opposed to kind of legacy payment methods themselves. And that's the primary driver of the source of the wins. When we go head to head in a market like the U.S. that's fairly mature, deep competitive landscape, a lot of established software providers there. We feel very confident about how our software and capabilities stack up against them, and we're winning a lot of those head-to-head battles as well as competitive takeaways. We're also winning in markets where software adoption is less than it is in the United States. And some of those wins are coming from head-to-head and competitive takeaways. Some of those are coming from people, who are leaning into a full POS software stack to manage their business for the first time. But regardless of geography of distribution method, whether that's dealers or direct and regardless of kind of who the competition is, today, I wouldn't say that there's 1 spot we're winning in a spot that we're concerned, we feel really strongly about our opportunity to win when we get in deals. You didn't ask this, and I probably shouldn't volunteer it, but if you ask like, where are you struggling? Where do you have challenges today? It's not about product, and it's not about customer demographic, it's frankly about mind share. Some of what we're doing is new to our clients and new to our prospective clients and we're competing against people who've got some established mind share. So we're being very aggressive about how we think about the marketing opportunities to get the Genius name and the Global Payments brand in front of our prospective customer base. We're thinking a lot about how to leverage our existing distribution and maximizing the performance of that channel. An example of the thing that we've done this quarter has come alongside some of our FI or other indirect distribution partners, not only offering Genius to them, but offering sales assistance with Genius. So we've got a number of, for example, FI partners who are really excited about the opportunity to service their customers with more technology solutions, but they don't always feel like they've got the sales expertise inside of the bank to go and sell software as software. And so we're coming alongside them and offering to partner them up either with our direct sales team or in some cases, with regional dealers, where they can go to market jointly. Cameron Bready: And Jason, I want to circle back on the second part of your sneaky 2-part question there. So on the pricing environment, what I would say is it remains fairly constructive. And our philosophy, I think, from a pricing standpoint, really hasn't changed. We want to price our services and solutions given the level of value and capability we're bringing to our clients. We don't strive to be the low-cost provider in the market, and we want to be paid fairly and appropriately for the level of value and service that we think we can deliver. So we're not leading with price. But obviously, we must be price competitive and we are price competitive for our solutions. I think the reference that you made was really as it relates to more of a back book pricing sort of action as opposed to front book opportunities. And as I said, we're always price competitive as we think about sort of new front book opportunities in the business. The last thing I would just leave you with is with the Worldpay, obviously, acquisition and the significant scale that we will bring to the competitive landscape as we move forward, I don't worry about being price competitive really with anybody. We want to make sure we're differentiating our capabilities based on the future functionality and level of service that we bring. And we'll always be price competitive, but we think we bring something distinctive from a functionality and service standpoint, and we want to be paid fairly and appropriately for that. Operator: Our next question will come from Adam Frisch with Evercore ISI. Adam Frisch: Cameron, I'm going to have a very unsneaky 2-parter here for you. If you could just provide some color on the primary components of the organic growth number and specifically call out some pricing increases to the back book, which are channel checks have suggested some pretty significant ones in recent months. And then the second one on the sales force expansion, super interesting. What kind of companies are you sourcing from the most and where do you see the most opportunity? Cameron Bready: Yes, Adam, I'll take the first part and I may ask Bob to jump in on the second part just in terms of where we're sourcing kind of new sales professionals and the success we've seen on that front. I would say there's nothing sort of out of the ordinary in terms of organic growth for the business in this quarter. We're continuing to see much of that driven from new sales productivity. And actually, as we've called out, we're seeing better productivity from a new sales standpoint and better results from a new sales standpoint in the quarter, which obviously is a little bit of a tailwind to the overall growth in the business. And then secondly, obviously, we're seeing fairly stable same-store sales trends across the business as well, which are the 2 biggest drivers, obviously, our organic growth and the performance we're seeing in the business. As it relates to pricing, we're continuing to exercise the same philosophy that we've had over a long period of time, as I mentioned in my answer to the earlier question, we focus on pricing our services and solutions based on the value of the services and capabilities that we're bringing to our client base. What we have been doing through our transformation is looking to harmonize all of our pricing sort of structures across all the different portfolios that we've acquired over a long period of time. So as part of that, obviously, we are looking to harmonize kind of the pricing structures and capabilities that we're utilizing to make sure that we're getting paid fairly and appropriately for the level of value and service that we're delivering. But I would say on the pricing front, there was certainly nothing unusual in the quarter as it relates to how we think about pricing our solutions and actions that we may take from a back book perspective, as we're looking to harmonize those pricing structures kind of across our portfolios. Robert Cortopassi: Yes. And in terms of where we're sourcing kind of sales talent and the pipeline for that, I would say, again, it's very broad. Obviously, we're targeting software salespeople, who've got experience doing that motion. Whether they're coming from fintech or whether they're coming from other types of kind of core business management software. But I think the differentiating point here, as you think about kind of a legacy sales rep and a new sales rep, if you will, is that this is a much more consultative sale process than sort of commodity purchasing. Some people, particularly younger folks want to be able to interact digitally and acquire through that sort of methodology, but not everybody feels comfortable fully articulating their needs, understanding the complexities that may be associated with large-scale implementations and rollouts, and we find it very constructive to have consultative sales talent and sales engineers, certainly as the enterprise space to come alongside them and be able to deliver those capabilities at scale for both SMBs as well as enterprise clients. Operator: Our next question will come from Dave Koning with Baird. David Koning: Nice job across the board. And I guess, my question, Genius, you talked a lot about new sales to new clients, but the back book, about 10%, it sounds like sales are coming through. I'm wondering what's the, I guess, experience so far with attrition in yield when you do move the back book? And if that's good, are you going to more aggressively kind of push into that? Robert Cortopassi: Yes. Thanks, Dave. We talked about this a number of times, and I think our strategy is relatively consistent, and that is to be in front of our customers and leverage the relationships that we have, ensure that they're aware of the capabilities that Genius brings to bear and be prepared to help them migrate at a time that is comfortable and convenient for them to do so. As a reminder, Genius is not a new from the ground up brand new technology stack, much of Genius core capabilities comes from existing solutions that we already had in the market. So as we think about customer migrations, in many cases, this isn't really a migration per se. This is simply unlocking the incremental capabilities that we've built over the past 18 months or so as we've been working to bring Genius to market across the globe. The second thing related to sort of yield and average revenue per customer, as Cameron mentioned, the overall deal size is increasing. A little bit of that has to do with the sorts of customers that we're able to target with Genius as a solution, but part of it is also about the breadth of capabilities we have to monetize. We have to provide to deliver incremental value to those clients. So as we think about a migration experience, there is not any meaningful price compression associated with that. I would say it's neutral to slightly enhanced given the take rate on some of the incremental capabilities. As we think about the strategy against the back book, look, there's a time and a place for that. But as I mentioned earlier on one of the responses about mind share, we're very focused on getting Genius in front of as many prospective clients as possible, and establishing a footprint so that all of you on this call, when you walk into anywhere you do business in your normal life, you begin to see more and more of the Genius brands. So we're very aggressively focused on front book opportunities. We're prepared and we're here for our back book clients as they migrate. And in most cases, as I mentioned, that's not a full-scale data conversion, migration that's simply unlocking incremental capabilities on the new unified platform. Operator: Our next question comes from Bryan Keane with Citi. Bryan Keane: Solid results here. Cameron, I just want to ask you a little bit more directly about that peer that we talked about that reduced the guidance. In particular, they talked about short-term revenues that were unsustainable and driving higher revenues and margins. Is that something that's common practice in the industry? Can you maybe talk a little bit about the yields that you see versus volume? You guys have been pretty consistent on that. And then any kind of ability for you guys to competitively take away some business as a result of that? Cameron Bready: Yes, Bryan, thanks for the question. Look, it's hard for me to comment too much on another company or another competitor. I certainly don't have perfect visibility into everything that's happening with their business. I'm really intensely focused on the things we're doing and how we're executing as a business. I wouldn't say that the things that they called out were common in sort of practices. I mean, I think much of the commentary, particularly around merchant related to one specific international market and some idiosyncratic sort of issues there that were propping up kind of growth by virtue of FX rates and inflation, et cetera. So as I look at kind of the business more broadly, as I said before, I'm really focused on the things that we're doing, and I can't get too far down the path in terms of commenting on someone else. To that end, I would tell you, I'm really pleased with what we're seeing in our business and how effective our transformation is in terms of positioning us for a better sustainable growth and value-creation future as a business. And I'm really pleased with the momentum we're building in the business. We've been at our transformation journey now for about 15 months, and I'm really pleased again with the little success that we've seen and the direction of travel as it relates to all the key initiatives that we have really been investing against over that period of time. We reoriented our operating model to make sure that we are well positioned for the growth future that I described before. We've had terrific success with Genius, which we spend a lot of time talking about today. Our sales effectiveness initiatives are progressing really well, and we're seeing a lot of positive trends coming out of those. And the technology strategy that we outlined today, we think strikes the right balance between delivering client experiences that are modern and contemporary and aligned with what customers are looking for in the marketplace, while positioning us to be able to deprecate infrastructure and streamline and harmonized technology environments over a longer period of time that will drive additional cost savings and margin uplift in the business without creating a lot of customer distraction. And of course, as we thought about our business and the market more broadly in the competitive landscape, we obviously put that into context as we thought about the transactions to acquire Worldpay and the best our Issuer Solutions business. We think these transactions further catalyze everything that we're doing from a transformation perspective and obviously, will position us going forward as a pure-play merchant solution provider really with unmatched global scale in an industry, as I said before, where scale matters more than ever. So as I look at the things that we're doing, we're incredibly enthusiastic about the progress that we're making. We feel very good about how we're building a sustainable growth-oriented engine here that's based on healthy growth fundamentals and obviously, positioning the business competitively. And with the Worldpay combination, obviously, we think we'll bring a level of scale to the industry that positions us extraordinarily well, continue to grow, continue to innovate and continue to generate significant cash flow, obviously, that allows us to invest for the future, while rewarding shareholders with significant capital returns. Operator: Our next question will come from Andrew Schmidt with KeyBanc Capital Markets. Andrew Schmidt: Good to see the consistent results here. Maybe we could ask just about Merchant Services or Merchant Solutions organic growth. It looks like the exit rate pretty consistent with what you guys had outlined previously, slightly above 6%. Maybe talk about just the progression into 2026. And whether any thinking has changed there, particularly in terms of drivers? I know POS and software is obviously a big driver, Salesforce is a big driver and a number of things going on. But just -- maybe just if you think about just the progression into 2026 and some of the key drivers, that would be great. Cameron Bready: Yes, I'll start. I'll maybe ask Josh to add a little bit of commentary as well. I think, look, 2026 is right around the quarter. So the drivers as we think about the business organically heading into 2026 are really centered around the things that you just described. Obviously, Genius continues to be a very significant focal point for us in terms of driving growth in our business. We have incremental market expansion opportunities in 2026 that we're looking to deliver. Obviously, we continue to build momentum in the markets where we've already rolled it out, and we're seeing strong progress on that front. And then, of course, our initiatives around sales effectiveness, the incremental sales force professionals we're looking to hire and bring to bear on the market. Their ability to be productive more quickly and obviously drive a level of productivity that's superior than what we've been able to see historically under our old sort of plans, I think, gives us a lot of optimism around the direction of travel, relates to organic growth heading into 2026. So I don't think the underlying theme as it relates to how the business is positioned heading into next year have really changed. And I would just note also that they're very consistent with what we called out at our investor conference a little over a year ago. Obviously, as we highlighted on the call today, we're poised to close the Worldpay transaction early in 2026. And I think as we look at the combination of the 2 business heading into next year, we're obviously comfortable with the direction of travel of the Global Payments business, and we're very comfortable with the direction of travel of the Worldpay business in terms of their organic growth as we look to wrap-up '25 and head into '26. And the outlook for the combined business next year, I would just ask you to reflect on what we shared in Q1 of this year around the medium-term outlook for the combined business, that remains kind of our outlook as we sit here today for the combined business as we get into 2026. Joshua Whipple: Yes, Andrew, the only thing I'd add is, I think if you go back to the beginning of the year, we're doing exactly what we said we were going to do. You go back in the first 3 quarters, the shaping of merchant is right in line with what we see acceleration in the back half, and that's primarily related to the transformation initiatives as Cameron and Bob called out around Genius and sales effectiveness. And then to Cameron's point, we gave our medium-term outlook for '26 and '27 for the pro forma business on our Q1 call. So I would point you back to that where you can see kind of what we're expecting for the business in 2026. Operator: Our next question comes from Darrin Peller with Wolfe Research. Darrin Peller: Look, when we see some of these data points like the sales revamp showing us increases on deal counts and even the Genius stats are obviously strong, looking at some of these with 90% sales to new customers, increases, et cetera. I guess our question would just be when we would start to see that play out in volume growth? I know it's early now in some of these initiatives, but your 5% growth rate, I would like to see that show some traction and acceleration. Do you expect acceleration in volume growth, specifically the KPI you've been disclosing in the same manner as we go into next year as a result of these initiatives? And then sort of related, but a follow-up would be the Worldpay SMB segment, I know is an area that you should be able to really capitalize your Genius program with post close. And so just how are you thinking about integrating that, rationalizing the 2 SMB go-to-market organizations and the uplift potential that we can see in volume overall as a result of that as well. Cameron Bready: Yes, Darrin, good question. So on the first question, we did see, obviously, volume uplift from Q2 to Q3. And obviously, that's reflected in the metrics and the disclosures we provided today. But I think the longer answer to your question is, of course, over time, as we continue to make progress with Genius, we expect to be able to drive incremental uplift in volume all else being equal across what's happening in the macro environment. As you can imagine, a lot of different factors sort of shape the ultimate sort of volume growth we see in the business. But certainly, we are seeing new sales of Genius driving incremental volume to the business, which is obviously driving overall volume trajectory in the right direction. And obviously, as we continue to move forward and make progress against expanding our footprint with Genius to Bob's point, growing mind share around Genius and having more success with front book opportunities, we expect that to continue to drive margin opportunity -- excuse me, volume opportunity and growth in volume in the business over a period of time. I think as it relates to the Worldpay opportunity, certainly, we think the overlap and complementary nature of the distribution platforms in SMB is really attractive. Today, Worldpay really lacks a product suite that we have that's really geared towards serving the SMB segment of the market. And we think that our ability to leverage that product suite across our existing distribution channels is going to be really powerful. The other thing I would say is their distribution platforms, again, are largely complementary to what we do today. Their FI channel is, again, incremental largely to what we do from a distribution standpoint. Their wholesale relationships are largely complementary to the relationships that we have. They don't have a significant direct sales force in the U.S., they do in the U.K. But the FI channel and the wholesale channels in the U.S. are very much complementary to our distribution channel. So our ability to leverage those channels to get greater breadth and depth of product expansion into the marketplace across SMBs, I think, is a really powerful part of the proposition of putting Worldpay and Global Payments together, and we're excited to be able to bring those distribution channels to life as a combined business going forward. Operator: Thank you. This does conclude the Q&A portion of today's program. So I'd like to turn the call back over to the speakers for any closing or additional remarks. Cameron Bready: Well, on behalf of Global Payments, thank you very much for joining us today, and I wish everyone a very happy Tuesday. Thanks for your interest in our company. Operator: Thank you, ladies and gentlemen. This does conclude today's program, and we appreciate your participation. You may disconnect at any time.
Operator: Hello, everyone, and thank you for joining us today for the CNO Financial Group Third Quarter Earnings Call. My name is Sami, and I'll be coordinating your call today. [Operator Instructions] I would now like to hand over to your host, Adam Auvil, from CNO to begin. Please go ahead, Adam. Adam Auvil: Good morning, and thank you for joining us on CNO Financial Group's Third Quarter 2025 Earnings Conference Call. Today's presentation will include remarks from Gary Bhojwani, Chief Executive Officer; and Paul McDonough, Chief Financial Officer. Following the presentation, we will also have other business leaders available for the question-and-answer period. During this conference call, we will be referring to information contained in yesterday's press release. You can obtain the release by visiting the Media section of our website at cnoinc.com. This morning's presentation is also available in the Investors section of our website and was filed in a Form 8-K yesterday. Let me remind you that any forward-looking statements we make today are subject to a number of factors, which may cause actual results to be materially different than those contemplated by the forward-looking statements. Today's presentation contains a number of non-GAAP measures, which should not be considered as substitutes for the most directly comparable GAAP measures. You'll find a reconciliation of the non-GAAP measures to the corresponding GAAP measures in the appendix. Throughout the presentation, we'll be making performance comparisons, and unless otherwise specified, any comparisons made will refer to changes between third quarter 2025 and third quarter 2024. And with that, I'll turn the call over to Gary. Gary Bhojwani: Thanks, Adam. Good morning, everyone, and thank you for joining us. Starting on Slide 4. CNO once again delivered a strong quarter, demonstrating our capabilities to generate consistent, repeatable results and execute on our strategic plan. We remain focused on growing earnings and improving profitability. To do so, we have taken action on 2 items that we expect will accelerate operating ROE improvement through 2027 by an additional 50 basis points. First, the execution of a second Bermuda treaty; and second, changes to our Worksite Division's fee services business. Further details will be provided later in our prepared remarks. Sales results in the quarter were excellent, including record total new annualized premiums of $125 million, up 26% and double-digit insurance sales growth in both divisions. We also delivered our 13th consecutive quarter of strong insurance sales and our 11th consecutive quarter of growth in Producing Agent Comp. I'll cover these results in more detail in each division's comments. Operating earnings per diluted share were $1.29, up 16%. Earnings continue to benefit from favorable insurance product margin and solid investment results, reflecting growth in the business and expansion of the portfolio book yield. New money rates have exceeded 6% for 11 consecutive quarters now, while maintaining portfolio quality. Capital and liquidity remained above target levels. We returned $76 million to shareholders in the quarter and $310 million year-to-date. Book value per diluted share, excluding AOCI, was $38.10, up 6%. Paul will go into greater detail on our financial performance. Turning to Slide 5. Nearly all of our growth scorecard metrics were up for the quarter. As a reminder, our growth scorecard focuses on 3 key drivers of our performance: production, distribution and investments in capital. I'll discuss each division in the next 2 slides. Paul will cover investments and capital in more detail during his remarks. Beginning with the Consumer Division on Slide 6. The Consumer business delivered another quarter of excellent sales results and our 12th consecutive quarter of sustained growth. Nearly all product lines were up most by double digits. Steady execution and our dedication to serving the middle income market continue to fuel our growth. Life and Health NAP once again posted double-digit growth in the quarter up 27%. We are pleased with our Life business results, including total life insurance up 33%, and record direct-to-consumer life insurance sales up 56%. Our D2C results benefited from 3 key factors: First, process and technology enhancements continue to drive sales productivity. Second, we have been proactively diversifying our direct marketing away from television to include more web, digital and third-party channels. Non-TV lead sources combined generated 72% of all D2C life sales in the quarter. Lastly, our D2C results were bolstered by increased direct marketing spend by some of our third-party partners. We don't expect this level of spending to repeat in the fourth quarter, which is traditionally the lowest selling quarter of the year for the D2C channel. Our approach to partnerships is intentionally selective, ensuring that distributors complement our existing capabilities and target markets that are different from our typical customer base. This strategy enables us to conduct rapid experiments with minimal investments that augment our in-house development and testing. Sustained growth in our health results continues to underscore strong customer demand for practical solutions to protect against out-of-pocket gaps in medical coverage and the growing cost of health care. Total Health NAP was up 21%, which marks 13 consecutive quarters of growth. Supplemental Health was up 23% and long-term care was up 7%. Medicare Supplement was up 33%. Medicare Advantage policies sold, which are not reflected in NAP were down 24%. Our Medicare results reflect a growing shift in consumer preferences from Medicare Advantage to Medicare Supplement, reversing a decade-long trend. As many of the leading MA sponsors pare back plans and benefits, more customers are moving to Medicare Supplement plans. With more than 11,000 people in the U.S. turning 65 every day, overall demand for Medicare products continues to grow, and we have an opportunity to continue to expand the total number of households we serve. Annuity collected premiums were up 2% in the quarter, our ninth consecutive quarter of growth. Collected premiums in the quarter totaled nearly $475 million, our third highest quarter of all time. Average account size was up 5% and in-force account values were up 8%, exceeding $13 billion for the first time. Our captive distribution and the long-term relationships that our agents establish with their clients add stability to our annuity blocks. We delivered our 10th consecutive quarter of brokerage and advisory growth. Client assets in brokerage and advisory were up 28% and hit a new record, surpassing $5 billion. Total accounts and average account size were each up 13%. When combined with our annuity account values, our clients now entrust us with more than $18 billion of their assets, up 13%. Agent productivity and retention continue to support our sustained sales momentum. Producing agent count grew for the 11th consecutive quarter and registered agent count was up 6%. Investments in technology continue to enable customer experience enhancements and drive operational efficiency. For example, accelerated underwriting on a portion of our Simplified Life products delivered an 89% instant decision rate on submitted policies in the quarter, up 11%. Next, Slide 7 in our Worksite Division performance. As a reminder, our Worksite Division encompasses 2 primary components: insurance products and fee services. First, insurance product sales are the larger part of our Worksite business, which once again delivered record sales and our 14th consecutive quarter of growth. I'll touch on our third quarter performance shortly. We have a long and successful history of selling insurance at the Worksite. We like the profile and growth of this business. The second component is our fee services business which was added through the acquisitions of Web Benefits Design in 2019 and DirectPath in 2021. This includes benefits administration technology and education, advocacy and communication services. This business is small, representing less than 1% of total C&O revenue and contributing a pretax annual loss of approximately $20 million. In October, we decided to streamline our Worksite operations and exit the fee services business to sharpen our focus on the core insurance business and align resources to proven growth areas. We expect the exit process to be substantially complete in the first half of 2026. After several years of strategic investment, Worksite fee services has not met our expectations for financial performance or in delivering new insurance customers. Additionally, competition has intensified with lower cost alternatives and new technologies disrupting our market position. Paul will provide more detail on the financial impacts of this decision, which we expect to be favorable to earnings and return on equity. It was the right strategic decision for CNO, and it was not made lightly. We remain grateful to the associates who supported this business and thank them for their service and dedication to our clients and customers. It is important to emphasize that we remain fully committed to our Worksite insurance products and distribution. Worksite insurance sales have never been stronger. The division adds valuable diversification and balance to our model. Turning to our results in the quarter. We delivered another record performance for insurance sales with Worksite Life and Health NAP up 20%. This represents our seventh consecutive quarter of record NAP growth and our 14th consecutive quarter of overall NAP growth. Highlights included Life insurance sales up 24%; Hospital Indemnity insurance up 53%; Critical Illness insurance up 17%; and Accident insurance, up 15%. Strategic growth initiatives contributed significantly to our Worksite NAP performance. Our geographic expansion initiative delivered 42% of the NAP growth in the quarter, marking the seventh consecutive quarter of growth from this program. Recent investments in training and sales tools continue to enhance agent productivity. Worksite recruiting was up 5% in the quarter and agent productivity was up 15%. Producing agent count was up 9%, our 13th consecutive quarter of growth. As supported by our strong results, we remain bullish on Worksite insurance growth in the fourth quarter of 2025 and beyond. And with that, I'll turn it over to Paul. Paul McDonough: Thank you, Gary, and good morning, everyone. Before turning to my remarks on the quarter, I'd like to first comment on our second reinsurance treaty with our Bermuda affiliate. Effective October 1, we have ceded approximately $1.8 billion of Supplemental Health U.S. statutory reserves and we'll see 50% of new Supplemental Health business from our Indiana domiciled Washington National Insurance Company to our Bermuda reinsurance company. We are proud to deepen our commitment to the Bermuda insurance community with this transaction. We are actively exploring additional transactions with our U.S. and Bermuda regulators, which, in aggregate, position us better to carry out our mission of serving middle-income consumers. Turning to the financial highlights on Slide 8. We had another strong quarter across both operating earnings and capital, reflecting favorable trends in insurance product margins, investment income, and continued expense and capital discipline. The expense ratio was 18.6% in the quarter and 19.0% on a trailing 12-month basis. The income was modestly unfavorable to expectations due to underperformance in our Worksite fee services business. We continue to manage to our capital and holdco liquidity targets while deploying $60 million of excess capital on share repurchases in the quarter. This contributed to an 8% reduction in weighted average diluted shares outstanding. On a trailing 12-month basis, operating return on equity was 12.1% and 11.2%, excluding significant items. For the third quarter, we are recording an impairment of $96.7 million in nonoperating income on the goodwill and intangibles associated with the acquisitions of Web Benefit Design and DirectPath. This impairment reflects updated financial projections for the fee services side of our Worksite business, considering recent performance and an increasingly competitive market. Additionally, as Gary previously discussed, in October, we decided to exit the Worksite fee services business. We anticipate that decision will result in charges estimated to be in the range of $15 million to $20 million, which will also be reported in nonoperating income. The timing of the exit charges will be primarily in the fourth quarter of 2025. We expect this exit decision together with the new Bermuda treaty will improve operating return on equity starting in 4Q '25, with the full effects emerging over the next 5 quarters through year-end 2026. The bulk of the ROE improvement relates to the exit of Worksite fee services and stems from the elimination of pretax operating losses previously associated with the fee income segment as well as the effects of the Q3 impairment and exit charges on shareholders' equity. I'll elaborate on the ROE impacts in a moment when I get to the guidance slide. Turning to Slide 9. Total insurance product margin was strong in the quarter. All major product categories were up year-over-year, reflecting growth in the business and mostly favorable underlying trends. In other annuities, the prior period results benefited from reserve releases due to higher mortality on larger closed block policies. A Sup results reflect higher claims year-over-year but improved results sequentially. Life margins reflect lower advertising spend in our traditional life business, partially offset by higher policy benefits in interest-sensitive life. Finally, our annual actuarial review resulted in a $41.3 million favorable impact to operating income. This was driven by net favorable assumption updates, including most notably, favorable lapse rates in Supplemental Health and surrender rates in fixed index annuities, partially offset by unfavorable morbidity within Medicare Supplement. Consistent with past years, we're calling this out as a significant item in the quarter and presenting the margin on this slide ex significant items. Turning to Slide 10. We continue to deliver strong net investment income results. Q3 marks the 11th consecutive quarter, the new money rate has exceeded 6% and the eighth consecutive quarter of growth in total net investment income. The average yield on allocated investments was 4.91%, up 10 basis points year-over-year. The increase in yield, along with growth in the business drove a 7% increase in net investment income allocated to products for the quarter. Investment income not allocated to product results reflect alternative investment income results better year-over-year, but slightly below our long-term run rate expectations. Lower option forfeitures as a result of lower annuity surrenders and lower in-the-money options, and lower NII from general account assets as the robust capital return in the last 4 quarters has reduced excess capital. Our new investments in the quarter comprised approximately $812 million of assets with an average rating of single A and an average duration of 6 years. Our new investments are summarized in more detail on Slide 22 of the presentation. Turning to Slide 11. Our-high quality and liquid portfolio is producing solid and consistent results. Approximately 97% of our fixed maturity portfolio at quarter end was investment-grade rated with an average rating of single A reflecting our up-in-quality bias over the last several years. Turning to Slide 12. Our capital position remains strong with our primary capital and liquidity metrics in line with targets. Turning to Slide 13 and our 2025 guidance. Over the next 5 quarters, we anticipate the combined impact of the exit from the fee services business and the new Bermuda treaty will lead to 50 basis points of incremental operating return on equity over and above our previous projections for the 2025 to 2027 period. So we are revising our operating return on equity target for 2027 to an improvement of 200 basis points, up from the prior target of 150 basis points versus a run rate of approximately 10% in 2024. We are narrowing our operating earnings per share range to $3.75 to $3.85 while maintaining the same midpoint. This adjustment reflects, among other things, an expense ratio of approximately 19%, down from the prior range of between 19.0% and 19.2%, an effective tax rate between 22% and 22.5% compared to the prior estimate of approximately 23%, and fourth quarter fee income approximately $2 million below 4Q '24, reflecting lower fee income from our distribution of Med Advantage products due to the shift towards Medicare Supplement products and away from Medicare Advantage products, as Gary touched on, and no impact from the results of the Worksite fee services business, which we will include in nonoperating income beginning in 4Q as we exit that business. We are raising our guidance for excess cash flow to the holding company to a range of $365 million to $385 million, up from $200 million to $250 million, which incorporates the impact of our new Bermuda reinsurance transaction. Finally, no change to our target capital, holdco liquidity and leverage targets. And with that, I'll turn it back to Gary. Gary Bhojwani: Thanks, Paul. CNO delivered another strong quarter. Our performance continues to demonstrate the strength of our business model and our capabilities to generate consistent, repeatable results. We remain well positioned to grow sales across both divisions, drive improved profitability and importantly, keep delivering on our promises to customers and stakeholders. We entered the fourth quarter with meaningful momentum and we once again expect to end the year strong. Thank you to everyone who joined us in September for our CNO Investor Briefing on the Consumer Division. As a reminder, the webcast and materials from that session are available in the Investor Relations section of our website cnoinc.com. We thank you for your support of and interest in CNO Financial Group. We will now open it up to questions. Operator? Operator: [Operator Instructions] Our first question comes from Ryan Krueger from Keefe, Bruyette, & Woods. Ryan Krueger: My first question was on the really strong D2C sales. Can you give us a little bit more color on how much new partnerships are contributing and kind of how to think about those relative to your D2C volumes, excluding these newer partnerships? Gary Bhojwani: Maybe I'll make some general comments, and then I'll let Paul fill in some of the precise numbers and growth rates and so on in terms of what we disclosed. As I mentioned in the prepared remarks, Ryan, we're very selective about who we work with. I'll give you an example. We believe there's a material opportunity in the Hispanic market. We don't think we're well positioned to tap that on our own. So we partnered with somebody to help us with that. It's those types of things that we are partnering with folks on. It is in addition to what we're doing relative to shifting from our dependence on television advertising. We expect that growth to continue very nicely. As we did reference because some of the growth in Q3 was due to a pull forward of some advertising expenses and so on by our partners, we don't think the fourth quarter will be quite as strong, but we do believe we will continue to see good solid growth there. Paul, do you want to backfill any of the numbers or percentage growth rates that we disclosed? Paul McDonough: Ryan, consistent with our general practice of not providing specific guidance, I won't provide any here, but I would just echo Gary's comments directionally in terms of what you should expect. Ryan Krueger: Got it. And then just a quick one. Is the current roughly $20 million annual earnings loss from the services business, does that flow through the fee income line from a reporting standpoint? Paul McDonough: It does. It's always been part of the fee income segment. And so you should see that segment, all else equal improve on an annualized basis by about $20 million. Operator: Our next question comes from John Barnidge from Piper Sandler. John Barnidge: How do you view the opportunity? Just kind of following up on the comments about actively exploring additional transactions. The total addressable market for remaining health life and long-term care liabilities that could be available to Bermuda. Paul McDonough: John, it's Paul. I'll take a first crack at that. So the question is how much more might we cede to Bermuda? I won't give you specific quantitative answer. But I will say that we are looking at opportunities to see additional business. We are looking at life in particular, which we think has some benefit, including, among other things, the diversification across products. As you know, we currently have FIAs, now we have Sup Health ceding some life reserves would increase the diversification. We continue to actively explore additional transactions with our U.S. and Bermuda regulators. And I would just emphasize the comment we made in our prepared remarks, which is that, in aggregate, the Bermuda platform positions us better to carry out our mission of serving more middle-income consumers in what are very often underserved markets. John Barnidge: And my follow-up, once DirectPath and Web Benefits Design fully wrapped up in the first half of '26, does it seem reasonable that the direct expense ratio should fall given that, that wasn't necessarily a profitable business? Paul McDonough: So John, the $20 million annualized impact is really all in, including the expenses that were attached to that business. So that's really the expectation at a high level that you should see flow through in the wake of exiting that business. Operator: Our next question comes from Joel Hurwitz from Dowling & Partners. Joel Hurwitz: Paul, on the assumption review, any ongoing earnings benefits from the updates and any statutory impacts? Paul McDonough: Sure. So on a GAAP basis, the only go-forward impact that's notable is in Sup Health, that $2 million quarterly. And then on a stat basis, I'll invite Jeremy to weigh in, our Chief Actuary. Jeremy Williams: Yes. Thanks, Paul. No, there's no statutory impacts related to any of the unlocking. Joel Hurwitz: Okay. Got it. And then just 2 quick ones on the fee service exit. One, how much of your Worksite insurance business is linked to these platforms that you're shutting down? And then in terms of that $20 million of a GAAP loss, is that equivalent to sort of what the cash impact was from those businesses? Gary Bhojwani: Yes, I'll take the first question, Joel. We don't expect any material adverse impact to our Worksite insurance sales. I would point out, indeed, that's part of the reason we're exiting this business. It just hasn't delivered enough cross-selling and support and so on. We've been able to grow the insurance business and expect to continue to grow the insurance business without the support or the cross-sell of the fee business. So we expect minimal impact to the insurance sales in Worksite. Paul? Paul McDonough: Yes. So the second part of your question, Joel, I think, is the $20 million pretax GAAP earnings a reasonable proxy for cash flow. And just thinking out loud, honestly, that I haven't thought of the specific question. But I think there aren't any significant delays in the cash impact as opposed to the GAAP accruals. So I think so, Joel. Operator: Our next question comes from Wilma Burdis from Raymond James. Wilma Jackson Burdis: Is there any way you could help us think a little bit more through the forward cash benefit or impact from the Supplemental Health business? And maybe if you can talk about -- I know that relates to a specific sub, but just give a little bit more detail there on the portion of that business that will be going through that sub. Paul McDonough: Wilma you were breaking up quite a bit there. I'm not sure I got your question. I think you're asking about the go-forward impacts of the Sup Health assumption update. Wilma Jackson Burdis: Yes. On cash. Paul McDonough: On cash, okay. Jeremy, do you want to take that one? Jeremy Williams: Sure. So certainly, on a cash basis, with the movement of the new business, the flow piece, there's certainly some reduction in strain there. I don't know the exact numbers specific to that, but certainly you would see some reduction in strain and some additional cash flows related to that. Wilma Jackson Burdis: Okay. And then can you guys hear me? Paul McDonough: Yes, I can hear you Wilma but you're just breaking up a little bit. Wilma Jackson Burdis: Breaking up a little bit, sorry. Along the lines of my -- similar lines of my first question, is the $20 million freed up from the fee services business? Is that going to also be a cash impact? I guess what I'm trying to get at here is just maybe help us think a little bit about the forward cash benefits from these 2 actions. Paul McDonough: Got it. Yes, so similar to Joel's previous question. I think that certainly, the expenses supporting the fee services business are real-time cash. And on the revenue side, there aren't material deltas between the cash flow and the GAAP accruals. So I think the simple answer to your question, Wilma is yes. Operator: Our next question comes from Jack Matten from BMO. Francis Matten: I had one more on the Bermuda transaction and more around the uses of kind of the additional cash flow you're seeing this year. Is something you're kind of planning to earmark for shareholder returns next year? Or are there incremental, I guess, investments in the business and growth or capabilities that you're planning to make? Paul McDonough: Sure. So Jack, clearly, we'll have elevated cash at the holdco in the fourth quarter in the wake of their new Bermuda treaty. And we will nevertheless be measured in our level of share repurchases as we continue to invest in sales growth and in the previously announced 3-year tech modernization project. We view these to be an attractive strategic trade-off as both will contribute over time to earnings growth and improved return on equity. Directionally, I would say that you should view our 3Q '25 share repurchase levels as more indicative of go-forward levels than the more elevated levels that we had in 4Q of last year and the first half of this year. Absent, of course, more compelling uses of that capital, we haven't changed in any way, how we think about deploying excess capital. We'll put it to the best and highest use in practice that has and will likely continue to translate to some level of share repurchase activity. Francis Matten: Got it. And on the revised or raised ROE target, just on the cadence of that, should we think about the, I guess, more of a step-up next year since a big driver is just the divestiture of the fee business and then maybe a smaller step in 2027. I guess any other kind of puts and takes we should think about regarding the -- just the cadence of the ROE uplift? Paul McDonough: Yes, that's the right way to think about it, Jack. Initially, we said expect 150 basis points of '25 to '27 off of a run rate of approximately 10% to '24. And we said, including 50 basis points in 2025. We're on track to deliver that. The benefit from the exit of fee services together with the second Bermuda treaty will begin to emerge in the fourth quarter, but won't really have a material impact until we begin to move through 2026. So yes, the incremental 50 bps is really in the '26, '27 period. Gary Bhojwani: Jack and Paul, I'd just like to add one other perspective on that. I think it's important to note that even when we hit that 12% ROE that is not a stopping point. We have to continue to improve. Right now, we've made public commitments to our shareholders about things we have line of sight for. But I want to emphasize, even when we get there, and hopefully, we get there sooner, and we're able to, again, increase the target and again, talk about instead of '27 talk about '28, '29, we have to continue to improve. So this team is geared around continuing to look for ways to improve. It's just at the moment, we're only willing to commit to things we have line of sight for. But you should not interpret that as accepting that number and the stopping point. It's anything but it's nothing more than a way point. We have to continue to get better. And so we're constantly looking for things. And if we're lucky, we're good and we're lucky, we'll be able to say something about that before 2027 and increase that target. Again, that is our goal. Operator: [Operator Instructions] Our next question comes from [ Joseph Bamllero ] from Jefferies. Joseph, your line is open. Gary Bhojwani: Operator, we're not hearing anything. I don't know if you can hear something, but we cannot. Operator: No, I don't believe Joseph is there. Paul McDonough: We can skip to the next question, operator. Operator: No problem at all. Our next question comes from Jack Matten from BMO. Francis Matten: Just one more on the Medicare Supplement business. I guess can you talk about what you're seeing regarding claims trends and what the assumption review impact this quarter? I think in the last quarter, you talked about expecting a 10% average rate increase in your filings with some moving into next year. Is that still roughly your expectation? Paul McDonough: Jack, yes, so the annual actuarial assumption update did incorporate the trends that we've seen. So no real surprise there and no real change in those trends. And as you've pointed out, we have the opportunity each year to address claim trends with pricing and trying to get to that information. So let me circle back on that once I put my finger on it. Jeremy Williams: Yes. This is Jeremy. I'll go ahead and jump in. We've certainly filed something around the neighborhood of the 10 and expect to get something in that realm. So you're correct. Operator: Our next question comes from [ Joseph Bamllero ] from Jefferies. Suneet Kamath: It's Suneet Kamath from Jefferies. I think we might have an issue with me using his passcode. Can you hear me? Paul McDonough: Yes. Hi Suneet, we can hear you. Suneet Kamath: Okay. Perfect. Sorry about that. My first question, just on acknowledging the strong NAP in consumer. We did notice that the producing agent count was sort of flattish, maybe up just a little less than 1%. And I guess I'm just curious if we're running into sort of a tough comp issue there. And if that continues, does that start to put some pressure on the consumer NAP? Or are you going to be able to continue to grow as you have been? Gary Bhojwani: Suneet, this is Gary. We expect to continue to grow. You are correct that the comps are getting tougher, but we do continue to expect to grow. Conventional wisdom has always held that as employment market softens, more people are interested in trying out a commission-only career. So we expect that to start to help us in coming quarters based on what we're seeing. We also like the results we're getting from a number of our efforts to bring agents in. All of that said, Suneet, if you force me to pick, I've been consistent about this for a few years, I'm still way more focused on productivity. Productivity is way more important than agent count. So ideally, we try and do both. But if I had to prioritize, I'd prioritize productivity and that continues to move nicely. Suneet Kamath: Got it. Okay. And then I guess on the impairments, I know the numbers aren't huge, but you did reference that you've invested in these businesses and now are exiting them. Does this episode make you think differently about inorganic growth as a use of capital? Or do you just kind of feel like this one kind of got away from you and you're going to continue to look for inorganic opportunities? Gary Bhojwani: This is Gary again, Suneet. Let me, I guess, be plainspoken about it. There are clearly some lessons we need to take from this. So I want to make sure that you and our shareholders do not think that we are simply saying this is just one that got away. We have to get better. We have to learn from this. And the responsibility for that is mine. So it doesn't sound like we're making excuses or anything like that. So there's definitely is causing us to rethink how we want to handle acquisitions. We'll be presenting a pretty detailed analysis to our Board about lessons learned. So we're taking this very seriously. It will definitely impact the way we move forward. All that said, I do want to make sure that our shareholders also don't lose sight of some of the things that have gone really well. I mean we've got minority stakes we've taken in partners like Tennenbaum and Rialto and Victory Park and so on that have done very, very well for us. So there are some good skills here. Some people have done some really good work. There are some lessons that need to be learned from these particular investments. And you can rest assured, we're taking that very seriously and it will definitely give me pause as we think about other inorganic opportunities. There's no question about that. Suneet Kamath: That's good to hear. If I could sneak one more in just on the Bermuda, should we be thinking about sort of the cadence of you guys thinking about reinsuring in-force business as maybe one deal a year, and that's kind of what you're shooting for? Is that a reasonable way to think about it? Paul McDonough: Suneet, I think that's reasonable. Yes. I don't think it would be reasonable to expect that we would do more than that. And at some point, with our existing book other than new business will probably hit the right amount of in-force reserves that are ceded. There is a balance, and it's certainly not 100% ceded to Bermuda. So we're not there yet, but at some point, we would reach that sort of right balance. But for the time being, yes, as we mentioned, we're exploring an additional business that we might see to Bermuda. Operator: We currently have no further questions. So I'd like to hand back to Adam for some closing remarks. Adam Auvil: Thank you, operator. Thank you all for participating in today's call. If you have any further questions, please reach out to the Investor Relations team. Have a great rest of your day. Operator: This concludes today's call. We thank everyone for joining. You may now disconnect your lines.
Operator: Good morning, and welcome to the Molson Coors Beverage Company Third Quarter Fiscal Year 2025 Earnings Conference Call. With that, I'll hand it over to Traci Mangini, Vice President, Investor Relations. Traci Mangini: Thank you, operator, and hello, everyone. Our discussion today includes forward-looking statements within the meaning of U.S. federal securities laws. For more information, please refer to the forward-looking statements disclosure in our earnings release. In addition, the definitions of a reconciliations for any non-U.S. GAAP measures are included in our earnings release. Please note that with the exception of earnings per share, all financial metrics are in constant currency when referencing percentage changes from the prior year period. With me on the call today are Gavin Hattersley, former Chief Executive Officer, who retired October 1, but remains with the company on an advisory capacity until year-end. Rahul Goyal, Chief Executive Officer and Tracey Joubert, Chief Financial Officer. Today, Gavin would like to share some opening remarks before passing to Rahul to provide an initial high-level view of his vision going forward. Tracey will then wrap up with a brief review of the quarter and our 2025 outlook. A more detailed presentation of our quarterly performance, including financial and operational metrics and drivers available in our earnings release and earnings slides, which are made available earlier today on the IR section of our website. Upon the conclusion of our prepared remarks, we will take your questions. And as always, we ask that you limit yourself to 1 question, and then if needed, return to the queue. With that, I'll pass it to you, Gavin. Gavin Hattersley: Thank you, Traci, and hello, everybody, and thank you for joining the call. I am pleased to be here today for what is my last earnings call with Molson Coors. It has been an incredible journey, and I could not be prouder of this team and the strong foundation that we have built. This includes our iconic brands across the world, our leading capabilities from supply chain to marketing, a dramatically improved balance sheet and our strong free cash flow generation. And while I'm retiring during a difficult time in the industry, I am confident in the company's ability to return to growth. So with that, it is my great pleasure to introduce Rahul who took over the role of CEO on October 1. During my 6 years as CEO, I worked closely with Rahul, his deep strategic insights, institutional knowledge, fresh perspectives and proven ability to deliver, which are particularly important in these dynamic times make him in my view, the right choice for the job. And while he has only been in role for about a month, he has certainly hit the ground run and to share more about this, I'll pass the call to Rahul. Rahul Goyal: Thank you, Gavin. It has been a true privilege to work with you for so many years, and I look forward to building on our many accomplishments and continuing to support the strong culture you have built that makes Molson Coors so special. Now clearly, these are dynamic times, and we like many staples companies have been affected by macro-related factors that have pressured consumption behavior. In the U.S., these macro impacts have had a disproportionate effect on the lower income than Hispanic consumer. And within there, these consumer segments have driven a reduction in the number of buyers as well as spend per trip, with a continued shift to singles in the third quarter. In Europe, the macro environment has also contributed to continued industry softness, pressuring demand across our regions. But we continue to believe that the incremental softness in the industry this year is cyclical, and we believe that we are well positioned with a healthy balance sheet, strong free cash flow and great brand that serve a wide range of consumer occasions and preferences. This all helps us to navigate these near-term cyclical headwinds while investing in our business to support the long-term growth. I know everyone is eager to hear more about my vision for the future, and there will be more details to come. Today, I would like to provide a high-level view of our strategic priorities and how we plan to adapt in these challenging times, improve our commercial performance, capitalize on opportunities and ultimately return to top and bottom line growth. I want to assure you that we are moving with a sense of urgency and with a clear purpose. In my first 30 days, we have already begun to implement structural changes, both in terms of leadership and operations to put us on the path to success. At the highest level, it begins by focusing on our portfolio to build strong and scalable brands in both beer and beyond beer. This entails prioritizing our investments to build on the strength of our core and economy beer portfolios and to transform our above premium beer and beyond beer portfolio. In beer, we already have a strong core portfolio with iconic global brands and regional market leader. They are the majority of our business. So we intend to continue to put strong commercial pressure behind that. For Miller Lite and Coors Light, this means new campaigns and high-profile sports and music alliances that build on their strong brand health and support our ambition for share growth for each brand. And for Banquet, we intend to capitalize on its impressive success by leading in even more to fuel its strong momentum and to continue to bridge the sizable distribution gap with Coors Light. Recall that Banquet is only in just over half the buying outlets of Coors Light and not only is Banquet an important growth driver in our U.S. business, but it offers learnings that we believe can be applied more broadly across the portfolio. We also plan to selectively increase our focus on certain economy brands like Miller High Life and Keystone Light, which are big brands with loyal consumer base. We firmly believe that all price segments matter. And while as an industry, we are not seeing trade down at the brand level in today's environment, more than ever, economy is an important segment. And we continue to see big opportunities in above premium. While we have had strong premiumization success in markets outside the U.S., we meaningfully under-indexed in above premium in the U.S., and we plan to lean in even harder to change that in both beer and beyond beer. In beer, it's no secret that we think Peroni has great potential. It's only been 2 quarters since we fully onshore Peroni and activated our commercial plans and we are already seeing good progress with brand volume up 25% in the third quarter. And with expected increases in media investment next year, including programming for the Olympics and with only about 1/3 of the distribution of the other major competitors, we see significant runway ahead. We also remain committed to stabilizing Blue Moon and to be frank, we haven't seen the success we would like. Recent innovation with non-alc and high ABV brand extensions have been encouraging, while the core Blue Moon Belgian White continues to be challenged. We are going to be looking closely with a fresh commercial perspective at what we can do differently to best ensure that this big and important brand supports our premiumization objectives. Now while beer is our roots and at the core of our business, you can also expect us to step up our focus on beyond beer because we believe we can win here. Not only does it help to premiumize our business that it also creates value for our customers by appealing to a wider range of consumer preferences and serving more occasions. In flavored alcohol, we already have big brands, and some have been rechallenged recently. But Topo Chico is a great example of how with the right commercial road, we can improve trends by focusing investments on the markets where the Topo Chico brand most strongly resonates and through thoughtful innovation, we achieved positive dollar share gain in the third quarter in these regions. And we recognize we have debts, including RTV spirits, and we intend to fill that. In non-alc, we are focused on building scale, and we are off to a great start. We believe our partnership with Fever-Tree in the U.S. provides a strong base from which to grow our total non-alc portfolio. In fact, Fever-Tree volume has been performing strongly, and it has been very well received by distributors and retailers, and we are excited by the opportunity to significantly grow the brand in the years to come. And this is just the beginning of our non-alc efforts, as we see opportunities to enter some other interesting areas. So we are making the infrastructure investments in people and systems that help to support the development of this business into something meaningful over time. Now to achieve our commercial ambitions, we are taking a fresh look at our approach to commercial execution and that opportunities to optimize our cost structure to fuel reinvestment in the business. On the commercial side, creating value for our customers and consumers remains at the forefront of all that we do. But we believe we can be even more effective at this by focusing ownership of this business even closer to the market. And we intend to do this by deploying marketing and G&A investments based on specific market dynamics and portfolio priorities. This should help to increase our speed of decision-making our agility to execute and ensure greater accountability and return-oriented mindset at the local level of our business. On the cost side, as announced last month, we are implementing a corporate restructuring plan of our Americas business unit designed to create a leaner, more agile organization while advancing our ability to reinvest in the business. This entails reducing our Americas salaried headcount by approximately 400 positions or 9% by the end of the year. This includes hundreds of salary positions that were already open due to headcount for our transition efforts earlier this year and those who may be granted voluntary severance as part of this restructuring. We intend to redeploy some of these savings to step up our investments behind key brands, commercial capabilities and in supply chain and technology that support ongoing productivity and efficiency. And we will continue to be disciplined stewards of our capital, using a dynamic capital allocation approach, balancing investments in M&A to fill portfolio gaps, while continuing to return cash to shareholders. We'll be sharing more on capital allocation in the near future. But today, let me be very clear on 2 things. First, we seek scalable deals that we expect to be accretive to both top and bottom line and are prudent from a balance sheet perspective. And second, we remain committed to our dividend and to our share repurchase program as we continue to view our stock as a compelling investment. Now there is a lot of work to do, but we see a clear path forward. Results will take some time, but we are moving with a sense of urgency. We're confident we have the right brands and the plans to be successful. And I look forward to updating you on more of the details of strategy and financials and operational objectives in the coming months. With that, I will pass it to Tracey, who will talk about our financial performance and outlook. Tracey Joubert: Thank you, Rahul. Third quarter consolidated net sales revenue was down 3.3%. Underlying pretax income was down 11.9% and underlying earnings per share was down 7.2%. On an underlying basis, the key quarterly drivers were largely as expected. The U.S. beer industry was down minus 4.7% based on our internal estimates. Our U.S. volume share was down 40 basis points based on our internal estimates including relatively better share performance in the on-premise channel compared to the off-premise. Contract brewing was a 450,000 hectoliter or 3 percentage point headwind to the Americas financial volume. Excluding contract brewing, U.S. STWs outpace STRs resulting in a nearly 2 percentage point benefit to Americas financial volume in the quarter. EMEA and APAC volume continue to be pressured across all regions by ongoing soft market demand and a heightened competitive landscape. The Middle East premium remained innovative, which was within the expected price range, although at the higher end. And marketing was up, while G&A was down largely due to lower incentive compensation as compared to prior year. While our discussion today as typical has been on an underlying basis, we also recorded a noncash partial goodwill impairment charge of $3.6 billion as well as noncash intangible asset impairment charges of $274 million in the quarter, which I'll discuss in detail in today's earnings release and 10-Q. I also wanted to address the execution of our share repurchase spend during the quarter. Restrictions under our policies have prohibited us from executing under the repurchase plan during the open trading window following last quarter's earnings because we were in possession of material nonpublic information regarding our CEO search. We expect our regular quarterly trading window to open tomorrow, and we want to stress that we remain fully committed to our share repurchase plan and continue to strongly believe our stock is a compelling investment. With that, let's discuss our outlook. We are reaffirming our 2025 guidance, but we now expect to come in at the low end of the prior range is our key metrics. These key metrics and ranges are as follows: Net sales revenue to decline 3% to 4% on a constant currency basis. Underlying pretax income to decline 12% to 15% on a constant currency basis, underlying earnings per share to decline 7% to 10% and underlying free cash flow of $1.3 billion, plus or minus 10%. Now before we get into the details, I remind you that the impact of the global macro environments are multifaceted and difficult to predict. And while we have included in our guidance, our best estimate of some of these factors, external drivers that significantly impact our actual results, either up or down. Starting with the top line, we now expect lower year-end U.S. distributor inventory levels. Year-to-date, U.S. STWs largely caught up to STRs in the third quarter. However, given lower 2025 volumes impacted by industry performance, we now anticipate year-end distributor inventory to be lower compared to year-end 2024 on an absolute basis. The year-end days of inventories to remain relatively consistent and at what we view as healthy levels entering the new year. As a result, for the fourth quarter, we expect the U.S. STW trend to trail the U.S. STR trend excluding contract brewing. All of the top line drivers remain unchanged. We continue to expect U.S. industry volume to be down on average 4% to 6% for the second half of the year, while mindful of the comparisons versus the year ago period was somewhat softer earlier in the third quarter before becoming more difficult into year-end. We will cycle 1.9 million hectoliters of contract brewing volume in the Americas in 2025 related to Pabst and Labatt and will cycle the remaining 300,000 hectoliters in the fourth quarter. And we continue to expect an annual net price increase of 1% to 2% in North America in line with the average historical range and mix benefits from cycling contracts brewing from 2024 as well as from premiumization in both business units. Moving down the P&L., we expect COGS to be negatively impacted by volume deleverage, including the lower expectations for year-end U.S. distributor inventory. Also, Midwest Premium pricing has continued to increase. Our guidance assumed a price range of $0.60 to $0.75 per pound. This implies for the full year, Midwest Premium costs will exceed the prior year by $40 million to $55 billion, with most of the increase occurring in the second half of the year. However, as you can see on Page 18 of our earnings slides, the price trended at the upper end of this range in the third quarter and was slightly above it in October. Therefore, we expect increases to be at the high end of that range. As for MG&A, we continue to expect it to be down slightly for the year due to lower incentive compensation, which is largely offset by higher non-alc infrastructure costs as well as the Fever-Tree onetime transition and integration fees in the first half of the year. Again, those onetime fees were approximately $50 million and will be recovered through net sales over the next 3 years, which began in the second quarter of this year. In closing, we remain committed to improving shareholder value and look forward to sharing more about our strategic plans and long-term objectives in the coming months. With that, we will take your questions. Operator? Operator: [Operator Instructions] Our first question today comes from Peter Grom with UBS. Peter Grom: Great. Just 2 questions for me, one for Rahul and one for Tracey. First, Rahul, you've been in the role for about 30 days at this point and recognizing you've been with the company for some time. But just as you step into the CEO role, I would love to get your perspective on what you see as the biggest opportunities and challenges ahead? And then, Tracey, I just was hoping to get some color on the implied improvement for the fourth quarter embedded in the top line guidance, just given the commentary on tougher category comps and now expecting to ship behind in Americas, can you just walk through the building blocks for 4Q as you see them today? Rahul Goyal: Thanks, Peter. If you look at the last 30 days, my focus and our priority has been, I would say, in 2 fronts. One is listening to our people and then our customers. And if you look at our business, right, I mean, I come from the place of we have a strong foundation. We've got great brands, healthy balance sheet, but we have great opportunities. So if you look at our performance this year, majority of our share losses has been in the few areas, the economy category or the flavor category but we've got co-brands that are pretty strong. And so we need to find a way to make them stronger. In above premium, we have great opportunities with the portfolio we have. Peroni is doing really well. We have some more work to do in Blue Moon. Again, at the beyond beer strategy, I think this year Fever-Tree has been a great add to our business. So if you look at imbalance, I'm pretty excited about a number of things we have going, but recognize the challenges we have in some other parts of our portfolio and wanting to really get behind it. I think the piece I'll leave you with is we're definitely moving with a sense of urgency and pace, right? I mean we recognize the volatility in the category this year, but we also recognize the things that we can work on within our team. So -- now looking forward to it Peter, it's been a quick 30 days, but definitely moving with pace. Tracey, do you want to take the second one. Tracey Joubert: Thanks, Peter, for the question. So in terms of Q4, look, we are expecting better top line performance in our EMEA, APAC and Canada business units. And in addition, we are lapping softer comps from contract brewing in the U.S. So that's a big driver. Those 2 are the big drivers of our top line performance. And then just as that also translates to better bottom line performance as well as we will have lower G&A in the fourth quarter, really driven by the lower incentive compensation. Operator: Our next question comes from Chris Carey with Wells Fargo. Christopher Carey: Congratulations Gavin on your career and best of luck. And so just from an inventory perspective, I think the message today is that you expect them to be lower in 2025 on an absolute basis, but closer to historical average on a days' inventory basis. And I just wanted to maybe check this. Does that mean if the category improves a little bit next year from the current lows? You would be entering 2025 with low inventory, say, lower than average if the category expansion picks up just a little bit. I'm just conscious beer distributors often use year-end to clean up inventory and perhaps they're feeling a bit more anxious about that even more this year. And so I just want to touch kind of how you would see your inventory position going into next year. And I was listening to the prepared remarks from Rahul, thank you for all that, is it fair to say that you don't see this massive need to reinvest in the business as is typical when you enter a new leadership position and that with restructuring and sustained commitment to some of the strategies that you've laid out as you evolve into new strategies, you don't see that? Or do you see a business that perhaps is a bit underinvested in this opportunity going into next year on top of the soft year. So thanks on the inventory and the investing piece. Rahul Goyal: Thank you, Chris, and I think if you look at distributor inventories, I think the way we look at it is we have a pretty healthy place, right? I mean you've seen what's happened to the category this year. So going into the end of this year and getting ourselves into next year, days of inventory, we believe in a good place. In terms of our capacity to pivot and make sure we have the right level of supply in Q1, we feel good about it with our brewery network and infrastructure. So -- and if you remember, lapping a few things around the Fort Worth, the strike, et cetera, earlier this year. So I think we feel pretty good about being in a good place, closing out this year but also preparing and pivoting to getting our distributors the right inventory levels next year. In terms of your question of shape of reinvestment, I'd share with you a couple of comments, and I know probably looking for the clarity of what 2026 looks like. But I'm committed to making sure that we are building our brands, right? And if you look at our category, we need to be championing here. We need to be making sure we as -- along with other folks in the category are making sure that the category is healthy. And in that, we're going to be leaning in and making sure we can support our brands appropriately, whether it's the core brands above premium. In the economy, one, I call out as being very disciplined around a geographic view of our economy portfolio and making sure we are investing it in a smart way. The other part I'd just call out is our balance sheet and cash flow, right? I mean we are committed to returning cash to shareholders. But we also want to find ways to deploy capital to fill some gaps in our portfolio to get our growth going. So I'd say it's going to be a combination of all of those in terms of making sure our brands are well supported, but also using our balance sheet in a smart way of enabling the open bottom line growth but also returning cash to shareholders. Operator: Our next question comes from Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I was hoping you could give us a little more color on the pressures you're facing -- that are facing the beer category. And I guess why you believe it's cyclical versus structural? And then what is your expectation for category growth this year? And do you expect the category to recover next year? And if so, what do you think will be the drivers of this? I guess, ultimately, where do you see the biggest areas of opportunity and I guess, risk next year? Rahul Goyal: Thanks, Bonnie, and good morning to you. So I think I'll break your question into 2 or 3 pieces, right? So if you think about the pressures on the category pre 2025, the last few years, our category has been in the minus 3-ish range. And if you look at this year, we've been in the minus 4% to minus 6%, and I think that's what we shared at the end Q2 that we believe this year's category is going to be in the minus 6% -- minus 4% to minus 6%. And this year, every quarter, every month have been pretty volatile, but we probably end up in that range, right? So I think our internal estimates suggests that we're in the minus 4.7% range in terms of the category health. So there's something different this year. Right now, there's the structural issues that we've all talked about in the industry, whether it's health and wellness, whether it's the generational change. But this year, there's been a lot of other macro issues, right, whether it's the economic impacts, tariffs, immigration. So we still believe that we are -- this year or going into next year is cyclical. Once we get through some of these macro issues behind us, we should be getting back to the pre-2025 levels. So that's how we're thinking about the business. And the way I would call that out is if you look at our portfolio, we definitely have so much more opportunity to really lean into our business, right? So while we've done a great job of premiumizing outside the United States, we're so under index in the U.S. And therefore, that opportunity for us there remains. And then if you look at our share losses this year, it's been around flavors and the economy, and that's why you see me talking a little bit more about that because those are the gaps we need to be filling or improving on. So hopefully, I answered your question about the category performance and just our views on that in the last -- in the short term and then also the long term. Operator: Our next question comes from Andrea Teixeira with JPMorgan. Please go ahead. Drew Levine: This is Drew Levine on for Andrea. So Rahul, you just noted the expectation, I guess, that industry could return to pre-2025 levels. You also noted in the prepared remarks that results will take some time to see. So I guess if you could just provide any more context to -- if you think that the company could return to low single-digit organic sales growth if the industry remains down in that sort of 3% range? And then you also talked about being willing to deploy the balance sheet and cash flow to fill portfolio gaps. I know under Gavin, it was talked about as sort of a string of pearls approach. If you think that given where the industry is, if we could be on the lookout for anything a little bit more sizable? Rahul Goyal: Yes. Thank you. Just a couple of comments, I think, on your few questions. So with the industry being where it is, I think we still see the pathway for delivering growth both on top and bottom line. If you look at this year, what's impacted is obviously category, but also on the COG side, right, there's been so much volatility around inflation with best premium, I know we've spoken about. So those are the, I would say, the headwinds we're dealing with this year. If you again go back to the pathway to get back to top line, I mean, in the U.S., I'd break down our portfolio, maybe in 4 buckets, strengthening, core and economy becomes important. And these are big parts of our portfolio. And frankly, they are big parts of our distributor portfolio. So making sure these parts of the portfolio are strong and healthy is important. And I would say we've done a decent job on share with our co-brands, right? Our core brands are still higher share than 2022, but we have work to do on economy. But the runway we have in Above Premium is so much in beer and beyond beer, right? And in beer, we are under index. I called out in my comments that we have work to do on Belgian White, Blue Moon but Peroni is growing. Flavor is something that is volatile. We had some good success with our brands. But this year, we have some challenges with Simply, Topo is starting to get much stronger and then the non-alc piece, right. Fever-Tree was a great add. It's an exciting brand for us. It's exciting brand for our network. So between the combination of that and along with our Canadian and our Euro business, we can get our business back in low single-digit growth. And then is obviously deploying capital, right? So your question of M&A. We want to make sure we deploy capital for brands that fill gaps in our portfolio, right? So I think that's important. Two, we want to be disciplined about it being accretive to both top and bottom line, right? So we're not going to chase top line just for the sake of top line. And then third is we want to do it in a way that is prudent from a balance sheet perspective and utilizing our balance sheet. So we stay committed to our investment-grade rating. We stay committed to a 2.5x leverage ratio, returning cash to shareholders, but we can deploy capital to really augment the portfolio and make sure we're making some changes that are meaningful to our total enterprise. So probably I can't give you a specific number or size, but definitely want to lean in, in the right way of enabling total enterprise growth. Operator: Our next question comes from Peter Galbo with Bank of America. Peter Galbo: Good morning, Gavin, Rahul, Tracey, thanks very much for the question. I also actually wanted to ask 2 questions on the balance sheet or related to the balance sheet. Molson Coors has done, I think, a better job relative to history of kind of preparing the balance sheet to weather maybe some downturns or more structural cyclical headwinds. But 2 things I'd like to ask kind of, one, Tracey, I think there's -- this quarter, you moved into a relatively big bond maturity that's coming in the next 12 months, just maybe how we should think about addressing that, particularly as we start to contemplate '26? And the second would be just on the impairment itself, again, relatively sizable hit to the balance sheet. Rahul, I think, understandably, you have to go through impairment testing, but in the context of cyclical versus structural, I would think this would lean more towards the structural lens. So maybe you can help compare and contrast just what happened with the impairment charge relative to kind of your views on the overall industry. Rahul Goyal: Thank you, Peter. Let me have Tracey answer the bond maturity question, and then I'll take your impairment question. Tracey Joubert: Thanks, Peter. So yes, we do have some debt coming due in 2026. And as with all our debt, we will review that as we get closer to the due dates. I think the important thing is that we remain focused on maintaining our leverage ratio, as Rahul said, in alignment with the target of being below 2.5x. And we are currently in that range. And we will make sure that going forward, we are in sort of below 2.5x. So closer to the time, we'll assess what we do with the date. Thanks, Peter. Rahul Goyal: Yes. Thanks, Tracey. And Peter, I mean you're absolutely right. I mean we took the impairment charge to goodwill of about $3.6 billion in Q3. And so firstly, a number of factors that impacted, right. So obviously, this year's performance. There is a question about the outlook of our business. But the other factors that come in is discount rates, risk premium and frankly, the multiple, right? So the way I think about this is we can get this business back to top and bottom line growth. We think we are very undervalued in the context of our market cap right now. Those are the things that we need to lean into and make sure we can demonstrate quarter-over-quarter. And this is something that, as you said, it's something we need to do every year and check ourselves to make sure we think you do the business in a prudent way and the impairment -- and the segment a function of that. Operator: Our next question comes from Bill Kirk with ROTH Capital Partners. William Kirk: Rahul, I was hoping to get a little bit more on your vision for the business. You mentioned portfolio gaps a couple of times. Do you think the gaps are more related to regions, are the gaps more like categories related or the gaps brand specific? And then maybe backing up even further, should the company's focus become more narrow? Or should the focus broaden and introduce new regions and categories? Rahul Goyal: Yes. Thank you, Bill. Definitely looking forward to sharing a lot more about the plans and how to think about that. But let me maybe break it down in maybe 3 different ways. So one is about portfolio. As you said, we have a pretty broad portfolio in the U.S. We have a great product portfolio in Canada, even in Europe. And generally, we do believe all segments matter, right? So we do definitely need to work within that. Now how we work, with specific parts of the portfolio, I think that's where you see me highlighting some of the areas of opportunity we have. Now in some parts, we do have gaps, right? So I talked about the flavor part of our portfolio, right? So we have some gaps that we need to fill. We fill some gaps in beyond beer non-alc right? So there is an element of both fixing some of the portfolio plays we have, filling some gaps. So that's, I would say, part 1 of the broad plan. The second part is execution, right? And I think all of you know while beer is a global business and a national business, it is a very local business. So us executing as closest as possible to customers and distributors and retailers is going to be super important. And that's not just in terms of just the sales function, right? It is about how we deploy our people resources, how we deploy our marketing resources, has to be as close as possible to our consumers and customers. So there is definitely a difference in how we execute and take that to our brands to market. The third element to your question is capabilities. We have a strong foundation in our infrastructure, whether it's breweries, whether it's supply chain, but it is an area that we need to make sure we are keeping up with -- either on the commercial side, whether it's on the technology side, optimizing our brewery footprint in the best possible way with making sure we can meet some of the needs of our new capabilities. So you're definitely going to see that -- us leaning into that. And then capital deployment, driving our capital allocation approach, Tracey mentioned us wanting to be disciplined about that. So I would say those are the broad areas. Your question about being broader or narrow, we love the markets we are at. I mean we are in some of the best profit pools in the world. We just got to win in those. So that's how you're going to see us lean in on winning in the markets that we directly have a very strong foundation. Operator: Our next question comes from Filippo Falorni with Citi. Filippo Falorni: Rahul, so I wanted to ask about your experience working with and building the partnership with Coca-Cola, Fever-Tree and some of the non-alc initiatives like ZOA. Should we expect more initiatives like that from also causing in the future, to your point, as a way to fill some gaps in a capital-efficient way? Or do you see still the opportunity for maybe more traditional acquisitions going forward? And then on the restructuring that you've announced recently, you indicated most of the charges, $35 million to $50 million will be in Q4. Can you provide some sense of the savings on a run rate basis going forward? And when should we expect those savings to flow through? Rahul Goyal: Thank you, Filippo. Let me talk about the portfolio and the partnership comments and Tracey, if you can help on the restructuring piece. If you look at our portfolio, Filippo, I mean, we're definitely going to be focused on beer. I just want to make sure that's been our roots and it's a big part and foundation of our business. So beer is always going to be super important and definitely leaning into that space. In terms of partnerships and acquisitions, I think if you look at what we have done with both Coca-Cola, Fever-Tree, I think we've figured out a way of working with partners to really leverage our platform, leverage our infrastructure to scale brands. And I think I would say both of those partnerships have worked really well for our business. But in terms of deploying capital, I do think we continue to look at areas and opportunities to deploy capital to augment our portfolio. So your question of whether we're going to do more partnerships versus more acquisitions, I think that is a function of how these opportunities come up. But what you will see us leaning into spaces where we have gaps in the portfolio to fill, right? Maybe 3, 4 years ago, we didn't have the capital to deploy, if it's right now. I think our balance sheet is in a strong way that we can do it in a disciplined way. So continued focus on beer, continued focus on some of the above-premium agenda. But in the beyond beer space, we probably need to be both creative and deploy capital to fill some gaps. And Tracey, do you want to... Tracey Joubert: Yes. Thanks, Filippo. So in terms of cost savings, look, we haven't provided specific cost savings target as we're still finalizing the details around this restructuring. What we have said though, you correctly say, we expect charges to be in the range of $35 million to $50 million. And they are expected to be the future cash expenditures over the next 12 months. Substantially, all of the charges are expected to be related to severance payments and post-employment benefits. But one thing in terms of the cost savings, look, a meaningful amount of the headcount reductions was from the elimination of open positions in 2025. So we wouldn't expect to get a full benefit in 2026 because we did have the open headcount as we prioritized our costs in 2025. So that's from sort of a cost savings point of view. But we do intend to redeploy some of the savings to invest behind our brands, to invest behind our commercial capabilities as Rahul has said, both in commercial and in supply chain and in technology to support the ongoing productivity and efficiencies around our business. Operator: Our next question comes from Steve Powers with Deutsche Bank. Stephen Robert Powers: Great. I guess these are probably 2 follow-ups to much of what you've just recently discussed. On the restructuring, I'm curious, you spoke about how this is going to make the Americas organization faster, more nimble, more agile. Just curious as to exactly how the restructuring will enable that increased speed, number one. And then number two, Rahul, you've talked a lot about the portfolio in beer versus beyond beer. I'm just -- I'm still struggling to really conceptualize the balance of those investments in your mind. Clearly, it's a game of the end. And as you've described them, both are important. But just again, that balance, beer, obviously, the bigger business, investments to drive premiumization seem to be a core part of the vision. But -- so do you see beyond beer as the bigger growth driver going forward? I'm trying to figure that out. And if so, how does that influence your investment prioritization, broader capital allocation, etcetera? Rahul Goyal: Thank you, Steve. So maybe address both the different questions. One is about restructuring and portfolio. So if you think about going back to what I said about customer and consumer focus, we wanted to make sure that the leaders driving that agenda had the seats around the table, right? So whether it's U.S. sales, whether it's our marketing leadership, whether it's the Canadian leadership. We needed to make sure that in a land where category -- we are challenged in the category, right? I mean we talked about minus 3, minus 4 to minus 6. We need to be getting much closer to how we execute in the front end of our business. So it starts from that thesis of making sure we can bring these leaders around the table, really make sure we're executing with speed. We're pivoting where we need to. We're being regionally focused where we need to. And it's also about shifting our resources, internal, both people and marketing dollars where we see the opportunities, right? So that requires us to be, I would say, a lot more quicker, a lot more nimble, and it starts with obviously being leaders having the ability to drive that. The other part I obviously talked about briefly was around making sure we can enable our teams who are closest to the markets to make those decisions, right? And so how do we drive both decision-making and accountability as close to the markets as possible. So I think those are the 2 few principles that we've used, and that's the -- what we're trying to drive in terms of the restructure changes both in the U.S. and in Canada in making sure we can execute faster because, yes, we are in a category context that is challenged. In terms of portfolio, I'd break it up in 2 different ways. One is around marketing dollars, investment and then about balance sheet deployment of capital, Steve. You're going to see us continue making sure we have the right pressure against our big brands. So whether that's Coors Light, Miller Lite, Banquet, things like Peroni, Blue Moon. So those are important brands that we believe have so much potential and making sure we are winning in the beer landscape. So you will see us continue being super focused on those and making sure we have the right marketing pressure around it. In terms of beyond beer, we do want to make it big enough that it starts having an impact to our total enterprise. I would say we are still early in that journey. And that's where I would say the balance sheet comes in to help us a little bit on making sure we have the right portfolio. In terms of what the right balance is between beer and beyond beer, Steve, I think more to come on that piece. But the way I would think about investment is making sure we have the right marketing pressure against our big brands, but making sure we can use the balance sheet to augment our portfolio, add some scale brands that we can really use as a foundation in the beyond beer space. Operator: Our next question comes from Michael Lavery with Piper Sandler. Michael Lavery: Congrats, Gavin and Rahul, both. Just want to come back to a couple of things. You touched on needing to win an economy, you touched on in your opening remarks. I just wanted to focus a little more on High Life and Keystone. Can you maybe touch on why you think might not have been winning there already? And whether it's maybe an innovation issue, a price issue, just not enough marketing, what more maybe should we expect looking ahead? And then just a follow-up on the goodwill. You touched on how it is impacted by the -- assessment process is impacted by this past year's results and evidently has a bit of a backwards look, but also seems to reflect an outlook ahead? And maybe what is kind of the balance there? And how much is it more a function of what's happened already or what you think is to come. Rahul Goyal: Thank you, Michael. So again, just let me talk about the economy portfolio and then add a few comments and Tracey, anything else you would like to add on the well. But -- if you -- I would go back to a couple of ways to think about the economy portfolio. First is a consumer lens, right? Consumer -- I think you and everybody is aware, I mean the consumer from a stable perspective is special. And so for us, making sure we have a portfolio that can meet our consumers in every location. In this category in beer, we definitely don't see trade down from a brand perspective, but we have brands that consumers love like High Life, like Keystone, like pilsner in Canada et cetera, right? So we have a broad economy portfolio that consumers really love and this is big, Michael. I mean this is a big part of our portfolio in terms of scale and volume. And it's -- practically, it's a big part of our customers' portfolio. So making sure that we're doing the right things of keeping it as healthy as possible is super important. So the things you talked about, all of that matters, right, whether it's the right level of marketing. It's the right level of innovation right. Again, but price back in that part of the portfolio. And I would call out the regional event of it, right? So this is -- our portfolio is very regional, and we need to make sure that we are winning in a very, very regional way with all of that. So probably less -- slightly different the way we think about Coors Light, Miller Lite and Banquet, which are big national brands that need to win in different ways. The focus on economies, I would say, in a -- for solving a different purpose. To your point about goodwill, it is a function of this year's performance. It's a function of discount rates multiple. But yes, it does have a view of the outlook, right, again, versus what we had previously. And I think that was informed by this year's both category performance and outperformance. So I would say those are the big drivers. But as you know maths in these things, discount rates and multiples have a big impact on some of these elements. So Tracey, anything else? Tracey Joubert: No, I think you've basically covered it Rahul. Just maybe an added thing in terms of the current outlook is the cost, particularly driven by the Midwest premium. Where we have seen that now in October being the highest level ever with potential more increases coming. So that was also a part of the outlook for our costs. But having said that, look, we remain confident in the resilience of the beer industry. And also, as Rahul has said, our ability to return to both top and bottom line growth. Operator: Our next question comes from Rob Ottenstein with Evercore. Robert Ottenstein: Great. Congratulations to you Rahul and to Gavin and best of luck. So I guess the question I'd like to try to approach, Rahul, is to get a sense of your mandate from the Board and what -- how much freedom do -- is the board giving you to the sense that if you wanted to make significant changes is kind of everything on the table, no sacred cows and that kind of approach, so something that may be a departure from the past? Or is the mandate from the Board more like just kind of stay the course, tweak things around the edges, improve execution here and there. But basically, let's weather the storm and keep kind of plugging forward. So just really just trying to get a sense of kind of how those discussions went and what range of freedom you feel that you have to create shareholder value here? Rahul Goyal: Thanks for the question, yes. I would say we definitely -- our Board is always focused on what's the best thing for all shareholders, right? I mean, that's definitely the lens. And frankly, I don't -- there is no sacred cow. I mean, I think they've given us -- given me the freedom to say, let's make sure we have a plan that can drive the most shareholder value, and that's what we are -- is what I'm leading for. So yes, there are no sacred cow. There's no constraints. I think you and everybody on this call understands the challenges that are in the category. I know there's been a lot written about our portfolio. So I mean all of that is real, and that's the context to work within. But in terms of the direction from the Board, it is about driving maximizing shareholder value in the best possible way we can. So definitely don't feel any constraints, definitely be no sacred cows. I think the tricky part, and some of your colleagues asked this question, right, a category is going through a tricky time this year. Again, I go back to, we are in great geographies with big profit pools, but yes, it comes with a different shape of category health. And those are all reality context, but it doesn't take away from the opportunities we have for our portfolio. So I think that's the best way. And again, that's why you see me talk about even the balance sheet and while we're committed to returning cash to shareholders. We're going to find the right ideas to deploy capital to get ourselves back to top and bottom line growth also. So -- yes. No, I understand the question, Rob, but no constraints here from the Board or anybody else. Operator: Our next question comes from Eric Serotta with Morgan Stanley. Eric Serotta: And congratulations again to Gavin and Rahul. Rahul, I was hoping you can talk a little bit more about the overall level of investment and capabilities, your comfort with current level. I know you talked about having the right marketing pressure behind the brands. But if you look a little bit more broadly, investment, obviously, is more broad than marketing support. As you look at the organization, it's come a long way in terms of capabilities since 2019 and the revitalization plan, are there areas either that need increased investment or where you need further build out capabilities either from an OpEx or CapEx standpoint from here? Rahul Goyal: Thank you, Eric. And yes, no, I would break out the capabilities in broadly maybe 3 broad buckets, right? So 1 is the supply chain, wanting to make sure that we have the right level of CapEx that gets -- drives the right ROI, but also builds capabilities in our infrastructure. So again, I give you an example, and I know we've spoken about this in the last few years, is things like variety packing and things like having the ability to do flavors in our breweries. These things were never possible maybe 5 years ago. And this is an investment that we've made to change these capabilities in our infrastructure, right? So making sure we have the right level of CapEx, right, which is -- will be important. So I think that's 1 thing we're going to continue to look at. So supply chain continues to be an area of making sure we have strong capabilities. Again, in outside CapEx and supply chain, it seems like optimization of logistics and transportation costs, right? So some of the new tools and technology, et cetera, can enable us to do that. The other one is commercial capabilities, right? So if you think about our market share in the United States, but our category captaincy is significantly higher than the market share we have. And that means we are -- take a role in driving that capability with our retailers. So that, again, goes back to examples of capabilities. And then the last part is technology. Both in terms of baseline technology needs with some of the new capability around AI and how do we leverage that with our infrastructure. So we're going to continue focusing on these areas. I think your question around what's the right level of investment. I think, again, more to come on that as we think about our total business, but the lens we usually have on this is what is the driving for our business, right? Is it productivity? Is it efficiency? Is it enabling the top line? So being very clear on all the KPIs or metrics that we use to make sure that these investments are returning something to the business. So while we will focus on capabilities, it is from a lens of productivity, efficiency or to enable top and bottom line. Operator: Our next question comes from Kevin Grundy with BNP Paribas. Kevin Grundy: Great. Rahul, a question -- 2 questions for me, actually kind of pulling together some of the themes that we've talked about and that is your assessment of the company's cost structure more broadly, particularly from a supply chain and brewery optimization perspective. So the company made some difficult choices at the corporate level. But as the volume outlook is certainly become quite a bit more challenging, perhaps the company's fixed cost structure is not appropriately sized for kind of the new realities if you will. So one, do you view that as a fair assessment? And two, in light of one of the questions earlier on investment levels, do you view incremental productivity as an enabler to support higher investment levels? Or would incremental investment be a near-term drag on margins? Rahul Goyal: Thank you, Kevin. So let me address your first thing around the brewery one. And the second one, I just want to make sure I got your question right. But on the brewery stuff -- on our brewery infrastructure, I mean, we're always looking at ways of making our brewery network efficient, right? And you've seen some of the actions we've taken in the past. A couple of things I'd call out as we think about our brewery infrastructure. One is around transportation costs, rather than making sure that we are looking at brewery infrastructure in the context of transportation. The other part is the seasonality of our business, right? So seasonality in terms of summer and making sure we think about that. So to answer your question broadly, yes, we're absolutely going to be thinking about all the elements of our fixed cost base. Right now, I don't believe we need to be closing a brewery. I think we need to be smart about how we think about lines in particular breweries, where we produce, what product, how do we get smarter about some of the efficiency in terms of moving our brands around. I think that's how we think about it. A fair question as we think about the volume outlook and what that does, but cost thing will always be a focus for us, whether it's on the fixed side, whether it's on the G&A side, I think that priority and focus will, I would say, always remain. Your question about do we need investments to drive productivity. I think that was the theme of the question. I don't believe we need some high elevated levels of investment to drive productivity. I think we need to look at our CapEx in the right way and be checking ourselves to make sure we get the right ROI. We need to make sure that the investment we have in people, technology is driving the right returns. But I don't believe -- I think the question was, do I see or expect a big spike in investment to drive productivity? I think that -- I don't believe I see that right now. I think marketing, again, I want to make sure we have the right pressure against our brands, again, but check -- test ourselves to make sure we're getting the right return on the marketing, right? So hopefully, I answered Kevin, both your questions in terms of fixed costing and the investment profile. Operator: Our next question comes from Kaumil Gajrawala with Jefferies. Kaumil Gajrawala: Hey, everybody. Congratulations all around. Also, I think congratulations to Eric Serotta who might have been the first analyst to pronounce your name correctly. You'll find name pronunciation to be a thing on many of these calls. You're getting the same question, I guess, over and over again around the restructuring and investment levels. And I think a lot of that is because in many instances, when the industry is struggling and has struggled for over a decade, we see bigger restructurings, bigger savings at the time of management change. And what's been announced so far seems small. So just curious, is this just the first step and there's bigger restructuring to come? Or is it sort of everything is in place now and it's time to go? Rahul Goyal: Thanks for the question. I think I know I'm keen to also talk about our total plan, and I look forward to sharing that in the coming months, right? I mean we definitely -- if you think about our business, and you said this with respect to long-term trends, making sure we are looking at our cost base in the right way. I think we're going to look at everything. The piece that we took action on in the short term in the last 30 days was to make sure we are set up well in the Americas for 2026. So I would say more to come as we think about all the elements of the plan. Cost and efficiency is another element that is super important. But we were trying to move at pace as we think about setting ourselves up in the Americas for 2026. Operator: Our next question comes from Lauren Lieberman with Barclays. Lauren Lieberman: One thing I want to go back to was just in the prepared remarks, Rahul, when you commented on -- I would just find the quote again, on the commercial changes. And I know you -- in the answer to Steve's question, you talked a little bit about org structure. But you also talked about deploying marketing based on market dynamics and portfolio priorities. And I just was curious like what were you doing before? Because that sounds like I would think that's what's already happening. So I'm just curious how you maybe compare and contrast and what it is that needs to change? Rahul Goyal: Yes. Thank you, Lauren. And absolutely fair question. I think the way I would think about this is how do we react faster to the external market dynamics, right? I mean if you look at our brands, while we have big national brands, they play different roles regionally. They operate in terms of market share we have in each state or each region is different. And we need to just find ways of being -- deploying our internal resources in a stronger way. The added part -- and some of this we were doing, right? But again, the pieces I would say is different or will be different is in the context of accountability. How do we make sure our decision-making is as close to those markets as possible? How do we make sure we can shift both people and dollar resources closest to that decision-making? And I think that's -- those are the changes that would feel different for our teams, how we operate, how we engage with our distributor network, Lauren. So I think it is things I would say we were doing, but we just need to lean in harder, given how the category has changed, right? I mean if you look at even regional performance, I know we talk about the national performance of the category, but the category is performing very differently in different parts of this country, and we need to make sure we're pivoting to that both from a resource perspective, from a brand perspective, that's where the economy context comes into conversation, right? Because some of our economy brands are very big in particular geographies. And if we are not putting the right focus on those, that's -- the whole growth algorithm becomes very hard to make happen. So those -- I would say those are the big highlights I would call out, Lauren, to your question. Operator: Our next question comes from Nadine Sarwat with Bernstein. Nadine Sarwat: I'd like to come back to some of the cyclical pressures that you called out in the prepared remarks. And in particular, what are you seeing in terms of consumer sentiment for your consumers in Q3? And to the extent that you can comment on this in October, I appreciate the prepared remarks you made, but are there any internal surveys or analytics that you're able to share about what's driving consumer behavior today? And how does that help you be more confident in your statement that the incremental pressure we're seeing today is firmly cyclical as opposed to structural? Rahul Goyal: Yes. Nadine, again, I understand the question. But -- so if I address it in maybe a few added points to give you some context or at least how we're seeing it. I mean, if you go again back to pre-'25, I mean, some of these trends have been with us as the beer category for a long time, right, whether it's health and wellness, whether it's generational change, whether it's people making choices around alcohol, I think that some of those have been -- we and everybody in the industry have known about those. And if you look at the category historically used to be in the minus 1, 2 and the last few years, it's been in the minus 3-ish range. This year, I would say there's been definitely added pressure. And you see that across staples and beer hasn't been immune to that. So whether that is impact of tariffs on consumer sentiment, if it is the focus on the Hispanic community, any of those elements. So I do believe that has had a different type of an impact to the beer category this year. And that's where once we've got through these macro issues, then we need to get back to those baseline levels of how we think about the category and then making sure we're winning in that category. Operator: Our next question comes from Robert Moskow with TD Cowen. Robert Moskow: I'm trying to summarize all of the commentary about the regional execution versus the national marketing of your brands. And I just want to make sure I understand, like you have Coors Light and Miller Lite, your 2 biggest brands. Is it your view that on a national level, that the marketing of those brands has been just fine because there's been multiyear share losses of those. One of your competitors has made great inroads in the Light category, probably at their expense. So is there -- do you think that the national marketing of those brands is doing just fine? And really, it's just the regional execution could improve and that's the way to stabilize? Rahul Goyal: No, thank you for that question. We definitely think there's opportunities for us as we think about how these brands show up. If you think about the work we are doing on Miller Lite with the 50-year campaign. I think if you look at share losses for Coors Light versus -- in Q3 versus Q2. So definitely, that's something we're looking at of the national campaigns for our big brands and how do we lean into it differently, how we think about it going forward. And I'll just point you -- pointed out to Coors Banquet, right? I mean I think it's a brand that has really met a consumer need, has resonated with consumers. We've obviously executed well in the context of distribution gains. But absolutely focused on making sure we got the right campaigns for Coors Light and Miller Lite. And I think you'll see some of that play out as -- with live sports in the coming months. Operator: Our final question today comes from Gerald Pascarelli with Needham & Co. Gerald Pascarelli: Rahul, I guess just going back to some of the prior commentary on this call and to summarize, is it fair to assume or expect that bolt-on M&A or a more aggressive push into beyond beer ultimately becomes a more important part or a larger part of the capital allocation strategy looking forward? And then for Tracey, just going back to the Midwest premium, it's obviously been increasing $0.81 per pound. I know there's like less than 2 months left in the year. But if the premium continues to spike, is there a spot price threshold for us to be mindful of that could potentially put your PBT guidance at risk for the year? Any color there would be great. Rahul Goyal: Yes. Thank you, Jeff, for that. If you look at M&A and deployment of capital, we have a pretty strong beer portfolio across the world, right? I mean we continue to fill some gaps in that. But the places where we need to fill some gaps are probably in the beyond beer. So in terms of deploying capital, you will see us probably lean in a lot more on the beyond beer space than the beer space. But if there are ideas that make sense that augment our business and drive top and bottom line growth, we're going to look at that. But I think broadly speaking, I think your assessment of deploying M&A dollars in beyond beer is probably the right way to think about it. Tracey, do you want to address the Midwest premium question? Tracey Joubert: Yes. So look, I mean, we've spoken about the Midwest premium a lot. And as you rightly say, it just continues to increase. It hit an all-time high in October, potentially going much higher. Now we do have an extensive hedging program that operates sort of there's a blend between structured as well as where we use opportunistic depending on the market. We're able to hedge out multiple years. And really, the objective is to smooth out the impacts of any unfavorable swings in commodities and in ForEx. But as it relates specifically to the Midwest premium, look, we do have coverage, and we do follow the guardrails in our program. But as I've said before, it's a very difficult and very expensive commodity to hedge. Its pricing does not follow conventional market ebbs and flows. and liquidity is limited. And so it continues to be a headwind for us. And we do try and eliminate the volatility through hedging. But at the levels that it is, there's no sort of reason for that. So we'll just continue to track it and do what we can in terms of trying to mitigate the volatility that we do see in that commodity. Operator: Thank you. That concludes our question-and-answer period. You may now disconnect.
Operator: Good morning, and welcome to the Sotera Health Third Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Vice President of Investor Relations, Jason Peterson. Jason, please go ahead. Jason Peterson: Good morning, and thank you. Welcome to Sotera Health's Third Quarter 2025 Earnings Call. You can find today's press release and the company's supplemental slides on the Investors section of our website at soterahealth.com. This webcast is being recorded, and a replay will be available in the Investors section of the Sotera Health website. On the call with me today are Chairman and Chief Executive Officer, Michael Petras, and Chief Financial Officer, Jon Lyons. During the call, some of our comments may be considered forward-looking statements. The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to Sotera Health's SEC filings and the forward-looking statement slide at the beginning of the presentation for a description of these risks and uncertainties. The company assumes no obligation to update any such forward-looking statements. Please note that during the discussion today, the company will present both GAAP and non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, tax rate applicable to net income, adjusted net income, adjusted EPS, net debt and net leverage ratio in addition to constant currency comparisons. A reconciliation of GAAP to non-GAAP measures for all relevant periods may be found in the schedules attached to the company's press release in the supplemental slides to this presentation. The operator will be assisting with the Q&A portion of the call today. Please limit yourself to 1 question and 1 follow-up so that we can give everyone an opportunity to ask questions. If you have any questions after the call, please feel free to reach out to me in the Investor Relations team. I will now call -- turn the call over to Sotera Health Chairman and CEO, Michael Petras. Michael Petras: Good morning, and thank you for joining us today. I'm pleased to report another excellent quarter for Sotera Health marked by strong top line growth, double-digit adjusted EBITDA growth, margin expansion of approximately 150 basis points and a $0.09 adjusted EPS increase compared to the third quarter of 2024. Total company revenues increased 9.1% for the quarter while adjusted EBITDA increased 12.2%. Sterigenics delivered another strong quarter, achieving 9.8% top line growth compared to the third quarter of 2024 driven by consistent performance across our core medical device customers. Nordion delivered revenue growth of 22.4%, which was primarily driven by the timing of the reactor harvest schedules versus the third quarter of 2024. Revenue was ahead of our expectations as certain customer deliveries originally scheduled for the fourth quarter were fulfilled in the third quarter. While Nelson Labs delivered third quarter revenue that was modestly below our expectations, our growth in core lab testing and operational improvements drove segment income growth and margin expansion. This marks the fifth consecutive quarter of year-over-year margin expansion in Nelson Labs, highlighting our focus on execution. In addition to our strong performance during the quarter, we strengthened our balance sheet through paying down $75 million of debt and lowered our interest expense by approximately $13 million annually. Jon will elaborate more on this shortly. Given our strong year-to-date results and visibility in the remainder of the year, we are reaffirming our 2025 revenue outlook and are raising our adjusted EBITDA outlook. Each quarter, I have emphasized Sotera Health's vital role in global health care. I'm pleased to share that Nordion recently secured a 25-year renewal of its Class 1B operating license, the longest Class Ib license ever grant by the Canadian Nuclear Safety Commission. This milestone reflects our deep trusted partnership with the CNSC in their conference in Nordion's safety culture and operational excellence. With this renewed license, Nordion will continue to secure the global supply of Cobalt-60 supporting critical sterilization processes including those performed by Sterigenics and enabling life-saving radiotherapeutic treatments for brain tumors and early-stage breast cancer. This achievement reinforces our mission of Safeguarding Global Health by ensuring a reliable supply of critical Cobalt-60 for our customers, the health care system and patients for decades to come. Now I'll turn it over to Jon who will walk us through the financials. Jonathan Lyons: Thank you, Michael. I'll start with a review of our consolidated third quarter 2025 results, followed by a breakdown of performance across each business segment. On a consolidated basis, third quarter revenues increased 9.1% to $311 million or 8% on a constant currency basis as compared to the third quarter of 2024. Adjusted EBITDA increased by 12.2% to $164 million or 11.2% on a constant currency basis versus the third quarter of 2024. Adjusted EBITDA margins reached 52.7%, an increase of 147 basis points over the prior year, driven by improved margins in both Sterigenics and Nelson Labs. Interest expense for the third quarter was $39 million, an improvement of approximately $2.4 million versus the same period last year. Net income for Q3 2025 was $48 million or $0.17 per diluted share compared to net income of $17 million or $0.06 per diluted share in Q3 2024. Adjusted EPS was $0.26, an increase of $0.09 from the third quarter of 2024. Nearly $0.04 of this benefit came from adjusted EBITDA growth, less than $0.01 came from lower interest expense while the remainder relates to a reduced tax rate. Now let's take a closer look at our segment performances. Sterigenics continued its strong performance in the third quarter, delivering 9.8% revenue growth to $193 million or 8.4% on a constant currency basis compared to Q3 2024. The revenue growth was driven by favorable volume mix of approximately 4.6%, increased pricing of 3.8% and a 140 basis point benefit from foreign currency exchange. Segment income increased 11.6% to $107 million or 10.2% on a constant currency basis, with margins improving 90 basis points year-over-year to 55.6% driven by strong top line growth, partially offset by inflation. Nordion's third quarter revenue increased 22.4% to $63 million or 23.6% on a constant currency basis compared to Q3 of 2024. Nordion's revenue increase was driven by a volume and mix benefit of 18.9% and favorable pricing of 4.7% partially offset by an unfavorable impact of 120 basis points from changes to foreign currency exchange rates. Nordion segment income increased 19.9% to approximately $38 million or 21.2% on a constant currency basis versus Q3 of 2024. Segment income growth was driven by increased volume and mix as well as customer pricing. Segment income margin was 60.6%, reflecting a decrease of approximately 130 basis points, driven by product mix. On a year-to-date basis, Nordion segment income margins have increased more than 70 basis points. Nelson Labs reported third quarter 2025 revenue of $56 million, a 5% decline compared to the same period last year. Favorable contributions from pricing of 2.7%, foreign exchange of 1.4% and core lab testing growth were offset by the decline in Expert Advisory Services. Nelson Labs' third quarter 2025 segment income rose 1.9% to $19 million or flat on a constant currency basis, with margins expanding 229 basis points year-over-year to 34.1%. Segment income and margin improvement were driven by volume and mix improvements, lab optimization and favorable pricing. Let's now turn to our balance sheet, cash generation and capital deployment activities. Year-to-date, we have generated $184 million in positive operating cash flow, while capital expenditures totaled $87 million. The company continues to be in a very strong liquidity position. As of the end of the third quarter, we had over $890 million of available liquidity, which included almost $300 million in unrestricted cash and nearly $600 million of available capacity on a revolving line of credit. We continue making progress toward our long-term net leverage target range of 2 to 3x. Our net leverage ratio improved to 3.3x at quarter end, down from 3.7x at the end of 2024 and down from 4.2x as of Q3 2023. As Michael mentioned, we took strategic actions this quarter to strengthen our balance sheet and lower interest expense. First, continued adjusted EBITDA growth and cash generation helped us achieve contractual net leverage target, triggering a 25 basis point reduction in our term loan interest rate. Then in September, we repriced the term loan for an additional 50 basis point reduction and repaid $75 million of the facility. These steps are expected to generate approximately $13 million in annual interest savings. Now I'd like to turn to our 2025 full year outlook. We are maintaining our full year constant currency revenue growth outlook range of 4.5% to 6% and anticipate revenue growth will land near the midpoint of this range. With continued benefits from volume growth and operational improvements, we are raising our constant currency adjusted EBITDA growth outlook to 6.75% to 7.75%, up from the prior range of 6% to 7.5%. Foreign currency is expected to contribute approximately 25 basis points to revenue and adjusted EBITDA growth versus the prior outlook of no impact. Total company price for 2025 is still expected to be near the midpoint of our long-term stated range of 3% to 4%. For Sterigenics, we continue to expect 2025 constant currency revenue growth of mid- to high single digits. For Nordion, we've raised our full year 2025 constant currency revenue growth outlook and now expect mid- to high single-digit growth. Additionally, I'm pleased to report that for 2025, there is no longer any revenue risk associated with Cobalt-60. For Nelson Labs, we now expect full year 2025 constant currency revenues to decline mid-single digits as the impact from Expert Advisory Services more than offset the continued growth in core lab testing and improved pricing. We expect segment income margin to finish in the low to mid-30s percent range for the full year. Turning to other guidance items. Driven by our balance sheet initiatives discussed earlier, we are improving our interest expense range to $154 million to $158 million from our previous outlook of $155 million to $165 million. Our effective tax rate on our adjusted net income is expected to be in the range of 29% to 31%, improving from the prior range of 31.5% to 33.5%. The lower tax rate on adjusted net income reflects the adoption of recent accounting guidance related to the U.S. tax law changes enacted in July. We now expect adjusted EPS to be in the range of $0.81 to $0.86, an increase in the previous range of $0.75 to $0.82. The $0.05 improvement from the midpoint of the prior EPS range reflects $0.02 driven by incremental EBITDA generation and reduced interest expense, with the balance driven by the favorable tax rate change. We expect the fully diluted share count to remain in the range of 286 million to 287 million shares. We now expect capital expenditures to be in the range of $125 million to $135 million, below our prior outlook of $170 million to $180 million, driven by project timing and incremental cost savings. While spending cadence has shifted, our expectation for cumulative capital expenditures from 2025 through 2027 remains unchanged. And we are on track to achieve our $500 million to $600 million cumulative free cash flow commitment provided at our 2024 Investor Day. We continue to expect year-end 2025 net leverage ratio to improve compared to 2024. Finally, as usual, our outlook does not assume any M&A activity. I'll now turn the call back over to Michael. Michael Petras: Thank you, Jon. We're very pleased with the quarter's performance. I would now like to give an update regarding the ethylene oxide, EO, personal injury claims in Cobb County, Georgia. Although this is a lengthy and detailed update, the key point is while the case is pending in Cobb County still have ways to go, we believe the recent Phase I and Phase II rulings align with our long-standing position that when science is considered fully, fairly and properly, the evidence refutes the plaintiffs' claims in these matters. As a reminder, the Cobb County Court ordered phase proceedings in 8 bellwether cases selected by the plaintiffs Council. Phase 1 was devoted to general causation. The court required the plaintiffs to prove that EO emissions from our Atlanta facility are capable of causing the diseases alleged by the plaintiffs. In November 2024, the court excluded 2 of the plaintiff's 3 general causation experts, but allowed the third expert under a "new standard" created by the court for these cases that did not require the plaintiffs to establish the exposure levels at which EO becomes harmful to humans. Both sides appealed. On Friday, October 31, the Georgia Court of Appeals rejected the trial court's "new standard" and vacated the trial court's Phase 1 orders. Consistent with our position, the Court of Appeals directed the trial court to apply the correct standard that requires causation experts to reliably identify the levels at which exposure to EO becomes harmful. The Court of Appeals also instructed the trial court to consider whether plaintiffs can prove general causation using epidemiologic evidence and background risk of the diseases at issue, which all occur in the general population without exposure to emissions. While the Phase I appeals were pending, 3 of the bellwether cases proceeded to Phase II, which was devoted to specific causation. Plaintiffs were required to present admissible expert testimony that the plans were exposed to doses of EO from the Atlanta facility that caused their diseases. On October 17, the trial court excluded all 3 of the plaintiffs causation experts and dismissed all 3 cases for failure to present reliable and admissible evidence of a specific causation. The court also dismissed the plaintiff claims for nuisance, noting that the plaintiffs had not presented any evidence that the Atlanta facility had violated EPA, Georgia EPD or Cobb County requirements. Although the Phase II orders apply only the 3 bellwether cases, we believe the substantive grounds for rulings apply with equal force to the remaining personal injury claims. This will be decided in due course by the Cobb County court and if necessary, the Georgia appellate courts. We will continue to put the science front and center as we defend Sterigenics safe and essential operations. This statement, the trial court Phase I and Phase II orders and a decision of the Georgia Court of Appeals are all available on our website. At this point, operator, I'd like to open it up for questions and answers. Operator: [Operator Instructions] And your first question today will come from Patrick Donnelly with Citi. Patrick Donnelly: Maybe just one on the volume recovery, nice to see that continue. Are there certain areas you guys are seeing kind of outsized recovery? I think last quarter, you talked a little bit about MedTech and bioproduction. Maybe what you're seeing there and what the expectations on the volume trajectory are from here? Michael Petras: Patrick, this is Michael. We're seeing pretty consistent performance across Sterigenics and across multiple -- almost all categories, bioprocessing, MedTech broadly. Overall, we're seeing good recovery in volumes, and we expect that to continue going forward. Patrick Donnelly: Okay. Great. And then just a quick one, hopeful on the litigation update there. I guess maybe a quick one, just in terms of where some of the other cases are. And again, if that sounds like we can continue to see some of these updates, but we'd love to just hear the latest on the broad litigation side and how you're feeling on that front? Michael Petras: Yes. Patrick, Illinois is wrapping up. We've got April 2025 settlement that we did that's been completed and closed out. The July 25th one is progressing well. That will leave us with only 1 remaining case in Illinois. In Georgia, I just gave you a lengthy update there. On New Mexico, right now, there's no personal injury claims currently, and there's only the 1 suit brought by the AG for public nuisance that's set for trial in July 2026. And then in California, we've recently been informed that the first trials are expected in January and April of 2027. Operator: Your next question today will come from Casey Woodring with JPMorgan. Unknown Analyst: This is [ Jaden ] on for Casey. Just first on Sterigenics, just wondering, are you factoring any expectation of budget flush in 4Q and given you've reaffirmed your revenue outlook for the year after your 3Q, can you touch on how conservative your guidance sits for '25 and the puts and takes behind that? Michael Petras: I'm sorry, can you repeat the question on Sterigenics. I wasn't sure I understood that first question. Unknown Analyst: I was just wondering if you're factoring in any expectation of a budget flush in for 4Q? Michael Petras: A budget flush, are you talking about the government shutdown? Is that what you're referencing when you say budget flush? Unknown Analyst: I'm talking from the MedTech customers -- from MedTech or bioprocessing? Michael Petras: We're not expecting a budget flush from -- no. And when I look forward, we feel confident of our guidance and outlook that we're giving here for the rest of the year. I wouldn't say it's aggressive, I wouldn't say it's conservative. We just feel confident where it is with 1 quarter ago. Unknown Analyst: Okay. Got it. And then just a follow-up. Just on that government shutdown since you mentioned it. Are you seeing any impact from that in your RCA business or anywhere across your portfolio? Michael Petras: When we look at it -- remember, we have no direct government sales in the business. There's some indirect impact, but it's pretty minimal. It's not a material impact. We do feel a little bit of it in Expert Advisory Services with some of the delays going on and activity there. But overall, we don't see a material impact to the company, and we do not have direct sales to the government. Operator: Your next question today will come from Luke Sergott with Barclays. Luke Sergott: Just two for me is about the -- one on the Expert Advisory business. It seems to have gotten worse here. Is that just related to the lack of FDA funding, lack of inspections and kind of the government shutdown. And then the second one, is on the implied 4Q EBITDA margin step down? I just want to know what's going on there. I assume it's probably just not the Nordion volumes, but just wanted to see if anything else going on. Michael Petras: Yes, I would say Expert Advisory Services in that RCA business is feeling some of the impact from the FDA lack of activity. So that's clearly impacting it. It was worse than we expected. But overall, it's had a material impact on the top line for the company. It's about 10 points of impact. Jon, is it roughly about 10-point? Jonathan Lyons: Yes. Michael Petras: 10-point of impact on the top line. But overall, the core lab testing is improving, which is what we had hoped for and we'll continue to see. Jon, do you want to address the margin question Luke had as well? Jonathan Lyons: Yes. Luke, as we look at the margins in Q4, we anticipate that Nelson will step back a bit from where they are at this peak in Q3. Q3 has the benefit of some pretty low expenses inside of that. And then we've been running really well in Steri. We could see a little bit of step back in that, but nothing alarming there, still stable margins for the year, maybe even slight growth for the year for Sterigenics. Operator: Your next question today will come from Dave Windley with Jefferies. David Windley: Maybe follow up on Nelson and ask the -- is the other side of the coin, Michael, the core lab testing and the pickup there. So just kind of thinking about the balance, if Expert Advisory is feeling this headwind and that's kind of prisoner to what the government does on funding an FDA. What does the rest of the business look like? And what's the demand quotient there? Michael Petras: Yes. Thanks, David. I'd say overall core lab testing is doing pretty well. We'd like to continue to see more growth. The routine volumes or some of the flow volumes are picking up like we see in the sterilization volumes. Validation has been a little bit choppy. But we've got some pockets, particularly with some of the new regulations, some of the requirements of extractable leachable testing and bioprocessing components and things of that nature are all doing well. So overall, we're seeing some nice growth in the lab testing core. We'd like to see it better. But overall, it's going the right direction. And fundamentally, we're seeing the Embedded Labs growth continue. The linkage with the Sterigenics piece and the volumes there are clearly having an impact in a positive way. David Windley: Got it. And then maybe zooming out a little bit and just thinking more broadly to the question on kind of the fourth quarter sequential progression. I think as Luke highlighted, there's a little bit of margin pullback Jon, you addressed that. The revenue growth indicated by your guidance also steps back a little bit. And so I wondered if you could just comment on cadence, timing, things that for the year were reflected in 3Q that you maybe thought we're going to land in 4Q, that kind of thing relative to kind of -- what's the smooth trajectory that fits through what is a higher 3Q and a lower 4Q? Michael Petras: Yes. Thanks, David. I would just say, we talked about the Nelson comments and things that we're seeing on Expert Advisory Services. So the other big factor that we talked about last quarter, we're reentering today is the Nordion, the Nordion lumpiness, we said it was going to be down significantly versus last year, fourth quarter, and that's what you're referencing. That's the piece. We -- so we had a portion of it, as we referenced in our comments here, that pulled into the third quarter from customers' requests, but overall, we still expect it to be down significantly from last year, all due to timing. But overall, when you look at the total year for Nordion, it will be actually above our expectations as we also commented on here today. So I think that's the other piece. Operator: The next question will come from Brett Fishbin with KeyBanc. Brett Fishbin: Just had a quick one on Nordion. I noticed the very strong revenue growth in the quarter in excess of 22%. But I think you noted that there was some margin pressure from the mix -- and was just curious kind of like what type of mix shift with Nordion was causing some margin compression. And does that persist moving forward? Michael Petras: Brett, it's Michael here. So when you look at the business, it's tough to talk about margin pressure in the Nordion business when you see the margins that we put up in that business. What we're referencing there is product sales, and particularly production of radiators equipment sales. That's a lower margin, and we saw some growth in that in the quarter. We'll see that sporadically here and there, but we don't see that as a material impact long term. The margin rates continue to be very strong in that business, as you know. Brett Fishbin: That is a fair point. And then just on Sterigenics, it was really great to see a second quarter of really improved trends for the segment. I was just curious how you think about overall sustainability of, call it, mid- to high single-digit or high single-digit type of growth as we look ahead into 2026. And maybe sort of giving guidance, if there's any key moving pieces that you would call out for next year other than potentially more challenging comparisons. Michael Petras: Yes. Great. Listen, we're proud of what Sterigenics team is they're executing very well. We've said our long-range guide there would be mid-single digits to high single digits. We're reiterating that. And I would just say, overall, we'll give guidance when we give guidance at the beginning of next year. But overall, when we look at our long-range commitments we made in the Investor Day last November, we still feel pretty confident around that. So we're well situated. We'll talk about '26 when we get there. Operator: And the next question will come from Jason Bednar with Piper Sandler. Jason Bednar: Congrats on the quarter here. I wanted to first start on Sterigenics pricing. It decelerated ever so slightly. I know we're talking tens of basis points on a sequential basis. But I think you've been trending down 50 to 60 basis points year-on-year in the last few quarters. I think this is also the smallest pricing tailwind we've seen in at least a few years. And look, it's still good, it's better than a lot of other health care verticals. But where do you think this pricing contribution stabilize? Is this a level do we need to drift lower and then maybe the follow-up there would be, I think you've talked in the past about stronger opportunities in pricing in Sterigenics in light of the investments you've been making in your facilities, is that potentially a reversal of sorts as we think about pricing going forward for Sterigenics. Michael Petras: Yes. Thanks, Jason. We said last year in November, we talked about price across the company in 3% to 4%. We said Sterigenics would be the high end of that range, and that's basically where they're coming in at. We see that continuing. We don't see any concern around that. it's 3.8%, 3.94%. It's right in that neighborhood. We see that. We can't call it that closely. But we also look at some of the NESHAP opportunities, and those are things that we would say that could come on top of that over time as we roll out that program and the regulations get set in the marketplace. So that would be above that run rate. Jason Bednar: Okay. And then maybe just on the -- to follow up on that last point, Michael, is that you referenced that opportunity over time. Is that more of a like post '26 -- not asking for '26 guidance, but is that a post '26 comment knowing that your compliance with NESHAP is still in -- still a few quarters out. And then separately, I appreciate everything that you gave us on the litigation update side, especially on all the detail around Georgia. I -- we'll get the details when the Q is filed, but can you update us on a number of cases in California. I don't think we heard that other than just the start of the -- some of those case dates? Michael Petras: Yes. I'm sorry, I was getting distracted by your second part. What was the first part of the question, Jason, again? Jonathan Lyons: Post '26. Michael Petras: Oh, post '26 on the NESHAP, I'm sorry, I think I had a little hesitation there. I would just say we're working with our customers on the appropriate way to price in capital improvements we put in our facilities, that will build out over time. Yes, NESHAP timeline has been pushed out a little bit. So we'll work with our customers to do that. But you'll see gradual improvement for that incremental price over time. Again, to your point, we don't want to get into 2026, but we'll give you some proper guidance on that for '26 and '27 and '28 as we look at that pricing and NESHAP. As far as California, there's 83 personal injury claims. Operator: Your next question today will come from Michael Polark with Wolfe Research. Michael Polark: Nelson, if I'm doing the math for 4Q, maybe in constant currency terms, flattish year-on-year. Obviously, the comp gets easier as we lap in this advisory services headwind. My question is for '26, and I'm not asking for formal guidance, but with this big advisory headwind now in, is it reasonable to expect, given what you're seeing on routine testing to expect Nelson to return to growth in '26? Michael Petras: Yes. Yes. That's a logical conclusion, Mike. We're not getting into '26 guidance, but you're thinking about it the right way. Michael Polark: My follow-up on Sterigenics, last quarter after your clear acceleration and a good number from your competitor, the discussion was around order patterns ahead of tariffs. And so I'm curious, 3 to 6 months later, do you have any better feel for whether in the second or third quarters, there was maybe a little bit of extra pull forward of ordering for MedTech customers as they maneuver supply chains ahead of Trump tariffs. Michael Petras: Yes. We -- as I mentioned in the past, we have a pretty rigorous process in doing commercial reviews and buying reviews with the team. And we're seeing very minimal impact from that. I mean there's -- the only reason I even tell you any is because we have a couple of facilities. If we look back on it, there were some stat fees that came in with some last-minute requirements from customers, but nothing material. When you look at the overall scale the business to an approximately $300 million of revenue per quarter across the company in total or $190-some million in Sterigenics, there's nothing material that we're able to see. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Michael Petras for closing remarks. Michael Petras: Great. Thank you. We achieved excellent results again this quarter with solid revenue growth, margin expansion and improved financial strength, right? We're built for resilience and sustainable growth. Our stable, recurring revenue base in expertise enables us to support our customers in highly regulated markets and deliver consistent results through varying economic cycles. We want to thank you, to our customers and investors for your continued trust and partnership. We appreciate your support, and we look forward to speaking with you again next quarter and have a great day. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome, everyone, to the Primoris Services Corporation Third Quarter 2025 Earnings Conference Call and Webcast. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Blake Holcomb, Vice President of Investor Relations. Please go ahead. Blake Holcomb: Good morning and welcome to the Primoris Third Quarter 2025 Earnings Conference Call. Joining me today with prepared comments are David King, Chairman and Interim President and Chief Executive Officer; and Ken Dodgen, Chief Financial Officer. Before we begin, I would like to make everyone aware of certain language contained in our safe harbor statement. The company cautions that certain statements made during this call are forward-looking and are subject to various risks and uncertainties. Actual results may differ materially from our projections and expectations. These risks and uncertainties are discussed in our reports filed with the SEC. Our forward-looking statements represent our outlook only as of today, November 4, 2025. We disclaim any obligation to update these statements, except as may be required by law. In addition, during this conference call, we will make reference to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures are available on the Investors section of our website and in our third quarter 2025 earnings press release, which was issued yesterday. I would now like to turn the call over to David King. David King: Thank you, Blake. Good morning, and thank you for joining us today to discuss our third quarter 2025 operational and financial results. Primoris had another great quarter, once again delivering record revenue, operating income and earnings. I am proud of our employees and their ability to execute at a high level, while providing our customers with safe, reliable service and driving profitable growth. Operating cash flow was also a highlight in the third quarter and further demonstrates the hard work we have put in to improve in this area. As a result of this emphasis, we have been able to make tremendous progress in delevering the balance sheet and allowing us to invest in the business to be well prepared for the surge in demand we are currently seeing across our end markets. I am particularly proud of how we have generated free cash flow and set new highs on our return on invested capital since making these metrics a priority. We are a company focused on the development of quality people and delivering quality projects for our clients. We continue to allocate our time and resources to capitalize on what we believe is a generational opportunity for our infrastructure solutions that will drive value for our shareholders. Last quarter, I discussed the significant demand on the horizon for power generation and the growing prospect of providing more services, which support the development of data centers. I want to reiterate that these and other opportunities remain squarely in front of us. The ramp-up in revenue, combined with the delay of a couple of larger dollar value projects, led to a higher-than-anticipated backlog burn rate in the Energy segment. The timing of when projects are signed and placed into backlog can [be due to] a number of factors, including changes in scope and design and the shifting of supply chain schedules. We continue to direct our attention toward the things we can control during the process and providing our customers with the resources they need from us to get the projects built timely. I want to emphasize that our lower than forecasted bookings in Q3 were not a result of projects being canceled or awarded to other service providers, but are instead being impacted by other circumstances that can affect the timing of executed contracts. Because of this, we remain highly confident that we will sign several high-value Energy segment projects in the coming quarters that will set us up for another successful year in 2026. I'll now turn to our performance for the quarter by segment. In the Utility segment, third quarter revenue was up double digits from the prior year. We also had double-digit backlog growth in utilities as demand for power, gas and communication services continues to surge. Leading the revenue growth was gas operations, where activity and margins remain resilient. We are seeing increased customer spend on development programs in the Midwest, Southeast and Texas that have enabled us to step up and capitalize on these trends. In regions with more variable activity, we have controlled costs to maintain solid margins. While the fourth quarter can bring unpredictable weather that can impact work schedules, our gas utility business appears to be on track for a record year in 2025. Communications revenue and margins were also up from the prior year driven by broadband expansion and an increase in major project build-outs. We believe the emergence of larger EPC network bills tied to data centers will continue to support growth in our Communications business. We are targeting over $100 million of these projects over the next few quarters, which if successful, would complement our fiber-to-home new build and maintenance programs. We are also monitoring how states are managing the potential for federal funds to further build out networks in underserved areas, which could be a catalyst in the Communications business that we are not currently building into our plans. Power Delivery had its best revenue quarter in recent years as demand is rapidly increasing in key geographies. More clients are releasing work orders from engineering at a faster pace, which is leading to increased activity and more favorable mix of work. These trends and customer conversations on upcoming plans helped to drive Utility segment backlog up from the prior quarter to an all-time high of nearly $6.6 billion. Margins continue to trend in the right direction for Power Delivery but were lower compared to the prior year as we did not have the benefit of storm work we had in 2024. We have more progress to make to achieve our longer-term Power Delivery goals, but I am pleased with the accomplishments of our teams and leaders over the past two years. We're in a great position to benefit from the expansion and hardening of the electric grid in many of the regions where it is most needed. And I believe our safety culture, expertise and ability to invest in the business will open the door for further growth across transmission, substation and distribution. Turning to the Energy segment. The Renewables business had a record revenue quarter as Utility-scale EPC and battery storage continued to accelerate. The higher-than-expected revenue growth in Renewables has been a main driver of the decrease in backlog and an area that has seen project signings push out a quarter or two. However, as mentioned earlier, we remain highly confident that we will sign several high-value projects in the coming quarters that will set us up for another successful year in 2026. The signing of the One Big Beautiful Bill and the subsequent treasury department guidance has allowed our customers to have a substantial volume of projects safe harbored for the next several years. This has provided increased stability and visibility to this market. However, customers are still navigating some uncertainty on tariffs that has slowed down the process of pricing and therefore, the signing of certain projects. The funnel of projects remains very healthy and is expanding with new Tier 1 customers wanting to work with us on their high-value projects. Based on our conversation with customers, we view this as a near-term adjustment to the timing of bookings and believe we will see backlog begin to build over the next few quarters. The battery storage market outlook is also beginning to improve after a couple of quarters of uncertainty. We're seeing the increased adoption of battery storage on upcoming projects, adding storage to previously constructed projects and a growing number of stand-alone projects as well. This is giving us increased confidence that we can have continued success and an attractive market growth. Industrial Services also saw impressive revenue growth from the prior year as natural gas generation activity has risen to a level not seen in over a decade. Primoris' track record for successful execution on gas generation projects has helped us earn an excellent reputation in the market. This has put us in a position of being a leader in the construction of gas-fired power facilities where growth is driven by the further electrification of the industry and data centers. We continue to take a disciplined approach to growth in this market but expect to have some sizable awards in the fourth quarter and into 2026 that will set us up for meaningful growth and accretive margins with good execution. The Pipeline business has faced challenges this year as revenues and margins partially offset the strong results in the quarter. Despite the recent headwinds in the business, our leadership has done well in managing the costs and keeping crew members active as we anticipate what appears to be an emerging upcycle. Headwinds impacting pipeline services have quickly reversed, and we're beginning to see tailwinds develop in this business line. We are seeing bids materialize for several large projects, and we anticipate the trend to shift toward the positive with awards as soon as this quarter. It would only take a few awards to see a revenue and margin benefit in the Energy segment and we are optimistic that 2026 will serve as the starting point. In summary, Primoris continues 2025's momentum with a record third quarter and we are energized about the future opportunities we have to take advantage of the significant tailwinds across our end markets. I'll now turn it over to Ken for more on our financial results. Ken Dodgen: Thanks, David, and good morning, everyone. Our Q3 revenue was nearly $2.2 billion, an increase of $529 million or 32% compared to the prior year, driven by double-digit growth in both the Energy and Utility segments. The Energy segment was up $475 million or 47% from the prior year, driven by increased renewables and industrial activity. In Renewables, project progress continues to accelerate resulting in revenue outpacing our expectations by over $400 million for the quarter and by over $900 million year-to-date. We have seen significant revenue pulled forward from Q4 and from 2026 driven by strong project execution and early delivery of major materials. We now expect Renewables revenue to be closer to $3 billion for the full year 2025, up from our previous estimate of $2.6 billion. Additionally, our Industrial business was up over $100 million compared to Q3 2024, driven by strong execution on gas power generation and other industrial work. The Utility segment was up over $70 million or 10.7% from the prior year, driven by higher activity across all service lines, led by Gas Operations and Power Delivery. Gross profit for the third quarter was $235.7 million, an increase of $37.2 million or 18.7% compared to the prior year. This was attributable to increased revenue partially offset by lower margins in both segments. As a result, gross margins were 10.8% for the quarter compared to 12% in the prior year. Looking at our segment results. The Utility segment gross profit was $86 million, essentially flat compared to the prior year, resulting in gross margins decreasing to 11.7% compared to 13.1% in the prior year. The lower gross margins were mainly due to a significant decrease in higher-margin storm work in the current quarter compared to the prior year. In fact, the benefit from storm work in Power Delivery is about a third of what we saw in Q3 of the prior year. Excluding storm work, utilities margins were comparable to the prior year. Despite not realizing this margin benefit, we are seeing quality performance in Power Delivery and the rest of Utility segment, including an increase in non-MSA work compared to the prior year, which is a strategic priority for us as we seek to improve margins in this segment. In the Energy segment, gross profit was $149.7 million for the quarter, an increase of $38.1 million or 34.2% from the prior year primarily due to higher revenue. Gross margins in the segment were 10.1%, down from 11% in the prior year. The decrease in margin was driven by fewer project closeouts in 2025 compared to the prior year. Pipeline margins were also a drag on margins during the quarter due to lower revenue and gross profit compared to Q3 of 2024. However, we are expecting to see some margin improvement in the segment as we close out the year and move into 2026. Looking at SG&A. Expenses in the third quarter were $97.7 million, which was in line with the prior year. As a percentage of revenue, SG&A declined 140 basis points from the prior year to 4.5%. This was driven by our record revenue and ongoing efforts to control administrative costs and improve our operating leverage. While SG&A could tick up slightly as we wrap up the year, we expect SG&A as a percent of revenue to be in the mid- to high 5% range for the full year. Net interest expense in the quarter was $7 million, down $10.9 million from the prior year, partly due to lower average debt balances and lower interest rates. Based on current trends and expectations, we are updating our guidance for interest expense to be between $30 million to $32 million for the full year, down from the $33 million to $37 million guidance we provided last quarter. This is due to our continued reduction in debt and lower interest rates. Our effective tax rate was down slightly because of some discrete tax impacts during the quarter. We now expect that our effective tax rate for the full year will be approximately 28.5%. Net income increased to $94.6 million or $1.73 per fully diluted share, both up around 61% from the prior year. Adjusted EPS increased by over 54% to $1.88 per fully diluted share, and adjusted EBITDA was $168.7 million, up 32% compared to the prior year, setting us on a course to achieve record earnings per share and adjusted EBITDA for the full year 2025. Transitioning to cash flow, Q3 cash from operations was a little over $180 million, bringing our year-to-date cash flow to more than $327 million. This represents a $117 million improvement in operating cash flow compared to the first 9 months of the year. The increase was driven by higher net income and a continued focus on working capital efficiency. Turning to the balance sheet. We closed Q3 with approximately $431 million of cash and total liquidity of $746 million. We also paid down $100 million on our term loan during the quarter, helping to lower our trailing 12-month net debt-to-EBITDA ratio to 0.1x EBITDA. Our balance sheet strength allows us to invest in the resources required to meet our increasing organic opportunities, while allowing flexibility to add scale or new services through M&A that meet our financial and strategic criteria. A disciplined approach to accretive M&A remains a focus for us, and we are encouraged by the quality of acquisition targets we are currently seeing in the market. Total backlog at the end of Q3 was around $11.1 billion, down around $430 million sequentially from Q2. Fixed backlog was lower by about $921 million due to a combination of higher revenue burn and the timing of Energy segment bookings. As David mentioned, we have seen the signing of some contracts pushed to the right about 3 to 6 months as our customers navigated through all of the volatility and change during the past 3 quarters. But our large funnel of high-quality opportunities is still very strong, and we view this backlog decline as temporary. Although bookings and our progress on work and backlog will vary quarter-to-quarter, we have a high degree of visibility to new awards in the coming quarters for the Energy segment across solar and natural gas generation and midstream pipeline. MSA backlog is up $492 million from Q2, driven by increased activity across our utilities businesses and particularly Power Delivery as customer investment in the power grid ramps. Before turning it back over to David, I'll close with our updated guidance. We are increasing EPS guidance to $4.75 to $4.95 per fully diluted share and adjusted EPS guidance to $5.35 to $5.55 per fully diluted share. And even though we had about $10 million of adjusted EBITDA pulled forward from Q4 into Q3, we are also raising our adjusted EBITDA guidance to $510 million to $530 million for the full year 2025, with the opportunity to achieve the upper end of that range with good weather in Q4. Additionally, we are increasing the range of our gross capital expenditures by $10 million at the midpoint to $110 million to $130 million to support this continued growth. We have had an excellent first 3 quarters of the year generating cash flow, paying down debt and growing earnings. As we move to close out the year, we are confident that we will finish strong and carry positive momentum into 2026. I'll now turn it back over to David. David King: Thanks, Ken. Before we open the call for questions, I'd like to recap a couple of key points of the quarter. First, Primoris is operating at an extremely high level, and we are seeing the results. We have tailored our strategy to emphasize improved margins, earnings growth, cash flow generation and the efficient allocation of capital and we are experiencing success in each of these areas. This is a direct result of our company culture and the dedication of our people in the field and those who support them. Second, the outlook for Primoris remains as good as we have seen and we have the people and our customer relationships to take advantage of the opportunities ahead of us. In all areas of our business, we will continue to work with and on behalf of our customers to develop the solutions to meet the infrastructure needs of the communities we serve. There's a lot of work to be done, and we are in a prime position to be a major contributor to the growth and modernization of the utility and energy infrastructure in North America. Lastly, I want to thank the people at Primoris for their support and efforts during my time as interim CEO. It has been a privilege to work alongside them for these past few quarters, and I'm grateful to have had the opportunity to play a role in transitioning Primoris into its next chapter led by Koti Vadlamudi. Koti is a talented and tenured executive that meets all the criteria we are looking for in the next leader of Primoris. I and the rest of the Board are pleased to have him join us, and we look forward to supporting him. It is an exciting time to be in our industry and especially to be part of the Primoris team. I have a high degree of confidence that the best years of Primoris are in front of us. I want to encourage our teams to maintain the high standard of execution they have through the first 9 months of the year and close out 2025 strong with a look to the future. We will now open up the call for your questions. Operator: [Operator Instructions] We'll take our first question from Philip Shen at ROTH Capital Partners. Philip Shen: You guys had previously expected fiscal '25 order intake to be back-half weighted. Dave, you just shared in your prepared remarks that you expect Energy bookings to improve in the coming quarters. Can you provide some additional color on how bookings might look so far in this quarter, Q4? And then additional color on how they might trend? David King: Sure, Philip. Thanks for the question. Yes, we've indicated even in some of my opening remarks that some of the timing for some of the energy segment jobs were probably going to be pushed into this Q4 timeframe. And indeed, we've seen that. I'll let Ken kind of give you some rough numbers in a moment, but I would tell you that we're looking to have a very good book-to-bill in our Energy segment and possibly in other areas. Also in this Q4, we've already booked some pretty nice awards and currently doing some paperwork to continue firming up some additional awards in Q4. So just as [indiscernible] said, I'm pretty comfortable with where we're going to end up relative to Q4 bookings. So Ken? Ken Dodgen: Yes. Phil, the other thing I would add is while we definitely entered the year thinking that it would be back-half loaded, what we weren't anticipating is all the noise from tariffs and OB3 and everything else. So all that's done in this kind of as we mentioned in our opening comments, is kind of shift everything out a quarter to as much as 2 quarters in a few cases. But looking at Q4 already, just for the Energy segment alone, we've already booked over $600 million. We have another $600 million that should book within the next 30 days. And for the Energy segment, we're expecting a book-to-bill well north of 1 for Q4, maybe as high as 1.2 or 1.3, depending on how the rest of the quarter closes out. Philip Shen: Great. That color is very helpful. And shifting over to -- or staying with the Energy segment. Book-to-bill was 0.3x. You just talked about how that could be strong. How much of the $300 million Q3 revenue in the Energy segment was attributable to a pull forward of demand timing? And what do you think Q4 Energy revenue looks like? You talked about bookings, but let's talk about the revenue now. Ken Dodgen: Yes. The pull forward on revenue was at least $100 million. And I don't have the exact numbers in front of me right now, but I know there was comfortably $100-plus million of revenue that was pulled forward that led to the EBITDA pull forward as well. Revenue for Q4, I've got a ballpark number of about $1.2 billion for Energy in Q4. Operator: We'll take our next question from Sangita Jain at KeyBanc Capital Markets. Sangita Jain: So I know you have discussed a lot about the renewables bookings being pushed out. Can we talk about the gas generation bookings, maybe how the funnel of opportunities looks there? And if there were any delays in bookings in that subsegment? David King: Sure, Sangita. Thanks for the question again. Yes, there was a little bit that kept being pushed out. Remember, we're trying to work with our customers to get that price, that fixed price and some of the delays relative to some of the materials that needed in the project, getting firm pricing and things like that kind of pushed them a little bit to the right on us. But as Ken mentioned, we're seeing those now become bookings. And so again, I'm seeing that delay in some of those bookings getting behind us, especially in the Q4. And then we're still looking at fairly strong bookings in Q1 and Q2 also. Sangita Jain: Got it. And then on the comment in your press release about weather impacting some of your projects in 3Q. Are those projects all done? Or should we expect more kind of like margin leakage from those into 4Q? Ken Dodgen: Yes. So Sangita, I think the -- so the short answer is not all the projects are done. It was pretty heavily focused on the pipeline part of our business and just a couple of projects there. As those projects finish in Q4 and burn-off, we may have a little bit of margin drag in Q4, but that should be it. Operator: Next, we'll move to Lee Jagoda at CJS Securities. Lee Jagoda: I guess for starters, David, it was fun the second time around and if Koti listening, he's going to have to work on his southern accent a little bit. David King: I agree, Lee. I agree. Lee Jagoda: If we can start with the utility side of the business, you've had 4 straight quarters of double-digit top line organic growth. And obviously, the backlog both on a year-over-year basis and a sequential basis has improved somewhere between 10% and 20%, depending on which metrics you're looking at. If you're sitting here today, how sustainable is that double-digit organic growth on the utility side as we move, not just into Q4 but as we look out into 2026? David King: Well, let me start out, and then I'll let Ken add some more color as he sees fit. We did increase our range for those utilities between that 10% and 12% for the year, as you know, we mentioned that last time. I do think those are sustainable going in. The demand, as you've seen, Lee, has been pretty strong in our Utility segment. We're still seeing good build-outs on the communication side and the utilities, good build-outs on the gas side -- gas utility side of it. So I would say that I'm still feeling pretty comfortable that we can maintain those. Lee Jagoda: Well, that's just on the margin side, that 10% to 12%. I'm more talking on the revenue side. You've done 10% plus the last 4 quarters in a row -- no, no, no, topline growth. David King: Okay. On the top line. Yes, the revenue growth has been strongly aided by the gas and communication strength that we're seeing. And again, we're still seeing just on the revenue side, a tremendous demand out there for our services, continuing to build teams, continuing to train personnel. So I still see that as a pretty strong market for us to continue to grow in. Lee Jagoda: And then one more, and I'll hop back in the queue here. So Ken, I think you mentioned $1 million of pull forward year-to-date in Energy. And as we continue to pull forward, some of that's got to come from the future beyond 2025. So despite all these large bookings, and I guess, under the framework, we had been expecting $300-ish million of revenue improvement from Energy each of the next couple of years, how does that set up for revenue growth within the Energy segment and Renewables specifically in 2026? Ken Dodgen: Yes. Look, the vast majority of that is in the Renewables business. So as we started talking about last quarter, I think our revenue growth is going to be much less for Renewables going into '26, probably a couple of hundred million or something like that is my best guess right now. We're still firming up our '26 numbers. Where we see the revenue growth opportunity still remaining strong, though, going into '26 is in our Industrial part of our business, predominantly the gas generation that we've been talking about and in Pipeline. Despite some of the margin issues we experienced this quarter, Pipeline -- the pipeline opportunities for revenue growth are pretty significant right now. So we could see $100 million to $200 million of revenue growth just in Pipeline alone going into next year. David King: Yes. And Lee, I would add one more thing on Ken's comments. The kind of pipeline projects we're looking at now are really down the fairway for us through the larger diameter pipeline projects. So I feel like we'll perform better on those in the future than what we've been struggling with on some of the work that we've seen over this last year or so. Operator: We'll take our next question from Julien Dumoulin-Smith at Jefferies. Julien Dumoulin-Smith: Koti, welcome to the crew and it's been a pleasure otherwise. Look, let me -- if I can come back to what you were saying just there a second ago. I mean, what's like the rate of growth there on the Pipeline side of the business? I mean, it seems like what you just said a moment ago implies a pretty steep ramp versus where you're starting. And then also maybe to go back to another comment from earlier. Given some of the delay in just booking some of these Renewable projects, for instance, what does that say about the cadence of revenue growth here over the next few years on Renewables? Is it more back-end weighted to '27, '28 versus '26? Or how would you set expectations? I know you guys used to have those long-term Renewable revenue growth targets. Ken Dodgen: Yes. So I'll go in reverse order. On the -- on the Renewable side, look, I think the cadence is actually coming down for '26, as I mentioned. And then we're looking for kind of a return to normal going into '27 and '28. The softness in '26 is pretty heavily driven by the delay in bookings for renewals tied to all the noise that we've had this year. The good news is, as we've been talking about is, that funnel is as strong as ever, and our customer base is -- has a lot of projects they want us to build. Just switching back to your first question on Pipeline. Pipeline is right now in '25, a $300 million to $350 million revenue business for us. All it takes is one or two of those projects that David is talking about for it to jump $100 million to $150 million going into '26. Julien Dumoulin-Smith: And then just given the size of those businesses there, what does that do for operating for margins here in operating margins in terms of as you think about scaling up on that front, especially -- well, I'll leave it there. Ken Dodgen: Yes. I mean nothing really on the renewable side since it's already a fairly scaled business. On the Pipeline side, that's where there's some margin accretion opportunity going into '26 as we get that business back up to scale. David King: And Julien, my comment also add, and I've added it each time is on the pipeline side of the business, those book and burn very quickly. So they'll -- usually what you book in 1 quarter, you're going to burn over the next 3 to 4 quarters. So it burns very quickly. Julien Dumoulin-Smith: Yes. Absolutely. I hear you. Excellent. Actually, just to clarify your earlier comment, do you think it's the top of the cycle of '28? Are you seeing incremental interest in '29 and '30 given the safe harbor comments you made there? Does it stay at that '28 level or even compound? Ken Dodgen: I don't know if it compounds, but yes, we expect strong bookings and revenue kind of through the end of the safe harbor period. Julien Dumoulin-Smith: Okay. Excellent. I appreciate the forward-looking view. Operator: Next, we'll move to Joseph Osha at Guggenheim Partners. Joseph Osha: First, David, congratulations on your interim stewardship here. It's been great working with you. Two questions. Just following up a bit on Julien's question. Are you guys any -- or do you think you're going to see any attempt to surge solar completions in '27 as people try and get in under this place in service deadline? Or is there enough safe harbor that, that just doesn't matter? And then I have a follow-up. Ken Dodgen: Yes, Joe. On the safe harbor side, no, we've got -- all of our customers are telling us they've got enough safe harbor that they don't see any issues with that. Joseph Osha: All right. So no kind of '27 surge that you see, everybody is just plowing ahead because they've got enough safe harbor. David King: Correct. Ken Dodgen: Correct. Joseph Osha: And then you guys have talked a little bit about some of the single cycle gas business you've got in particular behind defense. I think you said Stargate, I'm just wondering, as you think about your single-cycle gas business going forward, how does that break down between kind of traditional front of the meter peak or and some of these opportunities sitting next to data centers inside defense? And how big could that get? David King: Well, we're currently working on about four projects, not all of them in data centers, but we all -- we obviously are working on Stargate. We've been awarded and it's been announced also that we're starting to do the Power Gen side on the FERMI project, the one went up there in the Amarillo, Texas area. And so that market for us on the simple cycle can continue to grow. In fact, we've built out several teams getting ready for that surge, and we see a tremendous funnel of opportunities in front of us. I'll let Ken kind of mention a number in a moment because we've looked at potentially how big we think that revenue could get in that market for us next year. Ken Dodgen: Yes. Joe, I think next year, we grow top line $100 million to $150 million easily, maybe with a little upside to that. And just to kind of firm up what David was saying, there's a lot of moving pieces right now, but I -- going forward, I think it's probably going to be about a third behind the meter. That's a ballpark number and two-thirds stand-alone more brownfield sites that are just either merchant or contracted. Joseph Osha: Okay. And guys, can I ask one very quick follow-up. I'm really sorry. As you look at turbine supply, are you finding you have to kind of go to sort of Cat or Atlas Copco or something? Or are you able to -- are your customers able to get turbines from the Big 3? Ken Dodgen: They're getting in from the Big 3 and from Cat and others. So it depends on the type of turbines and size of turbines they're getting and where they are in the stack. Operator: And next, we'll go to Brent Thielman at D.A. Davidson. Brent Thielman: I had a question on the Utility backlog growth has been pretty notable. It looks like Power Delivery a decent part of that this year. And I guess my question, Ken, is, as we think about that becoming potentially a bigger piece of the segment as you convert that business, why wouldn't it be accretive to the margin profile as we look out 12, 24-plus months? Ken Dodgen: Yes. It will be accretive to the margin profile, especially as we continue to build out our project capabilities that we've talked about. A big chunk of the backlog growth we've seen thus far has been really on the distribution side, which tends to be a little bit lower margin for us. But the project work is coming and it is growing. Some of it's going to be done within the MSAs and some of it's going to be done outside the MSAs. Brent Thielman: Got it. And David, since I think you commented on it, that the relationship with FERMI, is a portion of that already in the backlog? Is there more to come? If you could just expand on that, that would great. David King: No, it wasn't in the backlog. We were awarded on LNTP. It will be in Q4 backlog. So that was part of the projects I was mentioning that we just got awarded in Q4. Operator: We'll go next to Sean Milligan at Needham. Sean Milligan: Two questions. The first one real quick on the gas power side and margin expectations there. As you grow that business, do we think about margins being accretive to energy margins on the gross side? Ken Dodgen: They will be accretive. They're running upper end of that 10% to 12% range. Sean Milligan: Okay. Great. And then on the data center piece, I know last quarter, you kind of outlined some of the pipeline there and the bids you had outstanding. And you commented that, I guess, it's mostly outside the box work. Curious about as you transition '26, '27, are you looking at getting inside the box? Can you do that organically by maybe repositioning teams? Or do you need to do that inorganically? David King: To answer your question, yes, we are looking at getting inside the box. That was one of the strategic initiatives that we put underway that might be a nice type of an acquisition. But from an organic standpoint, we could limitedly get into that. That's probably not the most optimum route for us to get inside that box. And so that's why we're -- we've got that as a strategic from an acquisition perspective. Operator: We'll move next to Adam Thalhimer at Thompson Davis. Adam Thalhimer: Heck of a beat in Q3, congrats. I wanted to ask what you are seeing in the pipeline bidding market and what the potential for Primoris could be there in 2026? David King: Wow. Well, let me mention this way. I was looking at a sales information the other day, some marketing data and where we might have been seeing -- and I mentioned this on my call, where we might have been seeing $200 million type of opportunities for us for several quarters. If that thing has now went to well over $1 billion to $2 billion plus of types of opportunities in our funnel for the Pipeline side. We are optimistic that we might be able to close some pipeline projects as early as this Q4 and then also some additional ones coming in that Q1, Q2. So as I mentioned in the comments, what was a headwind has rapidly turned to a tailwind and we're being selective on which ones we actually want to go after to obviously produce the best margin performance we can. Adam Thalhimer: Sounds great. And then in the prepared comments, you also mentioned, I think it was a couple of hundred million of projects for the next couple of quarters, broadband expansion, major network build-outs. So I was hoping you could expand on that also. David King: Yes. We are seeing more of that. There's a lot of -- in the data center side, there's a lot of fiber in the data center and getting it to the fiber networks. The fiber-to-home is going to slow down a little bit, but we are seeing a tremendous ramp up in the other types of fiber network build outs. So that's looking positive for us to grow that business again next year. Ken Dodgen: Yes, Adam, that's the fiber loop we've been talking about, the day loops and then also the middle mile stuff that we started doing. Adam Thalhimer: Okay. And the last one for me was just like your traditional civil business. What kind of trends you're seeing there, demand trends? David King: I love that question because our groups have done a tremendous job in making that unit a very profitable business unit for us. We kept the revenue top line in that -- Ken, do you want to mention it? Ken Dodgen: Yes, Adam, the revenues have been just kind of gradually growing like $30 million a year. We'll do $550 million to $575 million this year. Next year, we'll probably do $600 million to $625 million or something like that. As we talked about, it's just a good solid cash cow for us. It's generating very good margins, and we just kind of let it run its thing. David King: The teams that we've got right now, Adam, are performing extremely well in the markets they're in. And like I say, we'll grow the top line a little bit each year and just making sure that, that teams can continue to handle and build out as necessary to keep those margins where we want them. So it's really controlling the margin level more than it is the top line. Operator: [Operator Instructions] Next, we'll go to Avi Jaroslawicz at UBS. Avinatan Jaroslawicz: So just in terms of the timing delays of signing awards in Energy, was that pretty even across the verticals? Or was there noise that led to more delays for renewables or pipelines? Is it just around the tariff cost uncertainty? Or were there other factors? David King: I'll start out and then anything Ken can add as he needs to. But I would tell you, it's more on the Renewables side. As we were looking -- as you know, all that noise that we were getting out there on the One Big Beautiful Bill and the tariffs, it was causing some of our customers to look at a lot of different supply chains, which meant that we had to redo some engineering and look at -- before we could really firm up our cost to them. And so it wasn't a matter, I think I said on my earnings call, that we lost any projects or any projects were delayed or not delayed, but any projects were canceled, it was a matter of we needed that extra timing and so did our customers to get the right supply chain in, so we could firm up the price and get ready to sign those projects. And then indeed, that's what we're talking about happening in Q4 and then also in Q1. Avinatan Jaroslawicz: Okay. Got it. And then, Ken, I think you noted that good weather in Q4 could allow you to hit the upper end of guidance. Is there anything that could push you above the upper end? How are you thinking about that? And also, do you have any storm restoration work in Q4 embedded in the guidance? Ken Dodgen: Yes. We never put storm restoration in any of our forecasts. So there's none in there. And then look, to the upside, it's going to be a weather issue. It's going to be project closeouts, other things like that, that will drive us to the upper end. Operator: And that concludes our Q&A session. I will now turn the conference back over to David King for closing remarks. David King: Thank you for your questions and interest in Primoris. We are pleased with our third quarter and year-to-date results and look forward to carrying this momentum in the remainder of the year and into 2026. Thank you, and we look forward to updating you next quarter. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for joining today's Capital Southwest Second Quarter Fiscal Year 2026 Earnings Call. Participating on the call today are Michael Sarner, Chief Executive Officer; Chris Rehberger, Chief Financial Officer; Josh Weinstein, Chief Investment Officer; and Amy Baker, Executive Vice President, Accounting. I will now turn the call over to Amy Baker. Amy L. Baker: Thank you. I would like to remind everyone that in the course of this call, we will be making certain forward-looking statements. These statements are based on current conditions, currently available information and management's expectations, assumptions and beliefs. They are not guarantees of future results and are subject to numerous risks, uncertainties and assumptions that could cause actual results to differ materially from such statements. For information concerning these risks and uncertainties, see Capital Southwest's publicly available filings with the SEC. The company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, changing circumstances or any other reason after the date of this press release, except as required by law. I will now hand the call over to our President and Chief Executive Officer, Michael Sarner. Michael Sarner: Thanks, Amy, and thank you, everyone, for joining us for our second quarter fiscal year 2026 earnings call. We're pleased to be with you today to discuss our second fiscal quarter as well as share our observations on the current market environment. During the second fiscal quarter, we generated pretax net investment income of $0.61 per share, Additionally, we were able to increase our undistributed taxable income balance to $1.13 per share from $1 per share as of the end of the prior quarter. Over the last 12 months, we've harvested $44.8 million in realized gains from equity exits, which is the main driver of our growth in UTI per share from $0.64 in September 2024 to $1.13 today. Furthermore, our Board of Directors has declared a total of $0.58 in regular dividends for the quarter, payable monthly in each of October, November and December 2025, and has also declared a quarterly supplemental dividend of $0.06 per share, bringing total dividends declared for the December quarter to $0.64 per share. On the capitalization front, we successfully raised $350 million in aggregate principal of 5.95% notes due 2030. Subsequent to quarter end, the proceeds from these notes were partially used to redeem in full our outstanding $150 million notes due October 2026 and our $71.9 million notes due August 2028. Importantly, the redemption of these notes did not require a make-whole premium to be paid in either case. We believe this new capital enhances the strength of our balance sheet and alleviates any concerns surrounding near-term bond maturities with our earliest unsecured maturity now in fiscal year 2030. Finally, we raised approximately $40 million in gross equity proceeds during the quarter through our equity ATM program at a weighted average share price of $22.81 per share or 137% of the prevailing NAV per share. Deal flow in the lower middle market continued to be robust this quarter with $245 million in total new commitments to 7 new portfolio companies and 10 existing portfolio companies. Add-on financings continue to be an important source of originations for us as approximately 32% of the total capital commitments during the quarter were follow-on financings in performing portfolio companies. Over the last 12 months, add-ons as a percentage of total new commitments have been 39%. So this is clearly a strong source of origination volume in deals we know well and have experience with the management team and sponsor. Additionally, the weighted average spread on our new commitments this quarter was approximately 6.5%, which we view as strong in a tight spread environment. I will now hand the call over to Josh to review more specifics of our investment activity and the market environment. Josh Weinstein: Thanks, Michael. This quarter, we deployed a total of $166 million of new committed capital, including $162 million in first lien senior secured debt and $3 million of equity across 7 new portfolio companies. In addition, we closed add-on financings for 10 existing portfolio companies, consisting of $79 million in first lien senior secured debt and $1 million in equity. Our on-balance sheet credit portfolio ended the quarter at $1.7 billion, representing year-over-year growth of 24% from $1.4 billion as of September 2024. For the current quarter, 100% of the new portfolio company debt originations were first lien senior secured. And as of the end of the quarter, 99% of the credit portfolio was first lien senior secured with a weighted average exposure per company of only 0.9%. We believe our portfolio granularity speaks to our continued investment discipline of maintaining a conservative posture to overall risk management as we grow our balance sheet. The vast majority of our portfolio and deal activity is in first lien senior secured loans to companies backed by private equity firms. Currently, approximately 93% of our credit portfolio is backed by private equity firms, which provide important guidance and leadership to the portfolio companies as well as the potential for junior capital support if needed. In the lower middle market, we often have the opportunity to invest on a minority basis in the equity of our portfolio companies, pari passu with the private equity firm when we believe the equity thesis is compelling. As of the end of the quarter, our equity co-investment portfolio consisted of 83 investments with a total fair value of $172 million, representing 9% of our total portfolio at fair value. Our equity portfolio was marked at 126% of our cost, representing $35.8 million in embedded unrealized appreciation or $0.63 per share. Our equity portfolio continues to provide our shareholders participation in the attractive upside potential of these growing lower middle market businesses, often resulting from the institutionalization of the businesses by experienced private equity firms as well as the significant value accretion potential from strategic add-on acquisitions. Equity co-investments across our portfolio provide our shareholders with the potential for asset value appreciation as well as equity distributions to Capital Southwest over time. Consistent with previous quarters, the lower middle market continues to be quite competitive as this segment of the market is highly attractive to both bank and nonbank lenders. While this has resulted in tight loan pricing for high-quality opportunities that are not exposed to the macroeconomic uncertainty, the depth and strength of the relationships our team has cultivated over the years has continued to result in our sourcing and winning opportunities with attractive risk return profiles. As a point of reference, currently, there are 85 unique private equity firms represented across our investment portfolio. Additionally, in the last 12 months, we closed 17 new platforms with financial sponsors with which we had not previously closed the deal, demonstrating our continued penetration in the market. Since the launch of our credit strategy, we have completed transactions with over 120 different private equity firms across the country, including over 20% with which we have completed multiple transactions. Our portfolio currently consists of 126 portfolio companies weighted 89.9% to first lien senior secured debt, 0.9% to second lien senior secured debt and 9.1% to equity co-investments. The credit portfolio had a weighted average yield of 11.5% and weighted average leverage through our security of 3.5x EBITDA. We continue to be pleased with the operating performance across our loan portfolio. All our loans upon origination are initially assigned an investment rating of 2 on a 5-point scale, with 1 being the highest rating and 5 being the lowest rating. Overall, the portfolio remains healthy with approximately 91% of the portfolio at fair value rated in one of the top 2 categories, a 1 or 2. Cash flow coverage of debt service obligations has reached 3.6x, the strongest level in the past 3 years, reflecting an improvement from the 2.9x low observed during the peak of base rates. This enhanced coverage underscores the strength of our portfolio with our loans averaging approximately 43% of portfolio company enterprise value. Our portfolio continues to be broadly diversified across industries, and our average exposure per company is less than 1% of investment assets, which gives us great comfort in the overall risk profile of our portfolio. For the new platform deals we closed in the September quarter, the weighted average senior leverage level was 3.6x debt to EBITDA and the weighted average loan-to-value level was 36%, resulting in significant equity capital cushion below our debt. Over the past 12 months, new platform originations have averaged senior leverage of 3.5x debt to EBITDA and 38% loan-to-value, which highlights our consistent track record of conservative underwriting on new originations. As Michael mentioned earlier, we believe our balance sheet is well positioned with low leverage and significant liquidity, which allows us to continue to be active and opportunistic in all economic environments. I will now hand the call over to Chris to review the specifics of our financial performance for the quarter. Chris Rehberger: Thanks, Josh. Specific to our performance for the quarter, pretax net investment income was $34 million or $0.61 per share. For the quarter, total investment income increased to $56.9 million from $55.9 million in the prior quarter. The increase was driven primarily by a $1.3 million increase in fees and other income, which was offset by a decrease of approximately $500,000 in PIK income compared to the prior quarter. Importantly, PIK as a percentage of our total investment income decreased to 4.9% as compared to 5.8% in the prior quarter. Additionally, as of the end of the quarter, our loans on nonaccrual represented 1% of our investment portfolio at fair value. During the quarter, we paid out a $0.58 per share regular dividend and a $0.06 per share supplemental dividend. For the December 2025 quarter, our Board has declared a total of $0.58 per share in regular dividends payable monthly in each of October, November and December 2025, while also maintaining the supplemental dividend at $0.06 per share, bringing total dividends to $0.64 per share for the December 2025 quarter. We continued our consistent track record of regular dividend coverage with 104% coverage for the 12 months ended September 30, 2025, and 110% cumulative coverage since the launch of our credit strategy. We are confident in our ability to continue to distribute quarterly supplemental dividends based upon our current UTI balance of $1.13 per share and the expectation that we will continue to harvest gains over time from our sizable unrealized appreciation balance on the equity portfolio. LTM operating leverage ended the quarter at 1.6%, a slight decrease from the prior quarter. Our operating leverage is significantly better than the BDC industry average of approximately 2.7%, and we believe this metric speaks to the benefits of the internally managed BDC model and our absolute alignment with shareholders. The internally managed model has and will continue to produce real fixed cost leverage while also allowing for significant resources to be invested in people and infrastructure as we continue to grow and manage a best-in-class BDC. The company's NAV per share at the end of the quarter was $16.62 per share, an increase from $16.59 per share in the prior quarter. The primary driver of the NAV per share increase was the accretion from the ATM equity program during the quarter. As Michael mentioned, during the quarter, we successfully raised $350 million in new 5.95% unsecured notes due September 23. Subsequent to quarter end, the proceeds from these notes were partially used to redeem in full our $71.9 million August 2028 notes and $150 million October 2026 notes with no make-whole payment required on either redemption. The cost of the $350 million notes at 5.95% fixed was approximately breakeven with the cost of the debt we subsequently paid off, inclusive of the secured credit facilities. We view this capital raise as a highly favorable outcome for both the company and its shareholders as it strengthens our balance sheet and positions us to thrive across a wide range of capital markets environments. We are pleased to report that our balance sheet liquidity is robust with approximately $719 million in cash and undrawn leverage commitments on our 2 credit facilities, which represents over 2x the $334 million of unfunded commitments we had across our portfolio as of the end of the quarter. Our regulatory leverage ended the quarter at a debt-to-equity ratio of 0.91:1, up from 0.82:1 as of the prior quarter. However, given that the $350 million bond issuance occurred during the September quarter and the bond redemptions occurred subsequent to quarter end, we ended the quarter with significant cash on the balance sheet. Net leverage, which assumes paying down outstanding debt liabilities with cash on hand as of 9/30 would result in pro forma regulatory leverage of 0.82x. While our optimal target leverage continues to be in the 0.8 to 0.95 range, we continue to weigh the impacts of the current macroeconomic landscape and intend to maintain a regulatory leverage cushion, which will mitigate capital markets volatility. We will continue to methodically and opportunistically raise secured and unsecured debt capital as well as equity capital through our ATM program to ensure we maintain significant liquidity and conservative balance sheet construction with adequate covenant cushions. I will now hand the call back to Michael for some final comments. Michael Sarner: Thank you, Chris, Josh and Amy and all the employees who help us tell the story each and every quarter. And thank you, everyone, for joining us today. This concludes our prepared remarks. Operator, we are ready to open the lines up for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Brian McKenna of Citizens. Brian Mckenna: So it's clearly a strong quarter of origination activity. It does feel like industry-wide M&A has picked up pretty meaningfully even since the last earnings call. So what does the pipeline look like heading into year-end? And then is there a way to think about the size of the pipeline today relative to the last quarter or 2 or even a year ago? Michael Sarner: Yes. Look, we definitely have seen, at least in these 4 walls, a significant uptick just in the size of the pipeline, top of the funnel. I think we did $248 million this past quarter and had 7 platform companies and 10 add-ons. I think the add-ons has been a steady drip, and that's been pretty consistent. I think we'll continue to see 8 to 12 transactions a quarter. From the new origination side, I think this coming quarter, the 12/31 is probably going to look based on what we're seeing today, similar volume to what we saw in the 9/30 quarter. And then looking ahead, it just feels like the -- our principals, MDs, we've made significant headway with sponsor activity, and we continue to see a lot of their quality deals. And so we don't really see any reason for the growth to slow down. So I think where we used to originate $100 million to $125 million a quarter, I think we're doing something closer to $150 million to $200 million on a normal quarter. Brian Mckenna: Okay. That's helpful. And then just for my follow-up, Michael, you've been CEO for a few quarters now. Can you just remind us of your top priorities for the firm heading into calendar 2026? You've also made some early changes like moving to a monthly regular dividend. But is there anything else you can do that ultimately benefit shareholders? Michael Sarner: Yes. We've mentioned on previous calls that we're looking to monetize our investment platform to enhance our competitive position in the market as well as potentially bring in fees and additional economics for what we do. So certainly, that -- we spent quite a bit of time on the road. We think that -- I think I said in the previous call that we have potential opportunities in front of us that could be closing in the near time. So that's something that we're looking at. We since we -- in the last 8 months, we've grown a portfolio operations group internally. That's something that was -- I thought was an important part of the process to scalability. And we continue to look to add originators to the platform. So I think it's just building for growth because coupling -- taking these 2 questions together, we've seen really remarkable growth on deal volume, which doesn't always portend to deals that are closed, but getting that funnel larger leads to better quality deals. So we're definitely -- there's a focus internally. Our operating leverage is quite low in the market, but we are looking to continually add to our staff so that we can be ready for the growth that comes. Operator: Our next question comes from the line of Doug Harter of UBS. Douglas Harter: I'm hoping you could just talk a little bit more about credit quality and kind of what you're seeing in the underlying portfolio companies. Any change in kind of their growth or profitability and just kind of how you're thinking about the credit outlook over the coming quarters? Michael Sarner: Yes, I'll give my remarks, and I think, Josh, you should as well. But I mean we just looked at it over the last 12 months, the growth in EBITDA and revenue of our existing portfolio company has been about 10% growth annually, which is still very healthy. If you look back maybe 18 months, 24 months ago, it might have been something closer to 15%. So it slowed a bit. But when we're looking at our individual portfolio companies, there they're performing extremely well. We're not really seeing any one particular industry that has issues. The one thing that's gotten more difficult, I think, in the boardroom is just the changing environment in terms of what's coming out of the White House and how it impacts potential industries on a go-forward basis, right? Things -- nothing has stayed the same. I feel like we've got our nose buried in the news more today than we ever have to make certain that we understand the impact on our portfolio, but also what's investable going forward. Josh, do you have anything? Josh Weinstein: Yes. I mean, look, we have over 100 portfolio companies in the lower middle market. So obviously, not all of them are going to perform really well or as expected. But we have created a very diversified by industry and granular by company portfolio. So feel pretty comfortable with where we sit today. Michael Sarner: And the other thing I'd add is like when we look at the deals we're doing, as competitive as the environment has been, which has led to spread compression, the loan-to-value and the leverage of these deals has stayed very conservative and consistent. I mean we look at it, I think, over the last 9 months, we've seen, I think it was 36% loan-to-value and 3.4x leverage. So companies aren't stretching. They're just basically the portfolio -- the borrowers are getting lower spreads for sort of the same amount of debt. So that's -- for us, that also in a market where there was certainly a feeding frenzy over the last 12 months, the fact that, that discipline maintained is a strong -- project strong going forward. Operator: Our next question comes from the line of Mickey Schleien of Clear Street. Mickey Schleien: In your internal ratings, you're showing about 9% of the debt portfolio performing below expectations. It looks like those are names like Bradner, Apple Roofing, [ Monster Script ], LL Flex, U.S. Telepacific and Everest. How do you describe the trends overall affecting those companies and their outlook? Michael Sarner: Well, let me -- I want to say one thing. When we look at our watch list and you compare us to the upper middle market, one thing to note is the leverage levels that we get in at are much lower than others. So they're 2.5 or 3x, and they have covenant cushions of 30%. So when we have a default in our portfolio, these credits are defaulting somewhere between 4 and 6x. So I'd say that to sort of frame that these companies aren't in dire situations when they show up on our watch list. They are obviously having issues, but they have private equity sponsors that are supporting the deals. In terms of the individual. Josh Weinstein: I kind of consistent with what I was just talking about, it's obviously a diversified portfolio, and we obviously keep track on the industry breakouts of the underperforming assets, but we don't see any real consistency or correlation. There's a lot of idiosyncratic issues that have happened at some of these lower middle market companies, which candidly is unexpected into which ones we're going to see them, but we know in a -- a large broad portfolio that we're going to see them. So we monitor them by industry, but we don't see sort of correlations in our underperforming assets. Mickey Schleien: Yes, that's what I was getting at actually. And on the flip side, you have about 20% of the portfolio performing above expectations, which is great, but that could imply meaningful prepayment risk. What is your gauge of that risk? And how much could that impact the portfolio's yield, obviously, excluding the fees that you could collect on those prepayments? Michael Sarner: So I think this goes back to our discipline on granularity. When we were $500 million fund of assets, we were originating $12 million or $13 million per asset. Today, we're $2 billion, and we're still originating around $15 million, $16 million per hold. So really, we -- I don't -- I think that cuts from both prepayment risk as well as nonaccrual risk, the portfolio is granular enough that no one credit is going to have a material impact. And in fact, in the 6/3 quarter, we had -- I can't remember what company it was, but we got repaid, I think it was in the tune of what, $50 million came back. And we still posted $0.61 this quarter. So we don't live in fear of that. Our top 5 is not significantly larger than the rest of the portfolio, and that's by design. Chris Rehberger: Yes, Mickey, if you look back in history, the other thing I would add is we've sort of had over the past 2 to 3 years, consistently 15% to 20% of the portfolio in that investment rating 1 bucket for outperformance. And that is not correlated directly to sort of 20% of prepayment per year. Our prepayment is more like 10% to 12% per year as a percentage of the portfolio. So it's an indication of performance, but it doesn't necessarily indicate that all of those are going to prepay in the near term. Mickey Schleien: No, I understand. It's just that you also mentioned the tight spread environment, which I clearly agree with, and we're seeing that across not only your lower middle market, but as well in the middle market and the upper middle market. So I was trying to gauge if that was a consideration. Michael Sarner: Well, kind of given a breakdown, by the way. So over the last 6 months, our spread has actually stayed pretty constant. And give you an indication for this quarter, we had 7 new portfolio companies. The range of yield or spread was 5.50% at the lowest and 7.25% at the highest. The add-on activity was at 6.7%, so blended 6.5%. So I don't think it's meaningfully off of our pace. The other part I would notice that so one of our -- probably our top performing portfolio company, our largest hold is due to its equity appreciation. So if that exit, the debt hold is small, the equity is non-yielding for the most part, right? So you'll redeploy that capital into debt yields. So that could actually be an uptick as well as obviously an increase to our UTI bucket. Mickey Schleien: I understand. And in terms of the change of the portfolio's weighted average yield during the quarter, which fell about 30 basis points in a quarter where SOFR was stable. Was that due to the spread environment that you're talking about? Or was it due to maybe going up market a little bit toward higher quality names with lower spreads? Or could you give us some insight into that? Michael Sarner: Sure, sure. I actually would go back in time. If you look at the 3/31 quarter, our spread was -- our total yield was 11.68%. It went up to 11.83% in the 6/30 quarter, primarily because we had one large exit that I just mentioned that had 16 basis points of accelerated OID. So it was actually a bit juice. So this quarter, it came back to the same 11.68%, but then we did see 8 basis points reduction due to nonaccruals and just 5 basis points based on compression. Mickey Schleien: Okay. And lastly for me, could you give us some guidance on stock-based compensation and salary expense for the fourth calendar quarter, the quarter we're in right now, given that there's some seasonality that would be helpful for us. Chris Rehberger: So there won't be seasonality on the RSU expense. So that should be consistent with the current quarter. For the cash compensation, that is really going to be dependent on our performance during the quarter. I would say that it's somewhere between flat with 9/30 and maybe slightly elevated based on some of the staffing initiatives that Michael laid out. So that's -- but it's really dependent on where we -- how we perform for the quarter and how much bonus accrual we end up taking. Operator: Our next question comes from the line of Erik Zwick of Lucid Capital Markets. Erik Zwick: I wanted to follow up with a kind of a question on the credit outlook you provided. And just curious, you mentioned that the top of the funnel for originations has continued to expand, and there are maybe a couple of pockets of the economy that are showing some weakness now. So as you evaluate these new opportunities, are there any industries or segments that you're maybe kind of looking at a little bit more with a more kind of discerning eye or staying away from that maybe you weren't 12 months ago? Michael Sarner: Well, I'd start off by saying the area that -- and it's a very diverse is health care that there's just with the big beautiful bill that came out before, not quite understanding where Medicare and Medicaid reimbursement might come. That is something that historically we liked quite a bit. And now it's not that it's on a no-fly list, but it requires a deep dive to understand how that's going to play out. I'm not sure there's any other like industries that we're just staying away from completely, Josh? Josh Weinstein: I mean government-funded companies, sponsored companies. Those are tough for us right now. But we're -- look, I mean, we're generalists. That being said, when we look at dynamic industries like health care or government, we like to partner with private equity groups that have a lot of expertise, so we can piggyback off that expertise. And so when we do deals in more dynamic industries, Typically, we're doing them with guys that were -- that have been investing in that space for years, given our generalist at til. So that -- and then we also structure around those types of risks. We may -- like you talked about being more discerning, we'll do that with -- in regards to adding spread and then also probably more importantly, reducing leverage and tightening up structure on deals to do deals in industries that we're a little bit more concerned about. Michael Sarner: Another thing to notice is that with our operating leverage has come down, obviously, we've grown our portfolio and our funnel has gotten larger. So we can be just generally speaking, more discerning. We've started -- we have the ability now with our cost of capital to originate deals that are $550 million, $575 million. And I always say to these guys, like 4 years ago, our deals needed to be $750 million and above, and it was $650 million. So today, we can see sort of the whole gamut of investments in our space. And we can opt out of the ones that have hair on and originate the ones that are just -- when we're forced ranking deals that are in the same industry that we feel have the most competitive advantages. Erik Zwick: I appreciate the color. And just one more for me. Mike, when you're talking about building for growth and continuing to add new originators, can you just kind of remind me about your kind of strategy for bringing in new originators? Do you typically look for someone -- people that have multiple years of experience or you prefer to bring people fresh in out of maybe collagen and then train them yourself kind of to fit in with Capital Southwest police? Or how do you approach that? Michael Sarner: So we've done it both ways. I would tell you right now, we are sort of aimed to do all of the above. We're certainly looking on the originator side to bring in another resource to cover one of the coasts that we don't cover quite as strong as we'd like to. We're bringing in several people on the analyst side to start supporting the pyramid. And we're also looking for another Operations VP. I kind of noticed earlier, that's a department that we feel like adds a lot of value. And when we say that, we -- the operations group works alongside our deal team. So we get basically 2 opinions when we come into the boardroom to make better decisions before we put good money after bad. So I actually think it's sort of up and down the organization. I think what we're seeing today, we have enough staff to support it. But where we're going, it's going to require just a more scalable infrastructure. Operator: Our next question comes from the line of John Hecht of Jefferies. John Hecht: The first one is you guys have on the margin, made some -- you've added the bond, you've used your ATM, you've got your SBIC. So you've got a diverse set of sourcing. Anything we should think about kind of as we go into 2020 -- well, calendar year 2026 about the mix of your capital structure and about how that might be influenced by interest rate changes? Chris Rehberger: So I don't think so. If you look at -- we obviously, as we mentioned, we did the $350 million unsecured. We redeemed those prior 2 bonds. We're in a really good situation from a liquidity perspective. I think we'll continue to use the SBIC. That will be a main source of sort of new capital for calendar year 2026 and continue to create flexibility under our secured credit facilities to make sure that we have adequate liquidity. But I don't think that you'll see a major shift from sort of where we sit today in our philosophy on the mix of unsecured debt, secured debt and SBIC. John Hecht: Okay. And then a follow-up question. You guys mentioned at the beginning of the call that seeing a lot of competition from both banks and nonbanks. I'm wondering, has that changed just in light of some of these idiosyncratic events in the bond market over the last few weeks? Josh Weinstein: It's hard to tell in real time because we propose on deals consistently. But like -- yes, I mean, there's been a little bit of firming up in the market, but I don't think it's a little early to say it's widespread. Operator: Our next question comes from the line of Robert Dodd of Raymond James. Robert Dodd: In your prepared remarks, no, I think obviously looking to monetize the investment platform via asset management. Correct me if I'm wrong, it seems like you're indicating there could be something on the table on that front within the next 12 months or something like that. So maybe I was reading too much into your wording, but if you could give us any more color there. And I mean, obviously, that would be an excellent low capital miss given you'd just be using the predominantly the staffing you already have -- would there be any -- yes, sorry, go ahead. Michael Sarner: Look, yes, look, these processes tend to take a lot longer than you hope or you think going in. Yes, it definitely answers like we have a direction. I think backing up, we've been seeking out partners to help grow and I said monetize on our investment platform that we've built over the last 10 years. And I think been on the road 3 years doing it, and I think we finally sort of to hone on the right structure and found potentially a partner that is someone that's like-minded. I don't have anything to announce right now, but we're hopeful as we keep pushing along that, that will be something that we can make an announcement, and it would be net helpful to this organization going forward. Robert Dodd: Got it. Got it. Then just another -- any -- has there been any changes in thought on -- you mentioned the equity co-invest where you've got a really good track record and unrealized appreciation in the portfolio. I mean, at the margin as spreads come in a little bit, within your end markets. Is there any appetite to maybe tweak the amount that goes into equity up a little bit? I mean if the spreads tighter and it's a good equity story, does it make sense to allocate a little bit more to that side of the book to kind of improve the total return or IRR over the life of an asset if you're giving up a little bit on a spread for a high-quality business? Michael Sarner: Yes. It's a good question, and it's something that we grapple with internally. As our hold sizes get larger, but we're still playing in the same bailiwick. Our debt check will probably be a larger percentage of the total invested capital with equity still being in the usually $0.5 million to $1.5 million. We do have an interest in doing so. I think that the way you get that accomplished is potentially seeing more non-sponsored deals, which we do see a pipeline of non-sponsored deals, which require usually it's a smaller debt check and a larger equity check. But a lot of those deals have a lot of hair. And so I think the old saying we got to kiss a lot of frogs there. So I think we -- that is -- when I talked about scalability, that is an area we may add some more resources to be able to do so. It does fit nicely in our business strategy because we are our SBA, right? Those are usually going to be the small to smaller businesses. And so the answer is yes, we're around 9% equity today. I would like to see it grow. I don't think that's going to happen in the next 6 to 12 months. But I think over the next 24 to 36 months, that's something that we are geared toward working towards. Operator: Our next question comes from the line of [ Dylan Hynes ] of B. Riley Securities. Unknown Analyst: I was just wondering, so while rate cuts are slowing, if your commitments growth maintains moving forward, do you expect the yield dilution to be roughly the same quarter-over-quarter as it was from last quarter to this quarter? Michael Sarner: It's a tough question to answer. I mean we are -- over the last 3 quarters, as we noted, we haven't seen that degradation. The deals that we are seeing in our pipeline for this quarter and maybe we're working on for the subsequent quarter, probably similar yield profiles. So I don't see the yields coming down. I think also some of the activity we're working on might allow us to continue to either hold or improve our spreads going forward, some of the kind of the other activities we're working on. So yes, I don't think -- I'm not expecting over the -- from a spread perspective. On the base rate, right, obviously, with SOFR, that's coming down. That's out of our control. But we built a portfolio on an income statement, we think that's positioned well, both with our regular dividend as well as our UTI bucket. Operator: Thank you I'm showing no further questions at this time. I would now like to turn it back to Michael Sarner for closing remarks. Michael Sarner: Well, we appreciate everybody joining us today. We look forward to speaking to you in 3 months. Have a good weekend. Operator: All right. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Neuronetics 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, Mark Klausner, Investor Relations. Please go ahead. Mark Klausner: Good morning, and thank you for joining us for the Neuronetics Third Quarter 2025 Conference Call. Joining me on today's call are Neuronetics’ President and Chief Executive Officer, Keith Sullivan; and Steven Pfanstiel, Neuronetics’ Chief Financial Officer. Before I begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to our business, strategy, financial and revenue guidance, the Greenbrook integration and other operational issues and metrics. Actual results can differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business. For a discussion of risks and uncertainties associated with the Neuronetics business, I encourage you to review the company's filings with the Securities and Exchange Commission, including the company's quarterly report on Form 10-Q, which was filed premarket today. The company disclaims any obligation to update any forward-looking statements made during the course of this call, except as required by law. During the call, we'll also discuss certain information on a non-GAAP basis, including EBITDA. Management believes that non-GAAP financial information taken in conjunction with U.S. GAAP financial measures provide useful information for both management and investors by excluding certain noncash and other expenses that are not indicative of trends in our operating results. Management uses non-GAAP financial measures to compare our performance relative to forecast and strategic plans to benchmark our performance externally against competitors and for certain compensation decisions. Reconciliations between U.S. GAAP and non-GAAP results are presented in the tables accompanying our press release, which can be viewed on our website. With that, it's my pleasure to turn the call over to Neuronetics' President and Chief Executive Officer, Keith Sullivan. Keith Sullivan: Thanks, Mark. Good morning, and thank you for joining us today. I'll begin by providing an overview of the third quarter performance and key operational updates. Steve Pfanstiel will then review our financial results, and I will conclude with some comments before turning to Q&A. In the third quarter, we built real momentum as we work through the integration and optimization of our combined operations. We are finding opportunities to improve efficiencies, take advantage of our scale and streamline operations to capture the full value of the combined businesses. Our recently announced partnership with Elite DNA is a great example of this, which I'll provide more details on later in the call. Total revenue was $37.3 million, up 11% on a pro forma basis compared to prior year quarter. This growth was primarily driven by strong performance at our Greenbrook clinics, which generated $21.8 million in revenue, up 25% on an adjusted pro forma basis compared to the prior year quarter. Our integration efforts are delivering high treatment volumes across the NeuroStar TMS and SPRAVATO patients. Within the NeuroStar business, we had a solid quarter for system sales with 40 systems shipped, an average selling price above our target for the third quarter in a row. That tells us customers see real value in our technology and support. Importantly, total NeuroStar treatment session utilization in the third quarter grew 11% versus the prior year on a pro forma basis. Beyond our revenue performance, we made significant strides on our path to cash flow positivity. That progress comes from careful expense management and better cash collections. Now turning to an update on our achievements during the third quarter. First, our Greenbrook growth strategy delivered strong results and continues to be a significant opportunity moving forward. Contributing to the growth is our regional account manager or RAM program. The optimization of the RAMs continues to produce results. As part of the initiative to build awareness among referring physicians, we executed a targeted outreach campaign during the third quarter. We quickly scheduled over 350 physician meetings for our RAM team, most of which took place in the third quarter, with the remainder in the fourth quarter. These educational sessions are already building awareness and driving results. To build on this momentum, we have dedicated 2 full-time intake team members to this effort, equipping them with educational materials that will make it simple for the physicians to refer patients to Greenbrook clinics. We have also seen notable enhancement in patient conversion rates through the coordination of automated patient transfer process, QR codes and the Greenbrook intake team. This process engages patients while they are still at the referring physician's office, which significantly increases the likelihood that they will follow through with the treatment in a Greenbrook clinic. In the third quarter alone, patients referred through the RAMs totaled more than 2,200. Our SPRAVATO rollout remains on track with 84 of the 89 SPRAVATO-eligible clinics now offering the therapy, and we are on pace for a full rollout by year-end. As we scale the program, we learned a lot about the economics of billing methods of Buy & Bill versus administer and observe across our network, mainly that reimbursement varies by contract, by state and by clinic. Based on these insights, we have expanded Buy & Bill where the economics are favorable. And this quarter, we added this billing method in Connecticut, Texas, Missouri, California and Virginia. We can now use the best model for each patient and location, allowing us to drive increased sequential SPRAVATO treatment session volume while delivering stronger margins. Turning to our second focused area, our Better Me Provider Program. This remains a key growth driver. We now have nearly 425 active BMP sites with another 100 sites working towards qualification. The numbers prove this works. BMP sites respond to patients faster and are more knowledgeable about NeuroStar TMS, resulting in them treating significantly more patients per quarter than the non-BMP practices. Our NeuroStar Provider Connection program keeps building momentum. As I mentioned last quarter, this program takes what is working at Greenbrook and applies it to our NeuroStar customers. Through this initiative, our practice development managers are building awareness of NeuroStar TMS within primary care settings, where 69% of patients with depression are currently being treated. Since we launched this program in April, we have hosted over 300 primary care physician meetings, educating approximately 3,000 providers on NeuroStar TMS and the results it can deliver for their patients. The impact has been significant. Many of these doctors did not know about NeuroStar TMS and are now excited to have a new option for patients who have not responded to antidepressants. We do not just educate them about NeuroStar TMS, we help connect them with the NeuroStar provider in their area. Many of the primary care physicians we talk to prefer to send patients to the BMP sites because of their commitment to patient responsiveness and education. The feedback I have heard from our customers validates this approach. For example, Dr. Ken Pages, who operates a private practice in Tampa, Florida, told us that the NeuroStar Provider Connection Program has been the most valuable resource we have offered to help grow his practice. He explained that having our representative personally visit local psychiatrists, therapists and primary care office to share information about NeuroStar TMS has been a home run for his business. Dr. Pages noted that for providers who have never heard of NeuroStar TMS, it is a great introduction. And for those who have referred to him in the past, it serves as a helpful reminder to keep their treatment option in mind for patients who could benefit from it. In addition to our outbound cold calling team, we have also launched a direct-to-provider ad campaign that has generated significant interest from PCPs who have requested a meeting with our local NeuroStar practice development manager. Now turning to our third strategic priority, operational excellence and cash optimization. We made real progress here this quarter. Since closing the Greenbrook acquisition, we have been improving efficiency across the network and several initiatives are driving results. For example, our self-check-in kiosks. As of mid-November, the kiosks are live in over 30 centers. More locations are coming online each week, and we are on track for a full network rollout by mid-November. Adoption has been exceptional. Nearly every patient uses the kiosk for check-in and payment. The impact was immediate. Sites saw an increase in collection in the first week after installation. We have integrated the kiosks with our EMR system, so paperwork gets completed right on the kiosk. Check-in is faster. Front desk bottlenecks are reduced, and this enables our staff to focus more on direct patient care. The feedback has been positive. These tools led our technicians and intake coordinators to care for more patients daily without adding headcount. We also plan to leverage AI and digital forms in the intake process. These tools will reduce the traditional 45-minute consultation call by enabling patients to enter personal health information on their own time from home, reducing the friction and improving the patient experience while freeing up resources. While technology is enabling efficiency, we are also taking a hard look at our organizational structure. Last quarter, I mentioned that we had brought in a consultant to review operations across the Greenbrook network. That review found opportunities to eliminate overlapping responsibilities and reduce management layers. Many of these changes are being implemented. For example, we have moved staff from our intake team to our provider connection group to support growth initiatives without additional headcount. We have identified several other opportunities that will be implemented in the fourth quarter. Revenue cycle management has been a major priority, and we are seeing real gains. We have accelerated collection timing compared to earlier quarters. We are also shifting more patient payments to time of service through the kiosks, which speed up cash collections. For the first time, we collected more cash in the quarter than we booked as revenue in the quarter. That is real proof that the improvements we have made are working. While we have made progress, we are not done. The entire executive team is dedicated to further improvements. Beyond these 3 priorities, we also focused on expanding treatment access and advancing our clinical evidence. We recently submitted a filing to the FDA, which would broaden the eligible patient population. I'm also pleased to share that as of October 1, New York State Medicaid began covering NeuroStar TMS therapy for adults with major depressive disorder, expanding access to over 5 million members statewide. Together, these regulatory and reimbursement advancements show growing recognition of NeuroStar TMS as an effective treatment option and reflect our commitment to making sure patients who need NeuroStar therapy can access it. To wrap up, our third quarter results demonstrate solid execution across our priorities. The Greenbrook integration keeps beating our expectations. The BMP program is scaling effectively, and our operational improvements are producing progress towards cash flow positivity. I am confident in our team's ability to execute and in the value we are creating for both patients and shareholders. I'd like to turn the call over to our CFO, Steve Pfanstiel, for a financial update. Steven Pfanstiel: Thanks, Keith, and good morning, everyone. Unless otherwise noted, all performance comparisons are being made for the third quarter of 2025 versus the third quarter of 2024. Total revenue in the third quarter of 2025 was $37.3 million, an increase of 101% compared to the revenue of $18.5 million in the third quarter of 2024. The increase is primarily driven by the inclusion of Greenbrook operations following our acquisition in December 2024. On an adjusted pro forma basis, which includes adjusting for both the impact of the Greenbrook acquisition and site closures, third quarter revenue in 2025 increased by 11% versus the prior year. Total revenue from our NeuroStar business, which includes our system revenue as well as our treatment session revenue was $15.5 million in the third quarter of 2025. On a pro forma basis, taking into account the impact of the intercompany revenue, this represents a decrease of 4% versus the prior year. The change was primarily driven by the previously announced realignment of our capital team to focus on strategic higher growth accounts and a change in customer purchasing patterns for treatment sessions in 2025 versus 2024. U.S. NeuroStar System revenue was $3.5 million in the third quarter of 2025 and included shipment of a total of 40 systems. The third quarter also represented our third consecutive quarter of system ASP greater than our target, demonstrating the value of our system and its features. U.S. treatment session revenue was $10.5 million in the third quarter of 2025. As Keith mentioned, third quarter NeuroStar treatment session utilization increased 11% versus the prior year and treatment session purchases in the third quarter were closely aligned with utilization. The decrease in third quarter treatment session revenue versus the prior year is largely due to the impact of a change in customer purchasing patterns, which led to increased customer inventory levels during 2024. U.S. clinic revenue was $21.8 million for the 3 months ended September 30, 2025, a 25% adjusted pro forma increase, driven by growth in treatment sessions across both NeuroStar TMS and SPRAVATO patients. SPRAVATO volumes were up sequentially in the third quarter versus the second quarter, while we also shifted to a higher percentage of administer and observed compared to Buy & Bill. This reflects our strategy of optimizing our SPRAVATO offering to drive the strongest profitability, which we evaluate on a by-state, payer and clinic basis. Gross margin was 45.9% compared to 75.6% in the prior year quarter. This change in gross margin was primarily a result of the inclusion of Greenbrook's clinic business, which operates at a lower margin. Operating expenses during the quarter were $24.4 million, an increase of $2.7 million or 12% compared to $21.7 million in the third quarter of 2024. The increase was primarily attributable to the inclusion of Greenbrook. During the quarter, we incurred approximately $1.4 million of noncash stock-based compensation expense. Net loss for the quarter was $9.4 million or $0.13 per share as compared to a net loss of $13.3 million or $0.44 per share in the prior year quarter. Third quarter 2025 EBITDA was negative $6.4 million as compared to negative $11.6 million in the prior year. Turning to the balance sheet. As of September 30, 2025, total cash was $34.5 million, consisting of cash and cash equivalents of $28 million and restricted cash of $6.5 million. As previously communicated in our August earnings call, we became eligible and received an additional $10 million of funding under our existing debt agreement with Perceptive Advisors. We became eligible for those funds as a result of achieving required revenue conditions under the Tranche 2 funds. We remain eligible for an additional $5 million of funds under the Tranche 2 funds. Additionally, within the third quarter, a total of 2.3 million shares were sold through the company's at-the-market facility, contributing net proceeds of $8 million. The addition of these funds strengthens our cash position, providing us with strategic financial flexibility for the future. Turning to cash flow. I am very pleased with our progress this quarter. Our cash used in operations for the third quarter was $0.8 million, which represents our second consecutive quarter of substantial improvement. To put this in perspective, our operating cash burn has decreased from $17 million in Q1 to $3.5 million in Q2 and now just $0.8 million in Q3. This steady sequential improvement validates the operational initiatives we have implemented. The progress reflects multiple factors coming together. Revenue cycle management improvements are accelerating the timing of current collections as well as ensuring collection of longer age receivables. Additionally, expense discipline is paying off and operational efficiencies across Greenbrook and Neuronetics are taking hold. Now turning to guidance. For the fourth quarter, we expect net revenue of between $40 million to $43 million. For the full year 2025, we now expect total revenue of between $147 million and $150 million compared to previous guidance of $149 million and $155 million. The change in guidance is primarily driven by our expectations around SPRAVATO Buy & Bill usage. As we have learned more about the state and payer reimbursement dynamics, we have adjusted our SPRAVATO offering to include the Buy & Bill option only where reimbursement makes financial sense to do so. For gross margin, we now expect our full year to be between 47% and 49% versus our prior guidance of approximately 48% to 50%. The change is driven by a shift in the overall mix of the business. We continue to project operating expenses of between $100 million and $105 million for the full year. We continue to target positive cash flow from operations in the fourth quarter of 2025 with a projected range of between $2 million of positive and $2 million of negative operating cash flow. We further project year-end 2025 total cash, consisting of cash, cash equivalents and restricted cash to be in the range of $32 million and $36 million. I will now turn it back to Keith for his closing remarks. Keith Sullivan: Thank you, Steve. Looking ahead, we are focused on driving growth across the business while being smart stewards of capital and cash collections. Before I end, I want to highlight 2 exciting near-term opportunities within the NeuroStar business. As outlined in last year's Q3 earnings call, one of the key benefits of the Greenbrook transaction is that our scale allows us to provide broader service offerings to all of our customers. By leveraging our central intake center operation, we can help manage patient calls and education more efficiently, potentially increasing conversion rates and reducing the administrative burden required to meet the demands of NeuroStar TMS. Late in the third quarter, we finalized a 3-year agreement to be the sole provider of TMS systems within Elite DNA Behavioral Health, one of Florida's largest and fastest-growing mental health networks, which has over 30 clinics. As part of this agreement, through a new wholly-owned subsidiary, we would utilize the intake center to pilot a fee-for-service offering to Elite DNA, which would include processing patient PHQ-10 responses as well as conducting and scheduling consultations and preassessments. In another important partnership, we deepened our relationship with Transformations Care Network, which operates 72 clinics in the Northeastern United States. Through our service offerings, we can accelerate time to treatment for patients by leveraging the Greenbrook Intake Center's expertise in performing benefits investigations. These partnerships will expand NeuroStar's footprint and will bring advanced NeuroStar TMS access to thousands of patients through a scalable, systemized model of care. Before we open up the call for questions, I would like to comment on the announcement today that I intend to retire from Neuronetics on June 30, 2026. I'm extremely proud of what we have accomplished in the 5-plus years with the company. These accomplishments include the acquisition of Greenbrook TMS, which has vertically integrated the company's value chain and the advancements of the NeuroStar TMS technology and the millions of treatments we have performed that have saved so many lives. Our performance in the third quarter, combined with the strength of our balance sheet has us entering the fourth quarter and 2026 with tremendous momentum and has the company well positioned for long-term growth. I am confident in the company's ability to execute on our priorities and create meaningful value for both our patients and our shareholders. I look forward to participating in the search for my successor and to working closely with the new CEO once on board to ensure a seamless transition. With that, I'd like to turn the call over to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of William Plovanic of Canaccord Genuity. William Plovanic: Just to kick it off, I was wondering, definitely, you're seeing solid growth on pro forma in the Greenbrook sites and maybe less so in the former NeuroStar sites. I'm just kind of curious what's really driving those dynamics? Steven Pfanstiel: Yes, Bill, thanks for the question. I think on the Greenbrook side, certainly, we've given out kind of our clinic activity and looking at that quarter-over-quarter, you could see that's up nearly 28% year-over-year. I think that is leaning into SPRAVATO, inclusive of the Buy & Bill offering, although we're being very smart about how we optimize that. But also, we continue to see growth on the TMS segment as well. So I think in general, we've got the right clinics to be driving that growth. We're very focused on having a nice extra growth driver in SPRAVATO, especially with B&B. But we just see kind of continued strong growth in Greenbrook driving along. On the NeuroStar side of the business, I think the big thing to remember is we look at kind of, hey, what are the actual treatment utilization. So how many times of our systems being used year-over-year. What we're seeing is that's more than double digit year-over-year compared to Q3 a year ago. I think the change and why we're not seeing that happen translate to revenue growth is that this year, we're seeing those treatment session usage match the purchases. That makes sense. It means our customers are keeping a pretty steady level of treatment session inventory. This is different from 2024, where we saw customers strategically increasing inventory levels. Some of that was their own purchasing processes. There were some marketing, other incentives that drove a little bit of that. But particularly in Q3 of last year, we were still dealing with the impact of the Change Healthcare cyber events, which caused a lot of our customers to shift orders from Q2 into Q3. So in fact, while we're up utilization 11% year-over-year, that's more than offset by the fact that our customers in Q3 of last year bought 13% more than they utilized in Q3. So that's 11 days they increased inventory just in Q3 of last year. So that headwind is really kind of what's driving, I would say, the lack of translation of that utilization increase to the revenue side. I think the positive note is for us is as we enter 2026, we expect it will be with normalized inventory levels, and we wouldn't expect this kind of headwind to reoccur as we get into '26. We'll have normal kind of comparator periods. William Plovanic: Perfect. Okay. And then just on the gross margin dynamics, it's really been different, the reality or the outcomes versus what the expectations were at the time of the Greenbrook merger. And I'm just trying to figure out kind of what changed different than expected? And are there any onetime headwinds kind of hitting things today? How should we think about this? Steven Pfanstiel: Yes. I'll start with the general comment there. When I look at the margin, I really view it as we're kind of a mix of kind of a higher margin and a lower-margin business. If you look at the NeuroStar margins prior to the acquisition, go look Q3 year-to-date, you'd see that our GP margin was just under 75%, right in that mid-70% range. That cost structure for the NeuroStar business largely remains the same today. There's been no significant change there. So really, what's happened is we mixed in this Greenbrook acquisition with the clinic business, we know that's operating at a lower margin. So the big piece in my mind is, okay, as you bring these together, it's understanding that revenue mix and how much are you growing on the NeuroStar side relative to Greenbrook. So trying to bring that together, it's somewhat a math, but really the big picture is what is that revenue mix that's going to drive ultimately that gross profit margin. Now with that said, in the quarter, if I compare, say, Q3 to Q2, we saw a slight decline of about 70 basis points in our overall margin. I would say between Q2 and Q3, these were smaller items, really not significant long-term drivers. We had capital sales that were a little bit higher percent of the NeuroStar sales. We were still optimizing Buy & Bill in Q3. We had some carryover of patients where we know it's just not as advantageous from a reimbursement standpoint. And we had some revenue in Q3 from our Compass collaboration that we had revenue in Q2 that didn't repeat in Q3. If you just excluded that kind of episodic Compass revenue, that would account for 60 of the 70 basis point change we saw between Q2 and Q3. If I think long term, what I'm probably most excited about on the Greenbrook side is we see the opportunity to optimize SPRAVATO, making sure we stick with A&O where that makes financial sense and then expanding B&B where the reimbursement allows us to do that. With the volumes we're seeing, we have some pretty significant leverage that we'll see in the 95 clinics. And that is our focus, getting those 95 clinics as efficient as possible, where we'll be able to leverage provider fees, which are a big part of that cost of goods. But also we're leaning into some of the automation and other things that I think are going to help us continue to drive high patient growth and high treatments, but also do that very cost effectively where we're not having to add cost and in some cases, hopefully reduce costs. William Plovanic: And then lastly, as I think about some of the operational efficiencies you announced that you're finding even a year later after the deal, I was wondering if you can quantify that for us. Is this another $2 million, another $5 million in cost savings? Because I mean you're so close to that cash flow positive, I mean it's a pretty important cost savings. So I'm just trying to wonder if you could quantify that for us. And Keith, I know you'll be around a couple more quarters, so I'm not saying goodbye yet. Keith Sullivan: Thanks, Bill. Steven Pfanstiel: Yes, Bill, I don't think we've specified kind of the total full impact that we can have. We are leaning into, like I said, on a few places where we have -- automation is going to help us. I think the challenge here in the short term, maybe in the next quarter or 2 is there are some places where I think investment is going to make sense short term that's going to drive long-term efficiency here. So the clinic kiosks are one we've talked about that was cost to implement in Q3 and Q4, but that's going to make us more efficient from a scheduling collection standpoint. There's also additional automation we can do. We've just started leaning into patient text alerts. I know that's been around for a little while, but we're adding that into our arsenal as well. So there's going to be investments in Q4 and probably even into Q1 that I think will offset some of those gains. Obviously, we guided -- kept the guidance the same on OpEx. But I do view it as long term, there's still a significant opportunity for cost reduction. And I think we'll provide more detail on that as we get towards next year. Operator: Our next question comes from the line of Adam Maeder of Piper Sandler. Kyle Edward Winborne: This is Kyle Winborne on for Adam. Maybe just to try a little bit more on the treatment session revenue in the quarter. Even when you add back kind of the $2.2 million that was attributable to Greenbrook, it was still down year-over-year. And I understand some of the commentary there, maybe it's a little bit of a comp issue year-over-year with the inventory dynamic. Just curious maybe like what gives you confidence going forward that there's enough resources to kind of drive success in both this business and the Greenbrook business, just kind of to alleviate any worries that like there's a little bit of cannibalization going on there. Just any additional color would be helpful kind of as we think about the treatment session business going forward. Steven Pfanstiel: Yes, absolutely. I think the key piece, and we've added 2 slides to our investor presentation deck towards the back, but we are showing kind of quarterly trends on utilization for the NeuroStar system. And I mentioned that earlier. That's the key to me, are our systems being used more and more for specific treatment sessions, that utilization piece, the fact that we see it at around 11% year-over-year, and we expect to continue to see that type of growth, that gives me just a lot of confidence that we have momentum in this business, and it really is a comp issue that we're dealing with from last year. Otherwise, I wasn't seeing double-digit increases year-over-year, maybe I feel different. It's actually the same on the Greenbrook side. If you look, the clinic visits year-over-year are up almost 28% from Q3 a year ago. Again, that's an incredible momentum we have in the business, not just for SPRAVATO but TMS as well, continuing to grow. Those to me are the kind of the leading signals to say, hey, do I have a healthy business? Do I feel good about, hey, driving to increased revenue growth on the NeuroStar side, but maintaining a high revenue growth on the Greenbrook side. Those are the trends we look at, and that's the type of thing that gives us comfort that we're executing. We're still finding ways to take cost out but continue to drive top line growth. Keith Sullivan: This is Keith. I also think a good indicator for us is what we're seeing on both the RAM referral side and the provider connection. Both of those are gaining traction within the primary care network, and we are seeing a large number of providers who are interested in sending their patients to either a Greenbrook clinic through the RAM program or through provider connection. So I think we have seen that when a provider refers a patient in, they show up at a much higher rate than a patient that we get off of our marketing. So it's very encouraging to see the adoption on both sides. Kyle Edward Winborne: Super helpful color. And then maybe, I guess, last one for me on guidance, the $40 million to $43 million for Q4. I was curious if you could kind of just unpack the different businesses there. Just since this was a little bit below where we were and where the Street was for Q4, just would be helpful to kind of hear how you're thinking about the business trends for these different businesses looking out to the year-end. Steven Pfanstiel: Yes, happy to share a little bit more color. Obviously, we guided to $40 million to $43 million for the fourth quarter, which translates to $147 million to $150 million for the full year. This really reflects, I think, just a couple of items. The biggest piece is really the impact of the SPRAVATO mix between A&O and B&B. We continue to see strong total SPRAVATO growth, but that mix between A&O and B&B is something we have to monitor. In the third quarter, A&O represented about 86% of our SPRAVATO volume. That was up 300 basis points from where we were in Q2. So obviously -- and that's a big revenue driver. In fact, if we had held our percentage of A&O flat from Q2 to Q3, our Q3 revenue would have been $38 million. So that's about a $0.75 million impact of shifting to a higher amount of A&O. We know A&O provides less revenue on a per patient basis. But with A&O, we don't have to cover the cost of the drug, handling the drug, inventory. And as we said, there's just times where B&B just doesn't make financial sense, we don't get the right margin return. So this $147 million to $150 million really reflects that shift of strategy to making sure we optimize that B&B offering. That's something we spent a lot of time on this past quarter, as Keith mentioned, the additional geographies that we're going to launch B&B here or just starting to launch in Q4. We wanted to be very deliberate and take our time on that. I was actually proud in Q3 of how quickly we were able to pivot and shift the percentage of A&O higher, moving in those regions where we just weren't getting the right return on B&B. We moved that very quickly, much more quickly than actually I would have thought. So our updated guidance is really, I think, primarily driven by this assumption of how we see the A&O and B&B mix evolving for the SPRAVATO business. Other than that, I don't think there's a lot of impact from what we've been seeing on the NeuroStar side of the business. Q4 is generally a good growth driver on the NeuroStar side of the business. We do have a little bit of summer seasonality as you look at the month of July and into August. But there's also some positive capital seasonality we see here in Q4, just things lined up for people to do heavier purchases at year-end. So hopefully, that gives you a little color on the trends as we think about the fourth quarter and the full year. Operator: Our next question comes from the line of Daniel Stauder at Citizens. Daniel Stauder: First question I have was just on operating expense. It looks like you're making good progress on the G&A line, but I wanted to ask how we should be thinking about the sales and marketing spend, both as we contemplate fourth quarter and 2026. So from our understanding, the provider connection program should be a more efficient use of your marketing dollar, but just wanted to ask your broader thoughts on this spend and any strategy you have going forward. Steven Pfanstiel: Yes, Danny, I think on the OpEx, obviously, we kept that guidance flat to $100 million and $105 million. We don't break out the selling and marketing relative to the other. That would put our Q4 spend between [ 23% and 28% ] kind of for total OpEx there. I think we're going to continue to drive the cost efficiencies across the board. And those are in selling and marketing in addition to our other G&A pieces. In terms of Q4, I think I'd go back to what I said earlier is there's places where we're going to make investments in patient alerts, other technologies. We're doing some, I think, some great things doing more targeted marketing in several regions for the Greenbrook side of the business that I think could pay off. So for me, it's really a balance of there's some key investments we want to make that are going to drive long-term efficiency, but also things that are going to drive long-term top line growth. So I think as we get into '26, like I said, we'll give a little more color on some of the other efficiencies and cost reductions and where we see OpEx heading. But my commitment here is to make sure that we have great cost control. We're investing where it makes complete sense. But we still know that there are a ton of opportunities here for efficiencies via cost reduction. I just want to be really smart about how we evolve and make sure we put the right investments in place. So as we're reducing costs, we are not sacrificing top line growth. Daniel Stauder: Okay. Appreciate that. And just one follow-up for me. I wanted to ask on the adolescent indication. I think last quarter, you mentioned you saw an uptick in patient starts here and saw some pretty good trends. But I don't think you gave too much color on it today. So I was just curious on what you're seeing there in the third quarter and what we should expect in the rest of '25 and into '26. And also wanted to ask with this indication in mind, are you seeing more of a benefit from the provider connection program for these patients? Keith Sullivan: Thanks, Danny. This is Keith. So on the adolescent front, we are seeing an uptick every single quarter, and a lot of it is starting to come from the provider connection network where these primary care physicians really had no idea that there was another alternative for their younger patients with depression. So I don't think we're breaking out exactly how many patients that is, but it is good growth with it. We also mentioned on the call that we have another submission into the FDA that I think will also be meaningful as soon as we hear back from them. Operator: This concludes the question-and-answer session. I would now like to turn it back to Keith Sullivan for closing remarks. Keith Sullivan: Thank you for your interest in Neuronetics, and we look forward to updating you in the next quarterly call. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.